Why Smart Executives Fail and What You Can Learn from their Mistakes

Abstract: The recent fall of many 'smart' companies and 'smart' executives have benefited one section for sure. The authors and publishers have benefited from the resources at their disposal. One could see many books on a single topic: corporate failures or failure of the so called smart executives. Why Smart Executives Fail is one more addition to the already existing literature on corporate failures or executive failures.

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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. 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.

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.