Business Pathologies: Companies in the ICU

We live in what could be called the Organization Age, in that society is impacted by the role played by organizations, be they public, state, private, philanthropic, socio-economic, religious, educational, recreational, etc.

In an organizational society, one can identify structuralists refer to as the “organization man,” who plays different roles in different organizations. The organization man lives in conflict with the organizations, to the extent that his interests and those of the organizations are often divergent. The organization man is further characterized by his ability to adapt to new situations, a requirement in contemporary society especially, when individual flexibility is paramount, since changes occur at high speed, and it is necessary to anticipate and adapt to them.

The role of organizations has extrapolated from simple instrument to satisfy the wishes of its members and society. In reality as organizations develop, individuals’ “extra-organizational life options” decrease, forcing them to develop various adaptation mechanisms to coexist in this so-called organizational society.

On the other hand, organizations, like individuals, get sick.

Throughout society’s evolution organizations have generated dysfunctions, myths, and rituals, as well as contributed to the alienation, and other such de-structuring effects, of their members. Thus, a process of deterioration takes place in organizations that endangers their survival. Many prosperous and profitable businesses of the past no longer exist. Who doesn’t remember Kodak, Pan Am, Arthur Andersen, Enron, Lehman Brothers, Swissair, Virgin Megastore, Blackberry? Others who once were leaders and examples of managerial competency in their segments have lost market value or were acquired, such as Sun Microsystems, Compaq, Kolynos, Napster, SEGA, HP. In Brazil, Manchete, Banco Nacional, Unibanco, Itautec, Mappin, Arapuã, G. Aronson, Mesbla, Yopa and Varig no longer exist. Recently, domestic appliance manufacturer Mabe (Dako, GE, Continental) and Luigi Bertolli, Intelig and BCP, have all succumbed. Others are seriously ill with what we might call “multiple traumas,” such as Andrade Gutierrez, OAS, Odebrecht, OGX, Oi and JBS.

All of these companies, once prosperous, have fallen victim to the most diverse pathologies. Some have died, and others are “on a respirator,” hoping injections of public funds or acquisition by investors will heal them.

But what exactly is a pathology, when it comes to companies?

In this installment of Management Tips, I propose merely an initial reflection, with no pretense of deepening, much less exhausting, discussion of the subject.

In medicine, pathology is the study of structural, biochemical and functional changes in organs, cells and tissues, and aims to understand the mechanisms by which the signs and symptoms of diseases arise. The word pathology is of Greek origin and means “the study of disease,” where pathos is disease and logos, study; however, pathology is also used synonymously with disease itself.

By analogy, Business Pathology investigates business dysfunctions in the management model, business model, planning, organization, direction, and control, identifying alternative solutions and prescribing “treatments” for companies. Using a robust methodological framework, it identifies symptoms and evidence that the analysis of pathologies can provide alternatives, so as to avoid the occurrence of dysfunctions and to ensure the sustainable development of companies and their perpetuation under conditions of competition.

Here, too, early diagnosis is crucial in preventing the worsening of the “patient’s” clinical presentation and in effecting healing.

Similar to the human body, organizations may present pathologies that, if not treated in time, may evolve by compromising their health or hampering their development.

Pathology can also be defined as the study of disease to understand its causes and to apply this knowledge to the prevention and treatment of patients.

Therefore, Business Pathology, in a synthetic way, would be the study of the diseases that affect companies, in order to identify causes and to provide prophylaxis and treatment. Prophylaxis represents the adoption of measures to prevent or mitigate diseases.

In recent years I have seen many public and private organizations from the most diverse sectors affected by dysfunctions due to changes in the business environment, important gaps in the management model and the business model, and poor strategic decisions, often leading to illness.

The incidence of dysfunctions, pathologies, neuroses and myths in companies reiterates the hypothesis of the existence of a property of organizations analogous to the second law of thermodynamics that states that organizations have a tendency to disintegrate as a natural consequence of their functioning. This characteristic is called “organizational entropy” (Kast & Rosenweig, 1970, p 56; Argyris, 1970, p.1).

Business pathologies have internal or external origins. Those of the latter are usually determined by changes in the macro-environment or business environment. Internally caused pathologies, as a rule, derive from outdated, obsolete management models not based on a leadership system, nor on a continuous process of planning and deploying of strategy, from a lack of customer focus or harmonious relationships with society, from neglecting the management of knowledge, from a lack of attention to team members, from a fundamentally vertical and dysfunctional organizational architecture, from a lack of systematic concern with process improvement, and the failure to periodically monitor results by means of indicators that feedback the strategy and provide its reconfiguration.

Pathologies of internal origin are also caused by business models that do not respect principles, values, ethics, and social and environmental responsibilities. They are unplanned, undersigned business models, which therefore do not reflect a clearly defined value proposition, do not seek innovation, the establishment of lasting partnerships, or co-creation. Inappropriate or inconsistent business models do not adequately address the business environment, imminent transformations, the necessary holistic view of the micro and macro environments, much less the flexibility for agile reconfiguration in the face of change. Without well-delineated key activities, well-defined sources of revenue, sufficient resources, an identified cost structure, a defined segment/niche of clients, or an adequate strategy of differentiation, positioning, product/service, price, distribution and communication, these are business models doomed to failure from birth.

Exaggerated emphasis on typical behaviors may also characterize a pathology, as well as lack of creativity and resistance to innovation. Although these factors do not necessarily lead to collapse, they show symptoms that should not be disregarded.

Beyond management and business models failing to provide competitive and other advantages, the following may be considered business pathologies: administrative microcephaly, administrative macrocephaly, bloated advisor/consultant corps, high turnover, high absenteeism, nepotism, favoritism, lack of formalization of organizational architecture, absence of unity of command (unless the organization has adopted a matrix structure), illogical integration of units, and an excessive centralization resulting from a lack of empowerment.

As can be seen, any company is subject to illness, from the largest to the smallest. For illness to be avoided, it is essential to attend to the earliest perceivable symptoms, through adequately diagnosing the management and business models and monitoring the vital signs as evidenced by performance indicators. An early diagnosis of the business can be the difference between recovery and death. Evaluating the vital signs equips the management team to make decisions about the need for intervention.

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