Billion dollar lessons

Chunka Mui's new book provides insights into strategic and tactical business failures that might have been avoided.

"Success is inspirational; Disasters is educational."

I thought that comment had a lot of merit, and it appears to be somewhat of the guiding light to Mui's research. All tolled the authors examined 750 major US business failures, defined as major losses, write-offs and bankruptcies over more than 20 years. There were three insights from the research:

-Strategy matters --good execution will not save a bad strategy

-There are predictable patterns and warning signs of failure

-You need to have significant dialog and debate to avoid falling into the trap of groupthink behavior, where no one wants to question the leader.

While these may seem like obvious conclusions, keep in mind that they couldn't be that obvious; otherwise you wouldn't have the kind of failures described in the book, such as Motorola's Iridium satellite phone project which cost the company $5 billion and was ultimately sold for $25 million. No doubt, we'll see other disasters in the coming year that will be equally obvious after the fact.

So what are some of the patterns of failure? These include common mistakes such as:

-Illusions of Synergy, seen in poorly planned acquisitions

-Faulty Financial Engineering, which sunk many banking & insurance companies in 2008

-Misjudged Adjacencies, assuming success in one market will carry over into other areas

-Staying the Misguided Course, long after the market has changed

-Fumbling Technology

-Faulty Financial Engineering.

In companies or industries that are very successful, you can sometimes observe failure that combines many of the above dimensions. From the sidelines, it appears like a slow motion train wreck. Consider the slow demise of the US automotive industry, or closer to Silicon Valley, consider just how far Yahoo! has fallen. But markets rarely stand still even if vendors sometimes cling too strongly to a past that is long gone.

You can read more at the author's web site www.billiondollarlessons.com.

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