Stanford University
Graduate School of Business
June, 1997
For information, contact Janet Zich, [email protected], or
415/723-9193
Too Much of a Good Thing?
STANFORD - In business, too much of a good thing can be hazardous to your
health, says Stanford Business School's William Barnett, who took a close
look at the volatile semiconductor industry to see why certain companies
survive the industry's notorious shakeouts and others do not. He found
that
when a company introduces more than one product at a time, the firm
benefits from its larger size, but also suffers a higher risk of failure.
In other words, while growth is good, growing all at once is not.
To be sure, a constant flow of new products gains strategic advantage for
a
firm in the long run. But many technology companies face a dilemma. On one
hand, failure to innovate in a rapidly changing marketplace is tantamount
to corporate suicide. On the other hand,
pumping out too many products at once can trigger serious internal
problems
that undermine a company's health.
In a study of U.S. companies entering and exiting the semiconductor
industry between 1946 and 1984, Barnett, an associate professor of
strategic management and organizational behavior at Stanford Business
School, and John Freeman of UC-Berkeley's Haas School of Business showed
that timing is the key to success when it comes to product rollouts. The
researchers also found this increased risk of failure to be temporary. As
time passes, the disruption caused by multiple product introductions
becomes less of a problem. "The process of getting big is disruptive, but
being big is an advantage," says Barnett.
Barnett and Freeman argue that when several products are released
simultaneously, adjustments made for one new product in areas such as
marketing, distribution, or manufacturing can interfere with changes made
for other new products. They also argue that the concurrent rollout of new
products can be especially disruptive on the factory floor.
As companies change the way they produce, they need new skills-which means
that in-troducing several products concurrently requires learning many
lessons at the same time.
So what's a manager to do? Barnett and Freeman tell managers not only to
focus on the content of their plans, such as what product to introduce
next, but to worry equally about the process of creating new products.
They
must weigh trade-offs and minimize disruptions by care-fully planning the
timing of introductions.
Managers also must ask themselves why they are generating a new product in
the first place. Examining the track records of chip makers over nearly 40
years, the researchers found that companies sometimes released new
products
out of desperation, as a last dying gasp. At other firms, success bred
innovation: Some divisions launched new products merely because their
business generated the resources to do so -even though that alone was no
guarantee of success.
In the semiconductor industry, large customers frequently pressure
managers
to produce more new products than is comfortably possible. "Managers find
it hard to say no to a growth opportunity," warns Barnett. "The seductive
side of growth is a pure focus on the content side of strategic
planning-at
the expense of the process side."
by Barbara Buell
RSS