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Posted on July 27th, 2012, by

Many successful companies throughout the world often experience failures. It is common knowledge that one of the most widespread reasons for such phenomenon is the company’s unreceptiveness to changes. It goes without saying that the behavior of the company is the reflection of the behavior of its executive. Failure happens when the executive puts his personal interests on a higher position than the interests of the company during the process of decision-making.  As very often a successful start gives the executive the hypertrophied feeling of importance for the company, such ego can lead to incorrect decisions. When an executive overestimates the value of his work he leaves no chance for other business strategies for the company. Usually it happens in a scheme when the executive’s opinion in the only correct and important. It is obvious that it is very hard for one person to take into consideration all the potential consequences of every single decision taken. Such self-centered position gives the employees no opportunity to show the executive the errors he has made. The first reason the employees do not point the mistakes of the executive is their fear to stay without any job and the second one is the incapability of the executive to admit to making an error in public. The absence of different points of view kills any company.

The fact that an executive is smart and has achieved previous success does not imply that his direction of work will be perfect. This is primarily due to the fact that very often talented and successful executive start acting and taking decisions with the base on stereotypes. Stereotypes in their turn are inadmissible for companies that plan to stay on top for many years as they narrow the executive’s world perspective and negate all the possible positive alternatives for the company.


Why executives fail?

Contemporary world dictates the business rules for modern people. One of its key trends is the high velocity of the decision-making process. A smart executive can always trust his knowledge and experience but as a matter of fact a lot of decisions are made very quickly and therefore cannot always be referred to as arbitrament or favorable decision.  An executive will never lead the company to failure if he does not hurry during momentous decisions.

Complacency and excessive self-confidence lead to haste. And though executive very often work in an impressive rhythm, important decision should not be taken in running order. The executive needs to stop, to think and to analyze all the potential risks and consequences. The realization of the possibility to failure is to make a good executive think on how the success can be achieved. As the conditions of the modern market are quite unpredictable, habitual executive decisions was fail the company. A good leader is never in a hurry because it decreases the adaptability and flexibility of the company.

When an executive is overwhelmed by previous success his perception of the company’s reality does through a deformation. They start seeing the company only from one perspective and their position starts being the only appropriate one. This is how one of the biggest mistakes happens the company goes in the completely wrong direction, puts all the resources to develop this direction and at the end stay with nothing and faces failure. Here the executive finds himself in a moment where he has to do two things. First to change his approach and perception of the company with the help of diverse trainings and programs and second reorganization and restructure of the company may help to revaluate the role of the executive in the company’s work.

If the executive possesses a wrong perception of the company’s reality a proper evaluation of the opportunities and difficulties does not occur. This also implies the loss of touch with the consumer though the consumer should be the first dictator of the company’s business strategy. When the productive critics of the consumer looses its important for the executive it become the moment when the company starts directing towards problems. Such blind self-assurance has only negative effect on the company’s functioning and reveals the executive’s personal leanings rather than the interests of the company prosper. In other words the executive’s personal characteristics should reinforce the corporate strength of the company rather than create more weaknesses.

Executive who fail to present strong personal trait and flexibility can lead the company to the brink of collapse in one second. Such examples as Quaker, Rite Aid, Motorola, Mattel and others speak for themselves as one due to the executive’s mistake they have experienced the risk of total failure. The executive can be very smart but the incapability to get the correct perception of the company’s opportunities and problems, the inability to be flexible and to admit mistakes, the refusal to put aside all the personal leaning result in one terrible result for the company its failure in the world of business and its fall into market-oblivion.


The real causes of failure

The theme of explaining the real causes of such failures and the integration of the SMART Early-Warning System are analyzed by Sydney Finkelstein in his book Why smart executives fail and what can you learn from their mistakes.

But before discussing the implementation of the EWS it is necessary to talk about the generalized causes of the companies’ failure.

According to Finkelstein there are four explanation of the executives’ failure: executive mindset failures, delusions of a dream company, lost signals and the pattern of unsuccessful executive habits.  In terms of these four elements as it has been mentioned before the executive looses the proper perception of the company’s reality, puts his ambitions and delusions on top of his executive management, looses signals from the employees, consumer and suppliers and very often accepts the patterns of ineffective functioning.

The SMART Early Warning System consisting of three main blocks such as smart leadership, smart strategy and smart process gives the way for teambuilding and alerts the executives of the risk points. In terms of this system it is very important to emphasize the meaning of the executive’s behavior for the wellbeing of the whole company. It is obvious that the primary cause of the executives deformed perception of the company’s reality is the concept of originality of the company and its dominance within the market.  The primary reason for that is the focus on self-importance and as a consequence the executive cannot see the risks the company faces. When the line border-line between corporate interest and the executive’s personal interest is crossed the executive starts believing that his view of the company’s strategy of development is the only one appropriate due to his commitment to the corporation.

Being a CEO, an executive of a corporation is a test for durability and reliability. Not every person due to personal peculiarities is capable of passing it. This is responsibility and power which can make the executive turn to the path of failure.

The information provided by Finkelstein is an instruction to action and an instruction to filtering to the future CEO’s of any corporation. The data provided in the book asserts the necessity to create a special training program which would strictly single out those individuals who due to personal characteristics are incapable of running a company.

The SMART Early Warning System in terms of the analyzed matter becomes a vital element of such training program as it teaches the executives to avoid the mistakes which may lead to the company’s failure. It is the best perspective for modern executives in order to maintain the objective and effective monitoring of the company’s risks including the behavior of the CEO. Therefore its implementation will not only provide the executives with the alert risk system but also can filter the risk executives.

Any potential executive needs to base his behavior on the model suggested by Finkelstein. This is a real program which gives the ability recognize the unnecessary traits in the leader’s personality before they can take the company to the brink of collapse. The qualities of a leader have a good nature but in an excessive amount may lead to irreversible consequences for the corporation.

In order to be successful a good CEO needs to do the following:

1)    To clearly trace the point when his attitude towards the company mixes up with his personal interests;

2)    To identify a behavior pattern which may lead to failure and avoid it;

3)    To think about what can be criticized by the employees in behavior, trait of character and business strategy;

4)    Have a mentor who can objectively look at the company’s present position and be able to remind the CEO about key elements of the successful company.


Being a CEO of a corporation is not an easy task as it requires a set of both personal and professional qualities form a man. The most important thing is not to let the perception of the company’s reality be damaged by personal traits and excessive self-confidence. A good executive will always know that his opinion might not be the only one correct and sometimes may be incorrect at all. The most important element in the implementation of the Finkelstein’s EWS is the notion that any CEO is just a human being and has the possibility to make a mistake. Therefore an executive is to constantly control the company’s direction of work and its correspondence to the minimum-risk trend. These are the general mistakes that a CEO needs to learn from shocking examples of Boston Red Sox, J&J Rubbermaid, Wang Labs, Schwinn and others. The EWS in its turn will change the control systems of the companies’ management and make sure the leaders adopt the most effective strategic and personal habits. I posses leader qualities but know I will remember that my personal failure as an executive implies the failure of the whole corporation.

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