June 1, 2017
I am on a plane half way around the world going to visit (yet another) tech company who is in internal disarray over the subject of who they want to be. Will they stay a product company who sells features or become an as-a-service, recurring revenue company who delivers business outcomes? I finally finish my email somewhere over the Emperor Seamounts and grab the Wall Street Journal. The first article that catches my eye is about a very successful CEO who has been sacked at an iconic company.
Now I should be used to this, right? For over a decade, we at TSIA have been writing about the business model transition facing the traditional tech industry and we have witnessed many leadership changes in our member companies. Steve Ballmer (Microsoft), John Chambers (Cisco), Joe Tucci (EMC) and Sam Palmisano (IBM) were all pretty darn good CEOs. Every one of them set profit records at their companies. They were revered figures in the product-driven tech world, and for one reason or another, (retirement, forced retirement, company sale) they are all spending more time on the golf course these days.
But this one did surprise me. Not just because I thought the guy was doing pretty well, but because of what the company does and the courageous rationale of the BOD (business operating division) in making the move.
Mark Fields took over as the CEO of Ford Motor Company in 2013 after 25 years as the company’s “hard-charging fix-it man.” He had played a key role in overhauling the product line and streamlining costs. In the last two fiscal years, Ford delivered record profits. And suddenly, he is gone.
They just delivered two years of record profits by selling six million cars each year. How can the board walk away from that?
“We have to move faster,” Chairman Bill Ford said at a news conference. “We need speed” and the new boss “needs to take hard action.” But wait! They just delivered two years of record profits by selling six million cars each year. How can the board walk away from that? According to the WSJ, recent events “highlighted Mr. Fields’ inability to persuade Wall Street he was ready to reinvent an industry anchored for a century in gasoline engines and steering wheels.” Despite record profits, Ford’s stock price fell nearly 40% under Fields. According to Chairman Ford, “All the profits and capabilities are on one side and all the promise is in another.” Even Fields agreed saying that the company “has one foot in today and one foot in tomorrow.”
So despite its record profits, Ford’s board has apparently made a decision. One that not all shareholders will like. It is taking the long view. According to the Journal, “Ford said he fears that (Field’s decisions) led to a splintered approach with a company culture that had too much concern about hierarchy and a myopic focus on either the current product line or moonshot bets.” In a separate article, a financial analyst weighed in. “Ford Motor’s new boss comes from the future side of the business. That implies more long-term investment, not a quick profit boost for suffering shareholders,” writes analyst, Stephen Wilmot. “Investors shouldn’t expect the new boss to deliver a quick fix.”
Most of the hundreds of traditional tech companies have not yet made this gutsy decision, and I would argue they should have seen their Waterloo for a far longer period than Ford did.
In my view, the Ford BOD is acting faster and more courageously than the BODs of the vast majority of traditional technology companies. The automotive industry is the ultimate product business. Yet, here is a board who has realized (despite record profits!) that its traditional business model is going to break in the near future and who has decided to prioritize the long-term interest of the company over the short-term interests of some of its value shareholders.
Most of the hundreds of traditional tech companies have not yet made this gutsy decision, and I would argue they should have seen their Waterloo for a far longer period than Ford did. Yet, they still have one foot planted squarely in wringing profits out of the old model and a hesitant toe or two in the new. Meanwhile, they are opening the door for “born in the cloud” as-a-service companies to steal customers and seize the momentum in their sector. As we assert in our most recent book, Technology-as-a-Service Playbook, and as our research continues to indicate, holding back is not the smart answer to boosting the share price of traditional tech companies. As Adobe, Microsoft, SAP and Autodesk are proving, the right strategy is to be bold and loud about the much needed, long term moves for the business. They are becoming recurring revenue businesses. That’s the way to excite investors and juice the stock.
BTW – Ford’s stock closed UP 2.12% on the announcement. Good for them!
J.B. Wood is president and CEO of TSIA. He is a frequent industry speaker and author of the popular books, Complexity Avalanche (2009), Consumption Economics (2011), B4B (2013), and Technology-as-a-Service Playbook: How to Grow a Profitable Subscription Business (2016), and has appeared in leading publications, such as Fortune, The New York Times, and The Wall Street Journal. He works with the world's largest technology companies on strategies to extend their innovation platform beyond the lab and into the customer experience, particularly in the age of cloud and managed services.
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