The reaction from the many consultants and support workers at the London office of the major international advisory firm involved ranged from incredulity, to muttered accusations of incompetence among "the cheapskate management at the firm".
Most of those present recognised that the company’s fortunes were not as favourable as they had once been and that cutbacks were likely just around the corner.
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But no more biscuits? Which genius beancounter on the top floor had hit on that idea as a means of saving the organisation and turning its fortunes around?
Was it really worth it, bearing in mind the message it sent and the animosity this small but, as it turned out, quite meaningful gesture resulted in?
Besides being of limited financial advantage to the organisation’s struggling cashflow, removing the biscuits benefit surfaced a far more serious underlying tension.
The not-so-hidden meaning of this message to staff was in fact: 'we need to stop the serious outpouring of cash and decline in profitability the firm is currently experiencing.'
Beyond this the lingering, and now open questions being asked were ‘why is no one in leadership seeming to taking serious action about these money problems, and how is this dubiously weak attempt to improve affairs going to actually help?’
The answer is because of inadequate management.
The thought ‘should I stay or go?’ immediately comes to the forefront of most employees’ minds.
In the advisory firm some resigned as part of voluntary redundancies. For the ones who remained, the message was clear: tighten up and be more disciplined as further cutbacks are on the way.
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Organisational decline occurs when a firm's performance or resource base deteriorates over a period of time.
A key indicator of decline is progressive financial underperformance, which depletes the company's cash reserves. However, this can go unnoticed by the many who do not, or cannot, review the company's balance sheet and cashflow.
Comparing current cashflows and holdings with the same period in the prior year also helps identify trends and provides a realistic analysis of the situation.
On a positive note, a management that reduces cash reserves as a result of making investments is showing a strategic mindset. Clearly, establishing a sustainable future is at the forefront of their minds.
However, if cashflow continues to be negative, the organisation will further consume resources through its day-to-day operations.
Another red flag is when the company generates a significant cash amount by selling assets. While this provides short-term funds, if no wider investments are made there is likely to be a continued decline in reserves.
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Retained earnings, which represent the profits left after a period, act as a savings account for the organisation. These earnings can be reinvested back into the company, or used for issuing dividends or buying back stock.
If retained earnings are not increasing, or are non-existent, in effect there are no dividends or stock buybacks. This suggests the entity is either unprofitable, or barely managing to stay afloat.
Cash ratio is another metric used to assess a company's ability to meet its short-term debt obligations. It is calculated by dividing current assets by current liabilities.
There are further warning signs an organisation is heading downhill.
Senior management defections to other companies and the reappointment of current employees with less experience to the vacated positions. These are clear signs of troubles to come.
The declining quality of staff and management is often not discussed, or even deliberately ignored. Other warnings include:
- Offloading flagship products
- A lack of a clear strategic direction from senior leadership
- Difficulty attracting new customers
- Outdated marketing and branding
- Defaulting on bills
- A declining client base
- Extended debtor or creditor repayment periods
- Being trapped by high interest payments
From being an organisation of value, the emergent status is of a commodity-business reliant on reducing costs and little else.
All of this is visible for those who wish to look and find out what is happening, all because they recognised the significance of cutting back on biscuits.
Many once-great organisations marked the beginnings of their decline by eliminating seemingly small fringe benefits. Deeper cuts followed, affecting healthcare, pension plans and the critical quality of recruitment standards.
Communication within the organisation decreases, and information stops flowing as the company becomes more inward-focused. Management lose sight of the broader context, customers, markets, and the wider world.
Andrew Kakabadse is professor of governance and leadership at Henley Business School
