Helmer distinguishes counter-positioning driven by negative combined investment value, incumbent cognitive bias and agency incentives, while excluding a new business that is unattractive to the incumbent on a standalone basis.

Evidence 8 passages

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Kodak could have easily taken the view that their business was image storage, not film, thus avoiding marketing myopia. Unfortunately this broader view of the business would have been to no avail, as the lack of semiconductor capabilities would have remained and been decisive in determining a negative outcome. 1. Milking. Negative Combined NPV. Suppose the new approach was unlike digital storage for Kodak, and instead looked promising on a standalone basis. In this case, our hypothetical CEO would face another set of issues. Standalone attractive? Yes. Joint NPV of entering? Positive? Negative? This was the situation faced by Ned Johnson, the CEO of Fidelity, when passive mutual funds started to appear. Unlike the Kodak case, Fidelity possessed all the capabilities to develop and distribute passive funds. They were a mutual fund powerhouse, and one could even reasonably argue that their capabilities in this space were superior to those of Challenger Vanguard. However, the impact of entry into passive funds on their remaining base business of active funds would have been subtractive. Active funds carry radically higher expense charges,
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the challenger's new approach. Standalone unattractive is not counter-positioning. in its first step the business development team would hive off those situations in which a standalone assessment of the new approach forecasts an unattractive return as these are not counter-positioning to this end the team would pose this question stand alone attractive no yes if no is the answer then collateral damage does not account for the incumbent's rejection of the challenger's approach to the business the new approach is simply a poor bet all by itself here the example of the digital camera challenge to kodak is instructive Kodak's business model was legendary, built on the customer's continuing need to purchase film, a product in which Kodak was wildly profitable, due to both scale economies and a proprietary edge. This power type is cornered resources, to be covered in Chapter 6. Kodak offered the first of its path-breaking Brownie cameras in 1900. By 1930, it was one of the firms in the Dow Jones Industrial Index, and it stayed in that group for more than 40 years, one of the great business empires. Until digital photography came along, that is. Anyone could extrapolate from Moore's law that analog chemical film was eventually doomed. Pundits have looked back and chided Kodak for poor management, lack of vision, and organizational inertia. And a reasonable person might well ask, How could a company high on the lists of the best companies in the world succumb to such a defeat?
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A reasonable question. And the answer is much simpler than many suggest. In fact, Kodak was fully aware of its eventual fate and spent lavishly to explore survival options. But digital photography simply was not an attractive business opportunity for the company. Kodak's business model was built on its power in film. It was not a camera company. The digital substitute for film was semiconductor storage, and Kodak brought nothing to this arena. As a company, Kodak had excellent management. Thus, the observed wheel spinning, their fruitless explorations in the digital world, simply reflected the strategic cul-de-sac they faced. The technological frontier had moved. Consumers were better off, but Kodak was not. More generally, this situation can be characterized by three conditions. One, a new superior approach is developed. lower costs and or improved features to the products from the new approach exhibit a high degree of substitute ability for the products from the old approach in this case as semiconductor topology shrunk digital imaging came to completely supplant chemical imaging 3 the incumbent has little prospect for power in this new business either the industry economics support no power a commodity where the incumbents competitive position is such
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the detainment of power is unlikely. Kodak's formidable strengths had little relevance to semiconductor memory, and those new products were on an inevitable path to commoditization. Such reinvention is quite common, as are the associated and often unfair castigations of the incumbent's management failures. The gales of destruction was Schumpeter's famous turn of phrase for such occurrences. But this is not counter-positioning. Kodak's failure to respond had nothing to do with collateral damage within their film business. Rather, it indicated only that digital photography as a standalone business failed to offer even the faintest promise of power for Kodak. Facing such a situation, our hypothetical CEO would nix any commitment of investment, branching in the following way. Standalone attractive? No. Don't invest. Not counter-positioning. Before turning to those cases in which collateral damage serves as the decisive inhibitor, I would like to comment on another frequently discussed issue.
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and many even had upfront sales commissions, loads. For the assets they would have cannibalized, the revenue decline would have been dramatic. Further, many at Fidelity felt they were facing an existential threat and the introduction of passive funds would have taken them off message in the rearguard advocacy of active funds. They assumed, reasonably, that any conceivable gains made with these new funds would have been more than offset by losses in their base business of active funds. In similar hypotheticals then, a rational incumbent CEO would decide to eschew the new approach. This type of don't invest determination represents one type of counter positioning, CP. The term I use is milk because the CEO is essentially choosing to milk a declining original business even though the new model is attractive. To be explicit, while the decision to invest may have offset damage to the incumbent's original business, collateral damage, there remain some advantages to the decision to kill that investment. This is the barrier. Standalone attractive? Yes. Joint NPV of entering? Negative. 1. Don't invest. CP. Milk. especially for the challenger. As the challenger cannibalizes the incumbent's customer base, two parts of the incumbent's negative attribution lesson. A. The incumbent's original business shrinks. And B. The uncertainty surrounding the viability of the challenger's approach diminishes. As this scenario plays out,
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the risk-adjusted size of expected collateral damage declines. At some point, a rational incumbent, our hypothetical CEO, will then find the collateral damage insufficiently offsetting, an investment is warranted. Such delayed entry happens frequently, and while some may characterize it as incumbent foot-dragging, it is often simply a rational response to the circumstances. 2. History's Slave, Cognitive Bias Suppose an outside objective analyst examined the incumbent's potential entry into the challenger's new business model, and found that the incremental NPV of doing so was positive. Certainly this would warrant an investment, yes? Not so fast. There's more to our collateral damage story. Thoughtful CEOs still might forego entry investment if their opinions differed from this objective view and they perceived deeper decrements. Our next effort, then, is to explore reasons for such a difference. Standalone attractive, yes. Joint NPV of entering, positive. further decrement? What are the potential causes of such decrements? They could be numerous, but over several decades of client strategy work, I have noted two that seem common. The first involves two characteristics of challenges to incumbency. One, the challenger's approach is novel and, at first, unproven. As a consequence,
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it is shrouded in uncertainty, especially to those looking in from the outside. the low signal to noise of the situation only heightens that uncertainty to the incumbent has a successful business model this heritage is influential and deeply embedded as suggested by nelson and winter's notion of routines and with it comes a certain view of how the world works the ceo probably can't help but view circumstances through this lens at least in part. Together, these two characteristics frequently lead incumbents to at first belittle the new approach, grossly underestimating its potential. In the face of low-cost passive funds, Ned Johnson of Fidelity once famously inquired, why would anyone settle for average returns? This negative cognitive bias can lead to a don't invest decision, even if an objective observer might judge such an investment favorably. Here we arrive to the second type of counter-positioning. Stand-alone attractive? Yes. Joint NPV of entering? Positive. Further decrement? Cognitive bias. 2. Don't invest. CP. History slave. 3. Job Security – Agency Issues There's a second source of decrement that can lead our CEO to reject an objectively attractive investment decision. The difference is between the objective of the firm, maximum value, and that of the CEO, or other investment decision-makers.
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Economists refer to these situations as agency problems, because the agent's actions are at odds with the organization she represents. Usually it's about incentives. For example, it is devilishly difficult to design a CEO's compensation so that it closely mimics long-term enterprise value. Addressing the threat of a counter-positioned competitor frequently requires upending the incumbent's business in multiple ways. And such turmoil is rarely symmetric in its impact on enterprise value and compensation. Even with best practice long-term incentive plans in place, This completes our parsing of the collateral damage barrier in counter-positioning. Standalone attractive? No. Don't invest. Not counter-positioning. Yes? Joint NPV of entering? Negative. Cognitive bias? 2. Don't invest. CP. History slave. Agency. 3. Don't invest. CP. Jobs. security. None. Invest. As the finalized chart indicates, there are three varieties of counter-positioning, depending on the particulars of the collateral damage involved. Milk, history slave, and job security. I should note that agency and cognitive bias issues are not mutually exclusive. Frequently they appear in concert, as they are connected with the to and fro that company is the upending of a well-established business. To finish up our treatment of

Where the agents stand

No agent has recorded a position on this claim.