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R.V.Seckar - My Blog
R.V.Seckar - My Blog
React to Changes in the Industry to Avoid Corporate Failures
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Corporate Failures

Why some corporate files bankruptcy. What is the reason for their failure. Reasons may vary from corporate to corporate but if a company fail to recognise the ongoing market changes and fail to change its functions , it may face issues in the near future.

Sydney Finkelstein of Dartmouth’s Tuck School of Business has studied about 51 companies that had collapsed and sustained losses about hundreds of millions of dollars and some forced to file bankruptcy .The companies that were took up for the research were from all industries from Johnson & Johnson to Samsung and from Boston Red Sox to Motorola.

In his research study of corporate failures, Finkelstein categorised failed companies into four categories.

1) Breakdowns of new business.

2) Failures due to change and innovation .

3) Breakdowns due to merger and acquisitions .

4) Failures due to collapses of plans.

He also described the causes of corporate failures including having hallucination of a dream company, having a wrong vision, following the foot prints of lost signals and engaged in bad habits.

Finkelstein researched the three companies namely Motorola, Rubbermaid and Johnson & Johnson which witnessed heavy losses not because they did something wrong but due to their failure not to do certain things.

They remained dormant and never tried to adapt to change in technologies that is transforming. These companies failed to take cognisance of competitive challenges and ever changing customer preferences and suitably failed to retort to these changes.

Johnson & Johnson was once the market leader in the stent which is being used in angioplasty which replaced the need for surgery for cardiac surgeons in case of blocs in arteries . However, despite of heavy demand , Johnson & Johnson failed to make some improvements of its product and it also blamed for price gauging strategy as it was very rigid in pricing the product thereby declining to offer discount for bulk orders.

Taking the advantage of Johnson & Johnson failure to take into account the competitor’s risk, Guidant, a European company penetrated into the U.S market by heeding the customer's and dealer's wishes and captured about 70% of the market of Johnson & Johnson in U.S alone.

Motorola is a manufacturer of walkie-talkie, television and space programs and introduced the pagers and cell phones for the first time in the market and had a market share about 60% of the cell phone market in 1994.
Motorola preferred to remain with analog technology whereas wireless carriers preferred Motorola to switch to digital. Though, Motorola owned some patents on wireless technology, it rather interested in licensing the same to its competitors like Ericsson and Nokia. Motorola was happy with the royalties received but never took into the cognisant the ever increasing digital market. Motorola’s lack of vision, impassiveness and not realising the changing technology ultimately landed it to loose its market share to its competitors.

In Rubbermaid’s case, company failed to react to the changes in distribution channel technology in appropriate time. When they retorted, it was too late. Thus, Rubbermaid introduced crash programs to manage a change and due to years of inaction, it never yielded any positive results.

Finkelstein examination of above three companies and their inability to visualise, adapt to change in the scenario has lessons for any organisation including IT companies. Thus, if companies do not identify its risks, prioritize the same and initiate corrective actions in time, no doubt it will be filing bankruptcy under chapter 11 later on.

Thus, failure of these companies may be attributed to their inertia and having remained wooden-headedness thereby harping on preconceived fixed ideas while rejecting or neglecting any opposite signs.

Therefore , for survival , watch the market constantly and adopt to changes rapidly to safeguard your market share.

R.V.Seckar M.COM, F.C.S , A.I.C.A (UK) LLB.

June 12, 2009 | 6:21 AM Comments  0 comments

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