“P
eace, commerce, and honest friendship with all nations,” said Thomas Jefferson, “entangling alliances with none.”Rick Roscitt could have written this himself, particularly the part about alliances.
“Like most big companies, AT&T found alliances threatening and countercultural,” says Rick. “Whereas we at AT&T Solutions couldn’t have survived without them.”
Why were alliances essential to AT&T Solutions’ survival?
“The technology was too vast,” says Rick, “we couldn’t cover it on our own. Alliances enhanced our capabilities and stretched the limits of who we could serve and what we could do.”
Though AT&T Solutions started small, it set its sights high and wide.
“Companies that are comfortable being small or pure niche don’t need to partner in a big way,” explains Rick. “They can just borrow income-statement or balance-sheet items. To be global, though, you have to exchange technology, platforms, and complementary skill sets.
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You have to join your names and publicity machines. That way you cap- ture worldwide business segments. You cover much more ground.”
An early AT&T Solutions partner was John Chambers, president and CEO of Cisco Systems.
No wonder. Chambers was a dreamer and believer, too.
“John could have done quite well without giving us the time of day,”
says Rick. “But he decided to personally help me launch AT&T Solu- tions. He went miles out of his way.”
What would Chambers gain by helping AT&T Solutions?
“Good question,” says Rick, “since this was before we’d done Mer- rill Lynch and there was no guarantee of our ultimate success. But John has brilliant business instinct, plus an alliance mentality. He saw that we’d provide Cisco with network solutions and, as we grew, that we’d buy in aggregate for our clients and throw huge amounts of this busi- ness Cisco’s way. His foresight was perfect, of course.”
For AT&T Solutions, Chambers became both a business ally and a vocal booster in the marketplace. “He believed in our vision and where we were going and he wanted others to believe in us, too. I’m forever grateful to him for that.”
A
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NTERVIEW WITHJ
OHNC
HAMBERSBill Capodagli: Rick Roscitt told us that he appreciates not only the partnership between AT&T Solutions and Cisco, but also the advice you gave him during the start-up of his new company. What advice would you give anyone in establishing an alliance such as the one you have with AT&T Solutions?
John: I’d first start with the assumption that most alliances and strate- gic partnerships fail. So you have to say, “What are we going to do differently so we don’t fail, too?” It won’t be a question of I’m going to be smarter or work harder. To succeed, a strategic part- nership alliance has to be worth a lot of revenue to both compa- nies, enough to keep the top managements focused and committed to allocating resources. There is no such thing in my opinion as a 50/50 transaction. It’s going to be 60/40, 30/70. Partnerships are
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hard to do unless your top management really believes that the benefit is there and they’re totally committed to pursuing it. With AT&T Solutions, this means Rick and Mike Armstrong have to be on board. Unless they really buy into the approach, it won’t go.
Plus, your company’s culture has to accept it. If the culture doesn’t believe in partnering and doesn’t accept its value—even if top man- agement buys into it 100 percent—it won’t go down through the organization. Also, you have to create a sustainable competitive advantage. All of these elements are key.
If you look at companies in the technology and computer mar- kets during the 1980s, they did it largely by themselves. These were the IBMs, the DECs, and the HPs of the world. They were largely a vertical market. During the 1990s, the ones who were successful learned how to acquire. As I said, the majority of acquisitions fail, and I’ll use AT&T as an example. They put themselves into a very good position with their acquisition strategy. And we did the same thing with Cisco; we acquired over 61 companies. We had to rewrite the textbooks about acquiring, and acquiring was every bit as difficult as we thought. In my industry, the failure rate was even higher than in service products. Failures probably exceeded 75 per- cent in acquisitions done. Most people would say Cisco’s hit rate was probably in the 85 to 90 percent range, so compared to every- one else we were off the charts in terms of our success.
In the coming decade, the companies who succeed will be those who know how to partner strategically. They’ll be the ones who win.
In many ways, Rick was the champion of the Cisco relationship with AT&T. We agreed that this market was changing at an incredi- ble pace—what I call Internet pace. It’s interesting to watch this market mutate. From one angle it looks one way, from another angle another way. If you take just one angle you won’t get the whole pic- ture. By taking them all you can see how it’s evolving overall.
Nothing tightens a relationship like common customers. With AT&T, we started off working the revenue opportunities with Rick—figuring out what worked and what didn’t work and how to do what should be done. That kept us focused. We did the same with our acquisition strategies—we learned from the first several, then replicated successful concepts and drove them at a faster pace.
That’s how you get your revenue.
Lynn Jackson: Could you describe how your partnership has evolved over time and what sustains it?
John: There’s a unique thing about Mike Armstrong and Rick Roscitt that attracts me to partnering with them. When there are
bumps—which there will be in any situation—they don’t say,
“Hey, we’ve got a problem with our partner.” They say instead,
“Okay, there’s a problem, now how do we resolve it together?”
One time it may be 75 percent Cisco’s issue and 25 percent AT&T’s. Another time it’s the other way around. So, rather than pointing fingers in the old-style way, we communicate candidly about where we both are.
It’s in periods of stress that each company sees what the other is really like. A network problem we had two years ago was a defining moment of our partnership. At that time, the relationship could have gone either way. I called Mike Armstrong from Tokyo in the middle of the night and told him what was wrong. Most partners would say immediately, “It’s your fault.” But Mike’s response was, “All right, we’ve got a problem. How do we turn it into a winner?” He saw problems as opportunities. And Rick, Frank Ianna, and the rest of the AT&T Solutions group
approached this the same way. “Let’s fix the transaction. Let’s fix the problem,” they said, “and let’s use this as a chance to get our companies closer together, not further away.” Our partnership was even tighter after that.
When Mike decided to acquire the cable companies, we invited him to come out here and spend a day with us. He brought his whole team and we outlined strategy for how we could be a partner in this major new opportunity.
Bill: What challenges will there be in leading in this new economy?
John: The challenges are going to very simple. The fast are going to beat the slow. The key factors will be talent, speed, and branding.
Those who evolve too slowly get left behind, and those who don’t move will cease to exist. And leaders will have to walk the talk. In other words, you can’t say one thing and do another. Last week, as an example, I had 18-hour days, five keynotes a day, four customers at the end of the day, and probably 10 to 20 press articles being
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TE AM FL Y
Team-Fly
®generated. But the leader sets the pace for the organization. The team can’t go faster than the lead dog. If you’re serious about rev- enue growth, if you’re serious about the competition, the leader has to walk the talk. Both Mike and Rick do that very well.
Though Cisco Systems had emerged as an independent enterprise while AT&T Solutions was born of Mother AT&T, both John Cham- bers and Rick Roscitt were classic entrepreneurs.
“Entrepreneurs almost always form alliances,” says Rick. “They know that independence comes through strength, and that strength is in numbers. Alliances are magic—they make you bigger and more pow- erful than you are.”
Magic might well describe certain “virtual corporations” that pro- duce nothing more tangible than alliances and yet market real products under their own brand names.
“Nike really doesn’t make sneakers,” says Rick. “They don’t even own the factories or the raw materials. They don’t even sell the shoes themselves. They just transfer them to retailers who do. So there are no direct Nike customers per se.”
Which means there’s a “swoosh” logo but no real Nike sneaker.
“Nike designs the product and promotes it with star talent,” says Rick, “but the company itself has no talent whatsoever for actually mak- ing shoes.”
Another example is Dell, which assembles, configures, brands, and ships other manufacturers’ components but manufactures no computer parts of its own.
Is AT&T Solutions a virtual corporation?
“If virtual means extending your power and reach through alliances,” says Rick, “then we are.”
How does AT&T Solutions choose its alliance partners when, as John Chambers said, most partnerships fail?
“It’s like a marriage with a prenuptial agreement,” says Scott Perry, AT&T Solutions’ vice president of business strategy. “You create the divorce before you tie the knot.”
But why anticipate divorce?
Explains Rick: “At root, each company is selfishly motivated to take care of its shareholders. As long as the alliance helps them do that, they
stay in love. But once it doesn’t, and one company gets cold feet, the marriage can blow apart.”
Are some alliances doomed from the start?
“Absolutely,” says Scott, “the ones that are concocted just for public- ity. The ones that aren’t designed to serve customers and aren’t prepared to weather the storms and absorb the bumps in the road. The ones where each company ends up competing directly or through other part- ners. The ones where one sales force calls the other sales force dumb.”
Adds Rick, “Alignment of the companies’ cultures is critical. They both must be win-win. If one company is just out to take care of itself, the alliance won’t work.”
A partnership’s mere duration, Rick suggests, is not the final test of its strength. “If both companies grow their enterprises and serve their clients better during the collaboration, no matter how long it lasts, then the alliance is a success.”
Said otherwise:
If I’m okay, you’re okay.
If I fail, you’re down the tubes, too.
Failure often comes from one side pulling the other too hard. When this happens, it’s best to meet in the middle.
“A strategic partnership involves strategic compromise,” Rick says.
“We say we’ll yield on this point if you give some strategic ground. But there has to be mutual trust. If you’re not sure about your partner’s hon- esty, then do a couple of trial tactical deals. If you’re satisfied after that, tie the knot.”
Compromise is not achieved with a magic wand, of course. It takes work—especially when R&D shops are involved.
“Both companies have these development labs,” Scott notes, “and guess what, they’re both working on the same issues. So we do a series of continuing and lengthy dialogues about which lab should sacrifice what. Sometimes the labs don’t give an inch, and when they don’t, the senior leaders have to literally tell them, ‘We’re killing your favorite project in favor of our strategic partner’s project. Sorry, but that’s that.’”
Such conflicts are worst between two large corporations.
“Big companies find it hard to compromise,” says Rick. “They get so stuck in their ways. At the start they say, ‘Yes, we want a win-win rela- tionship,’ and then they just go for the win.”
These inflexible partners must realize that collaboration demands compromise and a free sharing of assets and attributes.
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“It’s a real challenge for us to find compatible partners,” Scott says,
“especially large ones with broad agendas, complex financial and research machinery, and entrenched product lines.”
In the year following Rick’s appointment as AT&T Solutions’ CEO and Armstrong’s as head of AT&T, the following story broke:
THE WALL STREET JOURNAL
WEDNESDAY, DECEMBER 9, 1998