In a corporate world full of scandals and corruption, it would be good to think that good intentions always lead to success. Unfortunately, this is not the case. In the corporate jungle, the road to hell is sometimes paved with goodwill. Some memorable and seemingly reasonable efforts led to some amazing failures.
- In a competitive business climate, companies make as many wrong decisions as good ones that are counterproductive.
- From General Motors to Bank of America, mistakes from over-diversification to cover-up of scandals have caused many companies to suffer because of their mistakes.
- These examples of well-intentioned mistakes in history are a warning to companies today.
Westinghouse Electric: Strive to be everything
The pursuit of growth often encourages companies to surpass their core competitiveness. However, sometimes, leaving the core business can be a mistake. Westinghouse Electric Company, founded in 1886, found this with difficulty. The company used to be a global force in its industry, hiring celebrities such as Nikola Tesla, and was responsible for achieving breakthroughs, including completely changing the use of AC power generation and building the first nuclear power plant in the United States.
On the basis of its success, the company is involved in different businesses. Many of its acquisitions include Seven-Up Bottling Co., Longines-Wittnauer Watch Co. (which also sells mail-order records), broadcasting and cable television businesses, financial services businesses, office furniture manufacturers, and residential real estate. The result is a behemoth, know-it-all company, but no master. The company collapsed under the weight of its multiple industries, and to this day, its nuclear department is still the only survivor.
Intel Corporation (INTC) was founded in 1968 and has become the world’s largest semiconductor chip manufacturer. In 1994, the discovery of errors in its FDIV chip and the ensuing media criticism brought a lot of negative publicity to the company. As a result, the company launched a very successful advertising campaign that made the company’s name synonymous with its semiconductor chips “built-in” in a large number of computers. To consolidate its success, the company vigorously expands other businesses, from chips for flat-panel TV processors and portable media players to chips for wireless technology.
Although the company has a well-known brand, these efforts have not reached the expected level of success, and the company’s stock price has remained relatively stable for more than a decade. Although the company’s core business continued to operate successfully, the diversification efforts did not proceed as planned.
Krispy Kreme: Active expansion
Krispy Kreme doughnuts began in 1937, when a French chef started making slimy pastries and selling them to grocery stores. The company developed slowly and became the most popular company in the Southeast. When the founder of Krispy Kreme died in 1973, the company was sold to Beatrice Foods, and the company’s growth stalled. In 1982, a group of franchisees acquired Krispy Kreme, laying the foundation for rapid expansion in the 1990s.
Encouraged by diners who love pastries, the company has developed rapidly not only across the country but also globally, opening franchise stores all over the world. The company went public in April 2000, and by August 2003 its stock price soared to nearly $50. However, in 2005, the company lost $198 million. Pressure to maintain profitability has led to accounting scandals. Store closures have become commonplace, stock prices have plummeted, and market value has shrunk by nearly 90%. Fortunately for its fans, the company continues to operate as part of a private JAB holding company.
Bank of America: Acquisition growth
Bank of America (BAC) built an empire with one acquisition. This North Carolina-based bank has successively acquired other banks, continuously expanding its scale and expanding its influence, until it becomes the dominant force in the industry. Unlike Westinghouse Electric, the buying boom is still concentrated in the financial services industry. Unfortunately, not all acquisitions went well.
The decision to acquire the high-end investment company US Trust resulted in a poor cultural fit because the populist retail bank tried to absorb the white shoe private bank. However, after the shotgun wedding with industry giant Merrill Lynch, this move was quickly forgotten. The cultural conflict after the acquisition led to a series of high-profile departures of senior executives, but even this was not enough to stop the bank from moving forward.
In the end, the purchase scandal-ridden Countrywide Mortgage caused the bank to inherit a mess, causing its stock price to fall sharply. The disaster began with Countrywide’s lending behavior. The company provides high-interest subprime loans to consumers with credit quality problems. These loans are then bundled together and sold to investors as high-quality mortgage-backed securities. When house prices fell and homeowners’ default rates rose, Bank of America was forced to pay $8.5 billion in legal settlement fees, and it also triggered a major foreclosure scandal. Years after the acquisition, Bank of America continued to struggle with issues related to Countrywide.
Borders Books: Keep trying and being true
Perhaps witnessing the dilemma the company faces when trying to implement major changes, Borders Books bases its expansion efforts on a physical sales strategy. In the 1990s, Borders filled its bookstore with calendars, music, DVDs and other merchandise to supplement its traditional book supply. Its competitors take the online route, using the Internet to provide convenient shopping and large inventory. When the 40-year-old company went bankrupt in 2011, its failure to develop and keep up with online distribution caused more than 300 stores to close and approximately 11,000 employees to lose their jobs.
Commodore International: Innovation with new products
Commodore International was an industry force when it launched the now-famous Commodore 64 computer. A technology-hungry consumer market snapped up 64, and it was in a leading position from 1983 to 1986. Although the initial effort was a great success, the attempt to create a new and improved version failed.
The Coca-Cola Company (KO) faced similar challenges when trying to “improve” the proven Coke® formulation. Faced with shrinking sales, the company completely abandoned the formula of its flagship product and launched a new Coke in April 1985. New Coke was a fiasco, hated by purists and criticized by the media. “Classic Coke” was back on the shelves less than three months after retiring.
General Manager: Stick to the end
The name General Motors (GM) was once synonymous with the automotive industry. Detroit’s Big Dog brings together iconic brands such as Cadillac, Chevrolet, Buick, and GMC. General Motors topped the list in 1963, with a 50% market share. Over the next two decades, the giant stood still, while foreign competitors established efficient factories to produce high-quality cars at competitive prices.
By the early 1980s, GM’s reputation had been damaged and its market share had been reduced by half as the company fell victim to high-quality cars imported from Japan. Since then, the company has caught up with its competitors in terms of quality, but the transformation process has continued for decades.
Johnson & Johnson: Avoid negative publicity
In 1886, the Johnson brothers established a company and soon invented the world’s first commercial first aid kit. The company expanded its influence from there, launching consumer logos such as Johnson’s® baby powder, BAND-AID® brand adhesive bandages and the painkiller Motrin®. In 2008, the company discovered that Motrin could not dissolve properly when swallowed. Instead of issuing a recall and incurring related negative publicity, the company sent secret shoppers out to buy products on store shelves, which led to a lawsuit in Oregon in 2011. Although its goal is glorious, its implementation method has led to negative publicity when the media and the public learned of the invisible recall.
What lessons can other companies learn from the plight of their predecessors? The biggest lesson may be that business has no guarantees. Persevering in your attempts and real practice does not always work, and innovation does not always lead to success. The unpredictable market and the unpredictable fate are two reasons why stock analysis is so difficult. Before you put your money at risk, there is no easy way to distinguish winners from losers-this is a painful lesson that many investors have learned the hard way.