Fast Company

Avoiding Corporate Death Spirals in a Sea of Change

The March 17, 2010, Wall Street Journal article titled Blockbuster Considers Bankruptcy Filing comes as no surprise to me or many other business executives in the world:

Blockbuster Inc. again warned it may have to file for bankruptcy protection as the movie-rental company remains unprofitable. In its annual report filed Tuesday, Blockbuster said its declining sales and cash flow, coupled with increasingly competitive industry conditions, "raise substantial doubt about our ability to continue as a going concern."

Blockbuster’s strategy is dated and holds limited market appeal today. Why would I want to drive to a store to rent a movie so I can drive back to the store to return a movie if I don’t have to? How could they ignore Netflix? How could they ignore video-on-demand? How can a company like Blockbuster pretend that the world around them wasn’t changing?

Blockbuster isn’t the only company in recent memory to get caught flat-footed.

Silicon Graphics (SGI) went from darling of the tech industry and Hollywood to a dog in just a few short years. Sun Microsystems lost its way as well. Why? The technology marketplace didn’t want proprietary, one-off, incredibly expensive workstations when they can get nearly equivalent technology on non-proprietary PCs. How could they have not heard corporate IT folks saying this? The market changed and they did not.

Digital Equipment Corporation built its success in the 80’s and 90’s around its proprietary VMS operating system and a wide range of computing platforms. Where are they today (besides being owned by HP)?  History! DEC’s role is in supporting legacy applications that haven’t yet been migrated to new platforms. Digital never saw it coming. Of course, I have first-hand knowledge that they didn’t’ look very hard.

Palm was once a darling in the industry known first for PDA’s (personal digital assistants) and later for smart phones. Where are they today? Sadly, Palm is in a death spiral. As of this date, they are experiencing weak demand for the approximately one million smart phones they have in inventory. The CEO of the company offered some “explanations” for the maladies they are experiencing and indicated that if market and technology forces had not been what they are, they “could have been a contender.” Sorry, but when you are a technology company, you can’t ignore market and technology forces.

What does the smart phone marketplace want? Apple iPhones and smart phones based on the Android operating system. What did Palm do? Offer a one-off, proprietary operating system with a tiny subset of applications available when contrasted with Apple and the Android operating systems. While one could argue that the number of applications available doesn’t matter, to the marketplace it does. It tells the marketplace where application developers think the market share battle will be won. Customers and potential customers are in tune with this.

Palm was once a leader; now they are just about out of business. Can they save this? It looks to be nearly impossible. Palm adamantly argues they have the superior operating system for smart phones. Unless the world agrees, Palm may have root-caused their problem—being different from the rest of the marketplace. Being the “best” does not automatically translate into market demand as Palm is clearly seeing.

What is Palm willing to do to respond to this market issue? Would Palm be willing to create a smart phone based on the Android platform? That would seem to be their best opportunity for Palm to have a sustainable business. Yet, to put their proprietary OS on the back-burner would hurt to the Palm’s ego. A damaged ego might be better for investors than an unsustainable business.

I’ve been a Palm PDA customer since the early ‘90s (Handspring was acquired by Palm) and use a Palm PDA to this day. Deep down inside, I really want to see Palm succeed.

Palm should have asked itself, “What does the marketplace crave and want from us?” Instead, it asked, “What can we create that will raise our stature above all others in the marketplace?” The marketplace isn’t getting it. Palm bet the farm. It was a big bet.

While keeping your head down focused on your core business is critically important, leaders have to raise their heads up to see how the world is changing to ensure the continued marketplace viability for the owners, employees and customers. Here’s an example.

Barnes & Noble and Border’s have stumbled in recent years. I attribute these stumbles to the Amazon.com effect. Barnes & Noble just this past week announced elevating the head of their web-based and digital book business to the position of CEO. Barnes & Noble is taking action (albeit later than I would have liked) to respond to marketplace changes. Thankfully, Barnes & Noble is not sitting still like a deer in the headlights. Amazon is the clear leader; Barnes & Noble is reacting to the market forces Amazon has created and dominates in. Can Barnes & Noble catch up? They must give customers a reason to prefer their solution and offerings over Amazon, no easy task.

Leaders either have to figure out how to help their companies lead in a constantly evolving market or run the risk of becoming a victim of that market change. Cisco Systems is excellent at managing what CEO John Chambers calls “market transitions,” the transition from the current market state to the next market state. John Chambers knows that you miss a market transition at your own peril.

Companies that thrive lead and dominate during market transitions. Companies in a death spiral watch market transitions occur before their very eyes and later wonder how they could have missed the transition.

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For over 30 years, Dave Gardner has helped companies discover that the royal road to the ultimate customer relationship is letting customers order “a la carte.”  He assists clients with strategies for “The a la carte customerTM,” and in dramatic improvements in efficiencies and profits. Dave, a management consultant and speaker residing in Silicon Valley, can be reached at +1 888 488-4976 or through his website at http://www.gardnerandassoc.com

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8 Comments

  • Adam Hartung

    So accurate Mr. Gardner. In today's rapidly changing world the ability to manage transitions related to market shifts has become the defining capability of any organization wishing to remain long-lived. A deep description of how any company can do this can be found in "Create Marketplace Disruption" published by Financial Times press and available on Amazon.com. Or read every week how companies can avoid transition failure and perform better at http://www.ThePhoenixPrinciple...

  • David Gardner

    Brian...I suspect there are and/or would be no takers for the new Palm smartphone OS by other companies. Palm isn't Apple--Apple can pretty much do what they want and people clamor to jump on the bandwagon. If you were launching a new smartphone, how would you make a decision about which OS to use? Would you do it based on "the best" OS or the one the marketplace seems most drawn to? If you are a start up, it would be the latter. Palm is expanding their distribution network in the U.S. Perhaps that will help. When I went to a Verizon store recently in Santa Clara to look at current smartphones, the sales person showed me Blackberry and Droid; he didn't even mention Palm. Why was that?

  • David Gardner

    Thanks, Mark. Marketing's role is to create desire. They have not excelled at marketing, no doubt about it.

  • Brian Piercy

    dave,

    palm HAD to see this coming. the effort required to craft a smartphone OS is fantastically complex, and let's face it - the hardware is so commoditized that it's laughable.

    i haven't followed the palm story all that closely. why didn't palm attempt to drive wider adoption by licensing their OS?

  • Linda Popky

    Dave--You're absolutely right. Those of us who remember Sun from the early days were sad to see the company's recent demise, but in truth it was a long time in coming. It's particularly ironic that the company whose first slogan was Open Systems for Open Minds became sidelined because its products were too proprietary.

    One of the problems of market leadership and incumbency is a false sense of security--the feeling that you know what customers want, both now and in the future. Sometimes that's true, but more often than not there's something new coming around the bend. The question is how to balance the need to support your existing customers with the ability to stay a few steps ahead of the market on an ongoing basis.

    Linda

  • David Gardner

    Thanks, Danny. It's sad to be within a company in a death spiral. Most of us in Silicon Valley in my generation have experienced this if we are in high tech. You and your team know you're in a vortex and just can't pull out of it--it's like being in cement shoes. You can't ever become "the deer in the headlights." You've got to act decisively and, preferably, proactively. I hope this article helps you and your colleagues.

  • Danny Wong

    it's pretty amazing how all companies aren't so sensitive to the changes and then become resistant the the big waves that change their industries.

    it's important to stay up-to-date and relevant to your users. otherwise you do fall into the Death Spirals.

    Great article!