Lately I've been fascinated by the characteristics that make a company succeed or fail. I'm not the first, and certainly not the last student of business strategies. As a business school student, I'm forced to read about many traditional business strategies used in the last century. You know what I'm talking about. Product Differentiation, Cost Leadership, Michael Porter's Generic Strategies, Lean Supply Chains...I can go on and on. The books they make us read then go on to give examples of successful companies that implemented, and continue to implement such strategies. Hewlett-Packard, Dell, and Motorola are just some of the companies that most often get mentioned. And every damn time I read these textbooks, I think to myself: "These companies lost. They are caricatures of their former self". Why are we learning this again?
Very few people buy HP computers anymore, and the few that do are probably enterprise customers stuck in a contract. Dell, after years of faltering revenues, struck a leveraged buyout in order to go private. And Motorola, oh the beloved Motorola, the company that supplied the U.S. Military, NASA, competed with AT&T during the cellular revolution, and brought to the world a mobile phone that actually had some semblance of design (remember the RAZR?) was recently sold off to Lenovo for a paltry $2.91 billion. The theme here is that none of these textbook business strategies kept these companies alive when faced with modern competitors.
Which makes me raise the question: are these strategies worth teaching anymore? Yes, they are, but only as a historical record. Business school graduates should know what worked in the past in order for them to avoid repeating the same mistakes in the future.
More importantly though, business schools should embrace new business strategies that work for successful companies today. But before we do anything else, let me try to predict what you might say. You'll counter my idea by saying that these new strategies aren't tried and tested, that they aren't guaranteed to work, that they may be simple, dumb luck. My answer to all of those questions is maybe, but that doesn't mean they shouldn't be taught at universities. If there is one thing I learned about business strategies, it's that they are constantly disrupted by new strategies. The truth is that there is no single, true strategy that will eternally propel a business into success. The times change, the environment changes, the people change, and the strategies change with them. Business strategy isn't like math, it's malleable and constantly adjusts. Therefore, you must be on top of the latest ideas in order to compete successfully.
With that out of the way, let me list out a few modern business strategies that work (note the word work, not worked) today (not yesterday) for successful companies. I will list one influential book (just one, or else this post would quickly turn into a business encyclopedia) that outlines some of these strategies, and then I will give two examples of companies that use them successfully.
The Innovator's Dilemma
This is probably the most popular business book in the modern age because it reads very simply and states exactly what you need to know. It's also laced with examples, which always makes ideas more relatable. There are many strategies presented in it, but here is a tease of my personal favorites (paraphrased in my own words).
- Companies must disrupt and cannibalize themselves. Don't let a competitor get there first.
- The customer is NOT always right. The problem they want fixed, however, is.
- Research and Development will lead to innovation. Innovation keeps you successful.
The Innovator's Dilemma is not a perfect book. No book is. But it's a great reading for business school students since many companies today use similar strategies successfully.
- The iPod was an extremely successful product for Apple. It sold millions of units every quarter, and analysts predicted sales would only go up. What did Apple do? It released an iPhone that cannibalized its iPod sales, which today make up only a small portion of Apple's revenue. That couldn't have been an easy decision, especially since it was so risky, but nonetheless it worked, making Apple one of the most profitable companies in the world. In other words, Apple disrupted its existing, and very successful product, in favor of a product that would be profitable in the future.
- Apple is almost notorious for refusing to budge to customer demands. It's not because Apple is stubborn (although sometimes, it certainly is), but because the company truly believes it knows what the customer wants better than the customer thinks he wants. This keeps their products simple and easy for people to understand.
- There has never been a company that lives and breathes R&D as much as Google. Nearly every product and service Google offers is a test to see if it sticks. You may not realize it, but Google has been testing hundreds of different products throughout the years, discontinuing many, and further improving those that work. Remember Google Buzz? Gone. Discontinued in 2011. Picnik? Shuttered in 2012. May you rest in peace iGoogle (2013). You get my point. Google has been pouring money into the development of new products throughout the years. It's like rollling a die, eventually you'll land on a six and win. But most of the time, expect failure.
The Times Change, And The Education Should Follow
Computer Science students often complain that they are learning programming languages from the 1970's, and would rather learn something modern. The thing about Computer Science is that although the syntax changes, the fundamentals of programming haven't changed at all. Once you learn to think like a programmer, you can learn any other programming language. The same applies to Mathematics. Both subjects remain essentially the same from the time you learned them to the present. Business is nothing like that. Sure, a profit is always a profit, and revenues must always exceed expenses, but the strategy for earning revenues constantly changes. It would be foolish to use old business tactics when new, innovative ones exist, especially considering that traditional tactics are likely to fail. There is very little logic in business strategy. After all, who would think that disrupting your own product is the right business move?