Adapted from Finkelstein, S. and Sanford, S. H. 2000. "Learning from Corporate Mistakes: The Rise andFall of Iridium." Organizational Dynamics, 29 (2):138-148

Sydney Finkelstein is the Steven Roth Professor of Management at the Tuck School of Business atDartmouth. For more information about the book or to contact Sydney please seehttp://www.whysmartexecutivesfail.com.

LEARNING FROM CORPORATEMISTAKES:

THE RISE AND FALL OF IRIDIUM

Sydney FinkelsteinShade H. Sanford

EXECUTIVE SUMMARY

In mid-1998, Iridium was one of thedarlings of Wall Street having more thantripled in stock price in less than a year.Armed with expertise and over 1,000patents, the company seemed poised tocapture first-mover advantage inproviding global telephony via anetwork of low-Earth-orbiting satellites.Additionally, Iridium appeared to haveidentified an attractive target segmentafter having screened over 200,000people, interviewed 23,000 people from42 countries, and surveyed over 3,000corporations. Finally, analysts cited thecompany’s experienced top managementteam as yet another reason Iridium’sfuture was bright.

One year later, however,Iridium’s future appeared increasinglybleak. In November 1998, 11 years afterengineers developed the concept forIridium, the company launched itsservice. By April 1999, however,Iridium had only 10,000 customers andits CEO, Edward Staiano, resigned underpressure. By August 1999 the subscriberbase had grown to only 20,000, puttingIridium in breach of its loan covenants.

During the same month, Iridium filed forChapter 11 bankruptcy, making it one ofthe 20 largest bankruptcies in U.S.history.

What went wrong? How didIridium shift from being a leading-edgetechnological marvel to a billion-dollarbusiness blunder? Why did such asuccessful, and innovative, company asMotorola seemingly stumble to such adegree? This article attempts to answerthese questions. The first part of thearticle describes the Iridium strategy andthe major problems that arose in both itsconception and implementation. Thesecond part of the article examines theunderlying forces – all common tostudents of strategy and organization –that make it possible to understand whya series of seemingly apparent blunderswere actually made.

THE IRIDIUM CONCEPT

“What it looks like now is amultibillion-dollar scienceproject. There are fundamentalproblems: The handset is big, theservice is expensive, and thecustomers haven’t really been

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identified.” – Chris Chaney,Analyst, A.G. Edwards, 1999

“Iridium is likely to be some ofthe most expensive space debrisever.” – William Kidd, Analyst,C. E. Unterberg, Towbin

Bary Bertiger, a Motorola engineer, firstenvisioned the idea for Iridium in 1985,after his wife complained she couldn’treach clients via her cell phone from theBahamas. After the vacation, Bary andtwo other engineers working atMotorola’s Satellite CommunicationsGroup in Arizona developed the conceptbehind Iridium – a constellation of 66low-Earth-orbiting (LEO) satellites thatwould allow subscribers to make phonecalls from any global location.

Although Bary Bertiger’ssuperiors at Motorola had rejected theIridium concept, it was no less thanRobert Galvin, Motorola’s chairman atthe time, who gave Bertiger approval togo ahead with the project. RobertGalvin, and later his successor and sonChristopher Galvin, viewed Iridium as apotential symbol of Motorola’stechnological prowess for all to theworld to see. To the engineers atMotorola, the challenge of launchingIridium’s constellation providedconsiderable motivation and theycontinued developing the project thatresulted in initial service in 1998 at atotal cost of over $5 billion.

Communications satellites, in usesince the 1960s, were typically geo-stationary satellites that orbited ataltitudes of more than 22,000 miles.Satellites at this altitude meant largephones and annoying quarter-secondvoice delays. Comsat’s Planet 1 phone,for example, weighed in at a computer-case-sized 4.5 pounds. Iridium’s

innovation was to use a largeconstellation of low-orbiting satellites(approximately 400-450 miles inaltitude). Because Iridium’s satelliteswere closer to earth, the phones could bemuch smaller and the voice delayimperceptible.

In 1991, Motorola establishedIridium Limited Liability Corporation(Iridium LLC) as a separate company.The partner with the largest equity sharewas Motorola. For its contribution of$400 million, Motorola originallyreceived an equity stake of 25 percent,and 6 of 28 seats on Iridium’s board.Additionally, Motorola made loanguarantees to Iridium of $750 million,with Iridium holding an option for anadditional $350 million loan.

For its part, Iridium agreed to$6.6 billion in contracts with Motorolathat included $3.4 billion for satellitedesign and launch, and $2.9 billion foroperations and maintenance. Iridiumalso exposed Motorola to developingsatellite technology that would providethe latter with significant expertise inbuilding satellite communicationssystems, as well as perhaps 1,000patents.

Additionally, toward the late1990s, some industry observers felt thatMotorola had additional incentive toensure Iridium succeeded – namely,protecting its reputation. Between 1994-1997, Motorola had suffered throughslowing sales growth, a decline in netincome, and declining margins.Moreover, the company had experiencedseveral previous business mishaps,including a failure to anticipate thecellular industry’s switch to digital cellphones, which played a major role inMotorola’s more than 50% share pricedecline in 1998.

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Top Management Team

In late 1998, Iridium had what analyststypically described as a very strong topmanagement team, headed up by CEODr. Edward Staiano. Prior to joiningIridium in 1996, Staiano had worked forMotorola for 23 years, during whichtime he developed a reputation for beinghard-nosed and unforgiving. During hisfinal 11 years with Motorola, Staiano ledthe company’s General Systems Sectorto record growth levels. In 1995, thedivision accounted for approximately40% of Motorola’s total sales of $27billion. In leaving Motorola’s payroll forIridium’s, Staiano gave up a $1.3 millionper year contract with Motorola for a$500,000 base salary plus 750,000Iridium stock options that vested over afive-year period.

Service Launch

“We’re a classic MBA casestudy in how not to introduce aproduct. First we created amarvelous technologicalachievement. Then we askedhow to make money on it.” –Iridium Interim CEO John A.Richardson, August 1999

On November 1, 1998, after launching a$180 million advertising campaign andan opening ceremony where VicePresident Al Gore made the first phonecall using Iridium, the companylaunched its satellite phone servicecharging $3,000 for a handset and $3-$8per minute for calls. The results weredevastating. By April 1999, thecompany had only 10,000 subscribers.Facing negligible revenues and a debtinterest of $40 million per month, thecompany came under tremendous

pressure. In April, two days beforeIridium was to announce quarterlyresults, CEO Staiano quit, citing adisagreement with the board overstrategy. John A. Richardson, anexperienced insider, immediatelyreplaced Staiano as Interim CEO.

In June 1999, Iridium fired 15percent of its staff, including severalmanagers who had been involved indesigning the company’s marketingstrategy. By August, Iridium’ssubscriber base had grown to only20,000 customers, significantly less thanthe 52,000 necessary to meet loancovenants. Two days after defaulting on$1.5 billion in loans, Iridium filed forChapter 11 bankruptcy on Friday,August 13, 1999, making it one of the 20largest bankruptcies in U.S. history.Stunned, company officials and analystsbegan looking for reasons behind thefailure.

Reasons for Iridium’s Collapse

Cellular build-out dramatically reducedthe target market’s need for Iridium’sservice. Iridium knew its phones wouldbe too large and too expensive tocompete with cellular service, forcingthe company to play in areas wherecellular was unavailable. With thisconstraint in mind, Iridium sought atarget market by focusing oninternational business executives whofrequently traveled to remote areaswhere cellular phone service wasn’tavailable. Although this market planpredated the rise of cell phones, Iridiumremained focused on the businesstraveler group through the launch of itsservice. As late as 1998, CEO Staianopredicted Iridium would have 500,000subscribers by the end of 1999.

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One of the main problems withIridium’s offering was that terrestrialcellular had spread faster than thecompany had originally expected. In theend, cellular was available. Due toIridium’s elaborate technology, theconcept-to-development time was 11years -- during this period, cellularnetworks spread to cover theoverwhelming majority of Europe andeven migrated to developing countriessuch as China and Brazil. In short,Iridium’s marketing plan targeted asegment – business travelers – whoseneeds were increasingly being met bycell phones that offered significantlybetter value than Iridium.

Iridium’s technologicallimitations and design stifled adoption.Because Iridium’s technology dependedon line-of-sight between the phoneantenna and the orbiting satellite,subscribers were unable to use the phoneinside moving cars, inside buildings, andin many urban areas. Moreover, even inopen fields users had to align the phonejust right in order to get a goodconnection. As a top industry consultantsaid to us in an interview, “you can’texpect a CEO traveling on business inBangkok to leave a building, walkoutside on a street corner, and pull out a$3,000 phone.” Additionally, Iridiumlacked adequate data capabilities, anincreasingly important feature forbusiness users. Making matters worsewere annoyances such as the fact thatbattery recharging in remote areasrequired special solar-poweredaccessories. These limitations made thephone a tough sell to Iridium’s targetmarket of high-level travelingbusinessmen.

The design of Iridium’s phonealso hampered adoption. In November1997, John Windolph, Iridium director

of marketing communications, describedthe handset in the following manner:“It’s huge! It will scare people. If wehad a campaign that featured ourproduct, we’d lose.” Yet a year laterIridium went forward with essentiallythe same product. The handset, althoughsmaller than competitor Comsat’s Planet1, was still literally the size of a brick.

Poor operational executionplagued Iridium. Manufacturingproblems also caused Iridium’s launch tostumble out of the gate. Managementlaunched the service before enoughphones were available from one of itstwo main suppliers, Kyocera, which wasexperiencing software problems at thetime. Ironically, this manufacturingbottleneck meant that Iridium couldn’teven get phones to the few subscribersthat actually wanted one. The decision tolaunch service in November 1998, inspite of the manufacturing problems,was made by CEO Staiano, although notwithout opposition. As one report put it,“(John Richardson) claimed to bevociferous in board meetings, arguingagainst the November launch. Neitherthe service, nor the service providers,were ready. Supply difficulties meantthat there were few phones available inthe market.”

Iridium’s partners did notprovide adequate sales and marketingsupport. Although at first Motorola haddifficulty attracting investors forIridium, by 1994 Iridium LLC hadpartnerships with 18 companiesincluding Sprint, Raytheon, LockheedMartin, and a variety of companies fromChina, the Middle East, Africa, India,and Russia. In exchange for investmentsof $3.7 billion, the partners receivedequity and seats on Iridium LLC’s boardof directors. In 1998, 27 of the 28

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directors on Iridium’s board were eitherIridium employees or directly appointedby Iridium’s partners.

Iridium’s partners wouldultimately control marketing, pricing,and distribution when the service cameon line. Iridium’s revenues came fromwholesale rates for its phone service.Unfortunately for Iridium, its partners,outside the U.S. in particular, delayedsetting up marketing teams anddistribution channels. “The gatewayswere very often huge telecoms,” saidStephane Chard, chief analyst atEuroconsult, a Paris-based research firm.“To them, Iridium was a tiny thing.” Sotiny, in fact, that Iridium’s partnersfailed to build sales teams, createmarketing plans, or set up distributionchannels for their individual countries.As the Wall Street Journal reported,“with less than six months to go beforethe launch of the service, time becamecritical…Most partners didn’t revealthey were behind schedule.”

Financial Impact of the Bankruptcy

At the time of the bankruptcy, equityinvestments in Iridium totaledapproximately $2 billion. Most analysts,however, considered the stock worthless.Iridium’s stock price, which had IPOedat $20 per share in June 1997, andreached an all time high of $72.19 inMay 1998, had plummeted to $3.06 pershare by the time Iridium declaredbankruptcy in August 1999. Moreover,the NASDAQ exchange reacted to thebankruptcy news by immediately haltingtrading of the stock, and actually delistedIridium in November 1999. Iridium’spartners -- who had also madeinvestments by building ground stations,assembling management teams, andmarketing Iridium services – were left

with little to show for their equity.Iridium’s bondholders didn’t fare muchbetter than its equity holders. AfterIridium declared bankruptcy, its $1.5billion in bonds were trading for around15 cents to the dollar as the companyentered restructuring talks with itscreditors.

WHAT REALLY WENT WRONG?

Iridium will go down in history as one ofthe most significant business failures ofthe 1990s. That its technology wasbreathtakingly elegant and innovative iswithout question. Indeed, Motorola andIridium leaders showed great vision indirecting the development and launch ofan incredibly complex constellation ofsatellites. Equally as amazing, however,was the manner in which these sameleaders led Iridium into bankruptcy bysupporting an untenable business plan.

Over the past several years,there have been perhaps thousands ofarticles written about Iridium’s failure toattract customers and its resultingbankruptcy. Conventional wisdom oftenargues that Iridium was simply caughtoff-guard by the spread of terrestrialcellular. By focusing almost strictly onwhat happened, such an analysisprovides little in the way of valuablelearning. A more interesting question iswhy Iridium’s failure happened –namely, why the company continued topress forward with an increasinglyflawed business plan.

Three Forces Combined to CreateIridium’s Failure

Three forces combined to createIridium’s business failure. First, an“escalating commitment,” particularlyamong Motorola executives who pushed

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the project forward in spite of knownand potentially fatal technology andmarket problems. Second, for personaland professional reasons Iridium’s CEOwas unwilling to cut losses and abandonthe project. And third, Iridium’s boardwas structured in a way that prevented itfrom performing its role of corporategovernance.

Problem 1: Escalatingcommitment. During the 11 years thatpassed between Iridium’s initial conceptto its actual development, its businessplan eroded. First, the gradual build-outof cellular dramatically shrank Iridium’starget market – international executiveswho regularly traveled to areas notcovered by terrestrial cellular. Second, itbecame apparent over time thatIridium’s phones would have significantdesign, operational, and cost problemsthat would further limit usage.

Motorola’s decision to pushIridium forward in spite of a deeplyflawed business plan is a classic exampleof the pitfalls of “escalatingcommitment.” The theory behindescalating commitment is based in parton the “sunk cost fallacy” – makingdecisions based on the size of previousinvestments rather than on the size of theexpected return. People tend to escalatetheir commitment to a project when they(a) believe that future gains areavailable, (b) believe they can turn aproject around, (c) are publiclycommitted or identified with the project,and (d) can recover a large part of theirinvestment if the project fails.

Motorola’s involvement in theIridium project met all four of theseconditions. In spite of known problems,top executives maintained blind faith inIridium. To say that Iridium’s topmanagement was unaware of Iridium’spotential problems would be wholly

inaccurate. In fact, Iridium’s prospectuswritten in 1998 listed 25 full pages ofrisks including:

• a highly leveraged capital structure• design limitations -- including phone

size• service limitations -- including

severe degradation in cars, buildings,and urban areas

• high handset and service pricing• the build-out of cellular networks• a lack of control over partners’

marketing efforts

During Iridium’s long concept todevelopment time, there is little evidenceto suggest that Motorola or Iridium madeany appreciable progress in addressingany of these risks. Yet Iridium wentforward, single-mindedly concentratingon satellite design and launch whilediscounting the challenges in sales andmarketing the phones. The belief thatinnovative technology would eventuallyattract customers, in fact, was deeplyingrained in Motorola’s culture.

Indeed, Motorola’s history wasreplete with examples of spectacularinnovations that had brought thecompany success and notoriety. In the1930s, Paul Gavin developed the firstaffordable car radio. In the 1940s,Motorola rose to preeminence when itdeveloped the first hand-held two-wayradio, which was used by the ArmySignal Corps during World War II. Inthe 1950s, Motorola manufactured thefirst portable television sets. In the1969, Neil Armstrong’s first words fromthe Moon were sent by a transponderdesigned and manufactured by thecompany. In the 1970s and 1980s,Motorola enjoyed success by developingand manufacturing microprocessors andcellular phones.

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By the time it developed theconcept for Iridium in the early 1990s,Motorola had experienced over 60 yearsof success in bringing often startling newtechnology to consumers around theworld. Out of this success, however,came a certain arrogance and biasedfaith in the company’s own technology.Just as Motorola believed in the mid-1990s that cellular customers would beslow to switch from Motorola’s analogphones to digital phones produced byEricsson and Nokia, their faith inIridium and its technology wasunshakable.

Problem 2: Staiano’s leadershipwas a double-edged sword. Dr. EdwardStaiano became CEO of Iridium in late1996 – before the company had launchedmost of its satellites. During hisprevious tenure with Motorola, Staianohad developed a reputation asintimidating and demanding – imposingin both stature, at 6’4’’, and intemperament. Staiano combined hisleadership style with an old Motorolaethic that argued leaders had aresponsibility to support their projects.Staiano also had significant financialincentives to push the project forward,rather than cutting losses and moving on.In both 1997 and 1998, he received750,000 Iridium stock options thatvested over a five-year period. Indeed,this fact didn’t escape Staiano’s attentionwhen he took the CEO position in late1996, stating: “If I can make Iridium’sdream come true, I’ll make a significantamount of money.”

Ironically, the demandingleadership style, commitment to theproject at hand, and financial incentivesthat made Ed Staiano such an attractiveleader for a start-up company such asIridium turned out to be a double-edgedsword. Indeed, these same

characteristics also made him unwillingto abandon a project with a failedbusiness plan and obsolete technology.

Problem 3: Iridium’s board didnot provide adequate corporategovernance. In 1997, Iridium’s boardhad 28 directors – 27 of who were eitherIridium employees or directorsdesignated by Iridium’s partners. Thecomposition, not to mention size, ofIridium’s board created two majorproblems. First, the board lacked theinsight of outside directors who couldhave provided a diversity of expertiseand objective viewpoints. Second, thefact that most of the board wascomprised of partner appointees made itdifficult for Iridium to apply pressure toits partners in key situations -- such aswhen many partners were slow to set upthe necessary sales and marketinginfrastructure prior to service launch. Inthe end, Iridium’s board failed toprovide proper corporate oversight andlimited Iridium’s ability to work with itspartners effectively.

LESSONS LEARNEDExecutives Should Evaluate Projectssuch as Iridium as Real Options

Projects with long concept-to-development times pose uniqueproblems for executives. These projectsmay seem like good investments duringinitial concept development; but by thetime the actual product or service comeson line, both the competitive landscapeand the company’s ability to provide theservice or product have often changedsignificantly.

To deal with long concept-to-development times, executives shouldevaluate these projects as real options.A simple model would be a two-stageproject. The first stage is strategic in

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nature and provides the opportunity for afurther investment and increased returnin the second stage. When the initialstage is complete, however, the companymust reevaluate the expected return offuture investments based on a betterunderstanding of the product/service andthe competitive landscape.

Iridium is a textbook example ofa project that would have benefited fromthis type of analysis. The Iridium projectitself essentially consisted of two stages.During stage one (1987 to 1996),Motorola developed the technologybehind Iridium. During stage two(1996-1999), Motorola built andlaunched the satellites – and the majorityof Iridium’s costs occurred during thispart of the project.

Investment in R&D for Iridium wasAppropriate – Follow-on InvestmentWas Not

Looking back, it would be unfair toassert that the initial decision to invest inR&D for Iridium was a mistake. In thelate 1980s, Iridium appeared to have asound business plan. Travel amongbusiness executives was increasing andterrestrial cellular networks didn’t covermany of their destinations. It wascertainly not unreasonable to foresee alarge demand for a wireless phone thathad no geographic boundaries. In turn,the investment in R&D was reasonableas it provided the option to deploy (ornot deploy) the complex Iridium satellitesystem 9 years later.

By 1996, however, when Iridiumhad to make the decision of whether toinvest in building and launchingsatellites, much had changed. Not onlyhad the growth in cellular networksdrastically eroded Iridium’s targetmarket, but Iridium’s own technology

was never able to overcome key design,cost, and operational problems. Putsimply, Iridium didn’t have a viablebusiness plan. Armed with thisadditional insight, a reasonableevaluation of the project would haveprecluded further investment.

Executives Must Build Option ValueAssessments into their Business Plans

The key to using the option valueapproach is to include it in the businessplan. Specifically, executives mustspecify a priori when they willreevaluate the project and its merits.During this evaluation, the companyshould objectively evaluate updatedmarket data and its own ability to satisfychanging customer demands. The boardof directors plays a key role in thisprocess by making sure that inertiadoesn’t carry a failed project beyond itsuseful life. This is particularly importantwhen company executives have ancillaryreasons, such as concerns about personalreputation or compensation, to pressforward in spite of a flawed businessplan.

Top executives were publiclycommitted to, and identified with,Iridium. Just as important as itsfinancial investment in Iridium wasMotorola’s psychological investment inthe project. Motorola’s chairmen,Robert Galvin and later his sonChristopher Galvin, publicly expressedsupport for Iridium and looked to it as anexample of Motorola’s technologicalmight. Indeed, it was Robert Galvin,Motorola’s chairman at the time, whofirst gave Bary Bertiger approval to goahead with Iridium, after Bertiger’ssuperiors had rejected the project asbeing too costly. In the end, bothGalvins staked much of Motorola’s

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reputation on Iridium’s success and theproject provided Motorola and the rest ofits partners with a great deal of cache.

Costs of Risky Projects can beReduced Via Opportunities forContracting and Learning

Motorola did gain important benefitsfrom its relationship with Iridium. Infact, Motorola signed $6.6 billion incontracts to design, launch, and operateIridium’s 66 satellites, and manufacturea portion of its handsets. DavidCopperstein of Forrester Researchdescribed Motorola’s deal with Iridiumas “ a pretty crafty way of creating a no-lose situation.” Other analysts were lesscomplimentary: “That contract(Motorola’s $50 million a monthagreement with Iridium to provideoperational satellite support) is absurdlylucrative for Motorola,” said ArmandMussey, an analyst who followed theindustry for Banc of America Securities,“Iridium needs to cut that by half.”

These contracts – while lucrative– also gave Motorola an incentive topush Iridium forward regardless of itsbusiness plan. Even if Iridium failed,Motorola would still generate significantnew revenues along the way. Inquantifying the importance ofMotorola’s contracts with Iridium, inMay 1999 Wojtek Uzdelewicz of SGCowen estimated that Motorola hadalready earned and collected $750million in profits from its dealings withthe company. Based on these offsettingprofits, he placed Motorola’s totalexposure in Iridium to be between $1.0-$1.15 billion – much less than manyobservers realized.

Further, Iridium would ultimatelyexpose Motorola to developing satellitetechnology and the patent protection that

came with it. This exposure came at atime when Motorola was interested inentering the satellite communicationsindustry beyond Iridium, in projects suchas Craig McCaw’s Teledesic – a $9billion project consisting of a complexconstellation of low-Earth-orbiting(LEO) satellites designed to provideglobal high-speed Internet access.

Strategic Leadership of CEOs andBoards Can Make, or Break, StrategicInitiatives

In an era where executive compensationis dominated by stock options, theIridium story should give pause to thosewho see only the benefits of options-based pay. Financial incentives areextremely powerful, and companies thatrely on them for motivation must beparticularly careful to consider bothintended and unintended consequences.Would CEO Staiano have been moreattentive to the numerous warning signswith Iridium if stock options didn’t playsuch a large role in his compensationpackage? The heavy emphasis onoptions gave Staiano an incentive topersist with the Iridium strategy; it wasthe only opportunity he had to make theoptions pay.

The lessons of the board ofdirectors at Iridium are just as stark.Surely few boards can operate with 28members, most representing differentconstituencies surely holding differentgoals. That all but one board memberwas a member of the Iridium consortiumsimilarly speaks volumes about thevigilance of the board in fulfilling itsoversight function. Actually, this type ofboard, consisting as it does ofrepresentatives of investors, is becomingmore common in high-technologystartups. Companies like General

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Magic, Excite At Home, and Net2Phonehave all had multiple investors, typicallyrepresented on the board, and not alwaysagreeing on strategic direction. In fact,General Magic’s development of apersonal digital assistant was severelyhampered by its dependence on investorssuch as Apple, Sony, IBM, and AT&T.With Iridium, the magnitude of theancillary contractual benefits Motoroladerived from Iridium appear rather out-sized given Iridium’s financialcondition. An effective board should besimultaneously vigilant and supportive, atall order for an insider-dominated,multiple-investor board.

Conclusion

What is fascinating about studying caseslike Iridium is that what look likeseemingly incomprehensible blundersare really windows into the world ofmanagerial decision-making, warts andall. In-depth examinations of strategy inaction can highlight how such processesas escalating commitment are realdrivers of managerial action. Whenorganizational stumble, observers oftenwonder why the company, or the topmanagement, did something so “dumb”.Much more challenging is to start theanalysis by assuming that managementis both competent and intelligent andthen ask, why did they stumble? Theanswers one gets with this approach tendto be at once both more interesting, andrevealing. Students of strategy andorganization can surely benefit fromsuch a probing analysis.

SELECTED BIBLIOGRAPHY

There have literally been thousands ofnewspaper and magazine articles writtenabout the Iridium strategy, its

implementation, and the resultingbankruptcy. One of the best overviewsof the entire project can be found inSteve Frank’s analyst report at MorganStanley Dean Witter, “Iridium WorldCommunications: A New Shoe for ‘GetSmart!’,” March 18, 1998(http://www.bschool-investext.com/PDF/INV/105925_2644871.pdf). An excellent article outliningthe contractual benefits Motoroladerived from Iridium is in a piece by IdaPicker in the Seattle Times called,“Despite Stunning Failure, MotorolaWins”, October 24, 1999. JoannaGlasner, a writer at Wired News, wroteseveral insightful articles, including“Iridium: Edsels in the Sky?”, May 10,1999 and “A Buyer for Iridium?”,December 3, 1999. Finally, a terrificpiece on Iridium’s technologicalarrogance appears in L. Cauley, “Lossesin Space – Iridium’s Downfall,” WallStreet Journal, August 18, 1999, A1.

There is a rich research literatureon escalating commitment. Two of the“classic” articles in this area are: B. M.Staw, “Knee-deep in the Big Muddy: AStudy of Escalating Commitment to aChosen Course of Action,”Organizational Behavior and HumanDecision Processes, 1976, 16, 27-44;and J. Brockner, “The Escalation ofCommitment to a Failing Course ofAction: Toward Theoretical Progress,”Academy of Management Review, 1992,17, 39-61. An interesting application ofthe theory was written by J. Ross and B.M. Staw, “Expo 86: An escalationprototype,” Administrative ScienceQuarterly, 1986, 31, 274-297.

For a discussion on how to thinkabout investments as real options, see T.Luehrman, “Investment Opportunities asReal Options: Getting Started on theNumbers,” Harvard Business Review,

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1998, 76, July-August, 51-67 and E. H.Bowman and D. Hurry, “StrategyThrough the Option Lens: An IntegratedView of Resource Investments and theIncremental-choice Process,” Academyof Management Review, 1993, 18, 760-782. Two other articles on real optionsare also noteworthy. Rita McGrathexplores real option logic inentrepreneurial ventures in “FallingForward: Real Options Reasoning andEntrepreneurial Failure,” Academy ofManagement Review, 1999, 24, 13-30and Bruce Kogut, in a seminal 1991article, argues that joint ventures areactually real options that are cashed invia subsequent acquisition: “JointVentures and the Option to Expand andAcquire,” Management Science, 37, 19-33.

To learn more about strategicleadership, one of the best sources is S.Finkelstein and D. C. Hambrick’sStrategic Leadership: Top Executivesand Their Effects on Organizations(Minneapolis/St. Paul: West Publishing,1996). A terrific book on best practicesin boards of directors is Ram Charan’sBoards at Work: How Corporate BoardsCreate Competitive Advantage (SanFrancisco: Jossey-Bass Publishers,1998). Consulting and executive searchfirms also publish periodic surveys ofboard practices, for example, Korn/FerryInternational, Board of Directors AnnualStudy, 1999. Finally, while most studiesof executive compensation extol thevirtues of stock options and otherperformance-contingent pay, the bestarticle on unintended consequences ofpay plans is still Steve Kerr’s seminal“On the Folly of Rewarding A, WhileHoping for B,” Academy of ManagementJournal, 1975, 18, 769-783.

While the study of strategy andorganizations has been dominated by a

focus on best practices andorganizational successes, there areseveral interesting articles on corporatefailure and mistakes. Perhaps the largestbody of work comes out of theorganizational learning framework, andincludes C. Argyris, “Double LoopLearning in Organizations,” HarvardBusiness Review, 1977, 55, 115-125; D.A. Levinthal and J. G. March, “TheMyopia of Learning,” StrategicManagement Journal, 1993, 14, 95-112;and S. B. Sitkin, “Learning ThroughFailure: The Strategy of Small Losses,”in B. M. Staw and L. L. Cummings(Eds.), Research in OrganizationalBehavior, 1992, 14, 231-266(Greenwich, CT: JAI Press). Other goodsources include J. E. Russo and P. J.Schoemaker’s Decision Traps (NewYork: Doubleday, 1989) (on decision-making failures) and C. M.Christensen’s The Innovator’s Dilemma(Boston: Harvard Business School Press,1997) (on innovation failures). Finally,the first author of this article is currentlyworking on a new book on corporatemistakes that will be published in 2003.