The Idea in Brief
Giant investment write-offs. Shuttered business lines. Bankruptcy. The culprits behind these flameouts? Strategies so alluring they blinded executives to their dangers.
It’s tempting to embrace a strategy that helped another company strike it rich. But not every strategy works for every enterprise. To avoid falling sway to the wrong one, first understand the seven “sirens” accounting for most business failures, suggest Carroll and Mui. These include attempting to move into adjacent markets, using mergers to try capturing synergies, and staying the course when market signals point to the need for a new direction.
Then, when considering your next strategic move, designate devil’s advocates (people with no stake in the decision) to ask tough questions: “Is this idea realistic for long-term success?” “Has important information about the strategy’s limitations reached the right people?”
By objectively evaluating potential strategies, you stand the best chance of choosing the right one for your firm.
The Idea in Practice
Businesses rack up losses for lots of reasons—reasons not always under their control. The U.S. airlines can’t be faulted for their grounding following the 9/11 attacks, to be sure. But in our recent study of 750 of the most significant U.S. business failures of the past quarter century, we found that nearly half could have been avoided. In most instances, the avoidable fiascoes resulted from flawed strategies—not inept execution, which is where most business literature plants the blame. These flameouts—involving significant investment write-offs, the shuttering of unprofitable lines of business, or bankruptcies—accounted for many hundreds of billions of dollars in losses. Moreover, had the executives in charge taken a look at history, they could have saved themselves and their investors a great deal of trouble. Again and again in our study, seven strategies accounted for failure, and evidence of their inadvisability was there for the asking.