3 Corporate Giants Struggling to Adapt to a Changing World

3 Corporate Giants Struggling to Adapt to a Changing World

REUTERS/Brendan McDermid

Think back 15 years or so to when the world was a very different place, not least for some of the largest companies in the Dow Jones industrial average. Back in the late 1990s, they helped to dictate the market’s direction not just because of their size but also because they were the pioneers – even the disrupters, those businesses that forced others to follow in their footsteps.

Look around today and you’ll find that many of those companies – the likes of Microsoft (NASDAQ: MSFT), Pfizer (NYSE: PFE) and Nokia (NYSE: NOK), all in the news this week – are now incumbents, or even past that point, their one-time leadership undone by both their rivals and the rapidly changing world around them.

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Take, for example, Microsoft’s announcement this week of upcoming changes to its much-vaunted (by its developers) and much-criticized (by its users) Windows 8 operating system. When it was launched last autumn, Microsoft insisted users would love getting to learn a new system; turns out they didn’t.

That hasn’t been an unusual pattern for Microsoft, but this time the tone has been decidedly different. Not only does the company plan to roll out a major update to Windows 8, code-named “Blue,” but even the words used to announce the pending changes were unusually humble. “We always reserve the right to get wiser,” Tami Reller, the company’s CFO for its Windows division told CNN Money. “We’re not going to be stubborn.”

As a (reluctant) recent user of Windows 8, I can only applaud. I don’t want a touch-screen experience on my desktop computer, and don’t want to spend my days typing away on a tablet. But Windows 8 has so far added a whole new crop of gray hairs to my head and caused me to contemplate flinging the rather large PC through my window out of frustration, as I have found myself calling help lines on an almost daily basis. The first draft of this column is still languishing somewhere in the Windows 8 system, invisible and, apparently, irretrievable.

Putting my own irritability aside, I was struck by how the world of daily personal computer usage that Microsoft pioneered – until they popularized Windows, how many of us viewed a personal computer as a necessity? – has overtaken the company. While Microsoft isn’t ignoring changes like tablets, mobile computing, the cloud and streaming audio or video, it isn’t in the vanguard in any of those areas. To some extent, it’s cruising on its past success and relying on the fact that it still has a dominant market share among corporate users.

I’m not suggesting that the company has been complacent, just that it’s no longer setting the pace for its rivals and, in some cases, is battling to keep up. Perhaps it’s no wonder that, through the ups and downs of the last five years, Microsoft stock has gained 11.4 percent while the S&P 500 has added 17.3 percent.

Microsoft isn’t alone in this situation. Back in the late 1990s, Pfizer was in an apparently unassailable position, thanks to its discovering and marketing of drugs like Lipitor, Zoloft, Aricept and perhaps most importantly, Viagra, the breakthrough drug for erectile dysfunction. With no rivals to challenge it in the ED drug marketplace, Pfizer and its shareholders celebrated. But then came Cialis and Levitra – and in only a few more years, a tidal wave of generic alternatives are likely to hit the market. In order to just hang on to what is left of its market share, Pfizer has now decided it will allow its customers to order their supplies of the drug directly from the company.

To be sure, the company is correct in suggesting that embarrassment is an issue for some of its potential customers, who may not want to share the news of their ED struggles with their pharmacist, and for not wanting those customers to buy ED drugs of dubious origins from online pharmacies. But the proliferation of those online alternatives has transformed Pfizer’s business and further nibbled away at its margins. Pfizer could have put in place such a program years ago, but it didn’t. Only now, with the clock ticking on its patent and trying to find a way to build customer loyalty, has it made the move. Like Microsoft, as innovation has become less crucial, marketing and customer relationship management are emerging as vital to the company’s own health.

Then there is Nokia. My first cellphone in the 1990s was a Nokia, and for once in my life I felt as if I were part of a trend. (It helped that I could play “Snake” on it.…) While Nokia’s phones may have gotten us all hooked on the idea of instant communication, today we’re more likely to wrinkle our noses at the idea of owning one of the Finnish company’s products. Sales of Nokia’s flagship Lumia smartphone line picked up in the first quarter of the year, but consumers still prefer an iPhone, or a Samsung Galaxy. The reason? Nokia simply didn’t remain a pioneer, and its brand and sales have faltered in the smartphone era.

Stephen Elop, Nokia’s CEO, may have questioned whether Apple is “still cool” at the company’s annual meeting this week, but with seven iPhones sold for every one Nokia phone, it’s hard to avoid the conclusion that Apple is still significantly cooler than Nokia. Nor, in the eyes of at least one discontented shareholder at the meeting, does Nokia display “the spirit and charisma” of Apple.

None of these three companies are teetering on the verge of extinction. Nokia has a market capitalization of more than 10 billion Euros; Microsoft is worth $278 billion and Pfizer still commands a market cap of $208 billion. Hardly chump change. With the possible exception of Nokia, they seem to be aware of the situation in which they find themselves, and are trying to find a way to once again get ahead of the curve. But the harsh truth is that it’s hard for a behemoth to do that.

There is a reason that giant technology companies like Cisco have turned to acquisitions to “buy” growth and innovation, and that some cutting-edge pharmaceutical research is being done by smaller companies and then acquired by the big guys like Pfizer and Merck.

The lessons of Microsoft, Pfizer and Nokia are ones that we all might want to bear in mind as a new generation of innovators come of age. Just as Blockbuster’s once-ubiquitous video (and later DVD) rental shops were driven out of business by Netflix and streaming video, there are new technologies that will put Netflix on the defensive. Facebook, Twitter or Tumblr (depending on your own preference) may seem to be the ne plus ultra of social networking, but today’s upstart becomes tomorrow’s incumbent – and risks becoming a dinosaur at some stage in the future.