5 simple reasons why your company will lose ￡millions within 6 months and may go out of business within 10 years

Research by risk practitioners and other business strategists has shown that businesses that do not have a sound structure or strategy in place for achieving their goals will come under immense pressure as the markets they operate in evolve rapidly.

The Harvard Law School Forum on Corporate Governance and Financial Regulation published an article on 23 August 2012 entitled ‘Strategic Risk Management: A Primer for Directors’ that summarises these points nicely, and is of timeless relevance to businesses today. It listed seven steps for conducting strategic risk assessment, one which stands out profoundly in relation to the theme this article I reference below:

“Achieve a deep understanding of the strategy of the organization. The initial step in the assessment process is to gain a deep understanding of the key business strategies and objectives of the organization. Some organizations have well-developed strategic plans and objectives, while others may be much more informal in their articulation and documentation of strategy. In either case, the assessment must develop an overview of the organization’s key strategies and business objectives. This step is critical, because without these key data to focus on, an assessment could result in a long laundry list of potential risks with no way to really prioritize them. This step also establishes a foundation for integrating risk management with the business strategy. In conducting this step, a strategy framework could be useful to provide structure to the activity.”

This analysis reveals the historically important relationship between risk management and the achievement of business objectives, which is what needs to be maintained.

In further analysis, and based on my experience with the clients I have managed, I can reveal the main reasons why most businesses fail – or fail to achieve their expected goals – by asking a series of often-overlooked questions. By asking these questions, it will help you to identify whether your company – whether a small- to medium-sized (SME) or a large-scale enterprise – is highly likely to experience preventable and avoidable setbacks, or even extinction.

The questions below are aimed at company executives, business leaders, directors and the senior leadership team members, although it may be valuable for all staff to ask these of themselves in order to gain a better understanding of what can cause their business to fail.

1.  Do you know the mission and corporate objectives of your company? Are your company’s objectives and mission clearly outlined and communicated to every member of the workforce?

2.  If 10 of your company’s staff were picked at random and asked what the company mission and objectives were, would they know the answers?

3.  Do your staff know the objectives of the division/project/programme they work in?

4.  Do you know the risks that impact the corporate objectives of your company? Is your risk-management strategy aligned with corporate objectives?

5.  What is each person in the company delivering or working on if the work they are doing does not support achievement of the company’s overall objectives?

If your answers to at least three of these questions is ‘No’, this shows that your company will potentially experience a major setback – or even become obsolete – within 10 years. If the answers to all or more than three questions are negative, the consequences could be almost irreversible.

The points above suggest that many companies operate like headless chickens, not knowing which direction they are going in. This can result in painful consequences for staff and shareholders, particularly if employees are laid off or shareholders’ return on investment is cut short. In these cases, it is often as a direct result of business leaders not properly structuring their companies, and failing to map out objectives or factor in the risks (negative or positive) to these objectives.

The Harvard article I referred to above sums up its review of strategic risk management as follows.

“Management teams and boards must challenge themselves and their organizations to move up the strategic risk management learning curve. Developing strategic risk management processes and capabilities can provide a strong foundation for improving risk management and governance. Boards may want to consider engaging independent advisors to advise and educate themselves on these matters. For organizations that are early in this process, the seven keys to success for improving ERM as described in a 2011 COSO Thought Leadership Paper may be useful, and are applicable in strategic risk management:

1.  Support from the top is a necessity

2.  Build ERM using incremental steps

3.  Focus initially on a small number of top risks

4.  Leverage existing resources

5.  Build on existing risk management activities

6.  Embed ERM into the business fabric of the organization

7.  Provide ongoing ERM updates and continuing education for directors and senior management”

My conclusion is that everything on this planet has a purpose, and that companies are not exempt. They are not set up merely to exist, but must have some kind of a purpose – whether or not this is actually known or identified as such.

It is down to the business owners/leaders to define what their company’s purpose is and to map out the strategy necessary to achieve their objectives. This is actually quite simple to do, and costs far less than failing, which can be quite costly indeed. Yet this oversight or negligence has been the result of many businesses failing, and will be the main reason why many more are likely to fail within 10 years.