Seven Ways to Fail Big

Paul B Carroll and Chunka Mul

Lessons from The Most Inexecusable Business Failures of The Past 25 years

What causes companies to fail spectacularly ? A recent study of 750 of the biggest U.S. business disasters of the past 25 years reveals that seven popular but risky strategies are often to blame.

Drawing on that extensive research, Carroll, a journalist, and Mul, a fellow at Diamond Management & Technology Consultants, describe seven sirens that lure companies onto the rocks.

Diamond is a management and technology consulting firm. Recognizing that information and technology shape market dynamics, Diamond’s small teams of experts work across functional and organizational boundaries to improve growth and profitability. Since the greatest value in a strategy, and its highest risk, resides in its implementation, Diamond also provides proven execution capabilities. We deliver three critical elements to every project: fact-based objectivity, spirited collaboration, and sustainable results. Diamond is headquartered in Chicago, with locations in Hartford, New York, Washington D.C., London, and Mumbai. Diamond is publicly traded on the Nasdaq Global Market under the symbol "DTPI."

One is the synergy mirage hoped for but nonexistent merger synergies. Group dis ability insure Unum unwittingly pursued these when it acquired individual disability insurer Provident, assuming the units could cross sell each other's products. It turns out they had entirely different sales models and customers.

Pseudo-adjacencies aslo lead companies astray, as school bus operator Laidiaw learned when it spent billions on a move into ambulance services. The firm expected its logistics expertise to carry over but discovered ambulances were not a transportation business but a highly regulated health care business demanding skills it sorely lacked.

Faulty financial engineering,aggressive financial practices don't necessarily lead to fraud, but they can be dicey. The stakes are high-brands and reputations and entire businesses can crumbles as a consequence, and corporate officers may be exposed to massive fines and even prison.

Stubbornly staying the course, redoubling your investment in your current strategy in response to market signals is a strategy itself, and it can lead to disaster. Executives too often kid themselves into thinking that problem isn't so severe or delay any reaction until it is too late.

Bets on the wrong technology, the huge rewards for breakthrough product and services understandably inspire many companies to search relentlessly for the next Google or eBay or iPod. Still, in our research we discovered that many technology-dependent strategies were ill-conceived from the get-go. No amount of luck or sophisticated execution could have saved them. To keep pursuing the strategies that produced these failures-some quite spectacular-companies had to go to great lengths to deceive themselves.

Rushing to consolidate are all dangerous, too, as Conseco, Kodak, Motorola, and Ames can attest. Our research shows that it is sometimes better to sit back and let others fumble through consolidation. Though there's more glory in being buyer, it may be wiser to sell and pocket the cash before industry condition deteriorate.

And a rollup of almost any kind is a high-wire act in which a slight market downtum is all it takes to finish you off. Research shows that more than two-thirds of roll-ups have failed to create any value for investors.

If the executives at these companies had taken a closer look at history, they might have avoided billions in losses. But even experienced teams can fall into these traps. The best way to safeguard your company against them is to institute a formal strategy review by a devi’s advocate panel not involved in strategy development. Its members must have license to ask tough questions, say the authors, who offer guidelines to help panels focus on facts, tes assumptions, and bring to light flaws in the strategy that could lead to costly blunders. Lean more How Harvard Business Review September 2008


Source : Harvard Business Review