Focus: Finance and Governance - Outlook - The complex reasons behind failure

Paul Palmer is professor of voluntary sector management at the Centre for Charity Effectiveness in the Cass Business School.

When leading companies go through hard times, the media is quick to look for someone or something to blame. They also prefer a simple story.

Yet, as the recoveries of companies such as IBM and Marks & Spencer have demonstrated, explanations and solutions are more complicated.

I believe such complexity also applies to charities, and I have recently reflected on this in a series of media interviews on the current financial management problems experienced by Scope. The media response has ranged from seeking someone to blame to trying to explain the problem as the result of donor fatigue.

I have no special insight into Scope's problems, but I am sure they cannot be accounted for that simply.

I suspect there have been some internal management failures and other historic failures relating to the charity's name change, and that wider economic factors have also had a role. For example, although charity shops were a success story from the mid-1980s onwards, perhaps the concept needs to be re-examined. For some charities, shops will continue to make excellent returns, but others will need to appraise their returns and look for alternatives.

Like commercial organisations, charities need to look at their USPs and keep their activities under review. Interestingly, that is what the Sorp is all about, but some people believe such good business sense should not apply to charities.

Some theories that explain individual financial behaviour influence corporate strategy and social policy. One example is the life-cycle hypothesis that suggests young and old households are likely to spend more and borrow against future income or run down life savings, whereas middle-aged households are more likely to have higher incomes, a bigger propensity to save and are likely to spend less. This theory has been adapted by commercial organisations using demographic and lifestyle information to target potential customers for their products. They also monitor social trend statistics and how societies change - the breakdown of the nuclear family, for example - to ensure such products are still relevant.

Management teaching often uses the case study approach to examine not only successful organisations, but also ones that have failed, finding out why they failed and looking at the alternative strategies management might have adopted. In the case of Marconi the jury is still out. There is still debate about who is to blame for the company's failure and what alternatives could have been followed.

KEY POINTS

- Corporate strategy and social policy are both influenced by theories that explain individual financial behaviour

- Management teaching uses the case study approach to examine why some businesses fail

- The reasons for such failures are often complex.

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