Nokia’s introduction of a netbook computer shows all the signs of a misguided move into an adjacent market. Nokia is operating from a position of weakness, not strength–because of slowing growth in Nokia’s cellphone markets. Nokia also seems to be overestimating what it can bring to the netbook market while underestimating the difficulties that it will find there.
We’ve finalized two working papers that apply our research to today’s business challenges. The first, “Beyond Fear and Greed,” is an overall look at current strategic opportunities and pitfalls. Read the paper here, or download it in PDF form. The second paper, “Perfecting the Art of the Deal,” applies our research to potential mergers and acquisitions and is available in a separate blog entry.
Beyond Fear and Greed:
Capitalizing on Opportunities in the Current Crisis
By Paul B. Carroll and Chunka Mui
Warren Buffett says his guiding principle is to “be fearful when others are greedy and greedy when others are fearful.” There’s certainly plenty of fear out there, and thus plenty of opportunities to get greedy. Greed, however, does not necessarily translate into wealth. In this article, we draw on our two years of research into more than 2,500 major corporate failures and our related consulting work to describe the landmines that companies are mostly like to hit as they try to capitalize on today’s market turmoil. We also lay out a process for ensuring that greed does not send you down the wrong path–increasing the chances that you’ll pick a prosperous road.
As reports surface that Dell is considering entering the market for smart phones, we think the company is smart to not just hunker down and hope that problems in its personal-computer business go away. They won’t go away, not any time soon.
The whole industry is under such pressure that even Intel and Microsoft are feeling it. And, before demand plunged, the industry was moving away from Dell. It had thrived in a time when people mostly used desktop computers and purchased them based on how much computing power they provided for a given price. Now that laptops are ascendant, customers are much more concerned with how the computers look, with how the keyboard feels and with other subjective measures. But Dell barely has a presence in the retail channel, so customers have little opportunity to try Dell’s laptops. Besides, Dell has never shown great strength in the kind of design that catches a consumer’s attention the way Apple does.
Which brings us to the Red Queen–and why the move into smart phones is likely to be a bad idea.
There’s something important that is getting overlooked in all the coverage of the stunning news that Bank of America has had to line up $20 billion in assistance from the federal government to handle problems at Merrill Lynch, just days after closing the Merrill purchase.
That something is this: The problems are just beginning.
When Bank of America announced its deal to acquire Merrill Lynch in mid-September, we noted in this space that we were skeptical. Based on the research for our book, we thought Bank of America was making a classic mistake: focusing so much on the benefits of an acquisition that it glossed over the potential problems. Merrill seemed to be fraught with potential problems–and they are now coming into painfully clear focus
Netflix’s recent announcement that it will sell Disney and CBS television exemplifies how Netflix is avoiding the major strategic error that can occur when a company stays the course in the face of a serious threat.
In Netflix’s case, that threat is easy to see: At some point down the road, we’ll all stop getting our movies in the mail in little red envelopes. Instead, we’ll download our movies directly onto personal computers, televisions or mobile devices such as an iPod or a phone.
The temptation for Netflix is to hang onto DVDs and little red envelopes as long as possible.