The Fiefdom Syndrome

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Seduced by Success 9 Traps of Success By Robert
Herbold
MIM-NMC 2007 l Mandarin Oriental Kuala Lumpur l
5 December 2007
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Seduced By Success

• Bob Herbold

------------The Herbold Group, LLC----------------
-------------------------------------------------
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Sony
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Sony 1990sThe King of Consumer Electronics

• - Sony Trinitron televisions
• - Sony Walkman
• - Sony PlayStation game player

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Sony 1998The King of Portable MusicThe
Inflection Points

• Hard Drive Capacity
• Digital Music Video
• The Internet

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2001The Hottest Consumer Electronics Product

• - iPod music system

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Sonys Problem

• - Hardware, software, and music skills all
  resided in separate fiefdoms
• - A product like the iPod requires integration
  of these areas

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The Sony Connect Product

• - Sonys response to the iPod
• Software developed by PC group
• Hardware developed by Portable Audio team
• Software didnt work well with the hardware
• Product finally launched in May,05

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The Sony Connect Product

• - Used a proprietary Sony Mini-Disc
• - Why no hard drive?
• - Head of Hardware RD hard-drives are not
  interesting because anyone can make them

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Sonys Stock Price

• - January, 2000 130
• - December, 2002 45
• - December, 2007 47

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Sony is Not Alone Kodak, GM, Porsche, etc.Why
do we often see this kind of problem ?
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44 Companies Analyzed

• - GM, Toyota, Motorola, Boeing, Sony, Apple
• - IBM, Agilent Technologies, Nucor, Samsung
• Daimler Chrysler, Fidelity, McDonalds, IBM
• PG, Coca-Cola, Dell, Microsoft, Starbucks
• - Harrahs, Unilever, Gillette, HP, eBay, Intel

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Success Is a Huge Business Vulnerability

• Because It Causes
• - Loss of Urgency
• Pride and Protectiveness
• Entitlement Mentality

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What Do These Behaviors Cause?

• - Legacy Thinking/Practices/People
• - Nine Dangerous Traps

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Seduced By SuccessHow the Best Companies
Survive the 9 Traps of Winning
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Trap 1 - Neglect Sticking with Yesterdays
Business Model

• Action Face Reality, Then Aggressively Tackle
  Your Vulnerabilities
• IBM

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IBM1970s and 1980s

• The Most Successful and Most Admired Company in
  America

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IBM 1990-92

• - Independent Product Divisions
• Independent Regional Divisions
• Massive Overstaffing
• Losing US100 Million Per Quarter
• Clearly Headed for Bankruptcy
• The CEOs Breakup Plan

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IBM 1993

• Board Finally Removed CEO
• Lou Gerstner Hired
• First Task Customer Visits
• Visited RD and the Geographies

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1993 - Lou Gerstner IBMs Vulnerabilities

• - IBM Customers Were Highly Dissatisfied
• Management Committee Encouraged Consensus
  Decision Making
• Complicated Matrix Organization

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Gerstners New Strategy

• - Solve the IT-related Business Problems of Our
  Customers
• Reorganized Around Customers and Scrapped the
  MC
• Used e-mail to Describe the Plan to All Employees
  at Once

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Trap 2 Pride Allowing Your Products to Become
Outdated

• Action Capitalize on Inflection Points
• Toyota

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Toyota 1993

• - Chairman Selects a Chief Engineer to Develop
  Car for 21st Century
• Concern Over Oil Supply Long Term
• Concern Over Environment
• Both Were Possible Inflection Points

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1993 The Task

• - Develop an Assessment
• Recommend Action if Appropriate
• Instructions Totally Ignore Toyotas Current
  Business

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Toyota

• - Recommendation Design and Build a Prototype
  Hybrid Car
• Leader Selected
• Top People Put on Team
• Prius Emerged and Launched in 1997

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Trap 4 Complexity Ignoring Your Business
Processes As They Become Cumbersome and
Complicated

• Action Dont Wait for the Crisis
• Microsoft

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Microsoft 1994

• - Difficulty Closing Financial Books
• Excessive IT Systems
• Excessive HR Personal
• Out-of-Control Procurement Practices
• Huge Embarrassment
• Big Profit Opportunity

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Microsoft Solution

• One Set of Systems for Common Tasks - Finance,
  HR, Procurement
• Eliminated 70 of Existing IT Systems
• Huge Reductions in Manpower
• Each Process Had an Owner
• No Committee Decision Making
• Make Microsoft a Showcase

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Trap 6 Mediocrity Condoning Poor Performance
and Letting Your Star Employees Languish

• Action Effective Performance Appraisal and Key
  People Systems
• Microsoft and PG

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Microsofts Appraisal System

• - 5 Point Grading System
• - Forced Distribution System
• August Each Year, with February Check Point
• Tied to Salary System
• Required Participation

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PGs Key People System

• - Annually, Each Division Developed a Top 50
  lists ( 10 people per level)
• - Presented to CEO and Mgt. Team
• August Each Year
• Presented Plans for Each Person
• Reasons Why a Person Fell Off List

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Trap 8 Timidity Not Confronting Turf Wars,
Infighting, and Obstructionists

• Action Assemble a Team You Believe In
• Porsche

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Porsche 1950s 60s

• - THE thoroughbred luxury sports car
• - The rear-engine 911 model

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Porsche 1970s 80s

• - The mid-engine 914 Joint effort with
  Volkswagen
• - The front-engine 924 Joint effort with Audi
• - The front-engine 928 with a V8

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Porsche 1993

• - Sales below 12,000 units
• - Image suffering
• - 120 hours spread over 6 weeks to make a 911
• - Seven years to launch a new model

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Porsche 1993

• - New CEO management team
• - Discontinued all models except the classic 911
• - Hired Japanese production experts

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Porsche mid 1990s

• Time to produce a 911model 45 hours over 3 days
• - New model development time 3 years

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Porsche New Models

• - Boxster 911-like performance, mid-engine
• - Cayenne 911-like performance, sports car of
  SUVs
• - 911 Carrera GT 200mph, 440.000
• - Cayman 911-like performance, sport coupe

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Porsche Results of New Team

• - Selling over 100,000 units/year
• - 300 employees to produce 25,000 Cayennes
• - The most profitable auto company in the world
  17 pre-tax margin

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Seduced By SuccessHow the Best Companies
Survive the 9 Traps of Winning
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Questions?
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Thank you