Human Resources: Why Smart Executives Fail

Webcast Description: (Short Paragraph) There's a scenario that keeps repeating itself in today's business climate. A company is voted one of the most admired in the world. Then three or four years later, it's in dire financial trouble. A CEO is celebrated on the covers of Business Week, Forbes, and Fortune. Soon after, the company is in the midst of a disastrous merger or some other fiasco. What goes wrong in these cases? Usually it seems that top management made some incredibly stupid mistake. But the people responsible are almost always remarkably intelligent and usually have terrific track records. Just as puzzling as the fact that brilliant managers can make bad mistakes is the way they so often magnify the damage. Once a company has made a serious misstep, it often seems as though it can't do anything right. How does this happen? Instead of rectifying their mistakes, why do business leaders regularly make them worse?

The great corporate mistakes we uncovered are organized in the book into four chapters that focus on four different business challenges — creating successful new ventures, managing mergers and acquisitions, coping with innovation and change, and developing winning strategies in the face of new competitive pressures. These are all fundamental, and sometimes daily, tests for executives, yet in contrast to what you might read in most books on business, there aren't so many happy endings. By digging into the detailed case histories of 51 companies we discovered just why executives and the companies they lived in faltered when engaging in these challenging transitions.

Organizations cannot exist without the act of creation, though the case histories we researched suggested an experience few would call immaculate. Naturally, there's a dot-com story—Webvan—that followed the now well-known script of pell-mell pursuit of first mover advantage while spending too much on a business plan that was not ready for prime time. What is less well known is how some of the same challenges Webvan experienced showed up in the considerably un-Internet world of Samsung, the giant Korean conglomerate. Rounding out the new business breakdowns we studied are General Magic, an Apple spin-off that went after the PDA market five years before anyone ever hear of Palm Pilots, and Iridium, the classic story of a telecom juggernaut that was never meant to be. All four of these companies are profiled in detail, but there are others that fell into the same category that make cameo appearances here, and in later chapters as well, such as Levi's, Schwinn, Rite Aid, Rhythms Net Connection, and Value America (and several other Internet cousins). Together, these companies stand as spectacular examples of great corporate mistakes in creating new ventures, and offer critical lessons to all those enmeshed in, or soon to enter, the world of new business formation.

Who would have predicted that so many of the companies we studied had multiple opportunities to adapt and change, but chose not to? These companies were all riding high when key executives were faced with the challenge of dealing with innovation and change—and blinked. These kinds of cases regularly catch people unaware, because the companies that become casualties of innovation and change are often the ones that were setting the pace for innovation and change only a short time earlier. The stories are dramatic, supplemented by fascinating snippets of interviews we did with people inside and outside of the companies, but most of all chillingly humbling for if giants like Johnson & Johnson, Motorola, and Rubbermaid could stumble in this way, what about the rest of us?

Companies often court disaster when they try to make other companies part of their business organization. The leading examples for illustrating what typically goes wrong are Quaker's acquisition of Snapple, Sony's acquisition of Columbia Pictures, and Saatchi & Saatchi's acquisition of numerous advertising agencies and consulting firms. But there are several other stories that are equally instructive. Daimler Benz, Conseco, Mattel, Vivendi, AOL Time Warner, First Union, AMP, and Firestone ended up destroying billions of dollars in value in a spasm of deals that offer terrific insights on how to do things differently. The expression "buying trouble" could have been coined for any of these examples. In fact, if it were necessary to choose only one type of example to illustrate every kind of business breakdown, it would have to be mergers and acquisitions. The stresses of trying to plan an acquisition and of integrating the acquired company seem to expose every area of weakness a company has developed.

Why do strategies break down in the face of competitive pressures? How widespread are such breakdowns? Well, how about if we found the same pattern of mistakes in a computer company (Wang Labs), an automobile company (General Motors), a Japanese food company (Snow Brand Milk), and a professional sports franchise (the Boston Red Sox)? In retrospect, these stories are among the most fascinating, because the blindness of otherwise intelligent leaders seems so conspicuous. How could brilliant executives be so oblivious to the one thing their company most needed to do? These stories force us to consider why such basic ideas of strategy as competitive positioning and rational decision making break down in the heat of battle, leaving us with the challenge of explaining seemingly irrational behavior.