“An Early Warning System Can Save A Company From Bankruptcy”

A powerful ego, excessive self-confidence and an impressive past may not always be the key to success. On the contrary, these characteristics can result in a company and its executive being destroyed. Prof. Sydney Finkelstein, the author of the book ‘Why Smart Executives Fail?” says that there are many examples of this. He believes that success can go to leaders’ heads and prevent them from seeing risks.

“Everybody can see a crack in a glass. In fact, this crack in the glass may be an indication of other cracks and dirt deep down in places which it is hard to see.” These are the words of Prof. Sydney Finkelstein of Dartmouth College Faculty of Management as he speaks about the reasons for the crises experienced by major companies in recent years.

Finkelstein says that every company must establish a mechanism which will enable it to receive warning signals before disaster comes calling.

In The Last Ten Years We Have Seen Many Powerful Firms Become Submerged In Crises. How Did These Companies Go Wrong? What Mistakes Were Made?

There can be several answers to this question. But the most important of these is inappropriate strategies which were incorrectly applied. This is a deadly combination for companies. It has an important impact in terms of firms living in a world of illusions. Generally, executives heading this kind of firm cannot look to new resources to gain information. It may be they are affected by doing a good job in the past. A result of this may also be that the strategies set by the companies are incorrect.

When A Company Comes To The Point Of Collapse, What Can The Executives Do To Correct This?

The most important lesson to come out of the research that I have done is that companies should develop early warning systems. They need to do something to be able to receive warning signals before something bad happens to the company. What is important is to be able to act before it is too late.

What Type Of Warning Signals Are These? Are There Differences Between Sectors?

Of course, there will be different approaches for each sector. But some warning signals share common characteristics. For example, if many of the middle tier management in a company leave within a short period of time, then this is an important warning in every sector. When something like this happens, it is a very important signal.

The Three Most Important Corporate Mistakes In The Last Five Years

1. MERGERS-ACQUISITIONS The first of these is definitely a certain size of merger and acquisition. Existing acquisitions and mergers produced some incredibly bad results.

2. TECHNOLOGY MISTAKES Apart from this, companies which entered the technology sector made major mistakes thinking that they would use the best technology. They thought that customers would want to have the best technology. But in fact customers did not want the best technology, they just wanted what would best solve their problems.

3. INABILITY TO ADAPT TO CHANGING MARKETS The third mistake is a failure to adapt to rapidly changing market conditions. A successful firm may be unsuccessful in presenting a second or third generation product or service. It is possible to see this in all sectors where the product life expectancy is short.

Şeyma Öncel
soncel@capital.com.tr