Recipe for Failure

Oh, it is just so tempting to kick a company when it's down! The news mid-January that erstwhile stock market darling Krispy Kreme was replacing its CEO with a turnaround specialist (who happens also to be running Enron) created an irresistible urge to pontificate, make analogies and draw lessons (but unfortunately for Krispy Kreme, not to go out and buy doughnuts).

Krispy Kreme's rise (no pun intended) and decline presents a classic cautionary tale to any organization that cares about profitable growth, brand value, business intelligence capabilities and management responsiveness (that is, every business).

The merger- and scale-obsessed banking industry should pay particular heed to the lessons of Krispy Kreme, which thrived for years as a regional phenomenon and then went national in a big way in the '90s. As an unashamed pastry lover, I remember my excitement when I learned that Krispy Kreme was coming to New York; that excitement was surpassed only by the thrill of the chase - finding the actual Krispy Kreme outlets. Soon, the sugary morsels became the staff meeting snack of choice (at least if I was choosing), and the ability to procure the doughnuts for out-of-town houseguests became a symbol of being "in the know" (at least gastronomically).

And then, at some point, scoring Krispy Kremes just wasn't so exciting. Some analysts have pointed to the low-carb craze as the tipping point, but I think it had more to do with simple market saturation (again, no pun intended). When you could find the doughnuts in any deli, discount store or supermarket, they stopped being cool. Add to that alleged mismanagement and questionable financial practices and it's no wonder the company is in crisis.

The takeaway for banking? First, brands are as precious and perishable as confections - handle them with care. Second, know your customers - do they want more of the same, something new, or both? Where do they want to do business with you? Is your customer base growing or shrinking? Are there potential customers that you're not getting, and if so, why? Third, take the competition seriously. Do you understand its strengths and are you capitalizing on its weaknesses? And, finally, the basics - operations, manufacturing, distribution, marketing - matter.

Katherine Burger is Editorial Director of Bank Systems & Technology and Insurance & Technology, members of UBM TechWeb's InformationWeek Financial Services. She assumed leadership of Bank Systems & Technology in 2003 and of Insurance & Technology in 1991. In addition to ... View Full Bio