The Eric Schmidt Case

By | April 20, 2014

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Question 2

How did Eric Schmidt reengineer the company? Discuss with examples. Explain your answer.

Eric Schmidt has attempted a revolutionary intervention at Novell; an intervention which hopes to address and correct for at all areas of organizational issues and systems. To recall from the previous answer, problems faced by Novell when Schmidt took charge were as follows:

Cummings and Worley (2009) list four types of change methods (or interventions) which are used in organization development and these are human process, technostructural, human resources management and strategic interventions. Schmidt has gone ahead to correct for deficiencies using all types of intervention methods listed above and I’ll explain it now in detail.

The diagnosis of Novell had highlighted several problems in the company which we had already discussed about in the previous answer. Schmidt has attempted to solve for each of them in Novell under his leadership. Under a human process intervention, Cummings and Worley suggest that target areas include process consultations, third-party interventions, team building, organization confrontation meeting, intergroup relations interventions and large-group interventions. Schmidt encouraged all employees to come forward with their grievances and let out their passions. People were encouraged to give in ideas and managers and bosses were instructed to provide support and make objectives clear to their subordinates. Schmidt himself took part in consultations and encouraged feedback from engineers to help design newer products and took feedback seriously in improving work design systems. For example, due to poor response for an employee ratings system, they abandoned the old practice after a year with a newer one which suited everyone. Another example is how Schmidt introduced Ron, where Ron and his team together build a new successful product called ZENworks. Also Schmidt allowed another engineer to take a confronting step during a sales meeting and let him speak passionately about his ideas for a new product. From the above examples, it is evident that there was a human process intervention with the aim of changing processes involving people in order to help them achieve organizational goals. Areas targeted for improvements included communication, problem solving, group decision making and effective leadership.

From a technostructural side, areas of concentration include structural redesigning, downsizing and reengineering of the organization. Schmidt had removed layers of management from 7 hierarchies to just 4; he laid off more than 1000 employees and pushed for cost cutting measures; identified smart people and encouraged them to be more involved in decisions and idea generation and made all employees feel open to give their views and be part of the solution; and Schmidt also identified problem areas in the way sales were conducted and introduced solutions, for instance, when sales people were not selling enough directly to corporate customers leading to inventory problems and so introduced direct selling objectives reinforced with incentives. Therefore, there was a technostructural intervention as well as Schmidt tried to focus on improving productivity and efficiency of the organization by changing existing structure and methods at Novell.

From a human resources management perspective, there are several target areas including goal setting, reward systems, management and leadership development, coaching and mentoring and etc. Schmidt paid careful attention to improve the human resource management. He placed high importance on identifying and retaining the brightest people in the organization.  He and his management team worked together to formulate a plan as to how to overcome the ‘culture of fear’ within the organization. Reward systems were improved and so were appraisal systems which were further amended after receiving feedback from employees. Goals were set and objectives were made clear for employees and in case someone still wasn’t sure, the bosses were instructed to provide them clarification. Managers were also asked to engage in feedback with employees and to ask them about how they feel about working in Novell and if a person wished to leave Novell, an attempt was also made to discover why they wished to move and counter offers were made to retain them. In order to counter employee frustration and wellness, they were given freedom to be passionate and to be focused and inspired. To keep people motivated, recognition initiatives were also introduced such as the President’s Award program in order to appraise hard-working people and give them due credit. Overall, employees were made to feel important and given the space and authority they need to improve on existing systems.

And finally from a strategic intervention viewpoint, areas of concentration include organizational culture, design, strategies, mergers and acquisitions, etc. At the core of it, the fundamental and most significant change was in the organizational culture which allowed two-way communication through the chain of command and let decision making be participatory and consultative encouraging employee involvement. The objective was to overcome the previous ‘culture of fear’ which prevented subordinates from engaging in decisions of the companies. Meanwhile, strategically Novell focused on being more market orientated and assuring customers that their products would be updated and effectively competed with competitors offerings. Schmidt personally met major customers that things are moving forward and there was an aggressive PR campaign which made the point of announcing upgrades and new products frequently. Tactical strategic objectives were also formulated to ensure Novell remained focused and was repositioned to concentrate on its core strengths and capitalize on these strengths. One focus which Schmidt brought with him from years of experience was ensuring that there was never a liquidity crisis and there was ample cash in the balance sheet of Novell. The sales force was also given objectives on cash collections and further savings were encouraged across the organization to maintain sufficient cash reserves. Besides, Novell also announced its intentions to take over Cambridge Technology Partners to further strengthen its strategic positioning in the market. All such interventions are intended to keep the company afloat to changing conditions and survive stiff competition. They also try to maintain tight closeness between an organizations strategy, structure, culture and overall market environment.

Moving towards the conclusion, we can observe that by using the above intervention policies, Schmidt can turnaround and correct for all the forces for change as well as counter forces against change. As we had highlighted earlier, change was inevitable as Novell was losing in the market, but it was important to make sure the right intervention steps were taken to support change and bring about better fortunes. Schmidt was able to just do that as he managed a brilliant turnaround, though the luck didn’t last long since market slowdown in demands causing problems again. This confirms that on field conditions keep changing and no literature or consultant can give guarantees on improving conditions. At the end, it’s the on-field leader who has to use their intuition to judge what is best for their organization and this decision is never easy.

I would end by briefly analyzing Novell with Baden-Fuller and Stopford’s (1994) The Crescendo Model of Rejuvenation. This model proposes that it is possible for a business to rejuvenate itself even after a long period of failure by creating dedicated leadership, simplifying processes, building new capabilities and then maintaining momentum. For Schmidt to continue making progress, he has to form a team of dedicated leaders and managers which should lead the way of change to continuously make progress. Further, work designs and processes need to simplified continuously to make all employees feel comfortable and to make sure all constructive problems and solutions are heard of at the top management level. Finally, in a competitive software market, newer capabilities need to be researched and learned fully exploited. Most importantly, the momentum of improvements should be continued to always be ahead of competitors.









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