Why are tech companies falling like flies?

“Things move quickly in technology, which is why technology companies are fascinating to strategists the way fruit flies are for biologists — you can see an entire life cycle in a very short span of time.”

RITA McGRATH, blogs.hbr.org (5 June 2011)

Columbia professor Rita McGrath points out that technology companies are these days proving very valuable to business academics – because they come and go like fruit flies! Like biologists, strategy students are now able to study an entire company life cycle in just a few years, as opposed to watching a steady decline that takes decades.

And quite startling it is. Upstarts like Palm, Research in Motion, MySpace and Flip – who arrived on the scene just the other day, are in various stages of demise. Meanwhile, long-standing tech giants like Nokia and Microsoft are also desperately scrabbling around for a strategy.

What’s really going on here?

The main thing to note is that the nature of competitive advantage is changing dramatically. What makes you successful rarely keeps you successful. Consider some examples.

Palm became famous a few years back because it was the first phone-cum-personal organizer – managing contacts and calendars in synch with your computer. But so what? Others like the iPhone and various Android devices soon did that better – and did more besides.

Flip provided the first pocket-sized video camera that combined portability with decent video quality and affordability. But so what? Smartphone cameras soon provided built-in high definition video – and went further. The iPhone provided the ability to upload content directly from the device, and film editing – things the Flip never did. The Flip, you may have noticed, is no more.

RIM’s BlackBerry was the first push email device, which was a real ‘wow’ for the corporate world. While it lasted, that is. Push e-mail is now a commodity feature – everyone can do it, even cheap devices. Once its key selling proposition is not so unique, the BlackBerry looks rather lame, with its outmoded phone design, clumsy internet capability, and limited applications universe. Its share price is down 50% this year.

Spot the trend? The big thing that gives you your early success is often the cause of your demise. Dr McGrath explains it thus: “The core business, which is…generating wads of cash, is run by powerful people (if they weren’t powerful, they wouldn’t be running the core business!). To them, changing strategy to pick up new customer sets, new routes to market, new core features all look threatening. Unless someone in the company has the foresight to yank resources out of that previous business and nurture the next one, the core basically squeezes all the oxygen out of the new businesses.”

In other words, powerful forces inside successful companies can kill off new innovations and fresh thinking – but they can’t do the same with competitors. So Apple stole a march on all phone incumbents with its breakthrough touchscreen technology and ‘apps’ ecosystem. But Apple, too, cannot afford to sit back; Android phones have caught up fast, and have a price advantage. And out there lurks, no doubt, someone with the next big thing…

The lesson for business leaders is to never let complacency breed in these testing times. In certain markets, you may have no more than 2-3 years of enjoying the fruits of your competitive advantage. You have to have the nerve and gumption, amidst the success of the present, to relentlessly pursue the future. That requires a lot of leadership foresight, the type that most companies just don’t have.

That’s why we will continue to see tech companies falling like flies. If your industry is also characterized by rapid technological change, unpredictable competition and fickle customers, then you too are in danger. There is a company waiting to disrupt you – and it’s better if that company is you.

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