How To Avoid Bad Management Decisions: The AT&T Case Study

We say that every business owner needs, from time-to-time, a third-party objective analysis to avoid serious mistakes, keep his business on track, and take advantage of an opportunity that he otherwise could miss.

While there are many examples of business executives failing to heed this wise advice, one of the more striking examples involved the executives from the original AT&T.  It’s important to keep in mind that when referring to AT&T in this article, I am referring not to the AT&T that we know today, but the executives of the nation-wide monopoly that provided all U.S. local telephone service.  This was the AT&T, which existed before the break-up of the ‘Bell System’ and was often referred to as “Ma Bell.” The re-emergence of the new AT&T as the brand, that we know today, occurred when the SBC Corporation, formerly Southwestern Bell Corporation, bought out the long distance company AT&T, which had remained as a separate entity after the divestiture.

In the early part of the 1980’s, a team of AT&T engineers led by Bob Barnett presented the senior management of AT&T with an idea to develop radio technology for mobile phones, using a cellular grid  with one tower for each ‘cell’ to move the radio signals from one tower to another. They had developed the technology and proved that it was workable using radio signals, which could be switched from one tower to the next to create a seamless web of mobile phone calling. When the AT&T senior management reviewed the proposal, however, the powers that existed within AT&T rejected the idea, because they believed that the market would never amount to much.

AT&T management projected that the market would never be more than a million users, which would not justify the capital costs to build the cell tower system proposed by the AT&T engineers.  Therefore, top AT&T executives decided that they would leave it up to the regional bell telephone companies to decide whether any of them wanted to develop the technology, on a regional basis, for this “limited market.”

Bob Barnett, then, left the parent company to develop the cell phone for Ameritech, one of the regional Baby Bells, which was based in Chicago.  On October 13, 1983, Barnett made history by placing the first commercial cellular call from a car phone in Chicago to a relative of Alexander Graham Bell at a hotel room in Germany.

By 2013, there were more cell phones in the United States, than there were people. Moreover, by 2014 the number of cell phones and mobile devices surpassed the entire population of the world.  Sometime last year, we crossed the population line at 7.22 billion mobile devices—so much for that “limited” market with a maximum potential of a million users!

Ultimately, Bob Barnett leveraged his vision for cell phone technology into becoming the President of Ameritech.  Barnett and his team of engineers revolutionized the way that we talk and communicate, leading to the development the ‘smart phone,’ which today is more powerful than a computer was in 1985.

So what’s the lesson every business owner needs to learn from this extraordinary misjudgment by the executives who were running one of the most iconic corporations in the United States?

No matter how smart you are, no matter how big you have grown your business, every business owner needs to have the occasional objective, third-party review of their business. AT&T executives were incredibly smart to have built and manage a multi-billion business, but in the end, they missed the biggest change in their industry, simply, because they could not see outside their own phone booth. Now, the question that every business owner has to ask, “Doesn’t it just make sense to bring in a an outside business analytical and management consulting company to give you an objective, third-party view of the business that AT&T execs never thought they needed?”

Frankly, it just makes sense, but that was something, which the AT&T executives who evaluated Bob Barnett’s proposal seemed to lack. Since that fateful day, when Bob’s proposed plan for AT&T to revolutionize the phone business with cell towers was rejected by senior management, I bet that Bob has said to himself a number of times, “Can you hear me now?”