Create a New Framework – Surviving the Techstorm

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A NEW
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Emerging technologies can be seen as both opportunities and/or threats, depending upon your existing position, viewpoint and mindset. For a startup, a new technology can be its entire reason for being, but there is still an absolute need to understand what is happening in the field. For established companies, or incumbents, emerging technologies are often seen as complicated, time consuming, risky and quite frightening. The reaction to this new reality is often the same.59 Firstly there is a defensive response where the incumbent believes that the new technology poses a threat to its core business, and secondly a sense of possibilities when the technology shows promise and is too tempting to ignore.

What we see here is situations in which technology and business development intersect and create an interesting, and sometimes highly complex, environment.

History is full of incumbents that have failed to make the transition to new technologies. In 1976, Kodak had a 90% market share of photographic film and 85% of camera sales in the US. The same year, Kodak developed the first digital camera prototype. But because of its fear of cannibalization, destroying its own core purpose, the company lost the battle of film versus digital photography, and as a consequence, went on to lose the camera war by being late into the digital camera market place. Kodak filed for Chapter 11 bankruptcy protection in January 2012, and in early 2013, its digital imaging patent portfolio was acquired by a consortium of 12 licensees including Apple, Google, Microsoft and Samsung.60

Another example is Nokia, which overtook Ericsson in the cell phone arena in the late 1990s, when phones went from being B2B products to consumer products. Then in 2007, Nokia was, in turn, overtaken by Apple (and then later by Samsung and Google), when the company failed to catch the wave of large screen smartphones without keyboards.

What we see here is situations in which technology and business development intersect and create an interesting, and sometimes highly complex, environment. Not only do companies have to cope with a new reality of the increasing speed of technological development, they also have to face the challenge of designing new business models that can better cater to the ever-changing needs of customers.

So, from a technology perspective, what pitfalls should an incumbent try to avoid staying competitive in the long run? 61

One such pitfall is delayed participation, where the incumbent goes for a “wait and see” strategy. This often includes an assignment to an internal group or consultants to perform an analysis of potential implications. After that, not much will happen, unless there is a high level executive responsible for continuous monitoring. The reason for delayed participation is often an unwillingness to adapt in anything other than minor incremental innovations. Also, there may be a belief that emerging technologies and innovations will only make negative, or a small positive, impact on the bottom line. Finally, the first products or services based on emerging technologies are often crude and simple, and do not compare well with established offerings.

When choosing to invest in a new technology, one of the biggest challenges to overcome is fear of entering unknown territory.

Another pitfall is sticking with the familiar. When choosing to invest in a new technology, one of the biggest challenges to overcome is fear of entering unknown territory. This can manifest as anything from questioning whether technological shortcomings can be overcome to the choice of future industry standards. From a psychological perspective, aversion to risk and change are two strong human traits. With this in mind, the selling of ideas is always a challenge for those who want to pursue something new.

A further danger is reluctance to commit fully. Incumbents that embrace emerging technologies often do so half heartedly, and there are a number of reasons for that. First, there is the fear of cannibalization of existing products and/or resistance from the sales force. Second, there exists the managerial paradox “that managers tend toward bold forecasts on the one hand and toward timid choices on the other.”62 Third, when you pitch an innovation against existing business units, the former can rarely compete, from a return on investment perspective; at least not in the beginning. Fourth, managers today are fully focused on their existing businesses and the needs of their current customers. Unless a new technology is demanded by a client, it is hard to get a manager’s attention. Finally, it is always a problem for an organization to work with longterm strategy and short term tactics at the same time. The ability to serve existing customer needs while simultaneously exploring potential innovations is extremely challenging.

There may also be lack of persistence, where many incumbents tend to have very little patience when projections are not met and results are not delivered according to plan. This can result from slow market response, aggressive competition in this small market, or the technology itself changing in a fundamental way. A paradox here is that if the core business is faced with challenges, it is very easy to cut its funding. It is also often the case that the people interested in, and responsible for, new technologies and innovations are not represented in the C-suite, and therefore are not sufficiently influential when it comes to company-wide strategic decisions.

So, what could a company do to improve the odds when working with emerging technologies? “Emerging technologies signal their arrival long before they bloom into fully fledged commercial successes. However, the signal to noise ratio is initially low so one has to work hard to appreciate the early indicators. This means looking past the disappointing results, limited functionality, and modest initial applications to anticipate the possibilities. Many signals are available to those who look: other signals can only be seen by the prepared mind. As the philosopher Immanuel Kant noted, we can only see what we are prepared to see. The winners are those who hear the weak signals and can anticipate and imagine future possibilities faster than the competition… The weak signals to be captured usually come from the periphery, where new competitors are making inroads, unfamiliar customers are participating in early applications, and unfamiliar technology or business paradigms are used. However, the periphery is very noisy, with many possible emerging technologies that might be relevant…”63

With this comes a learning challenge for the whole organization. The information collected has to be processed, understood and put to good use. Therefore, the incumbent has to foster a culture that is open to different viewpoints, able to challenge existing beliefs and willing to reward experimentation.

When reinventing your business model, there are many similarities with technology innovation. The same obstacles exist: delayed participation; sticking with the familiar; reluctance to commit fully; and lack of persistence. That said, although business model innovation is really difficult, it has changed entire industries. Discount retailers such as Walmart, low cost airlines like Air Asia and Southwest Airlines, software as a service (SaaS) and in-app purchasing have changed entire industries and are good examples of what is possible.

From a strategic perspective, business model innovation is often required when companies are facing any of the following new realities:64

• when a large group of potential customers views the existing offering as either too expensive or too complicated

• when it is possible to capitalize on a technology by using a new business model and/ or introducing an established technology to a brand new market segment

• when there is an opportunity to introduce a solution based, rather than a product based, offering to a customer segment

• when there is a need to fight off low end and/or low cost competitors

• when the fundamental basis of competition is changing, often when important market segments are facing commoditization