Cyprus is in the news as the world wrestles with insolvent banks in that country. The challenge is that a failure of the Cypriot banks would lead to wider failures across the world. The underlying idea is that banks can be too big to fail. The failure of one large bank takes all its investors, bond holders, and depositors down the drain with it, and if this group is large enough it could collapse entire economies. As governments fall with economies, governments declare banks “too big to fail” and find a way to bail out these banks.
So far no government has declared a technology company “too big to fail”, and these tech giants do fail as innovation and competition change the technology landscape. Many tech giants are in the news as they face the latest shift to touch screens, cloud, and big data. Should these firms be declared “too big to fail”, or are they simply too big to succeed?
A core competence is the result of a specific set of skills or production techniques that deliver value to the customer. Such competences enable an organization to access a wide variety of markets. Executives should estimate the future challenges and opportunities of the business in order to stay on top of the game in varying situations. -wiki
The key question: when is giant size helpful in technology? A standard way of answering this question is to identify the core competencies of a firm, and testing whether the firm’s activities focus on the competencies. The standard alternatives to focus are vertical integration or a conglomerate of unrelated parts. A firm which focuses on core competencies will succeed, others will not.
Apple has always been unique among technology firms, choosing to build both hardware and software of its own while “Wintel” took a commanding market share. For much of its existence Apple fit the idea that a preference for vertical integration rather than focus on core competencies leads to weak performance. The stunning move into portable music players – the iPods — certainly changed results for Apple. Vertical integration was retained with this new product, Apple still controls both hardware and software. How did Apple succeed with such a new and unrelated focus on music? Perhaps because for Apple a focus on music was not unrelated to its core competency . Apple long held market share for students and artistic computer users, its college student customers wanted a better way to collect, share, and bring music with them (Napster anyone?). Apple used its competency with these consumers to change the user experience and redefine technology at the point of use. Expansion of the music player to include games and other Apps, touch screens, cameras, phones followed by increased device sizes of tablet computers – iPads – follow a focused core competency in consumer computing.
HP provides a counterexample. Known for printers and servers (including consolidation of DEC and Compaq), HP decided to vertically integrate to capture a bigger share of corporate IT spending. Moving first to consulting (EDS acquired) then to networks (3Com), tablets (Palm) and lately to software (Autonomy) HP has yet to find a way to succeed as a whole. HP is a giant, and it wants to get bigger like IBM, but without identifying core competencies it will remain a conglomerate that is too big to succeed.
Amazon provides an example of growth through focus. Started as an electronic bookseller it has leveraged its core competencies in electronic retailing and order fulfillment to expand to all retail products. Amazon goes further by hosting operations and electronic stores for other retailers. Even its foray into tablet hardware – Kindle — and e-books center on the core competency.
Oracle dominated in databases then vertically integrated into applications. Acquisitions drive growth and substitute for innovation culminating in Oracle’s entry into hardware (Sun acquisition). Meanwhile customers move on with Hadoop and NoSQL instead of Oracle’s core database products. The mighty Oracle sales engine is faltering as distractions replace the “value to the customer” component of core competencies. Can Ellison regain focus or will Oracle acquire itself into too big to succeed?
In a world where the giants lose their way, what is a smaller tech firm to do? Get very familiar with your core competencies and focus your strategic moves in those areas. Your customers define the value of your competencies. If you are vigilant your customers may lead you to unexpected value as Apple moving into music. They will certainly lead you to consistent value as at Amazon in all things retail. Chasing size for its own sake may separate you from your customers as at HP and Oracle – then you risk becoming too big to succeed.