Wharton Chapter 2

Chapter 2 is entitled Avoiding the Pitfalls of Emerging Technologies. I can think of no better way to start studying emerging technologies then by first learning what not to do. That seems pretty straight forward right? A good, common sense approach. Only it turns out that it may not be a easy as it would first seem.

Day and Schoemaker start out chapter 2 by outlining four traps that can put incumbent companies at a disadvantage when competing against newer companies in emerging technology markets. Those four traps are; delayed participation, sticking with the familiar, reluctance to fully commit and finally lack of persistence. Chapter 2 then continues by offering four solutions to help incumbents in emerging technology markets. Those four solutions are; widening peripheral vision, creating a learning culture, staying flexible in strategic ways and providing organizational autonomy.

The first trap discussed the trap of delayed participation. This is when a company takes a watch and wait posture instead of entering the emerging market. Emerging market are by nature highly uncertain. It is therefore an understandable, though possibly incorrect, reaction to take a cautious approach. Another reason companies may fall into the delayed participation trap include a lack of understanding how the new technology will fit into the old business model. Companies may also not understand how the new market will develop and may wait to move until it is too late.

The second trap is sticking with the familiar. The Encyclopedia Britannica example cited in the book is a great example. The company lost 50 percent of it's revenue over a 5 year period because it chose to stick with something it understood (printed books) at the cost of ignoring what it did not fully understand (CD-ROM). It can be hard to know when it is time to move into a new area. Often there are no standards and if the wrong choice is made and a loosing technology is backed then your company could be left behind while other grab market share.

The third trap is the reluctance to fully commit. This is when a company recognizes that a new area is developing but does not devote enough resources to truly take advantage of it. This can be because they want to try and limit their risk exposure or because they are afraid to damage already existing products. Companies could also receive pressure from partners if they feel threatened. It can also be hard to justify emerging technologies when profits are far off and return on investment is low.

The fourth trap is lack of persistence. This can be thought of as giving up on a new technology too soon. When divisions and companies need to meet quarterly numbers it is easy to trim new and often less profitable areas. Often the people that truly understand the new technology are too far down the organizational chart to make influential decisions. In tough economic times, like we are experiencing now, it can be hard to think past the next few months and make objective long term decisions.

Chapter 2 then goes on to describe four solutions to help incumbent companies compete in emerging technologies. The first of these solutions is widening peripheral vision. This means being able to see and understand what is happening in a wider sense. What new companies are making progress? What new technologies are being perfected and what new ways can they be used? What trends are taking shape? You can begin to answer these questions by deciding which technologies are strategically significant. Then you need to figure out how well the new technology stacks up against competing technologies. After that you can move on to market adoption and size.

The next solution is creating a learning culture. This is more of an organizational/internal approach and can be accomplished encouraging organizational learning capacity as opposed to individual learning capacity. Organizational learning capacity can be demonstrated by encouraging openness to divers viewpoints, a willingness to challenge deep-seated assumptions and mental models, continuous experimentation and mastering deep dialog and conversation.

The third solutions outlined in chapter 2 is staying flexible in strategic ways. This means being nimble and keeping your options open. As the book says you are only committed if a decision is not reversible. The example of Microsoft in the late 1980's shows how keeping options open can lead to success. Microsoft was involved in the Apple, IBM, Windows and Unix worlds all at the same time. This left them able to move when the market dictated and gave them influence in many areas.

The fourth solution is providing organizational autonomy. This is the concept of giving the new technology it own nursery, away from the parent company, in which to develop on it's own. This can be as little as a new division or office or as much as a spin-off with it's own stock (and source of capital) board of directors. New spin-offs are free from the established mindsets of the parent corporation and can still provide a benefit to the parent company. If successful, in the long term the parent could even reacquire the spin-off.

Overall I thought this chapter was pretty interesting and had some good information. I can see much of what was discussed in my own company. I work for a technology subsidiary of a much larger corporation. My company was initially the IT department of the parent company. It was spun-off into a new privately held (though funded by the parent) company. The made it on their own for a few years before the parent decided to buy them back. Now we are being folded back into the parent at least in some respects. All of this happened in less than 10 years.