Top 10 Bad Corporate Decisions

7
Everyone makes bad decisions in life. Fortunately for most of us, the bad decisions we make
aren’t broadcast to the world.
When you’re a major corporation and you trip and fall flat on your face for all the world to see?
Heck, even that isn’t as bad as all the money you may lose your shareholders.
Some decisions, such as Decca Records choosing to sign The Tremeloes instead of a little band
from Liverpool named The Beatles, wasn’t premeditated, focus-grouped corporate decision so
much as just a bad choice. OK, that one is considered probably the worst choice in the history of
the music industry, but perhaps belongs in a class by itself and so isn’t on this list.
You’d think that with all the brain trust many corporations have, they’d be less likely to make
bad decisions. But when they stumble, they stumble BIG.
Here’s a look at 10 of the worst corporate decisions ever:
Since it ain’t broke, let’s fix it.

The decision: Take Coca-Cola, pretty much the undisputed king of colas, change the formula
and rebrand it “New Coke.”
Why this was a bad idea: Did we mention Coca-Cola was pretty much the undisputed king of
colas? Sure, upstart PepsiCo that was doing all these blind taste test commercials – the Pepsi
Challenge, anyone? – and claiming superiority, but was still a distant second. Instead of fighting
back and doing its own taste tests and focusing on the decades upon decades upon decades of
satisfied Coca-Cola drinkers, the company trashed its vaunted special formula, pissed off every
single one of its customers and offered up a cola that was arguably worse tasting than RC Cola.
Coca-Cola lovers hunted down the last six-packs, cans and bottles of the original formula,
hoarding them. New Coke was an unmitigated disaster. Some have offered up the theory that
New Coke was purposely awful so that Coke could still change the formula from sugar to corn
syrup without alienating as many customers as it would have had it just made the change in one
step (sugar is still used in the formula in most countries around the world).
Thing is, Coke’s brand was irreparably damaged during the New Coke debacle, and though it’s
still No. 1 in the cola wars, Coca-Cola came out of the skirmish greatly weakened and looking as
if its executives didn’t know what they were doing. Probably better to believe it was a misstep
than purposely done. I mean, everyone makes mistakes.
We’re IBM! Who is this Bill Gates guy anyhow?

The decision: IBM paid Microsoft a one-time fee to develop PC-DOS rather than securing all
rights to the system, allowing MS-DOS to be developed right alongside it.
Why this was a bad idea: Hardware is easy to clone, as has been proven over the years since
1987. Software, not as easy, though the open-source revolution in recent years has begun to
challenge that belief. But back to the 1980s – IBM was synonymous with personal computers.
Heck, IBM was synonymous with computers, period. Microsoft bet on the market changing,
giving software developers the ability to sell the same programs to owners of all different brands
of computers, clones of the IBM.
Guess who was right?
Of course, as mentioned, the open-source revolution that includes Linux, Firefox and Open
Office now threatens Microsoft’s dominance in much the same way. It hasn’t happened yet, but
might Microsoft fall victim to the same thing as IBM? Cheap (in this case, generally free)
clones? Check back here in another 10 years or so.
Let’s annoy all our users!

The decision: Microsoft Bob.

Why this was a bad idea: Look, Microsoft gets trashed a lot simply because it’s the BMOC.
When you have a virtual monopoly on the market, people are going to hate you, no matter what.
So why give people more fodder for the hate mill? Microsoft Bob, which some have dubbed the
“idiot cousin” to Windows, was supposed to be a user interface to simplify Windows 3.1 for
computer novices.
It came out in … wait for it … 1995.
Bob makes it on to most “worst tech products of all time” lists and even though he was sort of
lost in the shuffle surrounding Windows 95, some of his bits and pieces survived for way too
long. Remember the totally obnoxious paper clip, Clippie, who popped up all the time when you
tried to use Microsoft Office? Blame Bob.
If you’ve never heard of Bob, consider yourself lucky. But we bet you experienced Clippie – and
wanted to smash your computer’s screen every time he popped up.
Clones? We don’t need no stinkin’ clones!
Apple chose Power Computing to build the Mac clones. PC distributed anti-Intel posters as part
of their marketing campaign.
The decision: Walking out on talks with Gateway 2000 to license Mac OS sales.
Why this was a bad idea: Microsoft became the behemoth it is today in large part due to this
misguided decision. Remember how IBM thought the future was all about hardware, not
software? Apple didn’t completely believe this, thus the continually innovative and easy-to-use
Apple operating systems.
But if Apple had been willing to charge a slightly smaller licensing fee for its OS to PC makers
such as Gateway, it could have easily gained market share on Microsoft and made it a truly two-
company battle.
Sure, Apple gave licensing to a few smaller clone makers, but none were truly mainstream and
most people, when they buy a Mac, are going to spend the money for a Mac, not a clone, because
the pricing isn’t different enough.
Perhaps Mac earns more profit more per computer than the Dells or Gateways of the world, but
when it comes to volume, it’s a different story.
British Multicultural Airways
The decision: Paint ethnically inspired designs on the tail fins of all its aircraft.
Why this was a bad idea: When the prime minister publicly disparages you for being
unpatriotic and not painting the Union Jack on your airplanes, going so far as to cover a model
with a handkerchief, chances are there are a lot of regular folks who are going to feel this way.
Sure, once upon a time, the sun never set on the British Empire. But when this happened, in
1997, there weren’t many remaining bits of Empire, and many citizens were rather xenophobic.
The decision to reflect the geographic/ethnic diversity of BA’s destinations went over like a fart
in church. Two years later, BA stopped the practice, though the existing ethnic tailfins were not
replaced. Fast-forward another two years, and those tailfins were painted over with the British
flag.
CBS & NBC fumble the ball
The decision: To reject the right to broadcast Monday Night Football.
Why this was a bad idea: Sure, in 1969, football wasn’t the ratings juggernaut it is today. But it
was gaining in popularity.
First broadcast in 1970, Monday Night Football is the second-longest running show in prime
time television, with only 60 Minutes surpassing it. It’s also incredibly popular, and for years,
CBS and NBC virtually gave up their Monday night programming against the ABC broadcast
because it was unbeatable. The show has since moved on to ESPN, but cemented ABC Sports as
a top player and gave the youngest of the (then-three) broadcast networks a solid ratings base.
Western Union doesn’t pick up the phone
The decision: To brush off Alexander Graham Bell’s telephone invention and pursue its own
version, in 1876.
Why it was a bad idea: Do you have a telephone? When was the last time you used Western
Union?
There are zillions of stories out there on the Internet quoting Western Union exec William Orton
as saying, “What use could this company make of an electrical toy?” and just blowing off
Alexander Graham Bell. But it’s not quite as simple as that.
First, a tiny bit of history: Western Union owned the network of telegraph wires and machines
across the nation, and telegraphs were, really, the first means of instant communication over
thousands of miles. We all know how that turned out – Western Union became the primary way
people wired money across the country and lost out as a means of communication and now we
all have telephones in our homes and/or our pockets.
But though Orton may have said that, or something similar, in a letter to Bell, it more likely was
a means to hide the fact that they were trying to do the same thing – or would try to do the same
thing. Western Electric, the company that provided the electricity for the telegraph network,
developed a working telephonic instrument about the same time as Bell, and Western Union and
Bell dived into a years-long patent battle with Bell, as you know, emerging victorious.
Don’t call us, we’ll call you
The decision: M&Ms could not be featured prominently in Stephen Spielberg’s cute little alien
movie, E.T.
Why this was a bad idea: Hardly anyone heard of a new snack, Reese’s Pieces, before the
smash hit was released. In the months afterward, M&M’s were in danger of being outsold by the
candy-coated peanut butter bits.
Hershey’s helped promote the film, but probably got more out of it, by being able to market the
snack as “E.T.’s favorite candy.”
Look! It’s a phone. It’s game system. It’s a failed product.
The decision: Release the N-Gage, a mobile phone/handheld game system, in 2003.
Why this was a bad idea: The buttons were designed for phone functionality, the device itself,
for gaming. So it was hard to play games on it and uncomfortable to use as a phone. Way to go!
The device was Nokia’s attempt at gaining market share from Game Boy Advance players –
giving them an Advance-like device that you could call your friends on. After less than two
years, Nokia said the games would be moved to a series of smartphones, which finally came out
in 2007. The N-Gage application came out the next year and on Oct. 30 of this year, it was
announced there would be no more N-Gage games produced. The service will cease completely
at the end of next year.
What are you gonna do? Start your own network?

The decision: Not to pay a gazillion (approximate figure) dollars to George Steinbrenner and the
Yankees for the rights to broadcast the Bronx Bombers in perpetuity.
Why this was a bad idea: Granted, a lot of people outside of New York City, especially if
they’re not sports fans, may not be aware of this corporate decision. But it had a much wider-
ranging effect than just how baseball fans in the Big Apple could watch their favorite (or least-
favorite, as the case may be) team.
When MSG, which stood to still make a great deal of cash on the deal, turned down the offer,
Steinbrenner figured he’d just start his own network. The YES Network was born, and has
proved to be profitable. That, in turn, has revolutionized sports television, convincing many other
sports franchises to develop their own networks, alone or in conjunction with other teams in their
cities (the NY Mets now have their own cable network, as do the Cleveland Indians). Thing is,
MSG and Steinbrenner already had revolutionized the business of sports when the Yankees
became he first major-league team to sell cable TV rights, back in 1988.
Written by Amy Vernon

1983: Sam Walton explores the final frontier

Wal-Mart’s founder was not a technophile. He was a grounded man, and a cheap
one. But in 1983, when his subordinates proposed a $24 million investment
involving outer space, he listened.
It was Glenn Habern, a data-processing manager, who came up with the idea of
building a private satellite network. It was far-fetched, to be sure: Wal-Mart would
be the retail test case for this kind of technology. But it had two selling points. The
first was personal contact. Walton was adamant about visiting every store
personally. The growing number of stores, though, was making that harder and
harder. A satellite system would let him beam pep talks to his associates.
The second selling point was data. Walton couldn’t get enough of it, and the
company’s jammed telephone lines couldn’t handle it. Satellites allowed him to
check on how inventory was piling up, track a day’s sales at a particular store, see
whether a new product was sitting on the shelves. "With a company, the risk you
run is that you grow so rapidly that it gets out of control, that you can’t get your
arms around it," said David Glass, Wal-Mart’s president at the time (and its CEO
from 1988 to 2000). "People started asking, ‘How you gonna communicate with all
these people when you get larger?’ We had a very strong culture, but we worried
about that."
Walton "didn’t like the technology part" of the pitch, Glass recalls. "He was a
merchant first and foremost." But the video broadcasts sealed the deal: "He loved
the idea of being able to talk to all the associates." Four years later, when Walton
addressed a videocamera in an old Wal-Mart warehouse, the broadcast was beamed
22,300 miles skyward and received at roughly 1,000 Wal-Mart stores.
The world’s biggest private satellite network gave Wal-Mart a huge informational
advantage and the power to combine size with speed. Sales growth, already
stunning, hit warp speed. In 1985, two years before the completion of the system,
Wal-Mart’s sales were $8.4 billion. Ten years later they were $93.6 billion. Ten
years after that, they had left the atmosphere altogether: $288 billion, a number
without historical precedent. — Corey Hajim

THE RECENT DECISION ON THE HEWLETT-

PACKARD/COMPAQ MEGA-MERGER:
How The Court Ignored The Psychological Reality
 Of Over-Optimistic CEOs
By JAMES FANTO
Tuesday, May. 14, 2002
Recently, Chancellor William Chandler of the Delaware Chancery Court issued an important
decision in the case of Walter Hewlett v. Hewlett-Packard Co., which concerned the friendly
merger between Hewlett-Packard and Compaq. Unfortunately, the decision showed that the
Court continues to be unable, or unwilling, to reign in the excesses of chief executive officers and
boards of directors of public companies when they decide upon a mega-merger.

What is the cause of this inability? The root of the problem is the failure of the Delaware courts--
the nation's premier forum for corporate law--to develop a law that is based upon adequate
psychological foundations.

Mega-Mergers Usually Harm Both Companies' Stockholders

The merger at issue was designed as a stock-for-stock deal; shareholders of Compaq would
receive shares of Hewlett-Packard. As such, the transaction is emblematic of the mega-mergers
of the 1990s and 2000s, which produced the behemoths of our corporate landscape (Citigroup,
AOL-Time Warner, Global Crossing, and so on).

According to financial evidence, well over a majority of these transactions end up being failures:
Shareholders of both companies would have generally been better off without a merger. This
evidence has been well-known among financial economists for some time. Nevertheless, the
transactions, as the Hewlett-Packard/Compaq merger shows, remain popular.

Why? In the heady days of the 1990s' market excesses, CEOs justified the deals with tales of
"synergy," and used their overinflated stock as acquisition currency. Boards went passively
along.

The professionals who worked on the deals did not intervene to question the wisdom of the
mergers. Paid by the number of deals and deal size, investment bankers had no reason to
caution CEOs about the risks of the transactions. Accountants and lawyers abandoned all
pretensions of independent thinking and were only too happy to join in the feeding frenzy of
large fees.

Meanwhile, the business press, itself owned by mega-media firms that were created by these
mergers, fawned over the CEOs and extolled the transactions. (Recall, for example, the praise
lavished on former Worldcom CEO Ebbers a few years ago.)

A Board Member Fails In a Challenge to the Hewlett-Packard/Compaq Merger

What made the Hewlett-Packard/Compaq merger different was that there was a board member
and shareholder with enough independence, voting power and financial clout to question the
transaction. In the corporate world, this is a very rare event.

Walter Hewlett is the son of one of the founders of Hewlett-Packard, and a trustee of a
foundation that owned a substantial number of Hewlett-Packard shares. He took the
understandable position that the merger would likely be bad for Hewlett-Packard and its
shareholders.

In the final vote, Hewlett-Packard prevailed by a small margin. Undeterred, Hewlett brought
suit before the Chancery Court. He alleged that Hewlett-Packard had failed to make adequate
disclosure to its shareholders about the growing internal evidence that the merger synergies
would not be realized. He also alleged that Hewlett-Packard had essentially bought the votes of a
significant shareholder, Deutsche Bank Asset Management, by threatening to withhold future
business from Deutsche Bank.

Chancellor Chandler allowed Walter Hewlett to go to trial on these claims but, in the end, he
decided that Hewlett had not prevailed at trial on either claim. That decision, however, was a
serious error on the part of the court.

Why CEOs Don't See, or Tell, the Truth About a Merger

Walter Hewlett had to wage an uphill battle in the courtroom. He had to establish that Hewlett-
Packard "knowingly and intentionally made material misrepresentations about the progress of"
the merger. (Merging companies start their integration immediately following the
announcement of the merger, even if the merger cannot legally take place until after the
shareholder vote.) Similarly, he had to present "significant evidence" that Hewlett-Packard had
coerced Deutsche Bank asset managers into voting for the merger.

The "knowing and intentional" standard means plaintiffs like Hewlett will lose in all but the
most egregious cases. After all, how often does a CEO intentionally lie to shareholders? And
even it does occur, how easily can it be proven?

The standard is seriously mistaken, and should be revised. As the case shows, this standard
completely ignores the psychology of merger decision-making, particularly in mega-mergers.
The issue is not that CEOs knowingly and intentionally harm shareholders, but that they
unwittingly do so, believing all the while in the rightness of their actions.

The main problem is not that CEOs are intentionally hiding negative data about the proposed
combination. Rather, the chief psychological problem is that CEOs' over-optimism blinds them
to the very real negative consequences of the deal.

The Problem with Failing to Account for CEOs' Over-Optimism

This over-optimism makes CEOs dismiss or explain away any piece of negative evidence about
the transaction. It also allows them to sound absolutely rational in their explanations
(particularly in court).

Several factors combine here: There is the "knowing and intentional" legal standard, which is so
hard for a plaintiff to meet. There is this psychological reality about merger decision-making.
Finally, there is the tendency of Delaware Chancery Court judges to favor corporate
management.

Given the combination of all these factors, the outcome of Walter Hewlett's (or virtually any
other similar plaintiff's) claim was, though unfortunate, entirely predictable.

How Over-Optimism Played a Decisive Role In the Hewlett Case

Indeed, Chancellor Chandler's opinion reads as if it were scripted. Hewlett-Packard and Compaq
executives paraded through the courtroom, explaining in a straightforward way why they
thought that the announced merger synergies were likely to be realized. Chancellor Chandler
accepted their testimony at face value - noting that they "testified credibly."

Walter Hewlett, however, showed that Hewlett-Packard had evidence that the merger was not
succeeding. Moreover, studies of past mergers suggested that this was likely to be the most
reliable evidence available - evidence far more reliable than CEO's over-optimistic assessments.

In addition, the fact that any such evidence existed should have been weighed heavily against
management. Since so many of these transactions fail, if any negative evidence appears at the
beginning of the merger process, it is very bad sign for the deal.

Nevertheless, Walter Hewlett did not prevail on his claim of nondisclosure. Why? The negative
evidence came from those outside the inner circles of the CEOs and their counselors - from the
business groups that would have to implement the merger. Accordingly, management was able
to craft a response dismissing this evidence, though not a convincing one.

Management's explanation was that the business groups generating the negative information
could not see the "big picture" and appreciate the synergies of the mega-merger. Predisposed to
believe the executives, and with no smoking gun to suggest that they were scoundrels,
Chancellor Chandler bought their explanation, and dismissed the claim.

Suspicious Conduct Gave Credence to the Vote-Buying Claim

The Deutsche Bank and Hewlett-Packard dealings during the merger would have made anybody
suspicious. Once the deal was announced, the Deutsche Bank analyst who followed this business
sector was enthusiastic about it.

Accordingly, Deutsche Bank investment bankers urged Hewlett-Packard Chief Financial Officer
Robert Wayman to give them a piece of the action. (Not surprisingly, perhaps; the
recommendations of an investment bank's analyst are often designed to generate investment
banking business and it is possible this was the case here.)

Hewlett-Packard put off Deutsche Bank, however. But when Walter Hewlett announced his
opposition to the merger, Hewlett-Packard seemed to change its mind. It began efforts to bring
Deutsche Bank into its circle of advisors. No doubt, Hewlett-Packard realized that it might need
the votes under Deutsche Bank's control and thus wanted Deutsche Bank on its side.

All parties assumed that Deutsche Bank Asset Management, which controlled 17 million
Hewlett-Packard shares, would vote them in favor of the merger. That was because Deutsche
Bank's asset managers had, in the past, typically followed the recommendation of Investor
Shareholder Services, an independent shareholder services firm that supported the merger. This
time, though, it was Deutsche Bank that changed its mind: The asset managers changed their
practice in this case, and decided to vote against the merger.

Shortly before the shareholders' meeting, Fiorina heard of this development. She responded by
telling Wayman that the company might have to do "something extraordinary" to secure the
asset managers' vote. What that "something extraordinary" might have been turned out to be a
crucial issue in the case.
Subtly Coercing Deutsche Bank's Vote? An Implicit, Not An Express, Threat

A Deutsche Bank investment banker- the banker who oversaw the Deutsche Bank/Hewlett-
Packard relationship - then organized a call between Fiorina and the asset managers and
participated in it. (Meanwhile, Walter Hewlett received the same privileges to discuss his side in
a separate call.)

Not surprisingly, the Hewlett-Packard executives did not openly threaten Deutsche Bank with a
loss of business, and only discussed the merits of the transaction during the call. Nor did the
Deutsche Bank asset managers make any express reference to the overall business relationship
when, after the call, they decided to switch their vote to approve the merger.

The subtext, however, was very clear: the Hewlett-Packard/Deutsche Bank relationship would
go dramatically south if the asset managers voted against the merger. If there were any doubt,
the presence of the relationship banker on the call would have made the implicit threat clear to
them.

And he also accepted the Deutsche Bank investment bankers' story that the call had not
occurred to implicitly threaten the asset managers so that they would switch their vote. Rather,
they said, the call was arranged because they were embarrassed at having misled Fiorina into
thinking that the managers would vote for the merger.

In the end, having essentially required Hewlett to prove the threat with a "smoking gun," and
seeing no smoking gun, Chancellor Chandler dismissed the vote-buying claim.

Again, Disregard of Psychological Realities Marred The Court's Decision

Chancellor Chandler did express mild disapproval that the "wall" between Deutsche Bank
investment banking and asset management did not keep the two absolutely separate in this case.
But his remark was too little, too late.

Once again, Chancellor Chandler missed the psychological realities of the situation. Hewlett-
Packard executives did not have to communicate openly, whether inside or outside the call, any
threats to Deutsche Bank about the loss of future business. It would have been clear to everyone
involved what would have happened had Deutsche Bank failed to change its vote. (It had
similarly been clear to Hewlett-Packard, following Walter Hewlett's declared opposition to the
merger, that it had to compensate Deutsche Bank for its support and votes by hiring it as an
advisor).

It is not at all surprising that there was no express threat. One would expect that the
conversation, both during the call and among the asset managers following it, would deal only
with the merits of the transaction.

Indeed, the managers might not even have realized they had capitulated to an implicit threat.
Rather, under the influence of the groupthink mentality, the asset managers would naturally
rationalize, to themselves and others, that they had made the vote switch only because of their
own independent assessment of the merger. Certainly they would not have liked to think they
had cravenly switched their honest opinion in order to prevent Deutsche Bank from losing
business.

The Increasing Irrelevance of the Delaware Chancery Court

Criticizing Chancellor Chandler may be somewhat unfair, for he may have felt bound by
Delaware precedent to decide the way he did. Changing the law is arguably the province of the
Delaware Supreme Court, not the Chancery Court.

Moreover, insisting on a smoking gun to show coercion in a vote-buying claim is similarly naive.
Psychological reality suggests that coercion may be part and parcel of the relationship between a
corporation and a shareholder (in this case, between Hewlett-Packard and Deutsche Bank Asset
Management), not the result of a specific verbal threat.

The Supreme Court should recognize and account for the over-optimism and groupthink that
can make disclosure flawed and that can contribute to coercion of shareholders who, like
Deutsche Bank, have much to lose if they object to the merger.

More generally, the Supreme Court should also address the abuses of the popular, but
disastrous, stock-for-stock mega-mergers. Delaware courts have, at times, used their equity
powers to curb unfair corporate behavior. This is an occasion when those powers should be
invoked.

If the Delaware courts continue on their current path, declining to address problems that are
plain for all to see, they may lose power in an area - corporate law - that has always been their
special province. The Enron scandal, and the increasingly apparent problems in the mega-firms
that grew through mega-mergers, have led to calls for more federal government intervention in
corporate governance. These calls are likely to grow louder, so long as the Delaware courts
refuse to recognize psychological reality.

James Fanto is a Professor at Brooklyn Law School and has written about the psychological and
legal problems with mega-mergers.

A Lesson from Warren Buffett on How to

Make the Best Business Decisions
2010 October 14

tags: Berkshire Hathaway, best business decisions, business, decision making,

Forbes list of billionaires, Good business decisions, McKinsey Quarterly, Small
Business, Warren Buffett

by josephwesley
Image via Wikipedia
When you’re about to make a business decision, who should you go to for advice? People who
will tell you what you want to hear, or people who will tell you what you need to hear? Based on
a lesson from Warren Buffett, the third richest man in the world according to the Forbes list of
billionaires, you may want to reconsider your strategy.
A recent McKinsey Quarterly article mentioned that Warren Buffett hires an advisor to talk him
out of making business deals, and he compensates the adviser well only if the deal doesn’t go
through. In other words, when Mr. Buffett is thinking about purchasing a company, he hires
someone to do his best to convince him why buying the company is a bad idea. Not only does he
pay the advisor to do this, he gives him a bonus if and only if the advisor talks him out of
purchasing the company.
Why would Mr. Buffett do this? He does this because, when making a decision of this
magnitude, it’s worthwhile to look at every angle make sure the deal is a good deal. If it’s not a
good deal, the money lost from making a poor acquisition will be much greater than what an
advisor paid. In the end, it’s better to face criticism before you make a decision than it is to face
the consequences of a bad decision.
So how does this apply to you? Here’s how – it’s better to ask people for criticism than it is to
ask them to agree with you. For example, if you’re thinking about starting a company and pitch
your idea to family and friends, it’s better to ask them what they don’t like than what they do
like. This is even more important if you really like an idea, because if you do, you’ll likely
influence whether or not other people like the idea. Instead of getting advice, you’ll get a cheer
squad. That’s not what you need.
What you do need are people who will tell you what you need to hear. What you need are
people who will poke holes in the idea and point out flaws. Even if you end up starting the
business, the fact that someone has already pointed out its weaknesses can make the difference
between whether or not your business will succeed.
If you’re thinking about starting a business, make sure you find some smart people who aren’t
afraid to tell you what they think. You can even encourage them to find weaknesses instead of
acting like a cheerleader. Having someone like this in your corner can be the difference between
succeeding and failing.

Case Study: Change or Be Changed: Good

Business Decisions Require Good
Information
February 27, 2008 |

Posted in Benchmarks, Case Studies

| Write the first comment.

The electronics industry has long been a dynamic one, but never as dynamic as it is today.
Private equity investors now own some of the largest semiconductor companies and are pushing
for improved efficiencies. Many, if not most, of the largest chip companies are making
significant adjustments in their strategies. And, as usual, changes in technology—often driven by
innovative start-ups—threaten to disrupt the status quo.
In this dynamic environment, industry executives and investors are faced with tough decisions.
Should we continue to invest in this technology, or license something similar? Should we acquire
this start-up or that competitor? Should we enter this new market? Making the right call can
mean the difference between success and failure. And making the right call requires good
information about the relevant technology, business, and market factors.
Savvy players have long relied on BDTI to provide them with the key information they need to
make these hard decisions with confidence. Beyond its well-known benchmarks and in-depth
technical analysis, BDTI has been tracking and analyzing semiconductor business, market, and
technology trends for over 15 years. BDTI’s unique combination of hands-on technical expertise
and big-picture perspective on the industry puts BDTI in an ideal position to provide insightful,
independent, and accurate information when it matters the most.
For example, BDTI was commissioned by an investment firm to perform a thorough analysis of
a spin-out company offering licensable processor cores and specialized tools. To help it decide
whether or not to make a large investment in the spin-out, the investor asked BDTI to answer key
questions, such as:
Are the company’s products and technology competitive for the targeted applications?
Are the company’s product and technology sufficiently complete and mature to be accepted by
customers?
Is the company’s technology strategy sound?
Does the company have the resources needed to successfully execute its strategy?
To answer these questions with confidence, BDTI first examined the company’s products and
marketing materials. Then, a team of BDTI senior analysts traveled to the company’s offices to
interview management, engineering, marketing, sales, and support personnel. Next, BDTI
interviewed the company’s existing and prospective customers. The BDTI team then performed
a careful technical, business, and competitive analysis, and prepared a detailed report presenting
its conclusions, along with supporting data and analysis. In the report BDTI indicated where the
company was likely to succeed, and where the company faced important challenges—including
technological, competitive, business, and organizational challenges.
For the investment firm that commissioned this study, BDTI’s analysis provided a
knowledgeable, unbiased basis upon which to make an important investment decision, with more
than $10 million at stake. BDTI’s in-depth knowledge of the relevant technology, markets,
competitors, and trends complemented the investment firm’s in-house financial expertise,
creating a clear picture of what was needed for the spin-out to succeed. In other, similar projects,
BDTI’s analysis has been used to inform decisions about company acquisitions and make-vs.-
buy decisions.
When you’re facing tough decisions, you need accurate, objective information. To learn how
BDTI can provide you with the information you need to make important business decisions with
confidence

Tuesday, September 25, 2007

A Case Study: Of Decisions and Decision-

Making
Don Rifkin, CEO of Nutrorim is faced with a difficult decision and one which cuts
across ethical boundaries. Nutrorim’s stalwart product, ChargeUp, has undergone
an upgrade with the additive Lipitrene, The new ChargeUp has just been released
on a limited basis to local area retailers. Already, sales are up 20 %, but soon an
investigator from a state department of health calls Nutrorim. He advises them that
he is investigating 11 individuals who took ChargeUp who now have gastrointestinal
distress. What is to be done?
Nutrorim decides to recall ChargeUp only to discover that the individuals with
gastrointestinal distress became ill from a bug they got from their gym’s smoothie
bar. The chain of events prompts Rifkin to question Nutrorim’s decision-making
process. He invites a consultant to review his company’s processes. The consultant
informs Nutrorim that for decisions that are routine and predictable, the process
works well. However, when the decision requires clear winners and losers, the
process seems to stall. The consultant, though, has only just started. He asks for
volunteers to help him develop a better decision-making process. No one
volunteers.
The problem with Nutrorim is not just about decision-making processes; the
problem with Nutrorim is that it also faces a lack of true leadership.
True leaders are those who are able to exercise the right leadership traits at the
right time, and to realize the best results. True leaders recognize that there are
times when risks should be taken, and that there are times when risks need to be
avoided at all costs. Also, a true leader knows when she or he must be firm and lead
with conviction, and understand that there are times when she or he needs to be
part of the team. True leaders know how to balance these traits and based on
circumstances.
Rifkin is not effective at this balancing act. On one hand, Rifkin is a likeable person
who has worked hard to build an "inclusive" environment within Nutrorim. Yet, on
the other hand, he is inconsistent. For example, in a meeting with his executives
and when a conflict arises between the Product Marketing Manager and the head of
Research and Development, Rifkin simply asks the individuals to take their
disagreement "offline." Rifkin did not attempt to facilitate a constructive
conversation reflecting divergent viewpoints. This tactic would reaffirm his inclusive
environment. Instead, Rifkin simply dispenses with the conflict in order to quickly
gain consensus. The problem with this tactic, much like sweeping dirt under a rug -
the problem remains, it's only hidden from view. In this one incident, Rifkin should
have led a constructive discussion with a firm hand. Doing so would have culturally
reaffirmed the value of an inclusive environment, while at the same time dealing
with the polarity. True leadership demands the appropriate balance.
As it regards decision-making, clearly, a firm process needs to be established and in particular
when there is a crisis. The decision-making process I would recommend is as follows:

1. Define and clarify the issue at hand.

2. Define both internal and external noise, that is, internal and external messages that are
being received. Are the messages necessary? Are they reflective of the problem? Are they a
hindrance? Define and clarify.

3. Gather all the facts; understand their causes.

4. Create a road map of options. Map-out the various consequences of potential solutions.
5. Read your road map. Which road takes you to where you want to be?

6. Select your best route, but also develop an plan if that particular road leads you astray.
Avoid a route that is a compromise.

7. Explain your decision, follow-through with it, and stick with it.

The bottom line is this: the question is not whether or not Nutrorim made the right decision -
the question is did it go about it in the best possible way? A firmer hand from Rifkin during
the process would've 1) led to an appropriate decision, 2) gave everyone an understanding of
potential outcomes and impact on the company, and 3) provided management with
confidence so as to avoid "Monday night quaterbacking."

Posted by The HR Guy at 10:06 AM