Sunday, June 11, 2017

Still Failing Big

In Paul Carroll and Chunka Mui’s article, Seven Ways to Fail Big, several common themes are described that outline why companies have historically made significant, costly missteps.  If one thinks that the robust history of examples precludes today’s market leaders from repeating them, they would be wrong.  To find a fresh example today, one only has to turn to the global titan: Microsoft. 
Take your pick of the seven reasons: the synergy mirage, stubbornly staying the course, pseudo-adjacencies, or bets on the wrong technology (Carroll and Mui).  Any—or all—of these are at the root for Microsoft’s write-off of nearly $8 billion dollars on its failed experiment (Warren) of acquiring Nokia.

In 2013, Microsoft was struggling for leadership in the mobile device market place.  Apple’s iOS had change the world, Google’s Android was eating it up ravenously, and Microsoft lagged was a distant third.  In response, Microsoft asserted that by:

“Building on the partnership with Nokia announced in February 2011 and the increasing success of Nokia’s Lumia smartphones, Microsoft aims to accelerate the growth of its share and profit in mobile devices through faster innovation, increased synergies, and unified branding and marketing.” (Microsoft News Center)

Indeed, Steve Balmer himself assured the world that the acquisition would be “a win-win for employees, shareholders and consumers of both companies” (Microsoft News Center).  In reality, the most likely explanation for the merger was an obligation to prevent the life from draining out of Microsoft’s faltering mobile market share—of which Nokia represented 90% of the control (Warren).  Forced hand or doubling-down, the move was ill-fated.  The acquisition failed to bolster both brands.
Within two years, Microsoft wrote off $7.6 billion and a year later, an additional $1 billion.  In this time, Steve Balmer who heralded the deal, stepped down from Microsoft, and within months of the new CEO’s tenure, he began divesting Microsoft of the strategy. 

Of the 32,000 people who were expected to transfer to Microsoft from Nokia (Microsoft News Center), only a small number would remain (Warren).  In effect, the illusory synergies that Microsoft envisioned from integrating the mobile phone provider proved too distant from Microsoft’s core competency.  This was immediately evident to new leadership who acted swiftly to refocus the company’s portfolio.  Despite the justifications, the intent, the potential strategies, the story is a robust reinforcement of Carroll’s and Mui’s insight.  Even though Microsoft was hardy enough to survive, it demonstrates that even today’s technology titans are vulnerable to the hubris of strategic optimism.  To date, Microsoft has yet to recover its mobile phone foothold.

References

Carroll, Paul B and Chunka Mui. "Seven Ways to Fail Big." Harvard Business Review (2008).
Microsoft to acquire Nokia’s devices & services business, license Nokia’s patents and mapping services. 3 September 2013. 11 June 2017. <Microsoft to acquire Nokia’s devices & services business, license Nokia’s patents and mapping services>.

Warren, Tom. Microsoft wasted at least $8 billion on its failed Nokia experiment. 25 May 2016. 11 June 2017. <https://www.theverge.com/2016/5/25/11766540/microsoft-nokia-acquisition-costs>.

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