How can leaders move beyond assigning blame and putting out fires? Start with an arson investigation that includes looking for these early warning signs:

1. An inability among senior leaders to articulate the organization’s strategy. Most leaders can explain what they plan to do this week or this quarter, but fewer have the ability to put into words exactly why the company is in business, how they make money, where they want to be in five years, and what differentiates them from the competition.
2. No clarity about or accountability for decisions (or penalties for indecision). Often organizational dithering happens when leaders don’t understand exactly what decisions they should make. Opportunities disappear when all major decisions require consensus, or when leaders fear the consequences of their calls. Indecision usually carries no immediate penalty, so too often it serves as the default position.
3. Inappropriate risk taking. Any leader’s second-worst nightmare is an idiot with initiative-your first being a smart sociopath. Either group tends to take excessive risks, sometimes because they don’t know better; often because they enjoy the thrill of the uncertainty. No company can fund recklessness for very long, but most breakthroughs come from risk-taking and innovation. So, ironically, risk aversion can cripple a company nearly as much as excessive risk-taking can.
4. Financial problems. Financial problems can take many obvious forms: lower margins, reduced market share, no return on investment, etc. Usually an obvious, or at least a clear answer, will solve these kinds of problems. But the truly tough financial calls involve less tangible evidence, highly-developed quantitative reasoning, and an ability to live with ambiguity.
5. “Workarounds” or other deviations from protocols. Every year since I’ve been in the consulting business, I have encountered an impressive workaround, a deviation from best practices and standard protocols. Sometimes the workaround takes the form of a senior person cleaning up after someone in a subordinate position. This year, I have encountered more “pass the trash” among clients-a specific workaround that involves moving rather than firing unproductive employees.
6. Persistent complaints. Consider the first complaint-whether from customers, vendors, or employees-an outlier. Think of the second as a coincidence and the third as a pattern. Once you see the pattern, it’s time for a tough call.
7. A preponderance of rumors. Just as they should be cautious about complaints, leaders should listen to rumors with more than a grain of salt. Look for objective evidence before dignifying any rumor with a reaction. But when you encounter a preponderance of rumors, and evidence begins to surface of their veracity, time to move.
8. Lack of innovation or openness to change. Most people love the status quo because it doesn’t hurt-or it doesn’t hurt as much as a change probably will. While not perfect, doing what we’ve always done in the same way that we’ve always done it requires so much less angst than experimenting with new approaches or pressing for innovative ideas. Creating an environment of learning involves a series of tough calls designed to reward effort, not just success.
9. Turnover among star performers or no one ready for promotion. When a star leaves, take note. The departure probably means someone in a position of authority made the wrong call or failed to make a tough call. Stars will explain your success as an organization, but they will demand excellence in return: excellent management, financial stability, a clear strategy, a fair succession plan, and top-notch fellow employees with whom they will work.
10. Damaged brand. Damage to a brand usually happens subtly and stealthy over a period of time-a loss of repute in the industry, dissatisfaction among customers, or difficulty in recruiting top talent. Consequently, leaders often fail to realize the damage until it’s too late.

A willingness to look for and act on the early warning signs allows leaders to prevent the day-to-day mini crises that flare up without notice. These small successes then motivate them to make the tougher calls because they realize that a failure to make them too often leads to tough luck.

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