Why Smart Executives Fail: Four Case
Histories of How People Learn the
Wrong Lessons from History
Sydney Finkelstein
In a series of inductive case histories of leadership and strategy, we document the problem
of how executives often learn the wrong lessons from history. The costs associated with
such misdirected learning are significant, and often tally in the hundreds of millions to
billions in losses. These mistakes are seldom due to managerial incompetence or random
events, but rather are driven by common patterns of managerial behaviour. The case
histories of two American and two Japanese companies highlight how and why
apparently talented managers often learn the wrong lessons from history.
Keywords: Leadership; Failure; Strategy; Learning
Introduction
Senior executives create ‘playbooks’ to guide managerial action, and sometimes as
much as the world changes they stubbornly hold on to those behavioural repertoires
they have relied on in the past. Rather than respond to their challenges and mistakes,
rather than actively learning from the problems of their competitors, they continue
unimpeded in their quest for certainty, stability, and conformity.
The historian Barbara Tuchman, the author of The March of Folly, coined a perfect
term to describe the behaviour of many executives who fail to learn, and learn the
right lessons, from history: ‘wooden-headedness’, which refers to the practice of
relying on ‘preconceived fixed notions while ignoring or rejecting any contrary signs’.
Just as Tuchman describes such examples of wooden-headedness as the refusal of the
French in 1914 to alter preparations for an invasion of Germany through the Rhine in
spite of evidence that this plan left the French particularly vulnerable to an
impending German march through Belgium and the lightly guarded French coastal
Sydney Finkelstein is Professor of Strategy and Leadership at the Tuck School of Business, Dartmouth College,
USA.
Business History, Vol. 48, No. 2, April 2006, 153–170
ISSN 0007-6791 print/1743-7938 online
! 2006 Taylor & Francis
DOI: 10.1080/00076790600576727

provinces,1 we wonder why historically innovative companies refuse to introduce
second generation products in spite of pleas from customers for precisely such
products.
In this article we explore the consequences of ‘wooden-headedness’ in four major
companies. These four companies are very different – Motorola, Sony, Wang Labs,
and Snow Brands, with two headquartered in the United States and two of Japanese
origin. And one of the four – Wang Labs – no longer exists as an independent
company. But as the profiles of these companies make clear, each was constrained by
history and key leaders of each took lessons from that history that were wrong. Our
purpose in discussing the four case histories is to highlight the interplay of history,
leadership, and learning, and how remarkably talented and successful leaders so often
learn precisely the wrong lessons from history.
Motorola: Mistakes in Innovation
Motorola was founded in 1928, and has had a long tradition of technological
innovation, including battery eliminators, the first hand-held two-way radio (the
‘Walkie-Talkie’ of World War II), the first television to sell for under $200 (in 1948),
and the world’s first pager. By the 1970s Motorola had developed its own brand of
microprocessor (becoming the primary supplier to Apple), and was solidifying its
reputation as a world leader in technology. Then came cell phones.
Developed in Bell Labs in the 1970s, Motorola’s first cellular system began
commercial operation in 1983. By the mid-1980s, Motorola’s success in cellular
telephony prompted an aggressive price-cutting reaction by Japanese manufacturers.
In 1986, however, the US Commerce Department shielded Motorola by declaring
eight Japanese competitors guilty of dumping charges, providing Motorola with an
additional competitive edge. Motorola thus became the world’s top cell phone
supplier.
Initial mobile phone users were hardly price-sensitive; cellular phones were
expensive, brick-like analogue devices that appealed to business people and
professionals whose lives depended on the ability to make and receive calls when a
phone line was not at hand. In the mid-1980s, cellular phones were practically
unknown; by 1996, some 85 million were in use worldwide. There was little doubt
that Motorola was well positioned in this business. As the then CEO Robert Galvin
Sr. said, ‘we were the unbridled leader in analog devices around the world’.2 From
1992 to 1995, Motorola seemed to prove that even a huge company, if managed
correctly, could rack up impressive growth, as revenues grew an average of 27 per
cent to $27 billion in 1995, while net income surged 58 per cent a year to $1.8 billion.
In 1994, as Motorola claimed 60 per cent of the US mobile market, an alternative
technology to the incumbent analogue cellular began catching the eye of wireless
carriers. The new technology was digital mobile telephony, first available through the
so-called PCS (Personal Communications System). Analogue technology transmitted
calls via sound waves. Signals were subject to interference, calls were frequently
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