Monday, June 24, 2013

Storm "Cloud"s for VMWare

Lately I have been asked my opinion on the sliding fortunes of a number of companies.  (Nobody ever asks about the ones on the way up - don't know why?)  The three that I've heard most about recently are VMWare, Tibco, and Apple.  Let's take a quick look at what it means from a financial perspective for a company to go into decline:

  • VMWare:  In September 2012 their stock price was @$122/share; today $72/share.  That's a 41% drop.
  • Tibco: In September 2012 their stock price was @$33/share; today $22/share.  That's a 33% drop.
  • Apple: In September 2012 their stock price was @$702/share; today $400/share.  Not only is that a 43% drop, it also means that investors have lost about $300 for each share they own.  Let's say that you are hoping to retire on your stock portfolio and own 10,000 shares of Apple.  Well, since last September you have lost a grand total of $3 million.  Given that Apple is sitting on $100 BILLION in cash, you might be more than just a little enraged.
So what's the deal?  Is there something that all three companies have in common that's causing such headaches for everyone?  The answer is yes and it doesn't have as much to do with their management teams as you might think.

As we go go forward, remember this new factoid.  More than any time in human history, consumers and societies as a whole have never been more influenced by trends than they are today.  Let's start out by looking at the "cloud".

Even though cloud computing was well established by 2010, it was not truly a societal fad.  Yes, if you had a Google, Yahoo, or MSN email account you were technically a cloud computing user.  However, in the 1st quarter of 2010 the first iPad hit the street.  This device sold like wildfire; still does in fact.  What few people realize is that it was the first main piece of end-user computing hardware that had no physical data input ports (meaning USB). 

The iPad was a true cloud device because it connected its users to applications that put data...elsewhere.  While the iPad may not be the only reason for the massive explosion in cloud computing, it was this device that showed people in a truly personal way that cloud computing was a viable way to operate.

Back to the topic at hand, let's take a brief look at VMWare.  For over a decade they have basically owned the data center.  If you wanted to virtualize your servers, the only true choice was VMWare.  Yes, Microsoft could argue Hyper-V and Citrix (and many others) could argue as well, but VMWare was the play.  VMWare capitalized on this (double entendre intended) fact and charged a true premium for its products.  However, their strategy was tied to a belief that corporate IT departments would want to continue owning and operating data centers for the foreseeable future.  When cloud providers like Amazon EC2, Rackspace, Secure24, and others came along, IT departments quickly discovered that they could get out of the data center business, in a hurry.  VMWare responded by developing tools geared towards the management of the public cloud.  But they continued their model of building elaborate software tools and charging extremely high prices for them. 

VMWare missed something important along the way.  With the advent of the cloud, the onus for security and uptime shifted from the IT department to the cloud provider.  Where the premium tool was needed in the past, society had shifted toward the philosophy of "good enough".  VMWare missed the trend, stuck with the higher priced options, and opened the door for competition in cloud management tools to just pour in.  By failing to move quickly to a new model, VMWare has lost almost half its value in less than a year.  Why couldn't they have come up with a lower cost option?

Tibco's story has elements of two societal trends.  Like VMWare, the first trend is "good enough", but like Apple there is another societal trend called "new is necessary".  For years, Tibco has been the gold standard of data management and middleware (I know, just that description is boring).  However, back to the emergence of the cloud, companies are no longer trying to move and manage their own data all by themselves.  They are looking for the cloud providers and other outsourcers to do that for them.  Tibco has been very slow to adapt to the changes in the management of data according to the new societal trends.  And, in turn, the market and its customer base is relentlessly punishing Tibco.

Apple is a huge victim of the "new is necessary" societal trend.  That's very ironic, considering that under Steve Jobs they were company who taught us to expect something new and shiny every four months or so.  Since the iPhone5 came out last year what has Apple brought to market?  Umm....not much.  Well, Apple, you taught us to be fickle so now that you're not delivering that's exactly what we're doing.

Here is the big takeaway.  Our currently society is deeply infatuated by trends.  Although the recent movie "The Great Gatsby" was set in the 1920's, it is a metaphor for today.  People of the today are flocking, constantly, to the new and exciting.  Become boring and you're done, right Gatsby (listening Mr. Cook?)

Nobody is immune - not big companies, certainly not small companies, not politicians, and definitely not the cultural leaders of yesteryear.  It's a cinch that no-one can expect much advanced notice of what the next fad will be.  But ignore it and you can use the three examples above about what to expect.  Do you hear that, all you technology companies? 

Not all of you have a $100 billion in the bank to save you when you miss the signs.

Wednesday, June 12, 2013

Where Great Leaders Go to Die

“Greatness is not a function of circumstance. Greatness, it turns out, is largely a matter of conscious choice, and discipline.” 

“Great vision without great people is irrelevant.”  

(Both quotes attributed to Jim Collins in his book, "From Good to Great...")

Back in 2001 an author named Jim Collins came out with a revolutionary book.  It has a longer title but most of us know it as "From Good to Great".  In it he focuses on companies that have become truly excellent, even dominant entities.  He also highlights some that have not.  What makes the book so interesting and powerful is that Collins gives examples and several frameworks that allow us all to understand his points. 

The biggest takeaway I had from the book was the description of the ultimate leader.  Collins describes the people who make up this rare breed as "Level 5" leaders.  I won't try to recap what he means by that term.  For the edification of all, I have included just below a picture that describes in short terms what makes up leaders from all levels, 1-5.  My source is the Harvard Business Journal, January 2001 edition, page 5.

My message to you in this post is a powerful one.  If you are a leader that cares about getting better each day, who wants to make it to the top of Collins' pyramid, you must constantly work to tune your abilities.  HOWEVER, to be a great leader you need more than just yourself. 

Every great leader needs an equally great system/company/structure to succeed.

If you believe that an individual leader can get to "Level 5" without an equally great environment in which to work, think about these examples.
  1. How many wins would Bill Belichick rack up coaching the Oakland Raiders?  Belichick is great because the Patriots organization is equally special.
  2. Would "Neutron" Jack Welch have become the iconic CEO of the 20th century at the helm of General Motors?  The answer is a resounding no - the structure of that company would have opposed him at every turn.
  3. Would Mahatma Ghandi have been able to change the world if he had lived in Nicaragua instead of India?  Of course not - the cultures, peoples, and societal structures are completely different.
If you believe that you are a good leader or even a great leader, you will have learned or will discover that your greatness is tied to where you practice your craft.  Based on many materials that I have read over the years, I have come up with a relatively simple explanation for why this is true.

Every company has an "average" level of leadership, which I call the Leadership Quotient, or "LQ" for short.  The LQ of a company is based on the simple combination of two factors.  The first is the overall average leadership ability ("LA") of every employee within the company.  The second is the average skill of all employees as measured by their collective knowledge, skills, and abilities ("KSE").  Each of these factors is measured on a scale from 1-10 meaning the the maximum LQ a company can have is 100; the minimum is 1. 

Over time, the company will always directly or unconsciously select leaders who have an LQ that is < the company average.  Occasionally great challenges will arise and the company will realize that they need "great talent" to help them succeed.  That's usually when the organization will turn to a leader that is great, or at least significantly greater than its current average LQ.  The following graphic illustrates how that works:

In this case, the company's LQ is 30.  They find a leader with an LQ of 64 - a whole 34 points higher than the organization.  This leader is typically one on the path to being a Level 4-5 leader if they are not already.  The hiring company puts them into a key position and turns them loose to solve the problem.  Inevitably, the problem is solved or otherwise handled.  Then the company is left with a leader who has an LQ that is very much different than the cultural average normal.  It's at this point that the delta of 34 points goes from being an asset to a big problem.

What was so good before now looks like this illustration:

Since the organization is not, by nature, great, the leader finds his/her self confronted with a choice.  Without a big problem to solve or a "dragon to slay", the person must either conform or face expulsion from the organization.  Doing nothing will not help because the cultural disconnect will force one of two actions:
  1. The leader "self lobotomizes" and adapts their capabilities to fit the company's LQ
  2. The leader leaves the company on their own or by "invitation" to exit
 What Jim Collins fails to mention is that great leaders must choose their structure very, very carefully.  If you want to know where Great Leaders Go to Die, it is in mediocre companies working for very average leaders.

Choose with meticulous care - your choices, as a leader, have many more ramifications for you, yourself, and your team than you may recognize.