Learning by their biggest mistakes

Decision-making : a blueprint for avoiding disaster has emerged from our series in which business leaders admitted the worst

IN 1982 Peter Webber was invited to go into partnership in what was to become the My Kinda Town restaurant chain. He declined the offer because he was certain the idea would not work, and now reckons that the mistake cost him pounds 2m to pounds 3m.

While an RAF equipment officer, Norman Adsetts made the mistake of assuming his stock control systems were running smoothly, and lost an aircraft. If it had not been found he might still be paying for it.

Brian Taylor, as a young production manager at a fish processing factory, bought 15 tons of squid - and then found out that his customer only wanted squid that were less than 2ins long. Almost all of the order had to be written off.

These people learnt from their mistakes, but what can we learn from them? The My Biggest Mistake series in the Independent on Sunday provided us with an opportunity to learn from others. The 250 contributors in the series came from a range of business sectors and typically held senior positions, such as chairman (22 per cent), managing director (20 per cent) or founder of a business (10 per cent). Women made up 12 per cent, and 42 per cent were university-educated, 13 per cent of them attending Oxbridge colleges. The average age was just under 51, with a range from 28 to 66.

Errors always occur in a particular context and when we set out to analyse the mistakes their context was the first thing we looked at (see figure 1).

We broke down these broad categories and found the most common context was in managing business expansion, which formed the background to 20 per cent of all mistakes reported in the column.

Examples ranged from Gerald Ratner's failed attempt to buy out an American jeweller to Evan Steadman's production of Maxwell: the Musical. In addition, many of the mistakes were reported against the context of making personal choices, 14 per cent of them in fact, such as Sir Hal Miller's decision to go into politics, and Sir Peter Parker's chance to take French nationality.

To help us classify the mistakes we developed a framework derived from research by two German psychologists, Dietrich Doemer and Harold Schaub at Bamberg University, who have used computer simulations to examine the kinds of mistakes made by managers. The results are shown in figure 2.

When we broke down these broad categories the two most common kinds of mistake involved selective attention and over-generalising, together accounting for more than a quarter of all the reported mistakes.

Selective attention is when someone concentrates only on a small part of the available information; like David Bruce, whose highly successful chain of Firkin pubs nearly went bankrupt in the early days, because he did not realise that they were running at a loss.

Turnover was so high that he did not bother with a profit and loss account. If he had focused on a broader range of financial information, a first- year loss of pounds 86,000 on a pounds 1m turnover might have been avoided.

Generalisation is when someone has a strong idea of how things should be and works with assumptions and generalisations that are not tested. Geraldine Laybourne made this kind of mistake when she produced a television programme that failed because it was too far removed from the children for whom it was made.

As she put it herself in her article, her team needed to "get rid of our prejudices about what we thought kids needed, and listen instead to what they wanted".

The mistakes reported ranged from confusing the Dutch prime minister with his personal assistant, to over-ordering 5,500 pairs of tights; from being too innovative in a market that was not ready for it, to not listening properly. Similarly, the consequences varied; one mistake cost the thick end of pounds 10m, others cost the business, while yet others cost nothing more than embarrassment.

What are the implications of all of this? The My Biggest Mistake series has shown us that successful people have made some huge mistakes; but more important, they have learnt from them. The lessons that emerge are important; here are some examples:

q Never allow emotion to rule the pocket.

o Wanting something badly is not enough to make it profitable.

q If you want sustained change you have to build allies.

q If you are a UK retailer do not go to America.

q Whatever the structure of the deal, personal relationships are always critical to its success.

q Do not underestimate the time and cost required to educate the market. Understanding a country's culture is necessary before you can understand the way it approaches business.

q Do not switch successful ideas from one culture straight into another.

q Never assume things will get better - make it happen.

q Never rely on the judgement of politicians.

In a culture that punishes mistakes, people will not feel free to talk about things that go wrong. No one will be able to learn lessons like these, and ultimately, it will be the organisation that suffers.

An organisation that cannot talk about and seek to understand its mistakes cannot learn effectively. An organisation that cannot learn cannot compete properly.

Organisations that take the time to understand their mistakes are investing in their future. We believe it is an investment that will reap rich rewards.

q Pearn Kandola is a firm of chartered occupational psychologists in Oxford that helps organisations of all kinds to succeed through unleashing their human potential. Michael Pearn, Tim Payne and Chris Mulrooney are part of Pearn Kandola's team, which specialises in helping organisations learn more effectively. They are conducting further analysis on the 'My Biggest Mistake' series.

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