Why Do Smart Executives Fail?

Professor Sydney Finkelstein

By delving into the business histories of 51 companies and conducting 197 interviews with CEOs, former CEOs, other executives, and mid-level managers, Finkelstein and his research team conducted the largest research program ever devoted to corporate mistakes and failures, and uncovered the primary causes of business breakdowns and executive failures.

Their findings show that all business breakdowns occur within four categories of business challenges:

1) Creating successful new ventures
2) Managing mergers and acquisitions
3) Coping with innovation and change
4) Developing winning strategies in the face of new competitive threats

Additionally, executive failures can be attributed to four syndrome-like shortcomings:

1) Executive mindset failure
2) Protective mechanisms and delusional attitudes
3) Informational breakdowns
4) Spectacularly unsuccessful leadership habits

“It’s important to remember that corporate mistakes are about people,” says Finkelstein. “When analyzing strategy, the tendency is to attribute outcomes to factors such as competitor actions and technological developments. The truth is that key leaders are ultimately responsible for the success or failure of their companies.” In describing the very human causes of corporate failure, Finkelstein cites universal weaknesses to which all people can succumb at times, including defensiveness, resistance to criticism, and avoidance or denial of difficult truths.

How do you know if your company is in danger? Working with the identified areas of business breakdowns and causes of executive failure, Finkelstein has created a series of diagnostics, including the following:

Diagnostic on New Business Breakdowns
Here are a few questions to ask yourself as a "gut check." Answer yes or no. Hold yourself to high standards. Use these questions in your next team meeting.
1. Do we have so much money and support that we don't have an incentive to be careful about how it is spent?
2. Have we identified natural points of reassessment during the course of development?
3. Have customer's requirements changed over the course of idea conception, planning and development?
4. Are there technological advancements in other fields that would reduce the success of our product?
5. Are our partners working with us on all fronts? Or do they have competing interests?

Diagnostic on Executive Mindset Failures
Are any of these statements an accurate depiction of how your company looks at its world? If so, the risk of executive mindset failure is high.
1. We have always used the same approach—it has worked in the past, it will work again.
2. We are too committed to our current plan to change direction now.
3. We have our customers figured out. We've known what they wanted for years.
4. There is one dominant advocate of the current strategy; the rest of the company is along for the ride.
5. We run our overseas business just the same as we run our US business. If it ain't broke, don't fix it.

Using these types of diagnostics, the “worst practices” model, and other innovative approaches, Finkelstein teaches both MBA students and experienced business leaders how to improve their business strategies and generate new ideas. He is faculty director of the Tuck Executive Program (TEP), a comprehensive, senior-level executive management program that consists of three consecutive one-week modules taught by leading experts. The program enrolls senior-level executives whose careers have been marked by significant achievement and who demonstrate considerable potential for assuming greater policy-level responsibility.

The TEP curriculum uses a design that is different from that used in MBA education. “In MBA education, there is more of a focus on providing students with an exceptional tool kit of business skills,” explains Finkelstein. “TEP participants already have this tool kit, and they use it every day. What we provide to TEP participants are new ideas–innovative strategies, creative approaches, global perspectives–and the reality is that such ideas put into practice can be worth millions of dollars.” Part of the draw of the TEP classroom is that it brings together business leaders from all over the world. A cohesive community forms among participants every year, and the dynamic exchange of ideas and diverse perspectives among participants is an integral part of the learning process. “Participation in TEP is a life-changing experience,” says Finkelstein. “It provides a rare opportunity for executives to remove themselves from the office environment for three weeks to be exposed to cutting-edge ideas that leading experts are working on in real-time, to think critically about their strategies, to recharge their batteries, and to put it all together to achieve positive outcomes for the future of their businesses and their roles as leaders.”

The Tuck Executive Program will be offered from July 27-August 15, 2003. To learn more about this or any Tuck Executive Education program, please contact our external relations team members at +1-603-646-2839 or tuck.exec.ed@dartmouth.edu, or visit our website at www.tuck.dartmouth.edu/exec.

To learn more about Sydney Finkelstein and Why Smart Executives Fail, please visit www.whysmartexecutivesfail.com. Articles about Why Smart Executives Fail will also appear in upcoming issues of BusinessWeek and Fast Company.