Corporate failure – what lessons have we learnt?

Pat Chapman-Pincher posted this on

Image of Motorway at night.
Image courtesy of Teerapun at FreeDigitalPhotos.net

Driving down the A34 yesterday I kept passing car transporters filled with Land Rovers and it set me wondering – have the boardrooms of Ford and BMW ever analysed why Tata Motors is now manufacturing and selling Land Rovers profitably, when they could not?

Having sat on boards for years and mentored chief execs, I have never seen proper space given to learning from mistakes. It just isn’t in the culture or structure of how most boards are run. And I think it should be.

Here I look at what a board could learn from its corporate mistakes and my own views as to how this should be done.

1. What has Tata achieved that Ford and BMW could not?

BMW Wheel Image
Image courtesy of Teerapun at FreeDigitalPhotos.net

Both Ford and BMW had owned Jaguar and Land Rover in the past, with Ford bringing them together as a single entity in 2002. Yet both BMW and Ford, with all their resources, failed to make them operate profitably.

Jaguar Land Rover has been a subsidiary of the Indian carmaker Tata Motors since 2008, when the latter acquired it from Ford for £1.3bn. Since then it has turned the company around, increased sales, created 9,000 jobs and re-invigorated car manufacturing in the West Midlands. 80% of its production goes overseas.

By any measure what Tata has done has been very impressive – and there were plenty of doom-mongers saying that they would fail. But admiring their success was not where my thinking took me.

Failure has the potential to teach us far more than success ever can and I wonder whether any time has been spent by Ford and BMW in analyzing what went right for Tata and wrong for them?

2. Business failure should be embraced at the top

Failure needs to be embraced at the highest level in a company (and in the public sector) as an opportunity to really understand what went wrong.

Sadly two things generally happen

  • A search for the guilty so they can be punished (the “bad apple” syndrome). It’s not the organization’s fault – just a few incompetent people, get rid of them and we’ll be fine. HSJ magazine does a very good analysis of the blame culture that’s rife in the NHS and rightly calls it a ‘toxic culture’
  • Deciding that it’s something external – the market, the competition, the government cutting spending etc.

The reality is that it is very, very rarely either of these. Generally it will be cultural and process issues that have created the problems. To deal with these requires honest assessment and a rigorous seeking of the truth, however uncomfortable it may be. You need real leadership that is prepared to face its own failings as well as those of the organization.

Interestingly Panos Mourdoukoutas writes in his Forbes blog about the four drivers of corporate failure and talks about: visionless leadership, reckless management, unions and government policy. Like most of the articles I could find on the subject, ‘management’ is frequently blamed; it’s difficult to find anything about the role of a board.

3. Honesty in leadership

Real leaders need to be brutally honest with themselves about the problems and then, when they have fully understood them, be honest, both internally and externally about how they happened and what needs to be done.

4. What is the role of the board in learning from mistakes?

Image of a board meeting

 Image courtesy of David Castillo Dominici at FreeDigitalPhotos.net

 I think boards of directors should do five things that will increase their chances of success and profitability

  • You need to recruit non-executives to your board who are widely commercially aware, interested in what other businesses are doing and not afraid to ask the uncomfortable questions. These are the ones would spot that Tata is now profitable and find a constructive way to ask what the company is learning from them
  • The board needs to take ownership of learning from failures. You would expect to see this regularly raised and discussed at board meetings – at least a few times a year. Any company that is not making mistakes is not innovating or pushing the boundaries. The critical business skill is to manage those failures and learn from them
    • Perhaps the most important is to learn from how a competitor is succeeding where you did not. There are dozens of ways to analyse this
      • Ask your contacts
      • You may have recruited people from competitors – learn from their knowledge
      • Annual reports – a goldmine of information
      • Union relationships – they will be in touch with industry peers and competitors
      • Ask the successful company what they did – most companies love to be seen as ‘best practice’ and happy to share why they are so successful. In the case of Tata, Ford have continued to supply engines so there is a relationship they could easily tap into
  • Finally, put your best people on all this. The quality of their analysis and, more to the point, the application of learning points to your business, needs to be of the highest standard. You want bright people doing the thinking

I hope that the leaders at Ford and BMW are doing just that.

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