Smart people, stupid choices: in Chief Executive's quarter century of existence, we've seen CEOs make big mistakes. A few learn from them - Chief Catastrophes - corporate management - Statistical Data Included

Chief Executive, The, August-Sept, 2002 by Catherine Fredman

When we canceled Olympic, we could have gotten rid of them, too. Instead, we concluded that our engineers were as brilliant as we originally thought; they just hadn't known what our customers wanted. We encouraged them to spend time with sales representatives. We involved them in product planning and the decision-making process. Some resisted. But others thrived.

And so did the company. In less than a year after we canceled Olympic, we announced the broadest and most robust product line yet. Our business soared from $260 million in 1989 to $2.1 billion three years later.

ALEX BERNHARDT, chairman and CEO, Bernhardt Furniture Co.

When I became president of Bernhardt Furniture in the late l970s, it was a slow, steady performer within its industry, which at that time consisted of a number of privately owned, mostly family enterprises, with many, like us, headquartered in western North Carolina.

Our price points were scattered from moderate to top-of-the-line. Then we decided to offer broader price points under the Bernhardt brand. It was the first time I heard the siren song of "cheaper, cheaper, cheaper," and I had yet to learn that cheaper is not better. We built a huge manufacturing facility with state-of-the-art equipment to make the least-expensive dining room furniture we could design. Within one year, we realized the plant might not have been such a great idea. About the time we were ready to deliver our new products to the marketplace, we noticed a trickle--soon a flood--of imports from Taiwan and the Philippines that were using real wood for the same look that we were trying to achieve through wood-like plastics. I'd never heard of these companies and I was blindsided by their skill and value. They were basically copying our designs for expensive wood inlay but using their labor and materials to beat us on price.

My response was to cut price in pursuit of volume. We had to fill the factory at all costs, which we did. It was costly indeed, and resulted in our first year of red ink since the Great Depression. But then I came to the belief that: "If you can't lick 'em, join 'em." I began searching for strategic alliances. We quickly learned that the Asian producers could be part of the solution instead of the problem. Not only were these partners able to produce materials more cheaply, they were also able to give us new designs--woven rattans, leather wrapping and hand painting.

As our partnerships grew and we shifted from the geographic constraints of North Carolina to global thinking, we shifted from a manufacturing to a marketing mentality. We realized it was time to reinvent ourselves as a designer, marketer and supplier of quality furniture.

In the course of a decade we doubled the company's size. Had I not made the mistake of listening to the "cheaper, cheaper, cheaper" siren song I might never have had the insight or the guts to reinvent the company as we did.

WILLIAM VAN FAASEN, CEO, Blue Cross/Blue Shield of Massachusetts

Blue Cross/Blue Shield of Massachusetts had been hugely successful for years. Then managed care came along. By the late 1980s, the company had lost significant market share and had to underprice its products to keep them viable. It was not only losing membership, but draining its balance sheet. Furthermore, the company was engaged in a number of peripheral activities--owning and operating health centers, processing Medicare claims for the federal government, funding biotechnology ventures--whose losses had been hidden by the dominant market position.