Call a spade a spade

Warren Buffett’s Berkshire Hathaway had recently indicated that it is winding up its online insurance operation in India that was started in 2011.

The bad news is that the experiment probably didn’t produce the desired results, but the good news is that the company took the bold decision to pull the plug and move on — at least for now. Obviously, the decision need not imply that the company would not try again. It might try, probably at a later time, using a different entry strategy or business model.

A few years back, Geico, an auto insurance major in the US and another subsidiary of Berkshire Hathaway, tasted terrible results from a different experiment.

The idea was to issue credit cards to insurance customers in the hope that it would add an additional source of income. Instead what it produced were losses due to large defaults by customers who bought their insurance using the card but failed to pay their credit-card bills.

The company soon realised what was happening and closed the books on the scheme. Buffett himself admitted that the blunder was due to his idea and owned up to it in his annual letter to shareholders.

Rationality, aN advantage

The ability to call a spade a spade, admit mistakes and take quick corrective action is something that is a key characteristic for successful business.

Be it investments that didn’t pan out or business strategies that didn’t work, over the years, Berkshire has had its share of mistakes and Buffett himself hasn’t shied away from taking ownership for the ones he was responsible for.

This sets the right tone at the top for the managers of various business units within the firm to act in similar manner, that is, acknowledge and fix mistakes objectively without getting caught up in the ego of it all.

The ability to deal with business decisions rationally could be a huge competitive advantage for a firm. What it cultivates is a strong culture to take calculated risks and cut losses early on so that the same resources (be it people, time or money) could be better focused on scaling up the experiments that do succeed.

Lessons for future

It is common for many companies to clam up, at least in public, when it comes to talking about their failures but they don’t hesitate in marketing their success. Not admitting mistakes per se may not be a problem, but if it could turn into one, if there is absence of decisive action on the mistake.

The problem in procrastinating course correction on errors of judgment or brushing failure under the carpet is that they eventually grow in scale and could potentially threaten the rest of the organisation. Business mistakes provide an opportunity to introspect and learn from what didn’t work. It is best to take them head on and handle them rationally, before it is too late.

When outcomes defy intent

The challenge is when failure conflicts with the company’s vision. Let’s take the case of the Nano for example. The vision behind the inception of the product was to provide an affordable small car that could provide a safer alternative for families travelling on two-wheelers.

Unfortunately, when the car did come to the market, the actual response was much poorer than what was expected by the company. One of the reasons may have something to do with the psychology of Indian customers — who like a good bargain but don’t want to be perceived as being cheap or as someone who short-changes on features.

It probably took a while for the company to come to terms with why its noble vision didn’t work. But they finally got it — it was all about packaging. So, now, you have a ‘cool’ Nano targeted at young couples, positioned as a stylish small car with a personality of its own.

No wonder the numbers have started looking up already. In hindsight, an early course correction may have helped; but better late than never.

Here’s another example – Back in the 80s, the Coca Cola Company, after spending millions of dollars on research, decided that it was time to change the flavour of its flagship drink and launched the ‘New Coke’.

Soon, the company started receiving complaints from millions of angry customers and Don Keough, the then President of the company made a public apology for totally misreading its customers. Within 70 days, the company took the new product off the shelf and went back to the ‘Classic Coke’.

Takeaway

The lesson to be learnt is that irrespective of what a company’s vision, mission or strategy may be, when it comes to business, it’s all about what works and the earlier one realises that something is not working and fixes it, the less risky it is.