Avoiding the “Bone Yard” of Business

When I went to engineering school, on my very first day I was told I had to pay $50 for a slide rule.  [The HP 35E pocket electronic scientific calculator was not invented until 1972 (my sophomore year) and sold at a price of $395 when initially introduced.  It used “Reverse Polish Notation “RPN” and this may explain why I liked it.   OK, yes. . . I am a dinosaur].

When I protested at having to pay the $50 for my Keuffel and Esser (K&E) slide rule, the arrogant upper classman behind the counter commented “quit complaining . . . you will be able to use this for the rest of your life!”

K&E was a proud company founded by German immigrants in 1867 and was among the pre-eminent producers of fine engineering and surveying tools and calculating instruments.   The company grew successfully, building a global reputation.  K&E’s were prized possessions of engineers the world over.   In 1967, Keuffel & Esser, commissioned a “study of the future”. The report predicted that, by the year 2067, Americans would live in domed cities and watch three-dimensional television. Unfortunately for the company, the report failed to predict that slide rules would be obsolete in less than ten years.  But by the time HP introduced its 35E, the death knell of K&E was sounded.  It hung on until 1982 when it finally filed for Chapter 11 bankruptcy protection.

Why did they fail?  Were there no warning signs?

–          The first transistor was invented by Bell Labs in 1947

–          IBM introduced the first transistorized calculator in 1954 (it cost $80,000)

–          The first transistorized desktop calculator was introduced by Friden in 1963 (it cost $2,200 – By the way, ever hear of Friden?)

–          The first electronic pocket calculators using integrated circuits were introduced in 1971 costing as little as $400.

Why didn’t K&E see it coming?   What prevented them from reinventing themselves?

The average life expectancy of a multinational corporation-Fortune 500 or its equivalent-is between 40 and 50 years. This figure is based on most surveys of corporate births and deaths. A full one-third of the companies listed in the 1970 Fortune 500, for instance, had vanished by 1983-acquired, merged, or were broken to pieces.

What distinguishes those that survive and thrive, from those that end up in the bone-yard of corporate existence?

IBM’s CEO, Sam Palmisano, delivered a speech recently at Columbia Business School on the 100th anniversary of its existence.    The firm, initially led by the legendary Thomas J. Watson, arguably invented the computing business, and today, IBM’s market cap is larger than Microsoft’s.  A synopsis of the event is reported on in the NY Times article I.B.M.’s Chief on Corporate Longevity and Leadership, by Steve Lohr.

So what was in IBM’s DNA that enabled it to undergo amazing transformations that would ultimately cause it to abandon all of the initial product technologies upon which it was founded – [I.B.M. started out making clocks, scales, punched card tabulators, and cheese slicers (“the world’s fastest at the time,” notes Palmisano.)]

Palmisano argues that too many are so inward-focused, they are locked into an “emotional commitment with the past” that constrains the way they think about their business.   They tend to be committed to their products, RATHER THAN TO CORE PRINCIPLES.  For IBM these were:

–          satisfying customer needs

–          building long-term relationships and

–          pursuing breakthrough innovations

Choosing core principles and values wisely seems pretty important.   When these core principles in fact, ARE STRATEGIC and are what drives our actions as an organization… they have enduring power.

Here is a link to some other recent Palmisano Speeches:

Here is a video link of Sam talking on this topic at Webster University.



Filed under Leading, Strategy

6 responses to “Avoiding the “Bone Yard” of Business

  1. Pingback: Chapter 11 Bankruptcy Rules

  2. fransiweinstein

    Great story. Love the example. I actually worked on IBM when their ‘transformation’ was just starting — when Lou Gerstner was the CEO and he fired all the agencies and gave Ogilvy & Mather the business worldwide: “Solutions for a small Planet”. Of course your article could have gone on for days and days and days, because the sad reality is, there are a huge number of companies (and non-profit organizations) who are committed to their products instead of customer needs and wants. Huge opportunity but convincing CEOs of that is no easy task. Really like your blog.

  3. There is a great HBS case on Gerstner’s transformation of IBM — let me know if you can’t find it. Also — I like this book http://www.amazon.com/IBM-Redux-Gerstner-Business-Turnaround/dp/0887309445

    • fransiweinstein

      Thanks! I have ordered the book and downloaded the HBS case. Presume this is the one: IBM’s Decade of Transformation: Turnaround to Growth. Have you read Gerstner’s book — “Who Says Elephants Can’t Dance?”

  4. Gerstner’s Elephants Can’t dance book is great also, I am also fascinated by Sam Palmisano — and interesting choice to replace Lou (and a major contrast) . See: http://www.businessweek.com/magazine/content/05_16/b3929001_mz001.htm

  5. Absolutely relevant subject matter, thanks for the information .

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