When the Mismanagerial Class Destroys Great Companies
by Marko Jukic
In 2005, Paul Otellini became the new CEO of Intel, America’s premier semiconductor designer and manufacturer. He was the first CEO of the company not to have a background in engineering. Sometime shortly thereafter, Otellini entered discussions with Steve Jobs on whether Intel would manufacture the chips needed for Apple’s secretive, potentially revolutionary new project: the iPhone. Ultimately, Otellini declined. He thought the initial costs would be too high and the resulting sales too low. Since then, Apple has sold 2.3 billion iPhones. Intel flatly missed out on the mobile computing revolution ushered in by Apple, which put Intel’s competitors in various domains—including companies like Samsung, TSMC, and most significantly Arm—squarely in the leading position that Intel once had.
The same year that Otellini took the reins at Intel, James McNerney became the new CEO of Boeing, America’s one and only manufacturer of large passenger airplanes and a key contractor to NASA and the Pentagon. Like Otellini, McNerney was an MBA—Master of Business Administration—not an engineer. Though he wasn’t the first non-engineer ever to lead the century-old company, he was the first without any previous experience in aerospace. Aiming to cut costs, McNerney determined that, rather than designing and building a whole new plane, the company would simply modify one of its key planes, the 737, to be the new and improved 737 MAX. Not long after entering service a decade later, two of these updated planes inexplicably crashed shortly after takeoff, killing a combined 346 people. The cause was a convoluted series of poor and ultimately fatal design choices that Boeing had not disclosed to pilots, in order to preserve the marketing fiction of a merely updated plane, rather than a new one, which would have required the, in hindsight, comparatively trivial burden of retraining pilots.
While Otellini and McNerney were taking charge, across the Pacific Ocean another chief executive was wrapping up his term. Nobuyuki Idei had become the CEO of Sony in 1999, becoming responsible for Japan’s most innovative consumer electronics and entertainment company. Three long, consecutive tenures by founding engineers had turned Sony from a radio repair shop amidst the ruins of post-war Japan into a global conglomerate that gave the world the Walkman, the CD, and the PlayStation, among many other state-of-the-art electronics products. Idei was the first CEO not to have a background in engineering. He decided to reorganize Sony to be “independent from past glory and the founders’ shadow,” adopting modern managerial techniques and structures. Since he left, Sony has not produced a single new transformative electronics product.
Since 2021, Intel’s revenue has crashed by a third. Since 2018, Boeing’s has fallen by a quarter. Sony’s revenue hasn’t meaningfully grown since 2008. It is easy to tell when a company stalls or stumbles. But it takes a meticulous, in-depth investigation to determine whether such failings are evidence of organizational dysfunction, or just the temporary setbacks and necessary hurdles that any competent organization might face. When failures can be traced to bad strategy or structure, the mistake’s origin might already be decades in the past. It is remarkable that three modern-day high-tech companies, at the tops of very different fields, all made catastrophic strategic errors apparently as soon as they put outsiders to the company’s technical tradition of knowledge in charge. They are unlikely to be the only similar cases in the global economy.
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