Executives convince themselves that, no matter what, they have to achieve some stock-price goal, some market-share goal, some profit goal. So, they lay out a strategy that might work and roll the dice, even when the odds are stacked against them. In other words, they take what they think is their best bet even though an objective review would show they aren’t making a good bet. Often, they lose.

Sometimes, they lose billions—making us feel a bit better about those bad thousand-dollar decisions we made while remodeling.

“Well, we have to do something,” is largely responsible for Pfizer’s decision to buy Wyeth for $68 billion. This is a bad bet, as we’ve written. Among other problems, while the deal is predicated on massive synergies, there is no reason to expect any meaningful benefit from combining Wyeth’s animal-health medicines and over-the-counter health products with Pfizer’s prescription medications. In addition, Pfizer has an abysmal record with major acquisitions. So does the entire pharmaceutical industry. Yet Pfizer focuses on the long-shot chance that, somehow, the Wyeth deal will work. Pfizer stands to lose a huge amount of revenue when its Lipitor cholesterol-lowering drug goes off patent in 2011, and, well, management has to do something, right?

Which brings us to Dell.

The personal-computer maker had an unbelievable run, both in terms of profitability and reputation. For many years, the business press wrote about Dell as though its make-to-order model had cracked the code and that every competitor would be forever chasing Dell but never catching it. Then the market changed. Customers stopped buying so many desktop computers and started buying more laptops, which they wanted to see and touch, rather than order over the phone or online from Dell. The balance of power shifted back to companies such as Hewlett-Packard that had a major presence in stores. Now, some recent news stories suggest that Dell may be getting desperate.

Our first hint of concern came when Dell announced that it was on the acquisition trail and had hired an in-house takeover specialist. Dealmakers do deals, just as surgeons operate and barbers always think you need a haircut. Dell will now almost certainly buy something—and, if public suggestions about targets are any indication, the acquisition will be a major mistake.

Some analysts have said Dell should buy Accenture. Never mind that Dell has shown no particular aptitude for service and surely couldn’t improve Accenture’s operations enough to justify the hefty acquisition premium that Accenture’s consulting business would command. Others have said Dell should buy Palm and enter the cellphone business. But Dell has already learned how difficult a consumer-electronics business can be, based on its ill-fated foray into televisions. Cellphones are even trickier than TVs. Cellphones are largely a flashy, design business these days, which would put them in mortal combat with the hyperefficient, manufacturing culture that exists at Dell.

Yet Dell’s recent announcement about weakness in its business makes us worry that Dell will be willing to make a bet that may feel like it’s the best chance to regain past glory, even though the chances of success are vanishingly small.

You don’t have to do something if the odds are against you. If Dell executives and investors feel differently, they should go remodel their homes. They’ll lose a lot less money that way.

The strangest idea is the suggestion by at least one securities analyst that Dell should buy Accenture. The rationale is that many big computer companies have large service operations, and Accenture could help Dell make inroads in corporate data centers. But come on. The Dell and Accenture businesses are so different that there would be no cost synergies. Revenue synergies would be minimal because Accenture would have to stay reasonably agnostic about the hardware its customers buy, or customers would go elsewhere in search of unbiased advice. So, the only way to justify the acquisition premium that Dell would have to pay is if Dell, with no experience in professional services, could run Accenture better than its current managers are. Not likely. For good measure, combining the two would create all sorts of complexity that the individual businesses don’t currently face.

Maybe the Accenture idea is just an analyst’s pipe dream, but the IBM negotiations to buy longtime rival Sun Microsystems are real [see 1, 2, 3], and that idea appears to be a classic mistake in a consolidating industry. IBM seems to be overestimating the savings that it can wring out of Sun, while underestimating the complexity of the deal.

IBM is assuming it can quickly knit the Sun line of servers together with IBM’s, but such transitions are notoriously difficult. While the idea looks straightforward on a PowerPoint slide, computers don’t exist on slides—they consist of incredibly complex, specialized hardware and layers of software containing millions of lines of code, and it takes years to bring disparate systems into harmony. In the meantime, competitors will launch savage attacks at Sun products, arguing that any customer even remotely unhappy with Sun should leave now rather than suffer through years of transition that will eventually turn Sun’s equipment into IBM-like machines. To see how this assault might play out, you can look at any number of disastrous consolidations in the high-tech world, such as the Burroughs purchase of Sperry to form Unisys in the 1980s, the Compaq acquisition of Digital Equipment in the 1990s or the Alcatel-Lucent merger in the 2000s.

Analysts say that IBM seems to be assuming that it can take $1 billion a year of cost out of Sun, because that’s what would have to happen for Sun to achieve the same level of profitability as IBM’s workstation business. Certainly, some cost can come out. Sun isn’t known as the leanest company around. Still, it has been whacking away at costs on its own ever since the dot-com bubble burst, and acquirers often talk themselves into seeing more savings than are really there. The Sun folks will still need offices, support staff, etc. It’s hard to see how IBM could find enough efficiencies to justify the 100% premium it is reporting considering paying, over the price of Sun’s stock before the negotiations were disclosed.

IBM may be feeling confident because it has made a series of mostly successful acquisitions in recent years, but those were far smaller than a Sun deal would be. In addition, Sun poses a much more complicated cultural challenge. Sun’s culture says that engineers rule, while, at IBM, the sales force dominates. That clash will take some sorting out. In addition, Sun has made a living for decades by mocking IBM, which won’t make things any easier.

Our research into failures suggests that, if IBM does buy Sun, the real beneficiary will be Hewlett-Packard, which will have a competitor disappear without having to spend $13 billion and without having to go through all the hassle associated with a major acquisition. Dell, which is hoping to build on its more modest success in data centers, might gain, as well—if it doesn’t buy Accenture.

Cisco is off on its own odd tangent. Its agreement to purchase Flip Video for $590 million purports to be a move into an adjacent market but really isn’t. While it’s true that traffic from the Flip cameras can be carried on Cisco networks as people send videos around, that doesn’t mean Cisco needs to own the camera business, any more than it needs to make its own mainframes, which also supply a lot of network traffic. In fact, mainframes have much more in common with Cisco’s core business than a consumer business like video cameras does. While Cisco has a stellar record with acquisitions, the Flip Video deal sounds rather like the Sony decision to buy Columbia Pictures for $3.4 billion in 1989, on the theory that Sony should have its own movies for customers to play on their Sony VCRs and TV sets. Sony soon took writedowns that equaled the value of its investment.

It’s not that we hate everything going on in the computer industry these days. Cisco, for instance, seems to be making a well-timed move into what really is an adjacent market, by introducing a line of servers. Cisco already has good connections with the buyers, who manage corporate data centers. The servers, which differ from competitors’ because of their networking capabilities, draw on Cisco’s technology strengths.

As we implied at the top, we also like Oracle’s decision to declare a dividend. While it’s been acquisitive, and generally successful, just because you’re sitting on a mound of cash doesn’t mean you should rush off and spend it.

The whole industry is under such pressure that even Intel and Microsoft are feeling it. And, before demand plunged, the industry was moving away from Dell. It had thrived in a time when people mostly used desktop computers and purchased them based on how much computing power they provided for a given price. Now that laptops are ascendant, customers are much more concerned with how the computers look, with how the keyboard feels and with other subjective measures. But Dell barely has a presence in the retail channel, so customers have little opportunity to try Dell’s laptops. Besides, Dell has never shown great strength in the kind of design that catches a consumer’s attention the way Apple does.

Which brings us to the Red Queen–and why the move into smart phones is likely to be a bad idea.

The concept of the Red Queen comes from a growing body of research that explains why a company that prospers in one market likely won’t succeed in another. The concept draws its name from “Through the Looking Glass,” where the Red Queen tells Alice that “it takes all the running you can do to keep in place.” The idea is that successful companies keep working harder and harder to stay ahead of the competition. In the process, they optimize their culture, their processes, their organization–everything–to succeed in their part of the market. Companies often assume their success will carry over into new markets. In fact, the success may diminish the company’s chances. That’s because optimizing for one market may stifle the attributes that are needed in the new one. (For more, see The Red Queen Among Organizations by William P. Barnett.)

To apply this to Dell: The company succeeded through a super-lean manufacturing business. That means a host of things: standardization of parts, elimination of frills in the products, an emphasis on reliability, the use of parts that are easy to assemble, and so on. But smart phones don’t depend on lean manufacturing. They require a wow factor. Even though Dell has tried to reach out and find people with experience in making gitzy smart phones, everything about the Dell culture has been shaped over the years in ways that will fight the newcomers. Just imagine the questions and objections. Why use that part when it costs $1 more than this other one? Should we really use that type of shell, when it’s susceptible to cracking? That super-thin battery doesn’t meet our reliability standards. And so on.

For good measure, Dell will be dealing with new distribution channels–rather than dealing directly with consumers or with corporate customers, Dell will have to sell through cellular companies. Dell will likely have to change its marketing approach, to go from selling a reliable commodity to selling something that will get teens and 20-somethings talking. Dell will also face heavy competition, because it’s hardly the only company that’s thinking of expanding into smartphones.

By killing a music-player project before going to market with it, Dell has shown the ability to step back from a bad strategy. Dell should do the same again and stop the smart phone, and Michael Dell should go back to spending his time on the many efforts that could do his business some good.