We now come to Stage 4, Grasping for Salvation.

Illustrative is the contrast between how HP and IBM responded in terms of choosing new CEOs when each company’s growth slowed dramatically in the 1990’s.

HP first: It faced a choice as it sought to replace Lew Platt in 1999. Note that from 1992—1998 Platt had quintupled profits, hardly “failure mode” for a CEO, yet by 1999 he was widely regarded as yesterday’s tired news, and suddenly at what we now know was near the peak of the Great Internet Bubble, Platt’s thick glasses, preference for driving a Ford Taurus, and eat-in-the-lunchroom habits were not deemed au courant. Platt saw the handwriting on the wall and volunteered to step aside early. Here’s Collins on HP’s choice:

On July 19, 1999, HP announced Platt’s replacement, Carly Fiorina from Lucent. In 1998, Fortune had named this ‘supersaleswoman’ the ‘#1 Most Powerful Woman in Business,’ beating out Oprah Winfrey. The announcement that staid old HP had hired the most powerful, glamorous, exciting, magnetic, superstar female executive in the world ignited a frenzy that stunned even Fiorina…. Hp found itself with a celebrity CEO, a business rock star who could charm and dazzle and whose very presence created a media onslaught.

As for IBM, its new-CEO moment came in 1993, which were dark days indeed for the company. They picked Louis Gerstner:

USA Today offered to publicize a ‘daily progress charts’ of Gerstner’s first 100 days [but] he replied, ‘No, thank you. We’re going dark for a bit while we assess the task at hand.’ Instead of going to headquarters on his first day he opted to attend an international managers’ meeting but he didn’t yet have an IBM badge and he found himself locked out of an office building, ‘knocking helplessly on the door’ until a cleaning woman reluctantly and skeptically opened the door.

Media relations?

Fiorina starred in a TV ad shot in front of the legendary Silicon Valley garage where Bill Hewlett and David Packard had started it all, and inviting the audience to “Watch!” as HP fulfilled its newly branded positioning: “Invent.”

Gerstner? At his first public appearance to discuss IBM, he unforgettably said, “The last thing IBM needs right now is a vision.” (Personal confession: I remember being worried when I heard this, but eventually—too late—I came around to the view that it was intriguing and full of promise.) After the totemic first 100 days? The stock was down 6%, and reviews were harsh: “He’s done nothing.” “Clearly, he’s no miracle worker.”

Meanwhile, Fiorina—on day one in her role—mapped out a vision and added, superfluously: “I’m in a hurry.”

We have the luxury now of knowing how this film reel unspooled: Gerstner steadily grew IBM’s profits over what would be his decade-long tenure and IBM’s market cap rose from $29-billion to $168-billion. Fiorina was sacked less than five years later after, among other missteps, the universally reviled Compaq acquisition. But Collins, clear-eyed as ever, refuses to blame Fiorina’s disappointing tenure entirely on her (emphasis mine):

In fact Fiorina was exactly what the board appears to have wanted: A charistmatic, visionary leader who would bring the magnetic star power and passion for change needed to revolutionize the company. By that standard, Fiorina can be judged a success, indeed, the perfect choice. The descent into Stage 4 didn’t begin with HP’s slow response to the dotcom bubble, but in how the board reacted to fallling behind.

Stage 4 begins, in other words, when organizations in a downturn look for a silver bullet to part the clouds. It could be any number of things:

  • Betting big on an unproven technology;
  • Doing the same with an untested strategy;
  • A splashy new product or service offering;
  • The always-popular “game changing” acquisition;
  • An image makeover;
  • A savior CEO;
  • Or of course, as the endgame approaches, a financial rescue or acquisition.

Collins is merciful enough to outline some of the warning signs, and their counterparts:

Markers of Stage 4 Ways to reverse the spiral
Pin hopes on the unproven with much hype and fanfare Formulate strategy based on empirical evidence and analysis
Go for the game changing acquisition Recognize that combining two struggling firms won’t create one great one
React in panicky, desperate fashion Do your research, think hard, and then and only then act-or not
Embark on radical change and transformation firmwide, abandoning core strengths Be clear about what’s core, building on what’s proven
Proselytize about a brighter future to make up for poor results Focus on performance; tangible results will clarify which direction to head in
Keep people confused by embarking on continuous restructuring or at the least, make big decisions inconsistently Create positive momentum through sound choices executed with ongoing rigor; try to make them build on each other
Seek the leader as savior Seek a leader as disciplined and steady performer

You might start to wonder why companies in drastic decline shouldn’t attempt drastic solutions? Collins’s rebuttal is that engaging in desperate behavior worsens the firm’s prospects. Take another look at the table above: I don’t believe any choices from the left column or the right are foreordained, and firms at the start of Stage 4 can, through the choices they make, help determine whether they truly descend into a vortex or pull out and recover.

Yes, history and circumstances have consequences. So too does individual choice.

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