The magnificent rewards of buggering up the works
There should be reward systems for failure. Failure is proof that you tried, and early mistakes are valuable
It takes guts to stop doing something that was your idea but isn’t working. Much harder to do that than to back a new investment decision filled as it usually is with enthusiasm, hopes and fabulous projections.
Airbus decided to stop production of its mega-jumbo A380, the “double-decker liner” of the skies, within the next two years, just more than a decade after its initial launch. This is a short lifespan in the aircraft manufacturing business – the iconic 747 Jumbo has been around for 50 years.
Airbus’s good earnings growth over the past decade and latest results provide an opportune backdrop to announce this “mistake”, take the knock, and deal with it. But it was no small investment, and the decision to withdraw was brave.
Some fundamentals didn’t fall into place. The massive four-engine plane, carrying 550 passengers, must be full to make money. The EU hub-to-hub travelling patterns in a commercially united Europe had to continue. Orders had to keep growing.
The A380’s undoing was that travellers and airlines alike favoured point-to-point flying over the hub-to-hub model, and advances in two-engine technologies challenged the economic sense of the bigger four-engine A380.
None of us can see the future (I’m not sure we’d always want to). No matter how much diligence and expertise goes into putting the original business plan together, you can get it wrong, big time. What you do about it sorts the winners from the losers.
Airbus reacted to the facts. There is no place for intuition and gut feel and information override when the forward vision is limited and the territory uncharted. Ask any black box recovered from a light aircraft crash.
The environment had changed from the base assumptions, the orders were evaporating, it just wasn’t going to take off. Turn around, go back.
When it is just business, it is easier to make sensible, brave decisions because there is common cause among all stakeholders. Absent common cause, you haven’t got a hope.
It’s not just to maximise return on shareholders’ funds anymore – the mandate has moved beyond that to ensure sustainability and responsibility – but the criteria are still objectively determined, widely known and sacrosanct.
Decisions are enabled in such defined environments. It’s practically business folklore now, but the axiom “Good decisions come from experience. Experience comes from making bad decisions,” seems originally attributed to Mark Twain.
The compounding effect of deferring or avoiding decisions that are obvious, given the facts, is that things just get worse and even harder to address eventually.
If you solve a widely experienced problem in society – such as standing in a queue, or waiting for the shower water to get hot, or curing a disease, you’ll make real money. Clever new investors and disruptors are trying to find a solution to a popular problem. The romance of it is alluring, and the prospects exciting, but the hit rate is low because nobody can see the future.
Everybody can see errors. Everybody can see when we’re diverging from the sacred three-year corporate plan. But you don’t get rewarded for saying it’s wrong, it’s not working, it’s a mistake. There is too much ego in the way, particularly if the project sponsor is still in the room.
Disruptors aren’t burdened with the ego of past ownership, and they’re prepared to explore, be wrong, correct, adjust, explore again until something sticks, works, grows.
There should be reward systems for failure. Failure is proof that you tried, and early mistakes are valuable.
When the facts start showing you are off track, you’d better get advice from someone whose future doesn’t depend on perpetuating the mistake. The original backers of the investment struggle to stand aside.
We’ve let a few things slide here, despite the overwhelming evidence that they weren’t heading in the right direction. We won’t solve any of them until we find the bedrock truth, the unprotected, indecent, unpopular, naked, truth. It’s not good enough to only find out who’s responsible for the mess; that won’t fix anything. We also need to find out what’s wrong, at a causal level, so that we can apply what scarce resources we have left to fix it, in time.
The solution won’t just be found in money – that’s the last resource that needs to be brought to bear – and it will only come, at the right price and in abundance, if we’ve solved what must change, and who is going to make it happen.