by Adam Hartung | Oct 4, 2011 | Current Affairs, Defend & Extend, Film, In the Rapids, Innovation, Leadership, Television, Transparency, Web/Tech
Reed Hastings, the CEO of Netflix, has long been considered a pretty good CEO. In January, 2009 his approval ranking, from Glassdoor, was an astounding 93%. In January, 2010 he was still on the top 25 list, with a 75% approval rating. And it's not surprising, given that he had happy employees, happy customers, and with Netflix's successful trashing of Blockbuster the company's stock had risen dramaticall,y leading to very happy investors.
But that was before Mr. Hastings made a series of changes in July and September. First Netflix raised the price on DVD rentals, and on packages that had DVD rentals and streaming download, by about $$6/month. Not a big increase in dollar terms, but it was a 60% jump, and it caught a lot of media attention (New York Times article). Many customers were seriously upset, and in September Netflix let investors know it had lost about 4% of its streaming subscribers, and possibly as many as 5% of its DVD subscribers (Daily Mail).
No investor wants that kind of customer news from a growth company, and the stock price went into a nosedive. The decline was augmented when the CEO announced Netflix was splitting into 2 companies. Netflix would focus on streaming video, and Quikster would focus on DVDs. Nobody understood the price changes – or why the company split – and investors quickly concluded Netflix was a company out of control and likely to flame out, ruined by its own tactics in competition with Amazon, et.al.
(Source: Yahoo Finance 3 October, 2011)
This has to be about the worst company communication disaster by a market leader in a very, very long time. TVWeek.com said Netflix, and Reed Hastings, exhibited the most self-destructive behavior in 2011 – beyond even the Charlie Sheen fiasco! With everything going its way, why, oh why, did the company raise prices and split? Not even the vaunted New York Times could figure it out.
But let's take a moment to compare Netflix with another company having recent valuation troubles – Kodak.
Kodak invented home photography, leading it to tremendous wealth as amature film sales soared for seveal decades. But last week Kodak announced it was about out of cash, and was reaching into its revolving credit line for some $160million to pay bills. This latest financial machination reinforced to investors that film sales aren't what they used to be, and Kodak is in big trouble – possibly facing bankruptcy. Kodak's stock is down some 80% this year, from $6 to $1 – and quite a decline from the near $80 price it had in the late 1990s.
(Source: Yahoo Finance 10-3-2011)
Why Kodak declined was well described in Forbes. Despite its cash flow and company strengths, Kodak never succeeded beyond its original camera film business. Heck, Kodak invented digital photography, but licensed the technology to others as it rabidly pursued defending film sales. Because Kodak couldn't adapt to the market shift, it now is probably going to fail.
And that is why it is worth revisiting Netflix. Although things were poorly explained, and certainly customers were not handled well, last quarter's events are the right move for investors in the shifting at-home video entertainment business:
- DVD sales are going the direction of CD's and audio cassettes. Meaning down. It is important Netflix reap the maximum value out of its strong DVD position in order to fund growth in new markets. For the market leader to raise prices in low growth markets in order to maximize value is a classic strategic step. Netflix should be lauded for taking action to maximize value, rather than trying to defend and extend a business that will most likely disappear faster than any of us anticipate – especially as smart TVs come along.
- It is in Netflix's best interest to promote customer transition to streaming. Netflix is the current leader in streaming, and the profits are better there. Raising DVD prices helps promote customer shifting to the new technology, and is good for Netflix as long as customers don't change to a competitor.
- Although Netflix is currently the leader in streaming it has serious competition from Hulu, Amazon, Apple and others. It needs to build up its customer base rapidly, before people go to competitors, and it needs to fund its streaming business in order to obtain more content. Not only to negotiate with more movie and TV suppliers, but to keep funding its exclusive content like the new Lillyhammer series (more at GigaOm.com). Content is critical to maintaining leadership, and that requires both customers and cash.
- Netflix cannot afford to muddy up its streaming strategy by trying to defend, and protect, its DVD business. Splitting the two businesses allows leaders of each to undertake strategies to maximize sales and profits. Quikster will be able to fight Wal-Mart and Redbox as hard as possible, and Netflix can focus attention on growing streaming. Again, this is a great strategic move to make sure Netflix transitions from its old DVD business into streaming, and doesn't end up like an accelerated Kodak story.
Historically, companies that don't shift with markets end up in big trouble. AB Dick and Multigraphics owned small offset printing, but were crushed when Xerox brought out xerography. Then, afater inventing desktop publishing at Xerox PARC, Xerox was crushed by the market shift from copiers to desktop printers – a shift Xerox created. Pan Am, now receiving attention due to the much hyped TV series launch, failed when it could not make the shift to deregulation. Digital Equipment could not make the shift to PCs. Kodak missed the shift from film to digital. Most failed companies are the result of management's inability to transition with a market shift. Trying to defend and extend the old marketplace is guaranteed to fail.
Today markets shift incredibly fast. The actions at Netflix were explained poorly, and perhaps taken so fast and early that leadership's intentions were hard for anyone to understand. The resulting market cap decline is an unmitigated disaster, and the CEO should be ashamed of his performance. Yet, the actions taken were necessary – and probably the smartest moves Netflix could take to position itself for long-term success.
Perhaps Netflix will fall further. Short-term price predictions are a suckers game. But for long-term investors, now that the value has cratered, give Netflix strong consideration. It is still the leader in DVD and streaming. It has an enormous customer base, and looks like the exodus has stopped. It is now well organized to compete effectively, and seek maximum future growth and value. With a better PR firm, good advertising and ongoing content enhancements Netflix has the opportunity to pull out of this communication nightmare and produce stellar returns.
by Adam Hartung | Jul 14, 2011 | Investing, Leadership, Trends
When you go after competitors, does it more resemble a gladiator war – or a David vs. Goliath battle? The answer will likely determine your profitability. As a company, and as an investor.
After they achieve some success, most companies fall into a success formula – constantly tyring to improve execution. And if the market is growing quickly, this can work out OK. But eventually, competitors figure out how to copy your formula, and as growth slows many will catch you. Just think about how easily long distance companies caught the monopolist AT&T after deregulation. Or how quickly many competitors have been able to match Dell’s supply chain costs in PCs. Or how quickly dollar retailers – and even chains like Target – have been able to match the low prices at Wal-Mart.
These competitors end up in a gladiator war. They swing their price cuts, extended terms and other promotional weapons, leaving each other very bloody as they battle for sales and market share. Often, one or more competitors end up dead – like the old AT&T. Or Compaq. Or Circuit City. These gladiator wars are not a good thing for investors, because resources are chewed up in all the fighting, leaving no gains for higher dividends – nor any stock price appreciation. Like we’ve seen at Wal-Mart and Dell.
The old story of David and Goliath gives us a different approach. Instead of going “toe-to-toe” in battle, David came at the fight from a different direction – adopting his sling to throw stones while he remained safely out of Goliath’s reach. After enough peppering, he wore down the giant and eventually popped him in the head.
And that’s how much smarter people compete.
- When everyone was keen on retail stores to rent DVDs, Netflix avoided the gladiator war with Blockbuster by using mail delivery.
- While United, American, Continental, Delta, etc. fought each other toe-to-toe for customers in the hub-and-spoke airline wars (none making any money by the way) Southwest ferried people cheaply between smaller airports on direct flights. Southwest has made more money than all the “major” airlines combined.
- While Hertz, Avis, National, Thrifty, etc. spent billions competing for rental car customers at airports Enterprise went into the local communities with small offices, and now has twice their revenues and much higher profitability.
- When internet popularity started growing in the 1990s Netscape traded axe hits wtih Microsoft and was destroyed. Another browser pioneer, Spyglass, transitioned from PCs to avoid Microsoft, and started making browsers for mobile phones, TVs and other devices creating billions for investors.
- While GM, Ford and Chrysler were in a grinding battle for auto customers, spending billions on new models and sales programs, Honda brought to market small motorcycles and very practical, reliable small cars. Honda is now very profitable in several major markets, while the old gladiators struggle to survive.
As an investor, we should avoid buying stocks of companies, and management teams that allow themselves to be drug into gladiator wars. No matter what promises they make to succeed, their success is uncertain, and will be costly to obtain. What’s worse, they could win the gladiator war only to find themselves facing David – after they are exhausted and resources are spent!
- Research in Motion became embroiled in battles with traditional cell phone manufacturers like Nokia and Ericdson, and now is late to the smartphone app market – and with dwindling resources.
- Motorola fought the gladiator war trying to keep Razr phones competitive, only to completely miss its early lead in smartphones. Now it has limited resources to develop its Android smart phone line.
- Is it smart for Google to take on a gladiator war in social media against Facebook, when it doesn’t seem to have any special tool for the battle? What will this cost, while it simultaneously fights Apple in Android wars and Microsoft for Chrome sales?
On the other hand, it’s smart to invest in companies that enter growth markets, but have a new approach to drive customer conversion. For example, Zip Car rents autos by the hour for urban users. Most cars are very high mileage, which appeals to customers, but they also are pretty inexpensive to buy. Their approach doesn’t take-on the traditional car rental company, but is growing quite handily.
This same logic applies to internal company investments as well. Far too often the corporate reource allocation process is designed to fight a gladiator war. Constantly spending to do more of the same. Projects become over-funded to fight battles considered “necessity,” while new projects are unfunded despite having the opportunity for much higher rates of return.
In 2000, Apple could have chosen to keep pouring money into the Mac. Instead it radically cut spending, reduced Mac platforms, and started looking for new markets where it could bring in new solutions. IPods, iTunes, IPhones, iPads and iCloud are now driving growth for the company – all new approaches that avoided gladiator battles with old market competitors. Very profitable growth. Apple has enough cash on hand to buy every phone maker, except Samsung – or Apple could buy Dell – if it wanted to. Apple’s market cap is worth more than Microsoft and Intel combined.
If you want to make more money, it’s best to avoid gladiator wars. They are great spectator events – but terrible places to be a participant. Instead, set your organization to find new ways of competing, and invest where you are doing what competitors are not. That will earn the greatest rate of return.
by Adam Hartung | Jan 10, 2011 | Defend & Extend, Disruptions, Innovation, Leadership, Web/Tech
Summary:
- Communication is now global, instantaneous and free
- As a result people, and businesses, now adopt innovation more quickly than ever
- Competitors adapt much quicker, and react much stronger than ever in history
- Profits are squeezed by competitors rapidly adopting innovations
- But many business leaders avoid disruptions, leading to slower growth and declining returns
- To maintain, and grow, revenues and profits you must be willing to implement disruptions in order to stay ahead of fast moving competitors
- Amidst fast shifting markets, greatest value (P/E multiple and market cap) is given to those companies that create disruptions (like Facebook, Groupon, Twitter)
All business leaders know the pace of competitive change has increased.
It took decades for everyone to obtain an old-fashioned land line telephone. Decades for everyone to buy a TV. And likewise, decades for color TV adoption. Microwave ovens took more than a decade. Thirty years ago the words “long distance” implied a very big cost, even if it was a call from just a single interchange away (not even an area code away – just a different set of “prefix” numbers.) People actually wrote letters, and waited days for responses! Social change, and technology adoption, took a lot longer – and was considered expensive.
Now we assume communications at no cost with colleagues, peers, even competitors not only across town state, or nation, but across the globe! Communication – whether email, or texting, or old fashioned voice calls – has become free and immediate. (Consider Skype if you want free phone calls [including video no less] and use a PC at your local library or school building if you don’t own one.) Factoring inflation, it is possible to provide every member of a family of 5 with instant phone, email and text communication real-time, wirelessly, 24×7, globally for less than my parents paid for a single land-line, local-exchange only (no long distance) phone 50 years ago! And these mobile devices can send pictures!
As a result, competitors know more about each other a whole lot faster, and take action much more quickly, than ever in history. Facebook, for example, is now connecting hundreds of millions of people with billions of communications every day. According to statistics published on Facebook.com, every 20 minutes the Facebook website produces:
- 1,000,000 shared links
- 1,323,000 tagged photos
- 1,484,000 event invitations
- 1,587,000 Wall posts
- 1,851,000 Status updates
- 1,972,000 Friend requests accepted
- 2,716,000 photos uploaded
- 4,632,000 messages
- 10,208,000 comments
Multiply those numbers by 3 to get hourly. By 72 to get daily. Big numbers! Alexander Graham Bell had to invent the hardware and string thousands of miles of cable to help people communicate with his disruption. His early “software” were thousands of “operators” connecting calls through central switchboards. Mark Zuckerberg and friends only had to create a web site using existing infrastructure and existing tools to create theirs. Rapidly adopting, and using, existing innovations allowed Facebook’s founders to create a disruptive innovation of their own! Disruption has allowed Facebook to thrive!
Facebook has disrupted the way we communicate, learn, buy and sell. “Word of mouth” referrals are now possible from friends – and total strangers. Product benefits and problems are known instantaneously. Networks of people arguably have more influence that TV networks! Many employees are likely to make more facebook communications in a day than have conversations with co-workers! Facebook (or twitter) is rapidly becoming the new “water cooler.” Only it is global and has inputs from anyone. Yet only a fraction of businesses have any plans for using Facebook – internally or to be more competitive!
Far too many business leaders are unwilling to accept, adopt, invest in or implement disruptions.
InnovateOnPurpose.com highlights why in “Why Innovation Makes Executives Uncomfortable:”
- Innovation is part art, and not all science. Many execs would like to think they can run a business like engineering a bridge. They ignore the fact that businesses implement in society, and innovation is where we use the social sciences to help us gain insight into the future. Success requires more than just extending the past – because market shifts happen. If you can’t move beyond engineering principles you can’t lead or manage effectively in a fast-changing world where the rules are not fixed.
- Innovation requires qualitative insights not just quantitative statistics. Somewhere in the last 50 years the finance pros, and a lot of expensive strategy consultants, led business leaders to believe that if they simply did enough number crunching they could eliminate all risk and plan a guaranteed great future. Despite hundreds of math PhDs, that approach did not work out so well for derivative investors – and killed Lehman Brothers (and would have killed AIG insurance had the government not bailed it out.) Math is a great science, and numbers are cool, but they are insufficient for success when the premises keep changing.
- Innovation requires hunches, not facts. Well, let’s say more than a hunch. Innovation requires we do more scenario planning about the future, rather than just pouring over historical numbers and expecting projections to come true. We don’t need crystal balls to recognize there will be change, and to develop scenario plans that help us prepare for change. Innovation helps us succeed in a dynamic world, and implementation requires a willingness to understand that change is inevitable, and opportunistic.
- Innovation requires risks, not certainties. Unfortunately, there are NO certainties in business. Even the status quo plan is filled with risk. It’s not that innovation is risky, but rather that planning systems (ERP systems, CRM systems, all systems) are heavily biased toward doing more of the same – not something new! Markets can shift incredibly fast, and make any success formula obsolete. But most executives would rather fail doing the same thing faster, working harder, doing what used to work, than implement changes targeted at future market needs. Leaders perceive following the old strategy is less risky, when in reality it’s loaded with risk too! Too many businesses have failed at the hands of low-risk, certainty seeking leadership unable to shift with changing markets (GM, Chrysler, Circuit City, Fannie Mae, Brach’s, Sun Microsystems, Quest, the old AT&T, Lucent, AOL, Silicon Graphics, Yahoo, to name a few.)
Markets are shifting all around us. Faster than imaginable just 2 decades ago. Leaders, strategists and planners that enter 2011 hoping they can win by doing more, better, faster, cheaper will have a very tough time. That is the world of execution, and modern communication makes execution incredibly easy to copy, incredibly fast. Even Wal-Mart, ostensibly one of the best execution-oriented companies of all time, has struggled to grow revenue and profit for a decade. Today, companies that thrive embrace disruption. They are willing to disrupt within their organizations to create new ideas, and they are willing to take disruptive opportunities to market. Compare Apple to Dell, or Netflix to Blockbuster.
Recent investments have valued Facebook at $50B, Groupon at $6B and Twitter at almost $4B. Apple is now the second most valuable company (measured by market capitalization). Why? Because they are disrupting the way we do things. To thrive (perhaps survive by 2015) requires moving beyond the status quo, overcoming the perceived risk of innovation (and change) and taking the actions necessary to provide customers what they want in the future! Any company can thrive if it embraces the disruptions around it, and uses them to create a few disruptions of its own.
by Adam Hartung | Nov 29, 2010 | Current Affairs, Disruptions, In the Rapids, Innovation, Leadership, Lifecycle, Openness, Television, Web/Tech
Summary:
- Most leaders optimize their core business
- This does not prepare the business for market shifts
- Motorola was a leader with Razr, but was killed when competitors matched their features and the market shifted to smart phones
- Netflix's leader is moving Netflix to capture the next big market (video downloads)
- Reed Hastings is doing a great job, and should be emulated
- Netflix is a great growth story, and a stock worth adding to your portfolio
"Reed Hastings: Leader of the Pack" is how Fortune magazine headlined its article making the Netflix CEO its BusinessPerson of the Year for 2010. At least part of Fortune's exuberance is tied to Netflix's dramatic valuation increase, up 200% in just the last year. Not bad for a stock called a "worthless piece of crap" in 2005 by a Wedbush Securities stock analyst. At the time, popular wisdom was that Blockbuster, WalMart and Amazon would drive Netflix into obscurity. One of these is now gone (Blockbuster) the other stalled (WalMart revenues unmoved in 2010) and the other well into digital delivery of books for its proprietary Kindle eReader.
But is this an honor, or a curse? It was 2004 when Ed Zander was given the same notice as the head of Motorola. After launching the Razr he was lauded as Motorola's stock jumped in price. But it didn't take long for the bloom to fall off that rose. Razr profits went negative as prices were cut to drive share increases, and a lack of new products drove Motorola into competitive obscurity. A joint venture with Apple to create Rokr gave Motorola no new sales, but opened Apple's eyes to the future of smartphone technology and paved the way for iPhone. Mr. Zander soon ran out of Chicago and back to Silicon Valley, unemployed, with his tale between his legs.
Netflix is a far different story from Motorola, and although its valuation is high looks like a company you should have in your portfolio.
Ed Zander simply took Motorola further out the cell phone curve that Motorola had once pioneered. He brought out the next version of something that had long been "core" to Motorola. It was easy for competitors to match the "features and functions" of Razr, and led to a price war. Mr. Zander failed because he did not recognize that launching smartphones would change the game, and while it would cannibalize existing cell phone sales it would pave the way for a much more profitable, and longer term greater growth, marketplace.
Looking at classic "S Curve" theory, Mr. Zander and Motorola kept pushing the wave of cell phones, but growth was plateauing as the technology was doing less to bring in new users (in the developed world):
Meanwhile, Research in Motion (RIM) was pioneering a new market for smartphones, which was growing at a faster clip. Apple, and later Google (with Android) added fuel to that market, causing it to explode. The "old" market for cell phones fell into a price war as the growth, and profits, moved to the newer technology and product sets:
The Motorola story is remarkably common. Companies develop leaders who understand one market, and have the skills to continue optimizing and exploiting that market. But these leaders rarely understand, prepare for and implement change created by a market shift. Inability to see these changes brought down Silicon Graphics and Sun Microsystems in 2010, and are pressuring Microsoft today as users are rapidly moving from laptops to mobile devices and cloud computing. It explains how Sony lost the top spot in music, which it dominated as a CD recording company and consumer electronics giant with Walkman, to Apple when the market moved people from physical CDs to MP3 files and Apple's iPod.
Which brings us back to what makes Netflix a great company, and Mr. Hastings a remarkable leader. Netflix pioneered the "ship to your home" DVD rental business. This helped eliminate the need for brick-and-mortar stores (along with other market trends such as the very inexpensive "Red Box" video kiosk and low-cost purchase options from the web.) Market shifts doomed Blockbuster, which remained locked-in to its traditional retail model, made obsolete by competitors that were cheaper and easier with which to do business.
But Netflix did not remain fixated on competing for DVD rentals and sales – on "protecting its core" business. Looking into the future, the organization could see that digital movie rentals are destined to be dramatically greater than physical DVDs. Although Hulu was a small competitor, and YouTube could be scoffed at as a Gen Y plaything, Netflix studied these "fringe" competitors and developed a superb solution that was the best of all worlds. Without abandoning its traditional business, Netflix calmly moved forward with its digital download business — which is cheaper than the traditional business and will not only cannibalize historical sales but make the traditional business completely obsolete!
Although text books talk about "jumping the curve" from one product line to another, it rarely happens. Devotion to the core business, and managing the processes which once led to success, keeps few companies from making the move. When it happens, like when IBM moved from mainframes to services, or Apple's more recent shift from Mac-centric to iPod/iPhone/iPad, we are fascinated. Or Google's move from search/ad placement company to software supplier. While any company can do it, few do. So it's no wonder that MediaPost.com headlines the Netflix transition story "Netflix Streams Its Way to Success."
Is Netflix worth its premium? Was Apple worth its premium earlier this decade? Was Google worth its premium during the first 3 years after its Initial Public Offering? Most investors fear the high valuations, and shy away. Reality is that when a company pioneers a growth business, the value is far higher than analysts estimate. Today, many traditionalists would say to stay with Comcast and set-top TV box makers like TiVo. But Comcast is trying to buy NBC in order to move beyond its shrinking subscriber base, and "TiVo Widens Loss, Misses Street" is the Reuters' headline. Both are clearly fighting the problems of "technology A" (above.)
What we've long accepted as the traditional modes of delivering entertainment are well into the plateau, while Netflix is taking the lead with "technology B." Buying into the traditionalists story is, well, like buying General Motors. Hard to see any growth there, only an ongoing, slow demise.
On the other hand, we know that increasingly young people are abandoning traditional programing for 100% entertainment selection by download. Modern televisions are computer monitors, capable of immediately viewing downloaded movies from a tablet or USB drive – and soon a built-in wifi connection. The growth of movie (and other video) watching is going to keep exploding – just as the volume of videos on YouTube has exploded. But it will be via new distribution. And nobody today appears close to having the future scenarios, delivery capability and solutions of Netflix. 24×7 Wall Street says Netflix will be one of "The Next 7 American Monopolies." The last time somebody used that kind of language was talking about Microsoft in the 1980s! So, what do you think that makes Netflix worth in 2012, or 2015?
Netflix is a great story. And likely a great investment as it takes on the market leadership for entertainment distribution. But the bigger story is how this could be applied to your company. Don't fear revenue cannibalization, or market shift. Instead, learn from, and behave like, Mr. Hastings. Develop scenarios of the future to which you can lead your company. Study fringe competitors for ways to offer new solutions. Be proactive about delivering what the market wants, and as the shift leader you can be remarkably well positioned to capture extremely high value.
by Adam Hartung | Sep 22, 2010 | Current Affairs, Defend & Extend, Film, In the Whirlpool, Leadership, Lifecycle, Lock-in, Music, Web/Tech
Summary:
- Video retailer Blockbuster (and competitor Hollywood Video) are now bankrupt
- Video rentals/sales are at an all time high – but via digital downloads not DVDs
- Nokia, once the cell phone industry leader, is in deep trouble and risk of failure
- Yet mobile use (calls, texts, internet access, email) is at an all time high
- These companies are victims of locking-in to old business models, and missing a market shift
- Commitment to defending your old business can cause failure, even when participating in high growth markets, if you don’t anticipate, embrace and participate in market shifts
- Lock-in is deadly. It can cause you to ignore a market shift.
According to YahooNews, “Blockbuster Video to File Chapter 11.” In February, Movie Gallery – the owner of primary in-kind competitor Hollywood Video – filed for bankruptcy. It’s now decided to liquidate.
The cause is market shift. Netflix made it possible to rent DVDs without the cost of a store – as has the kiosk competitor Red Box. But everyone knows that is just a stopgap, because Netflix and Hulu are leading us all toward a future where there is no physical product at all. We’ll download the things we want to watch. The market is shifting from physical items – video cassettes then DVDs – to downloads. And both Blockbuster and Hollywood Video missed the shift.
Blockbuster (or Hollywood) could have gotten into on-line renting, or kiosks, like its competition. It even could have used profits to be an early developer of downloadable movies. Nothing stopped Blockbuster from investing in YouTube. Except it’s commitment to its Success Formula – as a brick-and-mortar retailer that rented or sold physically reproduced entertainment. Lock-in. And for that commitment to its historical Success Formula the investors now will get a great big goose egg – and employees will get to be laid off – and the thousands of landlords will be left in the lurch, unprepared.
As predictable as Blockbuster was, we can be equally sure about the future of former powerhouse Nokia. Details are provided in the BusinessWeek.com article “How Nokia Fell from Grace.” As the cell phone business exploded in the 1990s Nokia was a big winner. Revenues grew fivefold between 1996 and 2001 as people around the globe gobbled up the new devices. Another example of the fact that when you enter a high growth market you don’t have to be good – just in the right market at the right time.
But the cell phone business has become the mobile device business. And Nokia didn’t anticipate, prepare for or participate in the market shift. From market dominance, it has become an also-ran. The article author blames the failure, and decline, on complacent management. Weak explanation. You can be sure the leadership and management at Nokia was doing all it possibly could to Defend & Extend its cell phone business. The problem is that D&E management doesn’t work when customers simply walk away to a new technology. It may take a few years, and government subsidies may extend Nokia’s life even longer, but Nokia has about as much chance of surviving its market shift as Blockbuster did.
When companies stumble management sees the problems. They know results are faltering. But for decades management has been trained to think that the proper response is to “knuckle down, cut costs, defend the current business at all cost.” Yet, there are more movies rented now than ever – and Blockbuster is failing despite enormous market growth. There are more mobile telephony minutes, text messages, remote emails and mobile internet searches than ever in history – yet Nokia is doing remarkably poorly. It’s not a market problem, it’s a problem of Lock-in to a solution that is now outdated. When the old supplier didn’t give the market what it wanted, the customers went elsewhere. And unwillingness to go with them has left these companies in tatters.
These markets are growing, yet the purveyors of old solutions are failing primarily because they stuck to defending their old business too long. They did not embrace the market shift, and cannibalize historical product sales to enter the new, higher growth markets. Because they chose to protect their “core,” they failed. New victims of Lock-in.
