The great works of literature examine the phenomenon of failure from every conceivable angle: failure as farce, failure as tragedy, failure as comedy. Failure is an all-embracing fact of life both imagined and real. Yet books on failures are notably absent from business libraries. The reason is simple. Business people do not buy books on corporate crises or disasters. They do not seek out lessons in getting it wrong. They do not want a brush with failure in case it sullies their good fortune.
This does not bode well for sales of Robert Sobel's latest book: When Giants Stumble: Classic Business Blunders and How to Avoid Them. This is a pity, because Professor Sobel, a professor of business history at Hofstra University and the author of more than 40 books, has assembled a tour de force of managerial ineptitude. In doing so, he has sensibly ignored some of the most chronicled corporate follies such as New Coke, the Edsel and the decline of the International Business Machines Corporation. Instead, he focuses on more unheralded stories of corporate calamity while also including more well-known names such as Pan American World Airways and Montgomery Ward. The only obvious deficiency is that all the examples are American (though, amid an economic boom, this may be a timely warning).
The lesson of the book is summed up in a single sentence. "If there is any single moral to the tales it is that for all but one of these entities failure was preceded by great success," writes Professor Sobel. Corporate hubris is the begetter of corporate hell. Herein lies the great paradox of business life: Ever-larger successes bring ever-increasing chances of dramatic failure. In business, a single decision can plunge a company down the precipice.
The mighty inevitably fall. They fall because they are human. Human folly and ineptitude do not mysteriously halt at the boardroom door. Typical is the tale of the RCA Corporation, bluntly entitled "The Blunder of Nepotism." In 1965 RCA's chief, Robert Sarnoff, took over a company that was performing well in broadcasting, manufacturing and recording. It was also moving into the fledgling computer market. The future looked promising. Then Mr. Sarnoff, son of the legendary General David Sarnoff, took the fashionable route for the 1960's and tried to turn RCA from its main business as owner of the National Broadcasting Company into the International Telephone and Telegraph Company through a series of gloriously ill-advised acquisitions.
In 1967, RCA bought Arnold Palmer Enterprises. "Perhaps someone at the network thought it would be a good idea to have Palmer on board in some capacity," recalled an executive. "Or it might have been they wanted to play golf with him. Also, Arnold Palmer was a hell of a better symbol than Nipper the dog for the 1960's." As it transpired, RCA would have been better sticking with Nipper the dog. RCA also bought Hertz, a frozen-foods packaging company, a real-estate company and then a carpet maker. "He would take great intuitive leaps from an unwarranted assumption to a foregone conclusion," lamented one of Mr. Sarnoff's colleagues.
Offering more intriguing lessons is the story of the Jos. Schlitz Brewing Company. In the 1960's and early 1970's, Schlitz was (according to the management textbooks) doing many things right, if you overlook its predictably disastrous adventures into Chilean fishmeal production. It had carefully honed its production methods so that while its chief competitor, Anheuser-Busch, spent huge amounts on new plants during the 1960's, Schlitz still managed to produce beer more economically. It cut costs and refined processes. In 1974, the brewer came up with another brilliant cost-cutting strategy — a process that made brewing significantly quicker and cheaper. Then it tinkered with the ingredients again to save yet more money. The cocktail of chemicals reacted and made the beer milky. Consumer confidence never recovered and Schlitz disappeared into oblivion.
As the Schlitz story demonstrates, when it comes, failure happens quickly. Businesses vanish in front of their creators' eyes. In April 1981, Adam Osborne showed off the Osborne 1 computer for the first time. Sales flooded in and, by September 1981, his company was recording monthly sales of more than $1 million. The Osborne 1 and Adam Osborne seemed to be at the forefront of the technological revolution. The confident and cheerfully opinionated Mr. Osborne appeared to be a man of his times. "From brags to riches," read one magazine headline. It was a brief glimpse of what might have been. During 1982, Osborne Computer reported losses of $8 million. It was soon bankrupt, an historical footnote.
Failure is always human. Professor Sobel accurately captures the human sadness of some of the stories. In When Giants Stumble there is none of the desperate searching for meaning that bedevils so many business books. There is no smart thesis or hidden agenda. There is just the discomforting reality of executives making the wrong decisions.
Reprint No. 99311