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
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
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
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
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
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
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
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.
Copyright © 2001 by Centaur Communications.