In the 1980's we were impressed by the companies listed in In Search of Excellence, yet by the 1990's many of these were gone. By Stephen Manallack

Why do apparently good companies fail? If you think failure is not possible, consider that this was almost certainly also the belief of those who did. In the 1980's we were impressed by the companies listed in In Search of Excellence, yet by the 1990's many of these were gone.

How many companies make the Fortune 500 and vanish within a decade? Average corporate life expectancy in Europe and Japan is a frighteningly short 12.5 years.

Are you immune?
If you are a leader today, a core part of your role is to constantly monitor the health of your organisation, to ensure it does move from survival to long-term success. To be on the lookout for failure, you will need a new set of eyes.

Many thousands of words have been written about corporations in trouble, but few have addressed the core question: how do seemingly well-run companies get themselves into strife? The answer for institutionalised bad behaviour is almost always that there is no one person at the board level who acts as the corporate conscience.

Lest those of us in business start feeling superior, it has to be said that few chairpersons and few boards have the support of a ''conscience keeper'' or as I would prefer to put it, a ''reputation guard'' - a fearless and independent voice that understands that corporations live or die by their reputation.

Few senior executives and directors have the ability to compare organisational perceptions with real world views. Their biggest mistake is to believe their own propaganda.

But danger lurks in many seemingly harmless parts of your organisation, and this danger can be best described as the acceptance of bad habits. Once bad habits creep in, if you are not a watchful leader, they are passed on to others and gradually become part of your corporate culture. Failure then looms just around the corner.

Spotting bad habits sounds easy but is hard to do - most leaders exist in a kind of cocoon, surrounded by myths and a denial of what is true. Denial among those at the top, and around the top, is endemic. This denial can put the core business at risk, because the leadership group simply cannot see new realities.

I've listened to leadership groups making claims that ''we are different'' and they clearly are not. I've heard them ridicule their competitors and claim that nothing good can come out of these other companies - wrong on both counts.

Cocoon of denial
To break out of the ''cocoon of denial'', you will need to have the ability to get an honest audit of your internal communications, human resources policies, training programmes and decision-making structures. Denial can creep in to any one of these, and it spreads. The greatest enemy of denial is honesty and scrutiny. Sometimes you just have to buy in a layer to supply both.

Some of the best work on why companies fail has been provided by Dr Jagdish N Sheth, who is the Charles H. Kellstadt Professor of marketing at Emory University. He lists the ''7 bad habits'' of corporations - turf wars, denial, arrogance, volume obsession, competitor myopia, complacency and competence dependence.

I've already discussed denial and you know how turf wars are destructive, but arrogance? Don't strong leaders and highly successful organisations need to be arrogant?

Many of us use the word arrogant when we really mean confident. Yes, it is a great thing to lead with confidence and inspire it in others. But arrogance is a bad habit because it is the king of an overblown view of the self, an image of superiority that is capable of denying all evidence to the contrary. Good leaders look for and use evidence, not overblown bags of wind.

How does arrogance hurt? The biggest cost that I have observed is that arrogant people and arrogant companies simply stop listening. We know that customers do not necessarily expect perfection, but they do want to be listened to and will go elsewhere when ignored.

How does this arise? Arrogance arises when a person or some group ''owns'' their patch, lack any diversity and squeeze out original thinking. Arrogance feeds on the absence of external perspectives. I've seen this level of arrogance prevent an otherwise good organisation adapt to change (the arrogant believe others should adapt to them) and here is where failure begins.

It is a weird contradiction that can hit you in business and certainly hit my own business in the late 1980's and early 1990's - the contradiction is that success breeds failure. How can this be? Because success is fertile ground for complacency and arrogance, both making it really difficult for the company to adapt and change. After a decade of success, my business collapsed and there is no doubt that the cocoon of denial and the arrogance of success played key roles.

Resilience of Indian businesses
Indian businesses have been particularly successful in circumventing one of Dr Sheth's ''bad habits'' -  the one he calls competency dependency, where a successful business becomes overly dependent on one competency. Indian businessess have diversified, using success in one competency as the groundwork for success in others. This makes them resilient.

Businesses in the west, however, have been hooked on the concept of ''specialisation'' and that means competency dependence is rife. Western pharmaceutical companies depend on research and development, while fashion hinges on design, and businesses such as stockbrokers rely on service. This specialist focus holds the potential for failure, while the Indian approach of diversification is strength.

But all organisations need to be vigilant for myopia, and in particulate what Dr Sheth calls competition myopia, the view that your competitors are one or two other majors in your space. Watch out for those niche invaders!

Territoriality is strong in the animal kingdom, and we in business make a pretty good art form of it as well. Instead of your team aligning to the corporation and its visions, values and goals, the team in fact has an affinity to itself, to its own functional discipline. Consider how often this happens in post-merger environments.

Leaders simply have to watch for this, research it and communicate through it - the barrier of territoriality can be broken down by good internal communication and effective training.

You can see how leaders who want to survive into the 2020's will need a good mix of honesty and integrity, being able to see things for what they are and to plan ways to improve the success rate of every part of the organisation. That is, good leaders have strong moral values.

There is plenty of evidence of a connection between strong moral principles and business success (one of the best books is Moral Intelligence: Enhancing Business Performance and Leadership Success, from Wharton School Publishing, co authoed by by Doug Lennick and Fred Kiel).

Making this connection begins with a board level person who contributes a lot of thinking and knowledge, asking questions all the time. This can be annoying for ambitious CEO's, but in the end it is questioning that protects your most important corporate asset, your reputation.

The best leadership communication achieves complete alignment with organisational objectives, bringing knowledge and thinking to the strategy, so that every message and every action conveys the important points - motivating targets, activating consumers, changing opinions, breaking down prejudices and improving perceptions.

Looking back on my business failure, the strongest lessons I have applied to build success from the ashes have been to be prepared to ask simple questions and demand honest answers, particularly from me.

These leadership questions are: "What do we want?" (objectives), "What is the general environment and situation we are now in?" (situation analysis), "What is the down side?" (Risk Evaluation), "Who do we need to talk to?" (target audiences), "What messages do we need to get across to them?" (key messages), "How should we communicate?" (strategy), "What actions should we take?" (implementation), "How much (resources, funds) can we put into communicating?" (budget), "How do we know if we are having an impact?" (evaluation).

Right now, as your business thrives and you feel success is here or just around the corner, remembering that success can pave the way to failure will save you a lot of pain.
 
The author is leadership and communication consultant, professional speaker and the author of You Can Communicate (Pearson 2002). He is secretary of the Australia India Business Council (Victoria, Australia).