Believe it or not, it is easier for a company to achieve remarkable levels of success than it is to stop the slide down once a company reaches the pinnacle of its success. There is no in-between. Once a company stops growing, it begins to decline. It may take months, years or even decades, but in the vast majority of cases, once the decline of a successful company begins it is virtually impossible to stop before the company loses its independence or actually fails and disappears. The lesson is simple: If a company is not making history, you are history. If you don’t grow, you go!
There are almost too many examples to prove the point, but Xerox, Kodak, Polaroid, Trans World Airlines, General Motors and Chrysler are but a few that can be mentioned. Even if the companies have survived, they are clearly in a form different from their heyday of success. Consistent patterns – some obvious and some subtle – plague all companies that begin the downward slide to failure. For a successful company to avoid the slippery slide to oblivion the leaders of the company must understand, resist and overcome these signs of slide.
These identifiable patterns include:
- The company begins to lose its competitive edge. Market and technology changes become the enemy rather than the opportunity.
- The culture of the organization evolves from entrepreneurial to bureaucratic.
- Company management begins to exhibit an attitude of entitlement to future success for the company.
- The company seeks to maintain rather than attain.
- As the future becomes uncertain, management wraps itself in the certainty of the past.
Once these patterns have taken hold and a company begins to decline, it is virtually impossible for the management that allowed the decline to begin to reverse the slide into oblivion. It becomes, as they say, inexorable.
A company in decline can easily be identified by the actions of a flailing management in an attempt to save the company. Actions such as:
- Reorganization after restructuring after reorganization. It is as if simply moving the pieces around will change the game.
- Cost-cutting and downsizing ad nausea. Cost-cutting and downsizing were not what caused the company to grow in the past, but a desperate management acts as if such actions are the Yellow Brick Road to future growth.
- Switching from taking known risks to making gambles on unknowns. Gamblers always lose in the end, but managed risks are opportunities for growth.
- Seeking to change the rules of the game to make it easier for the company to compete, i.e. changes in accounting or regulatory rules.
- Attempting to sell off parts of the company to save the whole. When a company is in growth mode it adds to the whole. When a company is in decline it subtracts from the whole.
- An attempt to find a “strategic partner” to prop up the company as it teeters on the brink of failure.
There are three telltale signs of a company in decline:
- Constant, pleating protestations from management that, “everything is okay and under control.”
- When there is wave after wave of changes in the executive suite, especially the CFO and CEO.
- When second level management and key employees begin to desert the company.
Any number of companies could be the poster child for the ersewhile successful company that barreled down the road to potential oblivion, but none more contemporary or pertinent than Hartford Financial Group. (Even though AIG and Lehman Brothers are obvious examples of successful companies that failed, their demise was more the result of greed and search for artificial growth.)
For 200 years Hartford has been a highly respected and successful company. Clearly it achieved icon status not only in the insurance industry, but in all of American business. Unfortunately, Hartford exhibits all the signs that its best days are behind it. Indeed, that it may not even have a future.
Let’s measure Hartford against some of the points illustrated above.
- If anyone knows Hartford they know it is caught in the vice of bureaucracy. There is little movement or ability to change in a changing market.
- Management has done more to celebrate the past 200 years than to offer a clear vision for the next 10.
- For the past few years much of the company’s effort and energy has been concentrated on cost-cutting, restructuring, reorganizing and downsizing.
- Rather than expanding into new markets, Hartford was withdrawn from potentially lucrative markets in Europe and Japan.
- In an effort to increase sales, the once prudent Hartford management has taken investment and product pricing risks that it neither understood nor could manage. (As evidenced by the fact that the company has acknowledged it is in the process of re-pricing and reducing risk in all its annuity products.)
- Hartford management aggressively lobbied the Connecticut Insurance Department to change the rules regarding policy reserves in order to reduce the company’s need for scarce capital.
- Hartford management announced its intent to sell off company subsidiaries and divisions such as its life insurance business. (Only when no buyer could be found did Hartford take the companies off the market.)
- Hartford management sought out Allianz SE to invest $2.5 billion in the company as a strategic partner. In addition, Hartford is one of the few insurance companies to accept $3.4 billion in TARP funds, and the government restrictions that go along with it.
Examples of the telltale signs of decline at Hartford:
- For over a year now Ramani Ayer has been criticized for offering nothing but constantly changing Pollyanna statements about the status, strength and future of Hartford. If Hartford were as strong and secure as Mr. Ayer might have us believe, one might question why the company had to beg for relaxed reserve requirements, accept $2.5 billion from Allianz and $3.4 billion from Uncle Sam?
- Both the COE Ramani Ayer and the company’s chief operating officer, Neal Wolin announced their resignations and need to be replaced.
- Since 2007 Hartford has seen six top executives leave the company, not to mention suspected (but unannounced) heavy turnover at lower levels of management. As Greg Bordonaro wrote in Hartford Business Journal, “The depletion of top level management left few qualified candidates for The Hartford’s top spot and has raised some concerns among company investors.”
And the moral of the story is …
Of course it is not impossible for Hartford to turn things around, but putting all the pieces together does not generate much optimism for the future of the company or even its survival. If Hartford is to survive, it clearly will need a new leader who is more in touch with reality than Mr. Ayer who, when announcing his resignation said, “Now that the company’s on a sure footing, it time for me to move forward with my plans…It’s time to give somebody else a chance and a crack at this fabulous enterprise.” Unfortunately, whoever accepts the Hartford job just might need to be on crack to accept this formidable calling!