Practice of Abandonment

"If we did not do this already, would we go into it now?" Peter F. Drucker

Action: Ask the questions posed above and if the answer is no, make a tough choice and abandon a cherished business. Dr. Peter F. Drucker

Wow, that IS tough. You really need to buy the book ("The Daily Drucker") and read the Professor's comments to quickly get the full import and extent of what he is saying. No "milking" the cash cow for Drucker... He says: "GET RID OF IT". Because it eats up management attention and talented resources. "Model XYZ used to be great, but it's on its last legs now, so we are milking the cash cow a la BCG portfolio stragtegy" Buzzzzzzz!!!! Wrong.

Who is the best at abandonment today? I would say: Apple? What's the high tech buzz about today? Another new phone... no Apple's, supposedly revolutionary new Tablet www.gizmodo.com/5335942/an-insider-on-the-apple-tablet . How many products has Apple gotten out of? Even in today's stagnant stock market, AAPL is being paid a 34 P/E.... MSFT? with P/E of "only" 20 versus its competitor GOOG at 40, and below the industry average of 23. This dynamic, to me personally probably best illustrates Dr. Drucker's point, today. Microsoft deserves a lower P/E because it continues to be stuck behind the "Window" in its "Office".

Okay Mr. "smarty-pants" Greybeard, what should MSFT do differently? If you really listen to Drucker... then the answer is to abandon the largest part of the business now. Wow! Because the answer to the "Action" above is: "No, I'd be in Web-services like GOOG, or beyond that." Chew on that one. What would MSFT become if all that creative talent tied up in Windows were set free on new opportunities, rather than thinking about taking the Google offer on their desk?

A classic "Innovators' Dilemma" a la Clayton Christiansen's great book about how even the best firms can fail.

Example: Now the Greybeard is really going out on a limb! Maxtor (MXO) (for fuller story go to www.fundinguniverse.com/company-histories/Maxtor-Corporation-Company-History.html )
1981 - Initial search for funding.
1983 - First product.
1985 - Initial public offering.
1990 - Acquired MiniScribe, another hard disk manufacturer.
1992 - Near bankruptcy.
1993 - Closed San Jose, California engineering operations.
1996 - Introduced DiamondMax line of hard disks with DSP-based architecture.
2000 - Purchased Quantum's hard disk line of business especially for their ATA133 IDE interface.
2006 - Acquired by Seagate for a 60% premium on its $4.52 stock for approx. $7.25.

How the heck did that happen? As always, a whole bunch of things were going on... but...! I remember sitting in the CEO's office at some time in the past, commiserating as to why this once leader could not get into the product portfolio they should be in (what would we go into now?). Maxtor no longer had the resources or capabilities to develop the products which they should have been in. Instead they had become the largest in a product group which they knew was no longer "leading". Then they finally practiced abandonment and sold the whole thing to Seagate (STX). And what did the acquiring shareholders get? Seagate's stock has done NADA since the purchase ... look it up. It appears that Prof. Drucker has a point... refute it if you can. Hypothesis: It appears that Seagate should not have acquired Maxtor, rather, Seagate should have taken action to free its talent to pursue new opportunities in order to create accretive shareholder value. Bada-Bing! Bada-Boom!!! Two companies down! My good friend, Ben Smith could probably share insight on this, which he might do, just to prove me wrong, even though he probably knows toooo much!

So, will Mr. Ballmer dare to bite the bullet? www.youtube.com/watch?v=wvsboPUjrGc Maybe, if he screams a little louder, the stock will go up! Now now..... behaaaave! But that will be one of the stories to watch. Remember, he laughed at Apple's Iphone introduction.

Bottom line, I am convinced that "practicing abandonment" is a management discipline that should be actively utilized in any business and seperately taught in Grad. school. Maybe some additional shareholder value would be created.