Value Destruction

Mark Zuckerberg at Facebook, now Meta, and Elon Musk at Twitter are in the process of destroying the value created by their formerly immensely successful enterprises.  A recent Economist (November 3rd) outlines their misadventures, arguing that their conglomerative aspirations have set the stage for overreach.  Zuckerberg is trying to move beyond the original vision, while Musk seems to think he can reengineer the vision.

Value destruction is not a new game.  Kodak, Polaroid, Digital, Xerox, Motorola, and Nokia provide a wealth of examples of how to undermine successful platforms as chronicled in my book Failure Management (Oxford, 2021).  They tried to milk their original value propositions too long.  In many cases, they had invented the technologies needed for a new value proposition, but they did not want to cannibalize existing sales.  Their competitors did not hesitate.

Allan Sloan in the Washington Post (November 23, 2021) reports on “IBM, Toshiba, Johnson & Johnson and General Electric having announced plans to unwind, hoping their separate pieces would be worth more than an undivided company. But there is no way to tell if such breakups will turn out well for shareholders.”  GE has to be the gold standard for conglomerate failures.

“Under the 20-year regime of the late Jack Welch, GE grew chaotically, becoming a giant industrial company, a giant financial company and a pretty big media company. Welch preached the virtues of centralized control and centralized finance — the opposite of today’s breakup approach.  GE was the most highly-valued company in America for a good part of the 1990s, and people flocked to study its financial and management techniques.  Welch was regarded as a genius for assembling a huge group of unrelated businesses and hitting his earnings targets almost every quarter. Fortune magazine named him manager of the century in 1999.”

The Economist (August 1, 2020) highlights a book by two Wall Street Journalreporters, Thomas Gryta and Ted Mann, Lights Out (Mariner, 2021).  “They seek to find out what went awry. It twists and turns through almost 40 years of GE’s modern history in a way that is at times as bewildering as the conglomerate itself. But the thread that runs through consistently enough to prevent motion sickness comes from a phrase John Flannery used shortly before taking over from Jeff Immelt in 2017: “No more success theatre.” For decades GE managers had an over-exalted sense of their own abilities, which led to narcissism, hubris and the bending, if not breaking, of accounting rules to hit their profit targets. This eclipsed any strategic vision they may have had.”

I have found two particular phenomena that often underlie such outcomes.  First, companies often lose track of where they are.  Their strategic situation assessment is wrong.  Consequently, their strategies and plans are for a company and market that no longer exists.  I elaborate this phenomenon in Start Where You Are: Matching Your Strategy to Your Marketplace (Jossey-Bass, 1996).

The second and related phenomenon concerns 13 common delusions that undermine the validity of strategies and plans.  Companies often assume, sometimes unconsciously, that their path to past successes is a valid way forward.  This delusion is typically fostered by leaders who see themselves as stewards of the status quo.  I elaborate the set of delusions in Don’t Jump to Solutions: Thirteen Delusions That Undermine Strategic Thinking (Jossey-Bass, 1998).

Consequently, the average lifespan of companies in the Fortune 500 is steadily decreasing.  Joseph Schumpeter’s notion of creative destruction portends once-successful companies disappearing once their value proposition becomes obsolete.  They often invest enormous amounts of money trying to hold off the future.  Eventually, they disappear, having successfully destroyed the value they once created.

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