Top Management Failure: 7 Early Warning Signs

NOTE: This issue of Executive Insight marks the twenty-fifth anniversary of RHR International's thought provoking articles designed for senior level management. The following is reprinted from Volume 1, Number 1 of "FOR CEO'S ONLY" and was originally published in 1982. Although the name of the publication has changed and some of the language may be a bit dated, the underlying fundamentals are still good advice twenty-five years later.

Do your people know why you are in business? Are they constantly alert to challenges from the competition?
Is change in your organization under control? Do you know what the management requirements will be as your company grows?
How well do you understand your people, their strengths and limitations? Do they find you a good delegator? Do you promote strictly on the basis of merit?

Few CEOs will be able to answer all of these questions with a resounding "yes." How do you spot the trouble areas? And what can you do to turn them around?

The Warning Signs

1. Lack of Clear Direction
Most people think they know what business they are in. How long has it been since you took a hard look at your business objectives and examined systems and procedures to see if they mesh with your overall mission?

Companies that lack clear direction tend to engage in a lot of unproductive activity. They drift from one new product or administrative change to the next. They may have unnecessary staff, elaborate computer systems they don't need, complex control mechanisms that become ends unto themselves, a lot of form without function.

When this happens, employees lose sight of the reason the firm is in business. Good people leave, and the competition beats you to the punch.

2. Failure to Meet the Challenges of Growth
As organizations grow they go through distinct phases. In the entrepreneurial organization, for example, the challenge is survival. Strong leadership, efficient use of scarce resources and flexibility are important. When the company grows, it faces organizational needs which the entrepreneurial CEO may find confining: a need for more professional management, delegation and greater dependence upon staff services.

The signs that an organization is outgrowing its management resources include people who suddenly seem over their heads, the realization that competitors are handling more information or products more efficiently than you are and a growing sense of inadequacy on your part in facing the tasks presented by growth and change.

3. Complacency
It is often far more difficult for a winning team to get up for a game than a losing one. Organizations which have been successful pose a subtle and difficult challenge for their CEOs. The CEO who has been instrumental in solving the firm's biggest problems in the past may rest on his or her laurels. People ask fewer and fewer questions; there is a failure of nerve, a fear of taking risks.

Signs of complacency include an insistence on doing things the way they have always been done, rejection of outside criticism, exaggerated or arrogant criticism of competitors and a climate in which certain people are recognized as experts and others are not asked for their opinions. Innovation disappears and the effort of the organization is focused on the status quo.

4. Excessive Change
An early sign of top management failure is excessive organizational change, particularly when change is being introduced to bring things under control. It is ironic that, when these efforts at control are applied too often, the organization never settles into a routine and things remain out of control.

Signs to look for here include the frequency of major organizational shifts over the past five years: the average tenure of senior managers, a survivor mentality on the part of employees (which flows from their belief that they will be there after things have quieted down at the top), low morale caused by disorganization, and turnover resulting from job stress.

5. Living with Poor Performance
No one deliberately condones poor performance; ironically, it often happens when CEOs are trying to be fair and supportive, when they want to avoid causing problems for their management teams. Performance reviews mean raises for all, regardless of merit. Genuinely weak performers are rarely fired, and the organization chart reveals unusual reporting relationships because positions have been invented to protect those who have failed. The executive suite becomes a haven for the walking wounded. [See Executive Insight: Well-managed Demotions.]

In this climate, truly independent and aggressive problem solvers feel unwelcome. There is cynicism in the ranks. The competition gets the edge, because there is no one left to innovate or take advantage of growth opportunities.

6. Lack of Delegation
For all the talk about the importance of delegation, its lack is still surprisingly frequent. The CEO who is failing to delegate may have legitimate reasons for doing so. If managing a turnaround situation or if the senior staff is relatively inexperienced, he or she will need to be more directly involved than the CEO of a well staffed, smoothly running operation. But it is the CEO who should be delegating and isn't that creates problems deep within the organization.

The signs here include a lack of clarity about roles and responsibilities between the CEO and his or her direct reports, a lack of trust among top managers, excessive numbers of meetings to review routine operating details, a lack of clear communication downward, and a lack of coordination among major departments.