Corporate Self-Destruction

Corporate Self-Destruction

During our time at university, we are generally taught about the lifecycle of a product. For those who have studied business-related courses, they should recognize the following model.
Essentially a product is born, grows, stabilizes and matures before it is finally retired or replaced by an upgrade or a substitute. The model is as self-explanatory as it is logical. When the iPhone was released, a hype was created surrounding the revolutionary product. After selling millions of phones in that year, it was soon replaced by the iPhone 2. Although the lifecycle of the new upgrade overlapped that of the first iPhone, on the bigger scale it is the source of the constant growth that Apple as a company has been experiencing since 2007 along with the other products in their portfolio (iPad, Macbook, etc.)

Between 2008 and 2010, many companies like Apple reached their epitome of business maturity. They managed to launch several highly successful products that provides a reliable source of income and possibly hedge security against each other. The company is also continuously looking for improvements to help prolong that stable growth rate. For some, that meant increasing the budget to their Research & Development department, while others cut back their expenses and look to reinvent the company towards a more profitable future (eg. Sony).

Many people would recognize this. The economy is reported growing worse and corporations are undergoing a corporate restructure – thousands of people are reported to lose their jobs. Depending on the type of company or the status they find themselves in, such processes may materialize earlier or later. There are companies that are currently still in the process of transformation.

Dell is one of such highly published cases. In 2013, computer company Dell was privatized after news broke out that Michael Dell was looking to buy back the company from its stockholders and to undergo a massive change. It was a deal that seemed almost too logical to happen. Dell found themselves trapped in a situation that required them to shed their less profitable businesses and focus on the better performing one: IT Services. In order to implement those changes quickly and catch up on their competitors, Dell had to remove those chains that would otherwise be imposed on them through time-consuming decision-making processes of their owners.

Similarly, Sony has stopped selling their well-known Vaio laptops in several countries as it attempts to shed its loss-making branches. The truth is that Sony seems to misunderstand their priorities and have lost their sense of direction. A constant political struggle between its executives and upper management, but that would be a story for another day.

As a company reaches maturity and along its way a certain level of domination on the relevant competitive market, it also gains a limited invulnerability status. Companies like Google, McDonalds, Coca-Cola, Proctor & Gamble, all are in some way untouchable. The reason for that is because they have a certain niche that makes them a necessity in everyday life. Imagine a life without Google and suddenly searching for things online becomes a lot harder. Children growing up not experiencing the magic of Disney is somewhat inconceivable. However, for most companies the challenge begins here. Where should they go from there?

The compelling thing about being a market leader is the fact that one has to lead. Leading means to provide constant innovation to stay ahead of the pack. Massive budgets are provided in the research of better technology in the hope that the resulting product catches on to the target audience. Sometimes these ideas work, but at other times they can backfire massively. Examples of these are Sony’s Betamax and Coca-Cola’s ‘New Cola’.

The problem, wasn’t that they weren’t trying. The product just went a bit outside the comfort-zone of the consumers who had fallen in love with the original formula. Certain products are attractive for a reason. To change that – especially when it heavily involves the natural senses of man – means that people are essentially trying out an entirely different product which they need to get used to. Finding success through failure is a process every company goes through, but it is the attempt to keep trying and innovate that keeps a company going. This is why risk assessment is such an important task inside a company.

However, what happens when a company is overwhelmed by its success? SM Entertainment, a major label company in South-Korea, is one of such companies. Originally a small-medium enterprise, SME soon began to grow larger through the success of its artists. Pop artists and pop groups expanded into foreign markets, heading into Japan, China, Singapore, Philippines, Thailand and more. Every year, a new group would debut into the Korean market to appease every young generation of fans with catchy tunes and pretty looks. From 2011, however they faced a new problem.

During that time, SM Entertainment explored the possibility of heading into the American market. Having tested the waters like others before, they found that the return wasn’t as well-received as it should’ve been. Many people considered the attempt to be a failure, often accusing the lack of promotion to be one of several reasons why things did not succeed. However, speculation exists that the company, regardless of its financial wealth, simply did not have the ability to cope with the necessary skills or knowledge. Further evidence appeared over the next several years as song variety dulled and innovation slowed down. In addition, major pr issues arose as controversies regarding poor marketing decisions resulted in questionable product releases. The company is currently facing an identity crisis as it’s looking for a stable footing to support its artists.

They may find that undergoing a complete metamorphosis would be required to revive its previous untouchable status. Establish a company culture that does not simply revolve around efficient calendar planning of its artist, but truly recognize itself as a large company, creating the necessary departments, re-evaluating its personnel and to hire functional workers that could perform their dedicated tasks instead of sharing them between several employees. In other words, a corporate restructure.

If there is anything to learn from sports personalities, it is that the biggest successes may not solely rely on the constant innovation and improvement of skills and capabilities, but also the need to reduce the number of weaknesses. However, as SM Entertainment is experiencing right now, enjoying successes and steadying on the idea of invincibility is not part of the path to success. Corporate restructures are harsh to members of the established entity, however it is understandable that if such steps are not taken, then it is only a matter of time before everyone goes down with the ship. And we have many more examples of that.

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