Headed for a crash? 50 Leading indicators

By Bob Vanourek, Senior Consultant, GEM Strategy Management, Inc.

Posted March 6, 2017

Why is it that a corporate financial crash seems obvious in hindsight? The “Monday morning quarterbacks” cite the warning signs that were brewing. But why weren’t those signals heeded beforehand? Is your organization headed for a financial implosion?

Sometimes major external shifts cause a company to go under – shifts such as a major industry crisis or technology transformation. More frequently, a company implodes because of internal deficiencies that leaders ignore. But internally driven crashes don’t occur without emitting warning signs. These warning signs are not financial signals, such as revenue declines, shrinking margins, slowing inventory turns, deteriorating working capital ratios, and falling profits. Those metrics are lagging indicators.

Leading indicators are more important to watch because leaders can address them before the financials go south. What are some early warning signals of a potential crash? Based on my experience as a leader in eight industries and as the CEO of five very different companies, here’s my list of 50 red-flag indicators covering a wide variety of signals. I list 50 leading indicators because, even though some are louder warnings than others, all are important to understand the future of your business

You and some trusted colleagues can score your organization on these warning signals.

 50 Early Warning Signals of an Organizational Crash

Scoring system:

5 points = this happens often

3 points = this happens occasionally

1 point = we don’t have this problem

 

  1. Not holding people accountable for results.
  2. Not paying attention to how results are achieved (sometimes they are achieved unethically, leading to a future blowback).
  3. Tolerating abusive, egotistical superstars.
  4. Seeing complacency in people’s work.
  5. Sacrificing the long-term good for the short-term expedient.
  6. Neglecting integrity, cultural fit, and emotional intelligence in hiring and promotions.
  7. Failing to invest in developing people.
  8. Not listening to people.
  9. Lack of clarity in why the organization exists (is your organization’s purpose inspirational, or is it all about making money for you?).
  10.  Lack of commitment to mutually developed shared values to guide the behavior of people.
  11.  Leaders not flexing between the hard (steel) and soft (velvet) edges of leadership depending on the circumstances.
  12.  Excessively tight controls that stifle creativity.
  13.  Leaders being too easy-going because they want to be liked.
  14.  Excessive deference to the top leader(s).
  15.  Leaders making virtually all the decisions (not empowering others).
  16.  Failing to tap into the capabilities of people.
  17.  Weak, inadequate board of directors or advisors.
  18.  Constantly changing priorities
  19.  Poor communications and secrecy.
  20.  People operating in independent silos.
  21.  Insufficient understanding of how departments are interrelated.
  22.  Lack of discipline to execute well.
  23.  Lack of trust between people.
  24.  Treating people disrespectfully.
  25.  Leaders having favorites among people.
  26.  Excessive employee turnover.
  27.  Incidents of internal sabotage or theft.
  28.  Lack of rigorous, honest feedback from customers.
  29. Lack of rigorous, honest feedback from vendors.
  30. Lack of rigorous, honest feedback from employees.
  31.  Failure to cut unprofitable products or services.
  32.  Failure to understand new market trends.
  33.  Failure to invest in new products and services.
  34.  Excessive debt and interest expense.
  35.  Insufficient capital.
  36.  Lack of reasonable financial controls.
  37.  Excessive dependence on a single, or very few, customers.
  38.  Excessively high or low compensation and benefit levels.
  39.  Excessive travel and entertainment spending.
  40.  Owners taking excessive funds out of the business.
  41.  Leaders not knowledgeable of financial details.
  42.  Lack of rigorous financial planning and budgeting.
  43.  Exploiting vendors with excess pressure to lower costs.
  44.  Giving insufficient attention to local community needs and issues.
  45.  Insufficient policies, systems, and procedures to guide people’s work.
  46.  Poor quality products or services.
  47.  Unaddressed safety issues.
  48.  Excessive stress levels among people.
  49.  Constant surprises.
  50.  Leaders in denial about what’s really going on in their business.

To ensure you have an objective assessment, have one or two trusted colleagues also score your organization, even if they have to make some guesses at some answers. Assure them they will not be penalized for an honest assessment – you are trying to avoid a disastrous crash.

If your organization scored:

·         50-125 points: Congratulations, you are unlikely to crash and burn.

·         126-200 points: There could be trouble ahead. Some changes are needed.

·         201-250 points: Disaster looms.

Practical Applications:

Review and discuss any metrics with a 1 or 3 rating. Then you and your team can brainstorm solutions and prioritize action plans. You’ll unleash their creativity and heighten their engagement.

There is no reason for you to be blindsided by an organizational crash. Pay attention to the warning signs of leading indicators.

Bob Vanourek is a senior consultant with GEM Strategy Management and is the former CEO of five companies and a frequent speaker, consultant, and coach on organizational leadership. He is the co-author of the award-winning book, Triple Crown Leadership: Building Excellent, Ethical, and Enduring Organizations. Bob’s latest book is Leadership Wisdom: Lessons from Poetry, Prose, and Curious Verse http://tinyurl.com/zr2peng You can see Bob’s entire profile on http:gemstrategymanagement.com or reach him at 970.390.4441.

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