Half-Life of the Model

As we stated earlier, the business landscape evolves and changes over time, and strategic models that may be used to succeed under these changing circumstances need to keep up with the direction and pace of change. We propose that it might be useful to clearly ask the question as to what is the half-life of the mental model that is currently in use. What is the time frame over which the utility of the model reduces? The longer the half-life, the greater will be the likelihood that the model can help guide decision making for a longer period.

A focus on a specific mental model often leads to the ignorance of key marketplace issues, which can eventually lead to lost market share and missed fortunes for an organization. The Japanese quality movement teaches us a lesson here, where the focus on quality has led to the virtual loss of the dynamic random access memory (DRAM) chip industry to Korean firms. Within the Japanese way of thinking, there is strong acceptance of a positive relationship between quality and business success. Nowhere is this belief more obvious than in the automobile industry, a very visible user of modern quality improvement technology. Quality, especially reliability, of Japanese automobiles if often cited as the primary reason for their global dominance. However, there is other evidence that suggests an emphasis on quality may not always result in equivalent benefits in other industries. A recent study found an inverse relationship between the number of International Organization for Standardization (ISO) certifications and the number of original patents, concluding that too much focus on incremental process improvements crowds out exploratory innovations that can lead to more patents. Similarly, recent management literature suggests that tools of quality improvement, such as Six Sigma, are not suited to innovation. The reason is that tools such as Six Sigma lead to a culture of quality improvement and cost reduction, which conflicts with the freethinking and risk-taking culture required for new idea generation.

The global market share of Japanese DRAM producers dropped precipitously from as high as 80% in 1989 to 10% in 2004. The Japanese had historically dominated the industry with a focus on quality products that served the needs of mainframe computers. They differentiated their products through reliable and durable chips, aiming for 25 years’ durability, which served the mainframe market very well. Japanese engineers were rewarded for incremental improvements they made to the quality of the products, which added more production and testing steps and higher manufacturing costs to the overall process. In the early and mid-1990s, the market demand for DRAM saw a substantial shift from mainframe to PCs, and then to consumer products such as DVD players and cameras. This introduced significant changes to the product requirements, and speed and cost became relatively more important. This is when the Korean manufacturers entered the market, without any legacy from the mainframe days. Firms such as Samsung designed products like the 128Mbit DRAM in 2000 and targeted it at vendors of low-priced computers and servers. The Japanese were not prepared for these changes in the marketplace and withdrew from the competitive landscape. Korean manufacturers like Samsung were able to capitalize on their initial success through aggressive capital investments and by continuing to focus on the changing needs of the users.²