{"id":112830,"date":"2023-09-13T13:42:00","date_gmt":"2023-09-13T17:42:00","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=112830"},"modified":"2023-09-15T15:45:41","modified_gmt":"2023-09-15T19:45:41","slug":"effects-of-poor-leadership","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/effects-of-poor-leadership\/","title":{"rendered":"The Effects of Poor Leadership on Big Companies"},"content":{"rendered":"\n

What are the effects of poor leadership? What’s “bad growth” in business?<\/p>\n\n\n\n

According to How the Mighty Fall<\/em> by Jim Collins, a successful company could become obsessed with growth in all the wrong ways, which he calls overreaching. This is mainly caused by leaders who believe that bigger is always better, but don’t necessarily pay attention to the finer details.<\/p>\n\n\n\n

Keep reading to learn more about the effects of poor leadership on successful businesses<\/a>.<\/p>\n\n\n\n\n\n\n\n

Overreaching<\/strong> in Business<\/h2>\n\n\n\n

The effects of poor leadership can drastically impact a company. Rather than pursuing steady, controlled growth in crucial areas like performance and people, a company may fall into the trap of thinking that \u201cbigger is better\u201d and look for ways to grow exponentially and rapidly\u2014even if it means veering away from the company\u2019s core purpose<\/a> or chasing after growth it can\u2019t sustain.<\/p>\n\n\n\n

(Shortform note: In The Voltage Effect<\/em><\/a>, economics professor John A. List discusses the four red flags that indicate a company may be overreaching<\/a>, or attempting to scale beyond what\u2019s realistic or prudent: the lack of a scalable<\/a> audience, dependence<\/a> on talented individuals or complex systems<\/a>, unintended consequences<\/a> of exponential growth (such as lower productivity), and increasing unit costs leading to reduced profits.)<\/p>\n\n\n\n

Collins cites Ames Department Stores as an example of an overreaching company. Ames had seen impressive growth over three decades as a small-town retailer. In a bid to break into the urban market and increase the company to twice its size, Ames acquired Zayre, another department store chain. However, Zayre\u2019s business model and strategies didn\u2019t align with Ames\u2019s, and Ames quickly tried to pivot, moving away from the formula that had helped it succeed. The move led to the company\u2019s downfall: Ames went out of business in 2002. <\/p>\n\n\n\n

(Shortform note: There were other factors beyond its acquisition of Zayre<\/a> that led to Ames\u2019s closure: the earlier acquisition of Hills Department Stores, the expansion of Wal-Mart and Target, and its drastic reduction in prices to attract customers<\/a>. In December 2022, rumors were circulating that Ames would be reopening in 2023<\/a>. However, as of June 2023, fact-checking website Snopes has deemed this news \u201cunproven.\u201d<\/a>)<\/p>\n\n\n\n

Key Driver: The Wrong Kind of Leader<\/h3>\n\n\n\n

What often drives a company\u2019s pursuit of unsustainable growth is having the wrong leaders in place. Collins argues that while building a great company is a team effort, one wrong person in power can plunge a company into decline.<\/strong><\/p>\n\n\n\n

Having the wrong leader can stem from a succession problem, says Collins: A strong leader who helped propel the company forward may leave without having trained a replacement, or they may entrust the company to an incapable successor. The board of directors may also lock horns when deciding on the next leader, resulting in a leadership vacuum.<\/p>\n\n\n\n

(Shortform note: In Built to Last<\/em><\/a>, Collins writes that visionary companies\u2014those that have endured for generations\u2014ensure that they have a leadership continuity loop<\/a> so they don\u2019t risk having a damaging power struggle or a leadership vacuum. These companies\u2019 leaders come up with a succession plan and have a list of strong internal candidates whom they train. Whoever takes over then puts their own succession plan in place.) <\/p>\n\n\n\n

Collins contends that having the wrong people\u2014those who aren\u2019t aligned with the company\u2019s culture and who aren\u2019t self-motivated and responsible\u2014sets off a vicious cycle within the company: Because people who aren\u2019t a good fit aren\u2019t intrinsically motivated to act in the best interest of the company, the company might try to exert greater control over them by putting tedious processes and protocols in place. As a result, talented people in key positions, dismayed by the red tape, decide to leave. The company then fills those roles with less talented people, leading to more red tape and more good people exiting the company. Soon, a middling team making poor decisions is running the show.<\/p>\n\n\n\n

(Shortform note: One company that recognizes the importance of having good people in key positions is Netflix. In No Rules Rules<\/em><\/a>, Netflix CEO Reed Hastings writes that an agile company needs innovators and high performers who push each other to produce quality work<\/a>. Thus, Netflix has strategies in place to retain its top-tier talent pool<\/a>: The company pays top-of-market salaries, gives raises that reflect employees\u2019 market value, and offers employees larger base salaries instead of rewarding them with performance bonuses.)<\/p>\n","protected":false},"excerpt":{"rendered":"

What are the effects of poor leadership? What’s “bad growth” in business? According to How the Mighty Fall by Jim Collins, a successful company could become obsessed with growth in all the wrong ways, which he calls overreaching. This is mainly caused by leaders who believe that bigger is always better, but don’t necessarily pay attention to the finer details. Keep reading to learn more about the effects of poor leadership on successful businesses.<\/p>\n","protected":false},"author":14,"featured_media":35629,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[45,14],"tags":[1260],"class_list":["post-112830","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","category-management","tag-how-the-mighty-fall","","tg-column-two"],"yoast_head":"\nThe Effects of Poor Leadership on Big Companies - Shortform Books<\/title>\n<meta name=\"description\" content=\"Companies can have bright ideas and loyal customers, but one bad apple could ruin everything. 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