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Finding The Cause Of Performance Problems In A Business

Right from the start of my career, I’ve been fascinated by the idea of helping turn around businesses in trouble. When I was being interviewed as a trainee accountant in 1981, I expressed interest in the firms’ business recovery departments.

My career as an employee had its share of highs and lows. I was seconded to a start-up company in a group and had the true “cradle-to-grave” experience as I eventually closed it and sold off the assets. I was also the Finance Director of a business that found itself caught in a savage price war and I’ve never seen profit drain away from a business so quickly.

When I had to write a dissertation for my MBA, it seemed obvious to choose a topic that looked at how small businesses in financial difficulty might be rescued before collapse. It involved extensive research into the causes of failure and how businesses can achieve turnaround and I really threw myself into it. So much so that I had to ask for a six month extension. When finished, the dissertation was received a Grade A Distinction, which meant it qualified to be permanently bound and placed into the Manchester Business School library.

I’m telling you this because one of the interesting things thrown up by my research was the issue of causal attribution and how business managers and owners deceived themselves, at the risk of the future survival of the business.

Let’s have a look at what I discovered.

Bernard Weber’s Three Dimensions Of Casual Attribution

Bernard Weiner identified three dimensions people use to attribute causes to problems:

  • Is the cause internal or external to ourselves? Did we cause it to happen or did it happen to us?
    .
  • Is the cause controllable or uncontrollable? Things are happening but can we or can’t we do anything about it?
    .
  • Is the cause temporary or permanent? Is this a short term problem which will go away if we ignore it or is it a long term adjustment to the way our world works which needs a response from us?

Applying Causal Attributions To Business Performance Problems

Another academic, Jeffrey Ford took these dimensions of causal attribution and looked at how managers respond to a performance downturn in a business.

This causal attribution, made by a business owner often on his or her own without debate or challenge, goes a long way to deciding how the business will respond to the performance problem.

Ford found that the initial attributions were:

  • External – the problem is coming from the outside.
    .
  • Controllable – but we can do something about it.
    .
  • Temporary – the problem will go away in the end but we can take short term tactical actions to fix it.

This means that there is a simple solution.

“We don’t need to change because the problem is in the outside world but fortunately we can fix it. We’ll do more of what we are doing and that will solve the problem. We’ll push harder, spend some more money, give the staff better incentives”

There’s no need to worry.

It’s fine if it works.

But… often it doesn’t work.

According to Jeffrey Ford, when performance doesn’t get any better, the causal attributions of the problem made by the business owners and managers changes from External + Controllable + Temporary to:

  • External – this recession or decline in the market is deeper and going on longer than expected.
    .
  • Uncontrollable – we gave it our best shot so I guess there’s nothing else we can do.
    .
  • Temporary – the recession must come to an end soon and then things will be back to normal.

Controllable has switched to Uncontrollable but there’s no need to be unduly concerned.

The solution is still simple.

“We’ll sit it out and wait. It’s probably sensible to cut some costs to give us some more time but things will pick up when the recession ends and things will be even better than before if our competitors go bankrupt.”

What’s really happening is that, if the business is losing money, then as each day goes past, the business has fewer resources available to get itself out of trouble. The business and its similarly inactive competitors have started a battle of attrition that means that each gets weaker over time.

Some businesses can wait it out.

Especially those with:

  • Plenty of resources and especially cash in the bank.
    .
  • A very low break even position so any losses incurred are small compared with competitors.
    .
  • A strong competitive advantage.

But What If?

It’s a great question to keep asking about your business – what if….

What if we are one of the weakest businesses in our market and our competitors are more likely to win the waiting game?

What if any recession goes on much longer than expected or what if there is a double dip recession?

What if the economies bounce back to modest growth but the consumers are scarred by the experience and move from impulse spending to planned long term saving? Suddenly conspicuous spending on unnecessary fancy gizmos may become unfashionable and may even be seen as anti-social and bragging.

The causal attribution of External, Uncontrollable and Temporary sees that last factor tip from Temporary to at least Semi-Permament.

Change While You Can Change – While You Have Time And Money

The external, uncontrollable and temporary attribution creates a reaction of Do Nothing.

It’s entirely logical if the attributions are correct but it’s at odds with your entrepreneurial instincts. You didn’t start your own business to be an “out of control victim of circumstances”. What’s got you to where you are is being “in control and taking action” and it’s turned you into a winner.

It’s time to challenge those automatic attributions and be true to yourself.

Stop blaming the outside world and accept that your business must change.

Accept that things are the way they are.

Talk to any insolvency practitioner and they will tell you that the main cause of business failure is the senior management of the business.

Either they:

  • Did things wrong inside the company. They made the wrong decisions or their management was weak and ineffective. Or,
  • They failed to anticipate and accept changes happening outside their business which directly affected it.

If you see things as Internal, even when they start from outside the business, you’ve got a much healthier set of attributions:

  • Internal – we need to change.
    .
  • Controllable – we can change.
    .
  • Permanent – we must change.

In fact, you now have a real agenda for change. It’s just a question of getting on with it.

 

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