- The Strategic Gold Standards
- Reorganizing to Rearm
Frank Cary at IBM
- The Competitive Limit of Soft Technology
Amdahl versus IBM
- Transient Technology
Travails of the Mini Makers
- First Movers
The Dawning of the Personal Computer
- Defeated in Succession
An Wang at Wang Labs
- Retrospective Strategy
John DeButts at AT&T
- Foreign Cultures
AT&T’s Recruit from IBM
- The Perils of Incumbency
Sun and Oracle Take Over the Neighborhood
- Self-Accelerating Economies of Scale
Alilile, Microsoft, and Dell
- Choosing the Wrong War
IBM Takes On Microsoft
- Powering to the Apogee
Ken Olsen at DEC
- Tumbling to Collapse
The palace Guard Ousts Olsen
- Field Force and Counterforce
DEC, HP, and IBM in Battle Mode
- Distracted by Competition
IBM Battles Fujitsu and Hitachi
- Navigating the Waves at IBM
Akers Runs Aground,
and Gerstner Takes the Helm
- Squandered the Competitve Advantage
IBM Mainframes and Minicomputers
- Building a Great Business
Paul Ely at Hewlett-Packard
- CEO Tumbles
Hewlett-Packard’s Horizontal Phase
- Limits of Strategy
Potentially destructive change is a constant in business. Some changes are foreseeable and avoidable. Others are total surprises. And in a third category are changes that are fully visible like a funnel cloud on the distant horizon but inevitably destroy even the most successful enterprises anyway. Despite the endless care given to business forecasting and strategy formulation, these virulent changes have recently impacted automobiles, consumer products, pharmaceuticals, telephones, and, of course, the computer industry.
The godfather of business velocity may be Joseph Schumpeter, who believed that the entrepreneur with something new and disruptive is always the engine of the economy. “In capitalist reality, as distinguished from its textbook picture, it is not [price] competition that counts, but rather competition from new commodities, new technologies, new sources of supply, new types of organization—competition that commands a decisive cost or quality advantage and that strikes not at the margins of profits and outputs of existing firms, but at their foundations and very lives.” The problem for the computer sector over the past fifty years is that dislocative change has too often come not from one source but from a spectrum. Innovation has created new technologies that have demanded new cost models, new distribution channels, and, by definition, new managerial skills and organizational forms.
None of this is gentle or gradual as Schumpeter implied by his seminal term “creative destruction.” The consequences of “change arising from within the system so displace its equilibrium that the new equilibrium can’t be reached from the old only by infinitesimal steps. Add successively as many mail coaches as you please, you will never get a railway thereby.”
In our analysis, 1992 was a killing year for the four computer companies most important to business buyers. All four had been dominant suppliers of minicomputers for the past fifteen or twenty years. But then came the microprocessor, portable databases, Microsoft, and the Unix operating system, which weakened the hold of computer companies on their existing customers and slashed their profit margins. On July 16, 1992, the CEOs of both Digital Equipment and Hewlett- Packard were pushed into retirement. On August 8, Wang Laboratories declared bankruptcy. In December, IBM halved its dividend for the first time ever, forcing the resignation of its CEO a month later.
How did this happen? Are the deadliest changes unavoidable because strategy is too easily thwarted by cluster bombs such as technological velocity, cultural inertia, obsolete business models, executive conflict, and investor expectations?
All four men were smart and experienced. Two were founders of their companies; the others, highly successful career executives. But all of them were simply overwhelmed by the profound changes in technology, cost structures, business models, and markets disrupting the computer industry. And while I found no single explanation for what happened, I did see definite common themes. You will find them recurring again and again in the many stories of this book, both in the chapters devoted to individual companies and in the chapters describing the changing landscape and culture of the computer industry. The common threads are:
- Vision alone isn’t enough. The chief executives of DEC, HP, IBM, and Wang fully understood the implications and possibilities of the microprocessor, but still couldn’t adapt to it.
- Competition can blind you. IBM’s intense struggle over mainframes with Fujitsu and Hitachi distracted all three companies from identifying the new breed of competitors, including Compaq and Sun. So did DEC’s continuing preoccupation with Data General and Wang, its neighbors in Massachusetts.
- Strong cultures can be a straitjacket. IBM didn’t fail because of Bill Gates’s negotiating skills or Microsoft’s brilliant programmers, but because the PC market was driven by consumers. IBM, totally focused on its large business customers, had no expertise in the consumer market and little interest in developing it.
- Cost structures can block change. DEC and Wang didn’t fail because of disruptive technology, but because they couldn’t adjust their business model to cut the costs of sales and R&D by ten to fifteen percent of revenues.
- Great sales organizations are often the crown jewels of successful companies. But they can also become the most powerful barrier against changes in product innovations or distribution models, however necessary.
- First movers can fail, too. The PC leaders in 1980 were Apple, Commodore, and Radio Shack. All used the microprocessor to pursue outdated business models and lost their lead positions to latecomers with better perspective.
- Forcing the retirement of a CEO can become an especially thorny issue when the CEO is a founder who has led the company’s early success. But a failure to force a timely change can ruin a company, as we’ll see at DEC and Wang but notably not at IBM.
Navigating through the storms of dislocative change requires exceptional leadership.
Especially since even the most experienced CEOs can actually be handicapped by their past successes. As Richard Foster points out in his fascinating book Innovation: The Attacker’s Advantage, leaders being challenged by disruptive competition tend to keep doing what previously made them successful. When steamships were outmoding sailing vessels, builders of clipper ships kept expanding their designs— until, in 1902, a seven-masted clipper ignominiously capsized and could be seen from passing steamers drifting upside down off the Scilly Islands near the southwestern tip of England.
In other words, almost any strategy an incumbent CEO can devise will be useless in the face of truly disruptive technology, because it begins a new game that demands a completely different business model and, equally, a different management discipline. That is where strategy meets its limit and leadership dominates. And that’s the message of this book.