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The Worst Business Decisions of All Time
Wall Street 24X7 ^ | 10/16/2012 | Douglas A. McIntyre, Ashley C. Allen, Samuel Weigley and Michael B. Sauter

Posted on 10/17/2012 8:29:43 AM PDT by SeekAndFind

In the long history of poor management decisions made at major American companies, only a few proved to be fatal. It is hard to ruin a company with a single decision. That is especially true when the company has the advantages of huge market share, large and rising revenue, and a history of success. But not all bad decisions are created equal. 24/7 Wall St. set out to identify the worst business decisions of all time. These decisions cost these companies billions of dollars and, eventually, their independence.

Read: The Worst Business Decisions of All Time

Bad business decisions result in financial loss. The worst business decisions lose companies billions in revenue. Our editors relied on Fortune magazine’s annual list of the largest 500 companies ranked by revenue to identify the companies that were the biggest in America and, as a result, capable of losing the most money.

To make the initial cut, companies had to be on the Fortune 100 list for at least 10 consecutive years and then drop off the top 100 ranking for good. We then looked for the companies that made a single identifiable decision that cost them significant revenue and ultimately led to their decline. Based on this cut, 24/7 Wall St. identified the eight companies that suffered from the worst business decisions of all time.

Inclusion at the top of the Fortune 500 is hard to get, but, once won, it is also hard to lose. Nearly three-quarters of 2012’s 100 largest companies have been in the top 100 for at least a decade. This includes 23 that have been there for a quarter century, as well as 13 companies that have been on the list since it debuted in 1955. Even if a company falls out of the top 100, it usually remains a large company for a long time. Seventy companies from the original Fortune 100 are still somewhere on the Fortune 500 list.

Most bad business decisions are not fatal. General Motors Co. (NYSE: GM) has made several mistakes, none as harmful as the decision to continue to manufacture large vehicles when the market was trending toward smaller cars. These poor judgment calls led to GM’s bankruptcy in 2009, but with the help of a government bailout it remains in the Fortune 100 today. This is not the case with the companies on this list. The decisions made at these companies eventually ruined each of them.

The worst bad decisions fall into three categories. The managements of Lehman Brothers and Firestone were simply reckless. Leading up to the housing collapse, Lehman executives overleveraged the investment bank, far more than any other large financial institution. Firestone hastily tried to expand into production of a new kind of tire. Both companies ignored internal warnings that their decisions were highly risky.

In the case of Kodak and Motorola, management missed tectonic shifts in their industries until it was too late. Motorola held on to its old cellphone business too long, failing to leverage its Razr brand or couple it with a smartphone until the brand had lost its relevance. Kodak, which actually held a patent for digital cameras well before they were mass produced, eventually was left behind by other digital camera manufacturers like Fuji and Sony Corp. (NYSE: SNE) that moved quickly to establish market dominance.

Kmart, meanwhile, showed a general lack of foresight. The retailer failed to create modern supply chain management that could support an increase in customers, something it should have expected following its price war with Wal-Mart Stores Inc. (NYSE: WMT) and aggressive advertising.

To identify the worst business decisions of all time, 24/7 Wall St. reviewed all Fortune 500 companies since 1955 that have, at any point, been in the top 100 for at least 10 years, but were no longer among them in 2012. A company needed to have either filed for bankruptcy protection or been acquired. The declines in the company’s fortunes also had to have been traced to one identifiable bad decision. For each of these companies, 24/7 Wall St. reviewed revenue and sales data, obtained from Capital IQ, as well as stock price performance.

1. Motorola
> Years on Fortune 500: 56
> Peak Fortune 500 rank: 23 (1994)
> Peak revenue: $43.7 billion (2006)
> Current status: Split, Mobility unit sold

The success of the thin and stylish Razr cellphone drove Motorola’s 22% market share in mobile phones in 2006. However, the company failed to launch a new generation of smartphones leveraging the Razr brand, and by 2007 the company was selling the traditional cellphone at a discount. By the time the company released a new line of Razr phones in 2010, Motorola had to compete with products such as the iPhone and BlackBerry. While sales in 2006 were more than $43 billion, they were only $22 billion by 2010. Between October 2006 and March 2009, the company’s shares fell more than 90% from over $107 to less than $13. Motorola Mobility, now owned by Google Inc. (NASDAQ: GOOG), had 11.2% market share of mobile phones in Aug. 2012, according to comScore. Apple Inc.’s (NASDAQ: AAPL) iPhone, released in 2007, had a 17.1% market share.

Also Read: Great American Companies That Will Survive the Fiscal Cliff

2. Lehman Bros.
> Years on Fortune 500: 14
> Peak Fortune 500 rank: 37 (2008)
> Peak revenue: $59.0 billion (2007)
> Status: Went bankrupt

During the final few years of the housing bubble, Lehman Brothers increased the amount it borrowed to buy more mortgage-backed securities and real estate. By 2007, the company’s leverage ratio was at least 31-to-1, meaning it borrowed $31 for every $1 in equity. This brought Lehman Brothers huge profits in the boom era but became a serious problem once the housing bubble burst. The firm was unable to unload those assets onto the market once home and commercial real estate prices began falling, leading to unsustainable losses. While other investment banks, including Goldman Sachs Group Inc. (NYSE: GS) and Morgan Stanley (NYSE: MS), were heavily leveraged as well, they were able to survive by becoming bank holding companies eligible to receive the necessary emergency funds from the government to continue operations. Those aid programs however, became available too late for Lehman, which went bankrupt in 2008. A federal-bankruptcy-court-sponsored report later found that Lehman and its accounting firm partner, Ernst & Young, used misleading accounting tactics to conceal the extent of Lehman’s overleveraging, which the authors claimed was as high as 44-to-1. Both Lehman executives and Ernst & Young denied these claims. Between 1999 and 2007 Lehman’s revenue grew from less than $19 billion to more than $59 billion. During that time, the company’s rank on the Fortune 500 rose from 88th to 37th.

3. Firestone
> Years on Fortune 500: 34
> Peak Fortune 500 rank: 24 (1956)
> Peak revenue: $5.3 billion (1979)
> Current status: Bought out

Firestone began manufacturing radial tires in 1972 to lengthen the life of the products. The company used a new technique to get its tires to market ahead of competitors. That year, after Firestone’s tire was in production, company documents reported that the rubber came off the wire when the tire was in use. Despite these problems, the company continued to manufacture the tires throughout the 1970s to satisfy demand from customers like General Motors. But following pressure from the government and consumer advocacy groups that were concerned about the safety of the tires, the company recalled approximately 10 million tires in 1978. Initially, Firestone blamed tire failure on substandard maintenance by the consumer. However, an investigation by the National Highway and Traffic Administration in 1980 found that Firestone was actually aware of the defective products, citing to the 1972 documents.This lead to lawsuits and negative publicity that hurt earnings and sales. Although the stock bounced back from its low of $6.25 in April 1980, shares were still below their 1969 peak of $33.25 when Bridgestone successfully bid for the company in 1988.

4. Digital Equipment Corp.
> Years on Fortune 500: 25
> Peak Fortune 500 rank: 27 (1990, 1993)
> Peak revenue: $14.6 billion (1996)
> Current status: Bought out

The fortunes of Digital Equipment Corp., maker of commercial electronics known as minicomputers, began to decline in the 1990s. DEC was successful because its products were priced below mainframes, which were made primarily by International Business Machines Corp. (NYSE: IBM). DEC controlled the minicomputer market from the mid-1960s until the early 1990s but failed to enter the workstation and personal computer markets quickly. When DEC finally decided to get into PCs, it tried to use its own operating platform, VMS, without success. Meanwhile, companies such as Hewlett-Packard Co. (NYSE: HPQ) and Sun Microsystems were able to gain market share in workstations by using UNIX operating system, which allowed for many more software applications than VMS. Meanwhile, computers from Hewlett-Packard and IBM, which were based on the Intel Corp. (NASDAQ: INTC) blueprint and Microsoft Corp. (NASDAQ: MSFT) OS, began to dominate the PC market in the late 1980s. Between 1991 and 1996, DEC lost money every year except for one, including more than $2 billion in 1992 and 1994. After joining the Fortune 500 in 1974, the company peaked in 1993 at 27th. In just six years, it fell to 118th place before Compaq bought it out in 1998.

5. Kmart
> Years on Fortune 500: 11
> Peak Fortune 500 rank: 15 (1995)
> Peak revenue: $37.0 billion (2000)
> Current status: Merged

Kmart’s big mistake in the mid-to-late 1990s was to try to compete with Walmart on price. Walmart had a supply chain system known as “just-in-time” inventory, which allowed the retailer to restock shelves efficiently. Kmart failed to implement a similar system, which meant consumers became frustrated when stores ran out of goods. Between June 1998 and June 2000, Walmart’s stock price rose 82% as Kmart’s fell 63%. While new management at the turn of the decade worked to improve efficiency, the company filed for bankruptcy in 2002 and shut hundreds of stores. Kmart merged with Sears Roebuck in 2005.

Also Read: 10 Brands Losing the Most Value

6. American Motors
> Years on Fortune 500: 33
> Peak Fortune 500 rank: 38 (1961)
> Peak revenue: $4.2 billion (1984)
> Current status: Bought out

By the time car manufacturer American Motors was absorbed by Chrysler in 1987, the company had been on a decline for more than 20 years. American first began to report losses in the mid 1960s. At the time, it failed in its efforts to compete with General Motors and Ford Motor Co. (NYSE: F) by expanding into large cars that could generate better profits per vehicle. Despite the losses, it was able to stay afloat through the next decade after it bought the Jeep brand in 1970 from Kaiser. But a weak economy hurt Jeep sales and began to restrict the company’s cash flow in the late 1970s. Additionally, overseas automakers began to pose a major threat. Japanese auto companies, which began to heavily market small cars in America, manufactured them in Japan where auto worker wages were much lower than in the United States. All American car companies, including American Motors, had long-standing labor agreements in place that dictated relatively higher salaries in the 1980s. American Motors lost money in all but one of the years between 1980 and 1986.

7. RCA
> Years on Fortune 500: 28
> Peak Fortune 500 rank: 15 (1968)
> Peak revenue: $8.0 billion (1980, 1981)
> Current status: Bought out

Consumer electronics manufacturer RCA was highly regarded through most of its history as particularly innovative — the company was the first to sell electronic televisions to a wide market. Yet, from the mid 1960s and into the 1970s, the company began to diversify beyond the scope of its traditional business. Its expansion was so rapid and so far flung that the company has become unmanageable. It bought a motley collection of companies, including publisher Random House in 1965, car rental company Hertz in 1967 and frozen food maker Banquet in 1970. The company even tried to make a push into IBM’s territory with mainframe computers. While it diversified, the company scaled back research and development spending on its core product lines. When these acquisitions proved unsuccessful, RCA announced that it would return to focus on its traditional products, which mostly consisted of color televisions. By then, however, the company had to compete with Asian manufacturers that made cheaper consumer electronics goods. The company was eventually sold to General Electric Co. (NYSE: GE) in 1986.

8. Kodak
> Years on Fortune 500: 58
> Peak Fortune 500 rank: 18 (1989, 1990, 1992)
> Peak revenue: $20.6 billion (1992)
> Status: In bankruptcy

Eastman Kodak developed the digital camera in 1975 but did not invest in the technology for fear it would undercut sales of its film business — Kodak’s executives did not foresee the eventual decline of film. Only when film’s popularity began to wane in the mid-1990s in favor of digital photography did the company push into the digital market. But competitors such as Fuji and Sony entered the market faster and Kodak was never able to fully capitalize on the product it actually invented. By 2001, the company was in second-place to Sony in the digital camera market, but it lost $60 on every camera sold. By 2010, it ranked sixth in the digital camera space, which itself began to dwindle with the advent of smartphones and tablets. Eastman Kodak shares peaked in 1997 at more than $94 per share, proof that it often takes a number of years for poor decisions to destroy huge corporations. By 2011, the stock had dropped to 65 cents per share, and the company filed for bankruptcy in December of that year. Kodak, always one the Fortune 500 companies, might not even make the 2013 list.



TOPICS: Business/Economy; History; Society
KEYWORDS: business; decisions
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To: SoCal Pubbie

AMC started to rebound with the 1984 Jeep Cherokee and the 1986 YJ/Wrangler. The Grand Wagoneer, while niche, was a steady performer and was the forerunner of the 4-door Blazer (aka Tahoe) and Bronco (aka Expedition) lines.

The Eagle brand had hits and misses. The Talon (Mitsubishi Eclipse rebranded) was popular, the sedans not so much. The older AMC Concord and Eagle 4WD sedans and wagons were the predessors to crossover vehicles like the Subaru Outback and Volvo Cross Country amongst others. So in that regard AMC was really 15-20 years ahead of it’s time.


21 posted on 10/17/2012 9:16:17 AM PDT by tanknetter
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To: Snickering Hound

When I worked for AT&T in the 1990’s we had a company meeting on the front lawn where the plant manager talked about all of the different challenges we faced from other, mostly foreign, manufacturers. I brought up the point that Microsoft had just come up with a product that let you make calls without using the phone company and asked if they were doing anything to address this. He pooh-poohed it as a gimmick that would never go anywhere because they owned the phone lines the Internet ran on. That plant, which employed over 7000 people at the time, is now closed.


22 posted on 10/17/2012 9:17:51 AM PDT by Oshkalaboomboom
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To: Steely Tom
This factory manufactured a critical element used in every color CRT manufactured anywhere, and they were one of two or three dominant producers of this component world-wide.

Hmm. Electron gun? Shadow mask? Deflection coils? Degausser coil?

23 posted on 10/17/2012 9:21:21 AM PDT by Erasmus (Zwischen des Teufels und des tiefen, blauen Meers)
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To: Steely Tom

I worked for a company, and the owner was stealing his own money... ya gotta think about that for a minute, but he stole from himself..

needless to say he went out of business..


24 posted on 10/17/2012 9:21:50 AM PDT by joe fonebone (The clueless... they walk among us, and they vote...)
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To: Erasmus
Hmm. Electron gun? Shadow mask? Deflection coils? Degausser coil?

Shadow mask. Although they called it an "aperture mask."

25 posted on 10/17/2012 9:29:59 AM PDT by Steely Tom (If the Constitution can be a living document, I guess a corporation can be a person.)
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To: SeekAndFind
No one remembers the Sperry-Burroughs merger to become Unisys. Tagline, "The Power of ²". It should have read "The Power of √2" as two $3 billion companies merge to become one $1 billion company. The AT&T purchase of NCR for $4 billion wasnt much better.
26 posted on 10/17/2012 9:33:30 AM PDT by Dr. Sivana (There is no salvation in politics.)
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To: wolfman23601
English Longbow? Japanese real estate investments? Spanish Armada? Scribes after the invention of the printing press?

Psst... wanna buy stock in Dutch Tulip futures?
27 posted on 10/17/2012 9:36:10 AM PDT by Dr. Sivana (There is no salvation in politics.)
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To: Oshkalaboomboom
Don't forget the stupendous failure of Lucent.
28 posted on 10/17/2012 9:36:32 AM PDT by Roccus
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To: Steely Tom
Only problem was this: just as they got additional manufacturing capacity on-line, the entire CRT market collapsed due to the very rapid emergence of flat-panel display technology as a consumer product.

I was wondering if the collapse in number of hard drive manufacturers down to 2.4 or so (Seagate, WD, and boutique drives from Fujitsu and Toshiba) is a result of the anticipation of SSD dominance in the near future. Now that Petabyte SSD SANs exist, all that's left is for the price to tumble.
29 posted on 10/17/2012 9:39:14 AM PDT by Dr. Sivana (There is no salvation in politics.)
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To: rbg81

But Microsoft did or almost did run Netscape out of town.


30 posted on 10/17/2012 9:46:46 AM PDT by ▀udda▀udd (>> F U B O << "What the hell kind of country is this if I can only hate a man if he's white?")
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To: cuz_it_aint_their_money

The New Coke is often derided as a massive screw up, in fact, it was an incredible and resounding success.

At the time Coke was a stagnant product, the Pepsi Challenge was stomping it hard in TV ads and was the hip up and comer against Coke which was viewed as an ancient brand with no real loyalty.

The second they announced it the backlash was huge. The nightly newscasts picked it up, it was the front page of every newspaper in the country, feature stories in every magazine known to man. All in support of a product that was seemingly off the radar in most people’s mind.

The quick backtrack on the concept made people think about Coke and not take it for granted. Shortly after that Coke Classic stomped Pepsis growth trend cold like a German winter offensive in Russia.

Now when you look at where the two companies are its pointless to argue. Coke won and won big, or is winning big.

The New Coke in a military sense was a military feint followed by a knockout blow from the opposite flank.


31 posted on 10/17/2012 9:49:58 AM PDT by PittsburghAfterDark
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To: SeekAndFind

Western Union turned down the telephone.


32 posted on 10/17/2012 9:51:20 AM PDT by DManA
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To: Slump Tester

Remember the Atari democrats?

http://en.wikipedia.org/wiki/Atari_Democrat


33 posted on 10/17/2012 9:58:24 AM PDT by DManA
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To: SeekAndFind

Which screwed up the worst? Kodak or Poloroid? Poloroid actually developed a very early digital camera. Management didn’t see the potential (or threat).


34 posted on 10/17/2012 10:00:33 AM PDT by DManA
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To: TigerClaws

A behemoth company like IBM about-facing to dominate a new market, and such a monstrously huge market as personal computers, was a miracle. Its sheer unlikeliness trumps their accidental charity in giving Bill Gates his own mint.

Not that the continued success of Microsoft was made inevitable by its original foothold. That was something else altogether; they easily could have found themselves on the ash heap with countless other pan flashes.


35 posted on 10/17/2012 10:22:58 AM PDT by Tublecane
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To: wolfman23601

The Spanish Armada was not a business investment. It wasn’t even that bad a military investment; England git lucky with the weather.


36 posted on 10/17/2012 10:25:14 AM PDT by Tublecane
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To: SeekAndFind
RE: 4. Digital Equipment Corp.

DEC made good hardware, and in its day VMS was da bomb. There are still folks out there playing with implementations of OpenVMS. I was sorry to see DEC basically run into the ground when they couldn't keep up with what was happening in the workstation and minicomputer arenas.

They did eventually buy into Unix, but like HP at the time, they appeared to have more loyalty to their own OS, (VMS for DEC, and MPE for HP), and just couldn't keep up with how fast processors were getting on the low end which would make inroads into the higher-power and much higher margin workstations and minis. MPE-V was the first OS that I really became familiar with, and I still like some of the conventions they used that fell by the wayside i.e., jobs could be written almost as if you were sitting right at a terminal running them interactively. Even today some of this functionality is missing in Unix unless you're using Expect-based scripting tools. HP was basically killed by Carly Fiona for many reasons, among which, she didn't understand the benefit to HP of their scientific instruments products or some of the other things the company did that helped them maintain a competitive technological edge. > Years on Fortune 500: 25 > Peak Fortune 500 rank: 27 (1990, 1993) > Peak revenue: $14.6 billion (1996) > Current status: Bought out The fortunes of Digital Equipment Corp., maker of commercial electronics known as minicomputers, began to decline in the 1990s. DEC was successful because its products were priced below mainframes, which were made primarily by International Business Machines Corp. (NYSE: IBM). DEC controlled the minicomputer market from the mid-1960s until the early 1990s but failed to enter the workstation and personal computer markets quickly. When DEC finally decided to get into PCs, it tried to use its own operating platform, VMS, without success. Meanwhile, companies such as Hewlett-Packard Co. (NYSE: HPQ) and Sun Microsystems were able to gain market share in workstations by using UNIX operating system, which allowed for many more software applications than VMS. Meanwhile, computers from Hewlett-Packard and IBM, which were based on the Intel Corp. (NASDAQ: INTC) blueprint and Microsoft Corp. (NASDAQ: MSFT) OS, began to dominate the PC market in the late 1980s. Between 1991 and 1996, DEC lost money every year except for one, including more than $2 billion in 1992 and 1994. After joining the Fortune 500 in 1974, the company peaked in 1993 at 27th. In just six years, it fell to 118th place before Compaq bought it out in 1998.

37 posted on 10/17/2012 10:30:34 AM PDT by zeugma (Rid the world of those savages. - Dorothy Woods, widow of a Navy Seal, AMEN!)
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To: Steely Tom

Buckbee-Mears, right?


38 posted on 10/17/2012 10:31:23 AM PDT by quietly desperate (nm)
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To: rbg81

You can’t really blame companies for not seeing the future. Or you can, but it wouldn’t put them in the pantheon of bad decisions. This is a stupid article, but at least it only blames them for opting out of the obvious. Although, by the time some of these things became obvious maybe it was too late. You can’t turn the Titanic on a dime.

Anyway, had Microsoft jumped into the search engine game earlier maybe it would’ve ended up as Yahoo. We tend to forget that vision isn’t everything. Bill Gates and Steve Jobs were not the only nerds in the 70s to anticipate the PC revolution. Several others made fortunes off it. It’s just that for whatever reason their bets paid off more. We don’t like to admit how much of it is luck, in addition to a billion other factors.


39 posted on 10/17/2012 10:34:06 AM PDT by Tublecane
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To: zeugma

Not many people know this, but Most of Windows NT’s lead developers, including VMS’s chief architect, Dave Cutler, came from Digital, and their background heavily influenced Windows NT’s development.

It is popularly believed that Dave Cutler intended the initialism “WNT” as a pun on VMS, incrementing each letter by one.


40 posted on 10/17/2012 10:36:01 AM PDT by SeekAndFind
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