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Insurgency From The Inside

More than half of executives believe that in five years, their main competitor will be a different company from the one today. This is not only testament to the speed at which upstarts are disrupting markets and industries, it is also an indication of how poorly prepared established companies are to respond to the rapid shifts that are so common in business today.

One group of incumbents does have the ability to keep ahead of the upstarts: the companies that have kept a Founder’s Mentality®. They maintain speed and agility, and have avoided becoming bogged down by bureaucratic processes and organizational complexity.

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Choreographing a Full Potential Transformation

In the wake of the historic “dotcom” bull market that redefined the brokerage business in the late 1990s, Charles Schwab & Company found itself stuck in the middle when the technology bubble burst in 2000. As the financial services industry scrambled to lure shell- shocked investors back into the market, Schwab was caught between traditional full-service brokers like Merrill Lynch at the top and a new breed of technology- enabled discounters like E*Trade attacking from below. Over the next three years, the San Francisco firm lost 60% of its commission revenue, leading to an 80% plunge in market value. 

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A Strategy for Thriving in Uncertainty

Kodak is widely viewed as the classic case of an industry leader that failed to see the digital future coming.

In fact, Kodak developed a digital camera prototype in the 1970s and launched its first commercial digital prod- uct in 1991. Its strong brand and ample market power should have made it a force to be reckoned with. Instead, it walked into a set of traps common to large companies trying to come to grips with uncertainty: Its initial moves were small-scale and scattershot. It was unwilling to invest in a business that would cannibalize a highly profitable, but rapidly eroding core until it was too late. A last-gasp big bet was the wrong one—a failed joint venture with Hewlett-Packard to create photo-developing kiosks. Kodak knew which way the earth was shifting, but its strategy committed the company to a future that looked very much like the past. 

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The Firm of the Future

In the world of the firm, something is changing. It’s not that your local bookstore went out of business. Or that your taxi driver now rates you on a 5-point scale. Or that anything can now be outsourced, allowing even the smallest firms to rent capabilities on demand. It’s more profound than these.

The prevailing paradigm that has underpinned busi- ness for the past 50 years is under review. The simplest version of that paradigm is that firms exist first and foremost to deliver returns to their shareholders’ capital— and the sooner they deliver it, the better. We will describe the challenges confronting this paradigm. But the first question we asked as we observed the changes was this: Is such a shift unusual? Has the idea of the firm been consistent over time, or has it changed before? 

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