LeaderShip Edge

March 2008 :: Why Smart Executives Fail 

“In company after company, regardless of industry, time period, or even country, the managers had every opportunity to see the important changes that were coming to their industry.” 

- Sydney Finkelstein from his book Why Smart Executives Fail 

Those managers had all the facts.  

They saw it coming.

They even had people trying to tell them what was about to happen.

Yet they missed it…

 We never really study failure. Finklestein argues that, in our minds, we simply label executive failures into seven categories… 

• The executives were stupid.
• They didn’t have time to anticipate and prepare for change.
• Failure to execute… whatever that means, since it’s awfully vague.
• They weren’t trying hard enough.
• They just weren’t good leaders.
• Their company was too weak to survive business challenges in the first place.
• They were a bunch of crooks a la WorldCom and company.

The fact is we don’t really know about corporate failure. We reason vaguely about why organizations and executives stumble on challenges, but an organization is much larger than a single leader. There are many people that could anticipate and solve problems as they arise. 

The problem is that at every juncture point in a corporation’s history, there is increased risk for smart executives to fail. Executives perceive reality in different ways and organizations don’t always face up to what’s really going on. 

The outcome is that executives see problems coming, they are aware of changes in their industry, the people around them feed them information on new trends…but they fail to take the necessary steps to adapt.  

The solution is to understand how failures slowly infect corporations and develop systems to help the organization be proactive in giving accurate feedback to leaders.

How did you miss it?

Most of the time, corporate problems are fairly easy to anticipate - on paper. A brief case-study in GM’s struggles. Consider the facts…

- As early as 1956, foreign car manufacturers were drastically increasing their market penetration in the US. 

- In 1957, the US imported more cars than it exported. 

- Environmental concerns related to the automobile first emerged in the early 1960s. 

- By 1974, GM was spending $2.25 billion a year to follow environmental regulations. By 1979 that expenditure was close to $5 billion a year.  

Today – in 2008 – we hear about the burdens of healthcare and pension costs and low-cost foreign competition. 

You get the point… these aren’t new problems. GM’s troubles were a long time in the making. Why did no one pick up on them?

Even by the 1980s, when GM began to copy Toyota’s automation techniques to lower their costs, the problems persisted. Nobody there really understood what made Toyota successful. CEO Roger Smith led the company to an obsession with robotic automation without considering the “lean manufacturing” techniques that Toyota was using.  

All of GM’s problems were single-mindedly defined as “labour cost” related.  

Zombie Organizations 

Another example: for years Motorola prided itself on having a “healthy dose of discontent”. The organization was never quite happy with its accomplishments and always aimed for more innovation. 

As the company faced change, the hints were obvious. Motorola had plenty of data indicating that the cell phone market was switching from analog to digital. They owned patents for the new digital technology and licensed them to Ericsson and Nokia. For every digital phone that was sold by their competitors, Motorola had perfect market data to track the emerging trend. 

Nothing was done to adapt.

No one challenged the leaders to see the situation differently.

That’s the point that Finklestein gets to in his book. Failures are caused by destructive patterns of behaviour. There are leaders, but they aren’t the only ones guiding a company. The whole organization in involved in this process. Why is it that no one speaks out? Why is it that organization miss out on seemingly obvious trends? Where do these flawed mindsets and delusional attitudes come from?

In Our Opinion

The Beacon Group’s Keys to understanding and avoiding failure 

There’s no doubt that your organization has some of the smartest people around. However, that doesn’t mean that they will not fail to recognize a problem or a solution within your organization. Failure is often not about the individual, but about a set of organizational qualities that weaken honest communication.

Three really key points to prevent your smart executives from failing…

Break the chain: A single error in judgment rarely brings down a company. The key is to break the chain of failure. A CEO can blunder, but the corporate culture and his/her leadership qualities need to be able to tolerate tough questions. It’s about the personality of the leader. Make it a rule for your co-workers to play the devil’s advocate for every idea or proposal that comes through the door.

Juncture points: The failure situations described above are more likely to happen at key juncture points in a company’s history. 

This is when you have to keep an eye out and ensure that you…

 -Create new ventures

-Deal with innovation and change

-Manage mergers and acquisitions

-Address new competitive pressures

 Look deeper: Executives and leadership teams rarely fail because “they are stupid” or “they are crooks”. Look for specific attitudes that show themselves in different situations. At the cable company Adelphia, a “Blood is thicker than business” attitude was clear among the family executives long before scandals actually hit the company.