10 Big Business Blunders
Ego and greed: a common recipe for executive error
Glance through the following list of business blunders, and you may conclude that the common denominator in financial failure is outsize hubris. Yet arrogance alone doesn't guarantee disaster. After all, if you're seriously lucky as well, the combination can catapult you into the kind of power spot that billionaire Mark Cuban plays on TV's The Benefactor.
For a tried-and-true approach to calamity, there's always the sort of book-cooking that prevailed in the 1990s. But that's an increasingly risky proposition given Eliot Spitzer's ever expanding universe of white-collar probes. And there are plenty of legit roads to ruin. Key ingredients typically include behavior that often accompanies hubris, most notably a cocksure rush to judgment, without doing enough homework. Before making big decisions, great corporate leaders "dive into the brutal facts like pigs in slop," says management guru Jim Collins, who studied the differences between winning and losing management styles in Good to Great: Why Some Companies Make the Leap ...and Others Don't. "Lesser companies tend to . . . just act."
He notes that while some of business's top performers take ample time to study new markets(see Walgreen's, whose stock has outperformed the market 15-fold since 1972), the Internet-era mantra of being "first to market" is almost always a shortcut to a bad decision (see Drugstore.com). So is the chase for the mergermaniac's holy grail: synergy, the frequently fatal belief that 1 plus 1 equals 3. Then, of course, there's the sort of thickheadedness that comes from believing that technology itself is the true holy grail.
In fact, the best corporate decisions are often the most obvious: hiring good people, training them well, and shepherding them up the corporate ladder. Yet those stories aren't nearly as much fun to read. So in the spirit of learning from (and laughing at) the mistakes of others, we present our list of best (or should it be worst?) business blunders.
AOL-TIME Warner
When 1 + 1 = 1/5th
They called it "convergence": a melding of new technology and old media that would revolutionize the business world. "By joining forces with Time Warner, we will fundamentally change the way people get information, communicate with others, buy products, and are entertained," America Online founder Steve Case said of the merger of his Internet pioneer with old media publisher Time Warner in January 2000.
But like so many other promises of synergy between merging companies, "it was a joke," says Harvard's Rosabeth Moss Kanter, author of Confidence: How Winning Streaks and Losing Streaks Begin and End. "When the people at Time Inc. refused to use AOL as their E-mail provider, it was clear how badly things were going."
Although the combined company predicted it would break $40 billion in revenue and $10 billion in profits within a year, its failure to realize the synergies--along with the collapse of the online ad market--assured that the merger would soon take its place among the worst in U.S. business history. Today, after a $54 billion write-down in the value of the deal, Time Warner is valued at a mere $76 billion, one fifth of the companies' combined market worth on the day the merger was announced.
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