By Mike Cook
For the Bellingham Business Journal
Why do once successful companies fail? This is a question that continues to plague management analysts with no reliable answers in sight, even when some of those very companies think they’ve found an answer.
In 1999 then-CEO of Intel, Andy Grove, published what has become considered by many to be a management classic. His book “Only the Paranoid Survive: How to Exploit the Crisis Points that Challenge Every Company” described what Grove dubbed “strategic Inflection points.” These “points” are convergences of circumstances that literally change the direction of history. In his book Grove was addressing the manner in which his company leadership was able to rise above the fray that threatened to occur when a flaw was discovered in one of its offerings as it struggled to manage the technology bridge that appeared during the transition from memory chips to microprocessors.
Since the early 1990s, Microsoft operating systems and Intel hardware dominated much of the personal computer market. Microsoft gained its dominance when its leadership, namely Bill Gates, much to the chagrin of IBM leadership, recognized that the software operating system of a computer was more valuable than the hardware. Intel’s dominance began when in an earlier time they recognized that memory chips would replace memory discs (known as floppy discs) and went all in on becoming a leading manufacturer of chips and never looked back.
In the early 1990’s there were other companies facing their own “strategic inflection points.” At the time I lived in Rochester, New York, home of both Eastman Kodak and Xerox Corporation. As a consultant I had assignments inside both companies and watched while each company struggled with their challenges. The points faced in each case were in fact quite different in nature. Kodak, as early as 1975, had in effect invented digital photography. No doubt the company at the time recognized the advantages of digital over chemically based photography. They also no doubt saw the advent of digital photography as the end of their silver halide based film manufacturing business, along with its prodigious profits and the requirements for thousands of employees in acres and acres of manufacturing facilities. Their response; they in fact hid the new technology as did Fuji when it made a similar discovery some ten years later. And we know how the story turned out, eventually the digital technology came to light and one of the world’s most recognized brands became a shadow of its former self in less than fifteen years.
By contrast, Xerox’s challenge was less technological than it was simple hubris. By the early 1990’s advancements in software and other technologies made it possible for users of print services to think about localizing document reproduction capabilities, making the enormous centralized reproduction (copy room) “print shop in a box” machines that were the Xerox stock and trade no longer necessary. Xerox chose to ignore this new capability and convinced itself that their customer base looked to them for guidance in document services capabilities and would continue to respond to the bigger and badder “print shop in a box” offerings. This miscalculation allowed competition, particularly Hewlett-Packard, to swoop in to a void of localized printing offerings and capture the low end, simple feature, distributed printer market share that Xerox chose to ignore.
Fortunately for Xerox, they recognized their error in judgment in time to see that much of what they had been packaging in big boxes, particularly software, could become their own form on distributed print offering and they shifted to become a document management solutions company in time to preserve a future for themselves.
But back to Intel. Last week the company announced that it would be laying off 12,000 workers, 11 percent of their workforce. A Vox article explains how the company that identified and survived at least two major “strategic inflection points”, missed another one about twelve years ago and is paying the price now. It seems that Intel, around 2005-2006 passed on the opportunity to provide the processor for the iPhone, believing at the time that Apple was unlikely to sell enough of them to recover the development costs! Yup, they really thought that, and twelve years later they are paying for the misjudgment. It seems anybody’s crystal ball can get cloudy, recall Microsoft’s neglect of the internet.
So, if companies likeand yes even Apple has had its turn in the barrel when it missed on the need to offer compatibility, can make errors in judgment that threaten their futures what chances do mere mortals like the rest of us have?
Thankfully, few of our businesses are so dramatically affected by outside forces. However, that does not excuse us from being ever vigilant, wary that there is something out there that is seeking our share of the market, and we can’t recognize it. Sleep tight!