The “Too Big To Fail” debate has been rampant for well over a year now as institutions like GM, CitiGroup, AIG,Chrysler and numerous others have essentially failed, only to be rescued by the US Government. Lack of leadership. Ineffective risk management. Rogue teams with few controls. Bloated cost structures. These are a few of the reasons why they failed. But what isn’t being offered up as a reason is this:
Were These Companies Were Too Big To Succeed?
Earlier this year The Hacket Group reported:
The world’s largest companies have for the most part failed in their efforts to reduce the cost of functions such as Finance, IT, HR, and Procurement over the past year, exacerbating the impact of dramatic declines in revenue, profits, and earnings, according to new research from The Hackett Group, Inc.
Hackett’s analysis of the latest financial results of nearly 200 of the 1,000 largest public companies in the world that have reported Q2 2009 financial information showed that only one company in four was able to manage their Selling, General, & Administrative (SG&A) costs in line with revenue reductions over the past 12 months.
While these companies saw average revenue reductions of 23.7 percent, they were only able to cut SG&A costs by 6.7 percent. As a result, SG&A costs as a percentage of revenue for Global 1000 companies have risen significantly over the same period, going from 12.6 percent of revenue to 15.5 percent of revenue. Hackett’s research found that typical Global 1000 companies (with $26 billion in annual revenue) are losing out on up to $1 billion in annual cost savings as a result of this lack of agility.
Yes, agility is an important component fo every company, especially during an economic upheaval. However, as you look at companies like CitiGroup, GM and others that have become exposed in this economic downturn, what words come to mind? Personally, words like inept, clumsy and bloated come to mind. And as I’ve written many times before, large companies are ripe for “silent problems” (problems that are avoided, neglected or go about unnoticed) to germinate, grow and potentially explode into a Without Warning event. The only way for large organizations to remain healthy is for them to be vigilent in the prevention of silent problems in the first place and the discovery/solving of them if they’ve already occurred.
Bottom Line: The Too Big To Fail debate should also include a debate about Too Big To Succeed. Only when the counter weight in this debate occurs can wise decisions be made before they become Without Warning Events.
