Lotus straightens the
house, The Alliance Analyst, December 11, 1995
Langer on Lotus, The Alliance
Analyst, December 25, 1995
Lotus straightens the house, The Alliance Analyst, December 11, 1995
A history of long and effortless corporate success can be a formidable handicap in managing alliances. Ask executives to name the worst firms to align with, and some of the most thriving companies bubble to the top: Microsoft, Boeing, AT&T, TCI. This is predictable. After all, success breeds narcissism and a certain cocksure swagger - just the qualities which poison partnerships.
Until recently, Lotus Development belonged on this list. Its corporate personality was arrogant and proprietary. "We were conquerors," says Hemang Dave, a senior executive at the software maker. "Our attitude was that we had Lotus 1-2-3 and others needed us. We had terrible follow-up on partner requests, and so much personnel turnover that even a single alliance negotiation could, as the revolving door swung, be handled by multiple Lotus executives."
The problems ran beyond antagonism. Lotus was driven from the wrong direction. "Alliances were almost always optimized around a press release," says Dave. "They were advanced by corporate deal makers who never had enough time to understand the full potential value of any alliance. It was all about seeking hero value."
Lotus's alliances were also wildly inconsistent. No single internal person or group had oversight for partnering activities. As a result, outside firms were occasionally granted exclusive agreements, although it made no sense within Lotus's wider strategy More commonly, outside firms were written custom-made alliance contracts, although the level of managerial effort to do so was completely inappropriate for the amount of business that relationship was likely to generate for Lotus.
A case in point
With EDS it was even worse. EDS specialized in managing computer and telecommunications systems, and it had a huge and growing presence inside many of the world's largest corporations. In 1992 Lotus signed a contract with EDS, a central part of which made EDS a channel reseller of Notes, its hot new software.
Conceptually, the contract had two defects. First, the terms allowed EDS to undercut the prices of other resellers, opening the gates for potentially massive conflict among Lotus's partner base. Second, the alliance focused on the one activity Lotus needed least: channel reselling. Lotus already had a huge group of resellers; what it required was EDS's expertise in consulting, systems integration, and applications development. "There are a couple of explanations of how we ended up with such an alliance," says Jim Adelson, director of business development at Lotus. "Lotus had a fragmented mentality, which probably encouraged us to not think through the wider implications of the pricing conflict. As for the focus on channel reselling, those were basically the types of alliances Lotus knew then how to do. We were just on autopilot."
Lotus's suboptimal approach was clearly present. But fortunately, other than the EDS alliance (which was later successfully renegotiated), the problems hadn't really contaminated strategic parts of the company. At that time in 1992, Lotus was still very much internally-driven, with alliances accounting for no more than 5% of total company revenue.
The Notes imperative
But then Notes started to sizzle. It was
poised to become the standard for a new class of communications software which
allowed groups of computer users to work together. By 1992, Lotus management
realized that, if handled properly, Notes could become the industry standard,
ending up on tens of millions of machines and earning hundreds of millions, if
not billions, of dollars.
However excited, Lotus was utterly unprepared to realize this vision on its own. Unlike earlier Lotus products like the bestselling 1-2-3 spreadsheet, Notes required all sorts of custom application development. It also demanded far more attention to customer planning, installation, integration, and service. "We just couldn't get Notes to market quickly enough, nor could we provide all the support Notes demanded," says Steve O'Neill, now Lotus vice president for alliances. "For every $1 of Notes business, there is probably $15-$20 worth of ancillary business - everything from providing the hardware, training, support, right down the line. We simply couldn't provide that. We needed to find partners who could."
When Manzi and Bob Weiler, the senior vice president for sales, marketing, and support realized this, they made a radical decision. No more hodgepodge. No more inconsistency. No more alliances spanning arsy-varsy across internal fiefdoms. He went out and recruited Hemang Dave away from ComputerVision and gave him the charter to build an alliance organization. Dave became Lotus's first-ever vice president for strategic alliances. "I took the job on the condition that senior management would allow me to mortgage the short-term for Lotus's long-term benefit," says Dave. "In fact, I am convinced that it ended up working so well that one of our partners, IBM, decided to pay a big premium to acquire us."
Fire stopper
Dave is, to be sure, a master promoter and a letter-sweater smoothie. "Just the qualities needed to build an organization like he did," says Chris Leuchtenburg, a former director of the Lotus alliance group who now works at Forrester Research, an industry consultancy. Dave built a 50-person alliance team made up of some of the company's best and brightest. He established a tiering structure to ensure that nonstrategic alliances were never again mistaken for strategic ones. He persuaded Jim Manzi and other management that alliances could no longer be announced on a whim. And he opened multiple lines of communication and leaming between company management, alliance managers, and partners. All of this is a testament to Dave's ability to continually sell to Lotus senior management the concept of a centralized alliance infrastructure.
Yet for much of 1993, Dave was not building an overarching infrastructure. Rather, he was busy putting out fires. "Step one was to roll up our sleeves and prevent from happening a couple of seriously bad alliances about to be signed. We also had to turn around alliances like the one with EDS, which offered us a lot but needed some adjusting," Dave explains. 'This allowed us to see what Lotus was all about, to see where the problems were, and to think about how we wanted to fix it. This approach built a lot of internal credibility for the alliance group. We were not preachers; we were the rescue team."
The real emergency, of course, was the IBM alliance. According to a report in the Wall Street journal, in 1991 Lotus signed what would later appear as an amazingly unbalanced agreement: IBM was reportedly to receive 33% of all Notes revenue whether it was IBM-generated or not. A large part of 1993 was spent renegotiating with IBM, with Lotus ultimately regaining a large part of the Notes revenue in exchange for agreeing to develop software for IBM's struggling operating system, OS/2. "IBM was strong-armed by Lotus," one investment banker said at the time.
[*All these details were reported in a December 9, 1993 story in the Wall Street Joumal. That article stated that Lotus had signed the deal in 1991 when Notes was unprofitable and affiliation with IBM, who had agreed to drop its competing groupware offering, would give Notes a boost among large corporate accounts. See "Lotus and IBM end a secret deal and launch another," WSJ, December 9, 1993, ppB1-B6.]
For those at Lotus watching from the sidelines, it was as if Dave, who led the renegotiation, had pulled a rabbit out of a hat. Whether he had or not is quite irrelevant; the fact was that because of this perception, senior management gave Dave the opportunity to build a wider alliance organization to support partners other than just IBM. And they tipped the trough a bit to make sure he had ample resources.
Creating categories
"Lotus is not a very process-oriented place," says Dave, "but we needed to organize these deals, create a common language and approach. We needed what I call a non-process process." Such sentiments are echoed by Dave's heir, Steve O'Neill: "We had all these disparate activities going on with major companies. We believed that if we organized and consolidated them we could turn it into a real strategic play."
A valuable ingredient was Dorothy Langer, an independent consultant who first floated the notion of a true partnering strategy to Dave over lunch in late 1993. Langer, Dave, and Adelson then began to create a consistent and widely-known corporate vision of alliances. The pursuit of that goal ultimately involved three stages:
an
ongoing task force of core strategy developers
Primary objective:
to take a generic concept and craft it to be specific to Lotus.
a
high-level road show
Primary objective: to gain senior management
buy-in to the concepts developed in the above meetings.
workshops
Primary objective: to spread the new gospel
deep into the soul of Lotus.
The first stage was for Langer to give what she admits was a rather generic partnering pre-sentation to a group of 50 or so interested staff. "Objectives, value, risks, and obstacles," says Langer, "If Lotus could articulate these with regard to its alliances, it would have a real strategy. They are the strategy."
Langer pushed for particulars. A company, she said, should have perhaps ten or twenty measurable objectives it is seeking through external alliances. Things like revenue growth or market penetration. It should also know its own value to potential partners. " Your product is not your value," says Langer. "If I need your product, I can go out and buy it." Again, Langer wanted a list of what Lotus could contribute - things like brand recognition, momentum in the marketplace, an established customer base, or a crack development team.
And then there are the risks. "These are usually outside the company," says Langer. "Things like educating and abetting a competitor, losing staff to a partner, or creating a competitive reaction from a company like Microsoft." Finally, there needed to be an accounting of internal obstacles. Was, for instance, a key senior executive inherently hostile toward alliances?
"These lists were first conceived for the company as a whole," explains Langer. "Then, they would be used as a checklist for evaluating specific future alliances. So, for example, Lotus would look at a partner like Andersen Consulting and ask 'What objectives of ours do they fulfill?' Of the twenty corporate-wide alliance goals, an individual partner might satisfy five or six."
This presentation was the first cut at a real worldwide discussion among the alliance-related managers. It provided feedback from a whole range of people within Lotus - technology developers, lawyers, marketers, you name it. These were not just people from Dave's group. They opened it up to the whole company, something which would later prove key.
This session led to Dave creating what was essentially a task force. Made up of a dozen or so members from all over Lotus and assisted by Adelson and Langer, they met every other week for nine months. Yet this was no pupils-come-to-class gathering. "I was just a member of the group," says Langer "We all had our peculiar experiences and beliefs, and we just threw them together into one mass in the middle of the table."
When the dust settled, an outline of a coherent strategy emerged. Central to it all was the new Lotus alliance pyramid (see figure below) which created a tiered structure for the cornpany's partnerships. "What this did," explains Dave, "was to let people know how much time and resources to devote to each one of these alliances."
"This structure allowed us to very clearly get at our objective," adds O'Neill. "We need multinational deployment capabilities for Notes, and. we needed very large scale partners who were capable of supporting Notes on an enterprise basis."
According to Lotus, there are four types of alliances...
Strategic
These are alliances which transform the Lotus business model. By definition, these are long term and touch several points along the value chain - from product development and consulting to marketing and sales.
Witness the partnership with AT&T. AT&T has developed and now markets the telecommunications platform for Notes, providing an obviously central piece of the network software puzzle. Such an alliance required a massive amount of technology development in addition to retooling of both companies' sales and support forces. As a result, Lotus and AT&T tied themselves together rather tightly, agreeing to a relationship into the next century. Other than AT&T, the only other strategic partners were IBM, prior to it acquiring Lotus, and Iris (the creator of Notes), who was later acquired by Lotus.
The governance of each of these did not reside in one set of hands. Jim Manzi, seeing that each strategic alliance required so much effort and focus, dispatched separate vice presidents to manage each. AT&T was managed by Larry Moore, IBM was covered by Hemang Dave, and Iris was overseen by Jeff Papows who, coincidentaly, is now Lotus's president and chief operating officer.
Major
These alliances are long-term and multi-faceted, but do not change the Lotus business model. These include hardware companies such as Sun and Apple who might bundle Notes with their computers and also provide marketing, sales, and customer support. There are also the system integrators - companies like EDS, Unisys, and the big six accounting firms. These companies have moved aggressively into providing consulting and computer integration services to mostly large corporate accounts.
While diverse in what they bring to Lotus, they are all major partners. They have custom-written contracts. They have a Lotus relationship manager devoted to them full or part-time. And they made up the bulk of Dave's jurisdictional domain.
Project-oriented
These are single-faceted alliances, almost always in the pure technology realm. Just as a pharmaceutical company might align with a biotech firm, Lotus has linked with a series of small entrepreneurial firms in the hope of teasing free some ingenious product ideas. The most famous example, of course, is Iris Associates, who developed the core technology for Notes back in the late 1980s. (Lotus was so star-struck by Iris's prospects that the project-oriented alliance became strategic, and then, finally, resulted in a Lotus acquisition of Iris.)
Other project-oriented alliances include development alliances with Strategic Mapping, who provides mapping add-ons to Lotus 1-2-3. There are a host of other alliances which are being nurtured to deliver in a similar way. "These alliances are technology-based," says Lotus's Adelson. "They are almost never directly involved in marketing and are, as a result, managed out of our technology development group."
Programmatic
And then there is everybody else. There are, for example, more than 10,000 members of the Lotus Business Partners Program, which is a way to orchestrate Lotus's massive and growing need for indirect sales, service, and applications development. "They're all standard one-page contracts," says Dave. "If they weren't, Lotus simply would have never taken the group from a membership of perhaps 200 in 1992 to its current level of more than 10,000."
But programmatic does not imply inconsequence. The Business Partners Program is now run by a company vice president, Don Bulens, and is now independent of the alliances group. Taken as a collective whole, the programmatic alliances underpin Lotus's strategic approach to the market.
According to Steve O'Neill, LotuSphere, the company's annual gathering of its Business Partners is "the most important event we have all year. It is sponsored by Lotus and our major and strategic partners, and is a key way to generate enthusiasm and understanding for what we are doing."
Rules of thumb
With the pyramid complete, Langer pushed Lotus to articulate company boundaries that is, clear lines of demarcation beyond which the company would not travel. "I suggested five never-to-be-violated rules," recalls Langer, "things like 'We will not share source code with a partner.' But the Lotus culture was just too free-wheeling to feel comfortable with 'never.' Instead of five iron laws, we created thirty-five rules of thumb." These recommendations were divided into three alliance stages.
Stage I: Selecting
Sample Rule of Thumb: "Make sure that the partnership's efforts will account for at least 10% of Lotus's and the partner's revenue in the affected area to encourage partner commitment."
Corporate Thinking: Lotus believes alliances frequently fade into nonexistence because of a lack of senior management attention. But with an alliance generating more than 10% of relevant revenue, an alliance is virtually guaranteed top-level care.
Take, as an example, the computer server arena. If Lotus was looking to create a Notes product for Unix platforms, it would sort through potential partners, discarding those firms who could not command 10% of expected Unix server-related sales. "We also want our partners to hold the 10% threshold up to Lotus," says Lotus's Adelson. "We want to make sure that we get the attention of their senior management."
Stage II: Structuring
Sample Rule of Thumb: "Lotus expects to be channel neutral and will structure relationships accordingly."
Corporate Thinking: A Lotus product can take a handful of routes to get to market. It can go through the traditional channel resellers. It can go through the more service-oriented business partners or via the two dozen or so major and strategic alliance partners. And then there are the OEM channels, where Notes or 1-2-3 might be bundled onto someone else's hardware and sold as a total package.
Lotus does not want to form any new alliances which simply succeed by moving business from one channel to another. Nor does it want to create incentives for one type of channel partner to be able to undercut another solely based on price. They have to compete on bringing new value to the customer.
Stage III: Delivering
Sample Rule of Thumb: "Make sure that your partnership contacts are broad enough that you are not totally dependent on a single individual."
Corporate Thinking. It may be pivotal to have a champion, or even a fulltime alliance manager, but every relationship needs to go wider than that. One reason is to prepare for staff turnover, almost a given in the information technology industry. "But it goes beyond simply protecting against someone walking out the door," says Lotus's Adelson. "By relying on one individual, an alliance can be blocked from new and creative thinking. Also an alliance really suffers if that individual gets caught in a broader organizational restructuring which leaves him or her in place but with less power to act."
Dave then took the still-forming vision to Jim Manzi, who, according to Langer, "became totally committed to the partnering strategy." With Manzi's backing Dave and Adelson then went out and gave their partnering presentation to virtually every senior executive within Lotus. "It was a way to establish a presence," says Dave. "Sometimes we gave it individually to the vice president or senior vice president. Other times, they included their managers and others."
With the knowledge and commitment of senior management, the focus then turned to broader education. By early 1995, Langer and Adelson had developed and launched a customized training program. It was a one-day workshop aimed at delivering a coherent vision of alliances to the Lotus employees most involved in partnering. "It was broad theory supported by Lotus-specific thinking, case studies, and rules of engagement," says Langer. The plan was to eventually put better than 250-300 Lotus employees through the workshop during 1995. (The IBM acquisition, and concurrent reevaluation, halted this effort mid-stream with just over 100 Lotus staffers passing through.)
Business development, unlike any other
Okay, you say, Lotus built itself a paper pyramid, it drafted some rules of thumb, and it created a training course. But where did the alliance group fit within the company? How did it make sure that alliances were being managed according to its vision?
To oversimplify, Dave's group was positioned much like a traditional business development department. Like them, it was to conceptualize and initiate deals, and even gather and house corporate wisdom. But unlike them, it was to have ongoing management responsibility for the alliances - it signed into being.
"No, they didn't own the deals," explains Langer, "but they maintained contact with them. There are ten or so relationship managers who are assigned to specific alliances and manage the ongoing interaction. I usually tell my clients: 'Beware of business development departments, they are really destructive to alliances - they don't like to get others involved. They do the deal, sign the contract, and then walk away.' Dave's and O'Neill's group doesn't walk away. That's why it works."
According to Dave, the group's mission was clear from the outset: "We were to provide leadership, but we were not going to be the executors." This meant that resources gained as a result of an alliance were to be primarily allocated to the functional units which had the responsibility for delivery. So, for example, when Lotus signed a major expansion of the IBM alliance, the plan called for an additional staff of 200. Dave's group added a few heads of its own, but took the mass of the incremental funding and doled it out to sales, marketing, development, customer service, finance, and legal since each had new work associated with the enlarged alliance. "We're a catalyst and a coordinator," adds O'Neill. "And while all our major alliances span across multiple disciplines such as development, marketing and support, we don't necessarily do any of those functions ourselves. We don't write code, for example. We just make sure the tasks get done, and that the marketing department, for example, knows what the development department is doing."
The alliance with HP illustrates the point. A few years ago, HP was readying to introduce Lex, a new server platform. Lotus and HP decided bundling Notes onto the platform would jumpstart the product launch. "The alliance group drove that decision," says O'Neill. "We felt it was an essential part of the strategic relationship, and not just a simple, tactical bundle." O'Neill's group did not, however, provide all the logistical or operational support to carry out the tactic: that was handed over to Lotus's OEM sales group, who received the associated revenue.
This fuzziness between the Lotus divisions is consistent with Lotus's chaotic culture. But it is, perhaps, something which other companies might find difficult to pull off. Just because Lotus can do a backflip doesn't mean that General Electric or British Airways can. In the following issue of The Analyst we will look at how the Lotus alliance group works and explore whether it is truly a model for others. To steal a line from Steve O'Neill, "It might be a chance to come down from the 50,000 foot level and ask, 'Great, but how do we spend our day?"'
Langer on Lotus, The Alliance Analyst, December 25, 1995
Below are some thoughts from Dorothy Langer, the strategy consultant who helped shape Lotus's alliance structure and process.
Q: Why did Lotus need a process?
A: Lotus is a really free-wheeling place, and that's great. But one of the things that made them so difficult to deal with as a partner was that, from the outside, there was no way to understand the decision process, no way to see how it all fit together, no way to make sure you were talking to the right person. Sure, Lotus knew how to deal with Lotus, but their partners didn't. By the way, this is a common problem for a lot of companies. I see it a lot. I believe very strongly that companies need to put some kind of process in place to help themselves and their partners understand what is going on.
Q: Many computer companies have very defined reseller programs. Doesn't that structured thinking carry-over into more strategic alliances?
A: Not necessarily. Everyone has their business partner and channel type programs. They have to. And they all devote specific staff, and have defined processes, applications, and annual get-togethers like Lotusphere. It is the only way to manage a mass of resellers. But this doesn't seem to translate into more strategic alliances. Lotus is fairly unique in putting an organization in place for this purpose.
This brings up an interesting point: companies would never try to manage their channel resellers without an organization, so why do they try to manage their equally important alliance partners without an organization?
Q: Just what's so special about Lotus?
A: Lotus did a lot of special things. One was that it involved the "deliverers." What do I mean by that.? Hemang Dave made sure that the people who were actually going to be delivering on the commitment were involved from the beginning.
Hemang's group also stayed with the alliance over time. Typically what happens in other companies is that the business development group - and that is essentially what Hemang's team was - just do the deal then walk away. Before Lotus, I used to tell companies: "Beware of business development departments, they can be destructive to alliances - they don't get others involved, particularly those who must deliver on the alliance."
Hemang's relationship managers were assigned to oversee and coordinate the alliances after having struck the deals. This is particularly important when an alliance with a company like Hewlett-Packard cuts across internal functions such as development, marketing, and support. Someone has to manage the totality of the relationship.
Let me give you a recent example of what not involving the deliverers means. Kaleida, the joint venture between IBM and Apple to develop and market multimedia software, just announced that it was shutting down. Mike Braun, the head of Kaleida, told the Wall Street Journal that "you're stupid if you do a joint venture." Acknowledging that Kalieda was a development and marketing challenge, he said Kaleida failed because it was independent and, as a result, the marketing guys at Apple and IBM had little mo- tivation to sell its products. He goes on to say that should have been expected since "the development people paid our bills. The marketing people didn't."
Well the truth of the matter is that if this was a development and a marketing challenge, where were the marketing guys in the beginning? I know where they were: they weren't asked. They didn't involve all the deliverers.
There are other special things that Lotus did. They built a comprehensive partnering strategy and then devoted resources to implementing it. They also stressed the importance of following through on commitments to partners.
Q: Is Lotus's approach then a good model for other companies?
A: There are parts of the model which are applicable. I think that Lotus's free-wheeling culture actually made its task harder. Lotus cringes at the notion of process. Employees of other companies, when they hear about a coherent partnering strategy, may be a lot quicker to click their heels and say "Okay, let's do it that way." Lotus instinctively fights against that. That said, Lotus did three things which others can learn from.
First, they changed the very notion of a business development department. If business development departments are going to be involved in alliances, they need to be involved throughout the life of the relationship. No more operating in an ivory tower and no more front end only involvement so common with mergers and acquisitions. Lotus's alliance group gets others involved, and then it stays involved coordinating roles across company functions. So if your company has a variety of activities going on with another company, there needs to be some central coordination to ensure a consistency and an eye to the totality of the relationship and its potential.
Second, Lotus created a central repository for alliances. It is a place within the company where anyone can go and find out anything about the company's partnerships - what they are, where each fits within the wider corporate strategy, who's in charge, and how much progress has been made. Most companies don't have any central place to think about and monitor alliances.
Third, Lotus organized itself based on a partnering strategy. This strategy was in support of their corporate objectives and allowed them to be proactive in their partnering efforts. That strategy articulated such things as a statement of corporate partnering objectives, the value the company brings to partners, the risks inherent in partnering, and the internal obstacles to building successful partnerships. It also includes the organization and processes put in place to support partnering. And most importantly, it generated a list of target partners who would best fulfill that strategy. Then, later, underneath each of these partners, would be a specific strategy to pursue each individual relationship.
Q: Where did Lotus go wrong, or where is its journey incomplete?
A: Well, I don't know if they went wrong or if the journey is incomplete. However, there are places where I would tell other clients to act differently. Lotus can't achieve complete consistency. because its culture won't allow it. Let me give you an example. In theory, Lotus should have one person who is clearly the relationship manager for each of its strategic and major alliances - the top of its partnering pyramid. But they don't. When Jim Adelson and I were preparing for the alliance workshops we wanted a list of all the relationship managers for two dozen or so alliances. It immediately became clear that by naming a single person who was in charge of IBM, HP or one of the other alliances, we would create some political problems. The fact was that, in many cases, a few people thought they were the relationship manager. So I said to Jim, "Well, let's name the Relationship Manager who has the capital R and M." And then we laughed.
But that is a problem for Lotus. It just isn't always clear who the main point person is. But remember, having a couple people in charge is a whole lot better than having no one in charge, which is what it was a couple of years ago.
A second spot where Lotus may not be a model is in its own executive structure. If you walked into Lotus headquarters and asked to speak to the executive in charge of alliances, the receptionist would send you in at least four directions. There is a director for reseller alliances, a vice president for the business partners program, a vice president for the AT&T alliance, and a vice president for strategic alliances. That last one was Hemang Dave and is now Steve O'Neill. Ideally, there would be one umbrella organization to coordinate all of these perhaps all reporting to a single senior vice president.
Q: Are there other companies as good as Lotus?
A: I have heard that Xerox has a similar structure. So too does Progress Software, but on a smaller scale. They have an alliance organization of five or six people driven by many of the same demands as Lotus. In fact, they just hired an ex-Loti to oversee their alliance with IBM.
Q: Executives often talk about their "limited managerial bandwidth" and
their inability to manage more than a few alliances. It seems an alliance
organization like the one at Lotus should allow a company to manage a lot more
alliances than previously thought.
A: That may be true, but if you think that is the primary purpose of such an organization, you're missing the point. This is not about doing more deals. It is about quality versus quantity.
Dorothy Langer is president of Langer and Company, a Boston-based consulting firm which helps companies develop and implement growth strategies, particularly with corporate alliances.