An article on the pricing model for content on the Kindle–frustratingly unavailable here in Europe–uses some backstory that illustrates how people outside a company sometimes view management:
In December of 1996, America Online, then a novelty company growing with abandon, switched from a metered model to an all-you-can-eat payment structure. Enthusiasm for the new system caught the company by surprise, jamming the firm’s servers, phone lines, and reputation, which led some to re-christen the company American on Hold.
The frustration and confusion led many observers to write AOL off. How could management be so incompetent? they thought. Investors sold their shares in disgust, causing the company’s stock to crash; by January of 1997, it had fallen to $4. Were you bold enough to buy at that moment, you could have sold out just three years later for $225.
“How could management be so incompetent?” That question is asked these days about Chrysler, AIG, Bank of America… you name it. The answer requires a familiarity with the decision processes at work inside large organizations.
If memory serves, AOL switched because other providers were eating its lunch. Companies such as Earthlink were providing a more streamlined connection to the internet, which was in turn providing for free more and better content than the lowbrow entertainment news on AOL. Its management was just trying to stem the loss of customers.
AOL management probably didn’t expect to get its customers back. It probably anticipated a gradual increase in customers, or at least a leveling off of losses. In my experience, management teams are not particularly skilled at systemic thinking, which might have been one scenario that would have been included in AOL’s planning. Sadly, AOL did not anticipate success.
It’s pretty much the same story in other places. The operating assumption is that most things will behave about the way they did in the past, and that change will be marginal and incremental (for a good take on why this occasionally fails to be true, Nassim Nicholas Taleb’s The Black Swan is an excellent read). The fine print–past performance is not an indicator of future events–instinctively goes unnoticed.
As Goethe observed, “…misunderstandings and neglect create more confusion in this world than trickery and malice. At any rate, the last two are certainly much less frequent.” Assuming coherent, intentional processes on the part of management teams is a fool’s game. Sometimes they’re just well-intentioned people with very narrow views and a handful of unintended consequences.