I recently read an article about the Matthew effect in the furniture industry, saying that the strong becomes stronger. Based on results of the past undertakings, the strong not only commands an absolute advantage in the terminal, but also advantage in dealers and “The business environment changes at a rapid rate. Only through constantly chasing the footsteps of the times and letting the company continue to innovate and grow as a whole, can it be successful.” – Tadashi Yanai
Tadashi Yanai believes that past success is definitely not a good thing. Success will make people conservative, and their ideas will become rigid, formal, and even develop arrogance.
Successful people will fall into the trap of failure at any time.
Therefore, I often say that success is the mother of failure. As I said above, to be successful, companies must:
1. Research and development capabilities of new products: As the market changes, new products need to be developed to meet the needs of consumers. This sentence is simple to say but difficult to implement. First of all, you are never sure whether the market information you have obtained is correct, and the choice of a category that is suitable for your production in the market. What is even more difficult is how to produce differentiated new products and is profitable.
2. Innovation in marketing model: Have you heard the story of Wang Yongqing, Taiwan’s god of management, selling rice in his early years? He had a habit of recording what rice the customers bought, how often they bought them, how much they bought, and so on. If the time has come when the customer should be returning to restock but did not come, Wang would carry the rice to the customer’s home. The customer would have been busy or had forgotten and thus did not return, so Wang would poured rice into the rice tank for the customer, and even cleaned up the area (an additional service). This is an example of the innovation of the marketing model, the result is the driving out of other rice sellers in the area.
The hypermarket is a marketing model, and the warehousing store is also a marketing model. So is the O2O model that developed later. It is a pity that it was not well executed at the operational level.
The innovations of the new marketing model brings about greater benefits than the introduction of new products. Jack M’s Taobao and Tmall are innovations of the marketing model, which brought Ma a huge amount of wealth.
3. Higher productivity: Enterprises don’t grow because of the injection of new capital or the additional of labor. It is the growth due to their own per capita productivity. Such enterprises have the ability to regenerate and can grow healthily.
There are a lot of things to discuss with regards to the above three points which I will not go into. Certainly, the ability to develop new products does not necessarily bring about success. For example, Kodak, invented the digital camera, but as the company could not mass produce, could not reduce costs, it folded. There is also the ability to convert innovative products into mass-produced, low-priced products that is crucial.
Therefore, the Matthew effect is effective only under certain conditions. For me, the effect of the Matthew effect is not great. In many cases, it is run counter.
Douglas North, an American economist, has a “Path-Dependence” theory. Although he focuses on the state’s institutions, it is the same when applied to business management.
He believes that once an organisation enters a certain path (whether good or bad), the organisation may develop a reliance on such a path. The inertial force will make this choice self-reinforcing and inescapable. In serious cases, it may even result in even a lock-in of the system.
Let us think about this carefully. Is this the case that a company making so-called Chinese-style furniture, and later wanting to switch into the making or doubling-up to produce American style furniture, whatever the company produces, be it Chinese or “Chinese-style American-style” mixture, hybrid, as the company has been on the path of Chinese-style furniture, it has become dependent and is eventually locked-in.
Even the clients are locked-in. If the impression is of you doing Chinese-style furniture, it is unthinkable to image you doing American-style furniture. Few big luxury brands have been successful in extending themselves to other industries, there are few successes. If you don’t believe, try using the Louis Vuitton brand as a furniture brand and see if there is any effect.
Therefore, the research and development of new products, or the innovation of business models, will be hindered by the success of the past. Thus success is the mother of failure.
As such, to re-emphasize companies that have succeeded in the past and those presently should not think that the Matthew effect can help your continued dominance. Yearly, Fortune magazine publishes the list of the world’s 500 largest companies (Chinese translation into the 500 strongest, in fact, size and strength strong is not the same). China now has more than 100 companies in the list, second only to the United States.
However, the average lifespan of Chinese companies in the 500 “strongest” is only 23 years, and the per capita operating income is only 45.6% of those in the US “Top 500”. Other indicators, such as per capita output value, per capita profit, return on net assets, consumption per unit of output value, internal talent promotion rate, endogenous growth rate of business income, etc., are very low, less than the average of the other 500, at 25-50%.
If the self is not strong, the Matthew effect has no effect. The big companies in China are large because China is big with skewed policies. Even so, there are 8 big companies that dropped out of the list of the world’s top 500 companies in 2017: Anbang Insurance Group, HNA Group, Dalian Wanda Group, China Huaxin Energy, China Guoan Group, Shanxi Coking Coal Group, China General Technology, Xinhuaren Life Insurance.
Business management is a continuous process. You cannot rest on your laurels thinking that it will be smooth sailing once you have become big or strong.