Organizational crisis: The logic of failure

Abstract

Executive Overview Organizational crisis, which includes both bankruptcy and a dramatic fall in market value, has increasingly affected blue chip companies in recent years. Yet existing theory views failure as typical of declining companies at the end of their lifecycle. This article explains why once prosperous companies collapse at the height of their success. In an in-depth analysis of the 100 largest organizational crises of the last five years, a mutual logic behind these crises has been identified. In general the problems lay in the four areas of growth, change, leadership and organizational culture. In most cases the companies grew and changed too quickly, had too powerful managers and nurtured an excessive success culture. Conversely, if these factors were insufficiently developed, companies aged prematurely, which likewise led to failure. In order to sustain success, companies need to keep a balance between these extremes. In this article we present company examples and research-based findings that illustrate behaviors to avoid and practices for managers to follow within their own organizations.