Risk Pickings – Why Managers Must Learn to Fail – Successfully

Without risk takers enterprise fails. Some of our most outstanding companies and successful executives took risks – often they faltered only to pick themselves up and carry on. But increasingly the question is asked – has New Zealand management become risk averse? If so, what are the prospects for the next generation of Top 200 enterprises when the current crop has been sold off or withered on the vine?

When clutch of the country’s wealthiest businessmen stumped up $36 million last year to buy Ansett New Zealand they were savagely derided by some critics. If airline experts couldn’t make money competing against Air New Zealand, how on earth did they think they could they do any better, they asked somewhat cynically.
Less than year later when the airline – renamed Qantas New Zealand – went to the wall the critics scoffed haughtily and felt comfortable that their criticism had been vindicated.
The attitude is typically New Zealand, says Act MP, lawyer and business consultant, Stephen Franks. He believes we have mainstream reputation for being risk averse and that we are all-too-often happy to settle for second best.
Even sadder, in Franks’ opinion, was the backlash following the Qantas New Zealand collapse. Instead of commending the investors for taking the risk, keeping the airline afloat and saving jobs for while longer and instead of offering sympathetic ear when it didn’t work out, the very worst of the proverbial Kiwi knocking machine sprang into action. “We howled for blood simply because these men were rich and the company [finally] failed.”
Unions wanted the investors sued and stripped of more money. Deputy Prime Minister Jim Anderton joined the fray saying that as the investors were wealthy they should personally pay the company’s debts.
The jury is still out on whether the airline was trading while insolvent. Directors are adamant this was not the case. If they did, that would be different story, says Franks.
“But here we have bunch of wealthy New Zealanders who took punt on trying to save an airline that had lost money for most of its 11 years of existence. It is the nature of entrepreneurs to back themselves. They believe they can pull things off because they think they can see where the other guy went wrong. They give it go. Some of their punts pay off. Others don’t.”
Since September 11 and subsequent anthrax “scares” in the United States investors and businesses alike are putting business and lifestyle decisions on hold. Much of this sudden inertia is fear driven, part is economic as the US economy falters. Fear has taken an unprecedented grip on the western world and New Zealand, bit-part player in the global village, is not immune. Reliant on tourism, tour operators, airlines and retailers are feeling the bite.
Western fear, sliding world commodity price index and, closer to home, the slipstream impact of Air New Zealand’s multimillion dollar performance fiasco might all impact attitudes toward risk taking and investment for period but, attitudes toward taking business risks are much more fundamental than these transient, albeit tragic, issues.
Deloitte Touche Tohmatsu chairman John Hagen says New Zealand managers are not, by and large, great risk takers. “We don’t do ourselves justice. We prefer to play within our limits, to follow well-worn paths rather than strike out in new directions. It sometimes seems as if we deliberately fail to live up to our potential; as if we are reticent about achieving success and recognition.”
And this in spite of the fact that New Zealand traditionally sees itself as nation of innovators and entrepreneurs. “It is curious that our businesses don’t do better internationally. Great ideas are not enough. To get the best from ideas and energy we need courage. We need to take risks, dare to succeed and not be afraid to fail,” explains Hagen.
Baycorp chief executive Keith McLaughlin agrees. The publicly-listed debt collecting company is one of New Zealand’s success stories. But it wasn’t an easy ride to the top. Baycorp is star sharemarket performer but after listing in the mid ’80s the company got hammered. Exposed “cash wise” its share price plummeted from $1 to four cents after the ’87 crash.
“But if you don’t push the boundaries you will never change,” says McLaughlin now. We have philosophy at Baycorp that if we do the same thing tomorrow as we did yesterday then we will still be the same company. This is unacceptable. Our attitude is to wake up each day and come into change the business. When you adopt that approach change doesn’t become something you fear but something you embrace.”
Risk is not one of McLaughlin’s favourite words because of its negative connotations. He sees risk rather as seizing opportunity. And despite its earlier brush with failure Baycorp still makes mistakes, because it continues to push the envelope.
Three years ago Baycorp took stake in financing business Finance House. It was initially involved as an administrator, supplying technology to the company. Then it accepted an invitation to take an equity holding.
“If we had stayed there as service provider it would have been okay,” says reflective McLaughlin. “But the equity holding created conflict of interest. On the one hand we were in successfully growing business but on the other it caused problems in the other parts of our company.”
It was hard call but Baycorp made the decision not to risk alienating its key customers for the sake of what was really not Baycorp’s core business. “But as long as you learn from them, mistakes are something you can afford to make,” he adds. “It’s the ones you don’t learn from that are expensive.”
And McLaughlin’s view of Kiwi characteristics differs from those who say we are risk averse. He thinks we are simply more conservative. In his opinion New Zealand is still blessed with entrepreneurial people, even if they are little bureaucratic and sometimes lacking in follow-through on their ideas.
There are, he says, those who take risks but don’t see them through. Then there are those who have the ability to see them through but are reluctant to take the first step. “The blend of these two types is beautiful if you can achieve it.”
Franks suggests that perhaps our current generation of managers is still influenced by the excesses of the ’80s which in turn shapes their risk-taking strategies.
They are, perhaps, looking for the big hit – the strategic gains where they believe wealth comes from pulling off major strategic alliance or acquisition or something that gives quantum leap over their competitors.
“The alternative is to generate wealth from doing hundreds of little things better, of constantly refining what you do, so every person in the organisation is marginally better than the opposition,” he says.
Franks, McLaughlin and Tru-Test’s executive director Keith Aitchison, view alliances and joint ventures as strategic risks that rarely work. “I have documented dozen joint ventures and I don’t think any of them turned out to be happy for both parties in the end,” says Franks.
“They usually last long enough for one party to get what it wanted from the joint venture before it took place, be it cash, list of client contacts or access to technology.”
Aitchison says Tru-Test, company that started in the ’60s with the development of milk meter for farmers and which today is the nation’s largest agri-tech enterprise, learned first-hand about the pitfalls of partnerships.
In the ’70s and ’80s, when diversification was the name of the game, management saw an opportunity to market electric fences.
“The initial attempt wasn’t successful – probably because we didn’t have full control of the process. It was someone else’s product so the venture only went certain distance and we had to let it go,” Aitchison explains. “We revisited the product years later and now we are the number one electric fence brand in New Zealand.”
Peri Drysdale, founder and leader of South

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