It is extremely hard to displace an entrenched vendor like Intel. This is because companies value relationships and really hate change, so even if you have a substantially better product, you won’t make many inroads. We see this in buying behavior as well. Samsung has had better phones than Apple, but it rarely takes share from Apple because Apple customers trust Apple more. When Samsung is successful, it is the result of using heavy marketing to break that trust, like when Samsung implied in a compelling fashion that Apple users were old or out of touch.
When Sun moved against IBM in the 1980s, it didn’t even have a better product. Customers had started to distrust IBM (largely because IBM was taking advantage of them at the time), and Sun just leveraged that image to push a technology that didn’t really work. So, people abandoned IBM in enough volume to put IBM in crisis. I was working there at the time, and I remember the crash that came shortly after a financial magazine like Forbes branded IBM as the most successful company of all time. The collapse was a complete surprise to everyone, including John Akers, IBM’s then-CEO, except for those of us in Internal Audit or Competitive Analysis (I was in both groups sequentially). We’d been pointing out problems that were being ignored for some time. I remember talking to the marketing director and saying that what we were doing was killing customer trust and it would bite us in the butt (which it did). His response was that IBM was basically selling air, and customers had no choice but to buy it at whatever price we charged (he was fired after I left).
The issue here isn’t that Intel’s products aren’t performing because they are. Granted, AMD is doing a bit better, but not enough to dethrone Intel without heavy marketing, and AMD doesn’t do heavy marketing. The actual cause is the layoffs. Let me explain.
The Hidden Cost of Layoffs
My middle degree and first real academic love was Manpower Management, even though my first degree was in marketing. Manpower Management was designed to use metrics to manage and advance employees optimally. One of the things it taught was that you often don’t know the true value or contribution of an employee because, even in a highly instrumented company, things like camaraderie, loyalty, team cohesion, and informal leadership aren’t captured. Neither is the customer loyalty to individual employees.
When I was in IBM and doing acquisition clean-up as part of Internal Audit, I learned that often the most important person in a working group wasn’t the manager or even the line employees, it was the secretary, administrative assistant, or even an employee who just likes to get people together. These people were the ones that actually assure projects were complete, and relationships were maintained. They turned out to be more critical employees to the company’s success than the named executives or even the top performers in measured jobs. Similar to how oil works in an engine, they didn’t do the heavy lifting, but they assured the engine didn’t fail.
My first large-scale layoff was at IBM, and that was back when people knew how to do them, a skill that appears to have been lost over time. But even so, once the layoff was complete, we almost lost an entire product line (the AS400), which was one of our most valuable at the time, because we’d lost the people who knew how to make the thing.
Layoffs Are Extremely Dangerous
Similar to medical triage, layoffs are not surgical in precision. They are designed to reduce costs quickly with little consideration for the employees or the customers. There is an effort to focus on those who are underperforming, but there is little effort to determine why they are underperforming. It could be because they aren’t getting the credit they’ve earned, are doing someone else’s job, or that they are doing things that are very important to the company but not being measured, like managing team cohesiveness or busting their hump to take care of customers, an effort that pulls from their measured performance.
This means that many of the employees who are identified as under-performers aren’t; they are just improperly measured. There is little effort to identify these people, but the result can have a massive impact on customer loyalty, team cohesion, and team effectiveness. However, customer loyalty is on-point for this discussion because if you lose that, you are no longer entrenched.
When IBM breached customer loyalty, instead of customers blowing off competitive sales calls, it started calling competitors and looking for alternatives because it wanted to be able to trust its processor vendor again. One other thing to add that I learned at IBM is that once you breach trust, it is harder to get the customer to trust you again than it was to get them to do it in the first place. This means, if I’m correct, that AMD is quickly becoming the new entrenched vendor, and one thing AMD’s CEO, Lisa Su, knows is how to maintain and manage customer trust. (Her training at IBM was somewhat similar to my own). Finally, competitors tend to use layoffs as hiring opportunities, and it is hard to prevent someone from sharing what is in their head, particularly when they are pissed off at their last employer for terminating them.
So, due to the sequential layoffs, Intel isn’t just bleeding share; it is bleeding trust and losing one of its most valuable assets: entrenchment advantage.
Wrapping Up
My hope is that once we apply AI to Human Resources departments, we’ll be better able to manage staffing reductions and better able to measure the unintended costs of this practice. Once we do the latter, layoffs will only happen to keep the doors open, not as a management tool to contain survivable costs. AMD’s gains indicate that Intel’s entrenchment advantage has eroded significantly, just as its reduction in marketing spend and inability to hold a CMO has resulted in brand erosion.
Of all of the CEOs I’ve worked for and with, only IBM’s one externally sourced CEO, Louis Gerstner, got this. If it weren’t for him, even though he didn’t do the operational heavy lifting, IBM wouldn’t be around now. It amazes me that the company did not retain his skill set, but that is another story for another time.
I’ll leave you with this. Maslow’s hierarchy of needs, which is the foundation of the Manpower Management practice, teaches that if you mess with someone’s income, fixing that will become their focus, and bad behavior is likely to result. Layoffs do this en masse so it should be no surprise that the consequential damages can be very severe and, in this case, a huge benefit for AMD.
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