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February 12, 2013

Companies that failed and lessons learnt

We must learn from our mistakes”, is a motto that have been ingrained in us from our school days. Well, not always. We should also learn from mistakes made by others, and avoid treading in the same quicksand all over again. The reason behind corporate turnarounds being so difficult and rare is often work culture of the company – the most difficult thing to change.

Let us look into the story behind few companies, some of which are famous brands, that did not do well in the last year; declared as bankrupt and were either taken over by a bigger giant or was completely shut down.

Kingfisher Airlines

In the era of low cost flights, Kingfisher Airlines was known to provide top class service to its passengers, against a premium price. It survived in style in spite of all the stiff competition received from other airline companies. Its founder, Vijay Mallya, was believed to be minting lots of money; until one day, when the truth surfaced.

Mr Mallya was in huge debts – so much so, that he was unable to pay salaries to his staff. What is worse, no bank or financial institution was willing to provide any further loan to him to revive the airline. Selling parts from his other successful ventures such as United Breweries also did not seem to be enough. Finally, the curtains had to be drawn on Kingfisher Airlines for good.

The key error made by Mr Mallya and his financial advisors was that they had not properly chalked out the money flows. Just being a big name is not enough. The staff went on strike or left. The market share in flight reservations dipped; so did the stock prices. And so much money had already been raised, even against personal guarantee given by Mr Mallya. There was no untapped source to bail out the airlines at this time of crisis. Mallya’s approach was almost like a stubborn child – he believed that none of his ventures can go wrong; and was blind to the signs of disaster at the initial stages.

Indian, Jetlite, Air India Cargo

The woeful story of airlines remained in the headlines for a large part of the year. While Kingfisher’s closure opened up lot of controversies and debate;   these mergers took place in a comparatively smooth fashion. The rising fuel prices; heavier taxation; higher operation costs, etc pushed small airlines into depths of losses; rendering them almost defunct.

Air Sahara, previously merged with Jet Airways and renamed as JetLite had to close operations in 2012 and be merged with Jet Konnect. Indian Airlines, that was revamped as “Indian” had to be finally merged with Air India last year. Air India Cargo was also merged with Air India to streamline operations and organize finances. However, Air India itself is a plagued set up; and being a Government owned company, survives on the lifeline of tax payer’s money.

Raj Travels

The travel industry saw the end of Raj Travels in 2012. It was one of the premiere leisure travel service providers; but was experiencing major financial crisis.

The world woke up in surprise to the news of suicide committed by the founder, Mr Lalit Sheth, an entrepreneur from Gujarat. There were many rumors behind this drastic step taken by Mr Sheth, who was just 56. The company was found to have borrowed huge sums of money from the market; and also taken services of various tour operators on credit. However, Raj Travels had been unable to pay the dues in time; and cheques had also been dishonoured by the banks due to insufficient funds. The networked operators refused to offer any further services without payment, which pushed the reputation of Raj Travels in jeopardy.

With the death of its owner, the company is yet to fish itself out of trouble and stage a turnaround.

Educational Institutes

There was a time when a MBA (Masters of Business Administration) or MCA (Masters in Computer Applications) degree could help to boost one’s career. Professionals even took a break from work to enroll for such programs and re-enter the job arena with a vengeance. Students could also enroll for B. Tech programs with various private engineering colleges and technical institutes that added to the number of seats available in technical courses. Capitalizing on the surge in demand, various institutes were started off, under private operations, almost like mushrooms, which offered the degree one needed. This surge saw the widespread construction of institutes all over India, especially in the metropolitan cities such as Kolkata, Delhi, Chennai, Mumbai, Bangalore and Hyderabad. Permissions to start an educational institute were granted by AICTE (All India Council of Technical Education) in the hope to boost education in our country.

In order to attract students to fill the seats, the eligibility criteria were far more relaxed in comparison to that demanded by the premiere institutes; and the fees were also lesser. But what was compromised in the process is the quality of the education.

However, the recent slowdown in the professional job market, dilute affiliations with universities, unplanned financial flows, unorganized management and related issues did not exactly fulfill AICTE’s objective. Of the 146 business schools started all over India in 2011 – 12, 124 have already shut down. Other colleges have curtailed the number of courses and specializations. 84 colleges have withdrawn the MCA programme; while 50 engineering colleges have been shut down mainly due to paucity of funds. There is saturation in the market with a large number of individuals with professional degrees – it is no longer the passport to a high paying job.

The lesson to be learnt from this “educational disaster” is that one has to investigate every possible detail about an institute before enrolling with it – its management, faculty, placement records, reputation and likewise.

The failures of different companies in 2012 starkly call for careful understanding of the market dynamics; and careful planning for the future operations. Adequate risk planning and alternative plans of action in crisis situations have to be kept ready so as to respond to changing situations effectively.

Tags : Corporate Failure, Kingfisher, Jetlite, Air India, Educational institutes

About Anupama

A Transport Planner and Architect, Anupama has been blogging for about six years now. She has taken up professional content writing for the last two years, and can always be contacted for any assignments or queries. Her strength is original presentation of any topic.