Netflix’s recent announcement that it will sell Disney and CBS television exemplifies how Netflix is avoiding the major strategic error that can occur when a company stays the course in the face of a serious threat.
In Netflix’s case, that threat is easy to see: At some point down the road, we’ll all stop getting our movies in the mail in little red envelopes. Instead, we’ll download our movies directly onto personal computers, televisions or mobile devices such as an iPod or a phone.
The temptation for Netflix is to hang onto DVDs and little red envelopes as long as possible.
Imagine being Lehman CEO Richard Fuld Jr., testifying in front of a hostile crowd at a House committee and being told, “If you haven’t discovered your role, you are the villain today.”
Here’s a technique for making sure you never wind up in such a hot seat, one that can also be used to diminish the possibility of any sort of public relations debacle:
Collect every bit of press coverage of the Lehman mess. At the first sign that your company or industry might be headed toward problems that could make news, take out the Lehman coverage and use it to remind yourself of how actions that seem plausible from inside a company can look surreal from an outsider’s perspective.
The departure of the latest CEO at Unisys brings back memories of perhaps the most disastrous attempt at consolidation in the history of the computer industry, a fiasco that is worth studying for any company that is considering taking advantage of the sharply lower stock prices to make its own attempt at consolidation.
Though much has yet to unfold, the editors at the Harvard Business Review asked us to relate our work to the current mess. The result is a blog entry entitled “Six Lessons We Should Have Learned Already,” posted on HBR’s Conversation Starter blog. Follow the link to read it there.
We’re reviewed in today’s Wall Street Journal. Click here to read the full review. Here is an excerpt:
“Billion-Dollar Lessons” is an insightful and crisply written book, one that offers wisely chosen and well- narrated case studies but also good advice, such as urging companies to appoint an in-house “devil’s advocate” to challenge the unhealthy unanimity that accompanies many major decisions.
The authors also urge executives to pose tough questions when they embark on dangerous courses of action. In a merger, for instance, find out “who in the combined organization will resist the attempts for revenue synergies. The first place to look, of course, is at those whose compensation will be hurt.” About aggressive accounting, key questions include whether public exposure would be disastrous. So ask: “Can the strategy withstand sunshine? Can the strategy withstand storms?” And finally: “When does it stop?”
If only people on Wall Street had asked these questions before embracing the strategy of holding the global financial system in thrall to a mountain of dodgy mortgage assets.
Matthew Kirdahy has posted an in-depth article at Forbes.com discussing our research. He explicitly ties it to the expanding market crisis:
“History repeats itself. But so soon? Imagine: The subprime mortgage disaster might have been averted, or at least lessened, had bankers done some homework.”
Matthew also has a slide show that captures our failure patterns.
Here’s an interview in which Paul discusses the current market crisis and how companies can learn from past mistakes with ABC News Money Matter’s Daljit Dhaliwal:
As regulators, investors, and managers grapple with the deepening economic crisis, the question being asked by everyone is “Who’s next?” Who will join Bear Sterns, Lehman, Merrill Lynch, Fannie Mae, Freddie Mac and AIG on the failure list? We think that’s the wrong question. The strategies that doomed these companies were unleashed years ago, and whether or not others will be destroyed by the rising floodwaters will mostly depend on factors outside of their control. That’s not to say that managers at Washington Mutual and others rumored to be at risk should not bail water as hard as possible. The more important question, however, for those who through good management (or good fortune) managed to stay healthy is what they do now.
We recently delivered the keynote address at a private conference of senior executives from many different industries and we thought we’d pass along some sharp insights from a panel we witnessed. The panel consisted of a chairman, a CEO and a COO. The three companies they represent have all dodged the current crisis, and the executives were offering advice on how to build a company that will be immune to the big swings we’re currently experiencing.
Their advice:
Bank of America’s hasty decision to buy troubled Merrill Lynch for roughly $40 billion gives us pause because it seems to rhyme with Conseco’s disastrous purchase of Green Tree Financial in the late 1990s. The Green Tree acquisition proved to be so toxic that Conseco soon took billions of dollars in writeoffs, then filed for bankruptcy protection. It was the third largest bankruptcy in US history up to that time.
