Momentum Is A Killer - The Demise Of RIM, Yahoo! And Dell

5 Apr, 2012

Understand your core strength, and protect it.  Sounds like the key to success, and a simple motto.  It's the mantra of many a management guru.  Only, far too often, it's the road to ruin.

The last week 3 big announcements showed just how damning the "strategy" of building on historical momentum can be.

Start with Research in Motion's revenue and earnings announcement.  Both metrics fell short of expectations as Blackberry sales continue to slide.  Not many investors were actually surprised about this, to be honest.  iOS and Android products have been taking away share from RIM for several months, and the trend remains clear.  And investors have paid a heavy price.

Apple vs rimm stock performance march 2011-12Source: BusinessInsider.com

There is no doubt the executives at RIM are very aware of this performance, and desperately would like the results to be different.  RIM has known for months that iOS and Android handhelds have been taking share. The executives aren't unaware, nor stupid.  But, they have not been able to change the internal momentum at RIM to the right issues.

The success formula at RIM has long been to "own" the enterprise marketplace with the Blackberry server products, offering easy to connect and secure network access for email, texting and enterprise applications.  Handsets came along with the server and network sales.  All the momentum at RIM has been to focus on the needs of IT departments; largely security and internal connectivity to legacy systems and email.  And, honestly, even today there is probably nobody better at that than RIM.

But the market shifted.  Individual user needs and productivity began to trump the legacy issues.  People wanted to leave their laptops at home, and do everything with their smartphones.  Apps took on a far more dominant role, as did ease of use.  Because these were not part of the internal momentum at RIM the company ignored those issues, maintaining its focus on what it believed was the core strength, especially amongst its core customers.

Now RIM is toast.  It's share will keep falling, until its handhelds become as popular as Palm devices.  Perhaps there will be a market for its server products, but only via an acquisition at a very low price.  Momentum to protect the core business killed RIM because its leaders failed to recognize a critical market shift.

Turn next to Yahoo's announcement that it is laying off 1 out of 7 employees, and that this is not likely to be the last round of cuts.  Yahoo has become so irrelevant that analysts now depicct its "core" markets as "worthless."

Yahoo valluation 4-2012Source: SiliconAlleyInsider.com

Yahoo was an internet pioneer.  At one time in the 1990s it was estimated that over 90% of browser home pages were set to Yahoo! But the need for content aggregation largely disappeared as users learned to use search and social media to find what they wanted.  Ad placement revenue for keywords transferred to the leading search provider (Google) and for display ads to the leading social media provider (Facebook.)

But Yahoo steadfastly worked to defend and extend its traditional business.  It enhanced its homepage with a multitude of specialty pages, such as YahooFinance.  But each of these has been outdone by specialist web sites, such as Marketwatch.com, that deliver everyhing Yahoo does only better, attracting more advertisers.  Yahoo's momentum caused it to miss shifting with the internet market. Under CEO Bartz the company focused on operational improvements and efforts at enhancing its sales, while market shifts made its offerings less and less relevant.

Now, Yahoo is worth only the value of its outside stockholdings, and it appears the new CEO lacks any strategy for saving the enterprise.  The company appears ready to split up, and become another internet artifact for Wikipedia.  Largely because it kept doing more of what it knew how to do and was unable to overcome momentum to do anything new.

Last, but surely not least, was the Dell announced acquisition of Wyse.

Dell is synonymous with PC.  But the growth has left PCs, and Dell missed the markets for mobile entertainment devices (like iPods or Zunes,) smartphones (like iPhone or Evo) and tablets (like iPads and Galaxy Tab.)  Dell slavisly kept to its success formula of doing no product development, leaving that to vendors Microsoft and Intel, as it focused on hardware manufacturing and supply chain excellence.  As the market shifted from the technologies it knew Dell kept trying to cut costs and product prices, hoping that somehow people would be dissuaded from changing technologies.  Only it hasn't worked, and Dell's growth in sales and profits has evaporated.

Don't be confused.  Buying Wyse has not changed Dell's "core."  In Wyse Dell found another hardware manufacturer, only one that makes old-fashioned "dumb" terminals for large companies (interpret that as "enterprise,") mostly in health care.  This is another acquisition, like Perot Systems, in an effort to copy the 1980s IBM brand extension into other products and services that are in like markets - a classic effort at extending the original Dell success formula with minimal changes.

Wyse is not a "cloud" company.  Rackspace, Apple and Amazon provide cloud services, and Wyse is nothing like those two market leaders.  Buying Wyse is Dell's effort to keep chasing HP for market share, and trying to pick up other pieces of revenue as it extends is hardware sales into more low-margin markets.  The historical momentum has not changed, just been slightly redirected.   By letting momentum guide its investments, Dell is buying another old technology company it hopes it can can extend its "supply chain" strenths into - and maybe find new revenues and higher margins.  Not likely.

Over and again we see companies falter due to momentum.  Why? Markets shift.  Faster and more often than most business leaders want to admit.  For years leaders have been told to understand core strengths, and protect them.  But this approach fails when your core strength loses its value due to changes in technologies, user preferences, competition and markets.  Then the only thing that can keep a company successful is to shift. Often very far from the core - and very fast.

Success actually requires overcoming internal momentum, built on the historical success formula, by putting resources into new solutions that fulfill emerging needs.  Being agile, flexible and actually able to pivot into new markets creates success.  Forget the past, and the momentum it generates.  That can kill you.

(Adam Hartung is Managing Partner at Spark Partners, a strategy and transformation consultancy.)