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Article -> Learn from Billion Dollar Failures

Date Added: January 2009

NOTE: This article appeared in the January, 18, 2008 issue of the Green Bay Press-Gazette. See www.billiondollarlessons.com for more infomation.

Many people make New Year’s resolutions with several relating to personal improvement. Numerous books focus on learning from successful organizations – I’ve written one myself – and resolutions correlate to these learnings. Yet, most people improve and become great leaders by learning from failures, so let’s learn and improve from billion dollar failures.

Researchers recently examined 750 costly business failures. Companies included IBM, Sears, AOL, Kodak, Airways and many others. Nearly 50 percent of the failures resulted from flawed strategies – not bad luck or poor execution.

Seven strategies commonly associated with failure emerged.

1.      Synergy: Adding new products makes sense only if your target market believes you can deliver them. Customers purchasing equipment from you won’t want to purchase insurance from you. We want 1+1 = 3; however, it may only equal 1.

2.      Sustainability: Create long-term products and strategies, not short-term. You’ll only lose customers over time with short-term thinking.

3.      Acquisitions: Acquiring firms adds top-line revenue; however, poor integration and identification of redundancies decreases the bottom-line.

4.      Threats: Organizations focus on their core business (hedgehog concept), ignoring competitors or product threats (i.e. Kodak initially ignored digital photography).

5.      Complexity: Entering a new market or industry is a great strategy if planned well. Unfortunately, a major failure is underestimating the complexity involved and never capitalizing on the new market.

6.      Technology: While technology normally increases efficiencies, many put too much emphasis on it for cost reduction. How many firms have a positive ROI from past ERP upgrades?

7.      Consolidation: Merging or forming strategic alliances with others looks good on paper; yet, like marriage, many end in divorce because certain questions weren’t asked and/or problems addressed beforehand.

 

Failures are learning experiences. They occur and don’t happen again. Mistakes don’t have learning. They continuously occur. Leaders reading this that haven’t experienced at least 1 item above are not being truthful to themselves.

Abraham Lincoln failed in business twice and was defeated in six elections before becoming president. Here’s wishing you a learning experience as a New Year’s resolution.

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