Five Deadly Sins of Incumbency

“The weakest of all weak things is a virtue that has not been tested in the fire.”  – Mark Twain

In The Innovator’s Dilemma, Clayton Christensen seminal work on how market leaders lose their way, we are exposed to how winning business strategies, over time, fail, unless company leaders can engage in some form of creative destruction, Schumpeter-style.  Indeed, in my last blog, I shared where BMW fell down on several counts and mortally wounded our decade-old relationship. While there are clear and valuable equities to product and service relationships which must endure — value, quality, relationship, performance, etc.– they are increasingly tested at a rapid clip in the hyper-connected economy.

At the end of the day, companies and products are composed of people. And people fail.  What makes people successful frequently does not keep us there – it is what makes us susceptible to the weakness of incumbency.  No relationship prospers when one party takes it for granted.  Or as Woody Allen said in Annie Hall: “…  a relationship, I think, is like a shark, you know? It has to constantly move forward or it dies. And I think what we got on our hands is a dead shark.”

So if you are manager of a winning product or service, how do you survive the Innovator’s Dilemma?  The first step, I believe, is to be constantly vigilant of the “five deadly sins of incumbency.”

Sin 1: Manifest Destiny.  This is the market leaders’ sense of entitlement.   Frequently this shows up when a company believes it’s their birthright to maintain disproportionate market share even though they have not innovated or created value in years. Until recently, the U.S. automobile manufacturers belief their customers would simply buy what they sold.  Perhaps this is true if your customers 1. Needed a pick up truck or 2. Had an AARP card. The Big Three: ignored fuel efficiency during the 1970s oil embargoes (score one for team Japan), product quality in the 1980s and 1990s (score two for team Japan), great driving experience in 1990s through 2000s (score – team Germany),and all that plus flat to declining prices in the past 10 years (score team Korea).

Sin 2:  (Lack of) Selfish Inspection.   A good friend of mine once attributed his company’s long-standing success to 3 simple words: “we suck less.”  The discipline to look at your market, products and people with a cold eye is the ABSOLUTE responsibility of management, which is rarely practiced with any rigor (especially when one lives in the world of manifest destiny). Management almost never looks at the metrics and market trends that should make them squirm, tending toward the temporal observations and gauges that allow for preservation or acceleration of the status quo.  Imagine a dictator’s management meeting during the recent Arab Spring: “Oil revenues and foreign aid in place, check; army in place and well paid, check; radicals rounded up, check; cheap food distributed by government, check.  Hopes and aspirations of our people met, huh?  Let’s move on.”  Ask IBM about what 1970s and 1980s management thought of the PC? What did the PC manufacturers think about the iPad 5 years ago?  Who at the PC divisions of Lenovo, Acer, Dell, HP, Sony, etc., lost a bonus the year the iPad was introduced?

Sin 3: Soft Collaboration (vs. Hard Direction) The growing trend in management theory is ubiquitous collaboration (disclaimer: I have spent years pushing collaboration technology). Incumbents with multiple strong businesses are constantly at risk of lacking the will to subjugate one division’s business model in act of disruptive creation.  Sony’s inability to create something like an iPod — even though they owned the electronics, radio and film assets, and consumer distribution to be a natural leader — stemmed from a senior executive lapse in 1. seeing how to bring the world of Napster, Diamond Multimedia and the Internet were changing how music consumption (selfish inspection), and 2. lack of executive will to force different divisions to work together.

Sin 4:  Weak Envy & Tentative Assault.  Even when strong companies can recognize and organize for business model change, frequently they hold back in execution, either because of uncertainty or channel conflict concerns.  After 8 years tip-toeing through the tulips of the music downloading business, the world’s largest retailer Wal-Mart exited the MP3 music business.  Although I don’t shop at Wal-Mart, about a hundred million people around the world easily prove me wrong.  So it’s likely they could have made a run in the music business if they activated their base.  If you are going to take on Apple, Amazon and the other heavyweights, be ready to rumble. Never forget the famous words of Junior Soprano to Tony early in season one when they are in the middle of a power struggle.  “Next time you come to see me, come heavy, or not at all.”

Sin 5: Misguided Overreach.  Companies and countries fail when they reach into territories where they either don’t belong or are not willing to commit their resources to win in the long-term.   HP’s recent dalliance with Palm stands out as a great example.  HP knows they need to move into the post-PC era, but did they: a. pick the right way to do it? and b. retreat at the beginning of the battle?  Contrast this with their arch nemesis Oracle which has proven the model of rapid expansion through acquisition, integration and scale, and ruthless execution, making them the alpha gorilla of enterprise software.  Many of my neighbors are former PeopleSofties who gave way to the Oracle siege engines over time.  Ambition is not a crime.  Smart ambition and ruthless focus/execution is the issue.

Your customer relationships and brand are the moats competitors need to cross in any competitive market.  However, make sure someone has not moved the castle.  In today’s economy, all advantages are perishable, time-allocated assets.  You don’t want the 5 sins of incumbency transposing you from the secure position inside the castle to the exile on the road out-of-town.

“Achilles is in your alleyway
He don’t want me here
He does brag
He’s pointing to the sky
And he’s hungry, like a man in drag
How come you get someone like him to be your guard ?”

– Bob Dylan, Temporary Like Achilles

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