How To Reverse A Sudden Slowdown!

How to reverse a sudden slowdown.

- Chris Zook And James Allen

Most successful companies eventually face a predictable crisis that we call stall-out – a sudden large drop in revenue and profit growth or a collapse of once high shareholder returns to well below the cost of capital. Stall-out occurs when the growth engine that powered a company to success stops working. This rarely happens because the business model has suddenly become obsolete – a common misconception. Rather, our research shows that the business has almost always become too complex, most often owing to bureaucracy that slows the company’s metabolism, or internal dysfunction that distorts information and hampers managers’ ability to make rapid decisions and take swift action on them. When we talk to executives about the symptoms of stall-out, their words vary, but the reasons remain the same. We’ve lost touch with customers. We’re drowning in process and PowerPoint. We have no shortage of opportunities, but somehow we can no longer act decisively. What was once such a high-energy ride now feels like trying to pilot a plane with no thrust and unresponsive controls.

In an analysis of 8,000 global companies, we found that two-thirds of those successful enough to reach $500 million in revenue faced stall out over the 15 years ending in 2013 – including notables such as Panasonic, Time Warner, Carrefour, Bristol-Myers Squibb, Alcatel-Lucent, Philips, Sony, and Mazda. More alarming still, for 50 large companies in prolonged stall-out, we found that the onset had usually been sudden: Momentum fell sharply over just a year or two, with growth rates dropping from double digits to low single digits or even negative numbers – a finding consistent with past research (see “When Growth Stalls,” HBR, March 2008).