Wednesday, November 25, 2015

Why Good Companies Fail Where Small Companies Can Succeed.

Throughout the Why Good Companies Fail to Thrive in Fast Moving Industries article I noticed a reoccurring theme. On multiple occasions Clayton Christenson mentions the difficulty large established companies have when trying to focus on small, low-margin, emerging markets. He argues that misalignment of resources, lack of market size, lack of data and trends, misalignment of capabilities and requirements, and fast pace growth of technological progress all contribute to the failure of good companies in the face of disruptive technologies. In essence, the aforementioned factors are Christenson’s five principles. Although I think his argument and principles are valid, they only address one side of the coin (at least in the pages that we read.) The other side of the coin, I would argue, is the ability of small companies, startups, and companies to take advantage of the disruptive technologies more efficiently than established companies. I think it is important that we discuss this side of the argument in light of the five principles.
            First and foremost, the dependence on customer and investor resources. Established companies with a reputation of good management have a reputation of pleasing investors and meeting the needs of their customers. This makes it difficult for the companies to focus on new markets and customers, especially when they have to use investor resources. New and emerging companies, however, don’t suffer from this problem. Their entire existence is usually dependent on trying something new or trying to leverage disruptive technologies in hopes of capturing a new and growing customer base. This trend appears over and over again, such as when Uber disrupted the car for hire market. This also holds true for the lack of market size principle.
            For a large established company, developing a new product for a small market is something that usually won’t be very popular among company executives unless they are absolutely positive that the customer base is going to expand. The revenue from the small market usually isn’t enough to persuade the rite people to invest in the new technology or capability. Small companies and start-up’s, however, exist specifically to take advantage of the aforementioned small markets and customer bases. Even if the customer base doesn’t rapidly expand, the size of the market can be enough to sustain the needs of the small company. The company can then expand as the market expands.
            These same ideas hold true for the lack of data and trends, misalignment of capabilities and requirements, and fast pace growth of technology principles. Start-up’s and small companies can mitigate the risks of all these issues, however we will not go into detail discussing them here due to length constraints. The basic idea is that Christenson’s argument is only half the coin. The reason the companies he mentions fail is because where the big companies have short fallings smaller companies have the ability to take advantage of the disruptive technologies. To truly understand how to solve these issues the managers of large companies have to consider both sides of the argument. They have to consider how the smaller competitors who don’t have as much to loose can undermine their strategies.

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