They have been spot on with most transfers until very recently. It's not talked about enough how big of an impact Modric and Kroos have had on their team. It's a bigger headache to replace them than Xavi and Iniesta.
Mbappe was the first mistake. They had a fantastic winning team and decided to change it for no reason. It was clear as day fitting all those stars on the pitch is very unlikely to work. Florentino was simply obsessed and didn't want to accept defeat. This is a clear example of incompetent decision making, based on emotions over reason
Speaking of Modric, they didn't have to let him go. He was ready to stay. He would be more than useful, considering this current team has no leaders. And he is playing very well in Serie A too
While replacing Kroos and Modric is hard, they did not even attempt to do it. For two summer windows they decided to trust mediocre footballers like Tchouameni, Camavinga, Ceballos etc. When even Xabi was demanding a midfield signing. There were plenty options in midfield that would probably make a difference in the team right now
Then they signed Huijsen as leader of their defense. A weak and undeveloped CB, while PSG took Zabarnyi from the same team. Trent also a massive failure so far
Then hiring Xabi was also questionable from start. Manager of his philosophy should have nothing to do with Madrid. He was simply signed because of his past with the club
Their board simply got too comfortable because the results were great and then they just started making some very dumb decisions because they thought there is no way this Madrid team collapses