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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 THE University of California-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," Barnett says.
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 introducing 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 carefully 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."
"Too Much of a Good Thing? Product Proliferation and Organizational Failure," William P. Barnett and John Freeman, GSB Research Paper #1425, January 1997.
By Barbara Buell