When Kings lose their Crowns: how a company’s lack of innovation leads to a lack of growth
Updated: Nov 4, 2022
During the early 2000s, Nokia and Blackberry dominated the phone market: Nokia’s global market share was 40% in 2007. Similarly, at the height of its power, Blackberry’s market share stood at a colossal 43% in 2010.
Yet, within just five years, both these giants were dwarfed by the rise of Apple’s iPhone.
Apple’s net worth in 2021 reached $2.08 trillion and it obtained over 50% market share of the mobile industry. Contrastingly, since 2016, Blackberry’s market share in the mobile industry has remained at 0.0%. In 2022, Blackberry announced that it would stop supporting its operating system for older phones, thus rendering its once-iconic phones obsolete.
According to experts such as Haiyan Wang, Managing Partner at China India Institute, and Anil K Gupta – Chair in Strategy, Globalization and Entrepreneurship at the University of Maryland – one of the principal reasons for Blackberry’s collapse was its lack of innovation.
Blackberry’s collapse begs the question, what causes companies to stumble at innovation?
1) Past success can cloud future judgements/decisions
People with the power to make decisions within the company – for both the long and short term – tend to look at the future through the lens of yesterday, especially past successes.
Nokia and Blackberry thought their past successes of bumper profits and dominance in the phone industry ensured their security from new competitors.
When the iPhone was launched in 2007 Steve Ballmer, the then CEO of Microsoft, declared that there was “no chance” that the iPhone would obtain a significant market share.
Similarly, the co-CEO of Blackberry famously dismissed iPhone as a niche product, incapable of making an impact in the “busy” mobile space.
Simply put, Blackberry was unable to acknowledge the disruptive effect of Apple’s iPhone, and more importantly, it was too stubborn and arrogant to change.
2) Earnings pressure and investor expectations
As is the fate of most public listed companies, Blackberry became a prisoner of investor expectations.
Rather than investing time, capital and effort into R&D and creating ‘the next best thing’, the company was more concerned about pleasing its investors by improving the company’s quarterly share prices: thus, increasing the shareholders’ dividend return.
Instead of planning for the years to come, Blackberry focused on short-term growth. This made it harder for the company to innovate.
Blackberry could have countered iPhone’s rise in popularity with better products and ideas, but thanks to the lack of attention given to R&D Blackberry’s products did not improve: the cameras on Blackberry’s phones failed to rival other smartphones, moreover, Blackberry took longer than most to adopt touchscreen technology.
In a nutshell, if a company wants to remain avant-garde and contemporary, it should not prioritise short-term growth to please shareholders over ensuring dominance for the long term.
3) Too much reliance on customer feedback
“The customer is always right” is a widely known and respected norm in business.
However, Anil Gupta suggests, that companies can get trapped in the dilemma of overly listening to customers. Gupta claims that it can be dangerous to assume that customers always know what they need and want.
Gupta’s argument is sound, in the late 1950s market researchers told the founders of Xerox that there did not appear to be a need for photocopiers according to customer surveys. Turns out the need for photocopying grew rapidly amongst customers and as such Xerox – who produced photocopiers – grew in prominence: the process of photocopying is called in many countries ‘xeroxing’ – a synonym of the corporation which works in over 160 countries.
Another example of a company ignoring customer feedback/market research was Apple and IBM. Both companies – in their early stages – sold computers, and the market thought it ridiculous that individuals would want to have personal computers. Yet, fast forward to the present day and the concept of a personal computer/laptop is almost a necessity in modern life.