"Whenever I go into a restaurant, I order both a chicken and an egg to see which comes first"

Tuesday, August 20, 2013

The Demise Of Blackberry– Or How To Survive In A Competitive Market

Just a few years ago Blackberry was the go-to device for Type A, multi-tasking managers.  On K Street where information and access are everything, it was the first thing that lobbyists checked in the morning, and the last thing at night.  Hill staffers were on it all day, aligning powerbrokers, updating Congressmen, answering the Pentagon and uppity Deputy Assistant Secretaries. The new Washington IT youngsters were linking, hooking up, keeping hot and on top.  The Blackberry was indispensable. It was the computer gone mobile.  It was phone, email, quick text-and-respond, all in one. It was perfect.

Then came the I-Phone, and Blackberry’s troubles began.  At first executives dismissed the Apple upstart and considered it a toy, nothing serious. Real people would never trade in their easy-to-use keyboard for the bells and whistles of the I-Phone.  Word information was the currency of Washington, New York and Los Angeles power corridors.  Who needed apps and photos?

Joe Nocera writing in the New York Times (8.20.13) notes that not only did Blackberry wildly underestimate the I-Phone’s appeal, but dug in their heels.

“BlackBerry had a huge installed base, and they were afraid to walk away from it,” said Carolina Milanesi, a research vice president with the Gartner Group. This is a problem that often plagues dominant companies. They are so concerned with playing defense — protecting what they have built — that they stand paralyzed as new competitors arise with business models they can’t, or won’t, replicate.

Nocera cites an earlier example of head-in-the-sand management.  The Wang word processor was the first home computing device on the market and grew by leaps and bounds.  Everyone had to have one. 

But then I.B.M. created its first personal computer, and that was the beginning of the end for Wang. He and his company stubbornly clung to the notion that the main thing people wanted from their computers was word processing; even after the company realized its error…it always seemed to be a step behind. By 1992, Wang Laboratories was bankrupt, done in by competitors that understood that people wanted their computers to be more than glorified typewriters.

Perhaps the best example of short-sightedness was General Motors which defiantly resisted any attempts to retool to meet the challenge of new, smaller, and more efficient Japanese imports.  The company was making huge profits on its big cars, and felt that the status-seeking Americans who had always bought Cadillacs would continue to do so ad perpetuum.  American big business always ran on the short-term profit model – i.e. satisfy stockholders and reward executives based on share value. CEOs and top management left for more lucrative positions before their get-rich-quick approach began to erode profits, and GM motored on towards bankruptcy.

Companies come and go, but the ones which stay prize flexibility, adaptability, and innovation:

One company that was able to identify a way to succeed amid hardship was Milliken & Company… The company diversified beyond its original niche and its senior leadership invested heavily in scientific research… To foster a culture that promotes and supports innovation, leaders let employees use a percentage of their time to pursue their own projects, with successful innovators given a greater amount of free time, and also brought in external experts to spark inspiration.

Deutsche Telekom, once simply a landline provider with a conservative business philosophy, recognized that the world of communications was changing for consumers. By investing in developing technology, focusing on consumers’ changing behaviors and bringing in fresh, new leadership… Deutsche Telekom reinvented itself as an integrated telecommunications leader with a full suite of solutions for today’s digital age (Birkel, Kelly, Welch of Spencer Stuart, March 2013)

Nokia was a pulp manufacturer before it got into electricity and then mobile phones; at some point its brand name was even used on galoshes. Or take Berkshire Hathaway, which began as a textile mill in Rhode Island. (Kim Gittleson, BBC News, 1.10.12)

One of the most radical and successful turnarounds in recent history has been IBM.  The company, Big Blue, was a pioneer in computing, and the large-frame, room-sized computing devices of the 50s revolutionized data management. For years it maintained its primacy in the world of computing, and was one of the first manufactures of PCs; but was unprepared for the onslaught of the competition.   While IBM still served the sophisticated world of super-high tech computing (orbits, weather, complex problems), its PC line soon was outgunned by newcomers like Dell and Gateway which provided equal speed and quality but added consumer orientation and build-your-own products.

However, rather than retool and compete in the new highly aggressive PC market, IBM divested itself of its small PC production operation (Lenovo is now making the high-quality ThinkPad); and began to shift to ‘Software Solutions’ and became a communications consultant company.  Soon they were the Mackenzie of communications. Management realized that few people knew how to take advantage of the almost limitless computing power of new generation devices, and the cry for help was loud and clear.  

Innovation and adaptability are not the only ways to survive.  Some companies, like Target, thrive because they have asked and answered the question, “Why are we here?”; that is, they have tried to understand the inherent purpose or marketing mission of the company.  At Target, the answer was ‘The Customer”.

“The guest is at the center of every conversation, from what happens if you’re standing in line to check out to the starting point for every strategic conversation we’re having in marketing or merchandising or IT,” said Jeff Jones, CMO of Target. Target’s guest-centric culture enables it to both react to and anticipate the evolving demands of its customers — undoubtedly some of the most important changes the retailer faces. (Birkel et al)

In other words, Target has not had to totally remake itself, diversify, or start new lines to meet the competition.  It does not have to undergo such radical changes that faced Wang, Blackberry, or Milliken. It only needs to keep up with consumer demand and to stock its shelves with the most sought-after products at the lowest prices. Eventually online buying may challenge Target and other big box discounters, but for now the formula of consumer-centered service, product diversity, and low price is unbeatable.

Whatever companies do, longevity is against them:

Of the 74 or so companies that have stayed in the S&P 500 for more than 40 years, only a dozen or so have managed to beat the average, according to a study by consultancy McKinsey.

In fact, if the S&P 500 were made up of only the companies that were part of the index in 1957, overall performance would have been some 20% worse. (Gittleson)

There are of course exceptions. Remington, Crane (paper products), Citicorp, The Hartford (insurance), Brooks Bros., and Colgate have been in business since the 1800s; and CIGNA since the late 1700s. Banks and insurance companies have been the most dynamic and the corporations of today are completely different institutions; but they have retained a corporate vision and identity and have quickly adapted to changing consumer demand.

BlackBerry (new spelling, same company) is mounting a comeback, and has introduced a smartphone.  Only time will tell whether the intensely competitive market will respond.  It seems unlikely with the prevailing market shares of Apple and Samsung.

However Twinkies came, dominated, crashed, and is coming back, so you never know.

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