Deadly Business Mistakes - Strategy, Execution and Culture

Deadly Business Mistakes—Strategy, Execution, and Culture
by Robert Mittelstaedt
Wharton School Publishing

Some years ago, Peter Drucker wrote an article describing "Five Deadly Business Sins" that have driven many companies into deep strategic and financial trouble. His characterization of these "sins" included:

"Worship of high profit margins and premium pricing"

"Mispricing a new product by charging what the market will bear"

"Cost-driven pricing"

"Slaughtering tomorrow's opportunity on the alter of yesterday"

"Feeding problems and starving opportunities"

These, and others we will discuss, are primarily examples of longer-term cultural mistakes that companies make with regularity. Damage does not occur overnight; it occurs slowly and consistently until someone or something breaks the chain and fixes the problem. Breaking the chain for these types of mistakes is difficult because the decision criteria and mindset are hard-wired into the brains of company managers and executives as a result of past successes.

As we will discuss later, the U.S. auto industry has been guilty of many of these mistakes and is trying to change, but serious remedial action was delayed for years until their market share and profitability was decimated by competition from Japan and Germany . Sometimes the initial recognition that a problem exists is the biggest hurdle.

In other cases, individual companies, such as IBM, have made one or more of these mistakes but have realized it early enough, changed, and recovered. But for every company that has detected its mistakes and taken action in time to survive, there are many more that never saw the danger that was coming until it was too late.

Strategic mistakes, particularly those affected by the organization's culture, are among the most difficult to deal with because, at any given point in time, it may not seem like there is a huge crisis. In cultures not known for rapid change, it is too easy to feel comfortable with the way things have always been done until there is a huge crisis that wakes you up to the need for change. This is analogous to an individual's problems with weight control. The problem does not result from a single bad decision or action but from a thousand small bad decisions over a period of time. Just as with weight control, however, if allowed to go too far, these types of business mistakes become life threatening.

Other cultures make it difficult to expose and deal with mistakes of strategy or execution even if they are detected early. Organizations that are paternalistic, hierarchal, consensual, or family dominated all have unique characteristics that may make them inept, defensive, or slow to act on bad news. Many organizations do not even understand what their culture is, much less think about how to take advantage of its strengths and design around its weaknesses, which is necessary to avoid mistakes.

Most execution mistakes are related to operations but may have strategic implications. Execution mistakes usually revolve around tangible actions that are more visible than strategic blunders. They happen more rapidly and are usually measurable in customer dissatisfaction, lost sales, warranty returns, or other shorter-term measures. They have immediate consequences and are thus easier to see and understand.

Culture-driven mistakes, especially around strategy, are usually colossal and fairly permanent in their damage. AT&T attempted to enter the computer business by acquiring NCR—a colossal cultural mistake chain that took years to clean up and cost both companies dearly. While this was a strategic mistake, it affected operations directly with confused product offerings, angry customers, and conflicts over resource allocation and resulting poor financial performance. It eventually resulted in spinning off NCR, which should never have been acquired in the first place.

Execution mistakes can be fatal as well but are more often just very expensive, unless they continue so long that they become cultural. There are many categories of execution mistakes, from not following procedures, as in many airline crashes, to not understanding markets enough to bring out the right product, to bad timing with good products. The dustbin of product development is filled with things like the RCA Videodisk. Introduced in the early 1980s, it was actually a decent product in a clumsy format that was inconvenient for the market at the time. This product was the result of a series of mistakes related to market understanding, technology, product design, and pricing.

The reality is that the business world and perhaps life in general, is more forgiving than we realize. More often than not, you have to mess up a number of times and pretty badly to get a really bad outcome.