Why Turnarounds Fail: Trump Edition

Rob Enderle

Watching our new U.S. president in his first weeks reminds me of why a lot of turnarounds fail, particularly when executed by someone from the outside. They can fail for a lot of things, but in this instance, I think you can see the combination of a bad skill match, false assumptions about how things work, and the typical issues with regard to loyalty and culture at the heart of some colossal initial screw-ups. Taking a democratic government from one party to another isn’t that much different in terms of goals than what a turnaround CEO has to do.

The firm, according to the board or voters, needs to go in a vastly different direction and they want someone who is primarily a change agent.  But the issue with a change agent is that this basically becomes a revolution or a coup. Not only are those things messy, they often don’t work out that well, unless executed sharply. Examples of sharply executed change that were successful are Steve Jobs at Apple and, more recently, John Chen at BlackBerry.

Given that we have no choice but to watch the Trump presidency, it might as well be a learning opportunity.

External vs. Internal Rebel

Let’s contrast the approaches of, say, Marissa Mayer at Yahoo as an external hire and Satya Nadella at Microsoft as an internal. Both were asked to fix massive problems at their respective firms. For the most part, Mayer failed, while Nadella has been an impressive success.

Even though neither CEO had been a CEO before, Nadella had advantages in going into the job that Mayer lacked. He had been at Microsoft for an extended period, the change he was being asked to make was consistent with the organization he ran, his background and education were consistent with both what Microsoft did and where the board wanted Nadella to take it, and he already had a loyal staff of people who were qualified and experienced in Microsoft. Mayer had none of this and, apparently, very little board support. In addition, while Nadella replaced Steve Ballmer, who was seen to have failed in the job, Mayer replaced Ross Levinsohn, who had better qualifications than Mayer, something I doubt was lost on the executive staff.

That would have you conclude that the inside track is always better, but that clearly isn’t the case, just that insiders do have advantages. For instance, if we compare Ballmer, who is almost a founder at Microsoft (30th employee) with Louis Gerstner, who came into IBM from Nabisco, you get a very different story. Gerstner wasn’t even in the tech market, while Ballmer was critical to building Microsoft. And when Gerstner took over, IBM was on life support. Microsoft was still the most powerful software company in the world at Ballmer’s start.

Gerstner turned IBM around. After Ballmer, Microsoft needed a turnaround. Neither man had skills consistent with what the company did, but Gerstner was a change agent, while Ballmer tried to run Microsoft like Bill Gates had. Here, the difference was that Ballmer believed what he was told and trusted the organization he had come up in, while Gerstner didn’t trust what he was hearing from inside IBM (I should point out that he had as CFO Jerry York, who was a bulldog about finding out the real facts before making a decision). Years ago, I found out that IBM’s board had selected York before they selected Gerstner and that they seemed to believe York actually carried the ball.

Neither firm was supplying either CEO with accurate intelligence but coming from the outside, Gerstner, and especially York, knew to fix that problem as a priority. Ballmer was increasingly isolated and fed bad data. He is no dummy; the guy graduated magna cum laude from Harvard, but his assumptions were bad. No matter how smart you are, if you get bad data, you’ll make bad decisions. Ballmer got to critical mass on those and got fired. In addition, Ballmer always had to be the smartest guy in the room, which meant he tended to be surrounded by folks who were also outsiders who agreed with him.


In short, Ballmer thought he knew what was going on, while Gerstner knew he didn’t. To be successful, both needed a foundation of accurate information, but only Gerstner worked to create one. Thus, Gerstner is remembered as a success and Ballmer as a failure.

Wrapping Up: President Trump’s Turnaround Failure

The new president is an outsider, seems to know or believe that he can’t trust existing information sources, and was just reminded that he doesn’t have the loyalty he needs to execute. However, he seems to favor information that agrees with what he already believes, even when that information is false, and he is making assumptions about execution competence that don’t appear to be accurate, resulting in major avoidable problems. This doesn’t bode well for his presidency.

As always, we’ll often focus on the drama of the instant, but I think we should use this as a teachable moment and realize that the quality of the information and the people directly reporting to a chief executive, particularly one who came from outside the organization, coupled with that executive’s willingness to make decisions on the data, largely define who succeeds or fails, whether it is a new CEO or a new president.

One other problem we are seeing play out is the lack of good succession planning. Often, firms that were successful start to fail after a successful CEO departs, largely because they spent little time mentoring the successor in making successful decisions. U.S. presidents do a horrid job of assuring their executive legacy and instead often are followed by those who were once rivals or were selected due to political expediency and tenure rather than their ability to carry the torch forward. (I think we are seeing this play out at Apple at the moment, also.)

Often, I think that CEOs don’t do this succession planning because they don’t want to be overshadowed by a successor but, unless they were a founder, or even if they are a founder, if the firm fails, their legacy will be forgotten when the firm is.

Something to think about this weekend.

Rob Enderle is President and Principal Analyst of the Enderle Group, a forward-looking emerging technology advisory firm.  With over 30 years’ experience in emerging technologies, he has provided regional and global companies with guidance in how to better target customer needs; create new business opportunities; anticipate technology changes; select vendors and products; and present their products in the best possible light. Rob covers the technology industry broadly. Before founding the Enderle Group, Rob was the Senior Research Fellow for Forrester Research and the Giga Information Group, and held senior positions at IBM and ROLM. Follow Rob on Twitter @enderle, on Facebook and on Google+

 


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