What does management mean and the effects of poor management? For Henri Fayol, the famous French founder of modern management methodology, it is “to forecast, to plan, to organize, to command, to coordinate and control activities of others.” According to Supper Club, of all the companies that failed from 2011 to 2013, poor management was to blame 50% of the time. How do companies succumb to poor management? Let’s take a deeper look to find out.
This is part of a 7-part series on reasons why businesses fail.
How Poor Management Impacts A Startup
A report from the Chartered Management Institute (CMI) was able to establish clear links between poor management and startup failures. Here we list some of the ways management can be the cause behind the death of a startup.
Founders: A founders influence on the fate of a startup is hard to overstate. Disagreements amongst cofounders can result in one or, in many cases, multiple founders leaving which results in almost certain death of the business. Founders may have great ideas and limitless ambition but lack fundamental management ability. With a diverse range of responsibilities such as planning, organizing, staffing, and directing, management becomes complicated and easy to mess up. Additionally, many startup founders or small business owners do not have formal management education or training, making them even more susceptible to mistakes.
Poor decision making: Every decision has consequences. A string of consistently poor choices can culminate to technical debt and in the collapse of a company. It’s not just about consequences, however. Slow decision making can result in valuable opportunities slipping away. Ideally, decisions should be made promptly near the point of action and only by qualified personnel.
A myriad of additional reasons: Bad staffing practices, inefficient organizational structure, lack of quality leadership, and ineffective communication all have their roots in poor management.
What Are The Qualities Found In Effective Leadership?
We’ve talked about bad management practices. What about good ones? Here are some signs of healthy management:
· Consistent, constructive feedback
· Investment in the success and growth of subordinates
· Strong leadership by example
· Efficient utilization of resources
· Delegating tasks to the proper employees
· A purposeful vision for the future
· Openness to a delegation of tasks and trust of team members
· An authentic care for team morale
Case Study: Pan American Airways
Once the largest airlines in the United States, the once-iconic blue logo now shines as a reminder for the pitfalls of bad management. How did Pan Am, the largest international air carrier from 1927–1991, fail? A long string of poor business decisions by the management led to its downfall. Critics say that after the departure of Juan Trippe, the company started going downhill. A decline in the quality of customer service was the first sign. Foreign travelers began to avoid flying with Pan Am, and eventually, even Americans followed suit.
In 1980, Pan Am bought National Airlines for its North-South routes but made a series of mistakes. For one, they grossly overpaid for the acquisition due to a price war with another airline. Pan Am also bought a number of aircrafts that were not compatible with their operations. Finally, they failed to create a strong domestic hub. The whole deal was hasty and poorly handled.
Despite managing to eventually sell Pacific Division at a good price to settle debts, they were never able to capitalize on the sale due to painfully slow decision making. All this combined with their inability to adapt to changes in regulation, the crippled company crawled to failure.
Case Study: The Toyota Way
How did Toyota, at one point the largest car manufacturer in the world, manage to rise to the top? It had a system in place, designed to provide employees with tools to improve their work. These 14 principles are known as the ‘Toyota Way’:
- Base decisions on a Long-Term Philosophy, even at the expense of short-term financial gain
- Create a continuous process flow to bring problems to the surface, eliminating waste through the process of continual improvement
- Use ‘pull’ systems (where a process signals the demand to its predecessor) to avoid overproduction
- Level out the workload to create consistency
- Build a culture of stopping to fix problems, to get quality right the first time
- Standardize tasks & processes for continuous improvement and employee empowerment
- Make problems visual so they cannot be hidden
- Use only reliable, thoroughly tested technology that serves your people and processes
- Grow leaders who thoroughly understand the work, live the philosophy, and teach it to others
- Develop exceptional people and teams who follow your company’s philosophy
- Respect your extended network of partners and suppliers by challenging them and helping them improve
- Go and see for yourself to thoroughly understand the situation
- Make decisions slowly by consensus, thoroughly considering all options; implement decisions rapidly
- Become a learning organization through relentless reflection (hansei) and continuous improvement (kaizen)
Bringing it all together
Many startups have failed due to the limited management abilities of the founders and leaders. Whether from internal conflict, poor strategy, or just a general lack of vision, if leadership cannot provide a strong foundation, failure is all but inevitable. However, with knowledge, cooperation, and strategy, leadership can inspire team members to grow and excel through leading by example.