People get sick, and back in the Middle Ages they would use leeches and razors to bleed them until they got better (read this to once again be really happy you didn’t live in the Middle Ages). The practice didn’t work that well — yet if we look at what we do to sick divisions and companies, it is effectively the same thing. We cut investments, freeze salaries, make layoffs, and shave marketing expenses and then seem fascinated when the firms don’t recover.
I just finished a review of the Lenovo acquisition of the IBM x86 server division, which IBM thought was unfixable — much like it thought its PC Company was unfixable — and damned if Lenovo didn’t fix it. To me, this suggests there is a more up-to-date way of fixing firms that has a good chance of turning them around, rather than simply making them sicker.
I’ll share some thoughts on that and close with my product of the week: an interesting online service that allows people to collect around initiatives they believe in and bribe companies to do the right thing. My column is on fixing companies, but activities like this could help fix the world.
Apple to Samsung: What Makes Companies Sick
If you look at Apple now, it is hard to remember that back in the 1990s it was on death watch. It was burning cash at an impressive rate, had burned through most of its loyal customer base, and seemed to have lost its reason for being. Apple was a company that appeared impossible to fix until Jobs came back and turned it into a company that appeared impossible to beat.
Apple’s latest quarter was the first quarter when its performance was attributed directly to Tim Cook’s strategy, and it reflected that he actually could make Apple better than when Jobs was there — at least from a financial performance perspective.
What is often at the core of a failed company or division is an obvious mistake. The firm loses track of what its customers want (Apple, Palm etc.), the industry moves and the company doesn’t move with it (Yahoo, Netscape), or the executives can’t execute (Fiorina’s HP).
Rather than trying to understand and then fix the problem, what executives generally succumb to an ever-increasing panic trying to cut their way out of the problem, which Intel’s Andy Grove expressly said doesn’t work. It kind of amazes me how layoffs, which do tremendous additional damage to a company, seem to be used as kind of a generic miracle cure (like bloodletting was in the Middle Ages).
Of course the textbook stupid move, if sales fall, is to cut marketing, which is a company’s demand-generation engine. It’s like dumping your gas if the plane isn’t flying fast enough. Granted, the plane may indeed go faster, but the direction (down) could be problematic.
So a firm loses its way, and the initial fixes appear to be tied to activities that make the company weaker — not on understanding the problem and crafting a solution that actually would make the company well and successful again.
Steve Jobs and IBM-Lenovo
Jobs’ turnaround was a case of doing it right. Yes, he did cut the firm, but only after taking a hard look at it. In addition, he aggressively went after additional funding so he could strengthen the firm at the same time. Recall the US$100M he got from Bill Gates that opened the floodgates for additional investment.
Jobs didn’t cut working divisions much — he did triage. He stopped making cameras, PDAs, printers and corporate PCs, ensuring that he had the resources to fix consumer PCs. Apple got well and then kicked everyone else’s butt. This doesn’t happen often at all, but what if this process could be institutionalized?
Lenovo actually appears to have the process down, and what makes it even more interesting is it is the only firm attempting, with Ashton Kutcher, to recreate the Steve Jobs product advocacy model. I’m fascinated by the number of executives who appear to admire what Jobs did and then seem to do everything they can to avoid doing it.
When Lenovo took over the PC company, it didn’t cut it to death. Instead, it provided resources and removed a lot of the things that were killing the division. Lenovo is now the worldwide PC market leader.
I was briefed last week on the turnaround of the IBM x86 server business, and it appears to be way down the same path. Lenovo analyzed the problems, fixed them (granted most occurred because the division was buried in IBM), and the end result is that it is far more agile and capable then ever.
Compensation models were fixed, and legal was transformed from an impediment to an enabler. Lenovo achieved cleaner distributed command and control, tighter customer focus, removal of product conflicts, a vastly improved supply chain, increased economies of scale, and a more nurturing corporate environment. Oh — and it made a massive push to simplify the business, removing virtually all of the unnecessary complexity.
In effect, Lenovo acts as an effective hospital for sick IBM divisions, and I think we could actually create a model or an entity that could do what Steve Jobs did and what Lenovo does, but at a far larger scale.
Hospital for Companies
If I were to break down to just a couple of points why so many broken companies don’t get fixed, I’d say it starts with a lack of rigor on the analysis of the problem and ends with an excessive focus on a quick fix and cost-cutting. In short, executives jump to invasive painful processes long before they possibly can understand the problem they are trying to fix. Most of those executives aren’t experts at fixing companies, and the processes generally just make the problem worse.
That is similar to the Middle Age approach of using barbers as doctors and letting them bleed people. The first step to fixing this is likely to create and certify a group of folks who are expert at fixing companies. The closest thing we have to that is a little-known certification program called “Certified Business Accountants,” but this certification is focused more on finding the problems than it is on actually fixing them.
Interestingly, at IBM I was actually part of an attempt to create an organization like this, and it actually worked. Our CFO at the time turned Internal Audit into a mix of skills — effectively a Tiger Team, a strangely very effective but rarely used process — and we were commissioned to go into a troubled unit, find the problems, and if they were dire, replace the executives with our people until the problems were fixed — then hire our replacements to run the fixed division.
While very successful, that process required a very different skill set and it never propagated out of our division — so when the CFO left, that process unfortunately left with him.
Wrapping Up: Moving from the Middle Ages of Turnarounds
I think what Steve Jobs did and what Lenovo does could be packaged into a unique offering. With the right set of experts (a Tiger Team) and the authority to make the needed changes, it could systematically cure sick companies, much like we cure sick people today through analysis followed by tightly targeted remedial action.
We bleed billions of stockholder value because we try to heal companies the way barbers tried to heal people — by bleeding them to death. Ironically, the tools that the technology industry creates, from business intelligence to analytics, are key to success — yet the technology industry still lives in the Middle Ages of turnaround processes. I think it is time we changed that.
Product of the Week: Amplify’d
Companies do stupid things that often improve their position tactically but strategically are bad for both them and us. Take global warming. Firms are spending billions to not have to deal with it, even though the related behavior does everything from contribute to cancer to potentially end the human race.
Getting a company’s attention can be incredibly hard, though. You can try a boycott, and that can work, but it’s hardly immediate — and it only works as a stick. What if there were a way to entice a company to do the right things?
Amplify’d may be such a solution. It works like this: You pledge an amount of money to the cause, providing your credit card number, much as you would if you were making a purchase. If the company meets the demand, your pledge is converted to a gift card tied to the company, and you then buy goods in the amount of your pledge. In short, you put your money where your mouth is, and the company benefits if it behaves the way you want it to. Typically, this is money you’d spend anyway — and this way, it amplifies your voice.
The campaign currently running is focused on getting Starbucks and Peet’s coffee to stop using milk laced with antibiotics. While this milk has been loosely coupled to everything from cancer to Alzheimer’s, the overuse of antibiotics has a hard connection to the antibiotic-resistant superbugs we are increasingly seeing, which have the potential to be far worse than Ebola.
Granted, I read this, and I’m now off my daily Starbucks mocha, and we are moving to organic milk. If you do the same, there is clearly both a carrot and a stick part of this effort. So, if you agree, and Starbucks or Peet’s starts using organic milk, your pledge will turn into money you’ll then use to go back and buy your lattes again.
I should add that dead people don’t buy much coffee, so this turns into a win-win, because I really would rather not be a dead person.
I think it is efforts like this that focus people on problems and create incentives for companies to do the right thing, which could end up saving the world — so Amplify’d is my product of the week.