about business / Avram's Past

Why companies fail to make transitions

Here  is a pretty interesting link to an article on the future of Microsoft.  Frankly, the only thing that surprises me about the prediction that Microsoft will decline into insignificance is that it will take this long.  I have seen this movie before and I will probably see it again.
I have personally watch and participated in  the first two of the major waves of computing which I describe below.
  • The first one was proprietary   vertical  computing represented by mainframe companies like IBM and mini Computer Companies like Digital Equipment.  These companies did everything themselves (hardware and system software and some application software).  Apple is the only contemporary company that resembles this structure.  IBM is still around but mainly a systems integrator.  Digital was acquired by Compaq in 1998.
  • The second one was the age of the personal computer.  It was a horizontal structure where a few companies dominated the various hardware and software layers (Intel had more than 80% of the microprocessor business and close to 100% of the profits while Microsoft had about the same in the OS and dominated some of the application layers with their office products.  At one time both Intel and Microsoft were the most valuable companies in the world. Now Wintel, once the most feared force in computing is no longer relevant.
  • The third one is network computing and is led by Google although we have to deal with Apple a bit later.  In this wave, the value has moved to the network and expanded encroach on the media industries.  Much of the value is created by the consumers themselves.  Advertising plays a key part in the monetization of this wave.
  • The fourth wave will surly come even if I for one can not yet imagine what it is (although I try).  And Google and the other companies riding the crest of the networking world will suffer the same faith as their predecessors.
Apple is amazing in that it has survived the first two waves and is dealing extremely well in the third wave.  I will write more about Apple another time.
So why can companies not make it through these transitions?  It is pretty simple:  They would have to take the lead in destroying their own business.  And if they were successful, they would see a reduction in profits at least at first.  I know that if you give an CEO  two choices, 1) continue as is with the knowledge that eventually your business will decline significantly and even fail or 2) take a hit now with the possibility that your business will recover in the long-term, they will choose 3) continue as it is and believe that you will figure out  how to maintain the business. In other words they can not accept the future as it will be.  This is not only true for businesses but also sadly for countries.  The USA is  Microsoft I am afraid (but further along in its decline).


2 thoughts on “Why companies fail to make transitions

  1. Avram,

    I agree with your analysis. Having lived through one full industry cycle, I am of the opinion that by-and-large companies cannot change because of their social fabric: the kinds of people they hire, the reward systems, the investor expectations, etc. I think in 1980 the college kids who wanted to change the world joined Intel, Microsoft and the like. In 2010 they join Facebook, Serious Materials or Celera Genomics.

    Apple is an exception because Steve has not changed his irreverent ways. Without him the company would probably be just another lame computer manufacturer.

    Whether we can change the USA before they become as broken and tired as Europe, I don’t know. Using the start-up analogy, maybe some of the states can evolve on their own and lead structural change. California is ahead of the rest of the nation in clean-tech for example. Whether this will be enough is hard to tell.



  2. So I guess that when Steve is no longer able to continue, Apple will turn out like the others.
    I think that we have cycles in countries.
    We had the colonial cycle (UK)
    The innovation cycle (USA)
    And now the population cycle (China and India).


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