I’ve been reading Michael Raynor’s Strategy Paradox where he addresses the fact that so many good strategies fail. He points out that the DNA between good strategy and bad strategy is often impossible to tell apart. Raynor is coauthor of Innovators Solution with Clayton Christensen. I highly recommend both books.
The reader’s digest version goes something like this: Erik the Red get’s banished from Norway after killing some people. He convinces a bunch of other Vikings to move with him, builds a flourishing European society in Greenland (after getting kicked out of Iceland for killing people). Then everyone dies. The End
So what went wrong? According to Diamond they couldn’t adjust to the glacial (literally) pace of the larger weather patterns.
They were able to create a society mirroring their own European customs. They built a thriving trade business with both Europe and Canada, and lived off of farming and their livestock. Oddly they never took up hunting and fishing.
As the century long weather patterns began to change and the summers got shorter, they had less time to grow their food and the hay to feed their cattle during the winter months. They began to rely more heavily on trade, which worked for a while, but as their civilization expanded they cut down more and more of the already scarce timber.
As the sailing season got shorter, life became rougher. With a shortage of timber it became more difficult to repair the boats. Begin vicious cycle. Longer winters, increased dependence on trade, harsher sailing, more needed timber, less timber available because of growth and clear cutting, etc etc.
So what does this have to do with business? Diamond claims the reason the Vikings never changed their behavior was because the change happened so slowly. Raynor relates this to business strategy. He uses several great examples but I thought of Ford and Chevy. As Toyota encroaches on their business, first small cars, then midsized sedans, what do the American car companies do? They consolidate around Trucks. Well now where do they go? They have a tough battle as Toyota takes more of that market.
What about my favorite punching bag: The Main Stream Media? How long has their business model been dependant on advertising? Decades? Centuries? Around the turn of the century they got a taste of what was coming, but it didn’t have enough of an impact to warrant a drastic change (that Internets thing was just a fad). Now they’re scrambling.
For all the hype about the Internet moving so incredibly quickly and destroying business models, the businesses that it’s affecting the most are the oldest and slowest business models: the ones that have had a long time to change and have chosen not to adjust early on.
Raynor’s solution has to do with senior managements ability to analyze ongoing trends and take small steps towards investing in new business opprtunities. It sounds similar to my innovation mantra: Fail Cheap, Fail Often.
The earlier you are able to analyze a new opportunity, typically the cheaper it s to make small commitments. If the opportunity turns out to be one not worth pursuing, it is easy to get out. If you wait until something is a viable opportunity to make an investment, it will typically be much more expensive.