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Making macaroni out of Marconi
Bruce Davis unscrambles the reasons behind the downfall
of the famous Marconi brand. Brand Strategy, August 2001. Brand Strategy
So Marconi and its shareholders have suffered a bloody nose and burnt holes in their pockets; its chief executive officer has had to pay the price. A 91% drop in the share price is a bitter pill for any company to swallow, but one can't help feeling that recent changes to the board have had more to do with politics than a recognition of the fundamental problems facing the Marconi business.
The company was born out of one of the research and development powerhouses of the British economy in the 1980s - GEC. Led by Lord Weinstock it had competed hard in the then lucrative technology markets such as defence and advanced engineering.
The telecommunications and information technology revolution caught GEC off guard and brought about a dramatic shift in business strategy to try and catch up with the likes of Cisco, Lucent and so on, which were cleaning up in the converged world of information and communication technology.
Marconi spent $9bn acquiring leading edge technologies to compete in this fast-growing but highly competitive marketplace. Its share price peak of £120 showed how well received this strategy was by individual and institutional shareholders alike.
Hard lessons for all
With hindsight it can be seen that this strategy had a major flaw: it was not based on a tangible element of the business or its products, but on mindset. Marconi's mistake (and it was by no means alone in making this error) was that it failed to spot that along with the rise and convergence of telecommunications and IT, had come a change in how technology was valued by the customer.
This hard lesson has wiped billions of dollars from the balance sheet. At its heart is the shift in control of the current and future value in the market away from the traditional research and development powerhouses of businesses such as Marconi (and, similarly, Lucent in the US) towards the softer side of IT and telecommunications where value and revenues are based on the conjunction of knowledge and people.
IBM now derives almost 40% of its $88bn revenues from its global services arm and has managed to sustain a profitable margin from that sector despite the economic downturn. Although it has announced earnings downgrades its stock has not suffered the same hammering that most of its peers have experienced.
The value of technology is now much more about its use and relevance than the development of technology for the sake of bigger, better or faster solutions. Technology is now intrinsically linked to the end-user experience and even the business models of the new breed of customers for technology products and services. Proprietary products and patents are valueless without the means to demonstrate the relevance of technology to the business or its customers.
Marconi had the scientific and engineering know-how to develop 'bigger, faster, better' solutions but lacked the means to retain the value of those developments in a market rife with copycats and reverse engineering.
Out of the cathedral, into the bazaar
It is likely that this shift will be magnified by another big change - the development of the 'open-source' movement. In his seminal collection of essays, The Cathedral and the Bazaar, Eric Raymond tells the story of the development of Linux from the inside - as a hacker.
In the essays he explores the viability and opportunities of the open-source approach to the development of software and in doing so draws out lessons that are relevant to all those who seek a pot of gold from the development of new technologies.
In essence, open-source development is about the sharing of ideas and collaboration in the creation of solutions with your users (your customers) - who become part of the development team. Under Lou Gerstner, IBM has embraced this principle, with 1,500 developers focusing on the Linux system and top management encouraging the necessary change in corporate culture.
In the open-source world, the value equation of technology shifts from one based on the development of technology to one based on its use and its community of consumers. Traditional closed approaches to innovation will suffer.
Turn the brand inside out
The recovery of Marconi from the losses of the last few months will require much more than the resignation of a CEO, it will need a major change in the culture of its entire business, the development of technology.
This change will need to be demonstrated in not only the products but also in the Marconi brand itself. If the company adopts a collaborative stance, the brand will become increasingly important in the creation of value in the minds of the customer. The brand provides the focus and 'reason why' and should infiltrate every part of the customer experience - from development to implementation.
Lou Gerstner has been an important part of IBM's brand, becoming adept at articulating in a simple and straightforward way the complex implications of such a radical cultural shift. Marconi needs someone who can talk the language of the 'hacker' when conversing with the City and its customers. Finding such a figurehead may be harder than surviving the cut and thrust of this year's annual general meeting.
It is as if the relaunch of GEC as Marconi was in name only; the company failed to make the cultural jump necessary to thrive in a new and intensely competitive market. Employing the hacker mentality to the development of its brand would be an interesting first step towards reorientation.
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Copyright © 2001 by Centaur Communications.
