We learn from failure, but it's much more pleasant to learn from the failures of others. Thus the value of Billion Dollar Lessons: What You Can Learn From the Most Inexcusable Business Failures of the Last 25 Years, a new book by journalist Paul B. Carroll and former consultant Chunka Mui. There's a whole chapter set aside for technology-related stumbles. This excerpt covers a legendary disaster and some lessons learned:
What surprised us was the number of technology-dependent strategies that were ill-conceived from the get-go. To keep pursuing the strategies that produced these failures--some of them spectacular--companies had to go to great lengths to kid themselves.
They misjudged trends that were clearly working against them or even ignored fundamental physical limitations, such as the inability of a weak radio signal to pass through thick walls.
Motorola's launch of its Iridium satellite telephone venture shows just how thoroughly companies can lie to themselves and how disastrous the consequences can be: The phone system cost $5 billion to develop but went bankrupt less than a year after it began service. [Iridium's failure] tends to be treated as a failure of execution or of marketing when, in fact, Iridium's failure stemmed from a flawed strategy.
Iridium demonstrates the key mistakes that lead companies to ride the wrong technology into disaster:
- They evaluate their offering in isolation or at a single point in time, rather than in the context of how alternatives will evolve over time.
- They confuse market research with marketing, allowing their entrenched interests and hopes to color the analysis of true market potential.
- They find false security in competition, incorrectly thinking that the presence of rivals equates to a validation of the potential market.
- They design the effort as a front-loaded gamble, foreclosing possibilities for adaptation and severely limiting the option to stop.
Companies tend to find false comfort when others are pursuing similar strategies. There must be a viable market, they reason, if others are chasing it as well. The question then becomes one of who will win, versus whether a strategy to enter the market makes any sense at all.
This lemming syndrome happened in the case of Iridium, as a number of other consortia followed Motorola's lead and jumped into the race for satellite voice and data communications. With the market potential validated in large part by Motorola's support for Iridium, these other ventures aimed to capture the satellite phone market with better technical and partnering strategies. The competitive focus turned toward a mishmash of technical and operational differences, rather than the ultimate question of whether any multibillion-dollar satellite communications venture was viable. Many observers argued that the market could not support all of these ventures, so every group rushed to get to market first.
Yet the real competitor was cellular. The satellite companies had initially assumed that cellular would be limited to urban areas in the developing world, but cellular quickly spread beyond cities, eating away at satellite phones' potential markets. In the end, all of the satellite phone ventures either shut down or went into bankruptcy. The only thing harder than starting a bold new strategy is killing one after it starts. Once a strategy is launched, there is often too much ego, credibility and money on the line to stop. Stopping is seen as a clear failure.
The long lead times and high fixed costs associated with technology-related strategies make them especially hard to stop before total failure. Management and investors alike adopt a "field of dreams" approach, where success is hinged on a "build it and they will come" philosophy, rather than on experimentation and gradual ramp-up. Then the field of dreams turns out to be a field of nightmares.
Excerpted from Billion Dollar Lessons: What You Can Learn From the Most Inexcusable Business Failures of the Last 25 years, by Paul B. Carroll and Chunka Mui by arrangement with Portfolio, a member of Penguin Group (USA) Copyright Â© Paul B. Carroll and Chunka Mui, 2008.
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