Silicon Graphics' Cautionary Tale

In Silicon Valley (to paraphrase Leo Tolstoy), successful companies are all alike, while every unsuccessful company is unsuccessful in its own way. Despite the region's glittering reputation, flameouts do happen. And when the mighty stumble, the fall can be spectacular. Look at Apple Computer Inc., which makes the critically acclaimed Macintosh technology that may one day be a relic, and which has had a long and painful corporate unraveling that recently was capped by CEO Gilbert F. Amelio's departure. Equally startling is the abrupt free fall at Silicon Graphics Inc. Here was a company that had everything going for it: cutting-edge workstations, ballooning revenues as recently as two years ago, and a chief executive who was a White House regular. Like successful companies in Silicon Valley, SGI seemed to have the Midas touch.

But good managers, even in Silicon Valley, know there is no place for hubris in a hotly competitive, constantly evolving marketplace. Flexibility, adaptability, and nimble shifts in strategy assure success. While SGI sold its vaunted workstations, PC makers were making more and more powerful machines, which are catching up fast with a lower-cost business model. And while SGI waded into new markets such as interactive TV, the Internet revolution was capturing the attention of dozens of neighboring companies in the Valley. Amid these challenges, SGI's chief executive was having an office romance, while other managers engaged in behavior more appropriate to a frat house than a corporate office. Bad luck and bad strategy at SGI combined to pull the company down--and now a new set of deputies to the chief executive must try to turn things around. It's a sorry tale, and a cautionary one.

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