By Jo Whitehead *
(exechange) — November 1, 2019 — Our research looks at CEOs who leave under a cloud following a period of poor performance. A recent example is the bankruptcy of Thomas Cook, which illustrates the three main reasons for corporate stumbles neatly.
First, the company struggled to deal with a difficult challenge in its core business as the internet deconstructed its vertically integrated business model. Suddenly, it had to deal with focused airline competitors such as Ryanair, new upstart travel agents who focused on attractive niches, and a general shift away from bricks and mortar on the high street to online sites such as Expedia and Booking.com — changes that it did not manage convincingly.
Second, the company struggled with its growth strategy, making some poor and expensive acquisitions.
Third, the company amplified the risks from these strategic problems by taking on large amounts of debt, putting a financial burden on the business which was manageable only if there were no downturns — such as that due to Brexit uncertainty.
Stumbles are normally the result of one or two of these three problems. Thomas Cook suffered from all three — which makes its collapse less surprising.
* The writer is a director of Ashridge Strategic Management Centre and currently researching why companies and CEOs stumble. Jo.whitehead@ashridge.hult.edu
Editor’s note: This is a guest post.