This chapter is from the book
This chapter is from the book
This chapter is from the book
The Global Bazaar
Excess capacity, shakeouts, gluts, convergence, saturation, mature markets, and price wars—all these phenomena you've heard about are symptoms of the Copycat Economy. If you really want to understand their causes, skip over the microeconomic explanations and instead imagine yourself as a vendor in a large, cacophonous, open-air bazaar in a developing country.
Goods similar to yours are being sold in many stalls. As potential customers walk through, you and all the other vendors bombard them with "advertising," shouting enticements and invitations. The customers are overwhelmed with options and choices, and you know that they most likely view their success as a buyer by how low a price they can hammer out of you.
How can you differentiate yourself from the mob around you? How can you attract and retain customers while charging a reasonable price in this frenzied environment? How can you make your booth and your goods so extraordinary and appealing that you won't have to continually lower your price to differentiate yourself? And if you do something daring, what will you do when the vendors in the stalls all around you try to copy what you do? How do you avoid getting drowned in the noise and anonymity of an environment where your neighbor appears to be selling and yelling the same things you are?
Now imagine that bazaar on a worldwide scale, as the result of the "Perfect Storm" collision of globalization, deregulation, and technological advance. Imagine this phenomenon on a logarithmically accelerated, global, 24/7, physical and virtual basis across every product line in every industry. That's the essence of today's Copycat Economy. As you will see, the ravages of imitation and commoditization consistently flatten the financials and growth prospects of organizations in every industry, regardless of their size. Indeed, these factors left unchecked by leadership regularly cripple even the largest companies.
In the Prologue, I noted that an American icon was felled in 2005 when SBC purchased the legendary AT&T for the embarrassingly low price of $16 billion. The reason for the low price was, of course, a steep, steady decline in earnings, culminating in a 72 percent drop in stock value over the prior five years.
How did a colossal company, one that basically owned the entire telecommunications space before its court-ordered divestiture in 1984 and still maintained dominant size and market share throughout the 1990s, fail to avoid the freefall that led to its demise? We could point to a series of horribly executed and failed acquisitions into the wireless and Web arenas. We could point to a parade of CEOs who bought to the table more sizzle than steak. We could point to the lack of a cohesive strategy and the presence of a spirit-numbing bureaucracy. All true, but more important was that AT&T's "soul"—and hence its infrastructure, sunk costs, budget allocations, legacy systems, managers' comfort level and bias, and overall image—revolved around long-distance voice telecommunications. Long-distance voice used to be a lucrative, high-margin growth business, but when the protective wall of AT&T's semi-monopoly status was lifted and free-market competition in the field was permitted, long-distance voice gradually became a low margin commodity. New competitors, from Verizon to Vodafone, figured out new ways to deliver long-distance voice cheaper but profitably, even as advances in wireless and Internet telephony from companies like Nokia and Vonage rendered the field increasingly irrelevant.
I worked with AT&T leaders in the 1980s and 1990s, and I can assure you that they were smart, earnest people who understood these issues. But they did not approach their core problem with a sense of priority or urgency, nor were they prepared to do radical surgery on their business and organization. On the contrary, like the music industry's protect-the-past-at-all-cost response to the inevitable onslaught of digital music and file sharing (technologies that accelerated the commoditization of the commercial CD), the reaction of many AT&T leaders was to circle the wagons to protect their cash cows by any means necessary: legal maneuvers, better advertising, better quality, re-engineering for efficiencies, acquisition for scale, and so on. As you will see in the next chapter, these sorts of reactive, incremental responses are worthwhile management principles, but when they're applied to a decaying business model, they become compulsions that show companies how to lose. At best, they buy organizations a little time, but they can't stop the descent into Commodity Hell.
What happened to the old AT&T is the most humiliating fate that the Copycat Economy can inflict on a company: Its flagship products became irrelevant, and, therefore, the company became irrelevant. It had nothing new and exciting to offer to replace its traditional product suites.1 When I speak to corporate groups, I sometimes show a cartoon of an executive on the phone saying, "Actually, our products are so irrelevant that we don't have to worry about competition." Increasingly, the pressures of imitation and commoditization are turning up the volume of irrelevancy for many companies.