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Special Issue
Adrian Wilkinson and Kamel Mellahi Theme Editors
Organizational Failure
Charles Baden-Fuller Editorial
The dividing line between success and failure can be quite
narrow, and this special issue on Organizational Failure emphasises that unpleasant
fact. So why is this really so, and what can we do about it? Adrian Wilkinson
and Kamel Mellahi have assembled four wonderful pieces which may help us understand
why this is so, and what can be done about it. Jerry Sheppard and Shamsud
Chowdhury tell us why the famous Canadian department store T. Eaton Co. Ltd.
fell to ruin and Kamel Mellahi describes the road to failure of giant Australian
insurer HIH. With careful analysis we can see where they slipped and fell.
Many small mistakes assisted these two downward paths; individually these
were not catastrophic, but collectively they were so.
Will we learn from these stories or other mistakes? At the
individual level, we surely do learn. But the organizational perspective is
much less optimistic. Philippe Baumard and Bill Starbuck provide an excellent
empirical study to show that organizations too often learn very little from
either small or large mistakes, while, more optimistically, Mark Cannon and
Amy Edmondson offer a structure for learning from mistakes which includes
recognising and analysing them, as well as engaging in deliberate experimentation.
They confirm that imbuing an organization with a culture of learning from
mistakes is difficult, but vital.
In the 21st century, we know we have to combine the spirit
of entrepreneurship, that views failure as something to move forward from,
with the learning view that failure can be useful experience. Thanks to this
special issue, we now recognise the necessity of shaping the organizational
agenda along these lines. The solution is surely a leadership challenge. Changing
attitudes to failure and getting the necessary systems in place has to start
at the top. And if led from the top, then there is a chance that longevity
and quality of organizational life will improve.
As editor I thank all the authors for their work, and the
two special issue editors for assembling such fascinating pieces. They have
done much shifting and shaping to produce an excellent issue with an important
message.
Adrian Wilkinson and Kamel Mellahi Introduction to the Special
Issue a.j.wilkinson@lboro.ac.uk
The articles in this Special Issue can be divided into two
groups: those on ‘Failure’ (i.e. organisational failure) and those
on ‘failures’ (i.e. non-fatal ‘individual’ failures,
which might be contributory causes towards eventual ‘Failure’).
The first pair of articles address the issue of understanding the causes and
processes of organizational failure and offer ‘cautionary tale’
views of whole-failure-journeys from which lessons can be learnt on a ‘there-but-for-the-Grace-of-God’
basis. The second pair discuss the problems associated with whether and how
the failure of individual ventures can yield actual learning (or not).
Jerry Paul Sheppard and Shamsud D. Chowdhury Riding the Wrong
Wave: Organizational Failure as a Failed Turnaround sheppard@sfu.ca
What stages does a troubled firm go through as it lurches
towards failure? How long might it take? And is failure inevitable, or can
declining firms be saved – and if so, how? This article categorizing
the elements of failure or turnaround in a four-stage model, and illustrates
the model with an in-depth analysis of the journey of T Eaton Co Ltd, for
130 years a proud retailing icon - with knighted executives, Hollywood customers,
the first Canadian stores to offer electric lights and elevators - to a grim
and shameful end of take-over by rivals and repeated bankruptcies.
The authors map out Eaton's 50 year decline (as first Sears
and then Wal-Mart enter the fray) by contrasting their story with those of
the struggling-but-gradually-succeeding Hudson Bay Company (dating back to
1670), and the more dynamic reactions to the threat of US encroachment by
Canadian Tire. Their advice to managers includes distinguishing decline from
hiccups, recognising changes in environment and maintaining clarity of identity,
being steadfast and decisive about acquiring funds and then using them to
make effective, decisive and timely strategic changes.
Kamel Mellahi The Dynamics of Boards of Directors
in Failing Organizations K.Mellahi@lboro.ac.uk
The collapse of the giant Australian insurance firm HIH and
the ensuing Royal Commission has allowed researchers highly unusual access
to the writhings of a board in turmoil. The author takes full advantage to
deconstruct the HIH story and examine board dynamics at HIH over four stages,
labelled Conception, Warning Signals, Rebellion and Collapse. He shows how
the eventual failure had its roots in two major blunders (entering the UK
and re-entering the US), followed up, as management sensed the alarm bells,
by two more rushed moves – acquiring FAI and the Allianz JV.
At the same time, he tells the story of how the CEO's power
increased as he stamped out rebellion and strangled the Board's access to
relevant information, while the well-paid Board members, their power decreasing,
moved from being unaware, to uncomprehending, to not being told and finally
to burying their heads in the sand. His recommendations for Boards to understand
their business, and to show experience, determination, vigilance and a willingness
to act are set against the awful picture of the price of HIH's board members'
cosy non-intervention.
Philippe Baumard and William H. Starbuck Learning from Failures:
Why It May not Happen wstarbuc@stern.nyu.edu
Organisations need to learn if they are to succeed –
and it has been claimed that as failure is more threatening than success,
it is more likely to lead to learning. But do firms learn from failure? And
do they learn more from large or from small failures? Finding little research
into these questions, the authors contribute a study of 7 small and 7 large
failures at an anonymous European telecoms giant, grouped according to category
pairs to compare across the size divide.
Working through the failures, the authors find that the company
learned ‘disappointingly little’ from its experiences. While small
failures gained attention and some incremental learning ensued, too often
they were dismissed as experiments, and learning was never allowed to challenge
core beliefs. In the case of large failures, where the length of time involved
for the full picture to develop meant true costs were often hidden, and specific
managerial responsibility dimmed, failure was most often blamed on the unexpected
effects of exogenous environmental causes. Pervasive problems included the
lack of effective reporting, (often detailed implementation difficulties rather
than questioning the venture as a whole) and lack of direct financial and
reputational links between managers and venture success.
Mark D. Cannon and Amy C. Edmondson Failing to Learn and Learning
to Fail (Intelligently): How Great Organizations Put Failure to Work to Innovate
and Improve aedmondson@hbs.edu
Amid all the exhortations to learn from failure, firms must
still search for advice as to how best to achieve this most-desired outcome.
The authors have researched widely about how such learning does, or should,
occur. From a wide canvas of examples (mammograms and pediatrics to banks
and space shuttles) they identify three key processes – identifying
failure, analyzing failure and deliberate experimentation – as the bases
for beginning to learn, as well as two types of barriers – technical
and social – which act as obstacles to learning.
This matrix yields six recommendations for management action, which the authors
suggest are implemented as an integrated set of practices. They also point
to the necessity of establishing a new managerial mindset where failure is
seen as an inevitable aspect of operating in a complex and changing world,
the critical first step in a journey of discovery and learning. In such a
culture messengers are not shot and leaders ‘walk the talk’, while
‘failure parties' honor intelligent experiment and the winner of the
‘no-nuts award’ takes pride in the fact that his mistake has saved
his company a lot of money.
This issue is available in full on-line at www.sciencedirect.com
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