Being in the Right Place at the Right Time
Being in the Right Place at the Right Time
We noted earlier that the pure forms of interdependence and modularity are the extremes on a continuum, and companies may choose strategies anywhere along the spectrum at any point in time. A company may not necessarily fail if it starts with a prematurely modular architecture when the basis of competition is functionality and reliability. It will simply suffer from an important competitive disadvantage until the basis of competition shifts and modularity becomes the predominant architectural form. This was the experience of IBM and its clones in the personal computer industry. The superior performance of Apple’s computers did not preclude IBM from succeeding. IBM just had to fight its performance disadvantage because it opted prematurely for a modular architecture.
What happens to the initial leaders when they overshoot, after having jumped ahead of the pack with performance and reliability advantages that were grounded in proprietary architecture? The answer is that they need to modularize and open up their architectures and begin aggressively to sell their subsystems as modules to other companies whose low-cost assembly capability can help grow the market. Had good theory been available to provide guidance, for example, there is no reason why the executives of Apple Computer could not have modularized their design and have begun selling their operating system with its interdependent applications to other computer assemblers, preempting Microsoft’s development of Windows. Nokia appears today to be facing the same decision. We sense that adding even more features and functions to standard wireless handsets is overshooting what its less-demanding customers can utilize; and a dis-integrated handset industry that utilizes Symbian’s operating system is rapidly gaining traction. The next chapter will show that a company can begin with a proprietary architecture when disruptive circumstances mandate it, and then, when the basis of competition changes, open its architecture to become a supplier of key subsystems to low-cost assemblers. If it does this, it can avoid the traps of becoming a niche player on the one hand and the supplier of an undifferentiated commodity on the other. The company can become capitalism’s equivalent of Wayne Gretzky, the hockey great. Gretzky had an instinct not to skate to where the puck presently was on the ice, but instead to skate to where the puck was going to be. Chapter 6 can help managers steer their companies not to the profitable businesses of the past, but to where the money will be.
There are few decisions in building and sustaining a new-growth business that scream more loudly for sound, circumstance-based theory than those addressed in this chapter. When the functionality and reliability of a product are not good enough to meet customers’ needs, then the companies that will enjoy significant competitive advantage are those whose product architectures are proprietary and that are integrated across the performance-limiting interfaces in the value chain. When functionality and reliability become more than adequate, so that speed and responsiveness are the dimensions of competition that are not now good enough, then the opposite is true. A population of nonintegrated, specialized companies whose rules of interaction are defined by modular architectures and industry standards holds the upper hand.
At the beginning of a wave of new-market disruption, the companies that initially will be the most successful will be integrated firms whose architectures are proprietary because the product isn’t yet good enough. After a few years of success in performance improvement, those disruptive pioneers themselves become susceptible to hybrid disruption by a faster and more flexible population of nonintegrated companies whose focus gives them lower overhead costs.
For a company that serves customers in multiple tiers of the market, managing the transition is tricky, because the strategy and business model that are required to successfully reach unsatisfied customers in higher tiers are very different from those that are necessary to compete with speed, flexibility, and low cost in lower tiers of the market. Pursuing both ends at once and in the right way often requires multiple business units—a topic that we address in the next two chapters.
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