Another Year, Another Bitter Lesson For Jim Manzi

For Jim Manzi, it's another unwelcome lesson in software-crisis management. Four years ago, with a major new product a year late, the chief executive of Lotus Development Corp. learned how dangerous it is to let programming schedules slip. This year, he's learning how damaging it can be to release a product too soon. The newest version of the 1-2-3 spreadsheet, the first designed for Microsoft Corp.'s hot-selling Windows graphics system, was shipped in August--rife with bugs. A month later, the company had to replace it. Two months after that, on Nov. 21, W. Frank King III--the manager who had brought IBM-style discipline to Lotus' floundering development organization in 1988--was gone.

This year's lesson is that in a fast-moving software market, efficient management is nice, but there's no substitute for top-notch technology. So Manzi has replaced King with techno-jock John Landry, a 44-year-old industry veteran, most recently technology chief at Dun & Bradstreet Software Services Inc. A self-taught programmer, Landry has launched and sold two software startups and is far more steeped in technology than IBM veteran King or Manzi, a former journalist and marketing consultant.

MAINSTAY. Landry's most pressing challenge centers largely on Windows, the Microsoft "environment" that makes a PC look like a Macintosh. PC owners are snapping up the package--8 million have been sold so far--and are looking for new applications such as spreadsheets to go with it. So far, Microsoft's Excel dominates the Windows spreadsheet market, and Borland International Inc.'s QuattroPro for Windows, due out by March, is garnering early kudos from testers. Meanwhile, market researcher International Data Corp. estimates only about 250,000 copies of 1-2-3 for Windows have been sold, one-fourth the volume analysts had projected.

With a weak offering in the Windows market, Lotus could see further erosion of its market share, now at about 55%, down from 75% three years ago. "They've heard footsteps," says Jude Gartland, a senior vice-president at Shearson Lehman Brothers Inc., a Lotus customer. Sales of 1-2-3 for PCs this year are nearly flat, and investors have begun to discount Lotus' ability to fend off Borland and Microsoft. The stock is down to 20 from about 41 in August. "Wall Street is worried there's no quick fix here," says Peter Rogers, an analyst at Robertson Stephens & Co.

Spreadsheets are not only Lotus' mainstay--accounting for 70% of revenues--but they're also critical to its broader strategy. That involves selling a collection of applications programs to improve productivity for workers using PCs on networks. "The direction of the company matches his strengths," Manzi says of Landry, who has developed and sold both mainframe and PC packages. One important consideration is matching wits with Microsoft's oft-quoted CEO, William H. Gates, and the sometimes outrageous Philippe Kahn, president of Borland. Landry says he's ready to take a high profile to explain Lotus' technology strategy and answer the invective rivals hurl at its products. "Lotus never seemed to stand up for itself, never took to the offense," says Landry. "That's a change that's overdue."

TURMOIL. But change--or the promise of change--has become a constant at Lotus. Manzi has shaken up management and shifted strategies frequently in the past five years. In the process, the company bet on some wrong horses, including OS/2, the PC operating system that IBM and Microsoft jointly developed but which Microsoft has now moved away from. Sales of 1-2-3 for OS/2 have been negligible, and the effort left Lotus far behind in developing programs for Windows.

These missteps have created turmoil at Lotus' Cambridge (Mass.) headquarters, where there has been a continuous exodus of top managers in the past year and a half. "No one gets along with Manzi for long periods of time," says Charles Taylor, an analyst at Needham & Co. One departed senior vice-president (table), Stephen J. Crummey, also blames the boss. "At the end of the day, the issue is Jim Manzi," he says.

So far, Manzi seems in no danger of losing his job. In addition to being CEO and president, he's chairman of Lotus' four-man board. And he still has support from some Wall Street analysts. Arieh Coll at Fidelity Investments recommends Lotus now as a bargain. Selling at nine times projected 1992 earnings, it's "more like a steel company" than a profitable company in a hot-growth industry, he says. Still, he notes, Lotus' projected 20% revenue growth, to $820 million this year, will lag behind the industry's 30% growth. And he expects earnings of $1.43 a share--less than in 1987. If that doesn't improve, Manzi may be in for yet another lesson.

      The following Lotus officers have left the company over the past 18 months:
      VP research & development
      VP spreadsheets
      Sr. VP international business
      VP North American sales
      VP PC spreadsheets
      Sr. VP software business
      VP international business
      VP consulting services
      VP marketing communications
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