The risk of measuring business success against false peers

Sometimes companies fall into the trap (or are pushed in by market analysts) of measuring themselves against false peers. A false peer is an entity that is not comparable (for a variety of reasons) and to which comparison may even lead to poor business decisions.

Here’s an example (guess which company). Company X was measured against a set of companies, some of which showed their innovation, skill at execution and cultural maneuverability through a series of acquisitions, new service launches and soaring stock prices. Company X was not seen as being as innovative nor did its stock jump as high, but soon it became involved in a senseless joint venture, money-losing acquisitions and service offerings. A few years later, Company X’s competitors were shown to be frauds in accounting scandals. Did their fabricated success lead Company X to engage in business behavior that it might not have otherwise?

Company X was AT&T in the late 1990s – early 2000s. Other companies it was measured against included WorldCom, Qwest, Tyco, Enron, etc.

Was former AT&T CEO Armstrong pressured into a bold (but reckless and unprofitable) cable play? By spending $100B+ to acquire cable networks and improve the upstream signal quality from the home to cable headends (something that was never intended in a cable TV model), AT&T tried to defend its place competing against false peers. It seems that it destroyed value by doing so.