Why organizations fail

Daewoo founder, Kim Woo-Choong, is reported to be contemplating suicide over his role in the organization' s $80bn downfall in 1999. But what factors could be responsible for bringing such a giant to its knees? Why organizations fail investigates, and shows how many are quick to blame leaders for organizational failure…

It may come as a surprise to learn that Henry Ford went bankrupt five times before he ever made money from making cars. But as we enter the 21st Century, his famous words still ring true. Lessons can be learned from business failures, and practices developed that prevent failure from repeating itself.

As little as 15 years ago Pan American World Airways, better known as Pan Am, was one of the most famous airlines on the planet. Now it no longer exists. Although once a successful organization, it began to struggle to achieve goals and performance began to slip. When combined with bad publicity from security scares, the effects turned out to be terminal.

Companies such as Pan Am provide classic case examples of failure. From examining such cases, current literature has identified four notable areas of failure within organizations.

Failure at the top
When an organization fails, it makes complete sense that the CEO and other leaders become the 'fall guys'. They are the ones who must ultimately bear responsibility for failure. But why can they be blamed?


* Leaders can fail to create a clear vision and direction for the organization
* Leaders can fail to develop an effective business strategy
* Leaders can fail to make tough business decisions
* Leaders may have an unhealthy approach to risk taking.
* Therefore leaders can fail to perform the functions that are most critical to the organizations' current needs.


Customer and marketing failures
Failure can also point towards shortcomings in an organization' s approach to its customers and markets. It is often said that organizations are destined to fail if they do not satisfy the growing needs of their customers. The following factors are often highlighted:


* There may be a lack of knowledge about the competition
* A deterioration of key accounts
* A lack of creativity and innovation
* A poor marketing plan
* This approach believes that understanding failure involves coming to grips with customer and marketing issues in so much as a lack of proficiency in these areas will lead to a rapid change in fortunes.


Financial management failures
Another area of failure involves finance and its management. A multitude of financial factors can be identified which can cause failure:


* Excessive debt
* Excessive overhead
* Ineffective financial control services
* Inability to control organizational spending
* Financial management can have a tremendous impact on an organization' s ability to compete and can serve as an early warning system of potential failure.


System and structural failure
This area of failure is concerned with the internal operating systems that influence an organization' s ability to compete. Failure can be caused by systems and operating practices that do not function properly - for example a management information system that provides out of date information which can then cause leaders to make ill-informed decisions. Other factors include:


* Technology problems
* Unclear performance standards
* Lack of continuous improvement
* Centralized authority structures
* It is argued that organizations fail when their systems fail to stay aligned with current strategies and needs.


All of these four areas can be viewed as pieces of a puzzle about organizational failure, and thus for a clear view of the problem they should be looked at as a whole. An underlying theme seems to be that the leadership style impacts in several key areas and has profound implications on whether or not an organization will succeed.

Survey
For the purposes of this article, the authors carried out a survey on front-line supervisors and managers asking what factors they thought contributed to organizational failure.


One supervisor stated that the reason why his organization failed was that it spent more time looking at what it wanted to achieve than it did on actually getting the job done. Does this mean that a leadership style that concentrates more on planning than execution is likely to lead to failure?

"I strongly believe that there is often more to be learned from failure than there is from success if we but take the time to do so." -Henry Ford

From the survey, six of the top causes of failure are as follows:

Ineffective leaders
Poor leaders create tremendous stress on the rest of the management team and the workforce as a whole. They are likely to make poor decisions and organizational performance will suffer as a direct result.

Communication meltdown
The managers surveyed felt that having the proper flow of information as well as useful interaction with others was critical in getting good results. For example, poor bottom-up communication deprives leaders of day-to-day business information whilst poor top-down communication can result in failure to understand the direction of leaders. Communication is the lifeblood of any organization, and when breakdowns occur performance will be seriously affected.

Lack of direction
A lack of focus, vision or direction hampers goal setting and team building and reduces the manager's willingness to take risks. This can in turn affect innovation and problem solving

Lack of planning
Failure to plan leads to failure to organize and control operations. This can result in every issue leading to a crisis that demands an immediate solution. The old saying goes "those who fail to plan, plan to fail." Take heed of the five P's - poor planning produces poor performance.

Inability to change
Reluctance to change can produce stagnant organizations that fail to exploit new avenues of opportunity. Many organizations talk openly about change, but then fail to implement it at the workgroup and individual level.

Poor customer service and relations
Organizations fail when people across all departments lose sight of who the customer is and how he/she can be reached. Without customer satisfaction, the organization' s long-term success is in doubt as the customer is the ultimate judge of service.

Conclusions and implications
Failure is difficult to experience and even more difficult to talk about.

The results of the study show that front-line managers feel that business leaders can do more to improve the functioning of the organization by solving easily recognizable problems. The difficulty is that such problems are often deeply rooted and interrelated, which makes them difficult to change in practice.

It is noteworthy that front-line managers tend primarily to see organizational failure as a result of bad leadership. They appear to be crying out for the tools and the direction necessary to be successful.

What lessons can be learned from this? One manager said "when we do a good job of managing and leading our people it is amazing how well things flow, but when we take our eye off the simple and even basic things, trouble looms ahead."

Therefore, effective leaders make things flow. A good leader may be inclined to look at the organization as a whole in order to determine to what extent any of the causes of failure outlined above are present within an organization.

An even better leader would include front-line managers in the assessment process - realizing that a leadership style that encourages proactivity and involvement is one of the key ingredients of organizational success.

Siapa Saja Orang Terkaya di Dunia TI?
Wicak Hidayat - detikinet

Tokoh TI Terkaya (wikipedia)

Jakarta - Bill Gates sukses menjadi orang terkaya di Amerika Serikat versi majalah Forbes melalui perusahaan piranti lunak Microsoft. Selain Gates, siapa lagi orang terkaya di AS yang meraup hartanya dari dunia teknologi informasi (TI)?

Seperti dikutip detikINET dari TechCrunch, Jumat (19/9/2008), Larry Ellison dari Oracle adalah orang TI terkaya berikutnya setelah Bill Gates. Ia menduduki posisi tiga dalam daftar Forbes.

Menyusul kemudian adalah Michael Dell, pendiri produsen komputer Dell, pada posisi ke-11. Dell disusul oleh Paul Allen, pendiri Microsoft, pada posisi ke-12.

Duet Google Sergey Brin dan Larry Page berturut-turut ada di posisi 13 dan 14 dalam daftar tersebut. Kekayaan dua tokoh itu hanya terpaut 0,1 miliar.

Tokoh lain yang juga tercantum adalah Steve Jobs pada posisi ke-61. Kemudian patut jadi perhatian adalah Mark Zuckerberg, pendiri Facebook, yang masuk dalam daftar Forbes pada posisi ke-321.

Berikut adalah daftar lengkap tokoh-tokoh dunia TI yang masuk dalam daftar orang terkaya versi majalah Forbes (nomor urut menunjukkan posisinya dalam daftar Forbes):

1. Bill Gates (Microsoft), USD 57 miliar
3. Larry Ellison (Oracle), USD 27 miliar
11. Michael Dell (Dell), USD 17.3 miliar
12. Paul Allen (Microsoft), USD 16 miliar
13. Sergey Brin (Google), USD 15.9 miliar
14. Larry Page (Google), USD 15.8 miliar
15. Steve Ballmer (Microsoft), USD 15 miliar
33. Jeff Bezos (Amazon), USD 8.7 miliar
47. Rupert Murdoch (News Corp.), USD 6.8 miliar
54. Pierre Omidyar (eBay), USD 6.3 miliar
59. Eric Schmidt (Google), USD 5.9 miliar
61. Steve Jobs (Apple), USD 5.7 miliar
84. Gordon Moore (Intel), USD 4.4 miliar
84. John Sall (SAS Institute), USD 4.4 miliar
91. David Sun (Kingston Technology), USD 4 miliar
91. John Tu, (Kingston Technology), USD 4 miliar
105. Richard Shulze (Best Buy), USD 3.5 miliar
144. Ray Dolby (Dolby), USD 2.9 miliar
161. Mark Cuban (Broadcast.com), USD 2.6 miliar
246. Irwin Jacobs (Qualcomm), USD 1.9 miliar
246. Omid Kordestani (Google), USD 1.9 miliar
262. Henry Samueli (Broadcom), USD 1.8 miliar
281. David Filo (Yahoo), USD 1.7 miliar
321. Amar Bose (Bose), USD 1.5 miliar
321. Todd Wagner (Broadcast.com), USD 1.5 miliar
321. Mark Zuckerberg (Facebook), USD 1.5 miliar
355. Richard Egan (EMC), USD 1.4 miliar
355. Vinod Khosla (Sun Microsystems), USD 1.4 miliar
355. Theodore Waitt (Gateway), USD 1.4 miliar