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Book Summary: Stitched Stories

Author: Mukri

Substory: Why Pandesic (Intel SAP JV) failed?

I have made mistakes with assessing managers over the years more frequently than I care to admit by not using McCall’s thinking. For example, I fell short when I was running CPS Technologies, which made products out of a class of high-technology ceramics materials like aluminum oxide and silicon nitride. Two years into our start-up, we were ready to move into low-level manufacturing of our initial products, and we decided that we needed to hire a vice president of operations. Neither I nor my MIT-professor colleagues had ever scaled-up a manufacturing process before. The VP’s immediate responsibility was going to be to do this—to grow our operations out of the lab and into production in our new plant, which was about five miles away from our laboratories.

After three months of searching, we had narrowed the search down to two people. A venture capitalist on our board referred Candidate A to us—a very capable man, who was executive vice president of operations for a multibillion-dollar business unit that spanned the globe. We admired the quality of their products, which included very sophisticated zirconium oxide products that could withstand fast swings in temperature without fracturing. Our second option, Candidate B, had been the boss of Rick, one of our most respected engineers. Rick highly recommended him. Candidate B had been on the front lines of his company, and it showed: the guy literally had dirt under his fingernails. He had just shut down two plants, which made traditional-technology ceramics products like aluminum oxide in electric insulation applications, near Erie, Pennsylvania, to get out of costly union contracts. He had transported much of their process equipment to a rural town in Tennessee, where they had opened a new plant just three months earlier. He did not have a college degree.

The senior managers in our company were leaning toward the guy with the dirty fingernails. But the two venture capital investors on the board were strongly in favor of Candidate A. They had very high hopes for CPS Technologies, and Candidate A was a senior executive in a company that we wanted to grow to emulate. He knew from the inside out how a global company operated at the high-technology end of the materials spectrum. Candidate A was responsible for nearly $2 billion in sales globally. Our VCs disparaged Candidate B because of his low-technology background. Candidate B’s company was family-owned, and typically generated $30 million in revenues.

In the end, we decided on Candidate A, and spent about $250,000 helping him relocate from Tokyo to Boston. He was a nice man, but he badly managed the ramp-up of the process and the plant. We had to ask him to resign within eighteen months. By that time, Candidate B had taken another job, so we had to initiate yet another search.

At the time, we didn’t have McCall’s theory to guide us—but I sure wish we had. Candidate A had presided over a massive operation, but one that was in a steady state. He had never started and built anything before—and as a consequence, he knew nothing of the problems that one encounters when starting up a new factory and scaling production of a new process. Furthermore, because of the scale of his operation, Candidate A had a large group of direct reports. He managed through them, rather than working shoulder by shoulder with them.

When we compared the candidates’ résumés, Candidate A won hands-down. He had the “right stuff”—the adjectives about him just blew Candidate B out of the water. But that didn’t make him right for us. Had we looked for the past-tense verbs on their résumés, however, Candidate B would have won hands-down—because the résumé would have shown that he had taken the right courses in the schools of experience—including a field graduate seminar called “Scaling up process technology from the lab, through pilot scale, and then full scale.” He had wrestled with problems that the rest of us did not even know we were going to face.

Or, in other words, he had the right processes to do the job. In expressing a preference for the more polished candidate, we biased ourselves toward resources over the processes. It is what I described in the previous chapter as something parents do, and it’s an easy mistake to make. Even big companies get this wrong all the time. Take, for example, the story of Pandesic, an extraordinary collaboration between two of the world’s technology giants, Intel and SAP. They made exactly the same mistake that my colleagues and I made in hiring the wrong VP-Operations at CPS Technologies—just on a much larger scale.

Pandesic was designed to create a more affordable version of SAP’s enterprise resource-planning software, targeted at small and midsize companies. It was founded in 1997 with high hopes—and $100 million in funding. Intel and SAP both handpicked some of their most highly regarded people to lead this prominent joint venture.

But just three years later, it was declared a colossal failure. Virtually nothing had worked out as planned.

While it’s always easy to play Monday-morning quarterback about everything that should have been done differently, one thing is clear in hindsight: though the people picked by those companies to run the project were highly experienced, they were not the right people for the job.

Through the lens of McCall’s theory, it begins to make sense why. While Pandesic’s senior management team had stellar résumés, not one of them had experience launching a new venture. None of them knew how to adjust a strategy when the first one didn’t work. None had had to figure out how to make a brand-new product profitable before growing it big.

The Pandesic team had been used to running orderly, well-resourced initiatives for their respective world-class companies. What Intel and SAP had done was handpick a team that could run an equivalent of either of the giants, but not a start-up. The team members hadn’t been to the right school to create and drive a new-growth project. That relegated Pandesic to a footnote in Intel’s and SAP’s histories.