Dialogue: Failure is often the nursery of success

By JIM EAGLES

Are New Zealand business managers the worst in the world? Do most of our companies perform poorly? Have we a national lack of commercial acumen?

The reaction to the collapse of Ansett Australia and the problems facing Air New Zealand certainly indicates that many people - on both sides of the Tasman - think this to be true.

But those who hold such opinions have failed to look at the situation objectively.

For one thing, the high-profile difficulties of a few large firms do not represent the full picture. The vast majority of New Zealand businesses trade quite successfully.

The latest statistics on economic value added, produced by international consultants Stern Stewart, show the performance of New Zealand's listed companies to be equal to those overseas.

For another, company failure is a natural feature of a market economy.

Business competition, like evolution, entails a constant struggle to survive. Weak companies must fall by the wayside to free up resources for successful new companies to flourish. It is a perfectly natural process, not a sign of corruption or incompetence.

For yet another, aviation is one of the most ferociously cut-throat markets of all, where survival is always difficult.

That is why so many airlines have foundered. Where are former icons of the skies like PanAm and Canadian Airlines, or closer to home, Kiwi Air and Qantas NZ? Like dozens of other airlines, big and small, they have gone to the hangar in the sky.

To understand why airlines run into trouble it is only necessary to consider the external problems that have beset Air NZ since it acquired Ansett:

* Ferocious competition in Australia from new cut-price airlines.

* The need to match a dramatic reduction in fares from mainstream competitor Qantas.

* Higher costs, particularly for fuel, resulting from the fall in the kiwi and aussie dollars and the rise in crude oil prices.

* The dramatic, and draconian, grounding of aircraft by Australia's air safety authorities.

* A drop in international air traffic as a result of the slowing world economy, which, of course, will be exacerbated by the terrorist attacks in the United States.

The impact of higher fuel prices and falling passengers numbers has been sufficient to plunge a big proportion of the world's airlines into financial strife.

In the circumstances it should be no surprise to anyone that Air New Zealand, which has also faced specific local pressures, has run into similar trouble.

Nor should it be seen as anything unusual that the airline is turning to the Government to bail it out.

Most national carriers - and Qantas is a prime example - are alive today only because of direct subsidies from the taxpayer and indirect subsidies from consumers courtesy of protective Governments. Right now, US airlines are asking their Government for $US24 billion ($58 billion) to save them from collapse.

In fact, Air NZ's request for help is more justified than most, considering that the Australian Government blocked it from following its preferred transtasman strategy and the New Zealand Government has prevented it from adopting its preferred recapitalisation plan.

All of that is not to deny that the airline's directors and senior management have much to answer for.

But to suggest that Air NZ's problems are due entirely to management incompetence, or that the situation provides proof that New Zealand firms are a disaster area, is to fly in the face of reality.

The innovation strategy released this year by the Science and Innovation Advisory Council emphasises the need to change our national attitude to entrepreneurial risk-taking and to commercial failure.

"Often," it says, "we're quick to cut people down to size if they fail. Yet failure offers an unparalleled opportunity to reflect, learn and succeed on the next attempt."

In acquiring Ansett, Air NZ took a calculated risk with the aim of transforming itself from a small local airline into a regional carrier, a move that would have brought significant benefits to New Zealand if it had succeeded.

In the event it failed, and the response to that failure shows we have a long way to go before achieving the can-do approach the council considers vital to economic success.