Change begins at 'square zero.' (corporate governance)

• Author: Unruh, James A.

At Square One, executives think about how to get the most out of what they do; at Square Zero, they think about what they ought to do.

I confess that I have very mixed feelings when discussing the Unisys turnaround. For one, I see too many reports to the effect that I "saved" our company. I can't emphasize enough how vital total employee involvement is. Our 54,000 people didn't just sit back and watch while a handful of executives executed a plan. Their contribution was essential -- they were the turnaround.

A second problem related to our successful restructuring and turnaround is that everybody focuses so much -- and with the best of intentions, I realize -- on what you just did that nobody notices what you're doing. So, let me give you a sense of where we've been at Unisys, how that relates to where we're heading, and what I think are the lessons of our experience.

Unisys is one of the world's 10 largest suppliers of information technology systems and services. While we're thought of as a mainframe company, mainframes (or, more generally, enterprise servers) account for only a quarter of our revenue. In fact, software and the range of services we offer are approximately 40% of our annual revenue.

It was a combination of accelerating technological change and shrinking hardware margins, together with a slowing hardware revenue growth rate, that forced us to begin our turnaround process. We knew that we had to restructure ourselves to accommodate these developments, and saw that we needed to do more than simply cutting back, or downsizing, our business.

Downsizing is the art of making yourself smaller. But a company that isn't correctly positioned to compete cannot be fixed for the long-term by becoming 5%, 10%, or 50% smaller. It can only heal itself by identifying where it is strong, where it is weak, how it fits in the marketplace, and then acting on that understanding.

Downsizing reflects a view that nothing is fundamentally different about your environment -- that your poor performance reflects a run of bad luck rather than the product of structural change around you. But how many bad years in a row can you blame on the economy -- even an economy as inhospitable as the one we've had for the past several years?

We had to confront the fact that what had changed was not the economy, or our luck, so much as our industry's environment. That's when we went about right-sizing our company -- finding the size and structure that supported our strengths and strategic directions.

One reporter who interviewed me recently about what was happening at Unisys asked: "In your restructuring, did you go back to Square One?" My answer was: "If only it had been that easy!" Actually, we had to go back further than that. There is a place where any company has to go before they can move forward to Square One. I call it Square Zero.

You see, at Square One, executives think about how to get the most out of what they do. At Square Zero, they think about what they ought to do. After all, as Peter Drucker once said, "There is little point in trying to do cheaply what should not be done at all."

The Right Question

At Square One, executives ask themselves: How should I organize this company? At Square Zero, they ask themselves: How do we create value for our customers?

Change really begins at Square Zero, because the answers to the questions that you get when you reach Square Zero are the ones that change your thinking and give direction to any restructuring effort. Square Zero is where outmoded paradigms go to die.

It is unfortunate that companies only seem to question how they create value for their customers when they're in crisis, because the answer continually changes as technology changes, or as your customer's objectives change, or because the competition they face changes.

Now, we had always thought that Unisys created value for our customers through our hardware products. That is, we saw ourselves as technology providers. But when we examined how our customers' information technology requirements were changing, our own thinking changed. We came to realize that product quality alone was no longer going to keep us afloat. We came to understand that the average organization that uses information technology has...