Business Strategy and The Wrong Medicine

Let’s say you’re not feeling well, so you visit the Doctor.  You walk into her office and she says, “Hi, it’s great to see you again.  I’m going to start you on 125 mcg of Synthroid.”

You say, “What?  You have even examined me yet!”

“I’m starting you on thyroid hormones because the patient before you had Hashimoto’s disease.”

“But, how do you know what I have?”

This sounds crazy, right?  It would never happen in a Doctor’s office.  But — rather amazingly — it happens every day in business. I call it “rewind/play syndrome” (an increasingly anachronistic metaphor, I now realize) where successful, otherwise-smart business executives repeat strategies that worked in their last engagement, regardless of whether those strategies are appropriate, or even relevant, in their new one.

To make this concrete I’ll give two examples.

My first example is Ingres, an early relational database vendor that for many reasons lost out on the second biggest market opportunity of the last century, losing the RDBMS market to Oracle.  In October, 1990 ASK Computer Systems (the company that defined and dominated MRP, the predecessor category to ERP) acquired Ingres.  In a sense, the company that could have been Oracle was acquired by the company that should have been SAP.  ASK had bet their next-generation product on Ingres, developing it on both the Ingres database and its proprietary application development environment.  In a classic escalation-of-commitment error, when Ingres got into deep trouble, rather than abandoning Ingres and switching horses to Oracle, ASK chose to acquire its technology supplier instead.

Quality, process-focus,  TQM, and Deming worship were the business fashion of the day and, in the manufacturing sector at least, for very good reason.  Since ASK sold almost entirely to manufacturers they knew quality cold.  So when they showed up at Ingres , they did what they knew — implemented a total quality process.  It was a major focus for the first year of the integration. The process itself — just the templates and the forms — took about four 3-inch deep white binders.

The project struck me as impractical from the beginning.  I repeatedly voiced the concern that if we could barely muster the resources to define the process (and maintain that definition) then how in the world could we allocate enough project managers to even have a chance at executing it?

Practical though I was, in my youth I had failed to see the even bigger blunder:  the problem with Ingres wasn’t product quality.  The software was almost universally acknowledged to be superior in both functionality and performance to Oracle.  Yet more and more people bought Oracle anyway.  Why?  Because Ingres was in a landgrab market with high-switching costs and strong increasing returns of market leadership. The further Oracle got ahead the easier it was to beat Ingres.

By 1990, Oracle was already 4x larger than Ingres — the horizontal market was already lost and all the quality process in the world wasn’t going to fix that.  Ingres needed a new strategy — perhaps focused on owning a horizontal or vertical niche — not a TQM overhaul.

Needless to say, the whole thing failed.  In its last quarter as independent company the ASK Group lost $69M on sales of $87M and was subsequently sold for a pittance — $310M, less than 1x revenues — to Computer Associates (CA).

My second example is less dramatic and simply about marketing programs.  At one point in my career I worked for an executive who had been a key part of building Cadence to $1B.  As part of that great success one thing he always remembered and enjoyed was doing some very high-end marketing programs focused on a very small number of people. The concept was to give people experiences they’d never have on their own and that they would remember for a lifetime.  That’s cool.

But to baseline the discussion, note that a typical software company might spend $100 on average to generate a sales lead.  Thus, an expensive marketing program might run $500/lead and a cheap one $25.  The program I’m talking about cost $30,000/lead — 300 times more than the average program and enough, as I pointed out at the time, to buy every participant a Ford Taurus and still have money leftover.

To me, at a gut level it was just crazy — fun, but crazy.  One of my colleagues, however, cracked the code on what was going on by posing the following questions:

• At Cadence, what percent of total revenues came from your top 10 customers?  While I can’t remember the answer, it was very high — say 70%.

• At BusinessObjects, what percent of total revenues come from our top ten customers?  Answer, like 5 to 10% — we ran a high-volume, relatively modest deal-size business.

So it wasn’t a matter of whether — in absolute terms — it was just plain crazy to run a program that cost $30K/attendee.  At Cadence, it probably wasn’t — if your top ten customers are generating $700M/year then go ahead and drop the big bucks on the right people at those firms.  But at BusinessObjects, it made no sense.  We didn’t have that kind of business.  Again, see the rewind/play problem.

I can provide a dozen other examples, which I also sometimes refer to as an “FBI guys” problem if you remember the scene from Die Hard where the “professionals” (the FBI guys) show up in black helicopters, take control from the LAPD, and say “this is just like freaking ‘Nam.”  One RPG later, the helicopter is in flames on the ground and LAPD Chief Duane T. Robinson sheepishly says:  “We’re gonna need some more FBI guys, I guess.”

Because I’ve seen this mistake happen so often and committed by so many very smart people, I must admit that I’m rather fascinated by it.  After much thought, I think that business people apply the wrong medicine for several reasons.

• People like to do what they know.  ASK knew quality, so ASK applied quality to Ingres.

• People instinctively repeat what made them successful.  You try convincing someone who made $50M executing a given strategy  at his last company that it’s a bad idea at this one.  (Hint:  revise your resume before doing so.)

• People are often actually hired to repeat what made them successful.  If you look at boards and the search process, they tend to diagnose the problem and then say we want a person who can do X.  Of course, you might think that a new person would still want to make his/her own opinion of what’s indicated, but when you consider the prior point plus the board pressure to lather/rinse/repeat, you can see how it happens.

• It’s often easier to do what you know and feel busy than step up and face the real problems that are not easy to solve.  Ingres’s real problem was huge — it had blown the market opportunity of a lifetime, needed to give up on general market leadership, and try to gain niche leadership.  That’s a tough pill to swallow.  So it’s easier to blame quality and focus on that.

It’s like saying go bandage the skinned knee when patient has a brain tumor, because at least you know what to do about the knee.  Zig Ziglar, in his oft-told story of processionary caterpillars, calls this confusing activity with accomplishment.

What can executives do to avoid this mistake?

• Seek first to understand.  If you show up with all the answers, you’re probably just doing what worked last time.

• Diagnose then prescribe.  Perform a situation assessment of the business and then derive strategy and tactics from the company’s situation.

• Keep yourself honest.  Beware that rewind/play is a natural human tendency, and ask yourself — deeply and honestly — if you think you’re doing it.

• Avoid avoidance.  Make a list of your company’s problems, including all the big nasty ones, and then make sure that your strategy isn’t the equivalent of fiddling while Rome burns.  Find the hardest nasty problems, and the biggest best opportunities, and focus your business on them.

Hint:  if you’re blaming “execution” then you’re most probably avoiding bigger, harder strategic issues.