Page 150 - (DK) The Business Book

148 IGNORING THE HERD
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Global market shares of smartphones in 2009–13 varied Nokia military spending. A worried BAe
greatly: Apple stayed relatively stable; Nokia and RIM, who then approached the owner of
Samsung
had responded with herd instincts to the iPhone’s success, Airbus, suggesting a merger and
saw huge losses; Samsung’s shares soared, reflecting its Apple implying that a mix of civilian
development of products that would stand the test of time.
RIM and military businesses was a
preferable focus. Could things
40% really have changed that much
between 2006 and 2013, or was
35% BAe responding to the trend for
diversification? Strong business
30% leaders look to the long-term and
ignore fads and fashions among
25% stock-market analysts and
management consultants.
20%
Following the leader
15%
The third herd behavior to avoid
10% is “followership.” This occurs
when companies develop “me-too”
5% products to imitate market
innovators. Of course, if a business
0% already has a genuinely
2009 2010 2011 2012 2013
differentiated offering, it is wise to
follow a new trend. Often, though,
It makes sense for the share-buying but little mention of long-standing businesses rush out copycat
public not to follow mass trends, research, which suggests that 60 products to demonstrate that they
but is the same true for business to 66 percent of all takeovers are staying competitive in a sector.
leaders? In 2008, US mass-media destroy shareholder value for the When the iPhone was launched in
corporation AOL, noticing the winning company. In other words, 2007, Nokia could boast more than
growth in social network sites, most takeover bids prove to be 40 percent of the global smartphone
bought the social-networking site a disappointment. market. Despite a series of new
Bebo for $850 million. It joined the The second herd behavior to product launches by the company,
herd and lost out badly. In 2013, it ignore is the strategic clash between
sold the same business back to its focus and diversification, and the
founders for $1 million. way the market tends to concentrate
on one of these two at any one time.
Following trends When “focus” is the market mantra,
Business leaders, then, must be share prices rise in companies that Those entrapped by the
as cautious as anyone else about sell off peripheral assets or divisions herd instinct are drowned
treading the same path as the of the business. This is what in the deluges of history.
majority. There are three main happened to British Aerospace But there are always the
types of herd to ignore. The first, (BAe) when it sold its 20 percent few who observe, reason,
as mentioned, is the occasional stake in the Airbus aircraft business and take precautions,
stampede to make takeover bids. in 2006. At the time, the stock and thus escape the flood.
In this case, business leaders worry market liked its $2.99 (£1.87) billion Anthony C. Sutton
that if they do not buy a rival, sale of the largely civilian aircraft
UK economist (1925–2002)
someone else will and perhaps maker, since it focused BAe on the
create a bigger, more difficult defense and military sector. By 2013,
competitor. At such times, there is this view looked absurd, as Airbus
much talk of synergies (the sum powered ahead but governments—
being worth more than the parts) especially the US—cut back on