The Ten Commandments for Business Failure - Don Keough [12]
I was on an advisory board of IBM World Trade Americas during the 1970s and on into the mid-1980s and everything was wonderful at IBM. In sales, profits, patents—by every measure, they defined their industry. They were the best of the Fortune 500. Executives took sabbaticals. The mainframe computer was the future, as it always had been and always would be. And for a very long while they were right. In 1980 they projected that by 1995 revenues would exceed $250 billion. In fact, in 1984, IBM had the greatest after-tax profit of any company, any time in history, nearly $6.6 billion. Nine years later, in January 1993, IBM announced the greatest corporate loss up to that time, around $8 billion.
What happened was that IBM was completely set in its ways. They knew what was going on in the world of computers and by 1981 had developed a successful PC. But they didn’t really believe in it. They believed in an internal forecast of worldwide PC sales at less than 250,000 units by 1987. In fact, more than a million were sold by 1985. Leaders at IBM didn’t understand, or refused to understand, that marketing PCs was completely different from the selling and servicing of the big mainframe battleships that had given IBM global dominance. Like the military admirals and generals who are always preparing to fight the last war, the IBM management remained, in their hearts, absolutely committed to a mainframe way of thinking.
Through the 1980s, I would from time to time mention that I was seeing more and more PCs in various offices of The Coca-Cola Company, and invariably I was met with a polite smile and a shrug. It was like IBM management was standing on the bank of a river. No matter how long you stand there, you never see the same river twice—it is in constant motion. History is downstream—the future is upstream, where opportunity and danger may be on their way. But the reality was that the executives at IBM were too busy looking downstream, happily watching those beautiful, profitable mainframes floating down the river and around the world.
The final curtain on this little business history episode is that the ThinkPad, IBM’s PC, ended up in the laptop factories of China under the brand name Lenovo. It’s sad because IBM had such a head start. They’ve recovered, of course, but it wasn’t easy.
Throughout the relatively new and growing computer industry there were quite a number of firms that though they had been founded in a burst of innovative creativity were nevertheless surprisingly quick to adopt an inflexible stance, and they were not nearly so fortunate as IBM. They did not survive at all.
One legendary name that many readers will remember is—was—Digital Equipment Corporation. Founded in 1958 by a couple of brilliant engineers out of MIT, Ken Olsen and Harlan Anderson, at its peak in the 1980s, DEC was the second-largest computer company in the world with about one hundred thousand employees and a highly vaunted reputation for technological genius. They were one of the first businesses connected to the Internet and they created AltaVista, one of the first comprehensive search engines. They had internal e-mail long before its market value was recognized. Work on an MP3-type personal music player began in their research center. In short, they were ahead of their time in many areas. What brought them down was the conviction that they had the one right approach. Everything they did was “DEC-centric,” very proprietary. For all their brilliance, the DEC founders simply refused to adapt to the new, broader-based structure of the computer business. Piece by piece the company was sold off, the last of it in 1998, though I understand the logo survived for a short while in an IT company in India.
Inflexibility is a very crippling disease.
Probably there is no better example of the affliction in full fever than in the behavior of a brilliant man who literally changed the American culture—Henry Ford.
Ford did not become the nation