Wednesday, July 09, 2008

America’s Three Dumbest Companies….

IBM, Xerox and GM were once touted as some of the smartest companies on earth.
Everyone paid them tribute. We took our management lessons from them; they were featured in the Harvard Business classes as examples we could learn from.

Since then, the shroud of ignorance has been lifted from our shoulders. We have poked, picked and examined them from every angle and discovered that we were wrong in our assessments. Over time, we had learned how wrong we had been by following the popular culture. Instead of being the smartest companies in America despite their longevity, they are perhaps the dumbest.

The amazing thing is that at the time, everybody thought that they would remain at the top of their industries. Nobody thought they could do any wrong.

In this brief essay, we will just touch the highlights but no doubt, anyone who was not intimately familiar with these companies and how they operate, companies once believed to be juggernauts, should come away with a new perspective and revised perceptions about what makes a company great..

Let’s begin with IBM. When I first became involved with computers, IBM was the model for us all to study. There were some ten to twelve competitors at the time, but IBM controlled the lion’s share, something like 88% of all business. The rest divided up by the competitors including GE, Honeywell, NCR, Burroughs, Control Data and Sperry.

Sperry had been the first in the field and the original leader. However, it’s marketing department had sat down to anticipate the size of the market for computers and arrived at the number twelve. They were superseded by IBM almost immediately who sold something like 140,000 of their 1401 Series by 1964.

IBM made the mistake along the way of ignoring those who were outside the company and that brought about their fall from grace. To them, the people who played with the little black boxes, then called Commodores, weren’t worth thinking about.

However, when IBM went outside to find its Operating System, it went to one of those who happened to see a future in those “little black boxes.” His name was Bill Gates and he owned nothing but bid immediately on providing an operating system for the IBM behemoth. Bill Gates then went to the owner of the system in San Francisco and bought the rights. It changed the computer industry forever and it lost IBM its advantage.
All the rest was history, Bill Gates formed Microsoft and built a fortune by just offering operating systems and software and staying away from hardware.

A brilliant move by a brilliant and futurist, Bill Gates.

But IBM didn’t end the tomfoolery there. Tom Watts decided that they no longer wanted to build their own chips so that they would go outside. Subcontractors were all the rage.
They offered the opportunity to a small company called Intel with a very smart president who understood what IBM was putting up for grabs. Today, Intel is the largest manufacturer of chips worldwide. Moreover, both Intel and Microsoft earn more than IBM ever dreamed of.

At the time, Xerox was riding high. It held all the patents on xerography and the company based in Rochester couldn’t keep up with demand. It had also started an R&D venture in Palo Alto, California. But the distance between research and the suits that drove the business was far greater than any physical geography.

The engineers at Palo Alto had really come up with something big.

But the suits simply didn’t get it.

Word got out to Bill Gates and Steve Jobs and they came to visit.
What they saw, also changed the physical face of computing forever.

It was something called the “graphical interface.” Up til then, all computing was very prosaic: lists of numbers and alphanumeric characters, no graphics!

Jobs seized the idea for use with his new “black box,” what was to evolve into the Apple pc.

IBM still thought of the pc market as something not to be taken too seriously.

The “Killer Applications” came following the development of the graphical interface and the market for Apple computers exploded.

Xerox never got it.

By the time they went to court, their hold on the computer industry was little more than a moot point. They had lost out big time to become the leader of the computer industry.

GM was always a hidebound company. It hired from Detroit, people who knew the car industry. It never went outside to get outside viewpoints, as explained by the former head of the Cadillac Division, Delorean, who built his own car company and the fabulous Delorean, with its stainless steel body and gull-shaped doors.

Delorean wrote in his book, On a Clear Day, you can see GM, about how GM developed policy and how really isolated its managers were.

For example, to review a new idea, management had to see it three times. First, it had to be sent to the managers for review before a meeting could be planned.

Then the managers approved the meeting but usually fell asleep during it because they had already seen everything and then there was a final wrap up which nobody paid attention to. It takes time to see every idea three times and between that and their isolation and identification with a world of their own making, they fell behind in the important task of knowing what their customers sought in an automobile.

The Japanese, however, not so smug or complacent, came to this country and asked questions and talked to the consumer and changed the nature of the automobile industry once and for all times. Get this: They actually built the car the driver wanted.

(I was a former GM customer who decided to quit after a Buick purchased in 1984 from the dealer was delivered without the right shocks, the right PCV valve, faulty door opening devices and a bumper that was only bolted on and then stolen. I had the car in service for every day for the first six months…)

Today, GM is in shock. The market for its big juicy oil guzzlers has evaporated.

My God, isn’t that a surprise especially with fuel costs at over $4.00 a gallon.

China is currently turning out 9 million cars a year; a country that was in the backwoods hardly twenty years ago.

In ten years, they will be producing as many cars as we produce in the US.

The Japanese are making hybrids and have been for years.

And the Japanese have just completed the first hydrogen operated fuel cells for commercial use in cars….

The Indians are already building a $2,000 car.

Where does this leave the smartest automotive company on the planet?

I posited these three alone because we can learn from their mistakes.

In this case, the beneficiaries have been Apple, Microsoft, and Toyota.

Without Xerox, Apple wouldn’t have realized its potential; without IBM, Microsoft might still be just an idea and without GM, Toyota wouldn’t have conquered the auto race for first place.

Hard lessons to learn that counter the prevailing intelligence but vital if we are to ever move forward again.

Les Aaron
The Armchair Curmudgeon.

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