Billion Dollar Lessons: What You Can Learn from the Most Inexcusable Business Failures of the Last 25 Years [Paperback]

Paul B. Carroll (Author), Chunka Mui (Author)

Book Description

Publication Date: August 25, 2009

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; and, 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?

Editorial Reviews

From Publishers Weekly

Carroll (Big Blues) and Mui (Unleashing the Killer App) collaborate to perform an autopsy on some of the most spectacular business failures and corporate disasters in recent times, hunting down the fatal strategies responsible. The authors examine more than 750 inexcusable corporate collapses, neatly cataloguing them into eight common failure patterns: doomed practices, including the Illusion of Synergies, as illustrated by the ruinous merger attempts by Sears and Dean Witter; Faulty Financial Engineering, as conducted by Tyco and Revco; Staying the (Misguided) Course Too Long, a sin committed by Kodak, which missed the boat on digital photography; and Consolidation Blues, as depicted by U.S. Airways, which crashed as a consequence of buying up too many companies too quickly. While there are assuredly lessons in defeat and the authors' detailed analysis and bracing honesty is welcome, readers hoping for a more encouraging or inspirational business book might find Carroll and Mui's avalanche of disastrous failures, avoidable bankruptcies and destruction of shareholder value a depressing—if highly instructive—read. (Sept.)
Copyright © Reed Business Information, a division of Reed Elsevier Inc. All rights reserved. --This text refers to an out of print or unavailable edition of this title.

From Booklist

With lessons learned from extensive research into 750 major bankruptcies between 1981 and 2006, including Enron, Conseco, Texaco, Kmart, and Refco, authors Carroll and Mui set out to help corporate management avoid failure from bad strategies. Almost one-half of the failures could have been avoided if the companies had been aware of strategy pitfalls or had become cautious in the face of clear warning signs. The authors describe seven basic strategic failures, including estimating synergy from mergers, which proves to be exaggerated; aggressive use of accounting or financing mechanisms; staying the course in spite of a clear business threat; and riding the wrong technology, which fails. We also learn about the psychological implications of management banding together when something is wrong rather than individuals standing up for what is right and the important benefits of introducing a devil’s advocate into a strategy’s deliberative process. This well-researched book provides valuable insight for corporate executives and investors. --Mary Whaley --This text refers to an out of print or unavailable edition of this title.

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Product Details

• Reading level: Ages 18 and up
  
• Paperback: 336 pages
• Publisher: Portfolio Trade; Updated edition (August 25, 2009)
• Language: English
• ISBN-10: 1591842891
• ISBN-13: 978-1591842897
• Product Dimensions: 8.4 x 5.5 x 0.9 inches
• Shipping Weight: 9.9 ounces (View shipping rates and policies)
• Average Customer Review: 4.7 out of 5 stars  See all reviews (42 customer reviews)
• Amazon Best Sellers Rank: #929,823 in Books (See Top 100 in Books)

Customer Reviews

Most Helpful Customer Reviews

18 of 20 people found the following review helpful:

5.0 out of 5 stars Does your company need "failure insurance"?, September 11, 2008

By 

Robert Morris (Dallas, Texas) - See all my reviews
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This review is from: Billion-Dollar Lessons: What You Can Learn from the Most Inexcusable Business Failures of the Last 25 Years (Hardcover)

Two of the business thinkers I admire most are Jim Collins and Jason Jennings. Collins has written two books in which he explains how certain companies are built to last and how other companies have been able to make a "leap" from good to great. Jennings has written several books in which he explains what all high-performance companies share in common, with two of their attributes being that (a) they have a bold, compelling vision but also "nail the fundamentals, and (b) produce more and better with fewer resources and do it faster. There are important lessons to be learned from business success but, as Paul Carroll and Chunka Mui explain in their book, there are valuable lessons to be learned from business failures. For example, rather than because of lack of execution, poor timing, or bad luck, "many of the of the really big failures stemmed from bad strategies. Once launched, the strategies were doomed to fail, and these failures probably could not have been prevented by even spotless execution - unless the implementers were licensed to kill the strategy itself." That said, are doomed strategies avoidable or are fatal flaws only recognizable in hindsight? To answer this question, Carroll and Mui embarked on rigorous research the "billion-dollar lessons" they learned are provided in this volume.

Among their most interesting revelations is that failures tended to be associated with one of seven types of strategy. "Failures could certainly happen for other reasons, but if a company followed one of these strategies it is far more likely to fail." Here's where it gets really interesting. For as long as I can remember, all of these strategies have been included among those that organizations are most likely to select: synergy, financial planning, rollups, "staying the course," adjacencies, "riding" technology, and consolidation. Carroll and Mui duly acknowledge the merits of each and the fact that they have served many organizations well. So what's the problem? In many instances, excess is the root cause. For example, overestimating the potential benefits of mergers (e.g. AOL Sears, Time Warner, UnumProvident,), aggressive accounting that crosses the line into illegality (e.g. Conseco, Green Tree Financial, and Spiegel), buying dozens, hundreds, and even thousands of local businesses and combining them in a regional or national "behemoth" (e.g. AutoNation, Tyco, and Waste Management), and ignoring or underestimating a serious threat to "business as usual" and then making insufficient adjustments (e.g. Kodak, Mobile Media Communications, and Pillowtex).

Carroll and Mui devote a separate chapter to each of the seven categories of corporate strategy involved in what they assert are avoidable failures. "We aren't saying that these seven strategies are doomed to failure. Far from it. In the right circumstances, all of these strategies can succeed splendidly. All we're saying is that these strategies are danger zones. If you are pursuing one of these strategies, you need to be extremely alert to what could go wrong, and ready to react before your business is flirting with disaster." In Chapters 10 and 11, they explain several processes by which to "build disagreement into the formulation of strategies." On of them is identified as the "devil's advocate review" to bring all possible objections to the surface, to enable those involved to consider every possible risk and reward and then cross-rank them in terms of relative importance and degree of probability. The objective is not to generate an alternative to the proposed strategy. Rather, to subject that which is proposed to rigorous scrutiny. "The process isn't designed to produce the best answers; it's designed to produce the best questions." For these and other reasons, Carroll and Mui view the information, insights, and recommendations they offer in their book as "failure insurance."

Throughout most of their narrative, I especially appreciate their brilliant use of real-world mini-case studies as well as their strategic application of two reader-friendly devices, "Red Flags" and "Tough Questions," that serve two very important purposes: they help to create and then maintain what is (in effect) an early-warning system for those engaged in a strategy planning process or who have only recently embarked on executing a strategy; also, the "Red Flags" and "Tough Questions" material facilitates, indeed expedites frequent review of key points later. Redundant verification is imperative, especially in a competitive marketplace in which change is the only constant.

One of my favorite New Yorker cartoons features two parents in formal wear seated at one end of a long table in a vast dining hall, their son seated at the other end of the table. High above them, chandeliers hang from a cathedral ceiling. Elaborate tapestries adorn the walls together with family portraits in lavish frames. Several uniformed attendants dutifully stand nearby. The child stares at the dinner plate that has just been placed before him. "I say it's spinach and I say to hell with it."

I thought of that cartoon as I neared the conclusion of this book when Carroll and Mui make a point worthy of special attention and emphasis: The need to establish and then sustain what could be characterized as a "culture of candor," one in which principled dissent is not only strongly encouraged but indeed required and (yes) gratefully acknowledged. Many corporate strategies resemble a naked emperor. Its benefits are analogous to a wardrobe that doesn't exist. In Hans Christian Andersen's tale, only a child speaks up. Who will do so in a corporation about to commit to a flawed strategy, one that is doomed to fail? "We're willing to bet that in every failure that we studied, there were critical thinkers in the heart of the organization who saw the dangers of the proposed strategy. We hope to legitimize their voices [especially of those in middle management] to question and, when appropriate, to quash doomed strategies while they are still on the drawing board." It is a result devoutly to be wished.

12 of 13 people found the following review helpful:

5.0 out of 5 stars Billion Dollar Lessons, September 11, 2008

By 

Leslie D. Ball (Scituate, MA) - See all my reviews
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This review is from: Billion-Dollar Lessons: What You Can Learn from the Most Inexcusable Business Failures of the Last 25 Years (Hardcover)

This is one of the best business books that I have ever read. While I knew parts of many stories in the book, I never realized WHY certain events happened. When I have read about big corporate blunders in the past I always asked "Why did this happen?" The authors answer that question and put the huge blunders into several categories that are easy to understand and relate to.

I liked the "Tough Questions" found at the end of each chapter. If business executives pay attention to just those questions, then they won't be involved in one of these huge mistakes.

I also want to say that when I sat down to read it, I expected to read for 30 minutes and put it down. This was a page turner and I didn't stop reading until I finished.

Great book! Well written! Needed by the Business Community!

6 of 6 people found the following review helpful:

4.0 out of 5 stars Interesting lessons about major business failures, October 1, 2008

By 

Dallon Christensen "Transforming numbers into... (Bettendorf, IA) - See all my reviews
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This review is from: Billion-Dollar Lessons: What You Can Learn from the Most Inexcusable Business Failures of the Last 25 Years (Hardcover)

Let's face it - there are business failures, and then there are BUSINESS FAILURES. Paul Carroll and Chunka Mui have written a well-researched and, dare I say it for a business book, entertaining account of some of the biggest business failures in business history. "Billion Dollar Lessons" provides chilling lessons for those of us looking for how NOT to grow our businesses.

Carroll, a former writer for the Wall Street Journal, and Mui, a fellow at Diamond Management and Technology Consultants, dive deep into some of the biggest business failures of the last 50 years. This is no small feat, because there are a number of failures from which to choose. According to the book's research, 250 companies have taken asset write-offs of over $350 billion (yes, billion is with a "b") over the last 25 years. "Billion Dollar Lessons" demonstrates several themes that drive many of the largest business failures documented in the book, including the following.

* Poor understanding of adjacent markets - Avon believed that since it had a "culture of caring", it could expand from its traditional market of cosmetics into operating nursing homes.
* Failure to adequately plan for major changes to the business model - Kodak was fully aware of digital imaging's threat to its business in 1981, yet it could not change its mindset away from reliance on traditional film processing.
* Not forecasting the problems that can come from consolidation efforts - Carroll and Mui show how many businesses justify rollup strategies with grand forecasts of synergies from cross-selling or back-office integration. However, these businesses do not plan for the problems that arise with integrating different businesses.

My favorite parts of the book are when Carroll and Mui provide personal stories related to these lessons. For example, one Federal Express employee expressed discomfort with FedEx's Zapmail business, which was a precursor to the ever-present public fax machine system. The employee voiced his disapproval, only to learn that he disagreed with two vice-presidents who vowed to "squash" him. The employee soon left FedEx. There are other stories like this that will make you wonder how some of these decisions ever saw the light of day.

Carroll and Mui spend the final third of the book discussing how businesses can avoid these types of major mistakes. The ideas, such as an internal devil's advocate, work very well with larger companies where group think and bureaucracy can run rampant. Individual entrepreneurs and very small businesses may need external resources such as an advisory board or a trusted friend to offer challenges and disagreements to consider, but the general concepts of the book can be applied for all small businesses or entrepreneurs.

I enjoyed this book. Yes, there were times where it had a "train wreck" quality to it, because I could not turn away from how awful some of these decisions were. I did enjoy the suggestions Carroll and Mui offer to reduce the odds of making poor decisions. My one area of potential improvement would have been to offer even more suggestions for small businesses on how to implement some of the lessons. However, the overall stories and concepts are very good and should give any business owner cause to reflect on how they can reduce the probability of making very poor business decisions.