Week 5 Discussion

Recognizing the Need for Change

Rita McGrath, Columbia Business School professor and author of the article, “Transient Advantage,” discusses several traps that can blind a company to the need for imminent changes to their strategy to preserve competitive advantage. These traps, discussed in the second half of the article, include: the first-mover trap, the superiority trap, the quality trap, the hostage-resources trap, the white space trap, the empire-building trap, and the sporadic-innovation trap.

Locate and post a link to an article in The Wall Street Journal, or another reputable source, about a company that fell victim to one or more of these traps.

• Identify the trap(s) and discuss why you believe the companys management missed the warning signs.
• What were the impacts that resulted from falling for the trap(s)?
• Drawing on the guidance offered by Sherman in Chapter 6, what could they have done differently to avoid the trap(s)?

Post your initial response by Wednesday, midnight of your time zone, and reply to at least 2 of your classmates’ initial posts by Sunday, midnight of your time zone.

1st person to respond to is Chad

 Hello Dr. G. and Class,

Identify the trap(s) and discuss why you believe the companys management missed the warning signs.

Rita McGraths article this week teaches us that successful businesses can no longer rely on established practices and positions, instead, companies must strive for a transient advantage, or the ability to be constantly innovating through new strategic initiatives over and over again (1).  The one trap I would like to examine this week is the empire-building trap (1).  This trap addresses companies that have acquired significant assets over time, but that struggle with bureaucracy, experimental inhibition, and an adverse position on risk (1).  I experienced this firsthand when working with Baker Hughes, a GE Company (BHGE) during the initial acquisition and the year following.  The article I would like to reference is from the Wall Street Journal which discusses the failed experiment and how Baker Hughes would be spun off as GE attempts to reduce its debt by more than $75 billion by 2023 (WSJ, 2). 

What were the impacts that resulted from falling for the trap(s)?

Speaking from personal experience having gone through the merger, I can say that many employees felt that the company simply became too large to operate efficiently.  McGrath mentions that a pitfall of the empire-building trap is that it causes employees who like to do new things to leave (1).  That is exactly what happened, as, within one year of the merger, all six of our technical sales team members left the company (on their own accord) for competitors.  However, there was also a brutal restructuring (McGrath, 1) that created employee disengagement and created resentment.  McGrath argues that restructuring sometimes cannot be avoided, but it is important that companies approach it with compassion to disengage with the least destructive, most beneficial ways possible to keep relationships with ex-employees as amicable as possible (1).  The Wall Street Journal article details the failed acquisition and that GE is deleveraging targets to cut down on its debt and spin-off unsuccessful ventures (2).

Drawing on the guidance offered by Sherman in Chapter 6, what could they have done differently to avoid the trap(s)?

While GE is a very successful company, when it comes to the entity of BHGE and spin-off, I would classify this as a profit lagger (3).  The appropriate response, as Sherman indicates for laggards, is to shrink to grow around defensible core businesses and fix or fold lagging business units (3).  That is exactly what GE is doing by cutting stakes in Baker Hughes and focusing on making and servicing jet engines (WSJ, 1).  When the merger was first announced, I was very excited about the possibilities of the new company and how it would be great to access much of GEs innovative processes and products.  However, Sherman teaches us that a company must go all-in to support its strategy, meaning that all corporate capabilities must be aligned with the articulation of market-differentiating strategy (3).  That was not the case at BHGE, as new systems were implemented, but there was a lot of confusion and layers of systems upon systems that impeded the speed of business.  Speaking first-hand, our team felt that we became more focused on reporting up and within BHGE, than being accountable and available to our clients.  Had BHGE focused on decisive action in both concept and execution, BHGE could have become a market-leading oilfield services company given its size, market share, the strength of products, turn-key offerings, and experienced workforce (Sherman, 3).  Sherman suggests that a CEO must keep the organization motivated and incentivized to fulfill the strategic direction (3). 

Regards,

Chad

Source List:

1. Rita Gunther McGrath.  2013.  The Transient Advantage.  Harvard Business Review.
2. Nita Trentmann.  2021.  The Wall Street Journal.  GEs CFO Plays Key Role in Companys Three-Way Split. 
3. Leonard Sherman.  2017.  If Youre in a Dogfight, Become a Cat!

2nd person respond to is 

Xiaodong Zhu 

 Hello Dr. G and Class:

Locate and post a link to an article in The Wall Street Journal, or another reputable source, about a company that fell victim to one or more of these traps.

#1 the Product Graveyard – Why Did Netscape Fail, Airfocus.com

Identify the trap(s) and discuss why you believe the company’s management missed the warning signs.

Netscape lost the browser war to internet explorer in late 1990. I identified two traps from Netscape’s strategy.

• The first one is the first-mover trap. Netscape is the first successful startup of the internet era and the first commercial web browser released in 1994 (1). Netscape’s had a successful IPO and trusted more than 90% of browser usage (2). The early entry into this product gave Netscape a unique advantage, helping it remain the leader until mid-1997 after Microsoft released the internet explorer 4.0. In 1998, Netscape lost the browser war and failed to keep its position. First-mover status can confer advantages, but it does not do so categorically. Much depends on the circumstances (3). When Microsoft started to bundle the browser with OS, Netscape didn’t define a good strategy to compete with IE. If they focus on browser efficiency, like today’s Google Chrome, they will not lose the game.
• The second trap is the superiority trap. As the first web browser product, Netscape used some old code for the Netscape products until it faced difficulties adding new features to compete with internet explorer. The management decides to stop updating the existing version of the software and rewrite the code from scratch for version 5.0. However, version 5.0 took more than three years to develop. When the new version is finally released, the internet explorer already dominates the web browser market. One warning sign management missed is if the code needs to rewrite, they should start earlier.

What were the impacts that resulted from falling for the trap(s)?

The result is that Netscape lost the position of the market leader to Microsoft internet explorer in 1998. Netscape was sold to AOL and then discontinued in December 2007 (4).

Drawing on the guidance offered by Sherman in Chapter 6, what could they have done differently to avoid the trap(s)?

One approach they can do differently is the management need to lead strategically with courage. After being acquired by AOL, Netscape has an opportunity to win it back. Instead of rewriting the whole communicator suite (including navigator, email, and composer), Netscape should focus on web browsers only. Updating the web browser will take a much shorter time. Three years are too long for a new product to release.

Stop updating the old version is also a big mistake. Continuous innovation is essential in sustaining superior performance. Although the technologies were the way to go, Netscape needed to accept a realistic time frame to build those and adopt a transition plan, including an intermediate release based on the old browser code to keep it in the game (5).

Thanks

Xiao

Ref:

1. David Shedden. October 13, 2014. Today in Media History: The first commercial Web browser, Netscape Navigator, is released in 1994.
2. Nov 10, 2016. Netscape, the rewrite big mistake.
3. Fernando and Gianvito. April 2005. The Half-Truth of First-Mover Advantage. 
4. Andrei Tiburca. Jan 17, 2020. #1 the Product Graveyard – Why Did Netscape Fail. 
5. John Gable. Nov 25, 2013. Why Did Netscape Lose Market Share?.