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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Nowadays I am reading a lot of market research reports on technology and business process in various industries as part of my job. As I read these, I am reminded of the book Prof. Laha recommended in statistics course “The Tiger that Isn’t…” (I strongly recommend this book for anyone who is reading reports regularly either for politics, stock trading, general management or even just general newspaper reading).

The general belief that “numbers don’t lie” was shattered as we read that book and discussed in class. It gave my already suspicious mind another reason why business reports and newspaper columns need to be taken with a pinch of salt!!! The causes vary from simple negligence to manipulation. More than anything the book helped me on how to read/critically analyze below statements:

  1. Two drinks daily increases risk of breast cancer by 12% on women!
  2. 1 in 4 brit teens steal!!
  3. Students of single-sex schools fare better; so single-sex schools are better for girls!!!

Averages are merely average:  Example is Indian per capita… do you decide whether you want to live in India based on Indian per capita? Then why choose MBA programs based on averages!!! I remember vaguely reading of white rainbow: Remember the average of all seven colors in a rainbow is white – which doesn’t even exist in a rainbow.

Sampling issues: A survey is only as good as the sample and the sampling mechanism used.

Detractors in market survey questions: if u wanted to get a skewed opinion to one of ur choices you can easily clone other choices to increases chances of favorite.  Same as candidate to split votes of opponents in elections;

Clustering: Whenever there is a cluster our mind likes to demand reason. Accept that clusters can happen randomly too (a quality batsman goes out of form) or it is bcoz of extra attention: recent trends – IPL bids, policy issues in managing airways; honor killings. All these damning things existed all these years! Read again when you just read “Honor killings on the increase!”

The point of this article is not to dismiss numbers or reports. Ask questions and get closer to the numbers. For example, on the above statements, ask 12% of what? What is the baseline risk? What is the absolute risk? What was the sample? What are you measuring? Is the correlation right? Or just ask what do you mean?

Ref: The tiger that isn’t. By Michael Blastland and Andrew Dilnot; creator and presenter in BBC Radio

As the excitement of learning new theories catches on, I feel the strongest challenge an MBA student faces is to remain defiant. Let me explain more. Within the first term at IIMA, I got emphatic answers for the question: “Why MBA?” Firstly, one learns concepts. For example I learnt quickly that higher fixed costs are risky for startups and one can convert fixed cost to variable cost through outsourcing; while evaluating options for investment, financing or any managerial decisions the best choice is to evaluate using ‘relevant’ cost of each option; Efficient ways exist to manage cash conversion cycle; Hero Honda and HUL have mastered negative working capital! Second, one learns the science aspect of management – how to use statistical models to derive meaningful insights from historical data, how to use decision models etc. Third, one gets the broad understanding of business. For example one is taught to use frameworks like ‘five forces’, ‘SWOT’, ‘five-Cs’, ‘four-Ps’, plethora of two-by-two matrices to understand a firm and its environment and then focus on solving a problem again using a plethora of tools.

But one must be vary of being dictated by theory. First reason, among the reasons for why one should be defiant, is that defiance is the only way for continuous improvement. I ‘wowed’ an article I read ( and thanks to Prof. Saral Mukherjee who delivered the punch message in his usual flamboyant style of delivery). Japanese were clearly the leaders in Quality with people like Taguchi spearheading implementation of classical quality concepts. In this context let’s look at this: When EOQ was the norm, Toyota went for smaller lot-sizes and JIT! Decoupling stocks made problems more visible at upstream (blocking) and downstream (starvation). Thus quality was under the scanner all the time. This helped in achieving higher quality and lower inventory costs. The point is: if one were to just go by classical theory one will never improve. Thus, remember, what is taught is not sacrosanct – question and hence improve to create cutting edge concepts/frameworks/tools.

I intend to write this as a series – that’s why the title says MBA traps -1!