SYDNEY FINKELSTEIN EXPLAINS WHAT
THE SIA METHODOLOGY - SIGNALS THAT INDICATE ALERT – IS USED FOR

In this interview, Sydney Finkelstein, the author of the celebrated book "Why Smart Executives Fail" explains how and why major, leading executives and senior executives, with impeccable academic credentials, enviable teams and known for their top performance, commit huge mistakes and destroy billions of dollars in corporate value. Of the 50 CEOs included in the six-year investigation, the results of which are extensively portrayed in the book, only two ever got back into the market in a position similar to what they held before. Fortune called the book "one of the best books ever written about business”. The Wall Street Journal called it “A marvel—a jargon-free business book based on serious research that offers genuine insights with clarity “. This project resulted in methodology known as Signals that Indicate Alert (SIA), which has been applied to 150 companies in different countries.  This methodology enables us to identify some of the signals that led to the cases of failure studied in the book.  Starting in July, SIA – SIGNALS THAT INDICATE ALERT – methodology will be available in Brazil through Galeazzi & Associados, who have an exclusive agreement with the author covering all of Latin America.  Below is the interview Sydney Finkelstein gave HSM news in June.

What was the objective of your research?

We set up a multidisciplinary team of 45 people at the Tuck School of Dartmouth College, where I am the Steven Roth professor of management. The objective was to identify the true reason for some of the better known failures such as Enron (allegations of accounting fraud that placed many of its executives in jail), Iridium (the satellite telephone system that collapsed for lack of clients), Motorola (who lost its leadership of the cell phone market because it did not believe in digital technology), Mattel (a faulty acquisition) and Saatchi & Saatchi (attempted to growth through an improperly assessed acquisition). Most of the cases described are about US companies, but the book also discusses four Japanese, four British, one Korean, one German, one Australian and one Singaporean company.

Did the investigators base their interviews on any premises?

We went out into the field to find out the true causes behind these events, whether or not they fit the premises normally held by the market. In general, business owners, executives and analysts tend to attribute corporate failure to a handful of causes, including incompetence, pure and simple, unpredictable events, failure to execute well designed policies, lack of executive commitment, poor leadership skills, a lack of resources or dishonest money handling. What was shocking was that we found that these causes could not be found in these cases because other factors prevailed - most of them tied to the exercise of power.

So what are the real causes?

Almost all are human, and have to do with improper behavior. Some even seem, at first glance, to be virtues or strengths but, just as with medicine, they turn out to be harmful when used too much or without the proper control. The book has a table that lists "The Seven Habits of Spectacularly Unsuccessful People”, which summarizes these vices.  Here are some of the mistakes committed by these individuals:

1 – They see themselves, and their companies, as dominating their environment.
2 – They identify with the company so much that the lines between their personal interests, and those of the organization, get blurred.
3 – They think they have all the answers, leaving others puzzled by the speed and precision with which they tackle complex issues.
4 – They demand that everyone be completely behind them, ruthlessly eliminating anyone who tries to undermine their efforts.
5 – They are the perfect company spokesperson and almost always spend most of their effort to manage and develop the company image.
6 – They treat major obstacles as temporary hurdles to be removed or overcome.
7 – They do not hesitate in going back to the strategies and tactics responsible for their, and their organization’s first successes.

Are the research, and the book, intended only to blow the whistle or point out mistakes?

No, not at all. What we want is to do is help organizations and senior executives, with unimpeachable records, avoid the same types of mistakes. Our objective is learning. For example, we value feedback and, in our book, we give examples of very constructive feedback. The methodology we created – SIA – SIGNALS THAT INDICATE ALERT – was developed to set in motion our intentions. The methodology was developed to identify the warning signs of future problems. The fact that it has been applied to 150 companies in numerous companies is a sign that we are on the right track.

What is the SIA – SIGNALS THAT INDICATE ALERT radar showing?

SIA – SIGNALS THAT INDICATE ALERT is fully applicable to Brazilian and Latin American companies.  It is programmed to detect warning signs such as: (1) an inability to understand reality, (2) brilliant execution of a flawed strategy, (3) failure in the communication system, and (4) a biased mental model. Finally, the method looks at strategies, people and processes. It allows the organization to detect dangers and problems that may appear in future. The methodology applies universal methodology to measure values such as arrogance, over-confidence and delusion, among others

Who is typically involved in the SIA – SIGNALS THAT INDICATE ALERT methodology?

The method can be used by the controlling shareholders, Boards of Directors or the CEO.  In other words, it is designed to be led and used by the senior ruling executive or executive body. It is normally applied to the C, or Corporate Level, but also involves the direct reports of these executives. It can go down a few levels, depending on the structure of each organization. One it has been applied and adjusted, it should be repeated 18 - 24 months later, as a maintenance strategy. It can be applied to vendors and clients, in some cases.

What are Galeazzi’s credentials to apply SIA – SIGNALS THAT INDICATE ALERT?

The Galeazzi team assigned to the project, under the leadership of Partner and Director José Carlos Aguilera, has been fully trained and is familiar with the system. I plan to return to Brazil whenever it is convenient, and will participate in SIA – SIGNALS THAT INDICATE ALERT projects in leading, successful companies as these tend to be the most vulnerable to future situations. What my team and I learned through academics and research, Galeazzi has learned in practice, recovering companies in distress, or headed in that direction. They combine the unique experience gained in at least fifty companies and have learned that organizations get into trouble for all sorts of reasons. One reason is simply a shift in paradigms. In recent decades business cycles have become shorter, something many executives have overlooked. The tide shifts much faster than it used to. Galeazzi has a seventeen year history of working with a surprising set of examples that show that tradition, market leadership and even continuously increasing sales are not always a guarantee of vitality or sustainability. In some cases, they contribute to keep the leadership from seeing problems that loom on the horizon.

Are there many commonalities between the SIA – SIGNALS THAT INDICATE ALERT method and the processes applied by Galeazzi?

Yes, there it turns out there are many points where we converge, although we had been unaware of this. A review of Galeazzi's turnaround or management improvement client portfolio, going back to the early 90s, shows that most of these organizations: had the leading market share, led their industries, were the second largest group in the country or segment, or the only well structured domestic player in the industry. Within this eclectic group of companies, the following problems were found: Protection from creditors (concordata), banks and suppliers; pre-bankruptcy situation; a business considered to be bankrupt due to obsolete technology; recurring losses; strategic mistakes and falling sales; significant amounts of high-interest debt; delinquent payments; concentrated short term payables and other factors, not to mention strategic planning that is unrelated to the company budget. In other words, the same virtues and defects repeat themselves in the US, Brazil and elsewhere around the world. The way to attack these defects, whether reactively or preventively, is also the same in any part of the world.