Morgane Delledonne of Global X ETFs
The fable goes that if you put a frog in a pot of boiling water, it will leap out of the pot immediately. But if you put a frog in a pot and gradually heat the water, the frog does not notice the change in temperature until it is too late.
Applied to the business world, when a company does not change its business model in a timely manner, that company will slowly die, just like the fictitious frog in the fable.
To mitigate risks that come with change, companies need to be able to see what is ahead and pivot accordingly.
For investors looking to capture that corporate vision as it materialises, finding a growing and disruptive theme can be easier than deciding whether an old company can adapt to the future.
Vision begets innovation
Vision is what drives an organisation. Having a business culture focused on innovation can help position businesses at the forefront of a changing market rather than being destroyed in the disruption.
According to famed management expert Peter Drucker: “Every organisation has to prepare for the abandonment of everything it does to survive in the future.”
Without timely pivots, companies can fall out of favour in the marketplace, fail to attract the capital required for expansion and fail to deliver shareholder value.
Unfortunately, history shows that pivots often come too late. But for every example of a failed pivot, there is an example of players that were ready, willing and able to fill the void.
We have highlighted how several corporate frogs responded to that proverbial pot of boiling water. As expected, some fared better than others. Reasons for failure vary; typically, it is never just one.
Kodak and Apple
Kodak is an excellent example of a company that went from leading its industry to becoming a dinosaur due to the global shift from film to digital photography.
Despite developing the first digital camera, and even predicting online photo sharing, Kodak executives were reticent to dethrone their leading film production and processing business.
In fact, Kodak purchased a photo-sharing site called Ofoto, which it rebranded EasyShare Galley in 2001.
Contrary to an increasing interest in an online photo-sharing, EasyShare Galley encouraged customers to print their digital images.
Kodak failed to realise that digital and online sharing were necessary pivots, not just a way to expand their traditional printing business.
Kodak’s downfall as a market leader stemmed from a fear of self-cannibalisation.
Conversely, Apple is a king of self-cannibalisation. Apple’s approach is not only to have a product for most consumers at many price points, but also to force consumers to decide between products.
Phil Shiller, Apple fellow and ex-senior vice president of worldwide product marketing, provides insight into this philosophy: “The iPhone has to become so great that you do not know why you want an iPad, the iPad has to be so great that you do not know why you want a notebook.
“The notebook has to be so great that you do not know why you want a desktop. Each one’s job is to compete with the other.”
The mentality of self-cannibalisation continues to shape the Apple technology even today.
For example, the iPhone and its next-generation technology rendered the iPod something of a relic a year after the iPod reigned supreme. In other words, Apple championed the iPod’s demise.