Wednesday, April 19, 2017

Why Good Companies Fail to Thrive - Do the Same Reasons Still Apply?

In the introduction to his book Why Good Companies Fail to Thrive in Fast-Moving Industries, Clayton M. Christensen lays out five principles detailing why large, well-run companies can struggle even as their respective industries grow. While Christensen offers strong, well-reasoned arguments to support his points, some of these seemed rather dated, particularly as they relate to the startup world and the rapidity of scalability in 2017. Christensen's article is a decade old at this point, having been written in 2006, and the evolution of then-small tech firms into giants,  has profoundly changed the landscape when it comes to innovation and growth.

In 2017, leading innovators like Apple, Alphabet (Google), and Amazon are all in the Fortune 100; Uber would be there as well if it was a publicly traded company. In 2006, Uber didn't exist, there was still a question of whether Google and Amazon would ever make any money, and Apple was ranked 159 (currently ranked third). Today, we see these companies - large companies - as leading innovators, and they have all been exceptionally successful at developing new technologies in-house, taking risks to develop those new technologies, and using innovation to solve internal growth needs. According to Christensen, this flies in the face of how large companies - which these companies undoubtedly are at this point - should be operating.

This is where there is something of a new paradigm with certain large companies, particularly in technology: these are all companies that have innovation in their DNA. Christensen writes, "organizations have capabilities that exist independently of the people who work within them." For the technology companies discussed above, innovation is one of their core abilities. Within this, however, they do function the way Christensen prescribes large companies to do, at least to a degree. Uber's Pittsburgh Advanced Technologies Group is a great example of this, as its express purpose is autonomous vehicle research, thus allowing it to break out from the mainstream of the company (note that this by no means guarantees that Uber's adventure into autonomous vehicles will be successful).

Christensen states that large companies do not engage with emerging markets because those markets cannot be analyzed. This is where we see the DNA of today's large technology companies - those that have emerged or dramatically evolved over the last decade - comes into play. In 2006, we were still hailing taxis on the side of the street, or, in smaller markets, calling them. A click wheel device that stored 1,000 songs was still at the cutting edge of innovation. If you wanted to take a vacation, you were almost definitely staying in a hotel. Amazon was a company that sold books.

Today, you can go on Amazon to order the iPhone that will allow you to schedule an Uber to take your to the airport where you will fly to your destination to stay in an Airbnb (projected to be a Fortune 100 company by 2020). The technological landscape has changed, and it stands to reason that the rules of the game have changed along with it. It makes perfect sense that these companies that innovated their own markets out of thin air will stay in the innovation game, and attempt to lead it. None of this is to say that Christensen's paradigm is without merit today - it's not - but instead that it perhaps needs to be updated to reflect the ways in which the innovation marketplace has changed since it was written.

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.