Internal Corporate

As a consequence internal corporate strengths and weaknesses are often difficult to identify before the benefit of practical experience especially in new and fast changing technological fields. For example:

In the 1960s the oil company in Gulf defined its distinctive competencies as producing energy and so decided to purchase a nuclear energy firm. The venture was unsuccessful in part because the strengths of an oil company in finding, extracting, refining and distributing oil based products i.e. geology and chemical processing, technologies, logistics, consumer marketing were largely irrelevant to the design, construction and sale of nuclear reactors where the key skills are in electro mechanical technologies and in selling to relatively few but often politicized electrical utilities

In the 1960s and 1970s many firms in the electrical industry bet heavily on the future of nuclear technology as a revolutionary breakthrough that would provide virtually costless. Nuclear energy failed to fulfill its promise and firms only recognized later that the main revolutionary opportunities and threats for them came from the virtually costless storage and manipulation of information provided by improvements in semiconductor and related technologies.

In the 1980s analysts and practitioners predicted that the convergence of computer and communications technologies through digitalization would lower the barriers to entry of mainframe computer firms it telecommunications equipment and vice versa. Many firms tried to diversify into the other market, often through acquisitions or alliances e.g. IBM bought Rohm AT&T bought NCR. Most proved unsuccessful in part because the software requirements in the telecommunications and office markets were so different.

The 1990s similarly saw commitments in the fast moving fields of ICT (Information and Communication Technology) where initial expectations about opportunities and complementarities have been disappointed. For example, the investments of major media companies in the Internet in the late 1990s took more than a decade to prove profitable: problems remain in delivering products to consumers and in getting paid for them, and advertising remains ineffective. There have been similar disappointments so far in the development of e-entertainment

The Internet Bubble, which began in the late 1990s but burst by 2000, placed wildly optimistic and unrealistic valuations on new ventures utilizing e-commerce. In particular most of the new e-commerce businesses selling to consumers which floated on the US and UK stock exchanges between 1998 and 2000 subsequently lost around 90% of their value or were made bankrupt. Notorious failures of that period include in the UK which attempted to sell sports clothing via the Internet and in the USA, which attempted to sell pet food and accessories.

Incrementalist strategy:

Given those conditions, incrementalists argue that the complete understanding of complexity and change is impossible: our ability both to comprehend the present and to predict the future is therefore inevitably limited. As a consequence successful practitioners – engineers, doctors and politicians as well as business managers — do not in general follow strategies advocated by the rationalists but incremental strategies which explicitly recognize that that firm has only very imperfect knowledge of its environment, of its own strengths and weaknesses and of the likely rates and directions of change in future. It must therefore be ready to adopt its strategy in the light of new information and understanding which it must consciously seek to obtain. In such circumstances the most efficient procedure is to:

1)Make deliberate steps (or changes) towards the stated objective.
2) Measure and evaluate the effects of the steps (changes).
3) Adjust (if necessary) the objective and decide on the next step (change).

This sequence of behavior goes by many names such as incrementalism, trial and error, suck it and see, muddling through and learning. When undertaken deliberately and based on strong background knowledge it has more respectable veneer, such as:

Symptom  diagnosis  treatment  diagnosis  adjust treatment  cure (for medical doctors dealing with patterns)

Design  Development  test  adjust design  retest  operate (for engineers making product and process innovations).

Source: Managing Innovation