Organizations go through four stages in their life-cycles, from start-up to rapid growth through consolidation to decline. Several factors can contribute to organizational decline, including fierce competition, obsolete technology, lack of innovation and rigid bureaucratic hierarchies. Just as detection and treatment can prevent a disease from damaging the body, the key to preventing decline is to recognize the symptoms early and intervene quickly in order to turn around the organization.
Recognize the symptoms early because, while decline generally occurs over a long period of time, once it manifests itself in poor performance metrics (such as declining profits and high staff turnover), it might be too late to change course. Symptoms include swollen staff and multiple layers of middle management that make communication difficult and lead to turf battles; tolerance of incompetent management; cumbersome administrative procedures involving excessive paperwork and slow approvals processes; disproportionate staff power in some of the functional groups (such as finance and legal) to the point where they -- and not the operational staff -- determine a company’s direction; more time spent deciding on decision making criteria rather than making decisions; and inflexible organizational structures.
Establish the likelihood of decline in your organization. Think of this step as getting an alcoholic to admit that he has a drinking problem. Through a process of top-down and lateral dialog, challenge staff and middle management to identify areas of decline and recommend corrective actions. External stakeholders (lenders and investors) can bring significant outside pressure to bear if senior management is reluctant to act. For example, lenders can call in their loans, and investors might publicly call for the replacement of the board and senior management. These pressures create a crisis environment that often forces the board, if not senior management, to initiate corrective measures.
Change senior management. There are numerous instances of corporate press releases announcing the departure of chief financial officers or chief executives after earnings fail to meet expectations. It is important, however, to bring in the right leadership because not all executives are turnaround specialists. Steve Jobs was the right fit for Apple when he returned in 1998 to the company he had co-founded because he knew the company and its strengths. Louis Gerstner was also the right change agent for IBM in 1993 when the company found itself in decline after many years of technology leadership. Massive transformation begins with a "sense of crisis or urgency," Gerstner said to the Harvard Business School in 2002, because institutional inertia prevents organizations from considering fundamental change under normal circumstances.
Increase board supervision of management. When there is a senior executive shakeup, the board will often ask one of its members to step in and take on an operational leadership role. Although this can be a useful interim step, more direct board involvement in supervising operational management, at least through the turnaround phase, is also important.