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Rob’s Blog

Too big to fail?

The list of market leaders that have gone bust or required Government intervention is seemingly endless. Companies that, at the time of their peak, were considered by many as global leaders. Companies that you could never have imagined as one day just not existing.    I’m sure we all remember the news articles about the likes of Kodak, Enron, Blockbuster, General Motors, Lehman Brothers, Northern Rock, Marconi, Readers Digest, Woolworths, BHS, Bradford and Bingley, Equitable Life….the list goes on and on.

But what happens internally for such large companies to lose their way?  I believe it’s quite simple and can be broken down into four basic parts.  Two when a company is formed and growing that explains why they become successful and two when things start to fall apart.

When a company is in its infancy, owners and employees are generally keen and hungry to succeed.  This takes the form of ;

  1. Putting the customer/ client as the heart of everything. The client really is the most important thing to the business and they will do anything to make them happy, loyal and hopefully to become an advocate.
  2. Genuinely wanting to make fantastic products/services that exceed client’s needs and expectations. In the Financial Services industry this is likely to ensure a whole of market approach is taken to ensure the client’s needs are fully met. By investing with the best fund managers in the industry and using solutions that may make little profit in the short term but which create customer loyalty longer term.

When a company grows and ages things start to change.  It starts to trade on its name and past history.  This is not a bad thing and the most successful companies use this as a springboard to become the market leaders in their sectors and even expand into other sectors successfully.

BUT at this stage things can also go terribly wrong.  For me there are two main factors.

  1. Internal politics take over a company. Companies can become no better than a school playground. Employees behaviour changes as they fight over each other for power or even just a better performance rating. The client becomes just an after-thought who has little relevance to the employees that use them as a commodity to build their own little empires.
  2. The need for an even bigger profit can be the biggest downfall of all these companies. Ever striving for the “extra percentage” causes companies to lose sight of what made them great in the first place. They cost cut to increase profit every few years making loyal staff redundant in order to show they can keep costs under control. Forgetting that every time they do a round of redundancies the staff that are retained lose a little more loyalty to the company they once loved. Eventually they become so disenchanted they instead begin to hope that they’re next to be made redundant in order to claw back some of their lost dignity.

The constant ‘striving for increased profits’ causes companies to withdraw their once great products and services and make them inferior.  This can take on many forms but in the Financial Services industry this takes on the guise of companies no longer offering whole of market products and instead proffering their own inferior, more expensive ones to clients. This is done on the premise of ‘risk’ when in reality it’s all about making more profit for the company and treating the once loyal clients with contempt.

Products become increasingly inferior over the years as they realise some clients will stick with them regardless as they have ‘that name over the door’ which stood for so much when they were in their ‘heyday’. They then continue to treat these clients with increasing contempt as they realise in the short term profits can continue with poorly made poorly performing products.  Again the cheaper the product the more profit can be made.

But then like the companies aforementioned at the start it all comes crashing down, this can be generational in timeframe as it takes the clients children or grandchildren to realise what has happened over the years and then it is just a matter of time before all that is left is to turn out the lights.

This article does not provide individual financial advice and are the views of the columnist only. Vision Independent Financial Planning Ltd is authorised and regulated by the Financial Conduct Authority