Wednesday, April 9, 2014

How can one “Win Big” and not “Fail Big"

Carroll & Mui’s Harvard Business Review article (September, 2008) on business failure attempted to articulate a simple 7-point strategy for companies to avoid strategic missteps and fail. The problem with their logic, however, is that in the quest for profits and market share, company executives have to engage without fear in strategic decision making, and rarely are the cases so straightforward and crystal-ball direct that one can confidently avoid Carroll & Mui’s potholes.

While researching their article, I came upon a fascinating rebuttal from the former Chairman of the Board of G.C. Murphy Company. Clearly, he took offense to Carroll & Mui’s assertion that the acquisition of the firm by Ames Department Stores failed because “it suffered an enormous amount of shrinkage (industry speak for theft) because it had no system for checking inventory. Disgruntled Murphy’s employees were reportedly stealing goods off delivery trucks and then logging complete shipments into stores.”

Former Chairman Thomas Hudak then outlines, in his view, the true strategic mistakes that led to Ames' downfall, involving direct repeal of internal systems (like shrinkage and inventory systems) that Murphy had in place prior to acquisition. 

The seven points that 
Carroll & Mui outline (The Synergy Mirage, Stubbornly Staying the Course, Pseudo-Adjacencies, Bets on the Wrong Technology, Rushing to Consolidate, and Roll-Ups of Almost Any Kind), really need to be rewritten into a more cogent lurking strategy that I would outline as follows.

1) Do your homework- Many instances that they gave as examples (Laidlaw, Loewen Group) were just sloppy due diligence on the part of the acquisition firms to understand what they were getting into.

2) Follow the money- Do not be the next Wolf of Wall Street. Ensure that financing structures are secure before offering investment and banking products.

3) Don't make omelettes with old eggs and no ingredients- Don't put all of your eggs in a single, new technology basket, but you cannot just fiercely stick to the past. Innovation must breathe, and add some spice (like a good souffle ) must trade to stay ahead. While iPhones have come to dominate Apple, the growth of the company was not dependent on it. As Prof. Zak illustrated in class, there were multiple other product areas that Apple was invested in to have a diverse product portfolio at the time of the iPhone's introduction.

4) Know who you are, what you want, and if you can scale- Not all companies are well served by changing scale, and ignoring your fundamental structures in the name of change can lead to significant profitability disasters.

Now, perhaps I've just restated what Carroll & Mui were trying to get at, but at the end of the day, I was not convinced of their wonderous 7-point system to explain the world of bad business practices. Real world business decisions should not be multi-million dollar failures at the hands of boards and CEOs that don't already know "do your homework" and "you cannot rest on past success but need to take risks" Isn't all this article amounts to is monday-morning quarterbacking and a lot of schadenfreude?  

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.