Billion Dollar Lessons

‘Billion Dollar Lessons’ is a worthwhile read. Unlike several of its predecessors, this is the first strategy book to shine the spotlight on the astounding failures of American corporations. By painstakingly drawing upon their consultancy background, both Paul B. Carroll and Chunka Mui have put together, perhaps, one of the best strategy books ever written. In a stark contrast to a chunk of strategy books, ”Billion Dollar Lessons’  has no highfalutin’, incomprehensible strategy mumbo-jumbo. Instead it’s an intelligible portrayal of seven sure-as-hell bad strategies that have in the past put the companies on road to perdition.

The basic premise of ‘Billion Dollar Lessons’ is an oft-repeated one: “Those who don’t learn from their failures are condemned to repeat it”. Peruse the history of business and you would find that the base human tendencies like greed, selfishness, egos etc., have always gotten the better of individuals, especially, in matters of money.

Paul Carroll and Chunka Mui outline the following seven strategies which have often put companies in harm’s way –

a) Illusions of Synergy: Paul Carroll and Chunka Mui assert that ‘synergy’ as a concept appears logical, however, it’s the underlying factors that make it a sketchy proposition. Two companies joining forces could face issues that may jeopardize the primary purpose of their marriage. People, information systems, overestimated benefits are some of the issues discussed in the book.

b) Faulty Financial Engineering: This one is a usual suspect. Authors have underlined various facets of financial jugglery – Aggressive and creative financial reporting, tendency to incur towering leverage, using acquisitions to fiddle with numbers, chain reactions emanating from  positive feedback loops, etc.

c) Deflated Rollups: Rollups are consolidated entities that often pop up in extremely fragmented industries. Sometimes, dozens or hundreds of small businesses roll into one large company. The whole idea is to operate more efficiently and raise capital at lower rates. Authors claim that contrary to the objective behind merging, many roll-ups turn out to mere highwire financial acts and some even end up frauds.

d) Staying the misguided course: A detailed case-study of Kodak and its failure to meet the rising digital threat form the crux of this Billion Dollar chapter. Paul Carroll and Chunka Mui have shortlisted Kodak since Kodak foresaw and acknowledged the oncoming threat from digital cameras but floundered in its response. Lesson is clear – being emotionally attached to a business can blindfold a CEO against unbiased perspectives.

e) Misadjudged Adjacencies: Prominent authors Ram Charan and Noel Tichy advocated the strategy of a company in one sector moving into adjacent domains in their book ‘Profitable growth is everybody’s business’. They called it ‘Broadening the Pond’ strategy. Paul Carroll and Chunka Mui, however, challenge the notion of adjacencies. They proclaim that success by adjacencies is aberrational and thus, can’t be branded as a template for success.

f) Fumbling Technology: Authors warn that when it comes to pursuing strategy with technology as the centerpiece, business leaders should ensure they are chasing technology to where it is going not where it is. They corroborate the theory with the case-study of Motorola’s billion dollar ‘Iridium’ blooper.

g) Consolidation Blues: Authors explain that in order to consolidate, a company may end up acquiring ‘diseconomies of scale’ compared to the intended ‘economies of scale’. Problem is that while making acquisitions, companies take a snapshot of a business and assume that the business will perform roughly at the same level for years. However, contrary to this, systems that work for a company of certain size may break down when scale is increased.

Part Two of this book provides business leaders with enough concrete advice to help bulwark themselves against bankruptcies, write-offs and derelictions. If I have to wring out one key money-saving theme from part two, it has to be the idea of building in disagreement in strategy formulation. Authors go a step ahead and advocate the appointment of a dissenter whose only role should be to challenge the notions of management. I am not sure whether appointing a devil’s advocate would forewarn the management against the potential pitfalls, nevertheless, it’s a sound, practical advice.

Authors imply that CEOs and powers-that-be should view the seven ‘doomed-to-bomb’ billion dollar strategies as guideposts that may lead to downhill trip. Towards the end, authors also discuss the involvement and significance of human factor in organizations. We human-beings are hard-wired to confirm our theory, even when we only have a modicum of conviction of our thoughts. We never challenge our inherent mental models. Our psyche always leads us to go along with our peers and influential people. All these factors at some stage metamorphose and manifest themselves into greed, ego and selfishness.

All in all, I found Billion Dollar Lessons an important read. In the huge stack of strategy books, ‘Billion Dollar Lessons’ have all the ingredients to stand out and pass the test of time. Personally, I would rate this book 4 on a scale of 5. Required reading!