Originally Posted by Suntan
My issue with the traditional “innovator’s dilemma” type hipster business books is that they always compare (favorably) “big companies” that make bold moves as akin to new startups. Yet they only really look at successful moves.
Unlike small/innovative startups (that more often than not) flame out and run out of money long before anything meaningful gets done, large companies have a lot of (investor’s) money to burn through while they “nimbly” turn the ship about over the course of a couple of years.
That’s not to say that a company shouldn’t make decisive moves, but there is also something to be said for public companies making positive cash flow/dividends for their investors too.
Small startups using VC funding to get a long shot up and running is fine, VC go into it with a gambler’s mentality. Traditional investors tend to get taken on a roller coaster ride that they never signed up for when they invested. Case in point, how many investors were knowledgeable of where HP’s was going to take them 1 year ago? Further, how many of the “innovator’s dilemma” wonks are currently writing case studies and supporting their arguments based around how badly HP has managed its playing cards the last 6 months?
This isn’t a direct comment on Netflix’s moves, but a general comment that “bold moves” aren’t always “good moves” when talking about large companies with specific responsibilities owed to its public shareholders.
I think the basic premise of the innovator's dilemma is sound. Is it an airtight, uniform law of business nature? Of course not. But it is a logical dynamic that is highly applicable in times of rapid business transformation in certain industries and sectors.
The the point of the innovator's dilemma is in fact what you describe: large corporations that that make business decisions based on what it will mean for the stock and investors in the next few quarters, despite having the cash and the resources to invest in transformation that would ensure their survival. The point is, it's *not* easy and one of the things that makes it so difficult is accountability to the street for numbers that continually increase the stock price. That is the rock vs. the hard place of disruptive events in their industry.
As for Christianson only focusing on successful big companies that bet on transformation, I'm trying to think of any examples of large companies that have bet big on future of their business, been wrong, and been badly punished for it and I can't think of any. On the other hand the list of large corporations that continued doing what has made them successful and as a result been marginalized even put out of business is quite long.
That's not to say every company is definitely faced with some disruption in its future and should be burning through cash casting about for ways to transform itself. But but in the face of some "clear and present danger" when rationally envisioning the future of one's sector, investing in the future vs. the next quarter or two is a wise if painful move.
As far as HP goes, I think they did the right thing, although five years later than they should have. Look at IBM which divested itself of its PC business eight years ago. It's stock has more than double and it's enjoying a market cap 4x that of HP. I think that the street's response to HP is actually more to do with how inept the board is and finally tiring of the revolving door at the CEO position.