Why Great Businesses Fail | Summary and Q&A

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November 1, 2019
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Stanford Graduate School of Business
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Why Great Businesses Fail

TL;DR

Large companies fail due to not effectively dealing with disruption, which requires a process of ideation, incubation, and scaling.

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Key Insights

  • 🚠 Large companies fail when they are not able to effectively adapt to disruption.
  • 🀝 Ideation, incubation, and scaling are the three disciplines required to deal with disruption.
  • πŸ‰ Scaling can be challenging for companies as it often involves sacrificing short-term profits.
  • βš–οΈ Amazon has been successful by implementing rapid processes for ideation, incubation, and scaling.
  • πŸ–€ Many companies lack the ability to distinguish between ideation, incubation, and scaling in their innovation strategies.
  • πŸ–οΈ Leadership plays a crucial role in effectively dealing with disruption.
  • πŸ˜ƒ Companies should be willing to take big risks through experiments and big bets on new ideas.

Transcript

[MUSIC] What we're seeing in the last ten years certainly are large companies failing. Companies like Kodak, companies like Blockbuster, companies like Sears. And if you step back and think about it, it's not obvious why that should be. And when you ask people why that's so, they typically say they're being disrupted. But disrupted by what? Disrupt... Read More

Questions & Answers

Q: Why do large companies fail in the face of disruption?

Large companies fail when they are not able to effectively adapt to disruption. This can be due to a lack of understanding of emerging competitors, new ways of doing business, or technologies that enable different business models.

Q: What are the three disciplines required to deal with disruption?

The three disciplines required are ideation, incubation, and scaling. Ideation involves developing new ideas, incubation involves determining the potential success of ideas, and scaling involves providing resources for new businesses to grow.

Q: Why do some companies struggle with scaling?

Many companies are willing to invest in incubation and new ideas but struggle with scaling because it often requires sacrificing short-term profits. Senior executives may hesitate to allocate resources for new businesses that may not immediately generate significant returns.

Q: How has Amazon been successful in dealing with disruption?

Amazon has been successful by implementing processes for ideation, incubation, and scaling. They use a PR FAQ process to encourage people to come up with new business ideas, then form small teams to develop minimal viable products. If an idea shows potential, resources are provided for scaling.

Summary

In this video, the speaker discusses the increasing pace of disruption in the business world and the failure of large companies to adapt. He emphasizes the need for companies to excel in ideation, incubation, and scaling in order to successfully deal with disruption. The speaker also highlights the success of companies like Amazon in implementing effective processes for innovation and discusses the importance of leadership in navigating the challenges of disruption.

Questions & Answers

Q: Why are big companies failing in the face of disruption?

Big companies are failing because they are being disrupted by new competitors, different ways of doing business, and emerging technologies. The pace of change and disruption is actually increasing, making it harder for companies to keep up and adapt.

Q: What are the three main disciplines that companies need to be good at to deal with disruption?

The three main disciplines that companies need to excel in are ideation, incubation, and scaling. They need to have a process for developing new ideas, identifying which ones are likely to be successful as a business, and ensuring that successful ideas get the necessary resources and capabilities to grow.

Q: Why do some companies struggle with scaling new businesses?

Some companies struggle with scaling new businesses because it requires serious resources, and senior executives may be hesitant to sacrifice short-term profits. They may be willing to invest in incubating new ideas but become reluctant when the focus shifts to scaling.

Q: How has Amazon achieved such success in a variety of businesses?

Amazon has achieved success by having careful processes for ideation, incubation, and scaling. They encourage employees throughout the organization to come up with new business ideas and quickly move into an incubation phase if deemed promising. They then provide resources and escalate the idea if it shows potential. This approach allows them to enter and succeed in various industries.

Q: Why do companies need to take big bets and experiment?

Companies need to take big bets and experiment because a few successful big bets can outweigh all the small failures. It is through experimentation and risk-taking that companies can discover breakthrough ideas and innovations. Baso argues that companies like Amazon and Walmart excel in taking big risks and experimenting at a rapid pace.

Q: How do slow processes in big companies hinder innovation?

Slow processes in big companies can hinder innovation because they can delay decision-making and kill potential ideas. In large, traditional organizations, decision-making is often measured and slow, preventing them from quickly identifying valuable ideas. Innovation requires rapid decision-making and implementation.

Q: Why do companies fail due to disruption?

Companies fail due to disruption not because of technology, but because they lack leaders who can play multiple games simultaneously. Leaders need to understand and excel in all three disciplines of ideation, incubation, and scaling. Companies interested in innovation must have managers who realize the importance of these three disciplines.

Takeaways

The increasing pace of disruption requires companies to excel in ideation, incubation, and scaling.

  • Companies should have processes for developing new ideas, identifying potential successes, and providing resources for growth.
  • Scaling new businesses often requires a sacrifice of short-term profits, which some companies struggle with.
  • Successful companies like Amazon excel in rapid decision-making, big bets, and experimentation.
  • Leadership plays a crucial role in navigating and adapting to disruption by understanding and implementing the three disciplines of ideation, incubation, and scaling.

Summary & Key Takeaways

  • Many large companies, such as Kodak, Blockbuster, and Sears, have failed in the past decade due to not effectively adapting to disruption.

  • To successfully deal with disruption, companies need to have processes for ideation (developing new ideas), incubation (figuring out successful ideas), and scaling (providing resources for new businesses).

  • Some companies are good at incubation but struggle when it comes to scaling, as it often requires sacrificing short-term profits.

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