Wednesday, October 18, 2006

AT&T War Story #7:

In 1984, AT&T formed a computer division, intending to become one of the top hardware and software vendors in no time. AT&T already built computers (somewhat special purpose ones, as phone system controllers). All they needed was a little repurposing. Oh, and they also needed some software products to sell. Soon the computer division had hundreds of product managers, tasked to do anything, anything, to get new products out the door.

The computer division had plenty of money to spend, but that money was rarely in the budgets of people who needed it. And money had to be spent fast, to create new products or – much more often – to rebrand existing products as AT&T “me too" products. The managers who had to get outside companies to work for them had little authority of their own. They also dreaded going through AT&T’s “contract process”, wherein some fuddy-duddy with no sense of urgency would hold them up until each contract looked just right. To make matters worse, A&T had an official policy about how to set up an emergency budget. I’ve read this policy – it was a five hundred page notebook – and it typically took about eight months to approve an emergency budget. So what’s a manager to do?

Someone, somewhere came up with a solution that spread like an “idea virus” throughout the division: the Letter of Intent. In such a letter, the manager writes to a vendor ordering some work, and states that “AT&T intends to pay for this work.” There’s no contract, but most companies were willing to gamble that AT&T would stand behind the “intent” statement. I wrote a letter of intent myself for AT&T in 1985 to commission $20,000 of work for a convention demo.

It was particularly egregious for me to write a letter of intent, as I was not even an employee. I knew that “everyone was doing it”, but I also knew that, officially, AT&T only allowed a few people to make such commitments.

Now here’s the interesting part of the story. In about July 1985, after about 14 months and hundreds of letters of intent, upper management discovered what had been going on. We all got a memo explaining, in the strongest possible terms, that there would be NO MORE LETTERS OF INTENT. Every manager was to render an accounting of all such letters sent, because AT&T intended to honor every one of them, and the company wished to assess its liability. Of course it took more than a year for AT&T to find out what they owed via those letters. Managers had quit after sending them; other managers had no idea whom they’d made commitments to. And the bills for “intent” work just kept rolling in.

Since then I’ve always remembered the power of a Letter of Intent. Who knows when I might want to send, or to receive one?

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