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Home > Financial Information Sources > Bankruptcy and Business Failure > Corporate Failure by Design: Why Organizations Are Built to Fail

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Corporate Failure by Design: Why Organizations Are Built to Fail

Jonathan I. Klein
Westport, Connecticut: Quorum Books, 2000
328pp, ISBN: 978-1-56720-297-7

Despite all that has been written on the subject of making organizations succeed, the reality is that an overwhelming majority of businesses fail within five years and almost all fail within 10 years. The author suggests that this tendency is inherent in the organization and explains his theory of organizational self-destruction. Besides analyzing the causes and processes of failure, however, he also points out the lessons that can be learned from it.

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Corporate Failure by Design: Why Organizations Are Built to Fail

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Based on data regarding corporate mortality, organizations are built to fail: a conclusion critical to managers, employees, stockholders, consultants, customers, vendors, competitors, and therefore all of us who transact with and depend on organizations. Yet, literature about organizational management tends to focus on education and inspiration, and to bristle with optimism about the potential success of applying its wares. Ignored, in virtually all of this literature is the reality that personnel may or may not be inherently self-interested, but certainly join business organizations in order to serve individual rather than organizational interests.

Individual self-interest is advanced through control of various processes in order to rationalize that self-interest as a productive, organizational purpose, which not simply suppresses opposition but also conceals or even demonizes that opposition. These processes include such familiar organizational functions as individual and organizational goal-setting, job and organizational design, leadership, hiring, performance appraisal, compensation, promotion, communication, corporate culture, and change.

At all levels, therefore, the organization's long-term interest is undermined by the goals of the very members of whom it is comprised—it is built to fail. And through control of its various internal processes and elimination of opposition, the organization pursues self-destructive goals without knowing it.

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