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8/19/2005
07:29 PM
Rob Enderle
Rob Enderle
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Opinion: Learning From SCO's Mistakes

SCO's self-destructive streak, says Rob Enderle, is an extreme example of the damage denial, arrogance, and wishful thinking can inflict on a company. It's a lesson, he says, that a lot of other firms, including some of SCO's most bitter foes, would do well to take to heart.

The public release last month of an internal SCO memo discrediting the company's own claims against IBM makes one thing clear: SCO's litigation, against IBM or anyone else, is all but done.

Although SCO will almost certainly continue to pursue its lawsuit, the memo, in which a consultant tells CEO Darl McBride he cannot find any evidence of copyright violations in Linux source code, is a fatal blow to the company's credibility. I also think SCO's failure to disclose the memo's existence to its stockholders will have broad implications for the company -- none of them pleasant.

Even if the outcome of the SCO-IBM case is a foregone conclusion, there are still some lessons we can learn from SCO's mistakes. And while these lessons certainly are applicable to the success or failure of companies doing business in the Linux and open-source markets, they also apply to other types of business and personal endeavors.

Denial Disasters

The SCO memo reflects a problem I’ve run into many times, both as an auditor and as an analyst: people who avoid information they don't want to hear. In SCO's case (as well as in the case of its corporate precursor, Caldera), executives apparently refused to believe that the Linux source code could have legitimate origins.

As the memo itself so tellingly states, this whole affair "was the result of SCO’s executive management refusing to believe that it was possible for Linux and much of GNU software to have come into existence without *someone* having copied pieces of proprietary UNIX source code to which SCO owned the copyright."

(This type of behavior, by the way, isn't the same thing as lying. And while intentional ignorance isn't necessarily dishonest, it isn't especially smart, either.)

Most people share the same basic traits: They do not like bad news, and they do not like to be wrong. When they hold a powerful position, they often will use their authority to avoid facing either situation This sort of denial, taken to extremes, is deadly -- as the Japanese attack on Pearl Harbor, the Vietnam War quagmire, and the current U.S. occupation of Iraq all demonstrate. Denial is like a disease, and none of us is immune.

Another part of the problem involves executives who abuse their powers, on a massive scale and in extremely self-destructive ways. We have seen recent examples where executives at large corporations arrogated the right to disregard the law for their own benefit.

The behavior of SCO's executives represent a somewhat different, but just as dangerous, example of this problem. In this case, the SCO memo and the report it cites are now relevant to investors who bet on SCO and lost In addition, the memo strongly suggests that SCO's executive staff knew their strategy would fail, executed it anyway, and placed the company at excessive and terminal risk -- simply because they would not accept the results of this report.

Manufactured Information

Undoubtedly, SCO commissioned other studies which supported the company's position. This fact leads to the second lesson we can draw from its experiences.

Back when I did competitive analyses for IBM, another group within the company's marketing department appeared to do the same kind of work as our own. My reports were relatively harsh on our products; I often indicated that our competitors' products were better in a number of ways. These reports helped to improve IBM's product development process, making own products better and more competitive.

The marketing-oriented group, however, took my information and twisted it to obfuscate the negative aspects of our products, while exemplifying the positive aspect. IBM then gave these reports to prospects and customers as evidence of just how wonderful our products were.

This process also caused a long-term problem: Executives often used the marketing-oriented studies to make decisions, and they discarded the reports containing honest, realistic analyses. As a result, over time our business unit's products got less and less competitive, and eventually, IBM decommissioned my unit. Similar practices caused a number of other IBM business units to fail -- including the company's storage business, most of which IBM recently sold to Hitachi.

I also observed that people who produced positive reports, even if they weren't true, often received better compensation, benefits, and advancement opportunities. Executives seemed to measure achievement based entirely upon the nature of the information they saw, rather then the quality of the information.

I have seen similar behavior, to varying degrees, at every company I have encountered since leaving IBM; generally, it becomes more pronounced the older a company gets. The only exception I have seen is Google; even in this case, however, I would bet they're no more immune to this in the long run than any other firm.

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