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Anatomy of a Business Death Spiral

by Katherine Hunter on Wednesday, October 31, 2012 12:53 PM
In the face of an imminent crisis, business transformation can be a daunting task, so daunting in fact, that most companies will try anything else. Their situation is like that of the little Dutch boy who, upon seeing water seeping through the dike, attempted to hold back the North Sea from flooding Holland by sticking his finger in the breach. While this may have solved the immediate problem, he quickly realized that his solution could only stop the leaks within his reach and was at best temporary, requiring great personal effort and sacrifice. As a company that specializes in business transformation, we are often brought in as the last resort, a Hail Mary Pass used when all else has failed, only to find that all the drama could have been averted with a few straightforward course corrections earlier on. So how do you know when you need to walk the path of transformation? What are the symptoms of a dysfunctional organization and why is it important to recognize these symptoms early?

There are five main symptoms that emerge when an organization is starting to break down.

1. Resistance & Gridlock

2. Blame & Finger Pointing

3. Over-Active Rumor-Mill

4. Us vs. Them Silos

5. Financials Drive Decisions

As things get worse, these behaviors become ingrained into the culture. Each of these symptoms has a predictable and consistent pattern of behaviors that can be observed in the organization. It’s not hard to see, but you do have to know what to look for.


Resistance is the strategy for limiting change by limiting experiences. Resistance is the gatekeeper that guards against anything new, foreign, or different. It is the suppression of new ideas that sounds like “Maybe, but that won’t work here…” and “We’ve tried that before…”, or the feeling of “here we go again…”. While overt resistance can be straightforward to identify, it is easy to miss the more subtle manifestations. For example, have you ever been part of a company where meetings never start on time? This is a subtle, but powerful message that says what goes on during the meeting won’t really make a difference anyway so why bother to get there on time. Trust me, if it were the Super-Bowl these same people would be there to see the kickoff. We show up for what is important.

Blame & Finger Pointing

When resistance is no longer effective, the second symptom emerges, personalizing blame and finger pointing. Anyone with a toddler can verify that this is a behavior we humans learn very early. “I didn’t do it! Not me!” As adults, these excuses morph into some sophisticated behaviors designed to hide feelings of inadequacy. Finger pointing is in play anytime the source of the problem is with them, as in “if only they would ______.” Fill in the blank with some of my favorites: give us more staff, fix the database, follow the work-order, read the manual, order the material on time… you get the point. Although there may be some level of truth in the accusation, finger pointing is about making us feel better by deflecting responsibility to another person or department. I have never run across a situation in which the accuser was without some level of participation in the dysfunction.

Rumors & Speculation

Blaming another person or department for an organization’s problems is the foundation for the next symptom, gossip, rumors, and speculation. We humans feel more secure when we know what is going on. When we don’t understand what is happening, we create stories in the form of assumptions to account for what we observe. This is how rumors start, and the more these stories confirm our greatest fears the more juice they have, making them all the harder to get rid of.

Us vs. Them Silos

What makes stories interesting is drama, and drama requires both heroes and villains. When the players become polarized, each camp defends its own turf, and what results is the third symptom, us against them. Departmental silos become the norm and information stagnates or is used in a game of one-upmanship.

Financials Drive Decisions

With so little trust between departments, cross-functional collaboration becomes a rarity. Managers begin operating in defensive mode, hoarding information, resources, and ideas. The dysfunctional patterns start affecting the bottom line through increased costs, late deliveries, employee turnover, and dissatisfied customers. As the economics of the situation become more apparent, we find the fifth symptom, that of the financials becoming the determining factor in decisions. Financials always have to be a determinant, but in a crisis, all other factors are pushed aside and cost cutting takes precedent over investment. Any new idea, project, and resource are passed through the budgeting office to determine the return on investment by measuring the tangible financial savings. Existing budgets are cut and everyone finds themselves in a position of doing more with less. There is a limit to how long a company can survive with the continued cutting of costs because it is impossible to make a sustainable profit by reducing resources.

When new suggestions, ideas, and proposals are made it is met with resistance and the cycle begins again. Call it the anatomy of a death spiral.

Depressed yet? Don’t be, a business does not have to be run this way and the trajectory can be changed. Death spirals can be broken but, like any life-threatening disease, the earlier the intervention the quicker and better the recovery. In the next newsletter we will discuss what is needed to break this cycle and fly your company to new heights. Until then, pay attention to what is going on in your organization. My guess is that you will see much more than you have seen before.

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Katherine Hunter

Katherine has completed three advanced degrees in human behavior including a doctorate in Transformational Psychology. She is passionate about transformation: transformation of business, company culture and individuals. Katherine believes that the success of an organization is directly proportional to the passion of the individuals to make a difference and works with clients to leverage teamwork and collaboration as key components of sustainable performance.

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