Age of Extreme Competition
by Professor Andre de Waal MBA - HPO Center
Here are some facts from the business world you might not be aware of.
- More shareholder value has been destroyed in the last five years as a result of mismanagement, wrong decisions, and bad execution of strategy than was lost through all the recent compliance scandals combined. In a recent Booz Allen Hamilton survey among 1,200 large companies, it turned out that at the 360 worst performers 87 percent of the value destroyed was caused by strategic missteps and operational ineffectiveness. Only 14 percent could be attributed to compliance failures or poor oversight of the company’s corporate boards.
- The average time a CEO or managing director spends in the top-position is continually decreasing, from an average of more than ten years two decades ago to two and a half years nowadays.
- More than 50 percent of managers take decisions based on their gut feeling not on hard facts, and 36 percent has black boxes in the organisation of which they know hardly anything.
- Despite the widespread conviction that employee satisfaction and employee loyalty increase customer satisfaction and loyalty, and thereby increase turnover and profitability of the company, four out of every ten organizations do not actively work on increasing employee loyalty.
- The rate in which companies lose their leadership positions in their industry, the so-called topple rate, has doubled in the last two decades. The rate in which new companies enter the Standard & Poor 500 and old respectable firms fall out of this list has almost doubled in the last half a century. At the same time, the average life span of an organization, irrespective of its size, is now 12½ years.
- Seventy percent of the population considers government to be not very effective and therefore is loosing trust in this authority, almost as many civil service officials themselves are of the same opinion(!). Trust of the public in profit companies has declined from 60 percent in 1980 to 40 percent in 2000, while only 28 percent of the population trusts business leaders to tell the truth (which is still 10 percent higher than the trust in politicians).
- Return rates and warranty costs are dramatically rising while at the same time customer satisfaction levels are steadily decreasing, a strong indication of the deteriorating quality of products.
- Of recent mergers and acquisitions, only 17 percent is reported to add value to the combined company, 30 percent produced no discernible difference, and 53 percent actually destroyed value.
- The majority of companies which get into a crisis find themselves in this situation because of internal factors, of which dysfunctional management (48 percent of the cases) and inadequate management information systems (42 percent) are the most common causes.
What do all these facts have in common? They are indications that organisations, both profit and non-profit, are starting to come apart at the seams under the continuing pressure of increasing demands of all stakeholders. It is said that this is the age of extreme competition in which the combined forces of global competition, technology, interconnectivity, and economic liberalization make life tougher than ever before for companies.10 Ever since the eighties business writers have been claiming that the world was getting more dynamic, turbulent, unpredictable and competitive. Jack Welch, former CEO of General Electric, apparently once said that the 1980s would be a ‘white-knuckle’ decade of intensifying competition and that the 1990s would be tougher still. As it turned out, in retrospect the 1990s were ‘a piece of cake’ compared to what is happening now in the world at large and the business world in particular. Many trends and developments are fundamentally reshaping the global business economy. The most important ones are listed underneath.
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