Latent Failures vs Active Failures

Many people reveal their innate biases in a casual setting. Community WhatsApp groups are where people feel comfortable sharing their thoughts about business challenges. I am part of many such groups (after all, understanding SME owners' problems and building solutions for them is my full-time job 😀 . I run HowFrameworks), and an interesting problem was discussed in one such group.

A small toy manufacturer complained that 2-3 of their field sales executives were collecting cash from the distributors/retailers, and those retailers were adjusting that amount against their payables to this vendor.

In a short time, many business owners from the group pounced on the employee's behaviour and started making generalised statements ("Your sales guy must have screwed up somewhere", "many frontline executives are turning out to be like this - dishonest", "In today's world, finding an honest salesman with good performance is like finding a needle in a haystack")

I had a few different questions on my mind (I obviously didn't ask them in the group as it generally stops people from sharing such pointers in the future)

1. Was the employer paying their salaries on time?

2. Had the owner promised them sales incentives but had not paid them for months?

3. Did the employees and the business owners have any unresolved compensation increment-related issues?

4. Did those employees work overtime but were not paid rightful compensation?

5. Were these employees going through some financial difficulties and had asked for loans that were denied?

𝐈 𝐚𝐦 𝐧𝐨𝐭 𝐚𝐭 𝐚𝐥𝐥 𝐣𝐮𝐬𝐭𝐢𝐟𝐲𝐢𝐧𝐠 𝐭𝐡𝐞 𝐞𝐦𝐩𝐥𝐨𝐲𝐞𝐞'𝐬 𝐛𝐞𝐡𝐚𝐯𝐢𝐨𝐮𝐫, but people at small companies with frontline sales jobs come from impoverished backgrounds. Their cultural settings are survival-focused, and they often confuse their rights with their integrity. They rationalise their behaviour, creating an image of “fundamentally good people responding to difficult circumstances”.

It's also a matter of 𝐋𝐚𝐭𝐞𝐧𝐭 𝐯𝐬. 𝐀𝐜𝐭𝐢𝐯𝐞 𝐅𝐚𝐢𝐥𝐮𝐫𝐞𝐬. Latent failures are caused by people who are distanced from the real action (typically, the management team, decision-makers, and process designers). Active failures, meanwhile, are made by frontline staff.

When a sales executive misappropriates cash, that's an active failure. However, the conditions that allow this to happen—poor cash handling procedures, inadequate monitoring systems, and lack of verification processes—are latent failures created by management. These latent failures create an environment where active failures become more likely or even inevitable.

This is a classic case of how business owners often misattribute organisational failures to individual employees rather than examining their own systems. For entrepreneurs to succeed, they must shift from a person-centred approach to a systems-centred understanding of organisational performance.