Why large companies failed?
Today, technology is changing the way companies do business but most companies are not adopting technology fast enough to meet market demand. That open new opportunities for startups that know how to take advantage of technology and it explains why some startups are so successful. If we look back about 100 years ago when technology such as electricity and telephone began to change the way companies do business, most established companies did not survive because they could not think of another way of doing business than their old ways. For example when airplane was invented, Lord Kelvin who led the Royal Scientific Society in England told his scientists: “The American must either have good imagination, or they are dreaming. As scientist we all know that nothing heavier than air could fly.” When Telephone was invented, managers of Western Union Telegraph Company told their workers: “The so called “Telephone” should not be seriously considered as a means of communication”. That was why among 100 largest companies in the world at that time, all of them were gone, only General Electric still remains today.
The same thing also happened in 1980s with mainframe computer industry when integrated circuits were replacing transistors and allowed people to build smaller computer. Most successful leaders ignored this new technology. When Bill Gates told the local newspapers about his vision of “Putting a personal computer in every home in the U.S.” Ken Olsen, the founder of Digital Equipment Corp. The second largest mainframe computer at that time commented: “There is no reason for any individual to have a computer in his home.” And Thomas Watson, the chairman of IBM, the largest computer company in the world explained: “I think there is a world market for maybe … five computers.” When Apple computer sold two hundred million personal computers, IBM changed their mind. A senior manager alerted: “That crazy young man will eat both our lunch and our dinner soon if we do not do anything.” IBM changed quickly with its Personal Computer (PC) and among 20 largest computer companies at that time, only IBM is still remaining today. When Steve Jobs were hired back to run Apple in 2000, Nathan Myhrvold, Microsoft Chief Technology Officer declared: “Apple is dead, you cannot resurrect the dead.” And not paying any attention to Apple. When iPod, iPhone came out Mr. Myhrvold resigned.
Companies often fail for many reasons: Bureaucracy, arrogance, poor planning, inadequate knowledge and skills. All of them can be traced to management making wrong decisions because they ignore the technology factor. Technology is a very powerful force that can impact many things. There are two types of technology: Sustaining technology is the improvement of established technologies. Disruptive technology is new technology that can replace established technology and create new business value. Most managers failed because they did not distinguish the difference between these two types.
Companies do business based on the products they build or the services they provide. Their knowledge and skills are related to that type of products or services. To improve business, managers are interested in sustaining technology since it helps them to improve productivity, efficiency and profits. Automobile managers know everything about making cars based on the current technology because they were trained in that technology and succeed in doing that. Their whole thinking is about improving on what they know based on their past performance. They cannot change their mind because it requires learning new things and having new thinking. When electric car concept was invented in 1960s, most car companies ignored it until gas price increases and the demand for electric car begin to take shape. Car manufacturing leaders admits that they do not have the knowledge and skills in this technology and it may take them several decades to change.
Steve Jobs often explained this situation by a story of Zen: “A university scholar came to see a Zen master to inquire about Zen. The master invited the scholar to have tea. He poured the scholar’s cup full then kept on pouring. The scholar watched the overflow until he no longer could restrain himself: “It is overfull, no more will go in. Why pour tea like that? The Zen master explained: “Like this cup, you are full of your own opinions and speculations when you came. How can I show you Zen unless you first empty your cup?”
The mind of most successful managers is like a glass full of tea. You cannot pour new tea into it as it will spill. To learn new thing, they must empty tea in their glass in order to pour new tea in. The question is how many people are willing to discard their past success in order to learn new thing? How many successful managers are willing to go back to school to learn new technology? How many people understand the value of lifelong learning? That is why today the world market is wide open for new thinking, new ideas, new innovation, and new opportunities for technology startups that could disrupt the market and grow to be a successful enterprise.
Why large companies often failed when new technology emerged? They failed because their thinking, the management practices that have allowed them to become industry leaders, to become successful also makes it very difficult for them to change their minds. They failed because they cannot to understand the new and disruptive technologies that ultimately destroy their companies. An IBM top scientist told his workers: “Our mainframe computer has over several hundred thousand transistors, and occupies a space as big as a large truck. Now you tell me that you can replace all of it with just one integrated circuit, as small as a needle, and computer can be shrinking down to the size of a typewriter. It is impossible.”
When disruptive technology emerges, most large companies ignore it because their leaders and managers have no knowledge of this new thing. Most of them are excellent at understand sustaining technologies that improve their products because they know the market well; they understand their customers’ needs; they invest in things that help their companies to do well. But they cannot understand something new, something beyond their thinking. A top manager of Hewlett Packard told Steve Jobs: “You did not even finish college and you dare to tell us, people with advanced degrees in colleges how to build a computer. Get out of my office and do not come back.”
Disrupting technologies are different from sustaining technologies because they often change the value in the market. They usually come from university research laboratories. They usually understood by young students who are enthusiastic about the new ideas and discoveries. These young people are not afraid of failures since they have nothing to lose. They do not have biases or perception on how thing is done. They may not have experience but they are fearless. They are driven by their own motivation of making a difference and that is why most of them are eager to start their own company and change the world. Today over 80% of successful entrepreneurs are technology people and most of them began their startups when they are still in university.
Sources
- Blogs of Prof. John Vu, Carnegie Mellon University
