Every company has to make important strategic decisions. We can see with hindsight that some decisions which looked smart at the time turned out to be dumb. Often it was because the wrong assumptions were made.
In his excellent book, Exponential Organizations, Salim Ismail coins the phrase an Iridium Moment. He explains how in the late 1980s the telecoms giant Motorola made a huge bet which turned out to be a strategic blunder. They could foresee a boom in demand for cell phones but at that time coverage was limited to urban areas which had local radio towers. Motorola launched a company called Iridium which planned to place 77 satellites around the Earth in order to provide mobile telephony coverage anywhere on the planet. It was an ambitious plan which failed spectacularly and cost its investors $5B. Why did it fail? Ismail explains that the plan was based on the wrong assumptions. The Motorola executives had based the justification for the satellite solution on the high cost and limited effectiveness of cell phone towers. This was true in the 1980s but by the time that the satellites came on stream the cost of towers had fallen dramatically and their range and power had increased. According to Dan Colussy, who organised the Iridium buyout in 2000, Motorola had refused to update its business assumptions, ‘The Iridium business plan was locked in place 12 years before it became operational.’ Ismail defines an Iridium Moment as using linear tools and trends of the past to wrongly predict an accelerating future.
In the 1980s, when mobile telephony was clunky, unreliable and expensive, the renowned consulting company McKinsey advised AT&T not to enter the mobile phone business, predicting that there would be fewer than one million cellular phones in use by 2000. They were out by a factor of 100 – there were 100 million cell phones in use in 2000 and McKinsey’s recommendation meant that AT&T missed out on a huge opportunity.
Another example given by Ismail is Nokia’s purchase of Navteq for a staggering $8B in 2007. Navteq was the dominant player in in-road traffic sensing equipment. Nokia believed that the data from Navteq’s traffic sensors would allow it to lead in mobile mapping and traffic information. This would give it a strong competitive weapon against Apple and Google. Unfortunately for Nokia an Israeli start-up company called Waze found a much better and cheaper way to gather traffic information. They crowdsourced location data from the GPS sensors on people’s mobile phones in order to capture traffic information. The Navteq hardware cost a fortune to maintain and upgrade whereas the data from users’ phones was growing fast and was easily available.
When Google acquired Waze for $1.1B in 2013 it had 50 million users – far more ‘traffic sensors’ than Nokia could match.
Nokia spent a fortune acquiring physical assets while Waze simply accessed information already available on people’s phones. Ismail characterises the Nokia approach as linear thinking – extrapolating the past. The Waze approach is described as exponential thinking by accessing and sharing information.
If you have to make a massive strategic decision then check your assumptions right up to the last minute and be on the lookout for emerging technologies which could undermine your grand plan.
Image credit: defenseindustrydaily.com
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Paul Sloane writes, speaks and leads workshops on creativity, innovation and leadership. He is the author of The Innovative Leader and editor of A Guide to Open Innovation and Crowdsourcing, published both published by Kogan-Page. Follow him @PaulSloane