3 Signs of a Dysfunctional Company

3 Signs of a Dysfunctional Company
  • Too often, business owners fail to realise toxic work environments with high levels of distrust and dysfunctional business culture.
  • You can change the toxic workplace for the long term by starting from yourself or the CEO and then fixing poor leadership in other teams. 
  • Red flags to watch out for include leaders who lack respect, like to shift the blame or don’t have set priorities.​
  • Read on to find out the three telltale signs of a dysfunctional business and work environment. 

Like a car with an engine that can't fire on all cylinders, a business that's dysfunctional may move forward for a while. But eventually, it stops running. Companies don't start out maladjusted, of course. It just tends to happen over time.

"The hallmark of a dysfunctional organization is a gap between reality and rhetoric," says Ben Dattner, a New York organizational psychologist. When resources are not used effectively or fairly, when plans are heavy on talk but weak on action or when barriers to communication cripple performance, you're dealing with a dysfunctional company.

Once diagnosed, the corrosive effects of such problems can be corrected. But make no mistake: It's neither easy nor immediate. You need to be tough-minded about identifying the source, particularly because it often starts at the top, where the power resides. Here are three telltale signs that a company is unhealthy and some possible ways to get it well again.

Three Signs of a Dysfunctional Company 

How do I know if my workplace is dysfunctional? There are three classic signs of a dysfunctional company to be wary of:

  1. Leaders who fake it    
  2. Bosses who like to point fingers
  3. A CEO who doesn't set priorities

1. Leaders who fake it    

Recently, management consultant Linda Hanson of Dallas-based LLH Enterprises was called in to help turn around a Houston construction company that had about 50 employees, annual gross revenues of $160 million and senior managers who were at each other's throats. "People were snarly and mean," Hanson says. "There was in-fighting and lots of yelling. They had lost respect for one another and weren't working as a team." A prime example was the information technology (IT) manager. Although every department depended on him, the other managers complained that he "didn't care about their problems, didn't have time, didn't listen, didn't support them and marched to his own drum," Hanson says.

The atmosphere got really heated when the chief executive officer, in an attempt to change the culture, hired a new, buttoned-down sales manager who began instituting very different policies and rules. The hiring drew such fire from the other managers that Hanson was tapped to address the company's ailments.

She began with exercises in "process mapping." At a meeting of the managers that included the CEO and president, she asked everyone to look at work flow and operations, focusing on inbound orders, external sales, delivery and so on. She asked each manager to stick up a Post-It note whenever he saw a glitch or something wrong, without finger-pointing, of course. "That caused great excitement," Hanson says. "They began to see the duplications and the weaknesses." More importantly, the CEO and president, who were usually removed from such details, had their eyes opened to what was going on.

Later, she confidentially asked each manager to evaluate himself and all the other managers. Then she went back to each to report: "Here's how you see yourself and here's how the other managers see you." That stopped a lot of the backbiting. Hanson also required the managers to meet one-on-one for lunch, for a golf game or the like, every month. Each executive was given specific and corny assignments for such meetings, such as being told to talk about a hobby or an interest — anything but work. The idea, of course, was to build relationships. Within four months, she says, managers set up meetings to discuss business scenarios rather than to fulfil assignments, which was the result she intended.

Still, the real problem stayed at the top. The CEO and his friend of 10 years, the president, "were both volatile people and they weren't changing," Hanson says. Even though they were asking senior managers to evaluate their work habits and improve peer relationships, the chief executives themselves were unwilling to do the assignments or to work at transformation.

"Within four to six months, the company was functioning much better," Hanson says. But it needed another nine months to a year to really come together. And that didn't happen. "You need to set a picture at the top of what the company should look like. It's very hard to say to the CEO, 'You're the problem.' "

Lesson: The discrepancy between what leaders say they want and what they really want often causes company dysfunction. You can't ask employees to do anything you're not willing to do yourself.

2. Bosses who like to point fingers

No company can flourish in an environment that penalizes experimentation or trust. While that sounds obvious, on a day-to-day basis the nature of risk-taking inevitably means a great number of dead ends before any breakthrough. Very few managers remain calm after hitting the wall.

But how you handle those crashes — and how you encourage employees to pick up the pieces and start anew — makes all the difference between a company that encourages innovation and one that stagnates.
"When you see a pattern of blaming and people trying to protect themselves and their particular turf, something is wrong," says Ross Moserowitz of Franchise Insights, a Bedminster, N.J., consulting company.

Lesson: The remedy is to put your trust in the people you hire and give every employee sincere responsibility. Hands-on, my-way-or-the-highway entrepreneurs won't find this easy. But that's how the business gets better.

3. A CEO who doesn't set priorities

Fast-growing companies are often so intensely focused on moving to the next level that no one is actually in charge. That's how dysfunction creeps in and takes hold.

Paul Glen, an IT management consultant in Marina del Rey, Calif., tells about a 20-year-old software company that hired him to create a new product management department. The business had released several successful products and grown to 100 employees with 13 departments, each headed by a different executive. Every one of the managers reported directly to the CEO, so no one had to talk to anyone else about his department's work.

When Glen asked each executive what the new department would do, he got 13 different answers. It turned out that the company didn't need a new division at all. What it needed was someone to coordinate the company agenda and get the managers to share information.

The idea for a product management department was how the executives expressed their need for better coordination. "The product development department didn't take direction," Glen says. That meant the group simply created products and released them without checking with any other department. So sales didn't know about the features of the new products, or when to sell them. Support and consulting were also in the dark. They couldn't help customers implement products or fix any problems. And so it went.

"Each department flew off on its own, trying to do what was right." Priorities were constantly shifting. Decisions were continually made and unmade. "The CEO assumed the executives had the authority to make product decisions and it wasn't her job to tell them what to do," Glen says. While everyone had the very best of intentions, chaos reigned.

Lesson: Company leaders must set the mission and the agenda. A hands-off policy can only go so far.

Epilogue: Time for a Checkup

Smaller businesses are both more susceptible and harder hit by the ripple effects of dysfunction. With a close-knit staff, it's easy to make allowances for people's tempers or bad moods or refusal to take responsibility. But, sooner or later, that kind of thinking can catch up with you and the business.

Lesson: Take the time now to check the health of your workplace. And make the course corrections you need avoiding 3 Signs of a Dysfunctional Company. Starting now.

Take care, take action and be relentless.

John Millar

Managing Director at More Profit Less Time

I am a Business and Executive Trainer and the Managing Director, Senior Trainer and Training Content Developer with More Profit Less Time Pty Ltd. I amproud to have been an associate of most successful team of Business and Executive trainer in the world. Recognised in 2010 in the top 50 of over 1300 collegues in 31 countries, I have over 25 years of hands- on Ownership, management, training and entrepreneurial experience.

Comments (2)
Phil Joel

Phil Joel, Director at SavvySME

Fantastic examples John. Thank you for sharing these. It can sometimes be difficult to see and address these issues without external help.

Wendy Huang

Wendy Huang, Full Time Blogger and YouTuber at A Custom Blog in 4 Minutes

Great article John! Loved every single example :D