The Innovate on Purpose blog points out that the buggy whip manufacturers serve as the whipping boys (pardon the pun) of academics and business people as businesses who failed to recognize market disruption and the need to innovate. This of course led to their rapid extinction and their now infamy as poster boys who failed to change with the times.
But as the post goes on to explain, we shouldn't be feeling too safe ourselves as most (not all) leading businesses tend to strike defensive positions in their markets that are more geared to defending their positions by counting on being able to fall back on their efficiencies, size and market share position. That's great as long as you can see the attackers from a distance andthey have to cover the same groudn to reach you, and that the attackers will have to take time to build up the critical mass to attack. Unfortunately, that may not be the case anymore and may become even less so in the future.
The post goes on to delineate many major structural, political and social changes that are taking place right now that accelerates the changing rules of engagement (e.g. internet, Euro-zone, Arab Spring, Russia and China policy, US Government borrowing to meet budget, etc). It also goes on to offer an observation on how traditional business building is declining in effectiveness.
If you look at the Return on Invested Capital over the last 50 years for the 20,000 top US firms, it is on steady decline. It has dropped from about 5% to 1%. The writer takes this to imply that there is much more new competition, substitutes and alternatives in the market than ever before and that the capital investors can no longer command high prices - a signal the firm is focused on defense and cost cutting while the market shifts. The average lifespan of a Fortune 500 company is only 15 years now and falling Uh-oh!
Attacking firms on the other hand are creating new products that command higher margins and forcing their competition to respond to them -- kind of like Dexter last night "I don't run. I make other people run". Innovation must become a core competency to and not an occasional activity to survive in this environment. And if you don't innovate? You may become the next "buggy-whip" manufacturer in the business school of your choice's new case study.
Posted by Bruce Lehr Oct 22nd 2012.