Examining a Business Failure in the Organizations


Organizational failure is a phenomenon where an organization becomes bankrupt or even dramatically falls in the market value. A company that falls from its grace, therefore, qualifies for the word “organization failure” to be used to describe it such that the word is not strictly descriptive of that firm or company that has run bankrupt. Thus when a company falls from its grace, it can no longer control the market it previously controlled (Maehr, 1998).

Characteristics of a company headed for a failure

Most organizations that have failed in the past have several characteristics which have been identified as indicators of a failing company. The first indicator is disproportionate and excessive growth by the firm. Under this, it is characteristic of such firms to have Sales growth drastically greater than the Sustainable Growth Rate. Most companies turn to acquisition as a good avenue for tremendous growth. Before its failure, WorldCom had made seventy-five takeovers in barely three years. The company had high financial leverage which resulted from the fact that the top management had invested intensively in areas where growth was substantial. If a lot of investment is made by the company, it will automatically face managerial problems hence becoming ineffective in its major operations. The company will not be able to coordinate the increasing complexity of the organization during the faster growth of the company. This may end up producing goods and services that are of low quality. WorldCom failed due to more dependency on autocratic leadership which is very dangerous to all organizations. Reliance on the ability of one person is very risky to an organization because the person may undertake the operations of the business at his or her discretion and the objectives might not be consistent with the interest of the stakeholders. Bernie Ebbers was the top leader in WorldCom who was considered genius hence was permitted to carry out the company’s operations at his discretion. Due to faster growth in the company, a large number of employees will get strained due to heavy workload (Bridgewell, 2000).


Some organizational behavior theories have explained the failure of many organizations. According to the Industrial Life Cycle theory, organizational failure is a natural and objective phenomenon that is inherent to effective market operations. The failure of WorldCom occurred because the company followed a priori sequence which is not related to the strategies and objectives of the management. The theory postulates that organizational failure occurs when the company introduces technology at a point in time that might not suit the skills and knowledge of the employees. This in turn means that the company has to invest a lot of resources in training the employees. Training of the employees to cope up with the changes in technology means that high costs will be incurred hence the company might not operate at the break-even point. The technology introduced might be thought of to add more value to the effectiveness of the organization which ends up being very controversial. The theory also states that organizational failure can occur if demand is very saturated and supply is running out. This means that the company has to increase the workload of every employee leading to stress amongst them. Whenever employees are strained, they will be effective as before. This leads to low-quality products been produced. This carries the risk of the company losing the market hence might result in stoppage of the companies operations (Maehr, 1998).

Another theory that tries to explain the failure of an organization is organizational ecology theory which stated that the dissolution of any firm is a clear indicator of organizational failure. Dissolution, in this case, implies the inability of a company to carry out its daily operations to retain its status quo in terms of structures and resources. It also means that the organization will not be able to maintain and retain the allegiance of its members (Bridgewell, 2000).

Leadership, management, and organizational structure

Good leadership is very important to all organizations. Change of leadership is very dangerous if not handled with care. Organizational failure can occur if the top leaders do not have proper management skills which are very necessary for operations in various departments of the organization. Failure of organization can result if there is a conflict of interest among the top management where each leader wants to carry out duties at their discretion. Management affects the operations of the organization in the same way as the top leaders. In some organizations, top leaders are also included in the management of the organization. Decisions that are made by the management can be very poor hence leading to the failure of a company. If the management team makes a decision to expand its operations might very dangerous to the organization. This might lead to strained the resources such as human labor. If there is a change in the organization such as the introduction of new technology, the organization structure might not be flexible. Non-flexibility of the structures has the impact of poor implementation of the new advances made (Maehr, 1998).


Maehr, T. (1998).Organizational Structure and Organizational Operations. Review of Educational Research, 65(3), 200-263.

Bridgewell, V (2000) Organizational Behavior Theories. 167-190.

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