Saturday, September 07, 2013

When Dominance Leads to Incompetence and Catastrophe

Dominance means leaders and employees alike lose the ability to experience risk.

Lost amidst the week's geopolitical and propaganda dramas was a signal event in the long history of dominance leading directly to collapse: Microsoft bought Nokia's mobile phone business for $7.2 billion (5.44 euros). Considering that this business was valued at 260 billion euros ($340 billion) not that long ago, that is a rather precipitous decline from tech-dominance grace.

Microsoft has a long history of acquiring innovations by buying tech companies by the dozen, and of overpaying for acquisitions and eventually writing down the value of the purchases. With Nokia's market share down to 4%, it could be argued Mr. Softee is once again overpaying, but perhaps the patent portfolio will be worth the purchase price.

Or maybe not. Patent trolling is no substitute for creativity, innovation and appreciation of risk.

Microsoft is a case study in dominance leading to incompetence and catastrophe. Within the moat of near-monopoly/dominance, competence dwindles to the ability to keep doing what worked spectacularly well in the past, and keeping bureaucratic infighting and divisional rivalries down to a dull background erosion of initiative and talent.

Doing more of what succeeded spectacularly in the past works until it doesn't, at which point doggedly pressing on with the old formula of success leads to catastrophic failures.

Nokia and Blackberry are recent case studies, but the rise of Google Chrome and smart-phone/tablet computing is beginning to threaten Microsoft's core business of being the utility monopoly in the PC space.

Dominance means leaders and employees alike lose the ability to experience risk. The customer will take what is delivered, regardless, for the simple reason that alternatives are either unavailable or cumbersome.

In the PC space, the other mainstream choice to date has been the costly Macintosh family of Apple computers.

Now that cheap tablets running the free Chrome operating system can do pretty much everything a PC can do, and do so on the go, Microsoft's monopoly is threatened. It's not just that consumers hate the Windows 8 operating system--the entire PC platform is slipping from dominance.

Millions of users such as myself would switch to a Chrome OS on the PC in a heartbeat, just to jettison the bloated Windows OS entirely. The Windows Office near-monopoly (Word and Excel) is equally vulnerable to an alternative that opens old Word and Excel files and offers basic word processing and spreadsheet functions in the Chrome OS.

It's rather staggering to list Microsoft's failures over the past decade. The strategy that worked in the 1990s--copy rivals and add more features to the copycat products and services--is no longer working.

1. Microsoft's Internet Explorer browser has lost most of its once-dominant market share to rivals such as Google Chrome.

2. Microsoft spent a reported $10 billion competing in search with Google; Mr. Softee's Bing search service remains an also-ran.

3. MSFT's tablet has never gained traction and is an also-ran.

4. Microsoft bought a slew of mobile-software companies in pursuit of dominance; as a direct consequence of this aggressive strategy, its share of the smart-phone software market has dwindled from over 10% to 1%.

5. The XBox gaming platform was supposed to dominate the convergence-web-TV space; that never gained traction, either.

Dominance in any space breeds complacency and enables the luxuries of political squabbling, sclerosis and loss of focus. Competence becomes incompetence, and the infrastructure that fosters creativity and flexibility--that is, a keen appreciation of risk and spontaneity--is slowly dismantled.

That applies not just to corporations but to governments, nations and empires.

Programs/books of note: My recent appearance on Max Keiser:

Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify or understand. We will cover the five core reasons why things are falling apart:

go to print edition1. Debt and financialization
2. Crony capitalism and the elimination of accountability
3. Diminishing returns
4. Centralization
5. Technological, financial and demographic changes in our economy

Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).

We are not powerless. Not accepting responsibility and being powerless are two sides of the same coin: once we accept responsibility, we become powerful.

Kindle edition: $9.95       print edition: $24 on
To receive a 20% discount on the print edition: $19.20 (retail $24), follow the link, open a Createspace account and enter discount code SJRGPLAB. (This is the only way I can offer a discount.)

Thank you, Mark T. ($5/month), for your splendidly generous subscription to this site-- I am greatly honored by your support and readership.

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