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April 5, 2012

Experts' Expert: "Three simple rules to ensure humiliating failure"

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From Schumpeter in the March 31, 2012 issue of The Economist:

There are three principles that have proven particularly effective over the years.

First: Slaughter a sacred cow.

The most spectacular slaughter, of course, was Coca-Cola's decision to kill off the drink that gave it life.

Coca-Cola quickly discovered that it was merely the custodian of the brand, rather than its owner. Angry Coke-drinkers accused the company of doing the equivalent of redesigning the American flag or blasting Teddy Roosevelt off Mount Rushmore. One group complained that the company was violating their freedom of choice. Less than three months after their foolish decision, Coke's bosses grovelled to customers and reintroduced classic Coke.

Second: Mix oil and water.

Theatrical impresarios are the masters of this — over the years they have tried, unwisely, to turn Hamlet, Lolita and Ernest Hemingway's drunken last days into musicals. ABC once added song and dance to an otherwise formulaic cop drama, "Cop Rock." Other industries have made similar mistakes, albeit less noisily. McDonald’s spent $100m launching a burger for upmarket customers, the Arch Deluxe. The snag was: who goes to McDonald's for upmarket food? Ford once produced a pickup truck for the luxury market. Same problem. Bengay tried to stretch its heat-rub brand into the aspirin market. Ouch. Colgate made TV dinners; you could eat one and then brush your teeth with Colgate toothpaste. Few found this appetizing.

Third: Produce a genuinely awful product.

The Ford Pinto had a nasty habit of catching fire if it was rear-ended (the petrol tank was behind the rear axle). Microsoft's Vista operating system appeared to be incompatible with every other programme. Worst of all was the former Yugoslavia's Yugo car. It enjoyed such a successful launch that hundreds bought it sight unseen. The trouble began when they tried to drive it. Consumer Reports slammed it: the bonnet (hood to Americans) came loose, the rear window-washer quit, the ignition switch broke and the brakes squealed, the review complained. Motor Trend reported that it even broke down during a road test. "What comes with every Yugo’s owner's manual?" went one of the thousands of jokes inspired by the car. Answer: "a bus schedule."

Still, the surest way to guarantee failure in the long term is to be so paralyzed by the fear of it that you don't try anything new. The line that separates a hit from a flop is thin. Companies sometimes have to slaughter sacred cows to escape obsolescence: IBM only recovered from its death spiral when it abandoned its focus on building hardware. Some of the most successful products are the result of mixing oil and water — most obviously, phones with computers and entertainment systems.

[Illustration up top by Brett Ryder]

April 5, 2012 at 12:01 PM | Permalink


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"The Ford Pinto had a nasty habit of catching fire if it was rear-ended (the petrol tank was behind the rear axle)."

A $1.00 (U.S.) sheet of plastic was installed between the differential and the gas tank in Pintos sold in Canada. Canada had regulations establishing damage limits for rear-impact auto accidents at or below 10 mph. The Ford company's internal documents showed that Ford had calculated the likely number of fatal accidents within the U.S. during the model life of the Pinto, the damages likely to be awarded in wrongful death lawsuits and the cost of placing the plastic deflector on every Pinto sold in the U.S. as against the profits from projected sales. The calculus: more profit to Ford by leaving off the $1.00 plastic deflector.

Only the diligent pursuit of Ford by products liability counsel brought this callous calculus to light. Since the Pinto case we've had several Supreme Court decisions that preclude potential plaintiffs from discovering internal documents or seeking damages commensurate with the injuries.

Posted by: 6.02*10^23 | Apr 5, 2012 4:10:17 PM

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