We talk a lot about how companies struggle with change and often talk about rigidity and the crisis of success. Success begets failure and the solution is to become more future focused. But the logical question is: how exactly does success beget failure?
There is a straightforward answer. When a person, company or management team has some success they have figured out something about the market. They have put together all of the business puzzle pieces in a way that fit. Marketing, design, ops, pricing all work.
This solution to the puzzle is based on our understanding of the world, our mental model. And once something works we keep doing it.
This makes sense. The adage is buy low, sell high, repeat; not buy low, sell high, reinvent.
This is also the right thing to do… for a while.
The problem is that the world outside of the company is not static. So that solution to the puzzle is vulnerable to change. The market changes, technology changes, something happens so that the solution no longer works.
This change creates an opportunity for someone else to reconstruct the puzzle and take sales away. The typical response is from the incumbent is to panic and make tweaks, change the color, change the price in short do anything to regain their footing.
Nokia is a great example of this. They dominated the market place. Everybody had a Nokia phone and a Nokia charger. Other phone companies complied to the Nokia charger standard because that was the best way to fit in. The Nokia ringtone was a globally recognized brand signature.
Then smartphones appeared. So Nokia changed colors, dropped price, changed ringtones and eventually succumbed to buy out by Microsoft. In his capitulation speech the CEO shook his head and declared that “they had done nothing wrong”.
This is a typical crisis. The market changes and the response is to dig in, do what you did before but better, stronger and more forcefully. But the market has moved. The CEO was right, they hadn’t done anything wrong, the problem was they hadn’t taken the action to do something right.
Instead of falling into a “do it better” failure the alternative is to create something new. Companies can understand where and how the market is shifting and develop strategies to stay a step ahead. This requires foresight into the new needs of the market, flexibility through innovation and a focus on execution.
Companies must innovate new ideas and then turn these into solutions. Solutions that work take off, solutions that don’t need to be killed off. The company developing these solutions pivots and adjusts to maximize the value of their efforts.
This is what startups naturally do, it is their market function. They reinvent and disrupt.
But incumbent companies have a resource advantage. They can spend money on the next new idea and create the new solution. They just have to overcome the mental models challenge. They have to realize that they need to break their business to reinvent it again.
This requires a change in thinking, it requires a future focus. But for those companies that get it right the opportunities are endless.
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