Monday, June 11, 2012

Customer Connectivity & Innovation Lost: The Stories of Cisco & Facebook

The article "Capitalizing on Capabilities," leaders are encouraged to focus on maximum three out of eleven core organizational capabilities that have potential to rise above the average to reach world-class standards. For some companies, selecting core capabilities on which to focus comes easily but how to actually nurture and leverage these intangible assets is not so evident. In fact, maintaining a competitive advantage based on a core organizational capability that one has become accustomed to relying on may be even harder than developing a new capabilities. Two examples may help to illustrate this point.

Enter Cisco. After a decade of pricey acquisitions and tapering stock prices (from $27.07 at end of 2000 to $16.73 at closing on June 8, 2012), Cisco has found itself in an unpleasant position: lacking in innovation and disconnected from its customer base. Ironically, these two organizational capabilities used to be what the technology company was known for by users and feared and envied for by rivals. How did Cisco lose its most important organizational capabilities? According to some, the dependence on inorganic growth via acquisitions stunted the company's own internal innovation capabilities. Similarly a lack of internal focus and investment under leadership "obsessed with the product supply chain" allowed the company to lose touch with its customers (Mourdoukoutas).

Now enter Facebook. The recent and already notorious IPO of this company has exposed its weakened organizational capabilities, which are very similar to those of Cisco. Facebook has been touted a social, political and economic force due to its innovative model and obsessive connectivity with users (or, should I say, users' obsessive connectivity with Facebook). However, the disappointing results of the IPO may demonstrate that Facebook's organizational capabilities of innovation and customer connectivity were perhaps taken for granted and neglected. In a recent discussion with a professor (who will remain unnamed) it was concluded that Facebook is run by smart people, but it ultimately "screwed itself" by neglecting to capitalize on the IPO opportunity for further business concept innovation and customer connectedness. What if Facebook were a mutually-owned company, with its users as core shareholders (McNulty)? What if Facebook had integrated this unique opportunity into its user framework, making the stock management system an exciting and educational part of a user/shareholder's connected experience? What if users/shareholders could opt to receive dividends in Facebook credit? The opportunities are pretty much endless for what could have been done had leadership not been so shortsighted. Unfortunately, "as it is, Facebook [now] faces the quandary of how to both exploit and 'respect' its users" (McNulty).

What do these sad stories teach us?
"Breakthrough innovation isn’t a commodity that can be purchased in the market, but an organizational capability that must be nurtured inside corporate boundaries" (Mourdoukoutas).
 "The customer is the center of the economic universe, the beginning and ending of every economic activity, the ultimate boss of every capitalist enterprise. Breakthrough innovations begin with the customer and continue with the development of the right products to address the needs and desires of the customer; and end end when the product fulfills these needs and desires" (Mourdoukoutas).
 Sometimes the things that a company is good at are the easiest capabilities to lose.



Sources:

Ulrich, David & Smallwood, Norm. "Capitalizing on Capabilities" Harvard Business Review. June 2004.
Cisco Systems Historic Price Lookup
Mourdoukoutas, Panos "Two Strategy Lessons for Cisco Systems" Forbes Magazine. September 13, 2011.
McNulty, Bill. "Facebook Should be a Mutual Company." IRAMarket.com. May 24, 2012. 

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