FINALLY, SOMEONE ADMITS A MISTAKE

Over the years, we’ve been stunned to see how hard it is for executives to recognize and acknowledge mistakes. After all, everyone makes mistakes. The trick is to learn from them so you don’t repeat them, or, better yet, to learn from others’ errors so you never have to make those particular mistakes yourself. Despite the obvious benefits of learning from errors, the denial among executives runs so deep that, to pick a couple of examples from our book:

Usually, when we highlight a news item, we have a fair amount to say to amplify what’s been written, but this piece in the Wall Street Journal about NCR’s misguided decision to buy DVDPlay, a business that dispenses DVDs from kiosks, pretty much covers the waterfront.

The acquisition of DVDPlay extends NCR’s misjudged adjacency move into DVD kiosks, slightly enhancing its distant second position compared to Redbox, the industry leader. (See NCR announcement here.) Why don’t we like this adjacency strategy? Well, a number of red flags stand out.

We realize that it’s often politically incorrect to agree with Paul Krugman, the New York Times columnist, but this time we do. All sorts of studies that we cite in our book say it’s hard for people to acknowledge that they made mistakes, and weren’t just the victims of bad luck, but the only way to prevent a recurrence of the Great Recession (or least delay it) is to take a hard-nosed look at what went wrong in recent years. As Krugman explains, that doesn’t seem to be happening.

Even as Comcast celebrates gaining a controlling interest in NBC-Universal, there’s a flashing red light on the horizon warning of the company’s potential demise.

This is a guest post by Ken Krushel, a senior alliance member of the Devil’s Advocate Group. Ken has held senior strategy positions at NBC, Paramount and MGM. He has consulted with Warner Brothers, Sega Corp., MGM and Lifetime Television. He was CEO of College Enterprises, Inc., which merged with Blackboard, Inc., to create the largest enterprise educational software company in North America. He also founded Proteus, Inc. a pioneer in marketing specialized subscription-based content for mobile phones.

Our book, Billion-Dollar Lessons, is now in paperback. We’ve updated the paperback to incorporate our thoughts and experiences in the year since we put the first edition to bed. The paperback includes a new preface that reflects on the lessons to be learned from the Great Recession, which unfolded just as the first hardcover edition was published. The paperback also has an expanded Part Two, “Avoiding the Same Mistakes,” where we’ve incorporated our recent consulting experiences helping executives stress test their business strategies.

If you already have the hardcover and have kept up with our blog and white papers, you’re only missing the paperback’s new preface, which we called, Make that “Trillion-Dollar Lessons.” We’d be delighted if you’d buy the paperback anyway, but you can also read the preface below or download it here.

Following up on yesterday’s post about John Cassidy’s New Yorker article, “The Real Reason that Capitalism is so Crash-Prone,” we want to highlight an alternative theory put forth by Calvin Trillin. Trillin’s recent NY Times op-ed starts with this intriguing line:

“If you really want to know why the financial system nearly collapsed in the fall of 2008, I can tell you in one simple sentence.”

We found John Cassidy’s essay in the Oct. 5 New Yorker, “The Real Reason that Capitalism is so Crash-Prone,” to be illuminating about the challenges of managing in an irrational context, like the recent credit craze or the more distant dot-com and telecom bubbles. Cassidy argues that, even if managers know that they are in the middle of a bubble, they have little choice but to go along. Boards and investors tell them: “Do it, or move aside so that someone else can.” Few can resist such pressure.

Having failed in the markets for MP3 music players and for high-definition televisions, Dell now says that is going to try its hand at smartphones. We hope that Dell’s board and management are asking how this foray into consumer electronics will be different than Dell’s previous efforts. Otherwise, it won’t be.

Unless it asks itself tough questions, Dell will again fall victim to what’s known as the Red Queen Syndrome, so named for the queen in “Through the Looking Glass,” who says, “It takes all the running you can do to keep in the same place.”

We think it’s great that people are delving into failures like Merrill Lynch’s compensation plan to look for the roots of the problem. This investigation is especially important given that Congress seems likely to pass legislation that will dictate what Wall Street can and can’t do in paying employees, as the federal government tries to rein in the excesses that contributed to the Great Recession.

From our standpoint, there certainly seem to be problems with Merrill’s approach.

Private equity is supposed to be capitalism at its purest–you make a kill, and you devour it. But it turns out it’s not that simple. As one of private equity’s stars explains in this piece in the New York Times, compensation issues can cloud anyone’s judgment and get executives to make bad decisions. While those problems may be more acute in large companies, with their complicated political environments, it seems that no one is immune.