Communicating in a vortex: getting sucked in is not all bad

Communication World, June-July, 2002 by Shelley Bird

When AT&T split itself into three companies--AT&T, Lucent and NCR--in the 1996 "trivestiture," it appeared that NCR was mortally wounded. At the time the spin-off was announced, operations were losing about US$2 million a day, every day, including weekends. 1995 ended with a net loss of close to US$2.3 billion, including restructuring charges.

It was clear that the company was facing a life-or-death situation, and that the outcome would be death unless NCR embraced profound fundamental change--so profound that it would amount to re-engineering its corporate DNA. Everything was up for grabs: the businesses we were in, the markets we served, the way we did business, our organizational structure, culture, core beliefs and values. Everything.

DRAWING FROM A RICH HISTORICAL HERITAGE

In a number of ways, history suited NCR well for that traumatic era. Founded by John Henry Patterson in 1884, NCR, in many respects, was the prototype of the modern industrial corporation.

Patterson created model factories, introduced sales quotas and incentive bonuses, developed direct mail advertising, established formal job descriptions and implemented employee communication and welfare programs. In fact, between 1910 and 1930, an estimated one-sixth of the top executives in the nation's companies were former NCR executives. Thomas Watson, the founder of IBM, was perhaps the best known alumnus.

Patterson built a company culture that honored innovation and the ability to reinvent oneself continually. From producing the first cash register in the mechanical era of the 19th century, NCR evolved through the 20th-century progression of electromechanical, electronic, and microelectronic to the digital technologies of the 21st century.

Back in 1983, as NCR was about to turn 100 years old, Forbes magazine wrote that "NCR is far better poised for the future than many erstwhile stars of California's Silicon Valley or Boston's Route 128."

ADJUSTING TO CHANGE

So what happened?

Like many other companies in the early 1980s, NCR was enjoying healthy margins on proprietary computer systems. But the shift to open systems wiped out the majority of those hardware players, and a new group of competitors that did not have to change strategy came on the scene. The new competitors included Compaq, Dell and Gateway.

NCR opted early to shift, introducing one of the first Unix-based processors, a powerful, general-purpose unit that could fit under a desk. We understood and responded to the technology transition. But we did not understand the distribution model or the expense structure that was needed to be successful in this new space.

Then much to NCR's surprise, AT&T mounted a successful hostile takeover bid that made NCR a wholly owned subsidiary of AT&T in September 1991. AT&T intensified the focus on personal computers, even as that market was quickly commoditizing. Within two years, gross operating margins had disappeared and the company was recording substantial losses.

Fast forward another two years to September 1995 when AT&T announced it would separate into three independent, publicly held companies by the end of the following year. Not only were we faced with the challenge of a spin-off, but we also had to stop the bleeding from a rapidly failing business. We needed to change our business fundamentally--to re-engineer our DNA. And we needed a plan to get there.

That plan involved four important business decisions.

We were losing money on every personal computer we sold. Survival as a commodity hardware provider was impossible. So the first decision was to exit the PC business. Entering 1996, PCs represented more than 60 percent of our total computer business, which included high-end computer systems for data warehousing.

Expenses also had to be greatly reduced. We could no longer operate with an expense structure based on 60-plus percent margins from proprietary systems. The needed cuts proved deep and included eliminating some 8,500 full-time and contract positions worldwide.

We were in crisis. We knew we were living on borrowed time and could not afford to have "pocket vetoes" interfere with getting the job done. So we were all swept up in the vortex of change, as if caught in a tornado.

Yet that vortex of change turned out nor to have been a bad thing at all. It drew all of our activities together to a clear focal point. And, ironically, the vortex made communication relatively easy. Although the decisions were hard and the news often unpleasant, employees were informed and understood the situation. They had to make tough personal choices about whether to believe in where the company was going. Those who stayed accepted uncertainty and risk simply as part of an informal contract with the "new" NCR.

The vortex also helped clarify our vision. It focused attention on strategic direction and how to get to our goal. Employees knew the company's survival was at stake and knew what needed to be done. Everyone had a clear view from his or her own objectives to the overall company goal. And everyone shared the vision of an independent, financially healthy NCR.