On the Road to Disaster: Strategic Misalignments and Corporate Failure

Prior research has identified the link between strategic misalignment and corporate failure, but little empirical research to date has examined the process leading to misalignment and eventual corporate failure over time. To explore this crucial link, we conducted in-depth case studies of two American conglomerates: WorldCom and Nortel Networks. We find patterns in terms of factors through which misalignments develop, ultimately leading to bankruptcy. The process begins with dysfunctional leadership and ineffective corporate governance, moving to unduly risky strategic actions, which are then followed by lax execution. Gradually spreading organizational misalignments develop, which ultimately foster a large gap between the demands of the competitive environment and the organization's strategy and competencies, leading to failure. An unforgiving external environment exacerbates the effects of misalignments. With this study, we also expand the ESCO strategic alignment model (Environment, Strategy, Core Competencies, and Organization), by adding leadership as the actor guiding alignment, and sustainable advantage as an outcome.