Leaders Who Fail – The Horse Carriage Syndrome

by Thomas MORADPOUR on July 29, 2011 · 13 comments

It strikes me as two recently admired giants are both reported in free-fall, that even the strongest businesses eventually fail.

TAKE NOKIA

Once acclaimed as a global leader with up to 40% market-share, Nokia defined mobile phones with its sleek and simple UI. Back in the days of the 8210 when small size mattered more than function, or in the days of Snake-II, the grand-dad of mobile games, the it-phone of the moment was almost always a Nokia.

But they missed the smartphone train, the segment now lead by Apple and Samsung. Falling in third position in the juiciest part of the market, Nokia has a slim chance of maintaining its leader position. The math just don’t work, and the market knows it: once flirting with $40 (2007), their stock price is now below $6 despite leadership changes and recent news of a strategic alliance with Microsoft.

TAKE NINTENDO

Yes, they invented portable gaming with their 1989 GameBoy. Yes, the DS was a remarkable innovation that helped maintain a stronghold on on-the-go consoles for two decades. And yes, the 3DS is a fantastic product – I have one, and playing Zelda in crisp 3D graphics with no glasses is simply mind-blowing.

But now, people have discovered that they can play great games on their smartphones. My Nintendo 3DS spends most of its time in a drawer while the iPhone is 24/7 in my pocket… and the company share price just dropped a whooping 12% after it announced a price drop of their latest hardware from $249 to $169 in hopes to bolster disappointing sales.

LET’S CALL THIS A HORSE-CARRIAGE SYNDROME

Here are two companies that were the best at what they did. And still are by a long mile.

No other company can make feature phones as well-built and affordable as Nokia, and carry them to all corners of the world, from the posh West End of London, to the smallest villages of India and central China. No other company can make fun handheld gaming consoles and pair them with the widest library of top game properties like Nintendo.

But they are the best as making obsolete goods.
In a world moving to cars, they are the best at making horse-cariages. And despite leading a charge to make the best and most innovative horse-carriages ever made – electric horse carriages with no horses, 3D screens and OVI stores – they missed the bigger picture. The world no longer wants a horse-carriage, a standalone gaming handheld, or a feature phone.

No one challenges their dominance over their main business… because no-one cares. They have the largest share of a shrinking and eventually dead market.

The problem of course, is that despite smartphones and tablets, there is still short and medium term business to be made selling feature phones and gameboys. Likewise, there is still a big market for Microsoft Office software despite rise of Google docs and cloud computing. There’s still a market for Twitter despite Google+. But for how long? Unless these great companies re-invent themselves, they risk being left with laggard consumers while the majority follow early adopters to greener pastures.

WHY CAN’T THESE GIANTS CHANGE?

Because their own leadership has become their worst enemy. They are the best at what they do, and its the core of their business, sales and profits. It’s their passion and what made them legendary.

And you’d have to be crazy to stop focusing on our core, to walk away from something that made you so big and iconic, to let others eat away at a dominant market share that gives you unbeatable scale…. right? well, visibly, wrong.

Instead, the (hard) way to go is to see the shifts and organize your own competition from within. The challenge is to take risks with a core competencies or a core business, creating something new that might kill it. But is it really a risk? Take Apple… years ago, its business was made of computers and iPods. Now, it’s mostly iPads and iPhones. Their business of yesterday was killed by their business of today… and you can be pretty sure that they’re already looking for ways to make these obsolete too, and faster than you think.

It’s a matter of perspective.

Transportation did not disappear… it just moved from horse-powered to engine-powered.
Mobile Gaming is not disappearing… it’s just moving from standalone devices to multi-use devices.
Music did not disappear… it just moved from profitable sales of records to profitable sales of live performances and merchandising.

At the end of the day we all need to look for ways to make ourself obsolete.
Because if we don’t do it, someone else will. 

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  • http://rababkhan.com Rabab Khan

    Perhaps what the main takeaway from this post and from these brands is the importance of unlearning what we have learnt to be the best. Innovation can never be put on the back burner or limited to only improving what has already been used or learned. Very interesting post, Tom. Enjoyed reading it. 

  • http://www.facebook.com/tiago.campany Tiago Campany

    Maybe you can say it about Nintendo, but Nokia is an expert in changing its core business. It’s started as a rubber company and then became a  eletric wire company to then become a chemical and microeletronic company.

    • Anonymous

      … and Nintendo started in playing cards, then went into cabs and love hotels. And let’s not forget wood milling for Nokia.
      All true. Does not disprove the fact they missed a major change in their own industry and were made obsolete by competitors. They are still focused today on being the best… at the wrong thing!
      Tom

  • http://twitter.com/steveolenski steveolenski

    Hi Thomas,

    The best line of this entire post and most telling is “No one challenges their dominance over their main business… because no-one cares.”

    I mean that is it in the proverbial nutshell. Yeah it’s great their the leader in the clubhouse but no one else is playing the same course! Reading your post and thinking of these two examples reminded me of the infamous “Good To Great’ by Jim Collins. Debate its merit if you want but the core message of the book still resonates, at least to me.

    Don’t be afraid to give up good to be great.

    I mean it’s not like Nokia and Nintendo were asked to be or tried to be something they weren’t… I remember hearing about Gerber of Gerber baby foods who tried to get into the “adult” line of food and needless to say, it failed miserably. These were two companies who were at one time the clear market leader or surely were in the top 3 yet for whatever reason they (their leadership) didn’t keep up, to put it very simply but you know what I mean… :)

    Great post Thomas!

    Steve O

    • Anonymous

      Thanks for the comment, Steve!
      What’s interesting about Good to Great is that the companies Jim Collins studied and praised as champions of greatness have all fallen to mediocre since… or gone bust (Circuit City). Another great book called The Halo Effect explains why really well… there s no such thing as permanent greatness in business!
      http://www.amazon.com/Halo-Effect-Business-Delusions-Managers/dp/0743291255
      Cheers, 
      Tom

      • http://twitter.com/steveolenski steveolenski

        Hey Tom,

        Hadnt heard of The Halo Effect, will definitely check it out but as for your line, “there s no such thing as permanent greatness in business!” try telling that to Mr. Jobs, et al… :)

        Have a great day!
        Steve O

  • http://www.hanelly.com hanelly

    Brilliant post, Thomas. What I like about your blog is that you are talking about things that no one else seems to be even thinking about. 

    This post is another arrow in that quiver.

    I think it’s absolutely terrifying for companies to help to develop technology which might eventually kill them. I’ve seen the fear in the meeting rooms. The “yeah, but that will destroy us” look. But the last line of this shatters that argument and puts an even bigger fear in our minds: if you don’t do it, someone else will.

    I agree with you that focusing on the core is absolutely essential to success. It’s not very often that an entire industry is totally reinvented (it happens infrequently in each industry) which justifies the devotion to the core. But if you don’t have people dedicated to looking beyond the curve – to being scouts, if you will – you’re going to be surprise attacked by the future and have no chance in the competition.

    Great stuff. 

  • http://twitter.com/thesantoses Andre Santos

    Hi Tom,
    Great post.  I think another reason for this ‘taking their eye off the ball’ is personal interests.
    The people who develop such products typically get lauded for their efforts and when something else comes around they will fight it from an ego POV rather than a business POV.
    A perfect example of this was Sony, who had an MP3 product before Apple devised the iPod.  However,  that was fought off as a product because of the MiniDisc group so they didn’t push it or invest in it.  And the rest is history as they say… (obviously the design, iTunes etc also helped)

  • http://www.dogwalkblog.com/ Rufus Dogg

    I think it depends on the industry you are in. If you choose technology then you live and die by that sword. But some things have a longer arc where introducing new things just doesn’t cut it. Like pizza. http://www.tourneycentral.com/stick-to-the-game-stay-focused.html Or soccer…

    Musical instruments is another industry. I own a set of bagpipes that are 182 years old. The Rosewood aged to a nice mellow sound (no jokes here) which I’m sure is going to be fantastic when it gets 300+ years old. If you had not heard the old pipes before listening to a brand new set, you would not know what you were missing. The same with violins and guitars…

    It’s easy to apply the Horse Carriage Syndrome universally to our over-teched up world, but in some places, slow and unchanging makes for a far better experience. Like old dogs and children… and watermelon wine.

  • http://twitter.com/NathanRKing Nathan King

    Nintendo and Nokia didn’t change because they got to sit in that comfortable seat at the end of the table. Change is definitely not easy, especially when you’ve put so much effort into being the best at something. Nobody asked Nintendo or Nokia to change, they needed to realize for themselves that the market was shifting.

  • http://texrat.net Randall Arnold

    Some context that should have been included:

    - Nokia didn’t miss the smartphone train.  In fact they introduced its engine.  What they missed was that the train itself had changed, and with it, the passengers.
    - Nokia has completely overhauled itself in the past, reinventing its entire business and focus.  It still has the capacity to do so.  Yes, they show no signs of that, but the past was still worth a mention.

    I believe Nokia still has a shot (http://tabulacrypticum.wordpress.com/2011/07/25/the-nokia-phoenix/), but that will expire sometime next year if their fortunes have not turned.

    Nintendo will likely be bought by another company, perhaps even a competitor.  I’m betting that will happen by next year also.

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  • Pbenayoun

    Salut Thomas !

    Quelques mots en français pour donner un écho de tes articles sur le vieux continent :)

    Tellement incroyable cette absence de réaction des géants dont tu parles dans ton post et tellement classique pour autant… La remise en question de nos succès reste une difficulté majeure. Douter n’est pas simple surtout quand tout va bien. Je me souviens de notre Hervé Ferrière qui nous disait chez Pepsi : “c’est quand le business est bon, que l’on perd le plus de caisses !”.

    Je reviens sur une actualité qui peut faire écho dans ton blog, j’en suis certain, avec le fameux effet papillon que tu évoquais dans tes commentaires. Avec le récent rachat de Motorola Mobility par Google, le mouvement perpétuel dont notre monde fait l’objet devrait en entraîner d’autres lors des prochaines semaines… 
    Quid du modèle Android chez Samsung ou HTC ?
    Comment le couple Nokia / Microsoft se positionnera désormais dans l’univers des constructeurs de mobile ?
    Quelle capacité de réaction pour RIM qui se trouve aujourd’hui attaqué par Apple et Google dans ce nouveau métier de développeur d’OS et fabricants de terminaux ?
     
    Encore une fois bravo pour ton post !
    Keep pushing,
    Philippe

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