Customer Reviews

Billion Dollar Lessons: What You Can Learn from the Most Inexcusable Business Failures of the Last Twenty-five Years

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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.

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!

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.

Among business books Billion-Dollar Lessons is a very well written and accessible view of some important business history. The authors manage to cover a lot of territory, in an engaging way, relying on clear language and a minimum of 'business speak'. They also bring organization to the what they've learned without having to construct a grand theory. This is refreshing, especially from consultant authors. It is possible to learn from business history without trying to reduce the lessons to universal truths.

I particularly liked several things about this book. First, there are actually a number of examples I'm not already familiar with. Second, the examples are presented crisply, incorporating interesting anecdotes that may not add to the point but engage the reader. Third, the extensive references and citations distinguish the authors' contributions from the work and insights of others and highlight the degree of research undertaken. Finally, there are few references to the brilliant consulting work of the authors themselves.

There isn't much I didn't like but a few observations. I think calling all of these failures 'inexcusable' goes over the top. Some of them probably are but many reflect mistakes of judgment or execution that, while unfortunate, are inevitable. Second, the discussion of how to avoid similar failures introduce some themes that would benefit (probably in a separate book) from deeper analysis. I can summarize this thought by saying - why don't people in businesses do the things the authors suggest?

I highly recommend Billion-Dollar Lessons as one of the better business books I've read in some time.

This extremely well researched book is a very important addition to the available literate on the subject of business strategy and it is very unlike any other book on the subject. Most books on strategy spend a good deal of time presenting methodologies for strategy development. Carroll and Mui take a very different approach; the book contains no methodology for strategy development, they have left that to others. Carroll and Mui seek to help individuals, groups, and corporations improve their strategies and decisions by learning from the mistakes of others.
This book is a must read for practitioners in M&A, investment banking, equity analysis, and corporate leadership. This book will give you a healthy dose of skepticism and questioning, especially when you encounter a business case based upon hard to quantify benefits such as `synergy' and `scale'. It is very apparent that the book was written by management consultants, not academicians. The authors provide great insights with case examples, not theory. Examples discussed in the book cover a host of household names including American Standard, Avon, Chrysler, Fed Ex, Ford, Kodak, Merck, Motorola, Tyco, USAir, Xerox, and many many more. They present the example and tell the reader not only what went wrong by also why it went wrong. The authors examine a litany of business sins such as overpaying for acquisitions, underestimating change management, failing to perform adequate due diligence, lack of contingency planning, creative accounting, and excessive use of debt. The book is even somewhat prescient regarding the current financial system meltdown with warnings on the danger of IBG YBG deal making in the financial services industry (IBG YBG = I'll be gone, you'll be gone).

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

The authors researched over 750 business failures to reveal misguided tactics that mire companies. They concluded that the number one cause of failure was misguided strategy - not sloppy execution, poor leadership, or bad luck.

These strategic errors fall into at least five categories: 1)Pursuing non-existent synergies. 2)Moving into an "adjacent" market that isn't. 3)Buying more problems than efficiencies through misguided consolidation. 4)Aggressive financial reporting, eventually leading to illegality or "fairy tale" businesses. 5)Staying the course - riding a dying technology into the sunset.

A Bain study of 250 executives responsible for M&A found that 90% believed data showing 2/3+ of takeovers reduced the value of the acquiring company. Yet, almost none were deterred. A BCG study found over 80% of companies don't do detailed work in advance of an acquisition to verify imagined synergies.

The bulk of "Billion Dollar Lessons" consists of mini-cases of strategies that failed. For example, the Unum Provident merger planned to consolidate duplicate information systems - six years later, just 4 of 34 information systems had been eliminated. Another problem was differences in selling and rating between individual disability vs. group policies. Result - a $1 billion write-off, lower stock price, and operating losses.

UAL in the 1970s anticipated synergies from also owning Hertz and Westin Hotels - one call for all. Unfortunately, it didn't work out and they were both sold in the 1980s. Sears added Dean Witter and Coldwell Banker in the early 1980s; several years later they divested both, but could not regain the time not devoted to concentrating on Wal-Mart. J.C. Penney bought five drugstore chains in 1996-97 for $4.4 billion, intent on stocking a limited range of each others' products - result was about a $2 billion loss and another series of divestments. Quaker Oats bought Snapple for $1.7 billion (some thought they overpaid about $1 billion) in 1994. New Snapple competitors appeared, while synergies did not - Quaker sold Snapple for $300 million three years later. Federated (Macy's) bought Fingerhut for $1.7 billion in 1999, excited tot add their expertise and capabilities in cataloging and e-commerce. Belatedly, Federated found that Fingerhut's e-commerce move was just a ploy to boost P/E ratios, and that it had pumped its numbers simply by offering credit cards to riskier customers. Write-downs and losses totaled $2 billion. IBM bought numerous small software companies to complement its PC business, ran scores of their salespeople through its training, and lost $2 billion on its $100 million initial investment before exiting (lack of compatibility?).

The financial sector accounts for 31% of corporate earnings, up from 20% in 1990, and 8% in 1950. Barings collapsed in 1995 because of $1.4 billion in losses from one rogue trader - ING bought it for one British pound. LTCM dazzled with 40%+ annual returns in its first few years, before losing $4.6 billion in 1998. Arnaranth hedge fund lost almost $6 billion in 2006 and was liquidated because of highly leveraged bets on weather.

Green Tree Financial fueled a boom in trailer-home ownership, loaning almost $5 billion in 1996. It's "innovation" was to extend typical 15-year mobile home loans to 30. Conseco bought it for $7.6 billion in 1998 ($53/share, vs. market $29). Green Tree also used aggressive accounting - booking profits at time of sale, using estimates of future delinquencies, interest rates, refundings. Conseco had to write off almost all Green Tree's profits as interest rates fell, buyers refinanced or walked away after finding themselves "underwater."

Revco's 1986 LBO at $1.4 billion (48% over its average share price the prior 12 months) assumed 8% profits margins (35% greater than the industry average over the past 12 years, and almost twice its own average the last 2 years), and a high growth rate. Bankrupted in 18 months.

Tyco spent over $60 billion acquiring 1,000+ companies from 1992-2001. In 2006 it paid a $50 million SEC penalty for overvaluing acquired liabilities, undervaluing assets, and manipulating reserves.

And yet, the pace of M&A activity continues, slowed only by the latest trillion-dollar lessons in sub-prime mortgages and CDS.

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.

At last a book that fills an essential part of business literature that heretofore has been neglected. Traditionally the focus has been on success stories; but that is only one side of a more complex picture. The authors describe Tom Watson's charge to one of his executives to learn from a recent $10 million business failure. How much more learning is available from similar failures in other organizations over the past 25 years! The book provides ready access to that rich collection of experiences together with the authors' sage counsel. The difference between wishful desire and a clear, robust and actionable strategy is clearly shown. Without the latter, success is at best a "crapshoot.".

The book is well-organized and well-written. I highly recommend it for both the seasoned professional and business school student.

I enjoyed reading Billion Dollar Lessons. Many business books read like school texts, but these authors connect with each example and the story to easily teach each lesson.

Also, while so many business and leadership books on the market focus on what worked well, these authors bring attention to how those same strategies can backfire. Each of these strategies can play a role in a successful enterprise, but Mr. Carrol and Mr. Mui elucidate nicely how managment can fool itself into believing that any one strategy can serve as the panacea to create business success.

I recommend this book.

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?