Anatomy of a Business Death Spiral: Part 2

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Anatomy of a Business Death Spiral: Part 2

by Katherine Hunter on Wednesday, January 23, 2013 8:02 AM

An organization has a lot of moving parts and keeping them all humming along in synchronized harmony is no small task. Fixing one problem is easy but an organization may slip into a death spiral when the number of problem it faces exceeds the structure’s ability to address them. In the first part of this article (see previous blog entry for full text), I outlined the five symptoms that emerge when an organization is breaking down. These are:

Resistance & Gridlock – Limiting change by limiting experiences
Blame & Finger Pointing – Scapegoating and personalizing blame
Over-Active Rumor-Mill – Assumptions in the absence of knowledge
Us vs. Them Silos – Information hoarding
Financials Drive Decisions – Attempts to dampen the chaos by cutting the funding

Central to these behaviors is complexity. In neuro-psychology the point at which we can no longer process additional information is called the cognitive threshold. Information overload is not uncommon in our modern age. Things move too fast and come from too many sources. More data is created than can be assimilated. In short, too much data and not enough time to process it all. No, its not just you -- the cognitive threshold apply to everyone and is not a function of how smart you are.

Overload is a biological problem; the brain simply runs out of processing capacity. To manage the available resources, the brain uses the equivalent of an automatic spam filter to ignore anything not deemed important. Problems arise because what the brain deems important is related to short-term physical survival rather than to successful long-term strategies. Unfortunately, the brain has no spam audit file to check and, therefore, there is no way to know what has been filtered out.

Companies operate in the same manner. The death spiral symptoms are your decoder ring to identify the cognitive threshold of your organization.

In your business moving fast and distilling large amounts of data quickly is absolutely necessary. The question then is how to work with what you have. Pulling out of the business death spiral requires a two-pronged approach:

Breaking the cycle at each symptom
Raising the cognitive threshold of the organization

Let’s start with the first item, breaking the cycle at each symptom.

Resistance & Gridlock

We all have had the experience of proposing an amazing idea or opportunity only to have our enthusiasm met with a “yes, but it won’t work here.” Resistance is the normal response to change. As in our bodies, anything foreign introduced into an organization is automatically perceived as a threat. Effective change strategies must address the organization’s immune system. Don’t ever make the assumption that just because the change is critical for the survival of the company, it will be accepted. Organizations will rally to destroy a change initiative in the same way the body will reject a donated kidney. In an organization, circumventing the immune system is a process of discerning and proactively addressing the underlying fears.

Blame & Finger Pointing

Scapegoating and the personalization of blame occur when a person or group feels vulnerable. When there is question about the success of a change initiative, a search party will be sent out to find an offering suitable to appease the change gods (aka management). Like the burnt offerings of the past, the purpose of this ritual is to absolve the organizational guilt by sacrificing one person, department, or management layer to save the rest. When an organization has a history of shooting the messenger and when speaking the truth to power is career suicide, there will always be a sacrificial lamb.

Sacrifice is a result of magical thinking and magical thinking will not solve the underlying problem. To break the cycle, there needs to be a separation between who we are and the experience we are having. We may be experiencing poor performance, but we are not poor performers.

Rumors & Speculation

Rumors and Speculation start when we don’t understand what is happening and we create stories in the form of assumptions to account for what we observe. The only way to break the rumor mill is to make it unnecessary. Communication and transparency are vital to an organizations ability to engage and motivate employees. Everyone wants to do a good job and to feel appreciated. Clear expectations and process transparency allow employees to participate in the process of making an organization successful.

Us vs. Them Silos

Departmental or workgroup silos result from a lack of trust. In organizations information is power. Hoarding information, then, is how power and therefore organizational status is maintained. This focus on the workgroup as the primary team undermines the success of the larger organization. The “team” we are on is the organization and the role our workgroup plays defines our position on the team. It takes all the positions working together to win the game. When an organization is clear and transparent about its processes, employees will hold each other accountable and problem solve to fill the gaps.

Financials Drive Decisions

Just as our brain will automatically filter out anything perceived as unnecessary for survival, companies will often employ drastic austerity measures to improve the bottom line. While the intent may be to dampen the organizational chaos by limiting the number of moving parts, the effect is often the opposite. Costs need to be managed, but they need to be managed smartly with emphasis on the long-term survival of the business. When an organization reaches its cognitive threshold the result is blindness to anything other than the short-term crisis. Breaking the death spiral at this stage requires commitment to analyzing and following the data from sales, inventory, and operational planning. Developing the skills and capacities to accurately forecast demand and balance projected demand with inventory and an accurate capacity plan will provide usable data to efficiently manage customer demand and product fulfillment.

In the next newsletter I will cover ways to raise the cognitive threshold of your organization. Until then, assess how you can utilize what is outlined above and see how responsive your organization can be when you provide a structure that welcomes full participation.

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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.