Billion-Dollar Lessons: What You Can Learn from the Most Inexcusable Business Failures of the...

Billion-Dollar Lessons: What You Can Learn from the Most Inexcusable Business Failures of the Last 25 Years | Paul B. Carroll, Chunka Mui | Impeccable Timing

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Billion-Dollar Les...

	Billion-Dollar Lessons: What You Can Learn from the Most Inexcusable Business Failures of the Last 25 Years Paul B. Carroll, Chunka Mui Portfolio Hardcover, 2008 - 310 pages average customer review:based on 17 reviews view larger image
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highly recommended

Welcome to Business Failure 101

In the 1960s, IBM CEO Tom Watson called an executive into his office after his venture lost $10 million. Watson asked the man if he knew why he?d been called in. The man said he assumed he was being fired. Watson told him, ?Fired? Hell, I spent $10 million educating you. I just want to be sure you learned the right lessons.?
In Billion-Dollar Lessons, Paul Carroll and Chunka Mui draw on research into more than 750 business failures to reveal the misguided tactics that mire companies again and again. There are thousands of books about successful companies but virtually none about the lessons to be learned from those that crash and burn.

Lesson One: The Cold Hard Facts

Between 1981 and 2006, 423 major publicly held U.S. companies with combined assets totaling $1.5 trillion filed for bankruptcy. Hundreds more took huge write-offs, discontinued major operations, or were acquired under duress. Again and again, companies follow the same wrong-headed strategies that brought down businesses in the past. The sub-prime mortgage crisis that cost companies tens of billions of dollars in 2007 and 2008 echoes the ill-conceived strategies that pushed Green Tree Financial and Conseco into bankruptcy years earlier. Tom Watson?s executive?s $10 million lesson seems cheap by comparison.

Lesson Two: Failure Patterns

Carroll and Mui found that the number one cause of failure was misguided strategy?not sloppy execution, poor leadership, or bad luck. These strategic errors fall into seven categories, including:
* Pursuing nonexistent synergies: Quaker Oats? purchase of Snapple was supposed to capitalize on distribution synergies but instead led to a $1.7 billion write-off.
* Moving into an ?adjacent? market that isn?t really adjacent: Avon decided its ?culture of caring? qualified it to operate retirement homes. Subsequent write-offs totaled $545 million.
* Buying more problems than efficiencies through misguided consolidation: Despite pioneering the discount department store years before Sam Walton came along, Ames Department Stores flubbed consolidation efforts, landing in bankruptcy twice before eventually liquidating.

Lesson Three: Avoid Making the Same Mistakes

But there?s light at the end of the tunnel: Billion-Dollar Lessons provides proven methods that managers, boards, and even investors can adopt to avoid making the same mistakes. While there?s no way to guarantee success, this book draws on vivid, off-the-beaten-track examples to help you avoid failure by showing you how to thoroughly assess potentially disastrous strategies before they bring your company down.

Required Reading

Think of Billion-Dollar Lessons as the flip side of Good to Great, but just as eye- opening and essential as that business classic. There?s enormous value in learning from companies that lost millions (if not billions) in pursuit of strategies that led to spectacular flameouts. Everyone makes mistakes, but why make the same mistakes over and over?

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Good to Grate: How good companies let their businesses fall into the sewer.

In Billion Dollar Lessons Chunka Mui and Paul Carroll look at the flip side of Jim Collin's study of successful companies (Good to Great) and how they got there. In this book, Mui and Carroll take a pointed look at corporate failure. They review case studies showing how companies, who were sailing along nicely, blew it by miscalculating a synergy, rollup, adjacency or consolidation move, were foolish or greedy with finances, stayed a misguided course or fumbled with technology

The book is replete with excellent well known and lesser-known studies lucidly illustrated and explained by the authors. If you are a fan of business case studies then you will love the first 190 pages of this book. These cases will surprise, and probably terrify, you as they show how so many smart business folks have made so many bad decisions. As the authors point out, these companies and their CEOs were not stupid. Yet, a typical MBA student wouldn't have made many of their mistakes. But complacency, unsound hope and hubris often clouded the judgment of these failed companies and their leaders.

Of course, in the light of the recent worldwide financial meltdown and the credit crisis, some of these cases might appear a bit mundane. In that respect, Mui and Carroll have to be kicking themselves that they were so efficient getting this manuscript to their publisher. A couple extra months of research (or procrastination) and they could have included Lehman, WaMu, Fannie, Freddie and others in the book. Nevertheless, the mistakes illustrated are still pretty bad and well worth learning.

If you are not a big fan of case studies, then the first 190 pages of this book might be a bit tough to get through. However, the opening sections of each of the first seven chapters posit the lesson very well without the case study. This will allow you to move forward through the lessons at a clip (although you will be losing quite a bit of detail without the studies.)

After finishing the first part of the book, you might find yourself thinking that it's easy to criticize or that hindsight is 20/20. So the authors found a bunch of flops and brought them to light, what's the big deal? But this is where the real benefit of their research comes through. In Part 2 the authors elucidate several easy-to-grasp and actionable strategies for becoming aware of and preventing the pitfalls mentioned in the first half of the book. The most important of which is certainly the Devil's Advocate. Though nothing new, the idea of employing a Devil's Advocate in business is uniquely spelled out by Mui and Carroll. They give companies several clear-cut ways to review decisions using the Devil's Advocate and eventually wrap the book with a short "course" on how companies can establish an independent Devil's Advocate review.

All in all, the case studies and the author's suggestions in Billion Dollar Lessons are very illuminating. You can't help but read this book and be instilled with a greater sense of caution. And in the end, caution is really what this book is professing--informed, and above all, honest caution. The billion dollar mistakes are out there waiting to be made by your company. If you read this book and find out where they lie, maybe you can learn how to avoid them. But will you?

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Impeccable Timing

If ever there was a good timing for a business book, this one is it. Billion dollar losses came out just as the economy started crumbling, markets crashing and genuine feelings of insecurity pervading our country. The question on everyone's mind - how did we get here. While this book does not directly deal with the current credit crisis, it does go a long way to highlighting how really good people and sometimes great companies foul up so bad they have to close up shop. In fact this is book's central premise - it is in our very nature to pursue bad decision-making processes and by following multiple examples of corporate failures to show how easily smart people get tripped up leading to disastrous results. Authors offer up their insights not simply based on a few anecdotes though - they have invested a lot of time and effort into their research - in fact they built a thorough database of 2,500 corporate failures over the last 25 years. After painstaking research, they have identified failures due to corporate strategy and then tried to discern common patterns among those. And find patterns they did. While most people familiar with the corporate world will not find patterns themselves as something earth shattering - in fact they are all considered tried and true corporate strategies, it is most illuminating to see how many myths surround these strategies and how easily it is for executives to "bet the farm" on silly assumptions and lead perfectly good companies to fiascoes. And again these are really incredible numbers of losses - reading each of these stories it is easy to think that executives running these companies were total idiots, but I like the fact that authors took time to introduce these executives as real people and who are in a vast majority of cases extremely well educated with great business accomplishments, which should be taken as a direct warning to everyone in a position to make big decisions.
The book itself is structured very simply - introduction, which lays out the case for their effort - everyone is looking at successes but no one is looking at failures, while failures are truly some of the most important learning experiences in everyone's lives.
Then comes a discussion of failure patterns - a truly insightful portion of the book - it easy to read and by the end it might even feel like it is impossible to actually succeed in anything, but as soon as the thought about to enter the reader's mind - the authors bring in a contrasting example of success against a string of failures. So the main point I drew from this chapter - some decisions are built on truly faulty assumptions that no amount of excellent execution can prevent from eventual failure. One of the really useful features in this chapter is for every pattern, authors recommend a set of tough questions, that would help executives challenge some of their assumptions.
One quick note on a specific example in financial engineering pattern: Green Tree. I wish authors had published this book a few years earlier. It is amazing how clearly and concisely authors described shenanigans at Green Tree and how applicable it is to our current credit crisis only on a much more massive scale. The book is worth buying just for this section alone!
Second part focuses on more psychological aspects of failure - on both personal (executives) and group (company/division) levels. Here, authors also propose a strategy or rather amendment to the existing strategy processes of a company to help prevent those pesky billion dollar losses.
In terms of recommendation to the executive and management audience - it's simple - this should be a must read now, but I also highly recommend this insightful book to the general public - specifically the financial engineering section. In this day and age, we simply need to know what is happening in those ivory towers.

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The Toughest Lessons

Billion dollar lessons is important book to pay attention to. As Paul Carroll and Chunka Mui state in the introduction, this book is "more about human nature than strategy". Each of the stories and lessons portrayed are synthesized into our natural tendencies to get to the answer too quickly, fall in love with our interpretations and then look for evidence to confirm them. And then the kicker, how our need to think we are right may conflict and overpower with our intention to do what is most valuable.

In the first part of the book, Carroll and Mui make these tendencies very clear with the examples of failure - where some of the executives were seduced by ungrounded possibilities or denied evidence for change. I was making my own conclusions of what was happening given the clarity of the stories before I read their explicit statement of how our tendencies as humans take us down a path where the reality becomes disconnected from the possibility. And it all happens through the quality of our conversations.

Some of the greatness of the book is not only in the clarity and substance of the stories and lessons but also with the mirror on how we behave as humans and then how to get beyond awareness into action. In summary, Carroll and Mui have provided some new principles for my business conversations with their "Devil's Advocate" approach:

1. Seek and appreciate differences
2. Research the source of those differences rather than choose to argue
or ignore
3. When there is agreement, take it apart until you find where it breaks
down. That may be where the value is to be found.

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Best business book this year

I'll keep this short and sweet - I've already been applying lessons I learned from this book in my day to day work of investment analysis. It is timely, insightful and well written. Buy it and read it today.

reviews: page 1, 2, 3, 4

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