Who is Company A? (We’ll get to the red dot later.)
Company A. Stock price data from Yahoo Finance.
Company A is Blackberry. The chart shows its stock price for the eight years through the end of September 2013. It’s not the whole history of the company. Even though its stock price at the end of the chart is down from the beginning of the chart, it’s still more than triple its initial price.
Who is Company B?
Company B. Stock price data from Yahoo Finance.
Company B’s chart also shows an eight-year span, though it’s a different eight years. The eight-year spans overlap by two years.
To my eye the charts look similar. If we superimpose Company B’s chart (the red line) over Blackberry (the blue line) and ignore the numbers on the vertical axis, we see this:
Company B’s stock price (red) over Blackberry’s (blue).
Blackberry and Company B work in different industries and have different management. What we see, though, appears to be similarities in competing and in the market’s reaction to their moves.
Both Blackberry and Company B were highly dominant at one time. Both made a great deal of money. Both were unseated by smart competitors. But the reason they were unseated was not (merely) because they faced smart competitors. It was because of how they responded to those smart competitors. That’s where we get into the competitive-strategy equivalent of forensics.
An autopsy can determine the cause of death. Trauma from a car accident, for example. But what caused the car accident? We look for skid marks, blood-alcohol levels, slick roads, other cars, bad weather. We go back as far as necessary to figure it out. We don’t stop at the accident.
In business we blame causes such as complacency, distraction, short-term orientation, and so on. But that’s just the car accident. What caused the complacency (or whatever)? No one intends to be complacent or distracted. (They may intend to be short-term oriented.)
To figure that out we must put ourselves in the heads of the executives running Blackberry and Company B as they made their decisions. We must suspend judgment based on our knowledge of their future.
The red dot on the Blackberry chart marks when Apple introduced the first iPhone. Notice that Blackberry’s stock more than doubled over the subsequent year! For four years its stock generally stayed above where it was after millions of people began talking through phones named for fruit. (Oh wait, that’s Blackberry too.)
Conjecture. If you were an executive at Blackberry and you saw your stock price continuing to rise, and if you were conscious of your heavy investment in your technology and marketing, and if you thought your devices represented differentiation instead of obsolescence, and if you were convinced your customer base had serious needs and needed serious tech, you might conclude that the iPhone was a toy that would succeed in its niche without disturbing yours. You would not be the first tech exec to believe that, and you might not even be wrong (for a while, at least). To turn your company upside down, to compete from behind instead of defending a throne, to inform Wall Street you’re facing an existential threat… that’s asking a lot, especially when there’s not much evidence of trouble.
From the executive’s perspective at the time he or she would not be stupid and would not be willfully trying to harm the company. Remember, sometimes the innovations flame out, not the incumbents. And results — look at that stock price! — would pat her or him on the back and say you’re right, our strategy is working. Yes, that’s the wrong metric, but it feels reassuring.
Then things start to hurt. The iPhone proves not to be a toy. The stock market turns its back. You’ve got to do something fast; no time for a massive overhaul. For a quick fix you tweak operations. That works for a while, just as the deck chairs on the Titanic stop sliding if you bolt them down. But the ship keeps sinking.
You might want to know the identity of Company B. Company B is Blockbuster. If we add five more years of its stock history to the chart, we see their bankruptcy. And when we superimpose it over Blackberry…
Blockbuster stock price (dark red) over Blackberry’s (blue).
Blockbuster’s downfall wasn’t Netflix. Its downfall was not responding effectively to Netflix. Blockbuster could have emulated Netflix much earlier than it did. For that matter, it could have bought Netflix. (It had the opportunity and chose not to.) Blackberry couldn’t have bought Apple but it could have emulated it.
“You should have known” is not a good forensic analysis and “don’t be complacent” is not useful advice. “Be paranoid” is modestly helpful because it focuses on the future. Best of all would be to focus — before the next crisis — on competing as a skill.
Here’s how Blackberry and Blockbuster could have skillfully avoided their car accidents:
- See if the road ahead is slick. Do that by tracking Apple and Netflix progress, especially with internal contrarians charged with making the case that Apple and Netflix are succeeding. (See also The Denial Tree.)
- Start a crash program to cut-off or tailgate the new competition. You don’t have to roll out new products yet; just start development. Abandoning an unnecessary program is much cheaper than wishing you’d started earlier. Corollary: replace a budget mentality with an investment mentality.
- Turn on the brights so you can see further. War-game or simulate the future. I’ve seen companies learn that the threats they face are more-serious than they thought. I’ve seen them find solutions by “fast forwarding” likely developments and playing what if.
- Talk with the passengers. Bring together people with strong opinions on all sides. Have them brainstorm about what has to happen for us to prevail. Then ask what it will take to make those things happen.
Will Blackberry continue to look like Blockbuster? That question isn’t about statistics, finance, or technical market analysis. It’s about whether Blackberry competes more effectively and whether there’s still time. Apple stumbled recently and the smartphone market is highly competitive. Blackberry may have a chance.