Autodesk's Turnaround Secret

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Hail Mary Strategy

Autodesk represents one of the most dramatic examples of how a company has made the most of a hidden customer asset. In the late 1990s, Autodesk made a series of moves it would live to regret. The company decided to expand beyond the design tools that had been the keystone of its success and instead add services and products that were neither part of its core business nor natural adjacent businesses. Autodesk also decided it could save on costs by selling to its customers directly and over the booming Internet, instead of through its network of resellers. "The company had adopted a Hail Mary strategy, trying lots of new and different things, often throwing business analysis and [proven] practices to the wind," says CEO Carl Bass.

The strategy backfired. Not only were the new offerings unsuccessful, but the company also learned—the hard way—that its resellers were better at selling its products than Autodesk was. Performance plummeted, and Autodesk knew it needed to change. But the how-to wasn't obvious. Like many other companies, Autodesk didn't know where it was falling short with its customers and where it could differentiate itself by developing new products and services.

In a 2004 survey of 259 executives worldwide, Bain & Co. found that for many, there is a huge gap between perception and reality when it comes to serving customers. Among respondents, 80% of executives thought they were doing a good job of delivering "very differentiated" products and services. But when we compared this belief with a similar sample of their customers, only about 8% said they thought their suppliers were highly differentiated.

Autodesk confronted its own version of this delivery gap by taking a deep look at itself to understand how it might be underserving customers. The company evaluated its established customer base in different ways, searching for patterns of behavior and new ways to segment its customers and then develop products that might appeal to different segments. Autodesk realized there was greater potential demand from long-standing customer segments where it had a stronger set of capabilities than it had recognized.

Step by Step

The company then embarked on a five-step program that fueled its turnaround.

First, the company reinvested in its indirect channel with a vengeance. "We stopped competing with them," Bass says. "We treated them like our own sales force and invested in basic training."

Second, management shifted its focus to narrow industry segments within the specialized market of computer-aided design, targeting such groups as architects and mechanical engineers. The company realized it hadn't been serving these segments as well as it could have been serving them.

Third, the Autodesk team developed a new product asset with 3D technology, which represented a quantum leap for its customers who were using its earlier-generation 2D technology. The company realized it could expand its core CAD business by converting its 2D customer base to 3D.

Fourth, Autodesk brought in new managers eager to implement the new approach.

Finally, the company changed to a subscription model for using its software. This presents a simplified way for customers to gain access to software upgrades, service and support, and packages that help them migrate from 2D to 3D.

Monster Growth

Like the CAD programs the company sells, Autodesk imagined a new reality and then made it come to life. Revenue has grown at 18% annually, more than double that of the enterprise software industry. And in the most recent quarter, even though slightly below Wall Street's estimates, Autodesk racked up 20% growth, to hit $599 million in revenue, and earnings for fiscal year 2008 rose 23%.

Propelled by the power of its hidden assets and redefined strategy, Autodesk—whose Discreet 3D software was used to model King Kong in the movie of the same name—is once again making big tracks in its industry.

Based in Amsterdam, Bain partner Zook is the author of Unstoppable: Finding Hidden Assets to Renew the Core and Fuel Profitable Growth (Harvard Business School Press, 2007). Cogan is a partner based in Palo Alto, Calif., and a leader in Bain's technology practice.