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Why Smart
Executives Fail - And What You Can Learn from Their Mistakes
Continued from previous page
We have examined all the seven ‘theories’ of executive failures but failed to
come to any conclusion. None of the theories or all combined could provide any
logical explanation of failure of executives. Having not arrived at any answer
to the question why executives fail, the research team of the author at the Tuck
School of Business at Dartmouth started their investigation in 1997 on why
executives fail.
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Initially the team studied some forty companies which had undergone failures.
These included both new and fresh cases and some classic ones. Some of the
classic cases were General Motors’ robotics strategy of the 1980s and RJ
Reynolds’ Project Spa. The recent cases included Johnson and Johnson’s failure
in the cardiovascular stent business, Motorola’s failure to shift from analog
to digital cell phones, and Iridium’s failure in satellite- based cell phone
business. However the sample size was later extended to include the very
recent failures some of which included Webvan, Enron, WorldCom, Tyco and
ImClone.
The companies covered in the research were from different industries which
included automobile, entertainment, food, consumer electronics, financial
services, pharmaceutical, insurance et al. Though the companies studied were
predominantly American, the research also included companies from other
countries such as Japan, UK, South Korea, Germany, Singapore and Australia.
The research team interviewed many CEOs who had failed to know their side of
the stories. Many failed CEOs were desperately seeking ways to let the world
know that they were right in whatever they did. They felt that sharing
information with the researchers would strengthen their case.
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To understand the
reasons for the failure of executives, the research team had the following
questions in hand: Why do entrepreneurs who take their business to great heights
destroy everything because they feel that they have the right
answers? Why do CEOs invest billions of dollars in ventures without any
compelling reason simply because they want to? Why do executives fall so much in
love with products that they refuse to listen to what the customers are saying?
Why do CEOs pursue acquisitions without thinking about how the acquisitions are
going to add value? Why do some CEOs indulge in self-destructive behavior?
The research findings are then presented under three sections: Great Corporate
Mistakes, The Causes of Failure and Learning from Mistakes respectively. Most of
the corporate failures took place during four major business phases. These
phases were: creating new ventures, dealing with innovation and change, managing
mergers and acquisitions and addressing new competitive pressures.
In section
one, the author explains these four phases and why conventional wisdom about
these phases in not adequate. It explains the mistakes committed by corporates
in each phase and during the transition from one phase to another. In section
two, the research findings from all the fifty-one companies studied are
presented. These findings are based on the response of companies during the four
phases studied in section one. The research team identified four destructive
patterns of behavior in companies which failed. The first is flawed executive
mindsets that keep a company away from perceiving the reality, the second is
attitudes that do not allow a company to change this perception, the third is
communications systems that do not allow handling potentially urgent information
and the fourth is leadership qualities that do not help executives to change
their behavior. Each of these behaviors or a combination of all can lead to
corporate or executive failures.
Section three deals with the learning perspectives from executive failures. It
explains what board members, CEOs, executives, lower-level managers, investors
and stakeholders can learn from the mistakes of others so that the same mistakes
are not repeated. In this section the research team also identifies some early
warning signals that executives and investors need to understand and ways to
diagnose the mistakes.
Executive failure or corporate failure is not a new subject that can attract
readers; many books have been written on this topic more so in recent past. But
this book holds interest because of its richness in content and analysis. The
methodology used in writing this book is the same as used in Built to Last and
Good to Great. The book starts with some hypothesis and tests those with the
help of data. The methodology of collecting the data also seems to be objective.
The strength of the book is that it has the backing of a research team from
Dartmouth’s Tuck School of Business. This has given it an academic finesse.
2004, ICMR Case Studies and Management Resources. All rights reserved. No part of this publication may be
reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted
in any form or by any means - electronic or mechanical, without permission.
To order copies, call 0091-40-2343-0462/63/64 or write to ICMR Case Studies and Management Resources, Plot # 49, Nagarjuna Hills, Hyderabad 500 082, India or
email info@icmrindia.org. Website: www.icmrindia.org
This case study is intended to be used as a basis for class discussion rather
than to illustrate either effective or ineffective handling of a management
situation. This case was compiled from published sources.
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