Clayton L. Christensen wrote an intriguing book discussing why well-managed, customer-sensitive, highly-successful companies fail. He proposed a somewhat counter-intuitive explanation for such failure. He postulated that successful companies are often so focused on what their customers are requesting that the companies limit themselves to mainstream in-demand products. Meanwhile, smaller businesses develop products that may not immediately have as high of demand or profit margin, but which have more potential for growth. Eventually these smaller companies out-perform and stunt the larger, previously successful companies.
Such a cycle may be inevitable in business, but perhaps a possible prevention for such failure is to invest in novel ideas; ideas that may not be very popular or considered to be especially lucrative at the time. It appears that pursuing only those things which are safest, most-widely accepted, and in popular-demand may cause one to miss greater opportunities that arise from creative, diverse, and even risky decisions.
Almost as you were writing your post, Clayton Christensen was giving the Benjamin Cluff lecture at the BYU Hinckley Center! "Theories of Disruption in Education". There he also spoke about why it is so hard to sustain success in a company. Only this time he spoke about "david" type companies who take on the lower end (think margins) business that no one really wants and eventually overcome the "goliath" companies because of continually improving their process/technology, while the goliath's gladly let them take that part (less profitable) portion of their market. It happens repeatedly with the 'low end' of the market, until "david" totally takes out "goliath". He also talked about how having a core technology that can grow and improve is central to staying successful. Even when it can NOT (in the beginning) replace the current technology, it begins as a low-cost substitute in limited ways, then it is hybridized with current technology (as a backup), then improves until it completely replaces the 'old' technology. Historical example: steamships, Current example: electric cars. Lots more "good stuff" too -- with application for education and online learning. You would have liked it!
ReplyDeleteAs a consumer, I almost prefer the cannibal-type cycle. It gives little guys opportunity to grow when they have great ideas. Christensen mentioned that Apple was a company that thus far has managed to avoid this cycle because of their innovations. Apple has gotten a bit too big for my tastes (maybe I'm just not a fanboy...) and I'd be happy to see a "David" beat out that Goliath in the mobile computer market.
ReplyDeleteCompanies forgot that products become deprecated after some time and that they need to drop them once it happens. Far too often, companies keep trying to squeeze out a few more pennies from their out-of-date products or worse - patent troll.
ReplyDeleteFrom a business and shareholder perspective, having your company be cannibalized by the upcoming markets is terrible. However, I kind of like the idea of new companies constantly replacing older companies. Its like a recycling and rebirth of corporations.
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