Leadership
Return to respectability
How David Peterschmidt turned chaos into profit at Openwave Systems
By Kristy J. O’Hara
Smart Business Northern California | February 2007
The chaos greeting David C. Peterschmidt at Openwave Systems Inc. seemed like stepping into a zoo to find animals running wild.
When he arrived in November 2004 as president and CEO, the company was digging out of the hole it had fallen into following the tech bust. Revenue had declined by 38 percent between fiscal
years 2001 and 2004. And while it had slowly started increasing prior to his arrival, it wasn’t translating to profits, and fiscal 2004 ended with a $30.5 million net loss.
Additionally, several acquisitions hadn’t been integrated, and Openwave, which makes software for the mobile phone industry, lacked a clear focus and communication strategy.
To add to his challenge, employees greeted him with open cynicism, assuming he was just another suit there to talk a lot and solve nothing.
He didn’t waste any time getting started, taking off around the globe for 60 days to talk to employees, customers, investors and analysts to find the root of the company’s problems
and discover new opportunities.
What he found were employees with overlapping jobs, a bonus system based on who you knew instead of on merit, and customers dictating deal terms, resulting in financial losses.
Armed with this new knowledge, he set to changing the organization.
“CEOs have three primary jobs,” Peterschmidt says. “One is to make sure there’s a clear strategic plan and vision for the company; two, that the company is staffed with the appropriate management team to execute that plan; and then three, when you’ve got that, you’ve got to spend a tremendous amount of time communicating internally to the employees around
the world and externally to your customers, to investors and to your industry what it is you’re doing as a company.”
Assembling a team and a plan
Once up to speed, Peterschmidt started preparing his game plan.
“First and foremost, make sure there is a well-thought-out strategic plan and strategic vision for the company that the key executives and management team buys in to and they helped
develop, and that it’s based on reality and you’re not kidding yourself,” Peterschmidt says. “Have a real inventory of these strengths and weaknesses of the company, and understand
how you can use those to create value for your customers.”
He took what he learned from his travels throughout the organization and brought in an outside firm to help management create a strategic plan for the company.
“The idea here is that it’s not a case of, ‘It’s my plan, coming off my desk, that was done by me alone,’ but rather, I like to have everybody in management have their fingerprints on
the murder weapon,” Peterschmidt says.
One of the biggest problems was transitioning the company from a survival mode mentality of “Let’s try everything” to a growth mode with a single business focus.
The group agreed to focus on developing new software products and created what the business model should look like. It concluded that 18 percent of revenue should go to research
and development, but in reality, that came in at about 25 percent. To get that number down, Peterschmidt abandoned participatory rule and let his CEO instincts take over.
“I just dictated to everybody ... we’re going to consolidate from 12 development sites to three,” Peterschmidt says. “I don’t care what the three are, and I don’t care how you do the
consolidation, but that’s what we’re going to do.”
He gave them a six-month deadline, and it sent tremors through the organization.
“That was really a shock to the system because the company had all of these sacred cows,” Peterschmidt says. “I said, ‘I don’t care about nostalgia. I care about taking the company
forward and us executing our strategic plan.’”
He also created a team to evaluate competitive threats, the company’s strengths, the competition’s weaknesses and what products the market would need two or three years out. He
wanted to know where these points intersected and what opportunities they brought.
Peterschmidt also examined his management team and its skills to determine if he had who it would take to execute the plan.
“I wasn’t making the assessment on, ‘Gee, do I have a lot of people that I don’t want in here anymore?’” he says. “I was doing it more, ‘That’s where we’re going — what kind of skill
set do we have to get there?’”
Peterschmidt evaluated his team’s gaps in terms of bodies and experience.
“In some cases, we flat didn’t have the skill sets and had to recruit it,” Peterschmidt says. “In other cases, we were now at a growth level beyond the experience headlights of some
of the executives, and we needed to bring in executives with more experience.”
The company, which holds more than 100 patents, lacked a chief technology officer. He found nobody inside suited for the position, so he recruited from outside and also sought a
chief marketing officer to better position Openwave in the market. He also hired a human resources director to ensure fairness in evaluations, bonuses and raises, and he brought in a
new chief financial officer with more experience to capitalize on merger and acquisition opportunities.
While augmenting his management team, if people didn’t like their new responsibilities or the new direction of the company, Peterschmidt let them walk.
“It’s a matching exercise, where they go, ‘OK, this match is the type of company I want to be a part of,’” he says. “In some cases, it doesn’t match up anymore to what they want to do.
Where it didn’t match up is where we were a $200 million to $400 million company with slow growth versus becoming over a half a billion and doing the high growth ... Those are different types of people.”
Sharing the vision
With a plan in place and the right people to execute it, Peterschmidt began sharing his vision with employees, investors and customers.
“Spend a tremendous amount of time communicating internally and externally — how you’re doing, where you’re going, are we getting where we want to be, what comes next, what
new things have we learned,” he says. “It’s those primary steps that you have to do.”
He started with employees to rebuild their faith and confidence in the company and its capabilities. To combat the cynicism, Peterschmidt constantly communicated the opportunities, positive realities and goals.
“I started showing people the opportunity that the company had — that we were in a big industry ... and that if we did these right things, we would build a world-class company, and
that we had a right to be a world-class company and to expect that we should be a world-class company,” he says.
Peterschmidt wanted the confidence-building to snowball, so he added more communication. Between semi-annual executive planning meetings, he kept management in the loop by
holding a weekly worldwide conference call.
“If I’m the head of European operations, I’m now not 6,000 miles away and nine hours out of phase, but rather, I’ve got a live update and synching that goes on at the beginning of
every week that goes on with every executive in the company,” Peterschmidt says.
He wanted not only management to be in the know, but employees, too, so he added quarterly meetings for them and spoke not only of the past quarter but also about the future
and their role in it.
“I told the employees, ‘Companies, when they get into survival mode, a very natural reaction of management teams is to pull all the decision-making back up to the highest levels of
the company,’” Peterschmidt says. “I said, ‘We’re going to turn control of the company back over to you. We’re going to start letting you make more of the decisions over the last couple years that you’ve not been allowed to make. We’re going to put you back in power,’ to demonstrate to them that we have the confidence that they are capable of doing much more.”
To do that, he created a leadership-training program to educate mid-level managers about what leadership means and the challenges leadership presents. He also created a clear evaluation program so employees know when and how they receive evaluations and the incentives associated with their performance.
Investing in people and educating them showed employees that Peterschmidt had a real interest in them and not just in the dollar. That philosophy also transferred to customer relations.
“There were times when they came to us at the end of the quarter, ‘If we just dropped the price, or we did this, we could get the deal,’” Peterschmidt says. “Collectively in the management team, we just started saying, ‘No, we won’t do that anymore.’ That rippled through the whole company — ‘Holy cow! These guys are serious. They’re willing to risk missing
the number for the quarter because they won’t take a bad deal anymore.’”
And as employees began saying no, they found customers saying, “OK, we’ll take it the way you offered.” Saying no made customers recognize the company’s value and gained
Openwave more respect in the market.
Peterschmidt took that positive momentum and ran with it on an external campaign at two global industry conferences, conducting more than 160 customer meetings during five days
at one and 115 at the other. He also logged more than 60,000 air miles in four months, meeting with customers everywhere to ensure that he understood their needs and that they knew
where Openwave was heading. Then he went to the investment community and told it what to expect.
“In essence, we gave them a scorecard to keep score on to let them know where we were going, how we’re going to get there and when we were going to get there,” Peterschmidt
says.
He met with 20 to 30 financial institutions a week to brief them and get feedback on what they thought of the company’s plan and progress. He also met with more than 125 financial
institutions in five days, garnering $300 million in a secondary stock offering in December 2005.
“It’s not, ‘We’ll just go out and talk to a few analysts and everything will be OK,’” he says. “It’s a lot of work and a lot of commitment on the part of the company to do that.”
Two years of pavement pounding have paid off, as Openwave increased revenue to $412 million in fiscal 2006, up from $291 million in fiscal 2004. Peterschmidt also turned fiscal 2004’s
$30.5 million net loss into a $5.2 million profit last year. But despite improvements, he won’t rest on his laurels.
“People are seeing that we’re not just getting to a certain level and cruising, but we’re constantly adding to the capability of the company against the plan that we showed them,” he
says.
“The company is up and running. It’s in motion. It’s growing, but everybody knows that we’ve got three or four years of a lot of big stuff and things that we have to do to stay on the
track that we’ve set for ourselves.”
HOW TO REACH: Openwave Systems Inc., (650) 480-8000 or www.openwave.com
