How Businesses Lose Their Way

(Note:   This is the first of a 2-part series on one of the most interesting stories of corporate decline in my lifetime.  While the entire corporate history is not fully written yet, mighty Microsoft seems to find itself at either a crossroads or a precipice.   Below is a model taught in many business schools explaining the natural cycle of business growth and decay.   In the model – about half way through – some companies are able to reinvent themselves launching new patterns of growth, while others wither, and yes . . . sometimes die.      This series tries to get us thinking about what prevents some organizations from finding a second (or third) “youth” period choosing instead, a path to oblivion.  Our story begins a long way from Redmond, Washington. )

When I arrived in Detroit, Michigan in 1985, having purchased my first company (a tech supplier of high-frequency powers systems for welding and induction heating) the auto industry was a pretty exciting place.  The new technologies were impressive, the new car programs were countless, and the scope of each project was mammoth.  For an engineer, I was at my dream job, and the possibilities seemed endless.

But over the years, I had a front-row seat for what was arguably the decline and fall of an industry that was once dominant virtually across the planet.    Detroit taught the world how to design engines and powertrains and how to create marketing hype that would bring people into showrooms, year after year.

Attending the Detroit Auto Show was something I came to eagerly anticipate throughout the time that I owned that business.   Cars DO look sexy, exciting, novel and inventive.  Styling was an art form worthy of a museum.  (If you have never been to the Henry Ford Museum in Dearborn, Michigan it is worth the trip.)

Year after year, though, the atmosphere was changing.  The Japanese automakers (initially a joke in Detroit) were gaining market share, initially in small cars.    Detroit responded as if they didn’t really care about small cars, because they made their money on trucks, luxury cars (like Cadillac and Lincoln) and later SUV’s and mini-vans.   I heard one overconfident Detroit exec once remark that “they [Japanese] could have the small car market.  It didn’t really matter.”   Even though the US carmakers were not able to make money in the small and economy market segments, it turns out that segment was important.     The Japanese had to learn how to make money-making small cars with low-sticker prices.  The cost efficiencies they discovered made them that much more formidable when they entered the higher end of the market making two times the  margin as did the so-called “Big 3” on comparable higher priced products.

Eventually, the Japanese entered each of those high-end segments Detroit saw as important, and Detroit found itself with more plants than it needed to meet demand, bloated bureaucracies, and thereby were able to produce “great lakes” of red ink.

I distinctly remember being in one meeting at GM’s tech center in Warren, Michigan in the mid 1990s when the supplier community was called in to be told that it “wasn’t doing enough” to help drive improvements in the industry and that they needed to “step up.”   One VP who was addressing the group actually stated boldly before the assemblage in response to a question, “We can put Toyota OUT OF BUSINESS any time we want!”

I could scarcely believe my ears.   No one in the room was foolish enough to ask how exactly the then number one automaker could do that.

What still interests me about that episode was that while everyone in the audience seemed to know that GM was losing its dominance in the industry, that VP seemed absolutely sure that this was not the case.  I doubt he was alone among the army of GM employees at the time.   How could so many be in such denial in the face of a decade’s worth of data to the contrary?

The ARROGANCE was stunning.      

Sometimes I believe the WORST thing that can happen to any business is to be successful.   This produces pride, which is no doubt deserved.   But, you really start to believe your own press releases about how good you are, and how exciting your new products will be.   Then you become complacent. After all, things are going well . . . aren’t they?  (You are making money at least.)  Then your complacency causes your focus to be more internal than external, paying less attention to your customers, and dismissing the competitive actions of the rest of the players in the industry.  Success caused them (and, I think – all of us) to see ourselves as smart, better, experienced and powerful.

What legacy would be left?

Throughout this era, my business had its ups and downs, including its own near-death experience that managed to catalyze us into action producing innovation and change that helped us survive, and even grow.  We expanded our customer base, moved overseas, and developed many new technologies.  (Some good luck didn’t hurt either.)

Now there was a time when I had imagined that one or both of my sons would someday inherit the company and build a family legacy. But, neither of them ever felt the desire to follow in my footsteps.    I can’t say I blame them actually.  Truth be told , both of them pursued their own visions for themselves, are making great lives and careers, and I am deeply proud of each of them.

I can recall a trip with my oldest son who, on his first trip to Silicon Valley (we were doing a college visitation) was absolutely mesmerized by the area.  Every building was a crystal palace, shimmering in the California sun.   All buildings, streets, and homes were brand new.  The corporate edifices had boldly displayed  names on their sides – Cisco, Microsoft, Adobe, Intel, Microsoft, Google, Apple, Hewlett-Packard, Compaq, Amazon, SUN Microsystems . . . they were all there.

The people we met and heard about were young, optimistic and excited to be a part of this amazing concoction of talented people transforming the way we all work and play.   (Much like I imagine Detroit must have seemed in the 1950s and 60s)

Is a new era dawning?

My son, whose path led him to Palo Alto, once shared with me that he felt that this place was the future!   He argued that information age corporations in the 21st century could create value by means other than accumulating bricks and mortar as they did in my world.    A new day was dawning… it seemed.  Amazon’s stock was already trading at stratospheric levels even though they had yet to make a profit!    It seemed like the world (even Wall Street) were capable of operating to a new set of realities.   While he stopped short of calling me a dinosaur, that was kind of how I felt at the time.

But it was exciting, and we all have admired the stories of the tech industry giants and mavens.  We especially enjoyed the ones who started in a garage (as was the case with Bill Hewlett and Dave Packard as well as Jobs and Wozniak) or in a dorm room (as was the case with Michael Dell).

Sure there were some missteps (like the countless ones at befuddled HP) but mostly the success stories just kept coming.  Maybe we have all gotten smarter.  Maybe the ability to capture and leverage information as never before in recorded history could make us smarter and better.

So fast-forward to 2012.   An interesting new story is playing out.

After 26 years of redefining how we live, work, play and think, the first shoe has finally dropped for the company that ushered in the PC age.

The once wildly profitable Microsoft just posted its first-ever quarterly loss as a public company — to the tune of $492 million. Granted, this was due in large part to taking a $6.2 billion write-down on its failed online ad business, aQuantive…  but still it is an event worth noting.

In the August issue of Vanity Fair, there is a fascinating expose by Kurt Eichenwald called Microsoft’s Lost Decade.  This 7,700-word case study delves into exactly “How Microsoft Lost its Mojo.”   It is a story I expect will be taught in business schools around the world.

From my reading of it, the story is hauntingly familiar to the things I observed in Detroit.    One former Microsoft executive Bill Hill mentioned in the article remarked: “They used to point their finger at IBM and laugh.  Now they’ve become the thing they despised.”  He refers to how the early Microsoft employees used to marvel at how slow, bureaucratic and “stupid” IBM seemed to be.    So how does it come to pass that their company slowly became all of those same things?

In part 2 of this series, I will share some of the high (or low) lights.


Leave a comment

Filed under Innovation, Leading, Strategy

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s