Change Management: One of the Top Risks That Can Kill Your Business – Risky Business Part 2

One of the most common areas of high risk for businesses is change. Failure to understand the ramifications of a merger or acquisition and failure to account for the business and personnel change management requirements is a key reason the majority (nine out of ten) of M&A activities are deemed unsuccessful

Click here for part 1 – Risky Business: Top Risks that Can Kill Your Business 

What keeps mid-market executives awake at night? Not only the issues they see in their business — but also an unquantifiable fear of what they don’t know. It is the risk of oversight, of missing a critical signpost, or of not anticipating a business turn. The fear factor stems from the mixture of the risks they recognize with the risks they cannot foresee. In young and growing companies, likely founder-run, business breakdown often stems from issues where the company lacks the experienced talent to recognize the issues early enough to ward off. Even if an inherent risk is identified — for example, a design flaw in core technology that will impact time to market — often the smaller or younger company may not have the bench strength — the cadre of experienced professionals with the expertise — or simply the time — to address it in a timely way.

The inability to recognize internal or external early warning signs often results in the company faltering and ultimately failing. Internally, it may be the over-reliance on a unique individual. Additionally, that can be compounded by lack of a succession plan for his or her skill sets or leadership. Externally, failure to understand market trend shifts or recognize the impact of a new competitor erodes market share.

Business Risks to SMB Companies

There are five primary risk areas that present the foremost threats to mid-market companies. Two relate to core business management. Three relate to understanding the impact of change. All are likely because of lack of a “been there-done that” perspective on the issue at hand. Failure in any one of the five can prove catastrophic to a business.

Five Major Risks to SMBs

1. Wrong people for the job
2. Project failure
3. Missed customer expectations
4. Underestimated the competition
5. Missing the boat on change management

Part 1 of this Series discusses the first three risks.

Risk of Underestimating the Competition

A global economy makes it even easier for a mid-market company to get caught from behind. This is due to failure to diagnose a new competitive threat or comprehend changes in a competitor’s strategy. It is too late to react when market share has already been poached. Maintaining a competitive stance requires continual vigilance — vigilance many companies simply don’t have the time or staff to devote to. And sometimes companies with a first to- market position feel they are invulnerable — at their peril.

Keeping abreast of the competitive technology has two aspects — one, ensuring that your products retain their competitive edge, and two, ensuring that your production methods and internal practices are themselves competitive, using tools and technology that ensure the highest productivity for your staff. To retain a competitive advantage, a company must establish a profitable and sustainable position with regard not only to its strategy, its quality, its market-entry timing, but also, of course, its pricing. A sudden low-cost rival can cause disruption that lowers margins, affects product quality and time to market, and lowers the customers’ perception of value. In all, the sustainability of a differentiating value proposition requires constant and continual attention.

The Risk of Transition Failure

One of the most common areas of high risk for businesses is change. A key reason the majority (nine out of ten) of M&A activities are deemed unsuccessful is failure to understand the ramifications of a merger or acquisition and to account for the business and personnel change management requirements. Business transitions that involve restructuring or right-sizing often have unintended consequences that adversely impact the financial wellbeing of the company.

Few mid-market companies have professionals with change management experience as part of their team, a necessity for successfully navigating the legal, business, financial, integration, and personnel issues of major change. Even changes which may seem routine — changes in product direction, corporate strategy, company branding, for example — can prove a fiasco if management does not have the experience to fully understand the consequences.

Strong and on-going executive sponsorship for change initiatives is a well-documented requirement. Equally important is the need to communicate business messages to all employees about the transition and its implications.

Change Management: The Role of Interim Leadership in Mitigating Risk

English poet William Blake once said, “Execution is the chariot of genius”. Nowhere is execution more important than in today’s business world. The five risk areas identified here present potential stall points for a company. These risk areas can lead to “crash and burn” when not recognized early and addressed.

Bringing in experienced leadership on an interim basis mitigates business exposure. In mitigating the risk of a bad hire, an interim executive can aid in clarifying the role and the goals of the position, and articulate the skill sets required. This executive can delineate the position plan, define the profile of an ideal candidate, and, when needed, actively participate in the hiring process. And without the perfect candidate, the use of an interim executive to fill the position ensures continuity in the role until a permanent employee is identified.

The “analysis paralysis” typical of decision-makers who have not confronted critical questions before can be eliminated through the use of interim leadership skilled in recognizing and managing risk. These interim leaders can make a decision rapidly, based on their expertise and prior experience. It is imperative that a company has the ability to know how to identify, evaluate, quantify, and then mitigate risk. Only with the experience and insight to foresee what might go wrong, can management analyze what could go wrong before it does. Only then can you assess and manage the consequences of risk, ensuring business continuity.