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Sunday, April 22, 2012

The Art of Predicting Failure – Guidance from a successful Corporate ‘Doctor’

Tom FitzGerald (CEO of FitzGerald Associates) makes an excellent point in his blog viz:

‘Each company has a Trajectory that is independent of the economy. As it points - up or down - so goes the company. It shows how a company will react to threat. Or mobilize to create its future. It is not measured by the financials; those are history. (It is measured) by the causes, (the) Drivers of performance. These predict (the future) at the (same) moment (as) they are creating the future. They can be identified - easily. They can be measured - simply. They can be changed - readily. As they change, they change the future.’

FitzGerald’s excellent consulting work partly based on a London School of Economics (LSE) and McKinsey & Co research paper has proved the following predictors, if not corrected in good time, will certainly cause corporate failure. FitzGerald has identified over a hundred what he calls ‘Blockers’ that if left unchecked will cause a business to stumble into decline; four examples are:

• Distrust / Fear
• Complacency
• Need For Consensus
• Tolerance of Incompetence

When the rot is identified using simple tools that Fitzgerald has developed, it can be stopped and reversed by fixing certain ‘Critical Functions’ utilising certain ‘Generators’. Examples are listed here:

• Performance Management
• Talent Management
• Lean Operations / Cost Containment
• Profitable Growth Orientation
• Customer Orientation
• Innovation / Creativity

• Corporate Decisiveness
• Acknowledgement of Work
• Accountability
• Corporate Assertiveness / Energy
• Commitment of Management
• Openness of Management
• Adaptability
• Effectiveness
• Cooperation

It is easy to accept that when several of the ‘Critical Functions’ listed are not well managed within a business, that business is already on the slippery slope to ruin, even though its financial results may not reflect the fact. FitzGerald’s point is that when the financial results do eventually evidence that a company is in decline, a turnaround is much more difficult to effect and failure is much more likely.

The answer for FitzGerald is for corporate leaders to identify the problems even before Key Performance Indictors (KPIs) show weaknesses, and long before the financials are impaired, and to take necessary action to effect a course correction.

Credit Executives on the other hand could seek out the signs of danger in counterparty customers as a means to predict failure early enough to avoid being embroiled in a bankruptcy.

The message then for Credit Executives is, beware of businesses exhibiting the following, for example:


• Making poor quality decisions, the inability to table problems and resolve them, the inability to take decisive action and, worst case, the need for consensus.

Failure to Acknowledge Work

• Workers not discussing ‘the work’ with Supervisors. Supervisors not talking about ‘the work’ with Managers, except when a mishap occurs.


• Managers not holding their peers accountable for doing what they said they would do.

The cause and effect of failure can be illustrated as follows:

Distrust is evident (a Blocker) that leads to…
Reduced Decisiveness (a Generator) and so to…
Poor performance Management (a Critical Function) that finally begins to generate….
Loss of Quality (a KPI) and too late the result shows in the Financial Reports as…
Reduced Profit

In summary, to quote Tom FitzGerald:

‘Drivers of Performance in any organisation are the Organisational and Human Factors that Underlie, Drive and Impel Performance’

This is food for thought indeed...