Growth Stalls Are Deadly

Giant insurance company AIG (see chart here) has hit a growth stall.  AIG has reported two consecutive quarterly losses, the worst in company history, and worse than the prior year (read article here).  This constitutes a growth stall – and implies that the more than 50% of company valuation lost since earlier in this decade will never be recovered.  Furthermore, AIG has a less than 7% chance of ever consistenly growing at a mere 2%.  On the other hand, AIG has a 55% chance of declining growth and a 38% chance of revenue stagnation.

The telltale signs of this situation have been obvious since 2005 when the company’s CEO was forced out in an accounting scandal.  Since then we’ve learned that rather than make money by selling and servicing insurance AIG has tried to Defend & Extend its glorious past by using increasingly complex, poorly understood and dramatically risky loans (they got neck deep in the mortgage mess) as well as relying on risky trading strategies in an effort to prop up a struggling Success Formula.  These are the typical tactics of a Locked-in organization sliding into the Swamp.  Due to market changes making the old Success Formula produce poorer results management attempts to prop up results with financial machinations and various opportunistic tactics.

We can now see that long ago, probably as early as 2000 when financial services of all kinds were being inextricably changed by internet competition, AIG needed to start changing its Success Formula.  But the company relied on its size (a Dow Jones Industrial company) to save itself.  Even after replacing the disgraced CEO, and recognizing that various accounting irregularities were hiding accurate results, AIG’s Board of Directors and senior leadership team failed to Disrupt the Lock-ins and implement White Space to develop a new Success Formula which would sustain growth.  Now AIG is another "sick puppy" amongst the DJIA Locked-in on doing what it always did even though results are weaker.  It’s in good company, joining Wal-Mart, Citigroup, DuPont, GM, McDonald’s, Coca-Cola, Microsoft, Home Depot and Walt Disney as companies that are going nowhere good despite being on the list of 30 "leading" industrial corporations.

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