31 Jul 2011

3 basic rules to prevent and address business failures


Prevent and address business failures

In an interesting article titled “Business success: Why we need to fail more gracefully” from 5th July 2011, Mallen Backer (*) questions the way mistakes are dealt in the business area, while doing comparison with sport where the failure is seen as an opportunity to challenge oneself and make further progress.

He recalls that mistakes are not allowed in business (due to the financial loss that may result). When it happens, companies are more worried about to manage their image and the relationship with the media and to take over the boss just dismissed, than putting their energy to learn from failure and prove that the current management team is the most appropriate one to get out from the crisis.

If everyone can fail, there are some filters to put up in order to assess the real intensity of a failure. We think about 3 important ones :

1) What collateral damage has generated the failure ?

In sport, collateral damage is roughly limited to the players and their sponsors. In business, the impact is much wider with many stakeholders likely to be harmed : shareholders, creditors (like banks), employees, unions … without forgetting legal actions that may be taken in certain circumstances against some of them.

At the end of the day, if competition in sport become more and more a business-like activity, sport remains in essence a game, where one time you lose and the other one you win … and nobody challenges this fact.
Business has never been perceived as being a game, even if it takes some references to it and share the same spirit of competition.

2) Governance

It is the second factor that may significantly change the tension between success and failure and even the definition of success. Many failures in business could be either avoided or mitigated through a better observation of governance principles. The leadership in business, in the companies appears outside too often as a one-man show, with the result that everybody is being convinced that the failure of the firm is concentrated in one hand, those of the chairman.
The governance principles are wrongly left behind and with it the fabulous capacity of analysis, of discussing and taking the best (collegial) decision. If it happens that the company fails, the governance principles should protect the boss while highlighting solidarity between the administrators and the top executives and taking advantage of this situation to learn from the failure.

3) Transparency

The last factor that could help accept and understand a failure is ex-ante communication and explanation outside. Too often the company launches a specific communication plan once the failure has arisen. Nobody is prepared to hear it, neither understand why the company has failed. It requires a strong sense of humility and capacity to open the dialogue and engage the stakeholders at the very beginning of the process of business development, if the company wants to avoid being blamed every time it makes some failures.

You try to forgive everyone who is working with faith, conviction and transparency, so it seems people like Richard Branson or Nicolas Hayek has always done.


The final question is : what is the ultimate goal of doing business – Making money only of creating value ? If you choose the second one, you must adapt your KPIs (key performance indicators) and communicate them outside, because the (standard) financial KPIs are absolutely not sufficient to measure the outcomes and will lead to the wrong conclusion that the strategy has failed. The best way to secure from failure is to encourage the stakeholders engagement. It is still not anchored in the business practices, except in some SRI (socially responsible investment) initiatives.

(*) Mallen Baker is founder of Business Respect and a contributing editor to Ethical Corporation

2 Responses to 3 basic rules to prevent and address business failures
  1. It keeps getting worse! Texas rernitiwg history, changing school text books to teach conservative values. It is horrible to watch your country implode! The latest in this end is the Texas textbook massacre! It is a terrible thing to watch your your country, your homeland, your place of birth implode. I so wanted to pass this great nation on to my Grandchildren in the condition it was when I was lucky enough to be born here. It is terrible to think of our Grandchildren’s future in this mess we have made of our beautiful united America and our world. Remember America the Beautiful? United we stand divided we fall? I am afraid not enough do and we are in serious trouble! What a shameful legacy we have built and are leaving. We have nothing to be proud of and I am sick with what we have done to what we were left.

    • Many human and fundamental values tend to disappear, indeed … but it is just the reason to react. It is one of the objectives of this website : getting people aware that business and ethics go together for a better world for everyone. Don’t be daunted ! By doing so, you just give up the victory to those who do not deserve to get it.
      All the best.

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