The fall of giants: How technical leadership gaps broke three once-mighty tech companies

It is crucial to have people with deep technical understanding at the highest levels of leadership, yet it’s become a trend in big tech companies around the globe to shun deep technical expertise — sometimes with disastrous results. 

This isn’t to say leadership should be entirely composed of engineers who’ve risen up through the ranks. But when a company whose products or services revolve around technology starts to eschew technical and engineering knowledge from its highest ranks, it is usually a sign of trouble.

A tech firm led only by non-technical people often ends up being “penny wise, dollar stupid.” It transmutes dynamic organizations with cultures of innovation and experimentation into risk-averse companies that chase the bottom line from quarter to quarter. Professor Serguei Netessine of the Wharton School sums it up: “Experimentation is something that traditional companies just don’t do very well. There’s no budget for experimentation. Paradoxically, most businesses don’t do that because they’re kind of hostages to their success. Why bother if we are making money and the current business model is working just fine?”

This trend became more prevalent as the tech industry matured. Marko Jukic, a senior analyst at Bismarck Analysis, pinpointed the timing.

“It’s unbelievable how many dynamic companies broke their streaks of engineer-CEOs for the first time in the 2000s, installing their first MBA/finance CEOs,” Jukic said in starting an August 2024 Twitter thread that was liked over 40,000 times, “who then promptly made fundamental strategic errors that nixed the company’s future, that are now becoming obvious.”

Let’s take a look at a few examples.

Sony: From experimentation to cost-cutting

After a rise to global prominence due to inventions like the Walkman and the PlayStation, Sony in February 2000 was trading at over $300 per share. This Japanese juggernaut gave up its significant lead in these areas, and was trading for $29 per share by the end of the ‘00s, according to data from CRSP available at Wharton Research Data Services.

Masaru Ibuka founded Sony in 1946 in Japan, a country just beginning to recover from the ravages of war. In less than three decades, Sony had over 30,000 employees and held 40% of the global color TV market.

Ibuka did this by allocating 10% of Sony’s annual revenue to research and development, encouraging a strong culture of experimentation. In his 1976 memoir “Thoughts on Management,” Ibuka wrote: “Technology must serve human happiness.” He was a true engineer. Sony went on to pioneer personal technology with inventions like the Walkman, a music playing device from the 1980s that was as much a fashion statement as the iPhone. The introduction of the PlayStation gaming console in 1994 saw unprecedented success, becoming the best-selling console of its time.

He cut the board size from 38 to 10, eliminated the culture of experimentation, and pushed Sony to become a multimedia company rather than a hardware innovator.

In 1999, Nobuyuki Idei became Sony’s fourth CEO and the first non-engineer to serve in the role. He cut the board size from 38 to 10 members, eliminated the traditional culture of experimentation, and pushed Sony to become a multimedia company rather than a hardware innovator. These trends were largely continued by Sony’s next CEO, Howard Stringer. While investments in Spotify and the Spider-Man franchise may have been short-term winners, the soul of the company had been forsaken. The stock dropped 60% during their tenure.

Sony ceded the mantle of most popular personal electronics company to Apple, which saw the benefits of the personal electronics boom ushered in by the iPod and iPhone in the late ‘00s. 

CDNow: Music discovery or music marketing?

CDNow was a dot-com darling in the Philadelphia area in the 1990s.

I began my career as its 100th employee in March 1998, when it was valued at over $1 billion. It was founded by twin brothers, Jason and Matt Olim. Jason had an Ivy League computer science degree, and served as CEO, while Matt’s degree in astrophysics paved the way for him to lead the technology team. Most of the managerial leadership in the company’s early years came from strong technical backgrounds, with many of these leaders having worked at Philadelphia-area company Infonautics.

The inspiration for CDNow came when Jason walked into a music store, and asked the clerk what other kind of music he’d enjoy if he liked Miles Davis’s album, “Kind of Blue.” The blank stare he got in reply sparked the idea for the company, and its mission: “to build a better music store.”

In the early years, CDNow had some amazing innovations. Cosmic Credit was the web’s first affiliate marketing program, and the Album Advisor was among the first taste-prediction algorithms on the web. It recommended music you might like based on your music history by cross-referencing what other people with similar taste had purchased.

By the time I left after just 18 months, the head count had grown to almost 400 people, and the percentage of technical people in the C-suite had plummeted.

Instead of leveraging technology to help people find new ways to discover music, the website started to resemble dying brick-and-mortar music stores. Because of leadership decisions, moves like promoting Shania Twain to someone searching for Nine Inch Nails became the norm. The search function, which our research showed was used by over 95% of website visitors, was intentionally obfuscated in the interest of showing banner ads to promote what the merchandising team wanted people to see. The culture of innovation dried up as the C-suite became less and less technical.

After refusing an offer from Amazon, and a failed merger with Columbia House, CDNow was acquired by the Bertelsmann Music Group for $117 million. Amazon was contracted to run the website, then they acquired it entirely for pennies on the dollar, and eventually shut it down.

Intel: Playing it safe and missing the boat

Intel had a history of CEOs with a strong engineering background, but that changed when they hired Paul Otellini, who got his bachelor’s degree in economics before receiving an MBA from Berkeley. 

Otellini had started at Intel in 1974, and his strength was never in technology. He was gradually promoted, and in 2005 was elected CEO by the board.

In one of the most famous mistakes in business history, in 2007 Otellini decided to play it safe. He passed on an opportunity to make the chips for Apple’s new device, the iPhone. Intel’s mobile strategy ended up being a total failure, while Steve Jobs brought Apple back from the brink to become the most valuable company in the world. For an encore, Intel has since missed out on literally every major new development in computing: ARM, GPUs, EUVL and others.

These decisions brought Intel’s stock from a high of $140 per share in February 1997, per the CRSP Monthly Stock File, to the $20 per share range it hovers around today.

Skill diversity — like all diversity — is crucial in leadership

These stark examples all show the real-world consequences of not having respected leaders with deep technical skills as part of leadership in technical organizations. Engineering bridges science and art, and having a continually successful technology company requires a culture of experimentation. 

Having a leadership team inclusive of those with deep technology skills can help maintain a culture of innovation, and help avoid stepping on land mines that can hamstring an organization for years… or forever.