How do excellent big companies go to failure?

Throughout business history, it is not uncommon for leading big companies in the industry to be killed by emerging small companies. Kodak and Nokia, which we are most familiar with, used to be industry giants. However, the new technology came, did not transform in time, and finally turned from prosperity to decline, which is embarrassing.

What makes these companies stop in the face of new technologies? Bureaucracy in big companies? Or is it improper management planning and insufficient resources? Even just bad luck? Someone found out the problems of these companies as the reason for their decline.

However, clayton christensen, the author of The Innovator's Dilemma, doesn't think so. He specializes in those companies that are well managed, determined to improve their competitiveness, listen carefully to customers' opinions and actively invest in new technology research and development, but still lose their dominant position in the market, trying to find out the root cause of their failure. It stands to reason that these companies are rich in resources, and their attitudes towards new technologies are not conservative, and their performance should be steadily improving for a long time. But this is not the case. Leading enterprises have failed in all walks of life, and there must be hidden reasons.

For this reason, Christensen chose the hard disk industry with rapid technological changes and market changes at that time, in order to get as much information as possible and find the answer in a relatively short time.

Looking back at the technological changes in the hard disk industry, it can be divided into two categories. One is the continuous technological change, which continues the improvement of product performance (usually total capacity and magnetic recording density) in the hard disk industry. For this kind of technology, industry leaders are often in a leading position; The other is destructive technological change, which will generally destroy or redefine the performance improvement model and often lead to the failure of industry leaders.

For the hard disk industry, the innovation of disk and head technology is a continuous technological change. From the ferrite head in the 1970s to the thin film head in the 1980s, and then to the magnetoresistive head in the 1990s, the magnetic recording density of hard disks has gradually increased (improving the performance of the same head technology), and it has also improved by leaps and bounds (replacing the old head technology with new head technology). In addition, the 14 inch winchester hard disk replaced the commonly used removable disk pack design in the late 1970s, and the technological innovations such as embedded servo system were similar to those of magnetic head, which were the continuation or enhancement of product performance to better meet the needs of customers.

For these technological innovations, mature enterprises have always been in a leading position in research and development and commercial operation. Take thin film disk technology as an example. The pioneers of using this technology are big companies such as IBM and digital equipment company. On average, it took them more than eight years.

More than ten thousand dollars. In contrast, almost all emerging enterprises adopt the following strategy, and even companies like Maituo, which flaunt their achievements, believe that it is best to use conventional ferrite heads before adopting thin film technology.

Although these technologies only improve the performance of hard disks along the established track, the research and development costs and risks are not small at all, and only mature enterprises with leading industries can afford long-term resource investment. We can also see that mature enterprises are not complacent, and their investment in innovative technologies should not be underestimated.

So, where did the big companies lose? It depends on the destructive technological changes in the hard disk industry. The most typical is the structural innovation to reduce the size of hard disk: from 14 inch to 8 inch, 5.25 inch, 3.5 inch, 2.5 inch, and finally to 1.8 inch.

Why is this disruptive innovation? The key point is that this innovation is not a simple performance improvement (many even worse than mainstream products), but a huge change in product structure. Usually, disruptive innovation does not involve particularly complicated technological changes, but it will make the product structure simpler. This innovative new product is difficult to satisfy customers in the mainstream market, but it often opens up a new market.

In the mid-1970s, 14-inch hard disk became popular, mainly aimed at large computer manufacturers. The average annual growth rate of 14-inch hard disk capacity reached 22%, even entering higher-end markets, such as supercomputer market. At the same time, from 1978 to 1980, several emerging enterprises (such as Quantum Company) have developed small-capacity 8-inch hard disks, which are too small to meet the needs of large computer manufacturers, and many large companies disdain it. But 8-inch hard drives have found a new market: microcomputers. Compared with capacity, microcomputer manufacturers (such as Wang An Company and Hewlett-Packard Company) pay more attention to small size, so 8-inch hard disks are on fire in this market. What's more, through continuous innovation, the capacity of 8-inch hard drives can be increased by more than 40% every year. Coupled with other technical advantages, in the mid-1980s, it began to nibble at the large computer market and eventually replaced the 14 inch hard disk. In the early years, 2/3 of the mature enterprises that relied on 14-inch hard drives never launched 8-inch hard drives, and the rest also lagged behind emerging enterprises. In the end, 14 inch hard disk manufacturers were all eliminated from the hard disk industry.

There is nothing new under the sun, and the same story is staged again and again. Smaller and smaller hard disks have opened up one market after another: desktop computers, portable computers, notebook computers and portable heart monitoring devices ...... At the same time, the company's old and new alternation continues. For example, Seagate, which first introduced the 5.25-inch hard disk, became a laggard as soon as the 3.5-inch hard disk appeared.

Why are these outstanding big companies defeated by emerging small companies in the face of destructive technological changes? This is about the concept of value network.

The value network, in short, is a big environment for enterprises to determine customer needs. In the value network, each enterprise's choice of market determines its understanding of the economic value of new technologies, and ultimately determines the technologies it will develop and ignore.

Each value network will rank different product performance attributes according to their importance. In the value network where large computers are located, the performance of hard disks is measured by capacity, speed and reliability. In the value network of portable computers, durability, low energy consumption and small size become the most important. The value network in which the enterprise is located will make the enterprise form a specific organizational structure and culture, which is beneficial to the steady development of the enterprise, but it also quietly sows the seeds of failure.

Different value networks also have different cost structures. Hard disks sold to large computer manufacturers often have a high gross profit margin (50%-60%), while the demand for hard disks in the portable computer market is greater, and only 15% to 20% gross profit margin is enough. In contrast, it is difficult for mature enterprises in the early stage to invest enough resources in products with low gross profit margin. What's more, large companies that are good at listening to customers' needs are usually subject to customers in the corresponding value network, and it is difficult to get out of their own value network. In short, the strength of mature enterprises in continuous innovation and the weakness in destructive innovation, as well as the opposite performance of emerging enterprises, are not caused by the differences in technology or organizational ability between mature enterprises and emerging enterprises. The real reason is that they are in different value networks in the industry.

Interestingly, disruptive innovation is often developed by mature enterprises first, because it is not difficult. But in the subsequent decision-making, especially after considering the feedback from customers in the market, the company will not give too many resources to destructive innovative products, and many possibilities will be obliterated. It was not until emerging enterprises competed with mature enterprises by these new technologies that big companies suddenly realized.

In addition to the hard disk industry, Christensen also studied the excavator industry and the steel industry, and found similar phenomena and reached similar conclusions. It can be seen that the two frameworks of technological change and value network are universal in explaining such problems. The reasons for the failure of excellent big companies are really related to their own "Excellence". They attach great importance to customer needs and eventually bind themselves.