Gaining industry leadership won't secure future success unless you also lead the industry in improving your business model.
"Get there first with the most . . . ."
-- Nathan Bedford Forrest
". . . model to thy inward greatness . . . ."
-- Shakespeare
Many of the most attractive business model innovations will allow only one company to prosper by following that particular path. Even better is the circumstance where once that path is taken by anyone, many other potentially attractive paths are made smaller or are permanently closed off for others. In an industry in which little business model innovation has occurred, a disproportionate potential for success can be grasped by the first company to take such a dominating track. Having started down that path usually then provides new advantages and opportunities to make even more innovations. Each implemented innovation that builds on a previous, unduplicated one then becomes another brick helping to wall off competitive vulnerability.
Those who start new companies are likely to focus on providing a better way to solve a customer's problem or serve a customer's need. In technology companies, this direction is even more likely to occur through emphasizing a new technology. Come back to the same company two decades later, and often the same "breakthrough" solution is still being provided rather than having been replaced with something better. Such a company is vulnerable both to start-ups who are looking for the next improved way to serve customers and to established companies that are more focused on developing better solutions.
Think about Polaroid. Founded by the inventive Edwin Land, the company was the first to perceive the attractions of being able to provide photographic images within seconds. Professional photographers could use these quickly produced images to test the lighting for traditional photographic exposures. Families could check to see if the snapshot meant for the family album had the desired image or not. If not, they could reshoot until an image met their expectations. Polaroid's solution depended on complex interactions of chemicals, electronics, and mechanics.
But traditional photography kept improving its quality. Professional quality cameras, lenses, and film became affordable for many people, and the skill of amateurs developed. A Polaroid image just didn't look as good by comparison. Polaroid photography came to mean fast, expensive, and not very good.
The company's speed advantage became less significant, too. Fast development centers opened up in many drug stores, offering one hour prints for ordinary film.
Then the digital revolution came along, and a digital camera could provide an test image to check faster and cheaper than the Polaroid process. In digital form, photography fans could also more conveniently store, crop, and print their photographs.
Polaroid sales and profits were spoiled in the process. The company filed for bankruptcy protection from those it owed money to in 2001.
Companies must focus on providing superior results for customers to what the alternatives are, regardless of the method used for providing those results. If that means pioneering or adopting a new business model or technology, then that's the route the company must take. In Polaroid's case, the company may have needed to partner with firms that had other kinds of expertise in order to deliver on its purpose, providing high-quality, fast images. By focusing on technological innovation rather than business model innovation, the firm faltered despite having had a large historical lead in serving its customers and end users. Just as easily, a technology can be a blindfold that causes better solutions not to be seen.
Technology companies should heed this example or they will find themselves looking at a technological evolutionary dinosaur in the form of their own company's latest enhanced offerings based on the same old technology platform. Could even Cisco Systems fall prey to this same vulnerability in the future? Time will tell, but improved protocols for transferring information are very likely to be created. Such a shift could make irrelevant solutions optimized to the current protocols. Who would win such a contest to provide the best new solutions? Typically, it would be a new entrant, especially if the new entrant employs an improved business model as well as a new technology.
Copyright 2008 Donald W. Mitchell, All Rights Reserved
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