Business media and business school case studies love to cite big business failures (Kodak, Borders, Blockbuster, Blackberry, etc.) and talk about how foolish and incompetent management was for leading the company into the ground. It's fun to look back on management's mistakes, discuss them, and hopefully learn from them. When you review these mistakes in hindsight, a certain comfort comes from thinking you wouldn't have been so dumb.
The thing that these stories and case studies miss is the real-life context surrounding management that contributed to the decisions they made. And to me, that's a lot more interesting. I'd argue that often — perhaps most of the time — these people aren't dumb at all. It's much more complicated.
In real-life corporate decision-making, there are multiple factors that contribute to decision-making that those looking back from the outside can't see.
1/ Incentive structures and timelines that drive short-term thinking, e.g., a CEO who's incentivized to focus on this year's stock price. That incentive is in perfect conflict with longer-term strategic transformation (Kodak investing in digital cameras at the time would’ve been an expensive and risky bet that likely wouldn't have paid off during that CEO's tenure, as one simple example).
2/ The personal motivations of individual leaders. In many ways, a company is just a vehicle to drive individual people's self-interest (investment returns, personal compensation, resume-building, fulfilling the company's mission, having power, etc.), and more often than not, that self-interest isn't in full alignment which makes strategic decision making extremely difficult.
3/ Politics around strategic direction. Related to incentives, leaders, in the moment, particularly leaders who may be struggling in their role, often aren't aligned with the long-term growth of the company. They might be thinking about saving their job this week or this month. With that context, leaders are more inclined to lean towards "people pleasing" versus doing the right thing for the company. So, if a board of directors wants to go in one direction and management wants to go in another, management may defer to the board (to keep their job). Or one leader may defer to another leader to improve their reputation with that leader because that leader has a better relationship with the CEO. There are hundreds of little dynamics like this inside any company that are in conflict with doing the right thing. Put more clearly, “keeping one’s job”, in many cases, negatively correlates with good long-term strategic decision-making.
4/ Distractions. When a company is operating at scale, there are always fires to put out and urgent threats to the existing business. This can distract management from spending adequate time on larger, longer-term threats that are harder to see. Of course, the answer is to focus on both. But depending on the complexity and severity of the urgent threats, that’s a lot easier said than done and inconsistent with human nature. These distractions and their importance rarely make their way into case studies or the business press.
I could go on and on.
Leading companies at scale is extremely difficult. It's easy to say that Kodak should've dropped everything and invested in digital cameras. Or that Blockbuster was too late on video streaming. That's easy and, frankly, not that interesting. Identifying that gives you a C+ or a D-. It's much more interesting to try to understand the context that makes doing what seems like the obvious thing so incredibly difficult. Learning from that and creating an environment where leaders and leadership teams can make the best possible decisions is a much more challenging task. Leaders and leadership teams that can do that deserve an A+.
