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Meet the MasterMinds: Chunka Mui on the Lessons of Billion-Dollar Mistakes

Chunka Mui is a consultant, popular speaker, and the bestselling coauthor of Unleashing the Killer App. He also chairs the Diamond Fellows, Diamond Management & Technology Consultants' network of external advisors, and regularly works with Diamond consultants on client-related research and consulting projects.

Previously, he was a partner at Diamond, a vice president at the CSC Index division of Computer Sciences Corporation, and a founding member of the Center for Strategic Technology Research at Arthur Andersen & Company (now Accenture).

He talked to us about his latest book, Billion-Dollar Lessons, which warns about the strategies that are most likely to lead to a colossal business failure. 

McLaughlin: What led you to focus on business failures?

Chunka Mui: Well, if you look at business literature, you’ll see that it’s very common, almost universal, for people to write about success. Often, they boil it down to how to emulate successful organizations.

Many companies fail when they try to duplicate the success of others, but you seldom read about that. So we decided to look at what you might call the flip side of Good to Great—at the companies that tried to copy great ideas but weren’t nearly as successful as they wanted to be. What can we learn from them? And, more specifically, is it possible to spot a bad strategy before trying to implement it? It’s like looking at game films and planning your defense as opposed to just planning your offense.

McLaughlin: What results from your research surprised you?

Chunka Mui: One of the biggest surprises in our research was the staggering percentage of business failures that were due to errors in planning as opposed to errors in execution.

The conventional wisdom is that you can only plan so much and then it’s really about execution. But many of the failures we looked at were lost on the drawing board because of the design decisions that people made based on what they knew at the time.

McLaughlin: That is surprising, especially given how much we hear and read about the importance of execution.

Chunka Mui: It’s not that we don’t believe execution is critical. It certainly is. But we liken it to the Charge of the Light Brigade. If you have a plan that’s fatally flawed, perfect execution can get you into more trouble because you dig yourself in deeper and faster.

McLaughlin: Was there a particular business failure that stood out for you?

Chunka Mui: It’s clear that there’s a danger of making decisions that take a business in the wrong direction. But sometimes, doing nothing is just as much of a problem.

Take Kodak, for example. For ten or fifteen years, the company essentially ignored an imminent threat—digital photography. In terms of its business model—and emotionally—the company was wedded to its core products. Kodak people virtually invented and had a lock on the film and chemical business for 90 years with 60 percent margins or better.

They also had the next generation of technology in their laboratories, but they couldn’t make the transition from the old to the new. As a result, Kodak has lost 75 percent of its market value, and has had to shed almost two-thirds of its employees. But if you look at who holds the most patents in digital technology, it’s Kodak.

McLaughlin: When we look at some business decisions in hindsight, it’s obvious how wrong-headed they were, and yet a lot of people had to agree with them. Is there a problem with the way people make decisions in groups?

Chunka Mui: A mountain of literature in psychology and anthropology points to the fact that group decision making is a flawed process. I think what it comes down to is that planning is both a rational and a social process, and it’s the social part that often prevents an in-depth review of options.

A group of talented people working together usually want to do the right thing, but their instinct is also to build consensus in the group. And consensus is not always the best way to come up with the right answer.

There’s a great story about Albert P. Sloan, the man who built General Motors. In one meeting, he looked around at his executive team and said, are we all in agreement on this decision? They all nodded yes. And he reportedly said, I suggest that we adjourn this meeting until we find some reasons to disagree on the matter.

That perspective is often missing. As Peter Drucker said, the decisions that executives make are so complex that you can’t really understand them unless there’s some disagreement to tease out the issues.

McLaughlin: If a member of a group openly disagrees or takes the other perspective, does he or she end up an outsider to the group?

Chunka Mui: Yes, that’s a risk. That, in turn, leads to a dangerous dynamic where people self-censor because everybody wants to be a part of the group.

Sometimes groups will accept dissension. And if you ask any CEO or any manager, the response will be that debate is good. The question is, how much debate do you allow? And is that debate taken into consideration in the decision, or is it perfunctory?

Too many organizations rush to consensus as if they think agreeing is more important than open, honest debate.

How a leader sets up expectations for debate is critical. Do people tolerate dissension from the group but also see it as active disloyalty? Or is it naturally invited, thoughtfully considered, and then incorporated into the decision-making process?

Too many organizations rush to consensus as if they think agreeing is more important than open, honest debate. Eventually you need to reach consensus, but you have to explore your options and alternatives.

McLaughlin: Otherwise, as you mention in the book, you could end up with unchallenged consensus around an idea that an executive had off the top of his head at breakfast.

Chunka Mui: Right. There is a school of thought that says a lot of great ideas come out of inspiration—that mental flash of lightning. The danger is that, when the inspiration or flash of genius comes from the mind of the person in charge, others may not make enough of an effort to vet the idea.

McLaughlin: So what specific approach does an organization need for the best chance to foresee potential failures or disasters?

Chunka Mui: As I’ve said, you have to create an environment that values conflict and deliberation. Everyone in the organization must accept that it’s good to have honest discussions about key decisions, from managers all the way up to the CEO and the board of directors.

Within his or her sphere of responsibility, each person needs to build debate into decision making. Encourage people to ask tough questions and make sure they get answers. Allowing people to ask those tough questions is a great way to build consensus in the organization around the eventual decision.

If everyone believes that they have vetted the plan thoroughly, they might not think it’s the perfect solution but they will probably accept it as the best alternative. Then, it’s much easier to mobilize the organization around the plan.

Most of us tend to be pessimistic about whether or not company-level transformation can succeed. And we fear that internal debate may cause a breakdown. So the second point is that organizations need an independent review of the strategy.

I think that belief in the invincibility of strategic planning is fading, and people are starting to ask more questions.

That doesn’t mean a review by the investors who are going to profit from the deal, or the consultants who design the strategy, or the consultants who want to implement it. Somebody who has no vested interest in the outcome one way or the other should do the review.

McLaughlin: Are there organizations that you think do a good job of creating that kind of decision-making environment?

Chunka Mui: I think there’s more awareness now of the need to question strategy. With whole sectors of our economy nearly in shambles, you have to look back on some of the decisions that people made and wonder.

For instance, look at the subprime lending mess. How did we get to the point where origination of loans has so little connection to responsibility for risk management? Those originating loans took the profits without establishing the underlying viability of loans and then passed them onto others to secure. How did we miss that this would lead to trouble, especially since we’ve had similar, less serious episodes in the past?

I think that belief in the invincibility of strategic planning is fading, and people are starting to ask more questions. We’re working with several clients who brought us in to be the devil’s advocate for transformational efforts. And we see a broader acceptance of the need for in-depth analysis. But mostly, companies will continue to fall in love with their ideas and because of that, often they will miss key flaws in their designs.

McLaughlin: Many acquisitions and mergers fail to produce the expected benefits for the new entity. What causes those strategies to fail?

Chunka Mui: Some strategists use the concept of synergy to sell acquisitions or mergers to the organizations involved. They will point to the potential for increased effectiveness or achievement from the combination of strengths. Unfortunately, the touted synergy between companies is often conceptual in the minds of the strategists, but never materializes.

For example, when United Airlines bought a hotel chain and a car rental company, the idea was that customers would value the ability to go to one place to book a flight, a hotel, and rental car. Well, that may be true to a certain extent, but perhaps not to the extent that the customer is willing to trade off price for convenience.

The premise of a merger or acquisition may be increased economic value, whether that’s added pricing power or a significant decrease in costs from combining the organizations. But what happens when the customer says, you know, it’s nice but I’m not willing to pay extra for that? The economics of the deal fall apart. So one of the key questions is how do the customers feel about the synergy?

Another problem is that, once strategists latch onto the idea of synergy, the price of the deal goes up. If we’re going realize the benefits of these synergies, then it’s worth paying more, right? You can end up paying more than the deal is worth.

Also, when people focus on synergy, they think about the assets they are acquiring, but they may fail to assign a value to the problems they’re also acquiring. That includes clash of cultures and skills, and whether or not the information technology and information systems will merge. Whatever you’re buying, you get the weaknesses along with the strengths. If you don’t take both into account, that can be disastrous.

McLaughlin: If you were to give an executive just one piece of advice, what would it be?

Chunka Mui: Have a safety net. You have to make your planning process as rigorous as possible and include the kind of unbiased review we talked about earlier. Once your plan is in place, carefully manage your commitment to that strategy.

McLaughlin: Thanks for your time.

You can learn more about Chunka Mui at www.BillionDollarLessons.com.