Leadership Spotlight

At Enron, Mittelstaedt says, all the mistakes made—including aggressive financial management and lack of oversight by the board and committees—"were the direct result of a culture of supremacy that was built consciously by CEO Jeffrey Skilling, CFO Andrew Fastow and others. They believed that the management team at Enron was simply more intelligent, insightful and skilled in all business matters than anyone else in the world."

In a chapter subsection called "Enron—Living on the Edge and Loving It," Mittelstaedt describes Enron as "one of the most complex mistake chains imaginable ... a case of Multiple Failures to Manage Multiple Mistakes." Once arrogance "became the dominant behavior for senior management at Enron, another very dangerous effect took place that had to do with pushing boundaries. Enron got so used to believing it could change the rules of the game ... that it used structures so convoluted that the only conceivable purpose was to give the appearance of improved performance while obfuscating the truth ... The entrepreneurial visionary spark and culture that had created early success ... was smothered by the actions of senior executives who took risks to support their egocentric needs."

Corporate culture, Mittelstaedt says, is clearly a critical part of any company. But "if an organization's culture is one that discourages the delivery of bad news, then people will be afraid to speak up about problems they see." Why, he asks, do we still talk about the Johnson & Johnson Tylenol crisis from 1982—when seven people in the Chicago area died from Tylenol laced with cyanide—whenever there is a discussion of corporate culture? "Because it's an extraordinary example of a company where people didn't have to be told to do the right thing. It was ingrained in their blood, in their DNA. A plan came together very quickly and the product was recalled. The company didn't say it was not going to do a recall because the deaths happened only in the Chicago area. The company understood that it could never know that for certain."

Most of the examples in Will Your Next Mistake Be Fatal? do not involve massive fraud (Enron) or death (airline crashes); they are more the result of a series of bad judgment calls that mushroom into a series of interrelated and harmful consequences for the company. The book, for example, analyzes Xerox's failure to commercialize technologies developed in its famous Palo Alto Research Center (PARC) where some of the most important innovations in personal computing, networking and printing had taken place. It looks at recent missteps by Motorola which has lost market share to Nokia's smaller, more stylish cell phones, was slow to make the shift from analog to digital cell phone technology, and in 2003 failed to anticipate demand for color-screen phones with cameras, among other mistakes. McDonald's is studied for its failure to change a culture that emphasized standardization and sticking to tried-and-true menus at a time when consumers wanted more food choices. While other fast food restaurants began to introduce product innovations for baby boomers who had eaten one too many Big Mac, McDonald's just kept discounting the goods it already had. Although McDonald's "culture of operational excellence was intact, the growth and diversification efforts got off track," wrote Mittelstaedt, adding, however, that the past year has brought strategic change and vast improvements in the company's performance.

The Tipping Point

The goal in avoiding costly chains of mistakes is not for companies to be mistake- free, Mittelstaedt says. "If you do not make any mistakes, you may not be taking enough risks, and failing to take any risks at all may be the most dangerous type of mistake a business can make." The objective instead is to "find ways to stop mistakes quickly once they are made, and to learn from them in the process."

Mittelstaedt cites a book that came out in 1994 whose authors identified 18 companies as "visionary," including Boeing, Ford, Hewlett Packard, Merck, Motorola, Sony and Walt Disney. Yet in the last decade, all of these companies "have fallen on harder times ... and are seeing questions raised about their futures," he says. "All have made serious mistakes or initiated a chain of mistakes that accelerated their fall from the pedestal of business admiration."

Perhaps the one common theme in their difficulties is that they "hung on to what made them great too long. Once you recognize that the world has changed and there is nothing you can do about that, then you have to change your strategy." Kodak, for example, didn't act quickly enough to commercialize digital technologies. "The problem is money," Mittelstaedt says. "Kodak was making so much money under the old model. It's tough to get the timing right. A company lulls itself into thinking it can wait and suddenly, the market has passed it by.

"So there is a tipping point that usually comes from the external market. In the cases of Motorola, IBM and Kodak, the tipping point was created in the marketplace, and the companies ignored the data longer than they should have." In IBM's case, however, the company made some huge mistakes "but also kept rising above them, the most recent example being its turnaround in the 1990s under Louis Gerstner," Mittelstaedt says.

He wants corporate managers to recognize that there is a chain of events that leads to the visible mistake that finally catches people's attention. "Many executives don't acknowledge the chain. They see the final mistake and think there wasn't an early warning that they could have noticed. The point my book makes is that there are many places you can intervene, especially if you have designed both processes and structures whose function in internal governance is to catch and investigate mistakes." The process can range from a standardization of operating procedures to a focus on customer service. "Customers may be your most important external sensors in the market. Yet a company's marketing/customer service division is often isolated from strategy and finance functions. Consequently, much of that valuable customer data is lost."

Will Your Next Mistake Be Fatal? includes, among its chapters, one on the sequence, and consequences of, mistakes made by small businesses, and a chapter on mistake scenarios in entire industries, including the auto, airline and personal computer industries. At the end is a summary of 38 insights associated with "accidents, incidents and successes" that can be used as a guide for managers when examining their own organizations.