How did Microsoft manage to acquire a relatively hip and happening company like Danger and turn it into a complete flop of a product launch with the Kin? To oversimplify: by having all the money the world. When your development decisions affect your ability to meet payroll quite directly, you see them in a very different light than when they affect nothing more than perhaps your next annual review or your status in the latest internecine company struggle. The economic discipline of the marketplace is lost for those afflicted with cash cow disease. A CEO can embark on a cellphone project for little better reason than that some obnoxious guy in a black turtleneck is doing well with his own cellphone.
Burk argues that sustained large profits from one or two products (Microsoft’s Office software sales, for example) cushion companies from market realities with other products, and breed waste and their eventual failure as a company. The company is no longer disciplined and so when economic rents from their main product eventually disappear, the company fails, too.
That’s right, but Burk errs in two ways. First, Burk’s implied solution is for these companies to focus on their “core competencies,” by which he seems to mean what kind of products made them successful in the first place. Second, while lack of discipline is certainly an issue, I don’t think it’s the only one. It’s the lack of strategic insight that do in these companies.
While the problem he highlights is real, always sticking to what you’ve always done isn’t the solution. Sticking to personal computer operating systems and software, even if they’re providing real innovation, isn’t a solution, but it is a good way of fading into irrelevance. Businesses inevitably follow a pattern—strong, accelerating growth, then declining growth until finally it levels out and goes into decline. A company’s job is to find a way to prevent this from happening, and sticking to a declining product isn’t a good way to do it. Example: sticking to horse-drawn carriages while cars are making gains isn’t such a good idea.
If a company recognizes its true core competencies, however (integrating software and hardware for complete devices, say, rather than just building computers), they can move into different areas where their skills apply. Apple didn’t stick to what would be their core competency according to Burk’s formulation, building computers; instead, they took a huge risk and built a consumer device and music store. The iPod and iTunes are tangentially related to computers under Burk’s argument, but directly take advantage of Apple’s real core competencies. Companies must move into tangent fields to continue growing.
So, what Microsoft and Google are doing, and Burk objects to so much, isn’t inherently objectionable. They need to develop new kinds of businesses. And, moreover, their central problem isn’t just a lack of market discipline.
Rather, it’s a lack of strategy. Microsoft’s Kin was a terrible idea because it had no reason for existing. There isn’t a large consumer segment that is looking for a paired-down smartphone with a hyperactive-UI focused on social media, and it isn’t positioned to take advantage of a significant change in the market. Moreover, the Kin didn’t complement Microsoft’s overall business, either. There was no strategic reasoning behind the Kin. It was just a shot in the dark.
And that is the central problem behind what most companies do: there is no strategy. Whereas Microsoft with the Kin, at best, sees some potential opportunity and throws assets at it, Apple finds strategic opportunities that leverage their skills and puts their concerted effort into it. The iPod and iTunes were brilliant moves because the MP3 player market was just developing and had incredible growth potential, and a great online music purchasing experience was something that needed to happen. Moreover, these both took advantage of their core competencies (building integrated hardware and software), and complemented their existing business, the Macintosh. The iPod and iTunes made the Mac better, and the Mac made them better, too. That’s strategy.
Then, once Apple recognized this opportunity, they didn’t just start a half-hearted project and hope that it worked. Instead, they put the entire company into it. They acted like the company was dependent on its success. That’s what good companies do. They recognize precisely what they need to do next and put their entire effort into doing it.