If you’re a business leader, a manager, or a head of your department… You may very well understand the importance of leadership.
Ever heard the quote that says, “A lousy leader may take a solid team and ruin it, driving the best workers away and demotivating the rest“?
A good leader may take a company to the heights of success while a bad leader may bring a company to dust. Something similar happened to the computer manufacturing company, Commodore.
Before getting on to what led to Commodore’s failure, let’s give you a small background of the company first.
About the company:
Commodore Corporation was a computer company founded in 1958, with headquarters in West Chester, USA.
The business, founded by Jack Tramiel and Manfred Kapp, was a significant player in the growing home computers market of the 1970s, 1980s, and early 1990s.
It was famous for producing the Commodore 64, one of the best-selling command-based computers in 1970.
Commodore 64 is considered the most widely used single computer model of all time, having sold over 17 million units.
The company was also known for producing popular computers such as the Commodore VIC-20 and the Commodore Amiga. In 1987, the company reported a revenue of $446.8 million half-yearly.
The company was surely able to earn a big name in the market but several factors led to its bankruptcy and ultimate closing of the company. Let’s dive into what the reasons were.
Reasons behind Commodore failure:
Poor Leadership Style inside the company
Jack Tramiel established Commodore in 1955. He had an aggressive leadership style and business approach that caused different problems for the company.
Tramiel’s one-man management approach offended Commodore’s suppliers and resellers as well. In 1984, he was forced to resign by his partnering firm, Irving Gould.
The company had lost Tramiel’s strategic vision after he left.
As the corporation struggled to find coherent and stable leadership, Gould launched a “hire and fire” campaign. The business was unsettled as each new CEO had a different vision for Commodore.
Many of the CEOs lacked computer skills or experience and had no drive to learn. It was getting more and more difficult for the company’s leaders to stay on the right track.
They were unable to set proper goals for Commodore Corporation. Which raised even more issues for the company and the ultimate Commodore failure.
The Commodore Amiga’s downfall
Because of not having a strategic approach to building the products, the company made many mistakes.
They could not innovate as per the market trends and failed miserably at marketing too.
The company could not recognize market demand to keep up with improvements in personal computing, allowing IBM and Apple to enter the market.
Following the success of its popular Commodore 64, the firm released the 16-bit Amiga, which was not yet market-ready.
The Amiga didn’t have enough business software to attract enterprise customers, but it was too expensive for younger gamers at $1,000.
The A500 was ultimately released and sold well, but later Amiga range updates failed to keep up with advances in personal computing.
Commodore was also unable to overcome its public perception as a manufacturer of low-cost computers at a time when IBM and Apple were beginning to dominate the PC industry.
This is so much similar to how Nokia failed to innovate or Blackberry’s lack of innovation.
Mehdi Ali- Seed of commodore failure
The biggest contribution to Commodore’s failure was by the leaders. In 1989, the company hired Mehdi Ali, a former GM and Pepsi executive.
Ali’s rule was characterized by expensive strategic errors. He reduced funding for essential research and development while increasing his remuneration.
Ali earned $1.38 million in pay in 1989. That amount increased to $2 million in 1990 (bonuses excluded), and Irving Gould received a salary raise of 40% to $1.75 million. John Akers, the CEO of IBM, earned $713,000 in the same timeframe in comparison.
During this period, Mehdi missed several crucial opportunities. Ali sabotaged a lucrative agreement with Sun Microsystems to license Commodore hardware twice.
Sun Microsystems wished to license Amiga Unix (AMIX) and Amiga hardware for their low-end workstations.
As a CEO, Ali stood back and observed as new businesses expanded at an exponential rate of Commodore’s refusal to supply hard drives and CPU upgrades for the Amiga.
Furthermore, GVP ultimately had a value of over 50% of Commodore, which was uncommon for a supporting business.
Mehdi was also in charge of the Amiga 600, one of the worst Amiga products ever launched. The product was meant to be a lower-cost 500, but it was launched with fewer features than its cousin for a higher price.
Ali exacerbated this failure by flooding shops with A600s that no one wanted while failing to produce enough A500s and A1200s that were in higher demand.
However, Ali’s decision to trade Commodore’s future caused the company the most damage. He continued cutting R&D expenditures over the years until there was almost nothing left.
According to former Commodore MD, David John Pleasance,
“They used to stumble from one crisis to the next. There was a huge number of changes in senior management and every time somebody new came in, they had a different view. And the problem was, after Jack Tramiel left, none of them had any knowledge of the computer business. There was a guy from Coca-Cola and a guy from the steel industry. They had no idea about the computer market and they never tried to learn.”
Summary of Commodore Failure:
As we said, A bad leader can bring even a well-settled and widely loved company to dust.
In 1993, Commodore lost $366 million due to the decline in sales. In the first quarter of 1994, the company announced a loss of $8.2 million.
Finally, in late 1994, Commodore went bankrupt as it couldn’t compete with IBM’s PC Clones.
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