Why Sun Failed – unwillingness to adapt

by | Apr 21, 2009 | Current Affairs, Defend & Extend, In the Whirlpool, Leadership, Lock-in, Web/Tech

"With Oracle, Sun avoids becoming another Yahoo," headlines Marketwatch.com today.  As talks broke down because IBM was unwilling to up its price for Sun Microsystems, Oracle Systems swept in and made a counter-offer that looks sure to acquire the company.  Unlike Yahoo – Sun will now disappear.  The shareholders will get about 5% of the value Sun was worth a decade ago at its peak.  That's a pretty serious value destruction, in any book.  And if you don't think this is bad news for the employees and vendors just wait a year and see how many remain part of Oracle.  A sale to IBM would have fared no better for investors, employees or vendors.

It was clear Sun wasn't able to survive several years ago.  That's why I wrote about the company in my book Create Marketplace Disruption.  Because the company was unwilling to allow any internal Disruptions to its Success Formula and any White Space to exist which might transform the company.  In the fast paced world of information products, no company can survive if it isn't willing to build an organization that can identify market shifts and change with them. 

I was at a Sun analyst conference in 1995 where Chairman McNealy told the analysts "have you seen the explosive growth over at Cisco System?  I ask myself, how did we miss that?"  And that's when it was clear Sun was in for big, big trouble.  He was admitting then that Sun was so focused on its business, so focused on its core, that there was very little effort being expended on evaluating market shifts – which meant opportunities were being missed and Sun would be in big trouble when its "core" business slowed – as happens to all IT product companies.  Sun had built its Success Formula selling hardware.  Even though the real value Sun created shifted more and more to the software that drove its hardware, which became more and more generic (and less competitive) every year, Sun wouldn't change its strategy or tactics – which supported its identity as a hardware company – its Success Formula.  Even though Sun became a leader in Unix operating systems, extensions for networking and accessing lots of data, as well as the creator and developer of Java for network applications because software was incompatible with the Success Formula, the company could not maintain independent software sales and the company failed. 

Sort of like Xerox inventing the GUI (graphical user interface), mouse, local area network to connect a PC to a printer, and the laser printer but never capturing any of the PC, printer or desktop publishing market.  Just because Xerox (and Sun) invented a lot of what became future growth markets did not insure success, because the slavish dedication to the old Success Formula (in Xerox's case big copiers) kept the company from moving forward with the marketplace. 

Instead, Sun Microsystems kept trying to Defend & Extend its old, original Success Formula to the end.  Even after several years struggling to sell hardware, Sun refused to change into the software company it needed to become. To unleash this value, Sun had to be acquired by another software company, Oracle, willing to let the hardware go and keep the software – according to the MercuryNews.com "With Oracle's acquisition of Sun, Larry Ellison's empire grows."  Scott McNealy wouldn't Disrupt Sun and use White Space to change Sun, so its value deteriorated until it was a cheap buy for someone who could use the software pieces to greater value in another company.

Compare this with Steve Jobs.  When Jobs left Apple in disrepute he founded NeXt to be another hardware company – something like a cross between Apple and Sun.  But he found the Unix box business tough sledding.  So he changed focus to a top application for high powered workstations – graphics – intending to compete with Silicon Graphics (SGI).  But as he learned about the market, he realized he was better off developing application software, and he took over leadership of Pixar.  He let NeXt die as he focused on high end graphics software at Pixar, only to learn that people weren't as interesed in buying his software as he thought they would be.  So he transitioned Pixar into a movie production company making animated full-length features as well as commercials and short subjects.  Mr. Jobs went through 3 Success Formulas getting the business right – using Disruptions and White Space to move from a box company to a software company to a movie studio (that also supplied software to box companies).  By focusing on future scenarios, obsessing about competitors and Disrupting his approach he kept pushing into White Space.  Instead of letting Lock-in keep him pushing a bad idea until it failed, he let White Space evolve the business into something of high value for the marketplace.  As a result, Pixar is a viable competitor today – while SGI and Sun Microsystems have failed within a few months of each other.

It's incredibly easy to Defend & Extend your Success Formula, even after the business starts failing.  It's easy to remain Locked-in to the original Success Formula and keep working harder and faster to make it a little better or cheaper.  But when markets shift, you will fail if you don't realize that longevity requires you change the Success Formula.  Where Unix boxes were once what the market wanted (in high volume), shifts in competitive hardware (PC) and software (Linux) products kept sucking the value out of that original Success Formula. 

Sun needed to Disrupt its Lock-ins – attack them – in order to open White Space where it could build value for its software products.  Where it could learn to sell them instead of force-bundling them with hardware, or giving them away (like Java.)  And this is a lesson all companies need to take to heart.  If Sun had made these moves it could have preserved much more of its value – even if acquired by someone else.  Or it might have been able to survive as a different kind of company.  Instead, Sun has failed costing its investors, employees and vendors billions.

So many good die young – SGI, Sun Micro, DEC, Wang, Univac, etc.

by | Apr 1, 2009 | Current Affairs, Defend & Extend, In the Swamp, In the Whirlpool, Lifecycle, Lock-in, Web/Tech

How many of these company names do you remember — Sperry Rand? Burroughs? Univac? NCR? Control Data? Wang? Lanier?  DataPoint?  Data General? Digital Equipment/DEC? Gateway? Cray? Novell?  Banyan? Netscape?

I'm only 50, yet most of these companies were originated, became major successes, and failed within my lifetime.  Now, prepare to add a couple more.  In the 1980s Silicon Graphics set the standard for high-speed computing, using their breakthrough technology to open the door on graphics.  There never would have been a PS3 or Wii were it not for the pioneering work at SGI. The company invented high speed graphics calculating methods that allowed for "real-time" animation on a computer, as well as "color fill" and "texture mapping" – all capabilities we take for granted on our computer screen today but that were merely dreams to early GUI users.  But now SGI has disappeared according to the Cnet.com article "First GM, Now Silicon Graphics.  Lessons Learned?"  The company that expanded the high-speed computing market most on SGI's early lead was Sun Microsystems, building the boxes upon which the first all-computer animated movie was made – Toy Story.  But 2 weeks ago we learned Sun will most likely soon disappear into the bowels of IBM ("Final Chapter for Sun Micro Could be Written by IBM" at WSJ.com)

When Clayton Christensen wrote The Innovator's Dilemma he said academics like to talk about the tech industry because the product life cycles are so short.  Actually, he would have been equally accurate to say their company life cycles were so short.  For business academics, looking at tech companies is like cancer researchers looking at white lab mice.  Their lifespan is so short you can rapidly see the impact of business decisions – almost like having a business lab.

What we see at these companies was an inability to shift with changes in their markets.  They all Locked-in on some assumptions, and when the market shifted these companies stayed with their old assumptions – not shifting with market needs.  Like Jim Collins' proverbial "hedgehog" they claimed to be the world's best at something, only to learn that the world put less and less value in what they claimed as #1.  Either the technology shifted, or the application, or the user requirements.  In the end, we can look back and their lives are like a short roller coaster – up and then crashing down.  Lots of money put in, lots spent, not much left for investors, vendors or employees at the end.  They were #1, very good (in fact, exceptional), and met a market need.  Yet they were unable to thrive and even survive – because a market shift emerged which they did not follow, did not meet and eventually made them obsolete.

Today we can see the same problem emerging in some of the even larger tech companies we've grown to admire.  Dell taught everyone how to operate the world's best supply chain.  Yet, they've been copied and are seeing their market weaken to new products supplied by different channels.  Microsoft monopolized the "desktop", but today less and less computing is done on desktops.  Computing today is moving from the extremes of your hand (in your telephone) to "clouds" accessed so serrendipituously that you aren't even sure where the computing cycles are, much less how they are supplied.  And software is provided in distributed ways between devices and servers such that an internet search engine provider (Google) is beginning to provide operating systems (Android) for new platforms where there is no "desktop."  As behemoth as these two companies became, as invincible as they looked, they are equally vulnerable to the fate of those mentioned at the beginning of this blog. 

Of course, their fate is not sealed.  Apple and IBM both are tech companies that came perilously close to the Whirlpool before finding their way back into the Rapids.  When businesses decide their best future is to Defend & Extend past strengths they get themselves into trouble.  To break out of this rut they have to spend less time thinking about their strengths, and more about market needs.  Instead of looking at similar competitors and figuring out how to be better, they have to look at fringe competitors and figure out how to change with emerging market requirements.  And just like they disrupted the marketplace once with their excellence, they must be willing to disrupt their internal processes in order to find White Space where they can create new market disruptions. 

Today, with change affecting all companies, it is important that leaders look at the "lab results" from tech.  It's important to recognize past Lock-ins, and assumptions about continuation (or return to) past markets.  Markets are changing, and only those that take the lead with customers will quickly return to profitability and emerge market leaders.  It's those new leading companies that will get the economy growing again, so waiting is really not an option.