The Drill Instructor Who Made Lotus Snap To Attention

Information Processing

The Drill Instructor Who Made Lotus Snap To Attention

Jim Manzi's hard-nosed style has transformed the freewheeling software maker

Keith H. Hammonds in Cambridge
With Richard Brandt in San Francisco and Anne R. Field in New York
Business Week

November 16, 1987

There are people, more than a few, who do not like Jim P. Manzi. There are former employees who accuse the 35-year-old chief executive of Lotus Development Corp. of arbitrary, autocratic decision-making. There are analysts and journalists who find Manzi insulting. There are many who say he has manipulated his way to the top of the Cambridge (Mass.) personal computer software company.

Manzi himself is not fazed by such talk. ''Do I spend a lot of time worrying about being called ruthless and arrogant? No.'' Besides, there are many insiders who say some of those qualities are just what Lotus needs.

Five years ago the company founded by Mitchell D. Kapor was as freewheeling as the nascent PC software market. But that market has quickly become complex, and it has taken a tough manager to keep Lotus near the top. Even among his detractors, Manzi is known as an intelligent, scrappy fighter. He has installed a disciplined team of managers and with them transformed the publisher of the popular 1-2-3 spreadsheet from startup to industry heavyweight.

CONFUSED

Indeed, Manzi has forged change at the very heart of Lotus. Unlike West Coast rival Microsoft Corp., which is still dominated by technologists, Manzi has turned Lotus into a marketing-driven company, centered around a sales force four times the size of Microsoft's. Meanwhile, Manzi has relieved Lotus of much of the risk attached to product development by acquiring most of Lotus' new products through purchases of smaller companies.

So far it has worked: Manzi has solidified 1-2-3's place in 80% of the nation's large corporations. Revenues and profits continue to rise sharply and will reach an estimated $380 million and $68 million, respectively, this year. Overseas expansion is progressing at a 55% clip.

But the changes haven't pleased everyone. Four senior executives, including the company's chief financial officer and general counsel, resigned last summer. Some say Manzi's shuffling and reorganizing of divisions has left employees shaken. Many programmers have left--although some are working as consultants for Lotus. And analysts say that 1-2-3 still accounts for 70% of operating profits.

Manzi's big test will come next year. That's when competition will heat up between 1-2-3 and Microsoft's Excel spreadsheet for International Business Machines Corp. personal computers, introduced last month to rave reviews. That program is the latest step in a three-year battle between Lotus and Microsoft for top billing in the PC software market. Though Lotus remains ahead in spreadsheets, Microsoft has leapfrogged it in total revenues, and Microsoft Chairman William H. Gates III says it's because Manzi is focusing too much on marketing and not enough on expanding its product line. ''I think Manzi's misinvesting,'' he adds. Although both Manzi and Gates play down their rivalry, industry observers say it is intense, precisely because the men represent opposite philosophies. ''Gates is technically driven, Manzi is market-driven,'' says S. Jerrold Kaplan, a former Lotus developer now running his own company. ''To Gates, the industry is a science fair, and to Manzi it's a case study.''

'SHARP WIT'

Still, like Gates at Microsoft, Manzi has stamped his personality on Lotus. Subordinates say he is an exacting manager, and business partners regard him as an expert negotiator. In conversation, he constantly challenges, deriding conclusions that he calls ''intuitively obvious.'' Observes Ruthann Quindlen, an analyst at Alex. Brown & Sons Inc.: ''Bill Gates doesn't make you feel like an idiot unless you are one. Manzi attempts to do it, regardless.'' Often the weapon is a dry sense of humor punctuated by boyish smirks. ''It's a sharp wit that reduces some people to ashes,'' says Janet S. Axelrod, a friend and former Lotus vice-president who left last year.

Manzi's success is quite a record for someone who, when he joined the company, had never programmed a computer and boasted no management experience. He grew up in Yonkers, N. Y., the son of a dentist. His first move after graduating from Colgate University in 1973 was to study classics at Columbia University. But after 12 weeks he decided to sign on with National Review magazine and research a book on the U. N. for William F. Buckley Jr. In 1974, he moved to the Port Chester (N. Y.) Daily Item, where he won awards for his articles on a village clerk who had fixed bids on contracts. Three years later, while studying at Tufts University's Fletcher School, Manzi decided to become a businessman. Unsure of what industry to enter, he joined McKinsey & Co. as a consultant. In November, 1982, McKinsey assigned him to a team that was developing a business plan for Lotus--and the die was cast.

In a company staffed largely by technologists, Manzi made a striking impression. ''From the minute he got there it was clear that he was going to have a say in what happened because he was so smart,'' Axelrod remembers. Manzi declined Kapor's offer of a job, citing obligations to McKinsey. But finally, in May, 1983, he signed on--first as director of marketing, then as a vice-president. His first move was to fire all but one of Lotus' 13 sales representatives. Next he canceled a contract that had allowed SoftSel Computer Products Inc., a California software distributor, exclusive rights to market 1-2-3 for what Manzi considered too large a cut of the selling price. SoftSel was furious, but a clause in the contract gave Manzi an out--and, he says, saved Lotus $25 million a year.

Manzi's star rose as he engineered an increasingly successful marketing strategy for 1-2-3. Recognizing that data processing departments were making the buying decisions in most companies, Manzi expanded Lotus' sales force under IBM veteran Stephen J. Crummey, who dedicated 75% of his staff to corporate accounts. He also improved Lotus' service by increasing its telephone support staff from 3 in 1983 to 110 this year.

Kapor named Manzi president late in 1984. Although the two were to share control of Lotus for two years, insiders say it seemed clear that Manzi would ultimately run the company. Several former executives say Manzi forced Kapor from Lotus by expanding his own support among key staff while encouraging Kapor to take on management duties he was unsuited for. ''Mitch had no idea what Jim's agenda was,'' says one. Both Manzi and Kapor deny the charge.

FEWER T-SHIRTS

The break came in July, 1986. Still trying to find a role for himself, Kapor had returned briefly to run Lotus' key Business Products Group. But it was the kind of job Kapor says he dislikes. ''So I walked into Jim's office the day after he got back from a vacation and said I was going to leave the company. He was floored.''

Since then, Manzi has become chairman and Lotus is now his company. He has replaced all but one of the senior executives Kapor hired with managers recruited from such companies as IBM and Data General. He hasn't named a president, but Senior Vice-President Charles J. Digate, who headed Lotus' international expansion, is widely seen as the top candidate for the job. The jeans and T-shirts that dominated Lotus' early days now are outnumbered by suits and ties. ''The hallway decision-making has stopped,'' says Senior Vice-President Crummey. ''It's business, planning, process, cross the t's, dot the i's, if you don't have it get out of here.''

Manzi's product strategy has been equally hard-nosed. Rather than making major changes in 1-2-3, he gambled that Lotus' huge installed base of customers would rather wait for more sweeping revisions. Although customers have complained regularly, he's been right so far. Now, under pressure from Microsoft's Excel, Manzi finally is recasting 1-2-3. A version due out in early 1988 will include better graphics and an ''undo'' function that makes it easy to correct a mistake. A few months later, Manzi plans to unveil another version that, like Excel, will be easier to use than 1-2-3.

At the same time, Manzi is taking steps to entrench 1-2-3 in corporations. Last April, he announced a venture with IBM to produce a spreadsheet for IBM mainframes. A similar deal with Digital Equipment Corp. is said to be in the works. And in the past two years Lotus has introduced a dozen programs that make 1-2-3 more useful. Manzi's latest acquisition, of Datext Inc., for example, brings Lotus a line of financial data bases on compact disks that feed information directly into a 1-2-3 program. And next year, analysts expect a major product: a data-base program that will work particularly well with 1-2-3.

TOO STUFFY?

Most analysts expect that such actions should broaden 1-2-3's appeal, with Excel taking at most 10% of its market. Even so, that leaves Manzi facing another big challenge: generating nonspreadsheet products internally. Some programmers complain that Lotus has become stuffy and bureaucratic, that five levels of management now separate them from senior management. ''If you're a programmer, you feel like you're weird,'' says a former developer. ''I used to walk around in dungarees and T-shirts. I'd get into the elevator and I'd be asked to press the buttons.''

Manzi acknowledges the problem, but says it's the inevitable consequence of growth. No one's likely to disagree--as long as 1-2-3 stays on top.

Photograph: MANZI DOESN'T WORRY ABOUT BEING CALLED ''RUTHLESS'' RESNICK/PICTURE GROUP Graph: While Lotus Keeps Growing Fast. . . Data: Company Reports, Goldman, Sachs & Co. Graph: . . . It's Still Largely A One-Product Company Data: Company Reports, Goldman, Sachs & Co.