Wednesday, April 15, 2015

Management best practices are situationally appropriate

I found the excerpt from “Innovators Dilemma, Introduction: Why Good Companies Fail to Thrive in Fast Moving Industries” to be extremely insightful and highly useful.  In fact, I enjoyed reading the excerpt so much that I intend to read the entire book when I have some time (after I graduate from this program J).  The introductory chapter provides an overview of the entire book while explaining the 5 underlying principles that lead well managed companies to fail when confronted with disruptive technologies.  The world we live in is constantly giving rise to new and disruptive technologies so I found the content to be particularly relevant.

Perhaps the most profound insight is captured in principle #1: Companies depend on Customers and Investors for resources.  On the surface this principle appears to be common knowledge.  Every company requires resources to operate and resources can only come from investors or customers.  No big revelation there.  However, the real insight comes in when you consider that this dependency on resources drives well managed business to cater to their largest customers and investors. The author explains that this tendency to pander to the largest customers who are often not well served by disruptive technology initially can lead a company to forego investment in disruptive technology until it is too late.  Because of this insight I will always remain sensitive to the development of disruptive technology with the hopes of envisioning when and how it will become the dominant technology and strategize accordingly.

Another reason why well managed companies don’t tend not to invest in disruptive technology in the beginning is explained by principle #2: Small markets don’t solve the growth needs of large companies.  This is really an issue of proportionality.  While a 10 million business need to increase revenue by 1 million to grow by 10%, a 10 billion business would need to increase revenue by 1 billion to experience the same growth rate.  This reality creates a very large barrier of entry for large companies trying to enter into small, emerging markets created by disruptive technology.  For a large business, I can see where it might be difficult to move into a small, emerging market when your investors are demanding growth on a much larger scale.  Add to that the lack of market data described by principle #3: Markets that don’t exist can’t be analyzed, and the proposition that a disciplined, analysis driven decision-maker would risk a foray into an emerging market in time to enjoy first mover advantages becomes even dimmer.

 The fourth principle: An organizations capabilities defines it disabilities also helped me to understand how a company can be its own enemy when attempting to move into an emerging market.  Through this principle the author proposes that the very attributes of a company which contribute to its success in the established market can hinder it in the emerging market.  At first, I found this to be counterintuitive but upon further thought I realized that to think the opposite is counter intuitive.  The fundamental nature of an emerging market, being formed around a disruptive technology, implies that the players in the market must do things differently from the established competitors.  Given this fact, its makes perfect sense that the old ways of doing things may need to be altered to succeed in the new market.

Lastly, the author describes the fifth principle: Technology supply may not equal market demand.  For me, this was the easiest of the five principles to comprehend.  As a technology architect I understand fully well the tendency to over engineer a given solution.  It is a naturally occurring phenomenon that bust constantly be battled within.  On top of this natural driver from the technical resources within a company you also have, as the author describes, an external driver of competition as well.  In a established market the players are constantly striving to differentiate themselves from their competitors and one great way to do that is with greater and greater functionality. On the surface this may not seem like a bad thing and the customers are receiving better and better products.  However, the problem comes in when this speed of innovation out paces the demands of the customers.  And in some instances, this can create a vacuum at the bottom of the market ripe for the entry of a disruptive technology.
In summary, this article taught me that in order for a company to remain successful in the long term it must learn when to apply the generally accepted best practices of business and when to stray from them.  The author provides 5 principles to help understand why and how successful companies can fail and I hope the rest of the book will teach me how to prevent those failures as well.

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