Market leaders bear significant legacy burdens in navigating abrupt change in business models and technologies. Their perspective on new competitors can be deflected by their focus on traditional competitors. Digital Equipment, then the second largest computer company, missed the rise of California's Sun and the other Unix firms because of management's focus on the other Massachusetts minicomputer makers. The market leader’s cost structures can also block change. The minicomputer companies didn’t fail because of disruptive technology but because they couldn’t slash sales and R&D expenses to meet the new breed.
Great sales organizations present another barrier. Often the crown jewels of successful companies, they too often try to block change in products or distribution models – for example, the sales organizations’ efforts to block new storage modes at IBM in the 1950s, the unification of processor architectures at Digital Equipment in the 1980s, or the continuation of Sun’s proprietary hardware in the 1990s. Finally, strong cultures can be straitjackets. IBM didn’t fail in PC software because of Bill Gates’ negotiating skills or Microsoft’s brilliant programmers, but because the PC market was driven by consumers, as IBM recognized later when it sold the business to Lenovo. “Prior success handicaps change,” as a McKinsey thought leader pronounced. “More companies fail because of strong cultures than weak strategies.”
The IT sector is at another turning point as mobile devices dampen the demand for PCs – just as PCs formerly dampened and then buried the demand for minicomputers. Simultaneously, the purchase of new on-premise servers and licensed software is being displaced by public cloud infrastructure and software services. Add cybersecurity as another question mark for the next decade. In sum, this transformation points to an era of “creative destruction,” in the phrase coined by the Austrian economist on entrepreneurship Joseph Schumpeter. As agile and often new firms will produce creative new solutions, slow-footed companies will be destroyed.
These two prospects will require special assessment: the new companies rising to these opportunities and the old companies threatened by impending change. What lessons can be learned from the histories of corporate rises and falls during equally ferocious transformations of the past?