It’s hard for the incumbent to move to new, faster model.

Google chairman Schmidt opined like this about Microsoft in an interview with salesforce.com CEO Benioff. I thought that was so true. I could think of several such examples – salesforce.com itself is a good example of leveraging this advantage against “not so nimble” giants that occupied the CRM market. Google with the internet, facebook with social network, makemytrip/monster over traditional facilitators are all few case-in-points.

I had read many cases during my MBA about how IBM which stood the test of PC still lost some ground to newer players who leveraged offshoring like Infosys; How GM, Ford lost ground to Honda, Toyota; The point is that as companies age, they develop processes that fit the existing model. The people selection and development and other systems also comply with the incumbent business model. These processes become the huge ship that can’t turn quickly when they spot the iceberg (assuming they do spot it!). With time, when a new need emerges, a new entrant leverages a new model to effectively satisfy the new need. The incumbent then is unable to swiftly change their model to stay relevant. The people, processes and systems not only create friction to change but also groupthink makes company happy with status-quo. I have to note here the concept called “Theory of Business” – the idea is to stay relevant to the market i.e. to spot the iceberg. But that does not address how a company stays nimble with its people, processes and systems.

But then is it really true? Does a company become less agile as it ages? I wondered. Well, tell Steve Jobs that “It’s hard for the incumbent to move to new, faster model.” Following responses are possible: Smirk, Slap or rolling on the floor laughing out loud. :) From an existing company he kept giving new products that, as someone put it in TechCrunch, were not just hits after hits but were home-runs after home-runs. First the iPod that took good care of the “incumbent” Sony. You could argue that iPod and iPhone are in fact the case stated by Schmidt. Just that it’s an existing company that entered a new market. But take PC market. First with Mac, Apple defined the edge of computing, usability and even form factor with iMac. With iPad they are defining the next evolution of personal computer. After I come back from work when I hop onto fb, twitter, linkedin, google reader, youtube and my internet reading list why would I switch on my laptop again? To call a desktop a personal computer is so stone-age Microsoft! Let’s think for a moment. Why couldn’t a new entrant come up with a tablet and surprise the PC market incumbents, to name a few – Apple and Microsoft? Not with Apple, because Apple defines the evolution and not the new entrant!

This is what leaders do – they don’t just have market-share, they define the market. Now what does it make Apple so successful in staying nimble even as it ages??? Certainly, it’s a worthy topic for a research paper. Let me speculate on this a little bit and please share your thoughts:

  1. Have being nimble as part of the strategy itself – then your people, process and systems or more comprehensively the 7S of McKinsey will be designed towards nimbleness – huh…It’s so easy to lay down these terms know. That is why MBA is easy but businesses are not!
  2. Keep the radar on – to check if the assumptions of the business (theory of business) are relevant for the current changes in the society, markets, customers, products and technology.
  3. Depending on the industry and the company strategy keep a portion (more for say hi-tech, pharma as against say construction) of the company focused on innovation. Focus on the five tenets of innovation development: read this article I wrote.

Obviously the list is not complete. Let me know what you think your company is doing to stay nimble. Or is it really hard for the incumbent to move to new, faster models?

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