by Adam Hartung | Mar 28, 2017 | In the Rapids, Innovation, Investing, Leadership
(Photo: General Electric CEO Jeffrey Immelt, ERIC PIERMONT/AFP/Getty Images)
General Electric stock had a small pop recently when investors thought CEO Jeffrey Immelt might be pushed out. Obviously more investors hope the CEO leaves than stays. And it appears clear that activist investor Nelson Peltz of Trian Partners thinks it is time for a change in CEO atop the longest running member of the Dow Jones Industrial Average (DJIA.)
You can’t blame investors, however. Since he took over the top job at General Electric in 2001 (16 years ago) GE’s stock value has dropped 38%. Meanwhile, the DJIA has almost doubled. Over that time, GE has been the greatest drag on the DJIA, otherwise the index would be valued even higher! That is terrible performance — especially as CEO of one of America’s largest companies.
But, after 16 years of Immelt’s leadership, there’s a lot more wrong than just the CEO at General Electric these days. As the JPMorgan Chase analyst Stephen Tusa revealed in his analysis, these days GE is actually overvalued, “cash is weak, margins/share of customer wallet are already at entitlement, the sum of the parts valuation points to a low 20s stock price.” He goes on to share his pessimism in GE’s ability to sell additional businesses, or create cost lowering synergies or tax strategies.
Former Chairman and CEO of General Electric Jack Welch. (AP Photo/Richard Drew)
What went so wrong under Immelt? Go back to 1981. GE installed Jack Welch as its new CEO. Over the next 20 years there wasn’t a business Neutron Jack wouldn’t buy, sell or trade. CEO Welch understood the importance of growth. He bought business after business, in markets far removed from traditional manufacturing, building large positions in media and financial services. He expanded globally, into all developing markets. After businesses were acquired the pressure was relentless to keep growing. All had to be no. 1 or no. 2 in their markets or risk being sold off. It was growth, growth and more growth.
Welch’s focus on growth led to a bigger, more successful GE. Adjusted for splits, GE stock rose from $1.30 per share to $46.75 per share during the 20 year Welch leadership. That is an improvement of 35 times – or 3,500%. And it wasn’t just due to a great overall stock market. Yes, the DJIA grew from 973 to 10,887 — or about 10.1 times. But GE outperformed the DJIA by 3.5 times (350%). Not everything went right in the Welch era, but growth hid all sins — and investors did very, very, very well.
Under Welch, GE was in the rapids of growth. Welch understood that good operating performance was not enough. GE had to grow. Investors needed to see a path to higher revenues in order to believe in long term value creation. Immediate profits were necessary but insufficient to create value, because they could be dissipated quickly by new competitors. So Welch kept the headquarters team busy evaluating opportunities, including making some 600 acquisitions. They invested in things that would grow, whether part of historical GE, or not.
Jeff Immelt as CEO took a decidedly different approach to leadership. During his 16 year leadership GE has become a significantly smaller company. He sold off the plastics, appliances and media businesses — once good growth providers — in the name of “refocusing the company.” Plans currently exist to sell off the electrical distribution/grid business (Industrial Solutions) and water businesses, eliminating another $5 billion in annual revenue. He has dismantled the entire financial services and real estate businesses that created tremendous GE value, because he could not figure out how to operate in a more regulated environment. And cost cutting continues. In the GE Transportation business, which is supposed to remain, plans have been announced to double down on cost cutting, eliminating another 2,900 jobs.
Under Immelt GE has focused on profits. Strategy turned from looking outside, for new growth markets and opportunities, to looking inside for ways to optimize the company via business sales, asset sales, layoffs and other cost cutting. Optimizing the business against some sense of an historical “core” caused nearsighted — and shortsighted — quarterly actions, financial gyrations and transactions rather than building a sustainable, growing revenue stream. Under Immelt sales did not just stagnate, sales actually declined while leadership pursued higher margins.
By focusing on the “core” GE business (as defined by Immelt) and pursuing short term profit maximization, leadership significantly damaged GE. Nobody would have ever imagined an activist investor taking a position in Welch’s GE in an effort to restructure the company. Its sales growth was so good, its prospects so bright, that its P/E (price to earnings) multiple kept it out of activist range.
But now the vultures see the opportunity to do an even bigger, better job of whacking up GE — of tearing it into small bits while killing off all R&D and innovation — like they did at DuPont. Over 16 years Immelt has weakened GE’s business — what was the most omnipresent industrial company in America, if not the world – to the point that it can be attacked by outsiders ready to chop it up and sell it off in pieces to make a quick buck.
Thomas Edison, one of the world’s great inventors, innovators and founder of GE, would be appalled. That GE needs now, more than ever, is a leader who understands you cannot save your way to prosperity, you have to invest in growth to create future value and increase your equity valuation.
In May, 2012 (five years ago) I warned investors that Immelt was the wrong CEO. I listed him as the fourth worst CEO of a publicly traded company in America. While he steered GE out of trouble during the financial crisis, he also simply steered the company in circles as it used up its resources. Then was the time to change CEOs, and put in place someone with the fortitude to develop a growth strategy that would leverage the resources, and brand, of GE. But, instead, Immelt remained in place, and GE became a lot smaller, and weaker.
At this point, it is probably too late to save GE. By losing sight of the need to grow, and instead focusing on optimizing the old business while selling assets to raise cash for reorganizations, Immelt has destroyed what was once a great innovation engine. Now that the activists have GE in their sites it is unlikely they will let it ever return to the company it once was – creating whole new markets by developing new technologies that people never before imagined. The future looks a lot more like figuring out how to maximize the value of each piece of meat as it’s carved off the GE carcass.
by Adam Hartung | Jan 24, 2017 | Leadership, Politics
(Photo by Shawn Thew-Pool/Getty Images)
Professor John Kotter (Konosuke Matsushita Professor of Leadership HBS) penned Power and Influence (1985, Free Press) after teaching his course of the same name at the Harvard Business School. The one thing he found clear, as did his students (of which I was one), was that a person can be powerful and have influence, but that does not make them a leader. Leaders understand how to create and use both power and influence. But merely having access to either, or both, does not make a person a leader.
One of my mentors, Colonel Carl Bernard, famed leader of U.S. Special Forces in Laos and Vietnam during the 1960s, met an executive at DuPont in the mid-1980s who had been given a large organization but was struggling. Col. Bernard was asked to review this fellow and offer his leadership insights so this fellow’s peers could help him be a better corporate leader. After a few meetings with this exec, alone and in groups, Col. Bernard concluded, “DuPont can give him resources, and access to the CEO, but that man could not lead a Boy Scout troop. Best they close the business now before he causes too much trouble. There’s nothing I can do for him.” Two years later, and tremendous turmoil later, DuPont did close that business, fired him and wrote off everything the company had invested.
Last Friday, Donald Trump was sworn in as president of the United States. He now has the most powerful job in the free world and unparalleled influence. But, he’s not yet proven himself a leader. His accomplishments to date have all been executive orders – issued unilaterally. To achieve the title “leader,” he has to prove people will follow him.
President Trump did not win the popular vote, and he assumes his new job with the lowest approval rating of any first-term president ever elected. Numbers alone do not imply that the country is ready to call him its leader.
Historically, a president has had to screw up in office to have such low popularity. But on Saturday millions of demonstrators took to the streets of Washington, Los Angeles, Chicago, Minneapolis and other cities to protest a president who had yet to do anything in his new role. Far more demonstrated than attended the inauguration, which had about half the attendees as Barack Obama’s first inauguration. It took Lyndon Johnson years to create the animosity which lead to demonstrators chanting, “Hey, hey LBJ, how many kids did you kill today?” (referencing his escalation of the Vietnam War).
Business school thought leaders, and business executives, have been studying leadership for at least six decades, and they have discovered there are consistencies in how to encourage followership. Roger Ferguson, CEO of TIAA-CREF,
said leadership is about inspiring people. He teaches that this is done by
• demonstrating expertise – which Trump has yet to do as a politician,
• making yourself appealing – which Trump has missed by deriding those who speak out against him,
• showing empathy for others – a trait so far missing in Trump’s tweets, or comments about detractors
• and showing the fortitude of being the calm in the storm – the opposite of Trump, who’s fiery rhetoric creates more storms than it calms.
In 2013, fellow Forbes contributor Mike Myatt offered his insights into how one should lead those who don’t want to follow, tips that should be very interesting to the unpopular President Trump:
• Be consistent. This seems the antithesis of Trump, who favors inconsistency and campaigned that as President he intended to be inconsistent.
• Focus on what’s important. Reading Trump’s tweets, it is clear he struggles to separate the important from the meaningless
• Make respect a priority. Should we talk about Trump’s references to women? Or his comments about war heroes like John McCain?
• Know what’s in it for the other guy. Trump likes to brag about taking advantage of others in his business dealings, and showing blatant disregard for the concerns of others. Recommending African-Americans vote for him because “what have you got to lose” does not demonstrate knowledge of that constituency’s needs.
• Demonstrate clarity of purpose. Firstly, what does it mean to “make America great again?” It would be nice to know what that slogan even means. Second, if Trump is the President for “those of you left behind,” as he referenced in his inauguration speech, can he tell us who is in that group? Am I included? Are you? How do you know who’s in this group he now represents? And who’s not?
Americans frequently confuse position with leadership. Many CEOs are treated laudably, even after they have destroyed shareholder value, destroyed thousands of jobs, stripped suppliers of money and resources, doomed local economies with shuttered facilities and left their positions with millions of dollars despite a terrible performance. These CEOs demonstrated they had power and influence. But many are despised by their former employees, investors, bankers, suppliers and community connections. They did not demonstrate they were leaders.
Despite his great wealth, which has bought him substantial power and influence, Americans have yet to see if President Trump can lead. He has never been a commissioned or non-commissioned officer in a military organization. He has never led a substantial corporation with large employment. He has never led a substantial non-profit or religious organization. Contrarily, he has largely been the head of hundreds of small businesses (by employee standards) many of which he has closed or bankrupted, often leaving people unemployed, his investors losing money and communities (such as Atlantic City) worse off from his real estate dealings.
I prefer to write about corporate leaders and market leaders. But for a while now, almost all the news has been about Mr. Trump. Now President Trump, who has not previously led even a Boy Scout troop. One wonders of Col. Bernard would think he could.
“The greatest leader is not necessarily the one who does the greatest things. He is the one that gets the people to do the greatest things” – Ronald Reagan
by Adam Hartung | Dec 30, 2015 | Current Affairs, Defend & Extend, In the Whirlpool, Leadership
2015 was not short on bad decisions, nor bad outcomes. But there are 5 major leadership themes from 2015 that can help companies be better in 2016:
1 – Cost cutting, restructurings and stock buybacks do not increase company value – Dow/DuPont
There was no shortage of financial engineering experiments in 2015 intended to increase short-term shareholder returns at the expense of long-term value creation. Companies continued borrowing money to buy back their own stock – spending more on repurchases than they made in profits.
Unfortunately, too many companies continue to increase earnings per share (EPS) via financial machinations rather than creating and introducing new products, or creating new markets.
In a grand show of value reducing financial re-engineering, 2015 is ending with the massive merger between Dow and DuPont. There is no intent of introducing new products or entering new markets via this merger. Rather, to the contrary, the plan is to merge these beasts, lay off tens of thousands of employees, cut the R&D staff, cut new product introductions and “rationalize” the company into 3 new businesses intended to be relaunched as new companies, with fewer products, less business development and less competition.
Massive cost cutting will weaken both companies, put thousands out of work and leave the marketplace with fewer new products. All just to create 3 new, different profit and loss statements in the hopes of improving the EPS and price to earnings (P/E) multiple. This story has become all too familiar the last few years, and the only winners are the bankers, who will make massive fees, and hedge fund managers that rapidly dump the stock in the terrible companies they leave behind.
2 – Doing more of the same is not innovative and does not create value – McDonald’s
McDonald’s has been losing market share to fast casual restaurants for over a decade. Yet, leadership insists on constantly maintaining its undying focus on the fast food success formula upon which the company was launched some 60 years ago.
As the number of customers continued declining, McDonalds kept closing more stores. Yet, sales per store remained weak even as the denominator grew smaller. Unwilling to actually update McDonald’s to make it fit modern trends, in 2015 leadership decided the path to growth was serving breakfast all-day. Really. It is still hard to believe. No new products, just the same McMuffins and sausage biscuits, but now offered for more hours.
Because of McDonald’s size and legacy the media covered this story heavily in 2015. Yet, as 2016 starts we all can look back and see that this was no story at all. Doing more of the same is not in any way innovative or revolutionary. Defending and extending an outdated success formula does not fix a company strategy that is out of date and rapidly losing relevancy.
3 – Hiring the wrong CEO is a BIG problem – Yahoo
We would like to think that Boards are really good at hiring CEOs. Unfortunately, we are regularly reminded they are not. The Board at Yahoo has spent a decade making bad CEO selections, and now the company’s core business is valueless.
In 2015 we saw that the decision by Yahoo’s board to hire a CEO based on political correctness (gender advantages), and limited experience with a well known company (a short Google career) rather than leadership capability could be deadly. Although Marissa Mayer was hired in 2012 amid much fanfare, we learned in 2015 that Yahoo is worth only the value of its Alibaba shareholdings, and no more. Yahoo as it was founded is now worth – nothing.
After 3 years of Mayer leadership it became clear that “there was no there, there” at Yahoo (to quote Gertrude Stein.) The value of the company’s “core” search and content accumulation businesses dropped to zero. Although 3 years have passed, practically no progress has been made toward developing a new business able to compete in the market shifted to social media and instant communications. Investors now realize Ms. Mayer has failed to grow future revenue and profits for the historical internet leader. Following a decade of incompetent CEOs, Yahoo has been left almost wholly irrelevant.
What was once Yahoo will soon be Alibaba USA, as the company gets rid of its old businesses – in some fashion, although who would want them is unclear – in order to allow shareholders to preserve their value in Alibaba stock purchased by Jerry Yang in 2005.
Yahoo has become irrelevant, replaced by its minority stake in Alibaba, largely due to a Board unable to identify and hire a competent CEO – ending with the wholly unqualified selection of Ms. Mayer, who will achieve at least a footnote in history for the outsized compensation package she received and the huge severance that will come her way, wildly out of proportion to her poor performance, when leaving Yahoo.
4 – Even 1 dumb leadership decision can devastate a company — Turing Pharmaceuticals and CEO Shkreli
In 2015 former hedge fund manager Martin Shkreli raised a lot of money, and obtained control of an anit-parasitic pharmaceutical product. Recognizing that his customers either paid up or died, and being young, naïve, enormously greedy and without much oversight he decided to raise product pricing 70-fold. This would leave his customers either dead, bankrupt or bankrupting the insurance companies paying for his product – but he infamously said he did not care.
Thumbing your nose at customers, and regulators, is never a good idea. And even if they could not roll back the price quickly, they could target the CEO and his company for further investigation. It didn’t take long until Mr. Shrkeli was indicted for stock manipulation, leaving Turing Pharmaceuticals in disrepair as it rapidly cut staff and tried to determine what it will do next. Now KaloBios Pharma, controlled by Turing, is forced to file bankruptcy.
Never forget that Al Capone did not go to prison for stealing, bribing police, bootlegging, number running, murder or other gangster behavior. He went to prison for tax evasion. The simple lesson is, when you think you are smarter than everyone else, can do whatever you want and thumb your nose at those with government powers you’ll soon find yourself under the microscope of investigation, and most likely in really big trouble. And in the desire to take down the unwise CEO corporations become mere fodder.
The pharma industry is a regular target of consumers and politicians. Now not only are the investors in Turing damaged by this foolishly incompetent CEO, but the entire industry will once again be under close scrutiny for its pricing practices. Arrogantly making brash decisions, based on ill-formed thinking and juvenile egotism, without careful, thoughtful consideration can create enormous damage.
5 – Putting short-term results above good business practice will hurt you very badly long-term – Volkswagen and Takata
VW cheated on its emissions tests. Takata sold deadly, exploding airbags. Both companies are large organizations with layers of management. How could judgemenetal errors so big, so costly and so deadly happen?
These outcomes did not happen because of just “one bad apple.” Cultural acceptance of lying takes years of leadership focused on short-term results, even when it means operating unethically or illegally, to be inculcated. It took years for layers of management to learn how to turn away from problems, falsify test results, fake outcomes, lie to customers and even lie to regulators. It took years to create a culture of tolerated deception and willful misrepresentation.
Unfortunately, the auto industry is a tough place to make money. There is a lot of regulation, and a lot of competition. When it becomes too hard to make money honestly, cheating can become far too easily accepted. Rather than trying to revolutionize the auto making process, or the product itself, it can be a lot easier to push managers all the way down to the front-line of procurement, manufacturing or sales to simply cheat.
“Make your numbers” becomes a mantra. If you want to keep your job, or even more importantly if you want to move up, do whatever it takes to tell those above you what they want to hear. And those above don’t ask too many questions, don’t try to figure out how results happen – just keep applying pressure to those below to do what’s necessary to make the numbers.
As VW and Takata showed us, eventually the company will be caught. And the consequences are severe. Now those companies, their customers, their employees and their shareholders are suffering. And industry regulations will tighten further to make it harder to cheat. Everyone loses when short-term results are the top goal, rather than building a sustainable long-term business.
Let’s hope for better leadership in 2016.
by Adam Hartung | Dec 13, 2015 | In the Whirlpool, Innovation, Leadership
DuPont is one of America’s oldest corporations. Founded by Eleuthere Irenee duPont as a gunpowder manufacturer for the Revolutionary War, the company has long been one of America’s leading business institutions. From humble beginnings, DuPont became well known as a leader in Research & Development, a consistent leader in patent applications, and the inventor of products that proliferate in our lives from nylon to Teflon pans plastic bottles to Kevlar vests.
But in a series of fast actions during 2015, DuPont as it has been known is going away. And it is too bad the leadership wasn’t in place to save it. Now there will be a short-term bump to investors, but long-term cost cutting will decimate a once great innovation leader. When the bankers take over, it’s never pretty for employees, suppliers, customers or the local community.
It has been a long time since DuPont was the kind of business leader that gathered attention like, say, Apple or Google. From dynamic roots, the company had become quite stodgy and unexciting. Many felt leadership was over-spending on overhead costs like R&D,product development and headquarters personnel.
Thus Trian Fund, led by activist investor Nelson Peltz, set its sites on DuPont, buying 2.7% of the shares and launching a proxy campaign to place its slate of directors on the Board. The objective? Slash R&D and other costs, sell some divisions, raise cash in a hurry and dress up the P&L for a higher short-term valuation.
These sort of attacks almost always work. But DuPont’s CEO, Ellen Kullman, dug in her heels and fought back. She aligned her Board, spent $15M making her case to shareholders, and in a surprising victory beat back Mr. Peltz keeping the board and management intact. In a great rarity, this May DuPont’s management convinced enough shareholders to back their efforts for improving the P&L via their own restructuring and cost improvements, planned divestitures and organic growth that existing leadership remained intact.
But this victory was quite short-lived. By October, Ms. Kullman was forced out as CEO. A few days later the CFO reported quarterly profits that were only half the previous year. Sales had continued a history of declining in almost all divisions and across almost all geographic segments – with total revenue down to $5B from $7.5B a year ago. As it had done in July and previous quarters end-of-year projections were again lowered.
Net/net – CEO Kullman and management may have won the Trian battle, but they clearly lost the business war. Unable to actually profitably grow the company, the Board lost patience. They were willing to support management, but when that team could not produce the innovations to keep growing they were willing to accelerate cost cutting ($1B in 2015 alone) in order to prop up short-term stock valuation.
Now the newly placed transaction-oriented CEO of Dupont has cooked up a deal the bankers simply love. Merge DuPont with Saran Wrap and Ziploc inventor Dow Chemical, which itself has been the target of Third Point’s activist leader Dan Loeb (which Dow settled by giving Third Point 2 board seats rather than risk a proxy battle.) Then whack even more costs – some $3B – and lay off some 20,000 of the combined companies’ 110,000 employees. Then split the remaining operations into 3 new companies and spin those out publicly.
Sounds so good on paper. So simple. And think of the size of the investment banking and legal fees!!!! That will create some great partner bonuses in 2016!
Theoretically, this will create 3 companies that are more profitable, even though sales are not improving at all. Improved P&L’s will be projected into the future, and higher P/E (price to earnings) multiples on the stock should yield investors a very nice short-term gain. A one-time investor “Christmas present.”
But what will investors actually own? The lower cost companies will now be largely without R&D, new product development, internal patent departments, university research grant management programs, and many of the finance, marketing and sales personnel. Exactly how will future growth be assured? What will happen to these once-great sources of invention and innovation?
Nothing about this mega-transaction actually makes business better for anyone:
- The companies are no closer aligned with market trends than before. In fact, lacking people in innovation positions (product development, R&D and marketing) they are very likely to become even further removed from the leading trends that could create breakthrough products.
- Competition will be reduced short-term, so there will be less price pressure. But longer-term innovation will shift to smaller companies like Monsanto and Syngenta, or even companies currently not on the industry radar – as well as universities. These big companies will be removed from the leading edge of competition, the innovation edge, and will much more likely miss the next wave of products in all markets as new competitors emerge.
- There will be no resources to develop or manage new innovations that emerge internally, or externally. The much smaller staffs will have no bandwidth to explore new technologies, new products, new go-to-market channels or new ways of doing business. There will be no resources for white space teams to explore market shifts, consider major threats to their “core,” or develop potentially disruptive businesses that will generate future growth.
A very smart CFO once told me “when the finance guys are figuring out how to make money, rather than the business guys, you need to be very worried.” Clever transactions, like the one proposed between DuPont and Dow, do not replace great leadership. These are one-time events, and almost always leave the remaining assets weaker and less competitive than before.
Leadership requires understanding markets, managing innovation, creating new solutions, disrupting old businesses by launching new ones, and generating recurring profitable sales growth. Unfortunately, DuPont suffered from a lack of great leadership for several years, which left it vulnerable. Now the bankers are in charge, busy managing spreadsheets rather than products, customers and sales.
Don’t be confused. In no way does this merger and reorganization improve the competitiveness of these businesses. And for that reason, it will not offer a long-term value enhancement for shareholders. But even more obvious is the outcome negative outcome we can expect for employees, suppliers, customers and the communities in which these companies have operated. Bad leadership let the hyenas in, and they will pick the best meat off the bone for themselves first – leaving seriously damaged carcasses for everyone else.
by Adam Hartung | Apr 9, 2015 | Current Affairs, Defend & Extend, Innovation, Leadership
This week a self-driving car built by Delphi of England completed a 9 day trip from San Francisco to New York City. The car traveled 3,400 miles, and was fully automated for 99% of the trip.
Attention has again focused on self-driving cars. There are a handful of players entering the market today, including Apple. But the most famous company by far is Google, which has put over 700,000 autonomous miles on its vehicles since pioneering the concept after winning a DARPA challenge to build a functioning prototype in 2005. In fact, we’re so used to hearing about the Google self-driving car that many of have stopped asking “Why Google? They aren’t in the auto business.”
Of course the idea of a self-driving auto is as old as the Jetson’s (and if you don’t know who the Jetson’s are you are, that was a long time ago.) And nobody should be surprised to hear that prototypes have been on the drawing board for 5 decades. But I bet you didn’t know that DuPont was once seriously engaged in such development.
In 1986 DuPont was America’s largest and most noteworthy chemical company. The company was a pioneer in petrochemicals, and was considered the company that brought the world plastic – at a time when plastic was considered a great, new invention. A leader in films of all sorts, DuPont leadership saw the opportunity for electronics to replace film in applications such as printing (where films were used in high volume for platemaking and proofing) and healthcare (where xRays and MRIs were a large film users.) They conceived of a future time when computers and monitors – digitial products – could replace analog film, and they chose to create a new business unit called Electronic Imaging to pioneer developing these applications.
As the team started they expanded the definition of Electronic Imaging to include all sorts of applications for digital imaging – and using all kinds of technologies. The breadth of analysis, and product development, included non-destructive parts testing, infrared uses such as heads-up displays and inventory identification, and radar applications. Which led the team to using a radar for automating an automobile.
In 1987 DuPont invested in a small company out of San Diego that accomplished something never done before. Using a phased-array radar hooked up to the brakes of a van, they were able to have the car recognize objects in front of the van, calculate in real time the distance between the van and these forward objects, calculate the relative speed of both objects (whether one or both were stationary or moving) and then apply braking in order to maintain a safe distance. If the forward object stopped, then the van would come to a complete stop.
This was all done with discreet componentry, and the team realized future success required developing more specific electronics, including specialized integrated chips that could operate faster and be more error-free. So they drove the prototype from San Diego to Wilmington, DE with a person behind the wheel, but relying as much as possible on the automated system to do all braking. The team collected data on location, speed, weather, traffic conditions, and many other items during the journey and prepared to take the project forward, planning to eventually build a module which could be installed in vehicles as small as cars or as large as 18-wheelers, with enough intelligence to adjust for different vehicle designs and applications (in order to calibrate for different braking distances.)
Net/net they had a working prototype. The product was expected to reduce the number of accidents by assisting drivers with braking. Multi-car pile-ups would become a thing of the past. And this device could potentially allow for better traffic flow because automated braking would reduce – maybe eliminate! – rear-end collisions. This wasn’t a self-driving car, but it was self-braking car, which would be a first step toward the sort of Jetson’s-esque vision the young team imagined.
What happened?
It didn’t take long for the older, “wiser” leadership to shut down the project. Even though several executives participated in a controlled demonstration of the prototype in an enclosed DuPont parking lot, the conclusion was that this project demonstrated just how off-track the new Electronic Imaging Department had become, and that it was clear folks needed to be reigned in and budgets cut:
- This clearly had nothing to do with film or replacing film. DuPont was a chemical company, and to the extent it had any interest in electronics it was where they were applied to potentially cannibalize film sales. Products which were not closely aligned with historical products were simply not to be pursued.
- DuPont had no history in radar, analogue electronics or development of integrated circuits. Yes, DuPont had an Electronics Department, but they sold film for solder masking and other applications of semiconductor and electronics manufacturing. DuPont was a chemical company, not a computer company or electronics company and this division was not going to change this situation.
- This product was seen as carrying too much liability risk. What if it failed? What if the car ran over a child? The auto industry was seen as litigious, and DuPont had no interest in a product that could have the kind of liability this one would generate. Yes, there was an Auto Department, but it sold films for safety glass, plastic sheets used for molding inside panels, and surface coatings which could be painted on the inside and/or outside of the vehicle. But those did not have the kind of failure possibility of this active radar device. [“By the way” the vice-Chairman asked “could that radar fry someone’s innards at a crosswalk?”]
- The market is too limited. Who would really want an automatic braking system? Given what it might cost, only the most expensive cars could install it, and only the wealthiest customers could afford it. This product was destined for niche use, at best, and would never have widespread installation.
Poof, away went the automatic automobile braking project. Once this dagger had been thrown, within just a few months everything that wasn’t printing or medical – in fact anything that wasn’t tied to printing films, xRays and MRI – was gone. Within 2 years leadership decided that for some variant of the 4 issues above the entire Electronic Imaging division was a bad idea. DuPont would be better served if it stuck to its core business, and if it spent money defending and extending film sales rather than trying to cannibalize them.
DuPont liked competing in the oceans where it had long competed. Venturing beyond those oceans was simply too risky. Today, 25 years later, DuPont is about 1/3 the size it was when its leaders launched the ill-fated Electronic Imaging division.
Google obviously has a different way of looking at the opportunity for automating automobile operation. Since winning the DARPA competition Google has spent a goodly sum building and testing ways to automate driving. And it has even gone so far as lobbying to make self-driving cars legal, which they now are in 4 states. Pessimists remain, but every quarter more people are thinking that self-driving cars will be here sooner than we might have imagined. This week’s cross-country achievement fuels speculation that the reality could be just around the corner.
Google seems happy to compete in new oceans. It dominates search, where its share is attacked every day by the likes of Yahoo and Microsoft. But simultaneously Google has invested far outside its core market, including software for PCs (Chrome) and mobile devices (Android), hardware (Nexus phones), media (Blogger, YouTube), payments (Wallet) and even self-driving cars. To what extent these, and dozens of other non-core products/services, will pay off for investors is yet to be determined. But at least Google’s leadership is able to overcome the desire to restrict the company’s options and look for future markets.
Which kind of organization is yours? Do you find reasons to kill new projects, or are you willing to experiment at creating new markets which might create dramatic growth?
