One of the fascinating, and rather disturbing, aspects of business management, at least here in the U.S. is the apparent and foolish inability to learn from others. And by others, I don’t just mean other companies, but other executives. Our excessive focus on blame tends to result in the termination of executives who make mistakes, also removing much of the learning that resulted from that mistake. And our over-competitiveness at the executive level seems to restrict the ability to learn from the success, or failure, of others. What drew me to this topic was the Wind River CEO interview in the San Jose Business Journal, in which he lays out how Intel basically destroyed the company. It also nearly destroyed McAfee. Some of the folks who critically damaged McAfee are different from the folks who critically damaged Wind River, so learning from the first mistake should have prevented the second, yet it didn’t.
If you look over at Intel partner Dell, it has the exact opposite behavior. Its acquisitions tend to be very successful with the acquired companies actually improving post acquisition rather than having to be spun out on life support. The process, which was initially conceived in IBM, was, and remains, relatively unique in the industry.
The Pain of a Bad Acquisition Process
I’ve been on the wrong side of an acquisition three times and they all were far more painful than they needed to be. During the first two, I was in unique positions (Internal Audit, Market and Business Analysis) to see and document the process. The third time, it was what has been a common showcase of analyst firms not listening to their own analysts. (I’ve often thought that if firms like Forrester and Gartner, which advise others, don’t trust the advice of their own analysts, why should you?)
In the first two cases, it was while I worked for ROLM Systems, which was sequentially acquired by IBM, critically damaging the company, and then by Siemens, which killed it. The Giga acquisition by Forrester was like watching children run with scissors. Sadly, none of this was unique or unusual.
This process badly cost IBM and Siemens billions in wasted money and put the employees, customers and, to a certain extent, investors though an avoidable hell of mistakes. Back before I’d gone through this, my belief was that an acquisition by a larger company created unique career opportunities. It still does when it is done right at places like Dell, but now it is more likely to cause excessive stress, hardship and career damage. As a result, my standard advice to someone whose company is acquired is to get out fast unless they can assure the acquiring managers aren’t idiots. Sadly, that assurance isn’t common.
The layoffs, firings, product failures, drops in quality, inability to meet deadlines, and structures are far less painful to watch from outside the firm than from within it. Often, the folks laid off are the lucky ones in this crappy process.
Typical Problem Process
The typical acquisition process is that you often take a group of managers who have largely never done an acquisition before, and who don’t have the critical knowledge of the acquired company or industry, and you put them in charge of the acquired company. This is like taking someone that has only been to a doctor, giving them a scalpel (more likely an axe), and letting them into an operating room with only a vague idea of what was wrong with the patient. Eventually, the patient starts to die and, in a panic, they start hacking off limbs (doing layoffs), with the best outcome being the patient running, screaming, out of the room because someone forgot to knock them out. That’s kind of what happened to both McAfee and Wind River; after being nearly hacked to death, they decided the cure was worse than the disease and exited (ran screaming from) Intel. And, of course, Intel wants to buy more companies, even though it is the equivalent of Jason in the Halloween films with a knife or an axe. Rather than running toward that company, potential acquisition targets should be running away screaming. You’d think the board would force a process that would end this trend, but then Intel’s board seems to largely be a social club, so its lack of effective action shouldn’t be a surprise. (And Intel is hardly alone here either with poor board staffing or lousy acquisition process.)
What really fascinates me is that these firms generally buy companies in areas where they want to expand and lack the knowledge and skills. Then they put their admittedly uninformed executives in to run the effort and seem surprised when the result is a disaster.
Dell’s Acquisition Process
Michael Dell got tired of doing bad acquisitions; that’s the nice thing about a founder. A founder will typically want to preserve the firm, while hired CEOs more often kick the can down the road and have a distinct aversion to learning. Dell’s process, which was refined from one created in IBM, focuses (and this shouldn’t require a lot of deep thought) on analyzing and preserving the asset (something Forrester, an analyst company, should have done when it acquired Giga). It doesn’t jump in with an axe, it jumps in with an effort to diagnose the firm and then focuses resources on areas where it can help.
It identifies and then protects the key assets in the firm, uses Dell’s resources to supplement, and where it makes economic and operational sense, replaces inferior parts of the acquired company (say, common services like logistics management, operations, and/or accounting), and the firms typically flourish. So, rather than sending in the equivalent of a mass murderer with an axe to do layoffs and restructurings, the company figures out what is wrong and then crafts a plan to surgically, and with great restraint, tune the target company up. Apparently, it learned that chasing employees around with a metaphorical axe wasn’t good for productivity.
Wrapping Up: Learning Lessons in Acquisitions
Generally, when you grow into a market organically, you are forced to learn that market in order to survive. Executives seem to think they can avoid learning about a market just by buying a company in it and then, instead of the success they thought they were buying, end up with a torched acquisition. This is even worse when the acquired company is already in trouble because the “experts” who are running the firm have no clue how to fix it. And if they have no clue, the novices that buy it will even do worse. Yet, watching that kind of train wreck happen repeatedly has almost become a national pastime.
This year, I’ve unfortunately been using the old definition of insanity way too often. You know, the one that says that insanity is doing the same thing over and over and expecting the result to come out differently. Companies like Intel seem to think that frequency will make the difference. If it does a lot of these things, eventually, by accident, someday it will end well. Personally, I prefer the Dell method: Fix and institutionalize the process and maybe avoid the pain of layoffs. Then again, maybe having an entire company running from you while playing the Halloween theme song on their sound system is more fun?
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+