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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 derives from issues where the company lacks the experienced talent to recognize 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 result is often that through the inability to recognize internal or external early warning signs, the company falters and ultimately fails. Internally, it may be the over-reliance on a unique individual, compounded by lack of a succession plan for his or her skill sets or leadership. Externally, it may be the failure to understand market trend shifts or recognize the impact of a new competitor that is eroding 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, and 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

The first three risks are discussed in Part 1 of this Series (hyperlink part 1).

Risk of Underestimating the Competition

A global economy makes it even easier for a mid-market company to get caught from behind by failing to diagnose a new competitive threat or comprehend changes in a competitor’s strategy until it is too late to react — 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. 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. 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.

The requirement for strong and on-going executive sponsorship for change initiatives is well-documented, but equally important is the need to communicate business messages to all employees about the transition and its implications.

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 that can lead to “crash and burn” when not recognized early and addressed.

Business exposure can be mitigated by bringing in experienced leadership on an interim basis. 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 when the perfect candidate cannot be found, the use of an interim executive to fill the position can ensure that there is continuity in the role to be filled until a permanent employee is identified.

The “analysis paralysis” typical of decision-makers who have not confronted critical questions before can be eliminated through use of interim leadership skilled in recognizing and managing risk because they 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 go wrong. Only then can the consequences of risk be assessed and managed to ensure business continuity.

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