April 8, 2010 at 12:13pm
The process for resource allocation in too many organizations is highly centralized, creating a monopsony for new ideas within an organization, and favoring investment in projects that represent incremental deviation from the status quo
Current resource allocation process is rooted in denial • This denial follows a very familiar pattern: o Disquieting developments are first dismissed as implausible or inconsequential o Inaction is rationalized on the grounds that such developments are aberrant and irremediable o Organization reluctantly attempts to mitigate impacts of development, but on a reactive basis o Ultimately some (but certainly not all) organizations confront reality, albeit typically after the damage has been done. • Propensity to disclaim disconcerting facts increases as one moves up the corporate hierarchy; decision makers become increasingly separated from the realities of the marketplace and as a result, they are unlikely to give much credence to such threats.
Evolution of Music Download Market • Digital distribution model (i.e. downloading of MP3 files) was initially dismissed by the major music labels as technologically inferior and too complex for users. • Industry leaders did little to exploit the nascent market, justifying their inaction on the grounds that the new distribution model was based entirely on theft, while ignoring the fact that customers were actually seeking an alternative to purchasing music in the traditional album format. • When the music industry did finally react to the threat, they focused on defensive strategies, initiating well-publicized lawsuits against individuals and providers of enabling technology (see Napster, Real Networks). • This strategic error on the part of industry leaders allowed an outsider (Apple) to launch a pioneering music distribution model, and by the time the incumbents had recognized their error, Apple had grabbed a commanding share of the market.
• Key information is “filtered” before it reaches key decision makers • Existing compensation systems tend to penalize decisions that sacrifice current year earnings in return for future earnings.
• Dispatch senior executives on regular fact-finding missions to the “front lines,” be it visiting retailers or observing consumer focus groups • Remove financial disincentives for “self-cannibalization” (i.e. profits lost due to cannibalizing existing product lines are added back)