Risk & reward. Thabani Zulu
International Airport from its hub, Hong Kong International Airport.
Oasis was one of a growing number of long-haul passenger airlines that adopted a budget airline model pioneered by the now defunct Laker Airways Skytrain service in the 1970s. Oasis was voted “World’s Leading New Airline” at the Annual World Travel Awards 2007.
Much of the original success of Oasis Hong Kong was due to the airline’s widely advertised minimum fares. However, fares later became much less competitive.
On 9 April 2008, Oasis Hong Kong announced that it had ceased operations, and a provisional liquidator, KPMG China, had been appointed to oversee the liquidation of the company. On 8 July 2008 it was announced that unsecured creditors of the collapsed company, including ticket holders, would eventually receive no more than 10% of what they were owed, according to KPMG.
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Nationwide Airlines
Most readers probably remember the well-publicised story of this South African company’s problems and eventual collapse. Before halting its operations in 2008, Nationwide Airlines operated scheduled domestic and international services from its main base at OR Tambo International Airport, Johannesburg. It was privately owned and had 800 employees (at March 2007).
Founded in 1995 by Chief Executive Vernon Bricknell, the airline began operating charter services within Africa for the United Nations and the World Food Programme, as well as ad hoc passenger and cargo charters. Nationwide Airlines was one of four companies within the group, along with Nationwide Air Charter, Nationwide Aircraft Maintenance and Nationwide Aircraft Support, and started domestic scheduled operations in December 1995. In 2003, Nationwide inaugurated an intercontinental service with wide-body aircraft. In February 2005, the airline began updating its fleet by introducing its first Boeing 737-500, becoming the only operator of the -500 type in South Africa.
In March 2008, Nationwide was recognised as the most punctual scheduled airline in 2007 between London and Johannesburg for the second consecutive year, according to UK Civil Aviation Authority statistics.
In 2007, the airline experienced a number of problems and was grounded for a while for non-compliance with South African Civil Aviation regulations. In January 2008 Nationwide resumed operations and attained a gradual recovery of the business. However, in the months of March and April they were faced with a 30% increase in fuel costs coupled with a decrease in passenger loads. Nationwide’s cash flow became critical, and as a result, the airline decided to voluntarily cease all flight operations until further notice. Operations were halted on 29 April 2008.
I hope you can identify, just from these few examples, some of the risks you will be faced with in business. Most of them may not cause your business to collapse, as was the case with these big companies, but they may result in significant losses of revenue and profits, loss of market share which will take you a long time to recover from, and loss of reputation. These risks must be managed.
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The difference between a risk and a crisis
One thing to remember from the outset is that a risk is not a crisis. By the time you are faced with a crisis, it is often too late. Your mind is already in reactive mode, and you are already putting out a fire – a risk has materialised. A risk is a potential crisis which has not yet materialised, and which, if not managed adequately, can result in a crisis. The crisis is in the future.
This distinction already makes life a lot easier. When you deal with a risk, your mind is proactive. Your senses, though strained by fear, are calmed by the fact that it has not happened, and your attention is less sidetracked than when you are running an operation to put out a fire. You are more sober and clear-headed.
My advice is, do not allow yourself to be in a position where you are reactive in managing unwanted situations in your business. Try to anticipate danger, deal with it proactively, and avoid being hit unawares. Finding yourself in such a situation can be very stressful and, as I have mentioned, it may be too late!
Risk management
You probably know it already – risk management is the art of managing risks, the technique of a leader in anticipating danger and putting systems in place to protect the business from such danger before it happens.
Anticipation
It begins with anticipation.
Can you imagine what a world of difference it would have made to the lives of the companies that I referred to above if they could have anticipated the dangers that hit them, and reacted accordingly? Of course, I speak with the benefit of hindsight and as an external observer. The truth is, they were in the hot seat, faced with doom and racing against the inevitable. The risk had materialised! The first question is, how well did they anticipate this?
The more you can anticipate, the better you can manage. You do not want to say, “I did not see it coming!” You want to see almost everything coming, or planning to come. This capacity is critical. You can acquire it by reading up on as many businesses as you can, especially those that have collapsed. Find out why, because you really do not want to fall into the same trap. Engage professionals in the field and ask them to help you anticipate potential risks. Be very negative; after all, that is the nature of risk. Instead of being over-optimistic, ask yourself, “What can go wrong in my business?”
Management
The next step is to develop a strategy and processes to deal with the identified risks. Your strategy should be underpinned by three questions:
1 How can I prevent it from happening?
2 How can I detect that it has happened?
3 How can I quickly put out the fire and correct the damage when it happens?
Trust me, business owners who are defrauded or stolen from internally by their employees do not see it until it is too late because question 2 was never answered in their risk management strategy. Those who get their cars stolen and lose business did not answer question 3. Those who experience one crisis after another suffer because they neglected to answer question 1.
For almost every major or significant risk that your business faces, you must answer the questions above. You truly cannot get past the risk without satisfying yourself that the answers make sense.
A quick look at the business risks
If you reflect on it for a moment, your business is a risk from the day you start it to the day you get out of it one way or the other. In this book I will be discussing the risks and strategies to manage them in successive chapters, and covering the topics below:
Product
What if I go into business with the wrong product?
What if my product does not sell?
What