Case 2 EXAMPLES OF STRATEGIC BUSINESS FAILURE The mantra of American business is growth. Business leaders employ multiple strategies like buying out the competition and innovating products. However, things go wrong all the time, resulting in huge write-offs, bankruptcy and closed business lines, not to mention public humiliation. Chunka Mui and Paul Carroll, authors of "Billion-Dollar Lessons: What You Can Learn from the Most Inexcusable Business Failures of the Last 25 Years" say seven strategic mistakes are behind many business failures. Tech Bets Carroll and Mui point to Motorola's $5 billion investment in satellite-based phones. On the market, the phones cost $3,000 apiece and came with hefty monthly charges, all of which customers ultimately rejected. The business line closed in a year, filing for Chapter 11 bankruptcy. The problem was ignoring early warnings about the shortcomings of the technology and the practicalities of selling it in the open market. Fedex did the same thing in the 19803 when fax technology was expensive and relatively rare. The company's executives possibly never imagined that using an intermediary to fax documents would be a silly service to pay for, as the price of the technology came down and quality improved. Next One Over Another common strategic mistake is misjudging adjacencies. When misjudging adjacencies, the strategy is to sell new products to existing customers or gain new customers for existing products, often through new channels. However, businesses may fail to recognize how well their core competencies and products translate to the new arena. As an example, a school bus operator, Laidlaw, got into the ambulance business, figuring its expertise in transportation and logistics would bode well, but ambulance is part of a vast, complex medical complex that the company wasn't prepared for. In a Forbes magazine blog post, Mui said the same thing happened in 2011 with Cisco buying and then closing a company that made flip video cameras. Although the deal might have brought new customers to Cisco's networking equipment, outright buying the company was a doomed strategy. The company laid off 550 employees and bit a $300 million pretax charge. Merger Mistakes Merging is a strategy predicated on joining with companies with complementary strengths, but the strategy often fails if company cultures and systems clash. Group insurer Unum merged with Provident, an individuals insurer, in 1998. Underneath unexpectedly large costs for training, integration and licensing was a synergy problem between the two sales forces. Eventually Unum undid the merger, but not before experiencing a 30 percent plunge in stock prices. Money Matters Look no further than the examples provided in the recession of the late 2000s to see how using overly aggressive financial practices to drive growth can spell disaster for businesses. The tale of Green Tree Financial includes players Conseco as an acquirer, and Lehman Brothers, JP. Morgan Chase and Bank of America as creditors. Green Tree Financial started as a company using clever financial instruments to place 30- year mortgages on trailer and manufactured homes. The profit was in the origination fees, but trailers lose value quickly. Homeowners owing more than a product is worth ultimately end in default - lots of them. While Green Tree was on the upswing, Indian financial services firm Conseco bought it, only to wind up with its debt load. The bottom line is that it was one of the largest bankruptcies in American history. Failure to Change There's something to be said about staying the course and sticking to your routes, but sometimes this strategy makes businesses underestimate the impact of market changes. When your field undergoes rapid changes, sometimes you have to go with the current to stay afloat. Consider the case of Eastman Kodak in the rise of digital photography. By sticking to its print processing, likely because the getting was still pretty good in the beginning, Eastman Kodak ultimately lost 75 percent of its market value according to Carroll and Mui. Failing to Learn Failure is a natural part of the business growth process. In fact, failing early and often is often encouraged among startups, when the cost of mistakes is considerably lower. Arguably, one of the biggest mistakes a business can make is failing to learn from mistakes. Failure is an opportunity to make a strategic pivot and catapult the business in the right director or to innovate its offerings based on what it learned. Stanford University fellow Caroline O'Connor and business consultant Perry Klehbahn offer WorkerExpress as an example in "Harvard Business Review." The company began as a text messagebased service for homeowners to schedule hourly construction workers, but the owners soon found there just wasn't a market for this service among homeowners. In dissecting their failure, they learned that large contractors who need temporary help could use such a service. Business, they said, is booming. QUESTIONS FOR DISCUSSION 1. Do you think there is company policy imbalance, the reason why these companies failed? Defend your answer. 2. How would you define the strategy used by each or these companies that failed? Discuss them. 3. What particular type of strategy did each of these failed companies have used? Do you think something was wrong with how the used these strategies? Explain briefly