The Business Scandal Of The Century

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Thu, 2012-01-26 00:40

Before undertaking anything with potentially unpleasant consequences, most people want to know that the risks are acceptably low. They wouldn’t turn down a free flight to New York but they might flinch at a joy ride in a battered old biplane, particularly if the pilot is clutching an open bottle of vodka.

In aviation, survival is measured in terms of “good” landings. This is where the aeroplane can be taxied (or on a bad day, towed) from the runway. The odds of not surviving a flight have dropped from 100% before the Wright Brothers to just one in 10 million today – at least with the major airlines. To be considered successful, professional airline pilots should complete their careers with their log books showing exactly the same number of take-offs and landings. That currently accounts for 99.99% of them.

Anyone thinking of starting or expanding a business is entitled to know the odds. According to the Office of National Statistics website (www.ons.gov.uk) there were 297,395 “deaths” out of the UK’s 2.3 million “active enterprises with turnover or employment” in 2010 and only 44% of 2005 business “births” were still trading. The comparison is stark. Business survival rates are ludicrously low. Failures may mean the loss of homes, livelihoods, families and possessions. Apart from the trauma and distress, it translates in GDP terms to a loss of about £9 billion - the cost of the London Olympics - every month!

On average, about 1,200 UK businesses come to grief every working day. Hardly any of them will have invented their own unique form of demise. It’s the same old mistakes, repeated ad nauseam. Not even household name companies like Kodak are immune if they fail to recognise market trends. So why has such dramatic progress only been made by the aviation industry and a few others? Because for them, repeat mistakes can not be tolerated. If pilots and maintenance staff had repeated the mistakes of their predecessors in perpetuity, modern airline travel simply wouldn’t exist.

Eliminating repeat mistakes requires a cultural paradigm shift. It means gaining experience through trial and error in ways that protect high value assets from avoidable risk. Staff are encouraged to experiment with alternative strategies and tactics in simulators. Incidents, if ignored and repeated, invariably escalate into accidents, so confidential human-factor incident reporting procedures are used to provide early warning of potential dangers, with best practice shared by competitors. It’s hard to imagine anything other than the drive to eliminate repeat mistakes that could deliver as much progress.

If business embraces the same desire for change, it can emulate the aviation industry. Some 99% of the UK’s “enterprise units” are in the SME sector. They account for more than half of the UK GDP and are responsible for the majority of economic growth and new jobs. It’s staggering to think that:

• If SMEs matched aviation industry survival rates, GDP could be 7% higher. Even if failure rates were merely halved, economic growth would be transformed.

• If business angel syndicates and venture capitalists had more successes and less failures, they could accept lower equity shares. That in turn would encourage more entrepreneurs.

• If start-up or expanding businesses could demonstrate in a virtual business that their team had the skills and judgement to succeed, they’d be much more likely to secure financial backing. Even if they couldn’t, the same process would reveal which areas were most in need of improvement.

Eliminating repeat mistakes helps surviving businesses become more successful too. It’s more difficult to quantify but the impact could be just as dramatic – perhaps significantly more.

The best part is that everybody wins; businesses, finance providers, employees, customers, suppliers, support organisations, government, public sector and even lawyers as the increased demand for advice on contracts and intellectual property outweighs the falling demand for company liquidators!

Which businesses will be first to improve their chances by eliminating repeat mistakes?

There’s a story on the internet about a little girl walking along a beach with her grandfather. Every so often, she picks up a stranded starfish and puts it back in the sea. Eventually, the grandfather asks, “Why are you doing that? There are miles of beach and the next high tide will bring hundreds more starfish. Throwing back a few can’t possibly make a difference.” The girl frowns, puts another starfish back in the water, and says “Well Grandpa, it’ll make a difference for this one!”