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Author: Anas.Aljumaily | Total views: 105 Comments: 0
Word Count: 3026 Date: Mon, 15 Dec 2008 2:23 PM

Palm's Demise: Strategy Analysis

Within the realm of the viciously shifting competitive market, one rule stands: always be aware of the business you are in and plan for what business you should be in. In the case of Palm and Palm’s rapid descend from excellent profits to increasing losses; Palm had simply not paid enough attention to the rule. Palm’s problem, just like all strategy was fundamental and is easier said than done. Palm had ignored the two most important functions of a business, marketing and innovation. This essay argues: since Palm did not pay attention to what business it was in, it lost the ability to successfully market and innovate. The solution to Palm’s problem, just like implementing strategy, is complex, risky, and overall tricky but nevertheless would have been required if Palm wanted to stay in business. Palm, having created the market for Palm Pilots, was in a unique position in the beginning but, as with all successful markets, the emergence of competition was threatening its market standing. In order to survive and flourish in what is now constantly shifting competitive market, a company must adhere to one fundamental business practice: identifying a unique competitive advantage. It doesn’t stop there. A company must also continue to develop, as competition develops, new unique competitive advantages that will enable it to continuously distinguish itself from its competitors. This, consequently, is what Palm lacked.

The first step in analyzing Palm is identifying, at least vaguely, what business was Palm actually in? Palm delivered to its customer a pocket sized mobile computer that allowed the customer to access data and organize him or herself. The most obvious and perhaps the most naive answer would be that Palm was in the business of providing the piece of technology and the abutting software that allowed users to organize themselves. What was dangerous about this concept was that apparently Palm’s management had actually thought they were in that business, that is if they had given the issue any thought at all. The answer however is not anything close to the previously stated. Palm was not in the business of providing any sort of technology, software, or any sort of gizmo. The correct answer would be that since business is defined by the want the company fills for a customer, Palm’s business was providing customers with mobile ways of accessing data and organizing themselves. Therefore it could safely be said that Palm was in the business of providing mobile platforms from which users could access data and through which users can organize themselves. The contrast between the business Palm’s management thought they were in and the business they were actually in is gaping. It is important to note that such as gap is dangerous because it causes the entire corporation to be thrown off its tracks. This is as all employees, from the most junior to the most senior, develop their own unique understandings of what the company’s business is and make minor to major decisions according to it. This can cause wide misunderstanding and miscommunication throughout a company. The way to combat such a phenomenon is for a company’s management to set a clear business and deliver, from time to time, a reminder to all employees of what business the company is in.

So why did Palm need to know what business it was in and subsequently why did Palm need to identify a unique competitive advantage? It was doing fine up until the year 2001. It was doing fine up until 2001 because it had created the market and, when it had done so, naturally there were no competitors. The nonexistence of competitors gave the company the luxury of staying alive and succeeding with no strategy or unique competitive advantage. This is because, as the sole provider of the product they were delivering, there were no other viable alternatives presented to customers. The realm had evolved however and, as with any successful market development, competition emerges. Competition, in the form of Microsoft (software) and Sony (hardware), was rigorous and was constantly developing a unique competitive advantage against Palm. Palm, being slow to react, did not develop any such advantage and was therefore left unprotected and susceptible to attack.

It was not that Palm was unaware of its newly emerged competitors but that it had decided, perhaps knowingly, that it would take them head on and with absolutely no competitive advantage. If there is one element highlighted in the readings it is that competition is dangerous and that it should be handled seriously. The best and most efficient way to deal with competition is not to fight them; it is to overtake them indirectly by developing a unique competitive advantage. A unique competitive advantage is an un-capitalized upon opportunity that helps consumers and companies distinguish one company from the next. It could come in the form of a value added, originality, market penetrative reach, or any other such regard. There is no need for fighting competition when a company can develop its own unique competitive advantage that distinguishes it from potential competitors. Palm was making a big mistake by competing against giant Microsoft and other manufacturers of handheld computers. The obvious, simplified, answer to this challenge would have been for Palm to maneuver around Microsoft and develop its own unique competitive advantage. This challenge however was, for one reason or another, not taken seriously by Palm’s management.

If one were to explore the reasons of why Palm did not explore opportunities in developing a unique competitive advantage, one would come up with two possibilities. The first possibility is that Palm’s management were too conceited and too blinded by their abnormal growth. They perhaps thought that because they were on top now they would be on top forever. This was very dangerous and perhaps led to the final collapse of the company. If there is ever a time to look into a company’s strategy it is the time when a company is experiencing success. This is because success is never infinite in our finite world and in a dynamic market the rules, players, and environment are constantly changing. Being successful doing one business one day should never imply that the same business will be successful the next day. This is something Palm’s management obviously ignored or was unaware of. The second possibility is that developing a unique competitive advantage or developing a new strategy is, beyond all matters, risky. This is because developing a unique competitive advantage can always be associated with change, which pretty much implies investment. Change, and investment, at a time when a company is experiencing spectacular growth, can at times appear unpromising especially to the upper management. Since Palm was already experiencing growth, them not developing a new business or tweaking their current business was, in their view, the less risky way forward. Little did they know that it is actually the way downward. Strategy is essential, and although it is risky, it is indispensable. A constantly evolving strategy is the only way to survive when faced with real competition.

If Palm were to explore opportunities to develop a unique competitive advantage the first step would have been for Palm’s management to ask and asses the following question: where are we and what are our capabilities? Palm was running high with its name printed on a well branded computer and its “market share” beyond that of its competitors. It had solid user friendly software that it had solely developed and to which it owned exclusive rights. This is important because a company must know what its capabilities are to see what it can actually commit to and where it can actually go. With the company’s capabilities and current standing in mind the next step would have been for Palm’s management to ask, where was the company to go? What will our business be? Palm’s management at this stage would have had to sit down and plan for the future. They had to plan how their company and their market was going to change. They were faced with the daunting task of planning evolution. This means that, by trying to find what the business of a company will be, a company must actually anticipate and even perhaps create the needs and wants will be present in the market in the future. The process of predicting, planning and preparing for the future is aided by the two most fundamental functions of a business: marketing and innovation.

As stated earlier, there are two essential functions of a business: marketing and innovation. Through the constant breeding and nourishment of these two functions, the company can develop a unique competitive advantage. The first of the two functions is marketing. Marketing in this case is aimed at connecting with the customer and discovering what he or she wants and needs. Marketing also entails connecting with the market environment and discovering, or even setting, the new trends and fashions of an industry. Marketing is anything to do with the connection between the customer and the company. It is important to draw the contrast between marketing and selling. Where marketing fosters a bilateral relationship between a company and the market, selling ensues a unilateral connection with the market. Communication originates only from the company with no feedback from the market. Getting back to marketing, it also has to do with identifying an area of opportunity that competition has not yet exploited, in other words, marketing is used to identify, buy not develop, a unique competitive advantage. Finally, marketing provides one of the two tools required in acquiring a unique competitive advantage. It gives the company access to the information required to plan out evolution.

Palm, in its last days of glory, was not marketing; it was selling. The company’s management, after being confronted sinking stock prices, actually admitted that it lost connection with the market. Instead of connecting with the market, Palm was trying to force the market to accept a product it did not want or need. Instead of obtaining the information required to connect with the market Palm was busy looking into itself thinking that consumers would buy whatever new product they came out with. They also thought, to their demise, that consumers would continue to buy Palm Pilots over competitors if Palm would bring out the latest models quicker than competition. By not marketing, Palm was burying itself into two different and equally dangerous problems. The first problem being that Palm was depriving itself of the information required to actually develop products demanded by the market. The second problem was that Palm was depriving itself of information that would have helped it edge out or grasp a feel for the business they should be in. With these two problems in mind, it can be safely concluded, as I have previously construed, that Palm’s management did not know what business they were in and did not know what business they were going to or should be in. Palm, having been blinded partially by its success paid no attention and allocated no resources to the imperative task of communicating with the market. It cannot be stressed enough that the most important time to review the business of a company is the time when the company is most successful.

The second of the two most important functions of a company is innovation. Innovation is taking the ideas or the needs that need to be satisfied and turning them into reality. It has been established that the role of marketing is establishing or discovering an opportunity to acquire a potential unique competitive advantage. Turning the opportunity into reality is left to innovation. Innovation occurs when technology or the know-how is developed or tweaked to meet the standards or the needs of the consumer. Innovation, in essence, is the factory where a unique competitive advantage is manufactured. It can easily be extrapolated that without proper marketing, innovation, even if it is present, is almost worthless in terms of market value. The value, to a company, of an innovative product that has no market, is zero. This, unfortunately for Palm, is where the company stood when it came to innovation. Palm lacked the ability to successfully innovate as it did not have the information, normally acquired through marketing, to properly address the needs of their market.

It doesn’t stop at marketing and innovation however. It could be argued, reasonably, that Palm did market and innovate when it introduced its first Palm Pilot. Palm, had correctly anticipated the market’s needs and wants and had successfully developed a desirable product. They had met the demand in the market with the supply of an satisfactory good. Why was it then that Palm eventually failed at maintaining its stance? Palm had, to its demise, stopped at its initial marketing and innovation efforts. This is due to one simple fact: markets develop, evolve, and adjust almost constantly. There is, at least in the West, no such phenomenon as a static market. A market’s needs today should never be taken as its needs for tomorrow. Palm had presupposed that since they were successful at marketing a particular product to a given market for a select period of time, they would infinitely witness success in the same market. The dimensions, wants, needs or trends of the market had naturally changed and it would have been up to the company to keep up with the change. So what did Palm need to do to regain or maintain its stance in the market? Palm at this stage needed to develop a unique competitive advantage all over again. Palm had entered into the phase of dealing with the continuous struggle of identifying a unique competitive advantage.

After seeing Palm’s success, competitors sought the opportunity of edging into Palm’s market and capitalizing on their success. Discussed previously was the notion of ‘what business are we in’? Equally important to an entity who plans on maintaining and growing is the notion of ‘what should our business be’? Competition is the origin of strategy and the reason why companies need to develop unique competitive advantages. Competition however, just like the market, is not static and will always change in ways that often supersede the market. In fact, competition is often out there planning for ways that it will develop the market in ways that will benefit it and put it at a unique competitive advantage. Therefore, it is the job of the company’s management to constantly identify, before they become available, opportunities that will position that company at a unique competitive advantage while staying ahead of competition in doing so. In continuously developing a unique competitive advantage, the company evolves with the market and actually becomes one of the driving forces behind that evolution. It is the job of the strategists at a company to predict and plan the evolution of the company’s environment. This is the function of a company called strategy. Dealing with the single threat that is competitors is, before all else, the most important function of a company’s management.

Palm had again not done that and in not doing that had lost its place as a market player. Palm was attempting to sell a product for which there was no demand. To say the least Palm’s market was diminishing in size compared to the markets of its competitors. With the emergence of competition, in this case Microsoft and other technology conglomerates, the market realm had evolved and Palm no longer had the advantage. Palm literally needed to calm down and reconsider its business and its competitors’ approach to the market. Had Palm done so they would have perhaps realized that instead of manufacturing computers they could have concentrated on making their software the industry standard by rigorously marketing and innovating so that it was constantly updated to meet the market’s needs and wants. Or they perhaps may have realized that they would not develop software but would focus on manufacturing the computers that used Microsoft’s software. Yet another possibility would have been that Palm anticipate the need for and begin to develop mobile devices such as the Pilot with cellular phone capabilities. The possibilities were, literally, endless.

In conclusion, in a shifting competitive market one rule stands: always be aware of the business you are in and plan for what business you should be in. Palm, to its demise, did not pay attention to this rule. Palm’s management, when confronted with competition, had decided to recklessly go about business as usual and not deal with the risk involved in dealing with competition. Risk in this case implies identifying a unique competitive advantage: planning for what business Palm should be in. Competition, the origin and the reason behind the absolute need behind strategy, should never be taken lightly. Palm’s mistake was to presuppose that since they had been doing well that they would be doing well forever. Palm was only doing well because Palm had created the market they were operating in and naturally, there were no competitors and subsequently no need for any sort of advantage or strategy. After the emergence of competition however Palm needed to reassess itself and identify a unique competitive advantage upon which it would have continued to foster success.