Two weeks ago, the folks at Innovation Tools republished my article on innovation titled Improvement in not innovation which allowed the article to gain a bit of traction within the innovation community. There were those who agreed and those who disagreed with my premise which was that far too often, we confuse improvement for innovation.
Here’s a brief summary of what I had to say about improvement not being the same as innovation.
First, an improvement that only meets the market standard or reacts to innovation that your competitors have already introduced into the market is NOT innovation. It’s playing catch-up.
Second, introducing an improvement that does not significantly differentiate you from your competitors is NOT innovation. It’s simply just an improvement - evolutionary not revolutionary.
And finally, introducing improvement that may give you a competitive advantage but can be easily emulated by your competitors is NOT innovation. It’s just a temporary advantage.
I also used the example of both Southwest Airlines and Sony with their successful innovation efforts to illustrate my point. As I mentioned earlier, the article elicited a fair amount of discussion within the innovation community and I’d like to mention one conversation in particular that occurred with James Todhunter who writes a very well written (and well read) blog titled Innovating to Win. While James acknowledged that he and I were pretty much in agreement on the overall premise, he did share his views that there were important aspects of improvement (or what is often referred to as “incremental innovation”) that I was ignoring in the fervor to make my point.
Here’s what he had to say:
“Breakthrough innovation, incremental innovation, minor improvement—these are all points on a continuum of value creating solution generation. Incremental innovation is very beneficial to an organization trying to develop the core competence needed to support a high-performance innovation system. Specifically, incremental innovation delivers both short and long term benefits. In the short term, immediate business benefits can be realized—extended revenue life of a product, increased market share, better contribution to margin, etc. In the long term, incremental innovation provides a low risk platform to hone the basic innovation skills needed for successful, repeatable breakthrough innovation practice.”
In what turned out to be a healthy discussion between James and myself via his comments section, the topic turned from the slight disagreement we had on using the terms improvement and innovation interchangeably, to one where James made some valid points on the best ways to hone innovation skills within the organization. He used a rather nice analogy of Larry Bird using his work ethic and diligence in maintaining his skills--the same type of work ethic is needed by those in our organizations today if we want innovation to flourish.
“[The] honing basic innovation skills, is too often overlooked. Most organizations lack these basic skills and the knowledge of innovation best practices. These skills must be developed and practiced constantly. Even seasoned innovation workers should take a page from Basketball legend Larry Bird’s play book. Larry was well known for his work ethic and diligence in maintaining his skills. He would arrive for a game hours before anyone else and warm up by taking hundreds of practice shots.”
All in all, a worthwhile discussion where I most appreciated James’ opinion on finding ways to hone innovation skills within the organization. It's a topic that seems to be forgotten during most innovation discussions, but one that is extremely important with regards to the success or failure of any innovation effort. Thanks again James for initiating the discussion and I hope that our paths cross again sooner rather than later.
Borders Group announced that they are cutting prices on two of their e-readers in hopes of gaining increased market share in the fiercely competitive e-book space. The price cuts will bring the price of its lowest priced e-reader, the Aluratek Libre down to $99.99, and it’s Kobo readers will now be priced at $129.99--a $20 price drop for each product.
Borders president Mike Edwards stated that Borders' goal of achieving an e-book market share of 17% within the year was “entirely contingent on selling devices” and that the retailer wanted to make sure it had an e-reader offering priced below $100 to attract customers.
No matter what their stated market share may be, Borders is in a real fix in the growing e-book market. First, they are already light years behind the two established (and highly capitalized) frontrunners ; Apple and Amazon. Amazon raced to the early lead with its early mover advantage, and Apple, is becoming the textbook example of a ‘fast second’, by taking the new market niches developed by others and scaling them into a mass market.
Borders is also caught in the middle of a price war for the e-readers--a war that seems to favor their better capitalized and lower-cost competitors. About the only way to exit this price war successfully is to either (a) not compete on pricing which seems to be Apple’s strategy; or (b) raise the stakes with your other price war participants by giving the e-readers away for free. If maximizing e-reader distribution is the stated goal, then give the readers away now--for free. If you look at the trend over the next six months to a year, that seems to be where the price is heading anyway. If you wait with the rest of the market for the price to get there, your market share will remain relatively unchanged. If you make the bold move today, you might get the desired market share at the expense of Barnes & Noble and possibly Amazon.
The larger problem for Borders (and their primary rival Barnes & Noble) is whether the e-book market is more than just a two-horse race. My feeling is that once the dust has settled, Amazon and Apple will control between 75%-80% of the market. The continuing battle between Borders and Barnes & Noble may not matter a in a year or two, if all they’re battling for is the bottom 20% on the market. I don’t see the e-reader market shaking out anyway other than that.
Here’s the takeaway: Don’t be caught in a price war unless you are either the the lowest cost or highest capitalized competitor. The graveyard of failed companies is littered with the carcasses of those who don’t heed this advice.
Early in my career, I had the opportunity to spend seven years at Goldman, Sachs & Co. I arrived at Goldman in July 1988 having graduated with an M.B.A. from The Wharton School just two months earlier. Back then, Goldman was still a relatively small firm - just 7,000 employees worldwide as opposed to its current size of almost 32,000 - and it was still structured as a partnership. I spent my entire career on the fixed income trading side of the business as a bond trader. The Goldman experience was incredible for me personally in that I received exposure to a number of really outstanding leaders within the firm - many of whom later made their mark in the both the corporate world and the American political spectrum. One such experience that I will always remember occurred early on in my career --a short, but intense conversation with Robert Rubin who at the time was co--chairman and co-senior partner of the firm along with Stephen Friedman.
Bob Rubin ascended to his leadership position at Goldman by heading the firm’s risk arbitrage department - investing Goldman’s capital in high-risk / high-reward arbitrage opportunities that added hundreds of millions of dollars to the firm’s bottom line and capital base. He understood the intricacies of financial risk perhaps better than anyone else at the firm. My interaction with Rubin occurred just after I had been given responsibility for one of the larger bond trading positions within the fixed income division. Within a few weeks of this promotion, I took an extremely large position in highly volatile zero-coupon government bonds as a result of taking the opposite side of a trade with a large Japanese counter-party. I priced and executed the trade (with a number of partners standing directly behind me just in case...) and knew it would take months to unwind the position. I also knew that the risks during this unwind period were significant and the sooner I was able to understand and quantify the various risks associated with the position, the more likely that Goldman would make money off the trade.
Less than an hour after the trade was executed, I found myself face-to-face with Bob Rubin. He had quietly slipped onto the trading floor and sat next to me without my even noticing. It was the first time we had met - he introduced himself to me and then proceeded to talk to me about risk and my decision-making process. The essence of the conversation can be boiled down into these three precepts:
1. Focus today on the risks that you understand and can easily hedge.
2. Focus tomorrow on the risks you don’t understand. Make sure you tap the vast resources of the firm to fully comprehend these risks - they’re usually the ones that hurt you the most.
3. Spend the vast majority of your time hedging the risks that you can control. If you can’t control the risk, don’t waste time spinning your wheels.
Our conversation lasted less than thirty minutes. As Bob Rubin got up to leave, he shook my hand and wished me luck. It was my last conversation with him during his tenure at the firm. Less than two years later, he left to join the Clinton Administration, first as head of the National Economic Council, and later to serve as the United States Secretary of the Treasury.
Bob Rubin taught me two basic concepts during that short conversation years ago. First, he very clearly articulated the idea of parsing the decision making process into separately addressing known and unknown risks (or in my case, risks that were understood and risks that weren’t). He was miles ahead of anyone I had met in terms of understanding and articulating the process of addressing risk. Second, his advice on focusing my efforts on things that I could control (as opposed to spending time on things that were beyond my control) was clear, straightforward, and profitable.
During the next six months, I spent my time hedging and re-hedging the various risks as I focused on things I could control (like the size of the position) and didn’t waste my time or energy worrying about the things I couldn’t control (What if the size of our position leaked out to our competitors?, What if there was a collateral squeeze? What if the sky was falling?). I still follow both pieces of advice today for myself and with my clients.
Here's the takeaway: Focus on the risks you can control and don't waste your time or energy worrying about the ones you can't.
According the the Wall Street Journal, Hewlett-Packard Co. raised its offer for 3PAR Inc. today to $30 a share, or almst $2 billion, shortly after the the data-storage company accepted an increased takeover offer from Dell Inc. Dell's revised offer of $1.8 billion matched H-P's Thursday bid of $27 a share for 3PAR, whose software helps companies manage and store data more efficiently.
The fight over 3PAR illustrates how important it has become for tech companies to dominate the emerging technology known as cloud computing, in which data are managed and accessed over the Internet. Dell and H-P both sell storage products and see 3PAR's assets as important additions to their portfolios as large technology companies seek to serve all the needs of corporate-technology departments.
Dell started the bidding war on August 16 by announcing that it would buy 3PAR for $18 per share for a valuation of $1.15 billion - over $500 million more than 3PAR’s market cap a day earlier. On Monday the 23rd, HP topped Dell’s bid by announcing that it would bid $24 per share for 3PAR for an acquisition price of $1.5 billion. The bidding war death spiral continued yesterday with Dell topping HP’s price (ever so slightly) by their offer of $24.30 per share. HP countered the same day by offering $27 per share. Dell immediately matched the $27 per share offer until HP’s $30 a share announcement today.
The fight over 3PAR also illustrates what behavioral economists label the “endowment effect” - a hypothesis that people value a good more once they feel ownership. In other words, people place a higher value on objects they own relative to objects they do not.
In this case, both Dell and HP have at some point over the past week, felt that their high bid in this very public bidding made them ‘de-facto’ owners of 3PAR. Once they felt this ownership, they both began to value 3PAR at a much higher level than they did prior to Dell’s initial takeover over a week ago.
Prior to Dell’s initial bid, if you asked executives at both Dell and HP what the highest price was that they would pay for 3PAR, I strongly suspect that each would have given a ceiling price of significantly less than $30 per share - remember that before this bidding war erupted, 3PAR was selling at about $10 per share. At some point, executives from both companies will come to their senses, the bidding will end and 3PAR will be acquired. While the final price may be a lot higher than either Dell or HP originally envisioned, the shareholders of 3PAR will have the ‘endowment effect’ to thank for the increased cash in their wallets.
Heres the takeaway: The endowment effect is a very powerful price accelerant when it comes to bidding wars. Once ownership has been assumed (as was the case for both Dell and HP), the value of the good becomes much higher than before.
In an interesting pricing article published yesterday in the Wall Street Journal, authors Detlef Schoder and Alex Talalayevsky make the point that companies have lost control of their pricing power due to the power of the internet. The article titled The Price Isn’t Right lists eight different tactics that companies can use to limit the damage of using discounting as a pricing strategy.
Their second tactic--Embrace, but try to limit the bargin hunters-- contains this advice:
The object of each of these tactics is not to eliminate deep discounting. Fire sales are obviously necessary sometimes. With that in mind, companies will find a receptive audience on the Web sites that cater to bargain hunters. They just need to set some limits. They can offer coupon codes that are only usable a set number of times, for example, or discounts for a limited time and available only to users of the sites. This way a company can better manage how much of its product it will sell at the deepest discounts. Dell Inc., for one, regularly issues coupons at deal sites, but the coupons can only be used a fixed number of times.
When using coupons as part of your pricing strategy, you need to set up hurdles so that only your most price-sensitive customers can take advantage of the discount offer. Sometimes this means that customers have to physically ‘clip’ coupons and then redeem the offer; sometimes it means that you offer discounted services only during certain times of the day (early-bird specials at restaurants) that will appeal only to your most price sensitive customers; and sometimes you make them join (or opt-in) frequent shopper lists where they only receive the discount if they’re a member of this list. No matter what tactic you use, you need to make the hurdle large enough so that there is no spillage between your best customers (who are less price sensitive) and your target customers (who are presumably the most price sensitive). You want to set the conditions so only your most price sensitive customers will achieve the discounts.
Another way to erect the necessary hurdles is by including other necessary services. Let’s take shipping for instance. Your best customers may not care about a shipping discount that delivers the product a few days later than normal. But your most price sensitive customers will care, and they will happily accept a discount in exchange for a few more days of waiting for the product. If done correctly, applying the discount to the shipping portion of your service is a smart way to prevent spillage.
And finally, here's a tactic that supermarkets and big-box membership outlets use all the time. Rather than applying the discount to the product with no caveats, these stores now offer quantity discounts that only apply if large quantities (or large sizes and volumes) are purchased. The classic case that I run across all the time at my local supermarket are the advertisements for Coke or Pepsi where a standard 12-pack case will be priced at $4.50 but you can buy 4 cases for $12 (a discounted price of $3.00 / case). The hurdle here is that you must buy four cases to get the discount - if you buy any less than four, the discount doesn’t apply and the cases are sold at the regular price. You see this type of hurdle erected for quantity discounts as well as volume discounts (that regular bottle of shampoo is offered with no discount, but the 2 quart version of the same shampoo is sold at a discount).
Here’s the takeaway: Building effective hurdles is the best way to prevent your best customers from taking advantage of discounts targeted at your most price sensitive customers. These hurdles must be large enough to prevent any type of spillover, but not too large to prevent the discounts from being used by your target buyers.
Ancient Chinese philosopher Sun Tzu is perhaps the earliest known business strategist. He is credited with authoring The Art of War, one of the best known and influential Chinese books on military strategy. His writings have had a significant impact of Chinese and Asian history and culture.
Popular not just among military strategists, The Art of War has also become increasingly popular among political and business leaders. Despite its title, one of the main tenants of the book is that confrontation (and war) is to be avoided as much and as long as possible because of the potential for catastrophic loss. According to Sun Tzu, war is only justifiable when all possible alternatives have been completely exhausted. Only when you are threatened by an enemy with military action should you resort to armed conflict. And even then, a direct clash of arms is to avoided.
Here’s a good summary of some of SunTzu’s stretegems that comes from Ralph D. Sawyer’s 1994 translated version, Sun Tzu: The Art of War.
Warfare is the Tao of deception. Thus although you are capable, display incapability to them. When committed to employing your forces, feign inactivity. When your objective is nearby, make it appear distant; when far away, create the illusion of being nearby. Display profits to entice him. Create disorder (in their forces) and take them. If they are substantial, prepare for them; if they are strong, avoid them. If they are angry, perturb them; be deferential to foster their arrogance. If they are rested, force them to exert themselves. If they are united, cause them to be separated. Attack where they are unprepared. Go forth where they will not expect it. These are the ways military strategists are victorious. They cannot be spoken of in advance. Sun Tzu’s principles rest on the strategy of keeping the enemy off-balance. The aim is to get in a situation where you can use your forces to the maximum effect again a confused and locally inferior force. Go where your opponent does not expect it and attack where they are not prepared. You must not attack until the situation exists where you have the advantage.
In summary, Sun Tzu’s strategy can be summarized in three bold statements:
The one who knows when he can fight, and when he cannot fight, will be victorious.
The one who knows the enemy and knows himself will not be endangered in a hundred engagements.
Subjugating the enemy’s army without fighting is the true pinnacle of excellence.
Here’s the takeaway: In military as well as business settings, confrontation with your opponent must be always avoided until one is certain that a favorable balance of power exists and that all alternatives have been avoided.
In an article from today’s Wall Street Journal, Swedish car manufacturer Volvo is said to be under the gun by its new Chinese owners to upgrade its image and define its brand. Recently acquired by China’s Zhejiang Geely Holding Group Co, the automaker is searching for “a clear definition of what the brand stands for”. One direction that seems to be endorsed by both its new Chief Executive Stefan Jacoby and Geely Chairman Li Shufu is for Volvo to become a more full-fledged premium brand by adding bigger cars to its product lineup. In fact, new CEO Jacoby was very explicit is his comments: “...we have to up-scale Volvo in the near future to have a solid position in the premium segment. We have to define a Scandinavian version of what luxury means.”
Volvo’s push into the luxury car market actually began ten years earlier with Ford Motor Company’s 1999 purchase of the Swedish carmaker for $6.45 Billion. Prior to the purchase, Volvo had been known more for its high safety standards and reliability, than for anything else. In fact, prior to the strong government safety regulation that began two decades ago, Volvo was the recognized leader for automobile safety engineering - there was no brand that even came close to what Volvo had achieved.
Ford clearly had a different vision for Volvo. They bought the Volvo brand (along with the Jaguar and Aston Martin brands) to compete head-on with the other premium European automakers. Larger upscale models were introduced during Ford’s ownership and Volvo’s safety heritage was de-emphasized as the carmaker raced to compete alongside the lower end of Mercedes and BMW sedans, wagons, and SUV crossovers.
Ten years later, Ford’s grand plan for Volvo and its new luxury brand ended in disaster. Despite pouring significant resources into the Volvo brand, sales never took off, and by 2008, sales volume was down 20% compared to Volvo sales prior to the acquisition. Volvo went from being a profitable independent car company to one that lost $1.5 Billion in 2008. By late 2008, Ford made the decision to cut their losses and sell Volvo. In December 2009, Ford announced that Volvo had been sold to Zhejiang Geely Holding Group Co for $1.8 Billion - an almost 75% loss on their ten-year investment.
So what should Volvo do? If they really want to define their brand, then the first thing needed is to change direction. The strategy of competing directly against the other premium automotive brands is a loser strategy. That strategy cost Ford billions of dollars in losses over a ten year period: I suspect it will show the same poor results for Volvo’s new owners.
Volvo needs go back to their roots of stressing safety and reliability. And by doing this, I don’t mean for Volvo to go ‘retro’ in the sense that they try to recreate their past. What I do mean is for the Volvo brand to be associated with the safest and most reliable cars manufactured in the world today. Volvo needs to once again become the industry leader in safety - the brand that gave us the first car with a safety cage, the first car with front and rear crumple zones, the first to offer safety door-locks, and the first to offer SIPS - Side Impact Protection System. In terms of reliability, there was a classic Volvo advertisement that ran in the 1990s that highlighted a 1966 Volvo P1800 that had been driven over 2.8 million miles, a Guinness World Record for most miles driven by a single owner in a non-commercial vehicle. That’s brand that Volvo needs to become again.
Here’s the takeaway: For the past ten years, Volvo has been pursuing a loser strategy of competing as a luxury brand. To become profitable again, Volvo needs to change direction and become what it once was before - the premium safety and reliability automobile brand.
For small growing companies, customer development is the most important task to ensure survival. And this customer development process is all about understanding who you are selling to and why they want to by it. Noted author and entrepreneur Steven Gary Blank perhaps says it best when talking about the risks for these types of companies:
“The greatest risk--and hence the greatest cause of failure--is not in the development of the new product but in the development of customers and markets. [They] don’t fail because they lack a product; they fail because they lack customers...”
And this customer development information does not come easily, nor does it become apparent even after your’ve sold your first product. Sometimes you find yourself focusing on the wrong customers, not understanding the demand that buyers have for your product. And other times you focus on the wrong features. In many cases, your best customers are unexpected or they come from markets that were overlooked the first go-around.
In an essay titled The New Venture, Peter Drucker recounts a wonderful story of just such an occurrence.
“Shortly after World War II, a small Indian engineering firm bought the license to produce a European-designed bicycle with an auxiliary light engine. It looked like the ideal product for India; yet it never did well. The owner of this small firm noticed, however, that substantial orders came in for the engines alone. At first, he wanted to turn down these orders; what could anyone possibly do with such a small engine? It was curiosity alone that made him go to the actual areas that the orders came from. There he found farmers who were taking the engines off the bicycles and using them to power irrigation pumps that hitherto had been hand-operated. This manufacturer is now the world’s larger maker of small irrigation pumps, selling them by the millions. His pumps have revolutionized farming all over Southeast Asia.”
For start-ups and other small growing companies, the best lesson to learn is that you may find customers in markets that no one imagined when the product was first developed. and the only way to find these different markets is to get out of the office and investigate. If you see unexpected customers in unexpected markets, find out what’s driving demand. And don’t dismiss the unexpected as a ‘one-off’ exception or a fluke.
Here’s the takeaway: Unexpected customers can come from the most unexpected of markets. Get out of the office; investigate these exceptions and factor that demand into your product development going forward.
Right now at the Dodge Tent Event, you can purchase a new Dodge, drive it for 60 days and if you're not 100% blown away by the four-wheeled pure awesomeness, return it. No harm. No foul. And no monthly payments - that's right, the first two months are on us. We're giving you this opportunity because we're confident in our vehicles and we know that once you're in a Dodge, you won't want to get out of it.
Even after factoring in the fine print (buyer is not reimbursed for title, registration fees, insurance, accessories, dealer fees, extended warranties, finance charges and is responsible for negative equity), the offer seems pretty compelling from the buyer’s perspective. Knowing you have the option of changing your mind within 60 days on such a major purchase will certainly make buyers more compelled to go ahead and purchase the car.
But how does the offer look from Dodge’s perspective? Are the finance guys at Fiat (Dodge’s parent) screaming “How can we do this? What happens if the buyers return all the cars or trucks? How are we going to sell these used cars and trucks without taking a bath?”
The answer, most likely, is that it also looks pretty good from the seller's perspective. In most cases, buyers will not return the cars or trucks even if they are less than satisfied with their purchase. Based on a behavioral economics concept known as the endowment effect, people seem place a higher value on objects they own than objects that they do not. To take this one step further, once you've got that car or truck home and in your garage, your preferences change - they realign...the auto is now "yours", so you're far less likely to take it back to Dodge, even if it doesn't turn out to be as good as you thought when you bought it.
So for Dodge, it could be a win-win proposal. The money-back guarantee figures positively into the buyer’s cost-benefit calculation about whether to buy the auto or not, and once buyers get that car or truck home and have driven it, the endowment effect predicts that they are far less likely to return it.
Here’s the takeaway: Behavioral economics plays a powerful role in the decisions of both buyers and sellers. Failure to take advantage of these powerful forces means less money in your pocket.
In 1991, Encyclopedia Britannica posted record revenues of $650M. Less than five years later, the famous encyclopedia, once the undisputed repository of all the knowledge in all the world was on the verge of bankruptcy and had to be sold. How had this happened?
First published over two hundred years ago, Encyclopedia Britannica was among the first encyclopedias available in the English-speaking world. It’s claimed that George Washington, Alexander Hamilton and George Washington all owned an Encyclopedia Britannica. Over the next two centuries, it successfully differentiated itself from the rest of the market as the luxury brand with unquestioned trustworthiness. Its contributors “spanned the brightest thinkers of the time and scores of Nobel laureates contributed to various editions”.
From a business perspective, the encyclopedia was highly profitable for its American owners. Each multivolume set of books sold for approximately $2,000 with production costs--printing, binding, and physical distribution-- about $250. The encyclopedia was sold by door-to-door sales representatives, for which they were paid a commission of $500 - $600 per sale. The sales force was considered one of the most talented, aggressive and successful direct sales organizations in all the world.
It was thought that Britannica’s customers were willing to pay the high price commanded by the encyclopedia because they valued the authoritative information contained in the books - much more complete than offered by competitors World Book or Groliers. The customer base consisted mainly of parents who bought the books for their family with hopes that the steep investment could contribute to their children’s education.
Most people credit the rapid rise of popularity of the CD-ROM in the early 1990s as the major contributor for Encyclopedia Britannica’s demise. With the advent of CD-ROM, digital encyclopedias, such as Microsoft Encarta were selling for as little as $50. With the advent of Microsoft’s policy of bundling software with personal computers, many people got Encarta for free. At first, Britannica dismissed the challenge that Encarta and other upstart CD-ROM encyclopedias posed. They viewed CD-ROMs as “nothing more than electronic versions of inferior products.” Then as Britannica’s sales began to drop precipitously from 1992-1994, they finally developed a CD-ROM product of its print version with price point was hated by both the market (too high) and by their sales force (too low). The best salespeople began to leave the company and by 1995, the company’s fate was sealed. With the high cost of maintaining their direct sales force and steep revenue drop of 50% from 1991 to 1996, the company put itself on the market and was finally sold to Swiss financier Jacob Safra for $135 million - pennies on the dollar for what the company was worth just five years earlier.
While it’s easy to place the blame for the demise of Encyclopedia Britannia on the company’s inability to react to the technological disruption caused by the CD-ROM, the real reason is much more complicated.
According to Phillip B. Evans and Thomas S. Wuster of the Boston Consulting Group, Encyclopedia Britannia didn’t fail because of a lack of focus (on the threat of CD-ROM technology), but the company failed because they focused on the wrong threat.
“Britannica’s executives failed to understand what its customers were really buying. Parents had been buying Britannica less for its intellectual content than out of a desire to do the right thing for their children. Today [back in the mid-1990s], when parents want to do the right thing, they buy their kids a computer.”
“The computer, then, is Britannica’s real competitor. And along with the computer came a dozen CD-ROMs, one of which happens to be--as far as the customer is concerned--a more-or-less perfect substitute for the Britannica.”
Britannica’s sudden downfall is more than just another example about how a once-great company got complacent. It highlights the dangers of focusing on the wrong threat at a time when tremendous technological change was occurring. Britannica’s executives made the mistake of confusing the obvious tactical threat [CD-ROM] with the not-so-obvious strategic threat [the family PC].
Today, Encyclopedia Britannica is engaged in another war (this time with Wikipedia), and again, they’re focusing on the wrong threat. While Britannica is pouring resources into trying to convince the public that their product is superior to the one offered by Wikipedia (as measured by a standard of ‘correctable mistakes per 100 articles’), Wikipedia knows that the public doesn’t care about the minor differences in content between the two competitors. Wikipedia is focusing its resources on creating an easy-to-use site that appeals to everyone. That's where is battle is - getting eyeballs to view your content and Wikipedia is clearly winning. The proof is in the pudding (so to speak). When was the last time when you asked a question, someone told you to ‘Britannica it’? As Britannica flails, Wikipedia has built its estimated market value into the billions.
Here’s the takeaway. Keeping your eye on the ball is worthless if you’re focusing on the wrong ball. During times of rapid and sudden technological change, it makes sense to step back and figure out where the real threat lies.