Things move quickly in technology, which is why technology companies are fascinating to strategists the way fruit flies are for biologists — you can see an entire life cycle in a very short span of time.
The latest story to make me think of this is a recent piece in the New York Times that observes that RIM (Research in Motion) has cut its forecasts for its Blackberry products and that it is struggling to offer new ideas relevant to an iPad world where just being able to get your email on a handheld device is a yawn. It reflects a pattern that I often talk about: When a company discovers something that is truly exciting, others copy and follow, to the point that what was once the object of techno-lust becomes a non-negotiable prerequisite. Expensive to develop? Sure. Difficult to deliver flawlessly? Of course. Making a competitive difference? Unfortunately, only if your offer isn’t as good as the other guy’s and then only in the negative.
There is more to this, however, than the ebb and flow of technological innovation. It’s a common pattern that I’ve seen play out over and over again. It goes like this:
Round 1: The Next Big Thing
A company creates an attractive position in a growing niche by uncovering real unmet needs that customers have. In the case of Palm, it was inventing the first true smart phone on which you could use a primitive form of handwriting recognition. I loved my Palm phone: it synched with my calendar and contacts and let me make notes, even sync email to my computer. In the case of the Flip video camera, which parent company Cisco plans to consign to the garbage bin of business history, it was getting good-enough quality videos cheaply in a way that would allow you to post them on the new-to-the-world video sharing sites. They took off through mutual benefit and created an entire category of social media. In the case of RIM, it was — wow — email that you could get anywhere! Anytime! Without having to access a computer! It’s hard to remember now how revelatory this was. For a generation of business executives, the ‘blackberry prayer’ became a way of doing business.
Round 2: Life is Good!
The money comes pouring in and the industry leader thrives. Business books, articles, and case studies are written about their innovative management practices (see BusinessWeek’s tech 100 in which the journalist breathlessly proclaims as of 2008 that RIM was “kicking butt” (their wording). They win awards (see Business Week’s listing of the most innovative companies for 2010 in which RIM is #14). The leader, however, realizing that things don’t stand still, continues to invest in innovation, but it tends to be ‘more of the same’ innovation which improves the trajectory of now well-understood customers.
Round 3: Don’t Worry, It Will Be Fine
Early warnings begin to emerge that the core business may be challenged — even by the innovations the company itself is creating. Or, competitors are courting customers with desirable attributes that the focal company either never offered or wasn’t able to match. Flip never developed communication capability that would have let users upload videos directly from the device, or an editor (like iMovie on the iPhone) that would have let them edit their cool stuff immediately, or other functions that could have kept the device relevant, even in a world of video-capturing smart phones. Or consider Palm, which had a years-long lead in technology, never surrounded that technology with barriers to entry or truly innovative features — until, under threat from all sides, they made a bet-the-company decision to develop the Palm Pre. When Apple came out with a competitively priced iPhone, they lost the bet.
Here’s the interesting part: The core business, which in this round is generating wads of cash, is run by powerful people (if they weren’t powerful, they wouldn’t be running the core business!). To them, changing strategy to pick up new customer sets, new routes to market, new core features all look threatening. Unless someone in the company has the foresight to yank resources out of that previous business and nurture the next one, the core basically squeezes all the oxygen out of the new businesses. Unfortunately for the incumbent, the owners of the core business have no such ability to shut down competitors from undermining the core.
Round 4: Death Hurts, But It Isn’t Fatal? (phrase credit to Rajshree Agarwal)
By the time it’s obvious to everybody that the former incumbent is in catch-up mode, it’s too late, and the company is now in crisis. The former incumbent gets broken up and sold off, or even just disbanded. Sometimes, of course, there is a skillful leader who can turn things around — think Jobs, of course, at Apple, or more recently the leadership team at Alcatel-Lucent. Nokia, a former darling of the business school case study, is going through this even as we speak.
Are companies doomed to repeat this cycle over and over again? I would argue they are not, but it takes real strategic vision and an ability to combat the internal power dynamics that always favor a profitable core business over an uncertain and failure-prone new one. The critical question I urge executives to ask themselves is, particularly in Round 2, whether they are making enough investments that they are well prepared to face a Round 3 scenario.
from HBR by Rita McGrath