Coping with Growth and Size

Tom Peters

At age 27, Scott McNealy founded Sun Microsystems. Eleven years later, it’s a $4 billion company, an industry leader, and a standard-setter.

In a recent interview with Upside, the Silicon Valley insiders’ magazine, McNealy explained Sun’s success. First, the company has a core concept, a clear idea of the market it wants to serve and the technology it wants to apply. Second, it established superb vendor partnerships. Third, Sun has nurtured a strong and loyal user base (to the extent there’s any loyalty in the computer industry). Fourth, it offers sound, high-quality products that are effectively anticipating market needs. Finally, after trials and errors, McNealy has created
an organization loose enough to tack and jibe, yet focused enough to avoid squandering resources.

What can we learn from sagas like Sun’s?

1. You can’t plan to dominate the market. Sun simply began with terrific technology that, in effect, came out of the blue. (Just ask Hewlett-Packard, which had the workstation world by the tail before Sun’s unexpected arrival.)

2. You can take advantage of a good thing when it comes along. Given a solid product that created excitement in the marketplace, McNealy demonically tapped excitement and built brand muscle (“franchise” is the word he uses). The same is true with Apple Computer, Microsoft—and In Search of Excellence (coauthored by yours truly).

3. You can uphold your core ideas (control intellectual assets, per McNealy), yet spur growth by letting others inside the tent. A key to Sun’s success has been sharing the wealth with lots of partners—encouraging suppliers, software writers, and even competitors to exploit Sun’s technology. The company adds to the brand’s value through the hard work of many talented others.

4. You must decentralize. To maintain appropriate flexibility, every organization needs to loosen the reins at some point. The question is when? Do it too early, and you’ll never develop the partnerships or customer loyalty in the first place. Do it too late, and upstart competitors will catch you napping.

Currently, Sun is trying to be both decentralized and centralized at once: on the one hand, allowing significant business-unit autonomy (if units don’t perform, McNealy insists he will either boot their CEOs or shut them down); on the other, focusing on one key business idea (McNealy claims he couldn’t decentralize until he reduced Sun’s basic workstation architectures from three to one). Problem is, the odds are high—very high—that the IBM malaise will eventually creep in: Keeping intellectual capital centralized will likely
produce “autonomous” unit managers who think, talk and dress alike—and produce “me too” products.

5. At some point, you must sacrifice your intellectual integrity and concoct a federal structure. When a company becomes a true giant, intellectual centralization is the kiss of death. Organizations like General Electric, Johnson & Johnson, Hewlett-Packard, and 3M survive only as loosely linked federations of very autonomous subunits led by very autonomous chiefs. Even in these cases, though, the corporate center can contribute. For example, in the past decade or so 3M has mounted modestly centralized quality, manufacturing, environmental and international initiatives which have paid off handsomely.

Success breeds failure. Period. To succeed, you must surprise the market with a good product and then develop constancy of purpose and execution to build your franchise. But every step down this sensible, profitable path is also a step toward rigidity.

Managing the centralization-decentralization balance is the essence of the strategic ballet. The odds of getting it “right” for all time are zero (name a firm, including a GE or HP or Sun, that hasn’t had significant problems). Thus, the only possible route to sustained success is fiddling, constantly and often fundamentally, with the centralization-decentralization equilibrium. Yet one must remember, over the long haul, that the drift must be away from headquarters control and toward increased autonomy; the truth is, as with aging
in general, the natural tendency is toward inflexibility.

In the 1930s, GM’s legendary chairman Alfred Sloan observed, “In practically all our activities we seem to suffer from the inertia resulting from our great size. … There are so many people involved and it requires such a tremendous effort to put something new into effect that a new idea is likely to be considered insignificant in comparison with the effort that it takes to put it across. … Sometimes I am almost forced to the conclusion that General Motors is so large and its inertia so great that it is impossible for us to be leaders.”

Talk about foresight!

(C) 1993 TPG Communications.

All rights reserved.