The “Decision Maker” could be the most crucial role within an organization. Even if you have advisors who help with the process, the final decision rests with you. Chances are, you’ve seen colleagues make decisions you predicted would land somewhere between bad and worse; and we're guilty ourselves.
While comparing Darwin’s Theory of Evolution to business success, author Leon C. Megginson said "It is not the strongest that survive, nor the most intelligent. Rather it is those who are most responsive to change."
Having a company in financial trouble is an owner's worst nightmare. With that in mind, here are four cautionary tales of bad business decisions.
1. Overconfidence
All businesses need confident leaders, but it takes humility to read the writing on the wall if things head south.
In the 1970s and 80s Kodak enjoyed 90% of the American film market. Despite reports predicting the decline of film sales, growing competition from Fuji, and the rise of digital cameras, technology Kodak developed in 1975, former CEO Walter A. Fallon believed US consumers would never abandon them. In 1992 Kodak enjoyed peak revenue of $20.6 billion. In 2012 they filed for bankruptcy.
2. Indecision
Sitting at the top is never easy. When facing complex decisions in an ever-changing marketplace, it’s easy to ask for one more report, opinion or analysis before making up your mind.
Prior to 2008, as more Americans were getting interested in hybrids and fuel efficient cars General Motors, Ford and Chrysler continued to produce gas-guzzling Hummers and SUVs. They knew the market was shifting, but dealer contracts made change difficult so the Big Three did nothing. Ford received a $9 billion credit line, while Chrysler and GM got an $80 billion handout from the US government. Had these three car manufacturers tackled their issues head-on, their situation wouldn’t be as bad today.
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3. Short-Sightedness
It’s easy to make bad decisions if you constantly take the same approach. Just because it’s worked before, doesn’t mean that will always be the case.
In 2000, Netflix cofounder Reed Hastings approached Blockbuster with the idea of becoming the digital streaming wing of their video rental service. As you’ll remember, most internet connections also ran through phone lines and the speed was less than ideal, so Blockbuster CEO John Antioco laughed Hastings out of his office. In 1994 Blockbuster was valued at over $8 billion, in 2010 with $1.1billion revenue losses they filed for bankruptcy. Blockbuster failed to adapt with changing technology and went the same way as Kodak.
4. Isolation
Informed decisions are usually better than uninformed ones. That’s nothing new. It’s good to listen to a business coach or support team before taking steps that will affect the future of your business.
Chairman of US cable company Time Warner, Gerald Levin was so confident in their merger with America Online that in 2000 he decided, probably against the advice of his legal team, not to place a collar on the transaction. A collar would allow Time Warner as the seller to revisit the terms of the transaction should the buyer’s stock drop below a certain price.
In 2000, just after the merger announcement and before it was completed AOL shares fell 50%, Time Warner wasn’t able to renegotiate and their shareholders are still paying for that decision.
Overconfidence, indecision, short-sightedness, and isolation. Of course these bad decisions are easy to spot with hindsight, but I suspect if these CEOs had been more open-minded, humble and less stubborn about their position, we could be streaming Blockbuster movies on our Kodak smartphones today.
For more valuable information, download our guide Options for Companies in Financial Difficulty.
