Blockbuster, Nokia, Blackberry, Sears — at one time, these companies innovated their way to become the giants of their respective industries. Today, the individual circumstances of their demise have become business school cautionary tales, but often, these stories lack an overarching theory to explain corporate demise at a broader level.
We previously outlined the 23 factors that contribute to corporate longevity, but what we didn’t emphasize in that piece is that an extreme failure in any one of these factors is enough to steer a company into the ditch. On the one hand, this reveals the precariousness of organizational longevity, while on the other hand, it reveals how impressive successful companies must be to navigate this long list of potential landmines.
In this discussion, we will draw upon the insights gained from our Quantumrun Global 1000 study to invert the 23 factors that guarantee corporate longevity and instead outline how these factors, without proper care, can lead to a company’s downfall.
To start, we’ll examine a company’s relationship with its government.
Lack of engagement with government partners
If a company doesn’t actively engage with its local, state/province, or federal government regulatory bodies, then it risks being subjected to increasingly onerous regulations that can make business operations unaffordable or even outright illegal (ex. Uber). Conversely, governments can also tear down regulations, thereby opening your business to new competitors (ex. deregulation, globalization).
When speaking of active engagement with governments, this can come in two forms. First, in democratic nations, companies can invest in lobbying (e.g. Big Pharma), campaign contributions (energy and telecom companies) and even local job creation activities to influence politicians for legislative favours (military contractors). Similarly, in non-democratic countries, governments may expect companies to participate in graft to secure the favourable legislative benefits (Big Oil in African nations). A failure to participate in either political investment activity opens a company up to lopsided competition from corporate rivals willing and able to make those investments.
Worse, a government’s management of its economy is completely out of a company’s control, meaning businesses that don’t diversify their revenue streams globally are one domestic recession away from bankruptcy (similar to what many local businesses experienced during the 2008-9 recession).
Lack of diversification
Similar to the diversification of geographic revenue streams, it’s also worthwhile to note companies that don’t diversify their client base risk losing everything during a market shift. Likewise, companies that are overly dependant on the services of other companies are at an existential risk should those other companies decide to severe ties or change business models (a reality that mobile game developers and new publishers experienced after Facebook decided to change the type of content their platform favored).
Minimal research investment
Next, for tech-intensive companies, in particular, their ability to rapidly acquire market share lies entirely in their ability to innovate more effectively than their larger competitors. But while innovation may be a powerful market advantage, it is also a vulnerability—this is because technology and software can be easily copied (ex. Instagram copying Snapchat features), thereby necessitating tech-intensive companies to continually invest into new innovations to stay ahead of their competitors.
For this reason, when tech-intensive companies fail to invest adequately into their R&D budgets, fail to plan and publish a steady pipeline of patents, and fail to release significantly new products, services, business models regularly, then said companies will inevitably fall under their competitor’s shadow.
Poor innovation quality
Related to the need to invest in innovation, it’s also vital to measure the quality of said innovation. Again, these factors are more relevant to technology-intensive companies than they are to all companies generally.
For example, if a tech-intensive company isn’t replacing one of its profitable products or services with another offering that makes the initial product or service obsolete (at least every half-decade), then it’s reasonable to infer that the company is focusing on incremental growth and innovation. While not necessarily bad in the short term, over the long term, a focus on incremental improvements leaves a company vulnerable to a competitor releasing a disruptive innovation that can jeopardize the original company’s future growth.
Other measures to consider include the market share size claimed by a new product/service/business model one to three years after release. Additionally, we can also assess the percentage of company revenue generated from said new products/services/business models. If the company’s new market offering ultimately represents a minuscule percentage of revenue and claims an insignificant amount of market share, then that’s an objective indicator of poor quality innovation within a company.
Worse, a significant investment in poor quality innovation initiatives can jeopardize a company’s finances over the near to long term. This leads us to the financial factors that can lead to corporate demise.
Financial vulnerability
Unlike the points mentioned previously, financial mismanagement tends to be the first culprit most people point to when assessing a company’s downfall—and with good reason.
A company’s ability to invest in its innovation and operations capabilities is severely impaired if it finds itself with minimal access to capital, either from a bank, private investors, or the stock market. Companies that have minimal liquid cash reserves are vulnerable to sudden downswings in the market/economy. And unless a company is a venture-backed startup, companies that spend more than they make cannot last for very long.
Weak management
Next, we come to the three factors that relate most to the human touch, factors related to a company’s management and human resource practices.
To start, companies that insufficiently recruit a diversity of perspectives (people who think differently rather than look different) within their ranks suffer in their ability to tackle complex challenges and goals, especially over the long term. Ineffective top management has obvious detrimental effects on corporations, regardless of their size. And third, companies that do a poor job of encouraging cultures of intrapreneurialism disempower their employees from actively solving current issues or devising new opportunities for the company (ex. Google’s 20% rule).
Disruption vulnerability
Finally, the last factor that can influence a company’s demise is its vulnerability to long-term technological, scientific, cultural, and political disruptive trends.
These disruptive trends are difficult to spot internally, even with enough resources and a large employee base who can contribute a sufficient quantity of diverse insights. That’s why a company’s vulnerability to disruption is best assessed with the support of strategic foresight specialists, like those from Quantumrun Foresight.
If your organization could benefit from enhancing its organizational longevity prospects, consider starting that process with an organizational longevity assessment from Quantumrun Foresight.
