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Can Companies Try Too Hard To Stay One Step Ahead?

Does staying ahead always make good business sense?

4Aug

Amazon and Google share a number of common characteristics. None more so than their approach to innovation and diversification strategies.

Our perception of their strategic approach is that it pays to take risks. Being first-to-market allows a company to become synonymous with a product - with Scotch tape and Kleenex two good examples - and it also exudes originality.

But has it gone too far? Instead of seeing a company’s achievements in a positive light, many have claimed that all they do is show a company how not to plan for the future. Success breeds success, but every iteration of it, according to some, has to be done differently. If not, a company appears sluggish and unresponsive to change.

There have been many examples of companies trying too hard to break into new industries when it’s not been viable. Last year’s biggest smartphone flop - Amazon’s Fire Phone - demonstrated that even the most successful companies can’t just jump into a competitive industry and expect success. Jeff Bezos described it as a ‘bold move’ and after the phone’s flop ‘something which is going to take many iterations’ and ‘some number of years’ to get right. Undeterred by the fact that the Fire phone has been selling for 99 cents in the US - down from $199 - Amazon will continue to invest in the venture as they look to make a smartphone which can rival Apple and Samsung’s products.

Despite Jeff Bezos’ commitment to the cause, the Fire phone has been an embarrassment. But throughout Amazon’s existence it’s made leaps, not steps. They have, after all, had much success with ‘Amazon Instant Video’, a project which most would have considered well outside of their core online retail business. Had that failed, it would have been used in this article as an example of where a company had put too much emphasis on diversification. Yet it didn’t, highlighting in the process how employing a strategy of diversification can work.

It’s no coincidence that companies like Amazon and Google have had their fair share of failed ventures - they can put many more of their ideas into practice than most. Google’s list of failures, for example, reads a mile long. An article in the Telegraph discusses 18 of them but again, it shows that trying too hard can waste resources and capital. But like Amazon, Google can afford to try too hard. They have the resources to write such projects off as stepping stones.

The same, however, cannot be said for smaller companies which operate on a much stricter budget. While senior management teams at these companies shouldn’t bemoan new ideas, they must be able to select the right one straightaway, as there’s little room for projects which don’t take off. Clearly, most companies don’t have the ability to just decide one day that they’re going to enter the smartphone market like Amazon, but nevertheless, risks, however great, must be analyzed so that the chance of failure is as low as possible. For smaller companies, then, it’s a question of finding the right balance. Ultimately, the companies that make it big need to take some risks, but as mentioned before, too much can be disastrous.

Staying one step ahead can never be a bad thing. However, companies must innovate within their means, especially if they don’t have the capacity to bounce back like an Amazon or Google.

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