Thursday, September 04, 2008

HBR adds to business failure learning library with "7 Ways to Fail Big"

This article in the September 2008 issue of the Harvard Business Review, by Chunka Mui and Paul Carroll, discusses seven corporate worst practices and relates business stories that demonstrate them. The practices are:

1. The Synergy Mirage - companies justify acquisitions by touting synergies that just aren't there, or aren't there in enough volume to make the price worthwhile. (Quaker buys Snapple, Unum and Provident merge.)

2. Faulty Financial Engineering - companies borrowing from the future to make today's revenue look better. Enron, anyone? How about Green Tree Financial?

3. Stubbornly Staying The Course - Kodak, slow to react to digitization of photography, and Pillowtex, which failed to see the trend in outsourcing textile manufacture.

4. Pseudo-Adjacencies - the authors point to Oglebay, a company that thought it could deploy its expertise in shipping limestone to actually quarrying it. Result? Chapter 11.

5. Bets on the Wrong Technology - for example, FedEx ZapMail.

6. Rushing to Consolidate - too often mergers focus on the top-line increases but neglect "increased complexities [that] may lead to diseconomies of scale."

7. Roll-ups of Almost Any Kind - As with Loewen Group, a funeral-home aggregator, roll-ups can't withstand downturns and usually provide a short-term revenue bump at the expense of the long term (see #2).

Leaders, you have been warned. Avoid these at all costs!

Related Posts:
NASA learns to avoid its worst practices in safety
Worst practice learning means our favorite business bestsellers are all wrong

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