What Can We Learn From Business Failures?

Guy Raz talks to Chunka Mui, who co-wrote Billion Dollar Lessons: What You Can Learn from the Most Inexcusable Business Failures of the Last 25 Years, about the successes and failures of companies that present to the public a product that changes from what people are used to. Netflix has withdrawn a plan to mail DVDs to people under a new name. Coke tried to market New Coke. What will the public accept? What won't they? And how do you know it's time to reverse course?

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GUY RAZ, HOST:

Now, the death of Qwikster may turn out to be a smart strategic move by Netflix. Remember new Coke? Netflix may have drawn lessons from previous corporate missteps or maybe executives read Chunka Mui's book. It's called "Billion-Dollar Lessons: What You Can Learn from the Most Inexcusable Business Failures of the Past 25 Years." And Chunka joins us from the studios of WBEZ in Chicago. Welcome.

CHUNKA MUI: Thank you. Thank you.

RAZ: Give us a rundown of the worst of the worst in terms of bad corporate decision-making.

MUI: Well, corporations really misstep when they run into disruptive times, when they're looking at changes in their business model and particularly some technology that really disrupts it.

The one that stands out most in my mind is the decline and near death of Kodak. This is a company that literally invented digital technology. They had it in their labs and they sat on it for 25 years or more because the technology didn't match their business model. They made 60, 70 percent margins on their film and chemical business and they knew they couldn't replicate that with digital cameras because there is no digital film, so they just sat on it.

RAZ: Well, where would you rate the Netflix/Qwikster debacle? Should we call it a debacle?

MUI: We call it a near debacle, because I think they actually made the right step in this latest change. One of the things that companies tend to do is they tend to vary between complacency and panic when they're dealing with disruptive changes to their business models.

Kodak was complacent for a very long time and Netflix panicked. And I think the quick separation of their streaming and DVD business represented a panic. By making the announcement they did a little while ago about separating those businesses, they were forcing their customers to make a lot of sacrifices in order to move with them and customers said: No, we're not going to do that. Why would we go to two websites to manage our streaming video versus our DVD videos? And this step, which basically said, wait a second. Let's step back a little bit and make it easier on the customer, was actually the right thing to do.

RAZ: I'm wondering, though. I mean, in a sense, can you hardly blame Netflix? I mean, isn't there a point where a company has to take risks to stay relevant and sometimes even ignore the backlash or the popular sentiment?

MUI: Well, I think that's absolutely right. In this case, though, it was the wrong step, because what they essentially did was they asked the customer to make a tremendous sacrifice and they actually gave up a lot of assets they have.

You know, consider when I'm sitting with my seven year old and thinking about what video to watch, I'm not really thinking about, is it on DVD or is it on streaming? I'm thinking about what video to watch. So I go to Netflix and I say, is it available on DVD and I can get it tomorrow or is it available on streaming and I can get it today? When do I want to watch it?

The ability to sort of move back and forth between those two different versions of essentially the same product is very valuable to me as a customer. Now, when Netflix says to me, look, sometimes you watch DVD. You'll have to go to Qwikster. Sometimes, you're watching streaming. You'll have to go to Netflix. Well, that's the unnecessary complication to put on the customer.

RAZ: Are there examples that you can think of where a company did make a Netflix-like decision and actually survived it?

MUI: Well, I think a great recent example is Motorola when their cell phone business side, they had a dramatically popular phone, the Razr.

RAZ: Oh, yeah. I had one of those.

MUI: Yeah. Many of us did. And the Razr was really designed for making phone calls. It wasn't a smartphone. So, when Razr went in decline and then this new CEO came in, he essentially looked at a whole suite of different Razr-like phones and said, look, this is not where the world is going. I'm going to cancel all these projects and bet the ranch on a smartphone, an Android smartphone, at a time before it was really proven that you could build a great phone with Android. And so, he bet the ranch on that and saved Motorola because of that.

RAZ: That's Chunka Mui. He helps corporations design innovation strategies. His book is called "Billion-Dollar Lessons: What You Can Learn from the Most Inexcusable Business Failures of the Past 25 Years." Chunka, thanks.

MUI: Thank you very much.

(SOUNDBITE OF MUSIC)

RAZ: You're listening to ALL THINGS CONSIDERED from NPR News.

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