A lesson of history

We are living in a world that is constantly changing. With globalization and information technology, the rate of change has been accelerated. The ability to respond to change requires new thinking based on new information and the ability to use them to the best advantage. However, technology can change quickly but it takes much longer for people to change and that is why the Information Technology (IT) industry has so many failures with late delivery, poor quality, and high costs. So many times we see great companies fail because they cannot adjust to changes. A senior executive admitted: “We have been successful of what we do, there is no reason to change and that is why we fail.”

Forty years ago, IBM was the largest and most powerful technology company in the world. Its computer systems and software were used in over 70% of companies. Its workforce of 300,000 technical people was considered the elite in the technical world. When two college dropouts created a small computer called “Apple” in their garage, IBM tried to do the same but could not build such a small devices. Why a powerful company with several research centers and thousands of best scientists could not compete with two lesser educated youngsters? The answer was simple, for so many years they were trained to think big (mainframe) and could not change their thinking to something small. It took IBM several years and a lot of failures until they hired a group of recent graduates, placed them in an isolated area, allowed them to think differently and they successfully developed the IBM PC (personal computer). Even with the PC, the largest software company with hundreds of thousand software engineers could not develop an operating system for it. They were used to think of a large operating system with several layers of sophisticated software so IBM could not build something small and simple. IBM executives worried about being late again so they hired an unknown company called “Microsoft” to build the software for them. When IBM announced the PC, it was a great success. The company expanded the production throughout the world. As PC demand grew, more companies were switching to PC. Of course, by having the operating system that controlled everything on the PC, Microsoft could control the market so within few years Microsoft dominated the market and destroyed IBM business. When PC was introduced, IBM was the third largest and most profitable company in the world but within seven years, IBM business lost hundred million dollars each year and had to laid-off hundreds of thousand people. At the same time Microsoft had grown to a most powerful and become much bigger and more profitable than IBM.

Time after time, we see so many cases where efforts to change fail because management cannot change their thinking or willing to accept new idea. An industry analyst concluded: “All the big mistakes were made by executives who cannot change their minds; they continue to operate as though the business is still unchanged. They manage the business as though it was the same business when they were successful. They did not know the need to improve, or re-engineering the business because change is not something you can change a little at a time. Today’s demand is not the same as last year’s demand and tomorrow’s demand will be different.” The thinking that change is an isolate event that can be deal with whenever you like rather than something that can affect the whole company all in once is a fatal mistake. Most managers cannot visualize the complete picture outside of their area. They only see a small piece as their thinking is so limited and that is why new idea, new innovation is inhibited by their current thinking. Such thinking is the major reason why so many efforts to change fail.

When PC dominated the business world, one of the largest and most successful companies was Ashton Tate who builds the database management system called DBase. The company started in 1980 and quickly became the third largest software at that time (Microsoft is number one and Lotus is number two) The Dbase was the most popular software which made over $250 million a year for Ashton Tate. When technology changed with faster processor and new window operating system, Aston Tate management was still enjoy their success and operated the business as nothing has changed. When competitors developed new products using the latest technology, Aston Tate management believed that their customers would never switch to new products. When competitors offered better and easier database products, Ashton Tate management panic and ordered new product called Dbase 4 and announced that they will have a new product by May 1988. Few months later, they changed it to August then December. In a hurry, the new product had so many defects that after the released, Ashton Tate had to recall them to fix. The more they fixed the more defects they found so they could not ship them until 1991. The company lost all of their best customers who were so angry and switch to their competitors. Within a year, the third largest company no longer exists. The cause of this problem was reactive bad management and poorly execute as they announced that they could have new software by 1988 then keep changing the date because of poor quality until 1991 but at that time it was too late.

Both IBM and Aston Tate forgot a key business rule: “If you do not improve, your competitors will. If you do not change, your competitors will.” In this highly competition world, you cannot feel complacent because if you do, you are surely will fail.

Sources

  • Blogs of Prof. John Vu, Carnegie Mellon University
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