Smart Companies Make Egregious Mistakes: Cisco and Pure Digital

It’s fascinating to see companies with good track records make some egregious mistakes. Cisco bought Pure Digital, the maker of Flip Camera, just 2 years ago for $590M. When Cisco made the acquisition, the iPhone 2 was about to debut. While it didn’t yet have a video recording function, that functionality is inevitable. Two years are not very far out to predict roughly how markets will turn; the demise of Flip was already in motion at the time of the purchase.

When this type of mistakes happen, you have to wonder what the internal dynamics were like for them to make such a bad decision. There are several hypothesis: incompetent managers, disruptive technology, poor group dynamics. I tend to dismiss the first reason for companies with good track records such as Cisco. While you can argue that the lower end camcorders in smart phones disrupt the consumer video cameras market, this reason doesn’t explain Cisco’s mistake because the disruption is already taking place at the time. This leaves us with some issues with group dynamics that lead to poor decisions.

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