How We Have Managed Industry Almost to Death
Posted 06 May 2003 - 02:36 PM
By Robert X. Cringely
Two weeks ago in this column, we were lamenting the decline of industrial basic research, and last week, it was the decline of science at all in the absence of threats like Hitler and Stalin. But this week, in the culmination of our tragedies of the technical, we lay blame for both phenomena where it clearly and obviously belongs -- on the shriveled hearts and addled brains of professional management. We have managed our technical industries almost to death.
It is easy to forget that professionalism is the enemy of the high-tech startup. If these companies were operated by professionals, they would never have been founded. Nor would a professional tolerate the conditions necessary for startup survival. Michael Eisner never emptied a wastebasket at work, but I'll bet Walt Disney did.
Here is a scene that happens at some point in almost every young company. The founder/CEO/technical visionary meets with his board and finds him or herself out of a job. How could this happen? Well, the company has grown to the point where the board feels that "professional management" is required, so they are bringing in a new management team. The new team is composed of old friends and classmates of the board, and the new team costs five to 10 times as much, but that's okay because the company is "hiring for growth." This new team cuts staff, cuts costs and outsources everything that can be outsourced, with the result that earnings are improved and the stock goes up or the company makes itself look better for an Initial Public Offering. The professional managers get big bonuses, they exercise mountains of stock options, sell those option shares, then go on to some other, even bigger, job having "saved" the company, which then stagnates, goes into a slow decline, and is eventually acquired by a competitor.
In the PC industry, this is the path followed by almost every company. On the software side look at Borland, Broderbund, Personal Software, Lotus, WordPerfect and hundreds of others. The similarly afflicted hardware companies are so many that the names become a blur. All these companies, even though some of their names may remain, are effectively dead. Certainly, they bear no resemblance at all to what they once were. And every one of these companies had something else in common: At the time their management was displaced, they were profitable and had money in the bank.
So what happened? Well, in some cases the founders were at fault and should properly have been replaced, but in many cases it was something very different at work -- simple greed on the part of the financiers and venture capitalists. Here is the same scenario from the perspective of the typical VC member of the board. The founder is no longer doing exactly as he or she is told. The company is moving toward an IPO or the stock is not performing to the satisfaction of the larger shareholders. So the founder is forced out, then his or her shares are diluted to make room for the new managers, who are cronies of the financiers. This dilution eliminates the founder as a voice of opposition. The stock price is pushed up, the board sells out, the new management leaves, and nothing of the original company remains.
Sometimes the result of the ensuing crash can have effects beyond belief. The Learning Company, for example, pretty much destroyed the U.S. consumer software business in the 1990s, and then went on to destroy the U.S. toy industry as well by taking down mighty Mattel. Now THAT's professional managment.
This is all a trick promulgated by people who do not in any way care about the company or its people. But visit most any business school and what I just described is taught in case studies as examples of good management. It is maximizing shareholder value, they'll say.
Pity the poor MBAs, for they know not what they do, nor do they seem to care.
In the last two weeks, I've been hearing from people who spent decades at places like IBM and AT&T Bell Labs only to be laid off or have their division sold. Some saw it coming years before, like the IBMer who noticed in 1986 that the company was cutting back subscriptions to technical journals for its library. He immediately began looking for a new career. But most just felt an increasing ache as their company slowly changed into something they no longer liked.
This might not matter if it didn't also mean that our long-term competitiveness is threatened by such shortsighted action. Seeking short-term gains, we have sacrificed not just the futures of our enterprises, but also their characters. Often all that's left is the logo.
Here's one example from a jaded reader:
"In 1965, I went to work for Celanese Chemical Company as a Mechanical Engineer. In 1971, I was transferred to their research center in Corpus Christi."
"This center was never really noted for basic research. Instead, their forte was to really improve a process that had been licensed from some other company and also to figure out how to purify a chemical better than any other company could. As an example, Celanese licensed a process from Monsanto to make methanol. Over a span of many years, the process was drastically improved and the improvements were covered with patents. It got to the point where Monsanto almost couldn't recognize what we had and we greatly outperformed their own plant."
"Each of our chemists was given a little time each week to work on something that caught his/her fancy. One of them came up with a novel approach to the manufacture of acetominophine (Tylenol). This led to the extension of the basic chemistry and on to the most efficient and cost effective way to manufacture ibuprofen (Advil). Commercial plants were built for both and, at one time, the ibuprofen plant was supplying most, if not all, of the North American and European markets."
"Hoechst A.G., who owned Celanese at the time, decided in 1997 that the research center cost too much. They wanted to specialize in pharmaceuticals. A massive layoff followed. The center was kept open, but with a greatly reduced staff. Last year, it was announced that even the little remaining was too expensive and it would be totally shuttered by the end of 2002."
"There will be no further research for Celanese on process improvement, new markets, cheaper ways to run existing processes, etc. If I owned Celanese stock, I'd sell it because the company will be down the drain in 10 to 15 years."
Think about it. From the perspective of the Hoescht executive who decided to close the Corpus Christi plant AND FROM THE PERSPECTIVE OF HIS OR HER CAREER, shutting down that research center was absolutely the right thing to do. It improved the appearance of corporate performance at a cost that won't be felt for years. And when that cost is felt, it won't felt by Hoechst at all, since Celanese has been spun-off and is on its own.
Does current Celanese management even know what they had in that Corpus Christi research center? Probably not, because any sense of corporate history has probably been lost.
We're lucky in the computer industry that the companies are young and many of them are still run by their founders. I may not always agree with what Scott McNealy does as CEO of Sun Microsystems, but I know McNealy understands what Sun is about because he was there at the beginning and built the first few Sun workstations by hand. Certainly, as long as Microsoft and Dell and Oracle and Adobe have been around, there has been a founder at the helm, and it shows. Love them or hate them, at least these companies have identifiable characters.
And sometimes, that combination of technical expertise and business success combines to create something even greater -- an organization that has a love of learning for its own sake. That's what appears to be happening at Research In Motion, makers of the Blackberry handheld e-mail appliance, where three of the top corporate officers have put $120 million of those shrunken Canadian dollars -- their own money, not the company's -- into the study of particle physics.
Maybe there is hope after all.
Posted 18 December 2004 - 12:15 AM
Bit of a heavy slog but worth it.
I get a kick out of specialists who
corner the power of language. The better
educators were always the ones who
explained things in simple terms.
Bureaucrats don't want you knowing
their acronyms and defined terms.
Posted 18 December 2004 - 01:21 AM
Now I know you would enjoy books by John Ralston
And it was written when things weren't looking bad, but by a very thoughtful Liberal.
I am glad he contributes to our state affairs as a husband of our G.G.
Posted 05 May 2005 - 05:35 PM
many execs work for free wage-wise, and take their compensation in the form of stock options and sweetheart investment plans funded by the corp
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