Well here are a few more interesting examples.
Do you remember Nokia? This Finnish powerhouse used to control 40 percent of the GLOBAL cell phone market. They did design a pretty awesome smart phone product 10 years before Apple introduced their first iPhone, but never brought it to market. The consequence is they lost a full half of their market share, and in the last 18 months, their stock price plummeted by 70 percent! They have had to lay off 10,000 employees. (This is an amazing one from me in that the Nokia story was one of the first strategy cases I used when I first started teaching in 2001. That case was about an innovative company with vision and an awesome company culture.)
Lesson: You have to be willing to cannibalize existing product revenues with new products. Often we won’t do it because we fear the short-term adverse consequence of declining sales. Yet launching the new line may in fact give you precisely the jump-start you need.
Many people don’t know Canadian tech darling Research in Motion (RIM), but we all know what they make – The Blackberry. This is another phone product that dominated the business smart phone market for several years. According to Washington Post tech writer Steven Pearlston’s article In tech world, good to great to – gone?, he reports that Blackberry sales have dropped by 40 percent, mountains of profits have turned to losses, and the stock trades at only 5 percent of the value it did back in 2008. Pundits are speculating whether the company can survive.
How quickly things can change.
Lesson: The company grew beyond the competency level of their executives (at least that’s what some analysts say). Whatever the root cause, they failed to break out of making incremental improvements to their wildly successful product, missing instead the chance for a game changing breakthrough innovation. We often look at our world with too narrow a focus, and miss evolutions at the periphery.
I used to enjoy shopping there with my sons as we eagerly sought out the latest new tech gadgets available. Best Buy always had a great selection, knowledgeable sales staff and unparalleled tech support through their Geek Squad. Their success allowed them to pummel rivals like Sears and Circuit City, and like Wal-Mart, they helped drive many small appliance and computer stores out of business. They seemed unstoppable. Today, what made them great seems to be causing their decline. Shoppers realized they could visit Best Buy to see and touch their product of choice, and then buy it from their favorite on-line retailer who does not have to pay for the overhead connected with conventional brick and mortar retailing. (Seems like another replay of the Blockbuster Video, and Borders Books stories). Best Buy’s new CEO is now closing and downsizing stores.
Lesson: We don’t stop to consider how vulnerable we are. Once competitors understand your business model, it becomes easier for them to imagine how to beat you. We instead keep focusing on what we are already good at, since it seems to be working for us. (See also Is it Time to Kill Your Own Company?)
There is a new book out by Circuit City’s creator and first Chairman Alan Wurtzel. It talks about what he learned from his own company’s demise. “The reason these businesses don’t change fast enough is because what they do is still working,” says Wurtzel,
Below is a promotional video announcing the new book Good to Great to Gone.
Here is one of the most potent paragraphs I have seen in a while (from the Peggy Noonan WSJ column – see below). It outlines Steve Jobs perspective on why companies decline:
“There is an arresting moment in Walter Isaacson’s biography of Steve Jobs in which Jobs speaks at length about his philosophy of business. He’s at the end of his life and is summing things up. His mission, he says, was plain: to “build an enduring company where people were motivated to make great products.” Then he turned to the rise and fall of various businesses. He has a theory about “why decline happens” at great companies: “The company does a great job, innovates and becomes a monopoly or close to it in some field, and then the quality of the product becomes less important. The company starts valuing the great salesman, because they’re the ones who can move the needle on revenues.” So salesmen are put in charge, and product engineers and designers feel demoted: Their efforts are no longer at the white-hot center of the company’s daily life. They “turn off.” IBM and Xerox, Jobs said, faltered in precisely this way. The salesmen who led the companies were smart and eloquent, but “they didn’t know anything about the product.” In the end this can doom a great company, because what consumers want is good products.”
Add the financial people to this mix, and you have a sure-fire formula for failure.
I am a big fan of the work by Jim Collins, who helped us understand what propelled some companies to make the leap from being good to becoming truly great. Perhaps Wurtzel is onto a new growth business opportunity — writing the sequels to focus on how they sometimes can lose it.
Why RIM’s Failure Could be Your Failure Too, at Forbes.com
The Only Two Types of Enterprise That Really Matter, on The Elastic Enterprise: The Strategic Innovator
Peggy Noonan On Steve Jobs And Why Big Companies Die, from Forbes.com