Eric Benhamou & the Turnaround of 3Com (Part 7)

Eric takes over as CEO of 3Com, and as a first item of business, makes some hardline choices.

SM: What catalyzed the CEO change at 3Com? EB: The board realized something needed to be done. In 1989, my two partners at Bridge, Bill Caraco and Judy Estren, left out of frustration. They realized this was going nowhere as a result of the merger. We were no longer calling the strategy. We were part of the management team but it was very frustrating trying to make progress. I decided to stay a few more months and things kept deteriorating.

One thing I have not mentioned is at the time Bill Krause had tied the company up in a complex agreement in Microsoft to build the next generation operating system. Microsoft was going to build the successor to DOS which was the OS2 operating system. IBM and Microsoft were writing OS2, 3Com was going to standardize on OS2 and build computers, servers and workstations to run OS2. With OS2 we were going to compete against Novell and drive them and their Netware Operating system out of business, and we would build computers and workstations just like Sun Microsystems. The difference between us and Sun was that instead of building for scientists and geeks we were going to build for the business community, and by the way we would commit to doing it with x millions of OS2 licenses. It was a terrible agreement.

The company had not really bought into this – we were not meant to be a computer company. There were so many other companies who could do it so much better than us. We did not have proprietary technology – the only truly proprietary technology we owned was in networking. This is why this deal faltered. Another reason it faltered is that the brain of this deal was the operating system, and Microsoft and IBM could not agree how to build OS2. In 1990, IBM and Microsoft decide to end their OS2 venture.

SM: Did this give you the opportunity to bail out of the OS2 mess? EB: No it didn’t, in fact completely the opposite. It completely blocked our future. We no longer had any way of performing on our agreement, and the contract did not allow us to bail if IBM and Microsoft had a falling out. So we were left holding the bag, still being committed to sell all these copies of OS2 even though IBM and Microsoft were saying they were not going to finish he work. We basically had an untenable position.

The foundation of the strategy was flawed, and our partners were no longer legitimate partners. This was not how it was depicted by the press, but the reality is that we had a very, very difficult situation on our hands. In the meantime, other networking companies were starting to appear. While we were fussing around with OS2, this small company called Cisco started to build routers, and because we no longer had enduring commitments to build routers, Cisco started to become more popular in our core strength area.

In 1990, in frustration the board decided to make a change. They thought about bringing in an experienced CEO to take over the company, but in the end they turned to me and asked me if I wanted to take the job. I agreed to be the CEO for up to 10 years, even though I had never been a CEO before and I was not even 35.

This was a $300M company. I new the business was in crisis, we were loosing money, our reputation was shaky, and the morale of the company was weak. We had strategic issues to fix, and of course we had restructuring to implement. We had to re-energize the company around a new mission. I was convinced we were not meant to be a computer company, and in those days, and it is still largely true today, you cannot be good at both computing and networking. It may be different in the future, but this has been true for over twenty years. You cannot be somewhere stuck in the middle, because then you will be poor at both.

I decided to paint a vision of global data networks. I started describing how networks were going to connect all computing resources, it was not all going to be contained to a few universities, rather the world would be connected. I did not use the term Internet because it did not exist yet, but that is the vision I was describing. I called it a global data network. My vision required very high performance devices, dedicated, reliable routers and switches. At the time, we called them bridges versus switches. I was able to energize the company around the vision of being primary suppliers of this infrastructure.

[to be continued]

[Part 6]
[Part 5]
[Part 4]
[Part 3]
[Part 2]
[Part 1]

This segment is part 7 in the series : Eric Benhamou & the Turnaround of 3Com
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