FAILURE

Strategies for learning from failure

Presented by :

Sourabh Bumb MBA Finance

Why do companies fail to learn from failures ?

Because of 2 main misconceptions

• Failure is bad

• Learning from failure is straightforward

Most important thing - Avoid the Blame Game

INATTENTION

UNCERTAINTY

EXPLORATRY TESTING

Blameworthy

Praiseworhty

Not all failures are equal

Mistakes fall into 3 broad categories :

•Preventable

•Complexity related

•Intelligent

• Preventable failures in predictable operations

• Unavoidable failures in complex systems

• Intelligent failures at the frontier

•Most failures in this category can indeed be considered “bad”•Generally arise due to deviance, inattention, or lack of ability

•Due to the inherent uncertainty of work•Although some failures can be averted, some process failures are inevitable

•Failures in this category can rightly be considered “good”•They provide valuable new knowledge•They occur when experimentation is necessary

Building a learning culture

Make people both comfortable with and responsible for surfacing and learning from failures

Anything goes wrong – focus more on what happened and not on “who did it “

3 essential activities to learn from failure :

•Detection•Analysis•Experimentation

Detecting Failure

Detect the failure early, before it becomes a disaster

Techniques : Red-yellow-Green , TQM , Feedback from customers

Problem – Reluctance to convey bad news to the senior

Guideline : Know the limits to declare defeat in an experiment Reduce the stigma of failure

Analyzing Failure

Go beyond the obvious reasons, understand the root causes

Get rid of fundamental attribution error

Promoting Experimentation

Strategically producing failures – in the right places, at the right times

Don’t test under favourable condition... Discover everything that could go wrong - instead of proving that under the best of conditions everything would go right.

Eg: our first online CAT exam

“I have not failed. I've just found 10,000 ways that won't work.” ― Thomas A. Edison

Thank you

Good people often let bad things happen. Why?

Max H. BazermanAnn E. Tenbrunsel

By Amanpreet Singh ChughMBA Finance

Dilemma

• The vast majority of managers mean to run ethical organisations, yet corporate corruption is widespread.

• Much more often, we believe, employees bend or break ethics rules because those in charge are bind to unethical behavior and may even unknowingly encourage it.

The Ford Pinto

• Produced during 1970s• Became notorious for its tendency in rear end

collisions to leak fuel and explode into flames.• Under intense competition from Volkswagen and

other small car manufacturers, Ford had rushed the car into production

• Many saw the decision as evidence of the Ford’s leaders deep unethicality.

• Looking at the decision through modern lens they thought of it as a purely business decision rather than an ethical one.

• Taking an approach heralded as rational in most business school curricula, they conducted a formal cost benefit analysis and determined it would be cheaper to pay off lawsuits than to make repair.

• The moral dimension was not part of equation. Such “ethical fading”, a phenomenon first described by Ann Tenbrunsel and her colleague David Messick, takes ethics out of consideration and even increases unconscious unethical behavior.

Ill-Conceived goals

• When employees behave in undesirable ways, it’s a good idea to look at what you’re encouraging them to do.

• At Sears, Roebuck in the 1990s,when management gave automotive mechanics a sales goal of $147 an hour—presumably to increase the speed of repairs. Rather than work faster, however, employees met the goal by overcharging for their services and “repairing” things that weren’t broken.

• Another case in which a well-intentioned goal led to unethical behavior, this time helping to drive the recent financial crisis. At the heart of the problem was President Bill Clinton’s desire to increase homeownership. In 2008 the Business Week editor Peter Coy wrote:

•

Motivated blindness

• It’s well documented that people see what they want to see and easily miss contradictory information when it’s in their interest to remain ignorant — a psychological phenomenon known as motivated blindness. This bias applies dramatically with respect to unethical behavior.

• The “independent” credit rating agencies that famously gave AAA ratings to collateralized mortgage securities of demonstrably low quality helped build a house of cards that ultimately came crashing down, driving a wave of foreclosures that pushed thousands of people out of their homes.

Indirect Blindness

• Managers routinely delegate unethical behaviors to others, and not always consciously. They may tell subordinates, or agents such as lawyers and accountants, to “do whatever it takes” to achieve some goal, all but inviting questionable tactics.

The Slippery Slope

• Failure to notice the gradual erosion of others’ ethical standards. If we find minor infractions acceptable, research suggests, we are likely to accept increasingly major infractions as long as each violation is only incrementally more serious than the preceding one.

Overvaluing Outcomes

• Many managers are guilty of rewarding results rather than high-quality decisions. An employee may make a poor decision that turns out well and be rewarded for it, or a good decision that turns out poorly and be punished. Rewarding unethical decisions because they have good outcomes is a recipe for disaster over the long term.

The Managerial Challenge• Companies are putting a great deal of energy into efforts to

improve their ethicality. Despite all the time and money that have gone toward these efforts, and all the laws and regulations that have been enacted, observed unethical behavior is on the rise.

• Even the best-intentioned ethics programs will fail if they don’t take into account the biases that can blind us to unethical behavior, whether ours or that of others.

• Avoid “forcing” ethics through surveillance and sanctioning systems. Instead ensure that managers and employees are aware of the biases that can lead to unethical behavior.

By Francesca Ginoand Gary P. Pisano

Why LeadersDon’t LearnFrom Success

Reasons for Failure

• Too close to Exiting Customers• Myopic Focus• Short Term Financial Performance• Inability to adapt to Innovation

SUCCESS !!

Success can Breed Failure

• Success can breed failure by hindering learning at both the individual and the org level.

• Learning from failure is important, but learning from success is more important and a lot more difficult !!

– Fundamental Attribution Error– Overconfidence Bias– Failure-to-ask-why

Ducati

• Decided to enter MotoGP in 2003• First Season Learning Season– Fitted bikes with 28 sensors– Detailed Interviews of drivers

• First Season – Success !! Finished 2nd Overall• Overconfidence creeped– Didn’t analyse the data– Radically Redesigned Changed the bike

Ducati

• Finished 3rd Overall in 2nd season• Serious Handling Problems

• Review– Huge Experimentation– Development and testing of next year bike began much

earlier• MotoGP Champions in 2005, 06 ,07 !!

• Success caused Ducati to stop Learning…..

Fundamental Attribution Error

• Not Possible to determine the reasons for success Without Analysis

• Possible Reasons for Success– Bike Design– Team Strategy– Driver’s Talents– Luck– Bad Choices by Other Teams

Fundamental Attribution Error

• Easy to Attribute team’s success to team’s excellent performance to the quality of decisions, actions, and capabilities

• Common for Executives to attribute the success of their organisations to their own insights and managerial skills

• Ignore Random Events and factors outside their Control

Fundamental Attribution Error

• Research in Top US Universities– When evaluating the success of others subjects

maximised the role of Luck & External Factors– When evaluating their own success, subjects

maximised the role of Leadership and Strategy

• Pharma Industry –– Long Lead times– Made errors with regards to which drugs to kill– Selected Drugs whose initial tests were positive

Falling Prey to Overconfidence Bias

– Success can make us so overconfident that we believe we don’t need to change anything.

– Success can make us believe that we are better decision makers than we actually are.

Falling Prey to Overconfidence Bias

• Research Conducted by Authors Selected two Groups of Students

First Group was asked to recall a time when they experienced success Second Group asked to recall a time when they experienced failures Both Groups given a series of Decision Making Tasks

Results• First Group were

– more confident in their abilities,– made more-optimistic forecasts of their future success,– were more likely to take bigger bets

Falling Prey to Overconfidence Bias

• Overconfidence from past success can PLAGUE the entire organisation.– Dismiss New Innovation– Dip in Customer Satisfaction– Increase in Quality Moves

• Examples –– Too many Acquisitions– Banks making Risky Loans

Failing to Ask Why

• When Failure strikes Why Disaster Struck ??

• Success does not trigger Soul Searching

• Success is interpreted as evidence that existing strategy and practices work.

Failing to Ask Why

• Examples– In Hospitals, rigorous reviews are carried out for cases

that ended badly.– But, no such review is carried out for the operations that

end in success.

– Toyota’s Leaders Recently admitted that their success in pursuing sales had blinded them that operations had essentially compromised quality.

– Massive CallBack of Cars throughout Europe & America.

5 Ways to Learn

Celebrate Success but Examine It !!

• When a win is achieved, analyse it with as much rigour as a failure would have been analysed.

– A pharma company, which faced serious shortage of capacity was able to launch its new product on time, as a competitor put up its plant for sale.

– Critical evaluation of this successful launch resulted in understanding the fact that the demand forecasting of the company was broken

Institute Systematic Project Reviews

• Carry out a military style “After Action Review” of each combat irrespective of the outcome.

• Example– Pixar which has 11 hit animated films in a row conducts rigorous reviews of each of its film. Even when it’s easy to be complacent.

Use the Right Time Horizon

• When the lag between an action and its consequences is short, its relatively easy to identify the consequences of performance.

• Example-– In case of Pharma and Aero

Space the decisions made today will not bear fruit for sometimes a decade or more, thus appropriate time frame is necessary to evaluate the decisions

Recognise that replication is not learning

• When things go well, our biggest concern is how to capture what we did and make sure we can repeat the success

• But if we use this exercise to prepare a list of things we have to do the same way next time, this exercise is a failure.

• Example –– TQM, Six Sigma have taught us how to get to the root cause of

the problem

If it ain’t broke, Experiment

• Experimentation is one the best way to test assumptions and theories.

• Engineers Test subject their systems to ever more rigorous tests, till their subject breaks down.

• Can act as fore-warning system.

• Costs and impacts of such tests must be kept in mind.

“In racing, when you make a change, you only care whether or not it leads to superior performance. You tend to care less why something works. But over the long term you need to know why. This is the science”

Article - Failing by DesignRita Gunther McgGrath

Harvard Business Review, April 2011

Prateek Singh SidhuMBA Finance

University Business School

In uncertain environments, failures are more common than successes and yet, organizations aren’t designed to manage, mitigate and learn from failures.

Most organizations are profoundly biased against failure and make no systematic effort to study it.

Executives hide their mistakes. People grow worried that failures will hurt their career prospects, stop taking risks.

Failure per se in not a good thing – wastes money, destroys morale, infuriates customers, damages reputations, harms careers.

But failure is uncertain environments is inevitable, and if managed well can be a very useful thing.

Organization have to foster ‘Intelligent Failure’ – a phrase coined by Sim Sitkin of Duke University in 1992.

How Failure Can Be Useful?

Learn What Doesn’t Work• Many successful ventures built on failed projects. Apple’s Macintosh computers emerged from the ashes of Lisa, which

introduced GUI and mouse. Google’s algorithm to maximize the profitability of ad-based model

came after much trial-and-error.

Create the conditions to attract resources and attention

• Let something big go wrong and then it’s all hands on deck

• Example : The author narrates his personal example of having difficulty in gaining political support and financial resources for his project until the old data was corrupted.

Make room for new leaders

• Many leadership positions are held by people very much like those who selected them – don’t challenge unspoken assumptions and taken-for-granted rules.

• Only when these assumptions prove ineffective – boards recruit fresh leaders.

• Alan Mulally, a former senior executive at Boeing, turned around Ford after being named as CEO in September 2006.

Develop Intuition and Skill• Researchers say that what people think of as intuition is highly

developed pattern recognition. Those who have never faced a negative a negative outcome have a critical gap in experiences that intuition is based on.

• Many venture capitalists won’t invest in a new enterprise if the founder has never undergone failure.

• The team that developed Microsoft’s highly successful Xbox 360 had worked on 3DO’s failed game console, Apple’s problematic video-card business, unsuccessful WebTv, Microsoft’s own short-lived UltimateTv

Keep Your Options Open

• As the range of possible outcomes of course of action expands, the chances of that action’s succeeding diminish.

You’ll improve your odds if you improve if you make more tries.

• This is the logic behind businesses that operate in uncertain environments.

Venture capital firms - Success rate of 10%-20% Pharmaceutical companies - typically create hundreds of new

molecular entities before coming up with a marketable drug.

Putting Intelligent Failure to Work

Principle 1 – Decide what success and failure would look like before launch an initiative.

• People working on the same project usually have different views of what would constitute knowledge.

• A company that made environmental remediation equipment was hoping to introduce a new product line.

The marketing group thought equipment’s selling point was that it met a tough new regulatory standard.

The engineering group thought the point was cost-effectiveness. It was designing out the very features the marketing group wanted to sell.

2. Convert assumptions into knowledge

• Initial assumptions most likely to be incorrect

• Don’t start your experimenting until you’ve made your assumptions explicit – write them down and share them with your team, revise when new information comes in.

• Remove confirmation bias.

• Organizations that do not record their assumptions run into two big problems

1. Assumptions become converted into facts in people’s minds. 2. Such organizations don’t learn as much as they could.

3. Be quick about it – Fail fast

• Saves from throwing additional resources.• Easier to establish cause and effect when actions and outcomes are

close together in time.• The sooner you can rule out a given course of action, the faster you will

move toward your goal.• An early failure lessens your pressure to continue with project because

of low investment.

A practical way is to test elements of project early on – agile software development.

Human benefits of failing fast.

4. Contain the downside risk – Fail cheaply

• Initiatives to make the consequences of failure modest.• Test a small-scale prototype• Japanese cosmetic firm Kao – floppy disks• 3M’s reputation for being fault tolerant took a beating under Jim

McNerny, a GE trained leader who sought to utilize Six Sigma quality practices, even in research labs. This hampered employees’ willingness to take risks on unproven ideas.

When George Buckley took the reins as CEO in 2005, part of his challenge was to restore the culture of risk taking.

5. Limit the Uncertainty

• No point in encouraging failure in an area that you are already familiar with, but experience it in an area where your current capabilities won’t do you much good

• Google – Internet Radio Venture• Break a long-term project up into smaller pieces.

6. Building a culture that celebrates intelligent failure

• People often feel their career prospects will be in trouble if something goes wrong under their watch – and they are often right!

• Senior management needs to create a climate that encourages intelligent risk taking and doesn’t punish any failures that might result.

• A.G Lafley – Proctor & Gamble

7. Codify and share what you learn• An intelligent failure whose lessons are not shared is wirth far less than

one teaches something to the group.• Among the most popular ways are mini postmortems as a project

exceeds, checkpoint reviews as key thresholds are reached, after-action review meetings at project’s conclusion.

• Identify what assumptions were going in, what happened, what it implies for those assumptions, and what should be done next.

• Critical to avoid finger pointing.

“ I think of my failures as a gift”

A G LafleyFormer P & G CEO

Presented by :

Sourabh BumbMBA Finance

Key excerpts from the interview

“A lot of mistakes and my fair share of failure. But you have to get past the disappointment and the blame and really understand what happened and why it happened. And then, more important, decide what you have learned and what you are going to do differently next time.”

A.G. Lafley –

Former CEO of Proctor & GambleRegarded as one of the most successful CEO in recent times

“My experience is that we learn much from failure than we do from success. Look at great politicians and successful sports teams. Their biggest lessons come from their toughest losses. The same is true for any kind of leader.”

We learn more from failure, rather than success – A G Lafley

Learned more from failed brands and products like ‘Dryel at-home dry cleaning ‘ and ‘Fit Fruit and Vegetable Wash’ more as compared to huge successes like Febreze and Swiffer

Remember “the Apple of everyone’s eye”

A winning launch Plan ...

P&G launched a superior and differentiated product – a color-safe low-temperature bleach

Test market chosen - Maine, far away from rival Clorox’s headquarter at California

What else ?

•Full retail distribution•Heavy Sampling and couponing•Major TV advertising

And then... The plan failed miserably

Clorox distributed a free gallon of Clorox Bleach – delivered to the front door

Nobody was going to need bleach for several months, with P&G already spent huge money in advertising and other activities

The message from Clorox was clear “ Don’t ever think about entering the bleach category”

Learned from the failure

A) P&G learned how to defend leading brand franchises.

When Clorox tried to enter the laundry detergent business a few years later, P&G sent them a similarly clear and direct message – and Clorox withdrew their entry.

B) Later on, P & G modified the technology and introduced the laundry detergent, Tide with bleach which was more than half a billion dollar business.

Another Major Failure...

Missed potentially transformational acquisition of a health care Rx to OTC switch

All discussions were favorable for the deal, but at the last minute , the heads of the health care opposed the deal

...Lead to learn

Even when the economics & financials of the deal are strong and attractive,managing the human behaviours and different personalities is very important

To be prepared to counter the short term interest of individuals to harm the long-term strategic merits.

Advice offered to other CEO’s about learning from failure

•Most important and insightful learning is more likely to come from failures rather than success

•The learning has to be institutionalized to endure. Learning something personally does not do any good if the institute doesn’t learn the same lessons.

•Create a culture that turn failures into learning

•Think of your failure as a gift, otherwise you won’t learn from failure.

Thank you

How to Avoid Catastrophe

Failures happen. But if you pay attention to near misses, you can predict and prevent crises.

Catherine H. Tinsley, Robin L. Dillon, and Peter M. Madsen

By Amanpreet Singh ChughMBA Finance

Near Misses• MOST PEOPLE think of “near

misses” as harrowing close calls that could have been a lot worse.

• Another class of near misses (unremarked small failures) that permeate day-to-day business

• Cause no immediate harm. • They often go unexamined or,

perversely, are seen as signs that systems are resilient and things are going well.

BP Gulf oil rig Disaster

• In April 2010, a gas blowout occurred during the cementing of the Deepwater Horizon well. The blowout ignited, killing 11 people, sinking the rig, and triggering a massive underwater spill that would take months to contain.

• Numerous poor decisions and dangerous conditions contributed to the disaster: Drillers had used too few centralizers to position the pipe, the lubricating “drilling mud” was removed too early, managers had misinterpreted vital test results that would have confirmed that hydrocarbons were seeping from the well. In addition, BP relied on an older version of a complex fail-safe device called a blowout preventer that had a notoriously spotty track record.

Poor decisions and dangerous conditions contributed to the disaster• Drillers had used too few centralizers to position the

pipe.• The lubricating “drilling mud” was removed too early, • Managers had misinterpreted vital test results that

would have confirmed that hydrocarbons were seeping from the well.

• BP relied on an older version of a complex fail-safe device called a blowout preventer that had a notoriously spotty track record.

Study of Near Misses• For the past seven years, they have

studied near misses in dozens of companies across industries from telecommunications to automobiles, at NASA, and in lab simulations.

• Multiple near misses preceded (and foreshadowed) every disaster and business crisis studied, and most of the misses were ignored or misread.

• Study also shows that cognitive biases conspire to blind managers to the near misses.

Cognitive Biases

1. “Normalization of deviance,” the tendency over time to accept anomalies.

2. The second cognitive error is the so-called outcome bias. When people observe successful outcomes, they tend to focus on the results more than on the (often unseen) complex processes that led to them.

• Organizational disasters, studies show, rarely have a single cause. Rather, they are initiated by the unexpected interaction of multiple small, often seemingly unimportant, human errors, technological failures, or bad business decisions. These latent errors combine with enabling conditions to produce a significant failure.

• Whether an enabling condition transforms a near miss into a crisis generally depends on chance; thus, it makes little sense to try to predict or control enabling conditions. Instead, companies should focus on identifying and fixing latent errors before circumstances allow them to create a crisis.

• Research suggests seven strategies that can help organizations recognize near misses and root out the latent errors behind them. Authors have developed many of these strategies in collaboration with NASA.

• Seven strategies can help managers recognize and learn from near misses. Managers should:

1. Be on alert when time or cost pressures are high2. Watch for deviations from the norm3. Uncover the deviations’ root causes4. Hold themselves accountable for near misses5. Envision worst case scenarios6. Look for near misses masquerading as successes7. Reward individuals for exposing near misses

by Martin E.P. Seligman

Building Resilience

A Tale of two MBA’sDouglas

Walter

Douglas

Applied for jobs in his hometown & Found a Job

Applied in a number of firms in New York. Got rejected by them all

After two Weeks, Got up and realised that their was still a market for his skills

Was sad, listless, indecisive and anxious about the future

Got Fired & Went into a tailspin.

Working in a Wall Street firm

Walter

Didn’t look for another job. Ended up moving back in with his parents.

Spiraled into Hopelessness. Told himself that the job market would take years to recover

After two Weeks, told himself that “I got fired because I can’t perform under pressure”

Was sad, listless, indecisive and anxious about the future

Got Fired & Went into a tailspin.

Working in a Wall Street firm

• Which one of the Two Employees would you like to hire for your organisation ??• Douglas• Walter

• It is people like Douglas who rise to the top & whom management must recruit and seek to retain in order to Succeed !!

Developing Resilience

• The author has carried out 30 years of research to show that it is possible to distinguish between the two types of people:• One who will collapse• One who will rise from failure

• The author has worked for years to develop a training program to develop a program for teaching resilience.

• This program is now being tested in one of the biggest organisations of the world• US Army with over 1.1 million employees

• Author says that members of Army suffer from worst form of PTSD• Post Traumatic Stress Disorder

• The training program seeks to develop resilience at lower as well as higher levels:• Individual Soldiers• Drill Sergeants

• Businesses can also learn from this approach particularly in times of failure and stagnation.

Optimism Is the Key• Optimism Experiment:• Group of students are divided into 3 groups and subject to

noise experiments

Group 1 Subject to Loud Noise :They can stop the noise by pushing a button in front of them

Group 2 Subject to Loud Noise :They can’t turn off the noise, even though they try hard

Group 3 Subject to no noise

Optimism Is the Key• Optimism Experiment:• Same group of Students are again subject to noise. All of them

can stop the noise by pressing the button.

• But further research showed that one third of the people never became helpless

• The people who never become helpless interpreted setbacks as temporary, local and changeable. i.e. they never gave up !!

Group 1 Easily figured out that pressing the button stops the noise

Group 2 The people in this group don’t try anything. They have learned helplessness.

Group 3 Easily figured out that pressing the button stops the noise

• People can be immunised against helplessness by teaching them OPTIMISM.

• The author along with colleagues developed a program called

• The author believes that there are 3 types of persons:• At one end we have people who fall into PTSD, depression and even

suicide

• In the middle we have people who react with symptoms of depression and anxiety but within a month are back to where they were before the trauma both psychologically and physically.

• At the other end we have people who show post traumatic growth. They are better off than they were before trauma

• US Army agreed to carry out the resilience program for its employees at a cost of $145 mn.

• This program was called the Comprehensive Soldier Fitness(CSF).

• CSF had 3 components• Testing for Psychological Fitness• Self Improvement Courses• Master Resilience Program

Testing for Psychological Fitness• It consists of a 20 min questionnaire called GAT(Global

Assessment Tool)• This tests measures 4 things• Emotional Fitness• Family Fitness• Social Fitness• Spiritual Fitness

• This test allows Army to measure and compare the psychological fitness scores of individuals or units as a whole.

• Helps monitor and track performance over time of soldiers.

Self Improvement Courses• Series of optional Online Courses.

• 4 optional courses in • Emotional Fitness Module• Teaches soldiers how to amplify positive emotions and how to recognise negative ones

• Family Fitness Module• Focuses on building variety of relationship skills including fostering trust, managing

conflict, recovering from betrayal

• Social Fitness Module• Helps teach the soldiers empathy to soldiers.

• Spiritual Fitness Module• Deals with self awareness, self regulation, self motivation and to serve something larger

than the self.

• One Mandatory Module• Teaches soldiers about 5 elements• Understanding the Response of Trauma• Reducing Anxiety• Engaging in Constructive Self Disclosure• Creating a narrative in which trauma is seen as a fork• Articulating life principles

Mater Resilience Training• The most important component of CSF program is the Master

Resilience Program.• It is a training program given to sergeants and other leaders at Univ.

of Pennsylvania.• Can be viewed as a Management Training – Teaching Leaders

how to Embrace Resilience, and then pass on that knowledge.• It is divided into three parts:• Enhancing Mental Toughness• Highlighting and Honing Strengths• Fostering Strong Relationships

• All the three points discussed above are Core Competencies for any successful manager.

As this program develops, the US Army is comparing the performance of soldiers who have undergone the program and those who haven’t. Conclusive results from these tests

will go a long way in deciding whether large scale Implementation of such programs would be possible at

organisational level.

Article – How ChinaReset Its Global AcquisitionAgenda

Peter J. Williamson, Anand P. RamanHarvard Business Review, April 2011

Prateek Singh SidhuUniversity Business School

“If you get up one more time than you fall, you will make it through”

- Old Chinese Proverb

The first wave of overseas mergers by Chinese companies ended in a failure but that hasn’t

prevented them from trying again, and succeeding at it.

The SAIC – Ssangyong Company Saga • Shanghai Automative Industry Corporation’s short-lived attempt to run

the South Korean automaker Ssangyong.

• SAIC picked up 49% equity stake in Ssangyong, which had been reeling under debt burden, for $500 mn in Oct 2004, beating many bidders including General Motors.

• Ssangyong had 10% share in its home business, as well as growing export business. SAIC thought buying Ssangyong would allow it to improve its improve development capabilities, make headway in markets such as US.

• Original plan to expand manufacturing capacity in South Korea and launch 5 new models worldwide. However things didn’t go as expected.

• Raising gasoline prices in 2006 and stringent new emissions standards in Europe and North America sent SUV sales tumbling.

• SAIC’s relations with Ssangyong’s union grew strained, resulted in 7 week strike because of cultural differences, Chinese and Korean executives couldn’t agree on how to improve performance

• Global Recession, Ssangyong’s sales fell by 53% in Dec 2008

• SAIC initially supported its subsidiary, buying $4.5 mn worth of Ssangyong’s vehicles in late 2008 to sell in Chinese market.

• When the situation worsened, SAIC said its ready to pump in $200 mn more provided restructuring plan that included an overhaul of work practices to practices to improve productivity and a 36% reduction in the workforce is implemented.

• Ssangyong’s unions refused, protested, initiated leagal action for allegedly transferring SUV design and technologies to China.

• Left with no other option, Ssangyong filed for bankruptcy in 2009.The angry workers went on strike again, barricading themselves inside plant for 77 days.

• In the five years that SAIC controlled Ssangyong, it invested $618 million in the company – and earned virtually nothing.

The D’long Group – Murray Disaster

• First overseas takeover by China’s private sector company.

• In 2000, $4 bn D’long conglomerate entered the lawn mower and garden equipment business by acquring Murray Inc., in a deal backed by GE Capital, which provided $400 mn in financing.

• Murray’s profits had been falling steadily because of price-based competition from overseas.

• D’Long integrated its Chinese manufacturing facilities with Murray’s, identified lower cost sources of components, and restructured the organization to reduce overhead.

• Soon after this, the American company suffered from a series of quality issues and product recalls. In 2004, 100,000 lawn tractors because of cracks in fuel tanks. This dented its image and made it difficult to raise money.

• After the Chinese govt. hiked interest rates and reduced money supply, D’long found itself running out of resources.

• The group raised capital by pledging the shares of its listed companies as collateral for loans, making right issues, and providing guarantees for loans.

It illegally started using the funds from its trusts and finance companies to prop up its share prices.

• In 2004 the house of D’Long collapsed, after the China Banking Regulatory Commission named it among the country highest-risk companies and banks refused to extend it any more loans.

• Murray Inc. filed for bankruptcy in Nov 2004

The TCL – Thomson debacle

• TCL, China’s largest maker of color Tv’s and 2nd largest maker of mobiles, struck a $560 mn deal to merge its TV and DVD operations with those of France’s consumer electronics giant Thomson.

• TCL had 67% equity stake in the new TCL-Thomson Electronics (TTE) company.

• TCL hadn’t examined Thomson’s B/S carefully before investing. It refused to hire M&A experts to perform due diligence.

Also ignored BCG analysis report suggesting too much risk was involved.

• TCL didn’t realized the Thomson brand in Europe and Thomson’s RCA brand in America were both old and tired. In 2003, Thomson lost more than $100 mn in DVD and TV operations.

• Complex Deal – separate contracts to access those parts if business which weren’t transferred to TTE.

• TCL lacked the capabilities to assimilate Thomson’s people. The shortage of Chinese managers with international experience and expertise in global marketing.

• Cultural clashes

• Because of its troubles in Europe, TCL suffered a combined loss if RMB 5.07 bn in 2005 and 2006.

In May 2007, TCL declared European operations insolvent and overhauled them by doing away with Thomson’s business model and distribution channels.

• It closed five out of seven European centers. The grand alliance took just three years to unravel.

The Revamped Approached of Beijing

• A shift to hard assets

• A quest for high technology

• The pursuit of growth at home