This week I’m at AMD’s analyst conference and the difference at the company from last year is like night and day. Last year, it was bleeding cash, its outlook was uncertain, and it was massively eclipsed by Intel, which had spent years out-executing and out-spending the firm. AMD, back then, had made some big bets in terms of owning the graphics console business, which was on life support, and investing in SeaMicro, a firm that was attempting to revolutionize highly virtualized servers. It had a strategy but it was risky, it would require a team that could execute, and there were a lot of doubts.
Now, a year later, the firm is making its promised ramp up. Two of the game consoles were actually very successful, it is now able to talk about its efforts to merge ARM and X86 technologies into a transitional and disruptive server offering, and it is no longer burning cash. It’s off death watch. It even grew revenue at a whopping 38 percent in the fourth quarter of last year, and now its promises of a full year of profitability in 2014 appear achievable because the past promises of CEO Rory Read have come true. This is the metered way of doing a turnaround. Don’t overset expectations, deliver on the expectations you set, and address the problems in a pragmatic way to first stop the bleeding and then to grow the company.
Let’s talk AMD turnaround this week.
Turnarounds by the Numbers
I follow a lot of turnarounds. Few actually make it. This is often because the new CEO wants to move directly to growth or doesn’t build a loyal team or doesn’t spend the time to understand the problems before executing a poorly thought-out strategy. The handy thing for Read was that he was at IBM through its successful turnaround and Lenovo through its reinvention. He gained the knowledge critical to a turnaround: When you are rebuilding a company, you have to start at the foundation, not jump to customizing the penthouse.
One of Read’s first moves was to purge the executive ranks and pull in people he knew could execute. Much like building a startup, this top-down approach to leadership was necessary to understanding the problem. Often in a turnaround, the effort fails not because the CEO is stupid. I don’t mean they lack intelligence; they lack knowledge of what is actually going on in the company because the executives under them, by intent or because they are themselves lied to, report erroneously. This is what happened to Steve Ballmer at Microsoft. His team wasn’t his team, it was Bill Gates’ team. It was clear early on that they weren’t loyal to Ballmer and that whoever was doing Microsoft’s market research was producing damaging fiction. Ballmer was constantly given bad advice and intelligence, which resulted in disastrous decisions. He was likely the smartest stupid guy I’ve ever known.
By assuring his people were loyal and making sure he had a solid foundation about his business, Read was able to make decisions necessary to turn the company around in a timely fashion. Read admits that he made one big mistake in not anticipating how quickly PC sales would drop, but because he had a strong team and good intelligence, he wasn’t blind to the change and was able to adjust to it quickly.
It is interesting to note that Satya Nadella, Microsoft’s new CEO, is rebuilding his executive team with people loyal to him. He also changed the reporting structure for market research to address the bad information problem his predecessor had.
Protecting the Core
Something that transferred from Lenovo and is also mirrored by Microsoft’s new CEO is the protection of the core of the company. What Read learned at Lenovo was that you have to protect R&D at a technology company. This is the seed corn and if you over cut, as Mark Hurd did at HP, you stall the firm’s ability to fight out of the decline the firm is in. Meg Whitman, HP’s current CEO, fixed this almost immediately, but Read preserved AMD R&D, which is now allowing the firm to accelerate out of the decline and actually helped make the recovery possible.
Wrapping Up: The Critical Path
The lesson here is that to analyze a turnaround plan, you look at four things. Is the CEO qualified, is the team reporting to him or her loyal, is the intelligence the executive team gets accurate, and does the CEO know what the core asset of the company is and do/can they effectively protect it. These items form the foundation of a turnaround. Everything else, including strategy, is secondary, because without this foundation the firm can’t execute.
Read’s success is based largely on his ability to execute on the fundamentals. He isn’t out of the woods yet, but with the foundation in place, there is little doubt he will get there.
One more critical component was mentioned in the briefing that a lot of us forget. I heard the same thing at the VCE meeting last week (VCE is a startup but a startup and a turnaround have many core things in common in terms of process). Both VCE and AMD are dependent on customers who not only aren’t afraid of change but want to drive it. Whether startup or turnaround, to be successful, you are dependent on customers who want the change that your growth must create.
That’s AMD’s turnaround. What a difference a year makes.