Is your company planning to fail? V5

 What is the purpose of this article?

Enable Corporate Leadership (the board of directors, CEO, C-Suite, and any controlling shareholders) to discuss the degree to which your company is planning to fail.

This article does not provide tax, legal or financial advice.

You must do your own research and fact-based analysis using current and relevant information.

You can download a PDF of this article from: Is your company planning to fail V5

What are the critical learnings in this article?

• Most companies are successfully executing their plans to fail. Most companies fail or produce poor investor returns. (Read “Your company will fail”, which is the first article under “What further reading should you do?”)
• Plans are comprised of two parts: what is in them and what’s not in them. Plans reflect decision made and decisions not made.

The board of directors lack the knowledge and skills to make decisions.

• A McKinsey survey of board directors showed that most had little understanding of their companies. Only 16% said directors strongly understood the dynamics of their industries; 22% said directors were aware of how their firms created value; and 34% said directors fully comprehended their companies’ strategies.¹
• A survey of board directors asked how many directors agreed that their members collective skills and backgrounds are appropriate for their organization’s needs: 54% of directors of high performing companies agreed, 40% of directors of low performing companies agreed.²

The board of directors and CEO lack the capabilities to align HR and IT with the strategy and ensure that most employees are working to achieve the strategy.³

• 67% of HR and IT organizations are not aligned with business unit and corporate strategies.
• 60% of organizations do not link their financial budgets to strategic priorities.
• Incentive compensation is not tied to achieving strategy (70% of middle managers, over 90% of front-line staff).
• 95% of employees are not aware of, or do not understand the strategy.

Corporate decisions and actions are not fact-based.

Leadership has a “seriously inaccurate perception of reality”.⁴

Leadership:

• doesn’t measure the value the company is creating nr the potential value it can capture.⁵
• makes the incorrect assumption that the main historical competitors will be the main future competitors.⁶
• cannot learn from other companies’ failures or successes.⁷
• is focused on the company mission and doesn’t hear what their customers are saying.⁸
• thinks they have all the answers.⁹
• fires anyone who questions plans or strategies. ¹⁰
• relies on yesterday’s answers to solve current problems.¹¹

 Corporate leadership has poor decision-making behaviours. ¹²

• Good analysis done by good managers with good judgement produces poor strategic decisions.
• Only 28% of executives thought good strategic decisions were frequently made.
• 53% of business improvement is due to the quality of the decision-making process, only 8% is due to the quality and detail of the analysis.
• One cause of poor decision-making behaviors is that leadership neither recognizes their biases nor takes steps to overcome biases in decision-making.

Corporate leadership does not understand the difference between risk and uncertainty.¹³

• Risk-based decisions are determined by probability determined from analysis of historical facts.
• With uncertainty, there are no historical facts from which to derive a probability.

The confusion between risk and uncertainty results in leadership believing they are making fact- based analytical decisions when the decisions are actually based on guesses and hopes.

Corporate leadership is not competitively differentiated in its core components of talent.

The core components of talent include:¹⁴

• Self awareness, both internal and external
• Character, including values, morals, and ethics.
• Relationship skills
• Communications, especially two-way communications
• Crystallized intelligence
• Fluid intelligence
• Cognitive skills
• Ability to quickly learn and unlearn
• Creativity

Corporate leadership has five biases resulting in poor decision-making.¹⁵

• Insufficient thought before action.
• Tendency towards inertia, if uncertain.
• Misaligned incentives, misunderstanding of strategies and objectives, and emotional attachments to personal perspectives.
• Preference for harmony over conflict, leading to group think.
• Recognizing patterns that do not exist.

Companies that have financial success develop behaviours leading to their decline.¹⁶

• Success leads to entitlement and arrogance, believing success will occur no matter what happens.
• Corporate leadership neglects focus, understanding, and renewal of the root causes of success.
• “What” replaces “Why” (“We’re successful because we do these specific things.” Replaces “We’re successful because we understand why we do these specific things and under what conditions they would not longer work”. Corporate leadership is no longer inquisitive and learning.
• Corporate leadership believes success is entirely due to their superior capabilities, and that luck had no role.

 Executive leadership development programs are broken. 

A survey of more than 500 global executives showed that only 11% strongly agreed their leadership development programs achieved results. What were the program flaws?¹⁷

• Not specific to the companies’ strategic plans and drivers of business performance (e.g. turnaround, multiple M&As, organic growth, etc.).
• Not organization-wide and not at all levels within the organization.
• Not using digital learning embedded in day-to-day workflows. Too much use of the old teacher and classroom model.
• Leaders did not use social media (blogs, video messages, etc.). to communicate with staff.
• Senior leaders did not act as sponsors, mentors, and coaches.

 Companies do not recover from crisis.¹⁸

• 20% of companies grow from insurgency to incumbency, but then two-thirds of them stall out and less than 1 in 7 stall-outs recover.
• At any given moment, 5%-7% of companies are in free fall or about to tip into it. Only10%-15% of companies pull out of free fall.
• 94% of large company executives site internal dysfunctions as their key barrier to continued profitable growth.

During turbulent times, the number of sinking ship companies increases 89%.¹⁹

 Founders are often the cause of start-up failures²⁰

• 65% of the failures of high-potential start-ups are due to people problems: relationships, roles and decision-making, and splitting the income.
• More than 50% of founders are replaced as CEO by the third round of financing. In 73% of these founder replacements, the CEO is fired rather than voluntarily stepping down.
• The founder’s passion, confidence and attachment to the start-up is initially a great strength. Founders often refuse to revise their strategy, misjudge the need for additional skills, and make decisions that don’t reflect the current situation.

 Leadership is the underlying cause of start-up failure.

The top nine reasons for start-up failures were identified by CB Insights. ²¹ I’ve shown below my point-of-view as to why leaders and leadership were the root cause.

• 42% no market need – leaders did not validate that there were large number of potential cash paying customers who perceived they had needs and problems they were willing and pay for.
• 29% ran out of cash – leaders did not understand cash flow management
• 23% not the right team – leaders did not understand the talent required, how to hire, retain, and develop the right talent as the company evolved.
• 19% get outcompeted – leaders did not understand how customers and users perceived the competition’s value propositions.
• 18% pricing/cost issues – leaders did not understand how customers perceived their company’s value proposition.
• 17% poor product – leaders did not understand how to oversee solution design and rollout to ensure meeting customers perceived value proposition.
• 17% need/lack business model – leaders did not understand that a business model is needed or were unable to define one.
• 14% poor marketing – leaders did not have marketing skill, understand their role in marketing, know the necessary cash to marketing.
• 14% ignore customers – leaders did not believe it was important to listen to customers and take action based on what customers were saying.

The appropriate VME (Values, morals, and ethics) are not understood or agreed upon.

• Inappropriate VME can result in:
• Your company losing your social license to operate.
• Your ability to attract and retain appropriate talent.
• Reputation damage which impacts sales
• Legal action by governments and others.
• etc.

What are your next steps?

• Define your terms and concepts to enable a common understanding.
• Prepare your own set of evaluation criteria. The above reasons for failure may form some of your evaluation criteria.
• Have your company assessment by members of your company’s ecosystem.
• Analyze the results. Probe deeply into anything not related to talent to ensure talent is not actually the root issue.

What further reading should you do?

“Your company will fail”, Koor and Associates

https://koorandassociates.org/avoiding-business-failure/your-company-will-fail-v1/

“Traditional corporate governance dooms your company to failure. V2”, Koor and Associates

https://koorandassociates.org/2023/03/17/traditional-corporate-governance-dooms-your-company-to-failure-v2/

“Traditional strategic planning dooms companies to failure”, Koor and Associates

https://koorandassociates.org/strategy-and-strategic-planning/traditional-strategic-planning-dooms-companies-to-failure/

“Traditional risk management dooms your company to failure”, Koor and Associates

https://koorandassociates.org/corporate-governance/traditional-risk-management-dooms-your-company-to-failure/

“Traditional business transformation dooms your company to failure”, Koor and Associates

https://koorandassociates.org/business-transformation/5920-2/

“What are the three greatest risks to your company?”, Koor and Associates

https://koorandassociates.org/avoiding-business-failure/what-are-the-three-greatest-risks-to-your-company/

 Footnotes

¹ “Corporate Boards need a facelift”, Eric Kutcher, (McKinsey Partner) McKinsey website, May 4, 2018.

² “A time for boards to act” McKinsey Survey 2018 March

³ “Creating the Office of Strategy Management”, Harvard Business School; paper 05-701, by Robert Kaplan and David Norton

⁴ Sydney Finkelstein, Why smart executives fail, Penguin Publishing Group, 2004, Chapter 6

⁵ ibid., Chapter 6

⁶ ibid., Chapter 6

⁷ ibid., Chapter 7

⁸ ibid., Chapter 7

⁹ ibid., Chapter 9

¹⁰ ibid., Chapter 9

¹¹ibid., Chapter 9

¹² “The case for behavioral strategy”, McKinsey Quarterly, 2010 Number 2

¹³ Adapted from “20/20 foresight: Crafting strategy in uncertain times”, by Hugh Courtney

¹⁴ What are the core components of talent? Koor and Associates

What are the core components of talent? V4

¹⁵ “Think again: Why good leaders make bad decisions”, by Sidney Finkelstein, Jo Whitehead, and Andrew Campbell, Harvard Business Review Press, 2009

¹⁶ “How the mighty fall”, by Jim Collins

¹⁷ “What’s missing in leadership development?”, Claudio Feser, Nicolai Nielson, and Michael Rennie, McKinsey Quarterly, August 2017

https://www.mckinsey.com/featured-insights/leadership/whats-missing-in-leadership-development

¹⁸ “The founders mentality”, by Chris Zook and James Allen, 2016

¹⁹ https://www.bain.com/insights/the-new-normal-is-a-myth-the-future-wont-be-normal-at-all/

²⁰ “The Founder’s Dilemmas”, by Noah Wasserman.

²¹ “Top 20 reasons start-ups fail”, CB Insights, Oct 7, 2014

What is the purpose of this article?

• Share my critical learnings from my three-day attendance at Collision 2023 in June 2023. Collision was a North American startup conference with 36,000+attendees, ranging from pre-revenue founders to large established companies, and investors ranging from angel investors to multi-billion-dollar funds.
• The critical learnings section below are my key learnings from Collision. I believe that these learnings apply to any size company.
• The observations section below are some of the facts and opinions shared by presenters. I believe these have massive short and long-term implications.  Reach out to me if you wish to discuss the implications.
• The learnings and observations in this article are only a tiny subset of my 48 pages of notes.

You can download a PDF of this article from: Critical learnings from Collision 2023

What are the critical learnings in this article?

• There is close to a universal belief that the critical aspects of talent are: collaboration, learning, and problem solving – and that these are hard to find. Hard skills are easier to find but of less value.
• Generative AI was a universal them. Jobs with limited skills and experience will be eliminated or dramatically reduced in the next three years e.g. call centre staff, law firm associates.
• There continued to be unlimited money available to start and grow companies BUT due diligence has dramatically improved with a stronger focus on competitively differentiated talent.
• If a company can train, develop, and grow an employee who had spent decades in prison, I wonder why many companies are unable to train, develop, and grow their employees. Too often the easy approach seems to be fire and replace.

 What were my key observations?

• The world is no longer predicable.
• Hire people for purpose and values.
• Ask people why they stay at the company. Do a NPS (Net Promotor Score) with current employees.
• There’s a company that helps other companies hire former prisoners. This company hired someone who had been in prison for decades.  The person first started in customer support and ended up as a customer support manager.
• A survey of over 200 Chief Technology officers revealed the top three things they were looking for in employees: ability to collaborate, ability to learn, ability to problem solve. Coding skills and knowledge of coding languages was not in the top 3.
• 15 years ago, the competitive differentiator for software engineers was their coding skills. Today, the competitive differentiator is problem solving.
• The most important factors in selecting founders are: what will enable them to survive the hard times; why are they doing the startup; what is motivating them.
• Facebook paid $1 billion for Instagram with 13 employees. The capabilities of current and emerging tools will enable a single person to create and sell a company for $1 billion.
• Apple Vision Pro will make remote work similar to being in person. Collaboration, team meetings, etc. will be far more effective than today.
• Look at the customer ROI and customer risk, not just the company ROI and company risk.
• Deliver to customers far more value than price. Willingness to pay is based on value.
• Casetext, a legal AI firm, has launched CoCounsel, a legal AI assistant with the potential to replace law firm associates. Thomson Reuters announced they’re buying Casetext for $650 million US.
• AI will change the talent pyramid in Financial Services.
• Generative AI will increase polarization in society.
• 50% of the people in a session I attended, use AI to create the emails they send.
• ChatGbt-4 already scores in the top 10% in LSAT and SAT tests.
• The capabilities of Generative AI are doubling every 3 months.
• In the near future, everyone will be able to create movies themselves with personalized content. E.g. each person could be a character in the totally realistic movie.
• Expedia has 70,000 terabytes of data.
• The number of pre-seed and seed fintech raises are at a record level this year. The total dollar amount is lower.
• A good portfolio company will run with bad news to their Venture Capital investors.

What are your next steps?

• Identify the roles that have the great impact on the value proposition for your customers and users.
• Determine the additional value the roles must provide, in this hyper-competitive world we live in.
• Identify the additional talent requirements.
• Determine how best, from a customer perspective, to meet those requirements i.e. what combination of human and Generative AI.
• Benchmark your talent assessment, hiring, developing, promotion, succession and exits process, technology, and staffing relative to the best companies in the world. What are the implications in terms of your company’s long-term success? What changes do you need to make? Start with the board of directors.

 What further reading should you do?

Generative AI – by McKinsey

https://www.mckinsey.com/capabilities/quantumblack/our-insights/generative-ai

Is your company planning to fail?

https://koorandassociates.org/avoiding-business-failure/is-your-company-planning-to-fail/