October 29, 2012 8 Comments
I find it interesting that many people seem to have an assumption that a senior executive who has shown a measure of success for some time will continue to do so ad infinitum.
This belief in an executive’s ability to sustain a never ending “onwards and upwards” is totally unrealistic.
In my own industry of IT, many CEOs who were successful and seen as shining lights during the reign of the mainframes, did not survive the transition to distributed computing. One only needs to witness the demise of industry heavies such as Burroughs, Univac, NCR, Control Data and Honeywell.
Similarly companies like DEC, Data General and Sun Microsystem did not survive later generational shifts despite their CEOs Ken Olsen, Edson de Castro and Scott McNealy respectively all having been seen as visionaries and great leaders in their time. Nevertheless, they were not able to cope with and survive the external changes that bore down on them.
Few would have predicted their demise, but they managed to take their companies into oblivion.
There are hundreds of examples to choose from, but I have taken these three as they are companies where I actually worked.
So what went wrong ?
I accept that CEOs have to be full of confidence, but the first problem was their own over-riding arrogance. I believe that many CEOs just become victims of a belief in their own marketing, as they start to believe in their own “wondrousness” and therefore infallibility. Being included in the initial 62 companies (later culled to 43), named in the Tom Peters book “In Search of Excellence” for DEC and Data General only helped to support this belief. As it was first published in 1982, the year Sun Microsystems was founded, they were too new to be included. Interestingly other industry failures like NCR, Wang and Amdahl were also included on the list.
Ken Olsen of DEC refused to believe that people would ever want a computer on their desk or in their home, let alone in their briefcase or in their pocket, despite the obvious explosion of PC companies and Microsoft. He also resisted the whole idea of “professional salesmen”, never allowing commission to be paid, and believing that he could replace salesmen simply by mailing out a copy of the PDP-8 and PDP-11 handbooks to all IT and lab managers around the world, being beliefs I heard him enunciate regularly during my time there in the 1970/80s. No-one was ever able to dissuade him from these beliefs even as the company began to founder (I have always found the double meaning of the word “founder” to be so apt). DEC was being so successful in the 1970/80s that complacency and self-belief took over from innovation and paranoia, both needed for success.
Scott McNealy, founder, Chairman and CEO at Sun Microsystems, originally seen as a world changer, grew Sun to a point where he came to fully believe in his own infallibility, and in doing so drove out many of his senior executive team such as Eric Schmidt and Carol Bartz who went elsewhere. Maybe even more importantly, despite the efforts of Bill Joy, a Sun co-founder, McNealy on three different occasions personally scuppered a mooted merger with Apple, dubbing the Apple iPod as being no different to an answering machine, being something that would only survive a few years.
Secondly, many CEOs do not see strategic threats coming, until it is too late.
There is so much pressure on CEOs to meet and exceed market expectations that most of their time becomes focussed on meeting operating goals, leaving little time free to keep a studied eye on assessing possible external threats. For example, the signs have been there for more than a decade that India and China not only had the population size, but also the determination and intellectual capital to force themselves onto the world business stage, but many CEOs chose to disregard this. Those that did, most times, could not look beyond the size of these populations as a potential market for their own products. Over the last 5 years I kept hearing the phrase “If I could just get 1% of the Chinese populace to buy my (insert whichever product you wish), I could grow my business by (insert whichever % you wish)”. Those that looked closer would have quickly realised that both China and India have long seen themselves more as suppliers rather than as consumers for international markets, and therefore posed more of a threat than an opportunity.
Finally, companies can become so market dominant that they defocus on innovation.
In my own career, 40 years earlier, International Harvester, the world’s largest and most successful manufacturer of trucks, farm and construction equipment (where I spent 8 years of my early working life in the 1960/70s) did not see, nor believe in, the onslaught that would come from Japanese competitors that ultimately dominated their global market and sent International Harvester to the scrap heap in the sky. A crippling 6 month strike in 1979 which cost the company about $600 million in revenues (over $2 Billion in today’s currency) didn’t help either. The company had stopped innovating and had focussed more on internal cost cutting (which initiated the strike), believing that their “tried and true” products would continue to excite their customers. They didn’t, and customers moved to the Japanese products which were less expensive as well as being “sexier”.
I believe that the problem is that Founders and/or CEOs tend to hang on to their corner suite for too long, and that very few know when it is time to step aside. Rather than moving on when they are at their peak performance, many CEOs stay until they are pushed out by a Board of Directors that has tended to be a bit too forgiving, particularly of a Founder/CEO.
I have a firm belief that senior executives, including CEOs, should not be allowed to stay in the same role for more than about 5 years, as after that time I see that they start to recycle their thinking and tend to run out of steam (see “How do you know when you should step aside” posted April 2, 2012). Intel, as one shining example, rotates its executive team including the CEO regularly and despite generational shifts continues to be a market leader.
As so ably put by Donald Trump, American business magnate, on one of those rare occasions when he didn’t put his foot in his mouth “Success breeds complacency. Complacency breeds failure”.