This refers to relying on 'preconceived fixed notions while ignoring or rejecting any contrary signs'. Unfortunately business leaders can also display wooden-headedness, leading in their case to significant damage to their business and even complete bankruptcy. They should be open-minded; this will enable them to learn the right lessons from history.
Four case studies show how things can go wrong when business chiefs draw the wrong lessons from their own history. Why did the clever people at Motorola fail to see the importance of turning to digital technology in the mid-90s? Their failure to do so left the space wide open to competitors Nokia and Ericsson and led to their own share of the domestic mobile market dropping from 60% to 34% in four years.
It was not for want of evidence. American wireless carriers wanted to work with a US company and pleaded with Motorola to switch from analogue. This was the response: "They told us we didn’t know what we were talking about." There were several possible reasons including the fact that the cell-phone division was responsible for its own budgets and investment (as were all divisions) and the heads may have baulked at the idea of investing so much money in a switch to digital (something that in the short term might have hit their own reward schemes).
But to the history lesson: Motorola remembered the painful experience of having adopted a new technology early that went wrong. This was the decision to manufacture and supply Apple with microchips. Not a good decision as the PC business took off without Apple. They were reluctant later, therefore, to choose one digital technology over another at such an early stage. Better to wait, they thought, to see what their competitors went with. The result was their competitors soaked up their market share.
Sony’s $3.2bn mistake (the cost of writing off their doomed acquisition of Columbia Pictures) was to think that ownership of a film studio would enable them to control the kind of video hardware the market would want. They were wrong and the film studio was a flop. They had wrongly assumed that the reason they had lost out in the Betamax/VHS battle of old was because their competitors were better at controlling the pipeline to the consumer.
Wang’s founder and chief executive liked to control things and he may never have recovered from what he perceived to be a bad deal with IBM, in which he had lost control over exclusive rights to their word-processor business. He kept a tight control, therefore, and stubbornly refused to switch to the PC business, and would not dilute his own holding in the company (leading to $1 billion of debt and eventual bankruptcy).
Finally, a well-known milk and dairy producer in Japan, Snow Brands, failed to remember the time when some of its milk produce had become contaminated in the 50s. Later when market pressures led to a growing problem in production standards, the managers refused to admit they had a major problem. The outbreak of poisoned produce got out of control and the company went down.
The lesson in all this: stay open-minded not woodenheaded when drawing lessons from your own history.
Why smart executives fail: four case histories of how people learn the wrong lessons from history
Sydney Finkelstein, professor of strategy and leadership, Tuck School of Business
Business History, Vol 48, No 2, April 2006, pages 153-170
Review by Morice Mendoza