Leadership and management failures can often also be explained by reference to fairly predictable causes.
It is important to provide a general overview of what can be called the process and profile of failure, as these characteristics highlight many of the specific management skills and tools needed for effective leadership.
In Britain, more than two-thirds of all small businesses fail within the first five years of operation. According to a study conducted by the Wharton School of Business, failure can generally be attributed to inadequate research and development, including in relation to the market of the products or services offered; uncontrolled costs; weak market strategies; bad timing and competitor activities.
Add to that two years of a pandemic, supply chain shortages and an economy in question, starting a new business today from scratch is very risky.
Without wishing to be depressing, a very large percentage of new businesses do not even complete their first year of operation. Studies of businesses that fail in the first year indicate that more than 40% of them fail due to incompetence – a lack of the physical or intellectual fitness needed to run the business successfully.
Another 15% fail because the entrepreneur starting the business has little or no experience in the product or service being offered, while around the same percentage fail due to a lack of planning or management skills , meaning little planning or experience managing a business or employees before going into business.
Leaving aside the causes of failure which are just the reverse of the good business practices I have talked about in previous articles.
In my view, effective management requires a careful balance between the different levels of knowledge and understanding that exist at different levels of management within the organization.
For example, the degree of surveillance expected (and required) at successive levels of management is sometimes equated with sight at 10,000, 20,000 or 30,000 feet.
At each higher level, the vision has a greater range, but offers much less detail. High-level leaders, through their influence on subordinates, ensure that the organization does not lose sight of the big picture.
Yet, it is critical that leaders at the top levels of an organization retain an understanding of the importance of detail. The reason for this is that two situations that appear superficially similar can differ enough to lead to drastically different results if careful attention is not paid to the details.
To give an obvious example.
In the United States, Canada, Australia and Great Britain, income taxes are levied on the basis of broadly similar principles. Nevertheless, in each country there are significantly different inclusions and exclusions from taxable income, as well as different rates, credits and deductions.
A person who plans their investment on the assumption that high similarity translates into similarity in detail will likely be very disappointed with the ultimate return on that investment.
I’ve always said that businesses don’t plan to fail, but they don’t plan.
Planning takes time, it takes effort, and since the benefits of planning are often indirect, the need to plan may seem lacking in particular urgency.
In reality, in order to avoid problems, planning is essential before a business starts and remains so as long as it survives.
A complete business plan serves as a model for the future of a business.
It identifies what is needed, including essential skills and expertise, and how and when the company plans to meet the anticipated need.
To be effective, the plan must be specific and identify existing weaknesses and potential problems in sufficient detail so that they can be resolved before they become insurmountable.
The plan should also establish benchmarks for measuring business performance to determine whether satisfactory progress is being made and to help identify emerging issues.
Stephen Bauld is a public procurement expert and can be contacted at [email protected] Some of his columns may contain excerpts from the Municipal Supply Handbook published by Butterworths.