In the preceding chapters I have given an account of why Racoon Bags failed as a bag producer in Bangalore. I have argued that the most important factor distinguishing failure from success is the productivity in the factory. This productivity is given by the efficiency among the workers, and the frequency of unexpected events such as power failures and machine breakdowns.
Racoon Bags operate in a challenging business setting, with a labour stock not always performing with sufficiently high efficiency. I have pointed out that the workers efficiency is driven by the workers effort and turnover levels. Racoon Bags can stimulate effort and turnover by adjusting the compensations to the workers. The higher the compensations are, the higher the effort and the lower the turnover will be; all resulting in higher productivity in the factory. For the compensations to be at an optimal level, Racoon Bags need to compensate at a level where the cost of one efficient unit is minimized. Workers efficiency is however not only influenced by the compensation level. The efficiency is also a result of Mr. Singh s ability as a manager, and Racoon Bags credibility in promising a long term employment relationship. These two factors are given by Racoon Bags results in the previous period. Of this reason, the efficiency levels among the workers depend both on the compensations they receive and on the success of Racoon Bags in the previous periods. This creates a happy trap when Racoon Bags are experiencing good results, and a trouble trap when the results are bad.
Unexpected events can drastically hit the productivity at the factory, forcing the production to a halt for a long period of time. An unexpected event can therefore push Racoon Bags out of a happy trap and into a challenging trouble trap , where the efficiency among the workers are pushed downwards.
In September and October 2006 Racoon Bags experienced two dramatic unexpected events that made the results at Racoon Bags disastrously bad. Due to the challenging financial situation this created, Mr. Singh s ability as a manager vanished, and the workers started doubting Racoon Bags credibility in promising a long term employment relationship. Racoon Bags was therefore locked inside a trouble trap it never managed to escape. A potentially successful business start up had thus failed, and the triggering cause was the unexpected events happening in September and October 2006.