The Warning Signs of Corporate Trouble
by Tom FitzGerald

Problems, difficulties, reversals, occur continuously in the life of all organizations, just as in people. Most are obvious. Some, like wounds or injuries, cause enough immediate pain to demand attention. And happily, in good times, most are fixed. 

But there are other problems that organizations have. Problems that remain hidden or unacknowledged. Growing slowly in the spirit. Leaving little trace. No overt symptom. More like the early stages of heart disease or cancer. And just as deadly. For they are the real causes of most business failure. 

True, the cause of corporate death is most often written in terms of finance, markets, strategy, productivity, tactics. Occasionally embezzlement or blatant error. But the real reasons, the underlying conditions that made the company weak, are most often found in the spirit of the company where the hidden corporate killers lurk.

Fortunately, indications of problems can be detected long before anything shows on the bottom line. Long before anything is formally said. But it takes an alert and sensitive manager to see them. But they are there. And at some level, often unconsciously, the senior people of the organization know. 

These indications fall into two broad divisions:

Early Warning Signs/Symptoms (EWS). At the corporate level, there are some fifty of these (less at the divisional) and they can be measured with some objectivity, even by outsiders. These are the aspects of performance that are visible earlier than the bottom-line. Like the bottom line, most of them are not directly or immediately controllable by management. But they are great predictors. However, “early” is a relative term and the lapsed time between these signs and bottom line results is getting shorter.

Leading Performance Drivers (LPD). At the corporate level, there are more than a hundred LPDs. These are the true causes of corporate performance, performance  that shows in the early warning signs, on the financial statements and in the value of the company. Almost all are applicable to not-for-profits as well as for-profits. They can mostly be controlled directly and immediately by management. For all practical purposes, they can be measured only subjectively by those who consciously or unconsciously are responsible for them. And who, if change must be made, must cause that change.

The best way for managers to know where their organizations stand on these matters is to poll the senior people about both the early warning signs and the leading performance drivers. It is usually not necessary to canvass everyone and sometimes to do so would be unwise. Surveying all the managers and supervisors will usually suffice. But there are exceptions.

Though the early warning signs can be measured objectively, and should be, it is important to ask the opinion of managers about them. The difference between their view and reality can sometimes be very interesting and educational. 

The opinions of the senior people on the LPDs however, is where the earliest warnings are to be found and where real improvements must begin. Here it does not matter what anyone outside the organization thinks - or even knows. For any improvement to happen, the senior people of the organization must see, acknowledge and react viscerally. And then commit, equally viscerally, to doing something

But when they do change the LPDs, everything else changes. Especially the spirit of the company. In a very real sense, within organizations,  the spirit is where corporate results are born. And the LPDs are both the road to the spirit and the levers for change.

A number of diagnostic instruments that address Early Warning Signs and Leading Performance Drivers exist. They enable management to directly assess corporate risk, to identify the factors that are driving performance and determine what should be done to change things.

Sample questions of both Early Warning Signs and Leading Performance Drivers appear below. Feel free to reproduce copies for the members of your management team. 

Early Warning Signs: High scores on this are strongly correlated with poor performance. A CEO score of 55 or more and/or a team score (averaged) of 65 or more should be considered a strong warning; more than 35 is a warning.

Leading Performance Drivers: Low scores on this are strongly correlated with poor performance. A CEO score of 50 or less and/or a team score (averaged) of 65 or less indicates (current or future) performance problems no matter what the financial numbers now say.

In both instruments, substantial differences between the responses of the CEO and more than one member of the team are also strongly indicative. 

If still in doubt, give it to a few middle managers or supervisors. This might be worth doing anyway.

For a confidential, no-obligation analysis, please send responses from the team (not more than 12 people please) to the address below. Indicate the CEO's response only. The others should be anonymous.

Meghan Wiegold, FitzGerald Associates, PO Box 27, Lake Forest, IL 60045

If you are a CEO or managing officer and would like a full list of both Early Warning Signs and Leading Performance Drivers, please e-mail and refer to this publication and article.

Early Warning Signs

Put your response (1,2,3,4,5) in box on right.
SCORE 1 = NO!!    2 = NO!    3 = NEUTRAL    4 = YES!    5 = YES!!

1 We are victims of economic or seasonal cycles.  
2 Our market is shrinking.  
3 We are losing market share.  
4 Sales are lower than expected.  
5 Our sales plan predicts we will grow faster than our industry.  
6 Our inventory levels are out of control.  
7 Costs are going up faster than revenues.  
8 Cash flow management is getting harder.  
9 We are slowing down paying our vendors.  
10 Needed expenditures are being delayed.  
11 Our delinquencies and collections are worse than industry averages.  
12 Our industry is consolidating.  
13 Our bankers are expressing increasing concern.  
14 Ownership is expressing concern about our performance.  
15 Our clients are NOT the most desirable we could have.  
16 Our dividends/payouts are too high.  
17 Our executives are rewarded better than is usual in our industry.  
18 Sr. mgmt. is too distracted to pay enough attention to the business.  
19 The internet/e-commerce is seriously hurting our business.  
20 We are selling more low-margin/commodity products.  
21 We have lost some large customers recently.  

Copyright 1999  -  FitzGerald Associates
PO Box 27, Lake Forest, IL 60045   847-295-2309

Leading Performance Drivers
(Very Early Warning Signs)

Put your response (1,2,3,4,5) in box on right.
SCORE 1 = NO!!    2 = NO!    3 = NEUTRAL    4 = YES!    5 = YES!!

1 Our management team works well together.  
2 We know what to do - and are eager to do it.  
3 Managers are ambitious more for the company than for themselves.  
4 Corporate decision making is fast.  
5 Our goals are clear to our employees.  
6 Mediocrity is not tolerated.  
7 Meetings focus on resolving important issues.  
8 We do NOT tolerate late completion of tasks.  
9 Mgrs. spend time (weekly) thinking up ways to innovate/improve.  
10 We posses a strong sense of urgency.  
11 Our managers are adaptable.  
12 Our clients praise our product/service quality.  
13 Our people feel they are praised often.  
14 We are adapting faster than the competition.  
15 Our organization is young in spirit.  
16 Internal politics take little energy.  
17 Morale is high.  
18 Our goal is to SUCCEED - not just survive.  
19 My boss gives me good direction.  
20 It is fun to work here.  
21 Our managers are definitely assertive.  

Copyright  1999 -  FitzGerald Associates
PO Box 27, Lake Forest, IL 60045   847-295-2309

Tom FitzGerald is a bottom-line oriented, consulting management engineer, who specializes in effecting major improvements in profitability, performance and growth. He
has worked with CEOs and COOs of more than 200 organizations in the US, Canada and Europe, ranging in size from start-up to Fortune Five Hundred.  By education, a physicist.  By birth, Irish.  By instinct and experience, a business catalyst.  Contact FitzGerald Associates here:

Articles by Tom FitzGerald | Many more articles on Leading Change, Creative Leadership, Executive Performance and Performance Improvement in The CEO Refresher Archives


Copyright 2000 by Tom FitzGerald. All rights reserved.

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