Six business risks that can result in corporate failure

Published: Tuesday, 01 December 2015 09:12

Six factors that can cause companies to fail have been identified in a new study looking at the collapse of telecom giants WorldCom and Nortel.

WorldCom was the largest bankruptcy in US history when it filed in July 2002 with $35 billion of debt, while Nortel Networks was once the powerhouse of the Canadian tech industry before it went bust in 2009 following an accounting scandal.

Loizos Heracleous, of Warwick Business School, and Katrin Werres, senior industry analyst at Google, found the two cases had valuable lessons for corporations and set these out in a paper for the Long Range Planning Journal.

Professor Heracleous said: “We identified six interrelated factors of strategic misalignment, the processes that can lead to corporate failure if left unchecked. Once strategic misalignments are established these then spread to other areas inside the organization. In the latter stages significant gaps are created between the strategy and competencies of the firm, and between strategy and the demands of the competitive environment, which leads to corporate failure.”

The paper ‘On The Road To Disaster: Strategic Misalignments and Corporate Failure’ looked to identify typical patterns of strategic misalignments and found six factors:

Read a copy of the paper here (PDF).