In the last blog, the focus was on creating a sound and comprehensive business plan that can guide a company through the difficult times. While following the steps listed may seem logical and straightforward, the question is, why are so many companies unsuccessful in implementing their business plans and why do so many companies fail?
To answer this question, I have drawn some insights from two recent books. One is entitled “Stall Points,” written by Mathew S. Olson and Derek Van Bever for the Corporate Executive Board. This book focuses on the research these two gentlemen conducted into why many Fortune 500 companies have stalled in their business growth. The other is “Billion Dollar Lessons” from Paul B. Carroll and Chunka Mui. In their book, they look at the major causes for failure at the 750 companies that they studied. I have blended some of their thoughts with my own experiences in the transportation business over the past 27 years. Here are some of the lessons learned.
There appear to be two general patterns as to why various business strategies fail. The first pattern involves the process of creating the strategy; the second has to do with the strategy itself. Messrs. Olson and Van Bever argue that “revenue growth rather than any other metric is the primary driver of long term company growth. This is not to say that revenue growth without profits is desirable but to suggest that high growth through margin management is not sustainable.” Their research indicates that most large companies stall. “It is very difficult to recover from a stall.”
“Group Think” can lead to Faulty Strategies
One strategy inhibitor that has been observed in a number of transportation companies, both large and small, is the phenomenon of “group think.” Olson and Van Bever state that many companies become the “victims of group think … Behind each revenue stall we studied, we found that the shared assumptions of the senior executive team about their strategic position were dangerously incorrect. During these companies’ growth runs, their assumptions about competitors, consumers, and sources of advantage had been dependable and useful, but somehow, across the years preceding their stalls, they had weakened, gone unquestioned, and no longer formed the basis of effective strategy.”
Smaller trucking companies are particularly vulnerable to this phenomenon since they often have a less diverse core group of executives who may have been together for some time. This may limit the scope of their experience and the realm of ideas and opportunities for growth. The other danger with “group think” in small trucking companies is that nobody wants to tell the owner or President that they are going down a dead end street.
Flawed Strategies Can Produce “Stalls” in Business Momentum
Based on extensive research, Olson and Van Bever have captured, in statistical form, the reasons why many Fortune 500 Companies have stalled and the percent of stalls attributed to various reasons. One encouraging finding is that an economic downturn is a minor reason for most stalls. Most large companies are able to transition successfully through economic storms. However the bigger issue at this time is probably whether companies are adopting the right strategies to make it through what looks like a protracted recession. The severe downturn is likely to have a serious impact on certain sectors of the market including LTL carriers and truckload carriers in segments such as automotive parts and pulp and paper, two industries where business volumes have deteriorated to levels not seen since the 60’s.
In their book, Olson and Van Bever highlight a number of reasons why (large) businesses stall. I have listed below, those reasons that have had a particular impact on the transportation industry
False Assumptions behind Premium Position Captivity
Some trucking companies have long held positions as the premium brand in their industry. This comes from a track record of quality service that allows them to charge a premium price. With so much pressure on shippers to cut costs, carriers need to be vigilant in monitoring the willingness of customers to “trade away” to a lower priced service, the ability of lower cost competitors to match the premium carrier’s service or the assumption that the carrier should give up on the low end of the market.
Premature Core Abandonment
This can be defined as the failure to fully exploit growth opportunities that exist in the company’s core business. This can be manifested in a truckload carrier venturing into the LTL business or a reefer carrier entering the flat bed business. Certainly many carriers are hungry for revenue as their core market contracts. The danger is assuming the core market is saturated and searching for growth in an area that is not a strength for the firm.
Failed Acquisition
The most frequent problem underlying these failures is a “misconceived economic model underlying a serial pattern of acquisitions … The story behind the combination … failed to capture the underlying realities of the businesses to which it was applied.” Messrs Carroll and Mui use the label the “illusions of synergy.”
Key Customer Dependency
For small trucking companies, there is a danger of pinning your hopes on one or a small group of customers. These create a level of dependence that is dangerous, if one or more of these customers falter or are taken away by a competitor.
Talent Bench Shortfall
Olson and Van Bever define this as a “lack of adequate leaders and staff with the skills and capabilities required for strategy execution.” The authors highlight that the problem is not just a shortage of talent “but the absence of required skills or competencies in key pockets of the firm and, most visibly, at the executive level.” The danger for trucking company executives, particularly those that have been successful in a specific segment of the industry, is to think that they can achieve similar success in another area of the business without the necessary resources, knowledge and skills.
Enhancing Opportunities for Success
Both books conclude with some prescriptions for avoiding failure. Some of the “lessons learned” include creating a culture where open dialogue and debate are encouraged, ensuring that satisfactory due diligence and effective vetting processes are in place, building consensus around the sources of weakness in the company’s core strategy and confronting operational challenges that have previously been avoided. The two books, while having some overlap, are well written and contain thoughtful material on this important topic. For trucking company executives looking to lead their companies through turbulent times, they are well advised to consider some of these important business lessons.