Many articles are written these days to comment on GM’s bankruptcy. One of the most insightful so far is the one by Hamel, were he reflects on the reasons that cause great companies (the kind that case studies are written for), to turn mediocre or worse. Hamel states three reasons:

1. Gravity wins
2. Strategies Die
3. Change Happens

Just to add some arguments to the debate: on the first point I remember a quote by a P&G executive that to keep the growth rate expected by shareholders they needed to create equivalent of a brand the size of “Tide” every year – a nearly impossible feat! Also, it is just natural that huge corporations will underperform due to the inherent complexity that size brings: the only reason this does not happen everywhere is when there is a huge moat (to quote Buffet) that protects the company’s uniqueness. This is where we get to the second point of Hamel’s argument – a strategy does not a permanent moat build! It doesn’t matter how good the strategy is – most times it can be copied by a hungry competitor. As Hamel says:

Over the past few decades, product- and technology-based advantages have become more fleeting. At the same time, the correlation between current and future earnings performance has become progressively weaker.

Is there a way out of this vicious circle? Can companies escape senescence? I don’t know, but the solution surely isn’t applying the latest buzzword, or copying the latest successful company as some gurus will have you believe: after all, today’s Nintendo will be tomorrow’s Sony!

(Via Noise Between Stations) A very interesting analysis of how value is created and captured in the iPod supply chain. They take a 30GB 5th Generation iPod ($300 price tag when the article was written), and take it apart. Then, they trace the value created by each component and/or assembly. As predicted, Apple gets most of the value ($80), but what is surprinsing is the authors’ estimate that Chinese assemblers get only $4!

Apart from the apparent simplification (the authors considered the iPod as a single gadget, rather than as an iPod+iTunes ecosystem), the message is clear: innovative concepts, executed right create value. Guess which of the two is harder!

From LBS Professor Freek Vermeulen comes piece of counter-intuitive (and therefore interesting – Bateson) advice: in a downturn a company should diversify rather than focus exclusively on the core product. The rationale is that, in a downturn, no single pocket of revenue is big enough to sustain the firm. This kind of thinking extents to the firm’s clients too:

…firms should not be focused on winning any big accounts, major new products or customers; they should aim for many smaller ones. They are relatively cheap to access and often the firm will already have knowledge about them; they shunned them in the past considering them too small to advance at the time.

The only real downside of Vermeulens’ idea is that such diversification and focus on more and smaller accounts will exhaust the managerial and “attentional” resources of the firm, in a period when it needs them the most in order to perfect its operations.