Leadership

Once-great companies drift due to leaders' styles

Why do so many large organizations lose steam and collapse under their own weight? John M McKee says it all starts with the boss.

 "I wonder if they're a one-trick pony? I mean, despite spending a huge amount of money on each of their many new product launches, they seem unable to make any significant headway in anything beyond their founding idea."

The person talking was Jim Ramo, former head of Movielink and before that one of the founders of DIRECTV.  Over lunch near his Malibu home, we were contemplating the state of several top organizations in the tech and entertainment sectors. He was commenting on the biggest.

In the tech manufacturing/development sectors, there are only a few companies that everyone knows. And when I say everyone, I don't just mean insiders, pundits, media types, or bankers. I'm talking about consumers and even people who have no interest in the products or services the companies provide.

This list isn't long: Google, Apple, Microsoft, Sony, Amazon. Perhaps it could also include Nintendo, Priceline, Samsung, Intel, or Blackberry (RIMM). But my point is this: Despite their size, most tech organizations are not brands that are commonly known by a wide spectrum of the population.

So it's worth looking at why a couple of once-great organizations are no longer great. I believe it has everything to do with leadership. Consider the following: 1. Microsoft -- Once was the unquestionable king of the industry. When Bill Gates was the boss, everyone knew everything about what it was doing. Print news and TV articles heralded each new development and product. People across a wide swath of industries waited for Gates's pronouncements with bated breath.  Competitors seemed to be destined to follow companies like Wang computer and Lotus software in Microsoft's wake. Then Gates stepped back and Steve Ballmer took the lead in January 2000. Ever since, Microsoft has seemed incapable of creating the kind of great, exciting, newsworthy products it was known for. I mean the kind that helps an organization to grow more quickly -- or gain the hearts and minds of new consumers. 2. Sony -- For different reasons it, too, was once the most exciting organization to watch. When new products were launched, everyone from insider pundits to the chronically hip wanted them. It was the "Apple" of its time. Music devices, televisions, and many other electronic products made by Sony were always leading edge and premium quality. Then, in 2005, after a tough period of missed opportunities, Howard Stringer became the head honcho. Although the company is now in more business segments (such as movies and games) than in was during its heyday, it's clearly no longer the one to watch for newness, style leadership, or even leading-edge technology.

Leadership, at its best, elicits emotion. Great leaders inspire people to be great and do more. At its worst, leadership can be bureaucratic, pedantic, and selfish.

During demanding times, organizations look to the boss to help them get ahead of the curve. Bosses can do this in many ways of course; but one of the best ways is to focus everyone on those things that the company does best. And then do more of the same. This helps rebuild a company's reputation. It recreates the team's sense of pride; kind of, "We're going to show everyone that we can fix this situation and be great again." Pride, combined with some challenge, encourages everyone involved to go a little further each day.

But, for some leaders this can be hard. It can take time to show results.

Consequently many bosses take different approaches. Some will fix their eyes firmly on the stock market, planning to show investors "progress" by resorting to acquisitions or mergers. And, while this tactic may make the company bigger, it rarely makes their company as relevant or important again. Others go "internal." These CEOs spend their time trying to reduce costs, perhaps encouraging their engineers or developers to piggyback onto older products and push new efficiencies. These are the ones we see frequently on all the financial networks talking up efficiency.

But ultimately both approaches will do little to return the company to the top. It will be interesting to watch how the current leader, Google, now managed by Eric Schmidt more than the founders, will move into the future.

John

Leadership Coach

About

John M. McKee is the founder and CEO of BusinessSuccessCoach.net, an international consulting and coaching practice with subscribers in 43 countries. One of the founding senior executives of DIRECTV, his hands-on experience includes leading billion d...

85 comments
Gabby22
Gabby22

I've seen many reasons why companies go downhill, both before and after a new CEO took over. The following are just a few which might look like the new CEO was at fault (and he may have been). 1. The previous leader saw the writing on the wall and jumped before he was pushed. 2. The previous leader (for many years) had a better understanding of how the company worked and what was needed - he knew where the pulses were. It's very difficult for a new leader to reach the same level and may never do so. 3. I've seen this one in many family driven concerns. The patriarch finally retires or dies and his kids are blamed for the subsequent downturn. In fact, he has hasn't kept up with modern business practices (in all areas) and by the time they take over it's really too late to save the business (even though it's apparently successful at the time he leaves).

dunjic
dunjic

Most of the great empires inclined more than being defeated by other empires.

jayohem
jayohem

The same principle works for the mom and pop store. The founder gets old and/or tired and quits or sells leaving someone else at the helm. If the dynamics are right, the businesss still thrives. More often the new top person rides the coattails of the business founder, which never is enough. The new topman (or woman) needs to have a vision of where to take the business, large or small, or it just won't work.

prsettles
prsettles

While I agree with the author's comments on creating excitement, but MS has run out of places to lift product ideas from. After all, they got windows from jobs, MS-DOS from Kildall, I could go on...... It has also been established in a court of law, and unanimously affirmed on appeal by a pro-business appellate court, that his company, under his leadership, repeatedly and egregiously engaged in business practices that violated U.S. laws. (http://www.biographybase.com/biography/Gates_Bill.html) Bill Gates did exactly what Rockefeller, Carnegie, and others did in their early years, our history called them "Robber Barons" Bill Gates certainly should be classified as one. It's probably his guilt that has caused him to give away the money he stole from other people.

tnpl.george
tnpl.george

One thing to note about the article is that it mentions about the people who have started the companies (like gate from Microsoft). It should be noted that many a times companies shines during their founding stage coz it is the time when they introduces something innovative which is able to capture the imagination of the masses (easy to use GUI, trendy portable devices etc) also companies seems to be most flexible and open to changes at this time. The founders in this case have seen the company grow. They are more aware of the fundamentals (innovations, easy to use software) that have made them successful. They give a higher priority to these fundamentals rather than the process, business prospect and company performance (stocks, bonds etc) On the contrary when the leadership changes the person taking over is much concerned about the latter. They look forward to formalize as much procedure as possible to avoid unnecessary complication, which at times hamper creative & innovative sprit.

renato.brazioli
renato.brazioli

Motorola is, IMHO, another good example. It wouldn't be fair to state that Ed Zander has brought the conpany on its knees, but surely the decline started when he came onboard. One reason of the decline was due to the loss of both engineering and creative capabilities in the mobile phone area, two fields in which Motorla was, before then, a leader. Zander was "absent", managing struggle for power with stakeholders, and losing control and vision of the "technical" company.

dthom23
dthom23

Excellent piece; let's not forget the effect that leadership style has on employees. Under the guidance of a new CEO, partaking in a new direction, employees - the backbone of ANY organisation - can also potentially lose focus, belief in their once loyal worth ethic to their previous CEO should the new direction and/or strategy compensate for the existing culture and morale amongst employees.

George_Butel
George_Butel

Obviously, Mr. McKee is unfamiliar with the work of Dr. Lawrence J. Peter and Raymond Hull, as popularized in their best selling book of 40 years ago, "The Peter Principle." In any hierarchy--which includes all corporations, even these "once-great" companies--every employees rises to his or her "level of incompetence." It doesn't matter how brilliant their leaders are if everyone below them in the corporate hierarchy is incompetent. The Peter Principle, although humorous, has validity: see http://arxiv.org/abs/0907.0455. That study concludes, "not only is the Peter principle unavoidable, but also it yields in turn a significant reduction of the global efficiency of the organization."

bvlenci
bvlenci

Many pundits are so convinced that the company can't survive without the Great One that they succeed in tarnishing the company's reputation. It's also partly the fault of very strong leaders at these companies, who stifle or drive away the young lions who might be able to take over eventually.

don.gulledge
don.gulledge

Many have given perfect examples of companies that go adrift once their founding leader has departed. It would seem that leadership is not a trainable or learned skill as most like to think, but a talent. I'm sure many have the talent but never get a chance to test it while the few like Gates or Moore or Jobs actually get there because of it. But in my experience, it seems there is a law of momentum in every company (except Power Companies and monopolies) that dictates a company either has positive momentum or negative momentum, but never no momentum at all. The leader is the main generator of momentum of either direction and the one common element these companies mentioned is that when their founder was present, the company had very positive momentum. But, not afterwards. I find it curious in the discussions of the car manufacturers because the leaders that gave the company momentum were engineers and the ones that drove it into the ground weren't. Perhaps the key ingredient to generate momentum is creativity and being able to design the world mentally before building it physically. Not being able to promote it's value or it's worth because without the former, the latter won't matter. Also, IBM contact DEC to use their PC DOS but the DEC guy was out on his boat and unreachable. So, that made the IBM guy mad and he called Gates instead. Would Bill Gates had risen otherwise, I think so because he had the talent to create momentum mo matter what circumstances happened. He might not have gone so far as MS did, but he still would have risen just the same.

dryflies
dryflies

Bill and Dave knew how to motivate people. You were valued for your contribution to the company even if it was not within the "core competancies". I would wake up in the morning and think what can I do today to help MY company. all of us felt owneship in the success of HP from Janitors to engineers to management. Then bill and then dave died and hp changed. First by trying to force focus on projects. Then it was all about numbers. Bring in Carly and slash the work force. Now instead of thinking about how I can help my company I was worried if I was going to have a job. Now that killed focus and people were more concerned with how the appeared instead of if they were making progress.

jkameleon
jkameleon

It makes far better software than it used to. Under Gates, they were selling nothing but overhyped, polished turds. The only thing exiting about them were bugs. Under Ballmer, there is less hype, less excitement, and more reliability. Microsoft is now more suited to corporate IT, and a bit less to mass consumer market. True, Microsoft is no longer as far ahead of its competition as it used to be, but... as the old de Tocqueville put it: "A bad regime is at its greatest peril when it tries to improve itself."

dsnethen
dsnethen

However a great leader, can leave and the company still carry on. An excellent book to read is Good to Great.

blarman
blarman

After transfer to Lou Platt, and especially to Carly Fiorina, the company has really lost the greatness it once had under Bill Hewlett and Dave Packard.

wwgorman
wwgorman

My wife and I, both scientists, operated a small scientific instrument manufacturing business for several decades. People thought we were General Motors or the equivalent. We exhibited at all the trade shows with a professionally manufactured booth---designed by my wife and we had working (not static) displays of our equipment. We personally manned the booth to explain our equipment to other potential user scientists and if questions arose we couldn't answer we took their name and later sent them appropriate references and literature. After we sold the business to a London Stock Exchange holding company, our successors were so scared of the questions they gave up going to trade shows. The management didn't take telephone calls for fear of being asked a question but left this to people who had less of a stake in the success of the business. The business was moved by the holding company into another division WITHOUT THE NEW MANGERS and is now nearly non-existent.

sboverie
sboverie

There are different leadership styles that work in some situations but not all situations. It takes a leader with lots of infectious enthusiasm to move a startup into growth. The same leadership style may work against a company that has grown to a certain point of success. Steve Jobs is a good example of the leadership to start Apple but get booted when the business changes. He spent time doing other startups and got to come back to Apple as a charismatic leader with more visionary ideas to lead Apple on the next growth curve.

dldavispmp
dldavispmp

Its not just the person, its the situation and how the company is able to grasp the opportunity. Everything has a life cycle - same with companies' 'wonder cycle'. Several companies have tried to recreate the magic by bringing back the 'hero' and it has rarely worked for the same space. Look at Apple, had world in it's hand at start of PC age, lost it, then regained it with mobile phone era. (Side note - might loose that world too for same reasons it lost PC, control obsession, rejecting 3rd party, company arrogance) and Steve jobs led both.

Justin James
Justin James

... but can't do anything about a bad company. If you have a company full or really smart folks with a drive to succeed, good leadership is the difference between success at failure. Look at Sun under Schwartz for an example. He kept pointing the brilliant engineering teams in the wrong directions and never took basic steps to fix the non-engineering issues (for example, spending $20,000 on a usability study for the Solaris installer). Likewise, Steve Jobs was able to take a company of idealistic, smart people and harness that energy into success. But then you have some of the companies which really do not offer a particularly great product or service, have lousy pricing models, etc. Their products are uninspired. You talk to their customers and they universally despise the company. SAP is the example here. How do they stay in business? By extorting and exploiting their customer base, and by having an ecosystem of parasitic consultants who get rich off of promising to fix the problems with the base product, and therefore have tons on incentive to push it. With a company like that, no CEO change would fix the problems. The corporate culture itself is rotten. J.Ja

spaul940
spaul940

I was employed by a high-tech company and during the rein of the then current Preseident & CEO, the company grew at a rate of 33% per year - every year for 8 years. The individual retired and a new person took over. The first year he was in power, the company had a 0% growth, the second year, it lost over 20% (while the industry as a whole grew by over 20%). The third year, it again lost over 20% while the industry again grew by over 20%. He left the company with a $1,000,000 payout (for screwing the company). About a year later, I heard that this individual was the CEO of another company. Amazing!

snewton628
snewton628

Is S. Palmisano as charismatic as L. Gerstner? Is IBM as "relevant" now as it was in 2003? Is the move off-shore as important as the move to holding individuals responsible for performance?

mwalker
mwalker

Generally I agree with your premise, but I have to call into question your corporate history here: both Microsoft and Sony began their slow declines long before the change at the top!

TechRepublic
TechRepublic

British Airways prospered under Colin Marshall, and fell apart under Robert Ayling. The first focussed staff on customer service, the second on the bottom line. Perhaps service organisations are even more vulnerable to poor leadership style.

mullachv
mullachv

Please read the book "Good to Great" by Jim Collins which has a chapter dedicated to this "high profile leaders", and their impact on organizations - why high profile leaders may not necessarily always raise a great company

william.purcell
william.purcell

EDS is another example of this in a sense. There had always been a strong corporate culture that emphasized a balance among Client, Employee, and Business. When Dick Brown came in, the focus of the corporation went almost exclusively to Wallstreet, the analysts, and investors. The culture that made it so strong in the past was literally ripped out. He did manage to increase stock values for a short period. That was mostly done using smoke and mirrors, and overnight stocks plunged to all-time lows. The morale throughout the company was terrible for the first time. Regime change brought that on. It was a good time for me to retire.

rita ashley
rita ashley

Corporate greatness relies on a combination of variables that coalesce as if by magic. Many leaders we have come to know as great had many failures prior to and after their success because elements were missing. (Seagate comes to mind as do all Paul Allen's misfires.) Timing, availability of qualified and brilliant employees, state of adjacent technologies and public readiness are required for those leaders to shine. There is so much more to corporate success than just who is at the helm. We have only to look at those successful companies with notoriously poor CEOs to know that is true. Rita Ashley, Career Coach

mjacquet
mjacquet

Remember Alcatel-(-Lucent). Victim of its "Godzilla vs Megalon" management style...

mjacquet
mjacquet

Remember Alcatel-Lucent ?? Victim of its "Godzilla vs Megalon" management style...

bpate
bpate

The first non-tech company that comes to mind is Ford. I am really impressed with the cars Ford is producing and I have to admit they really have some mojo. The cars they are making not only look good, but the quality is on par with or better than the best in the industry.

paa78in
paa78in

I believe title should be "once-great companies may drift due to 'New' leaders' style" There is no doubt that leadership style has a significant impact on the ecosystem he/she is part of. But at the same time Leaders primarily identifies right things to do (a vision) and they have a team who should be doing such things in a right way.. Of course this net has many considerations and constraints too. In this context it is very critical to consider that if the predecessor leader has built a sufficient capable ecosystem which can sustain a new leadership change that can continue with same excellence of execution with the new leader, also has the predecessor leader has been sufficiently responsible and critical when he identifies a new leader is another basis to determine if "once-great companies drift due to leader's style"

beninjam
beninjam

A great example of this is the Apple boss - Steve Jobs. Particulary with the recent iPhone issues - this shows how one man can set the direction of the company and keep the company solid. However, I can't help but wonder how long before Steve looses one press conference and severly damages Apple...

HAL 9000
HAL 9000

But in the case of companies like Microsoft I think you'll find that the Number 2 Option is all too common. Also depends on what the new CEO was brought in to do as well. :0 Col

NickNielsen
NickNielsen

An unusual use, but I like it. They inclined until they declined so far they were defeated by another empire. It happened to the Hittites, the Egyptians, the Greeks, the Romans, and probably many others forgotten from, or unmentioned in, my Western Civilization course.

DNSB
DNSB

Bill Gates did exactly what Rockefeller, Carnegie, and others did in their early years, our history called them "Robber Barons" Bill Gates certainly should be classified as one. It's probably his guilt that has caused him to give away the money he stole from other people. More that Bill Gates is following in the footsteps of the older robber barons. Once you have your bundle, you spend part of it on philanthropy in the hopes of polishing your image. The Gates Foundation is in the tradition of the Rockefeller Foundation, the Carnegie Foundation and Foundation for Advancement of Teaching, etc. Once you have more money that you can spend in your lifetime, you look to buying a better place in history. Today, more people are aware of Carnegie's libraries than of his use of Pinkertons' strikebreakers and his approval of their use of lethal force during their strikebreaking activities. Care to bet against the likelihood that in a hundred years, more people will remember Bill Gates for his philanthropy rather than his illegal tactics in building Microsoft?

HAL 9000
HAL 9000

Is also chosen for their ability to count beans and make more of them is also a big part of things. The people who are appointed to take over companies are put there to at the very least maintain the provability of that company and hopefully improve it. They do this by cutting back on Development and it's a downward spiral from there till the company is either swallowed by another or goes broke. Of course with the bigger companies they take a lot longer to go broke and you need to look at prevailing Economic Conditions which may give a false sense of success. Col

carlsf
carlsf

Ballmer is NOT a leader I would place him in the "DO AS Threats" man watch his style when presenting it is "If you are NOT with MS then I dont want to know you" hie two arm/finger pointing stance reminds me of a gunslinger threating, hence since Gates MS have drifted and they now have people/workers/managers who are followers I dont see anyone threatening Ballmer or even challenging him with his statements direction. Their VISTA/WIN7 is a case in hand there is nothing new or innovative in WIN7 they only changed the UI and made a cockup of that also. WIN Moblie and Phone we are waiting still. We/I am staying with XP/VISTA and Office 2003, until they produce a O/S or office Application that jumps at me and encourages our/my productivity and NOT as in WIN7 and Office 2007/10 NO productivity there.

DNSB
DNSB

"Also, IBM contact DEC to use their PC DOS but the DEC guy was out on his boat and unreachable. So, that made the IBM guy mad and he called Gates instead." Do you mean Digital Research and Gary Kildall? If so, the deal killer there was that the IBM reps wanted him to sign a non-disclosure agreement before they would even say whom they represented. Not as good a story as the one that had him flying his plane and blowing them off but likely closer to the truth. Bill Gates, according to some sources, was given the same advice but went ahead and signed. He then went off to Seattle Computer Products and bought their OS (a more or less clone of Digital Research's CP/M-86) so he could sell it to IBM.

jkameleon
jkameleon

During Fiorina's times, nothing worked. My mother, a retired chemicist, had high regards of HP brand, mostly because she had worked with their spectrometers & lab equipment most of her professional life. And so she continued to buy HP products well after 2000. They were beyond junk. Everything broke after a couple of months, and most of the stuff never worked properly in the first place.

DNSB
DNSB

Under Steve Ballmer, Microsoft produced Windows Vista. Go back to the early days of the hype for Vista and see how much of the promised OS never made it to the finished product. WinFS was going to run on top of NTFS and, according to the hype, offered many benefits. Never did see the light of day. The only one of the "three pillars" that eventually made it's way to the finished product was the user interface layer (Avalon later to be Windows Presentation Foundation). Yes, Microsoft is caught in the trap of trying to maintain compatibility for older applications -- alienating that majority of your users is generally not a good idea but their approach seems to consist of ever larger hammers.

gscratchley
gscratchley

if a company that is run by a wonderful leader drifts, how much of that is due to a leader who is surrounded by people who won't tell him the truth?

ssampier
ssampier

IBM actually had a few visionary CEOs. The move from hardware manufacturing to services must have made lots of people mad. However, IBM not only survived it thrived. IBM makes lots of money and tends to spend it on well-established companies like Cognos. I haven't seen or heard anything noteworthy from IBM lately. If the timing was right, I'd highly expect IBM to purchase Novell, but only if the price is right. Novell won't be practically innovative or visionary for them, however.

jesse_masone
jesse_masone

Wouldn't the story of Digital Equipment Corp be one to look at since it was actually the same CEO who helped DEC rise to meteoric market share and helped sink it when he didn't follow the changing tides from mainframe to server/client.

mckinnej
mckinnej

While that's a good book it's really focused on the rise of these organizations. The question here is more about their downfall. They had the magic, but lost it. This book is more about getting the magic. You're right though and any number of sports analogies will support this. One player does not make a team, however the loss of key personnel can make all the difference.

rob.bigsby
rob.bigsby

I am a firm believer that the leadership can make a difference. If they focus on creating/maintaining a good corporate culture, and producing innovative products, they are not guaranteed success. But if they focus on the value of their stock, they are guaranteed failure....

nick
nick

There were several factors leading to the demise of DEC, the focus on the Dec Rainbow instead of getting on the IBM PC bandwagon comes to mind. When they did come up with an IBM compatible it was great, but too late. Anyone want to guess where Virgin will be without Richard Branson?

mckinnej
mckinnej

I've still got some of that stock. Thousands reduced to pennies. In spite of their numerous attempts to get me to sell it I keep it in order to force them to manage it and increase their overhead. Stupid I know, but it's the only way I can get any sort of revenge outside of a sniper rifle. :)

corneliusgoh
corneliusgoh

Akio Morita was the 'Steve Jobs' of SONY, visonary leader who led SONY thru 3 big transformations: 1) Trinitron TV, 2) Walkman, 3) Sony Pictures (Movie). He was also a charismatic leader with excellent people management skill. Sony is a Japanese company, but with 40% non-Japanese employees. When Morita was the chairman, he would give speech in English in any management meeting if there was any non-Japanese in the room. His successor Ohga was a good COO but lack charisma. In the similar management meeting, he would speak Japanese and asked the minority non-Japanese senior managers to get translation by Japanese colleagues. SONY lost the grandeur after Morita, missed the LCD TV revolution by the little Korean competitor Samsung, MP3 music / iTune to Apple, Games to Microsoft Xbox...

Glenn from Iowa
Glenn from Iowa

When Lee Iacocca was at the helm, the company was thriving! He led them out of a near-bankruptcy and had the vision to see the tide-shift to mini-vans. The inspiration of a great leader can motivate all areas of a company.

eHealthy_Dee
eHealthy_Dee

Several times over--Harley Earl of GM Design from the 1920s into the 1960s, and most recently the now departed Bob Lutz who singularly restored Cadillac and to a lesser extent Buick. Buy them now because Government Motors will inevitably slide with beancounters and not visionaries.

erimaster
erimaster

You have to adapt to the cruel changing world. Some luck is involved as is a great nose for the money. Apple almost went out of business but has done well lately by charging a premium for products people want. Few can really be leaders of all seasons and continents. I would not bet much either way on where Apple will be in 6 years...in business, yes; thriving???

NickNielsen
NickNielsen

They escaped many of the effects of Queen Carly, but not all. They are, as I understand, working their way back to being the gold standard for test equipment.

Ashby
Ashby

The answer is simple - but will never be accepted. Disallow Executive compensation plans based on stock price, which bears little relationship to company performance, only to the opinion of analysts or the dealer rooms. Only allow plans based on shareholder dividend, which does reflect the performance of the company in real terms.