UK: MANAGING REVOLUTION - When makeovers aren't enough - When a dominant firm's sales dive because its base ...

UK: MANAGING REVOLUTION - When makeovers aren't enough - When a dominant firm's sales dive because its base ... - MANAGING REVOLUTION - When makeovers aren't enough - When a dominant firm's sales dive because its base market is shot, a cosmetic fix alone

by ROBERT HELLER, he was founding editor of Management Today.
Last Updated: 31 Aug 2010

MANAGING REVOLUTION - When makeovers aren't enough - When a dominant firm's sales dive because its base market is shot, a cosmetic fix alone is not enough. New markets need new models - and new leaders.

Companies fail when they become complacent and think that they will always be successful, argued one super-successful high-tech boss. 'Even the most successful companies must constantly reinvent themselves,' he added. But reinvention has always been far easier said than done - especially in IT.

His largest customer noted: 'Some observers have said that market leadership in this business is inevitably transient, in part because large organisations always lose the ability to keep up with the pace of technology and the constantly shifting requirements of customers.' He emphatically rebuffed the pessimists, though: 'Dominant firms can fight the inertia of success.'

The first speaker, Bill Gates of Microsoft, must sincerely hope that the second is right in theory - because in practice he lost the fight.

That was Eckhard Pfeiffer, ousted as Compaq's CEO after falling behind swiftly changing customer demands for both internet technology and direct sales. Yet in mid-1996, Pfeiffer talked exactly the same language as Gates in mid-1999.

Pfeiffer: 'Attack your own business and financial models before someone else does. Continually rethink every product, service, process, and activity.' Gates: 'We are always challenging ourselves. Are we making what customers want and working on the products and technologies they'll want in future? Are we organised most effectively to achieve our goals?'

Both leaders followed their rethinks with major reorganisations; both claimed greater customer focus. There's nothing specific to high technology, note, about either the analysis or the purported remedies. Large companies conduct similar soul-searches and sing similar songs thereafter - but it seldom works.

Oddly, IBM can stand as evidence for either the pessimists or the optimistic reinventors. Under John Akers, each successive remake only deepened the crisis. Under Lou Gerstner, the giant accepted the irreversible decline in mainframes and minicomputers and under-performance (notably in PCs).

It paid the price in sluggish sales, but its software and service businesses, powerfully refocused on branded e-business, leapt forward - and IBM is at last back to double-digit growth.

Its quasi-monopoly over computer hardware and big-time corporate data processing, however, has been shattered and will never be replaced by equivalent dominance. The recurrent dilemma of super-successful companies, high-tech or low, is that they depend for their super-profits on dominance in base markets where competition is either minuscule, ineffective or cartelised. When that base weakens, management finds it difficult to adapt.

Pfeiffer's undoing at Compaq came when its dominant business model, sale through distributors, was undermined by Dell's direct-selling model and by the PC's decline in prices and supremacy. It will take a new kind of Compaq to prosper in a world of dirt-cheap PCs, distribution via the web, and multitudinous devices picking off different PC functions. Removing Pfeiffer was a wrenching start in the new direction. Gates himself is ready to start delegating.

The same challenge confronts Intel's Andrew Grove, whose critical stake in the Wintel partnership is equally under threat. Sales of Intel microprocessors are still growing, but new devices, technologies and price cuts mean that PC innards threaten to be yesterday's boom market. Intel has spent over $3 billion trying to reproduce its PC dominance in the communications business. It can't succeed.

For the new market, Intel must fight forever against entrenched rivals, including Lucent, Cisco, Hewlett-Packard, Nortel - and Microsoft, which is following a parallel course with internet software. But the hegemony of Windows across the PC world cannot be repeated on the net, unless Microsoft can produce web-based software so superior that a myriad powerfully backed suppliers melt away.

But no buyer wants to slip into a new Microsoft or Intel stranglehold. Once market moulds have been broken, the old overlords must remould themselves to compete on level terms where once they wrote their own rules. Paradoxically, if the trustbusters force Microsoft to sub-divide, its remoulding will be easier.

Its business on the net is a whole new ball game, like Sony's venture into video games. Sony smashed past Nintendo into the world lead, but the Japanese have long practised genuine competition, in which discrete units concentrate autonomously on new markets. The control-and-crush Wintel model is not appropriate to the new situation.

The Wintel wizards should reflect that IBM might still be Lord of the IT Universe if its antitrust case had been lost. A stand-alone PC business, for instance, would hardly have lost 70% of global market share. The control freaks in the centre subtracted value on the grand scale: unless the Gates and Grove top teams can reinvent themselves, they risk similar failure. New markets demand new models - and that may mean new men, not old emperors in new clothes.

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