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Observations following the collapse of Thomas Cook
So, another one bites the dust. This time it is Thomas Cook, the pioneer and icon in the travel industry after 178 years.
There will be a lot written and even more said about this event. For me, it is very simple:
- A failure in strategy.
- A failure in management — at the top.
People will try to put the blame elsewhere. They will blame the government, taxes, unfair competition, globalization, … whatever. No, the blame is at the top.
What should we take away from this unfortunate event? I see two fundamental points.
Firstof all, it is important for any manager to understand the nature of the environment in which they are operating and how it is evolving. All industries, all business sectors operate in an environment. It is this environment that sets the rules, the constraints, and defines the rules for success. Whatever business you are in, you need to clearly understand the environment that you are in and the rules — the critical success factors — for your business, regardless of size.
Furthermore, the industry environment evolves (much like the famous product life cycle). As the industry life cycle evolves, the nature of the industry, the rules, and the opportunities for success change. It is the job of top management to understand the environment of the industry that they are in and how it is evolving. The industry environment that gave you opportunity and success when you started has changed. Things have evolved and are now different. Any company that stays with a business model that was the root of their original success and does not evolve with the change in their environment fails. The list is verylong.
What about those other things that people will want to blame — the government, taxes, unfair competition, globalization, … ? Those are all simply part of the environment of the industry that you are operating in.
So, what is the nature of the industry that you are in? How is it changing? How will you respond?
The secondpoint is the critical importance for liquidity. As the expression goes; “Cash is King”. When you run out of cash, you are dead.
There are financial experts who will tell you that you should be highly leveraged. (Cary a large amount of debt. Use other people’s money and less of your own.) Yes, being highly leveraged can yield a higher return on investment — at least on paper and ifall goes well. But, what if all does not go well? What if there is a “bump in the road”? Then what? We have seen the consequences of this in every financial downturn. We are currently seeing this with several other companies in the same industry who have taken on too much debt in a rush to expand. Those companies are also bankrupt or their future is currently uncertain.
Remember, your strategy needs to have flexibility — what I call “wiggle room”. Regardless how well your strategy is developed, things will never go exactly as planned. If your strategy (especially your financial strategy) is so highly tuned that it depends on everything going just right, know that you will likely fail. Things never go exactly as planned. You will need the flexibility and available resources (cash) to respond.
The failure of Thomas Cook is unfortunate — especially for the customers, employees, and suppliers. But, let’s put the blame where it belongs. The blame belongs at the top.
And, from this, let’s take some key lessons to apply in both our businesses and in our personal lives.
*Note: Title inspired, of course, by the famous song by Queen.
Mark Louis Uhrich
Maisons-Laffitte, France, 23 September 2019
©Copyright Mark Uhrich
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