When Leaders Steer Companies into The Abyss

From Today's Times of India, about Jackson Leadership Special Consultant Sydney Finkelstein's work:


When leaders steer their cos right into an abyss

NEELIMA MAHAJAN

The Times of India

DECEMBER 07, 2006

Remember Motorola's Iridium satellite phones? They allowed subscribers to make calls from virtually any global location, thanks to a set of low-Earth-orbiting satellites. It was a $5-billion project that was meant to revolutionise the mobile phone industry. After a high-decibel launch in November 1998, Iridium tanked. In 1999 the company filed for Chapter 11 bankruptcy.

Popular perception suggests that Iridium nosedived because terrestrial cellular telephony spread across the world faster than anticipated. But Sydney Finkelstein, professor at Tuck School of Business, disagrees. "The Iridium story is a brilliant example of executive mindset failure," he says. "They got the strategy wrong believing they had it all figured out.

They didn't have a good sense of market changes." In the 11 years it took to bring it to market, cellular telephony spread across the globe, dramatically shrinking Iridium's target market of "executives who regularly travelled to areas not covered by terrestrial cellular" .

Two, even while the product was being developed , likely problems in design , operations and cost came to light. Motorola executives knew all this but went ahead with the initial plan. Partly because Motorola's owners saw Iridium as a sign of the company's technological might and it was a matter of pride for them.

Besides CEO Edward Staiano believed that leaders need to take ownership of their projects. So despite a bad business plan and an increasingly obsolete technology, Staiano went ahead fullsteam.

Others have blundered too--like Wang Labs, Cabletron, Xerox,... Finkelstein was prompted to fstudy the causes behind them. "There is so much literature on success already. Whereas we can learn so much from failure and bad practices ," he says. After six years of research, Finkelstein wrote Why Smart Executives Fail in 2003."

A lot of corporate failures are attributed to changes in technology, competitors and consumers. If you delve deep, you'll figure that the real reason is failed leadership."

But why do leaders develop these blindspots? One reason is 'executive mindset failure', like in Motorola's case. The second mistake is nursing delusions of being a dream company. Take Wang Labs, one-time technology powerhouse and inventor of the Word Processor.

It had sales of $3 billion whereas IBM was at $47 billion. After the Word Processor's success, founder An Wang started believing that IBM's doom was near. "He carried a little chart in his pocket which showed how one day, Wang would surpass IBM. He would often flash that out," says Finkelstein . When his son said that IBM's personal computer could be a threat to the Word Processor, Senior Wang remarked: "The PC is the stupidest thing I have ever heard of." "Eventually Wang Labs got wiped out," says Finkelstein.

Then there are other organisational issues like the breakdown of communication . Xerox's Palo Alto Research Centre invented the ethernet, the computer mouse, the graphical user interface that Apple's Mac adopted and the laser printer. Out of these innovations Xerox commercialised only one: the laser printer. "Because the core of the business understood what that was and what they could do with it," says Finkelstein. But information on the other inventions never reached the right people who could have used it within Xerox.

Reason No 3 is what Finkelstein calls "leadership pathologies" (See 'Blunder Bosses' ). "Cabletron was once equivalent to the size and profitability of Cisco. But over 10 years, it fell apart," says Finkelstein. Part of the reason was CEO Bob Levine, who believed that rivals like Cisco were producing inferior products, so they didn't need to worry about them. And that if the customers couldn't see that, Cabletron's salespeople would make them see it.

There are some simple thumbrules to help CEOs guard against these mistakes. "When embarking upon a new project , finance it the way a venture capitalist does," says Finkelstein . So you get some funding, achieve a few milestones, and then get more funding. So you don't pump a $5-billion investment into Iridium at a time when the environment is changing.

Two, one needs to be wary of situations when a project becomes a personal goal--you feel the need to take it through, come what may. "CEOs need to check this tendency," says Finkelstein. Senior executives should ask tough questions. "At Dell it is a standard practice to ask questions like: what may go wrong here, are we thinking of this the wrong way, what could a rival do to disrupt what we are doing. There is a lot of scenario planning in companies that think this way."

Every company needs to evolve "early warning systems" -- or ways to identify potential vulnerabilities Most CEOs rely on quarterly results for this. But by the time the quarterly results come, it is too late. "It's like saying well, once cancer is in your body, we know we have cancer and you are much better off preventing it," says Finkelstein. Instead companies should watch out for danger signals like unnecessary complexity in procedures and solutions; growing too fast too soon; senior executive quitting en masse; and excessive hype around yet-to-be-introduced products. Sounds familiar?

BLUNDER BOSSES

Seven habits of Spectacularly Unsuccessful People:

* They see themselves and their companies as dominating their environments
* There is no boundary between their personal interests and that of their corporation
* They think they have all the answers
* They eliminate anyone who isn't 100% behind them
* They are consummate company spokespersons, obsessed with the company's image
* They underestimate major obstacles
* They rely on what worked for them in the past

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