Look for the Benefit in Setbacks to Gain the Most Profit

Your biggest customer calls to say that the firm is going into bankruptcy and won't be able to pay the six month's worth of outstanding invoices. You wish him well and hold your head in pain.

An hour later, you discover that your plant is in violation of OSHA (Occupational Health and Safety Administration) standards. You have to pay a large fine and buy millions in new equipment before you can restart operations.

If that weren't enough, your lawyer calls to say that a large sex discrimination suit has been filed by someone who was fired for good cause. Defending the suit will cost at least $75,000.

Thinking that you should just slink away and change your name, you next get a call that tells you that the ship carrying needed components has been seized by custom authorities and your shipment won't be offloaded for months.

Wondering what you did wrong to justify so many problems, you call your banker to ask for a little more time to pay your loans. The banker is terrified by your news and tells you that all of your loans are being called for immediate payment: You need to find a new bank within a week.

How can everyone in your company obtain a benefit from the negative circumstances?

Part of the helpless feeling that follows setbacks often can be an emotional reaction from having experienced an important loss (in this case, of a positive expectation for the future), not unlike experiencing the death of a parent. Organizations and individuals frequently assume that the loss has only a negative side, but the positive side can often be much greater.

For example, during the early years of leveraged buy outs (LBOs), many management theorists were concerned that the manager-owners doing the buying out would treat employees, customers, communities, and other stakeholders in harsh and negative ways. Managers in the LBOs soon found that making everyone see the LBO experience as a win-win for all was critical to success.

LBO executives learned to treat everyone much better than had occurred under the prior ownership, because the debt-laden LBOs had little room for error. Generous gain-sharing programs often meant that everyone who worked for the company was paid much more after the LBO, the businesses grew faster which improved the chances of receiving a promotion, customers received much better service and products, and innovation increased to provide better services and products sooner.

This beneficial pattern occurred in part because incentives were increased, but also because bureaucracy was decreased. In some cases, every employee became a part owner of the enterprise through investing some employee stock ownership program (ESOP) funds.

Unless that new employee ownership opportunity was not well balanced with adequate job security, this sharing of risks and rewards often worked well. Virtually bankrupt companies went on to create enormous wealth for everyone involved in owning and managing the enterprise.

Perhaps our embattled executive should consider using these setbacks to engage employees through an ESOP to overcome the challenges and stimulate much greater interest in high performance to overcome the temporary difficulties.