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  • Incumbent Companies Are Embracing Technology, Need to Tap Strengths
  • With today’s widespread technological change, it is often said that every company will now have to become a technology company. But, just like with any reworking of strategy, a shift toward increased adoption of technology needs to be done in ways compatible with the company’s strengths. Thus, it becomes imperative to think about technology from a strategic perspective that fully considers why or why not a particular technology might be right for a company. And, this is increasingly important today, since more and more companies are pursuing new technology.

    Reflecting this technology push, a January 3, 2018 Economist article by Brett Ryder is titled “2018 will be the year that big, incumbent companies take on big tech”. The article begins with the views of IBM CEO Ginni Rometty, who believes that the next phase of the digital revolution, which is now starting, favors incumbent companies, rather than Silicon Valley tech organizations. According to the article, “she is correct that incumbents in many industries are at last getting their acts together on technology”. The article points out that, “Taking a sample of America’s 20 most valuable non-tech firms, 14 now have a digital dimension to their strategies.” And, the article mentions several prominent incumbents, such as GM, Disney, Wal-Mart and various others, describing how each of them has been putting much more emphasis on digital technology, and pointing out that incumbents have several factors in their favor.

    The article seems to suggest that the tech oriented moves by incumbents go against conventional wisdom since, according to the article, “Conventional wisdom says incumbent firms are timid about technological change.” The article goes on to say, “In 1997, Clayton Christensen laid out this view in ‘The Innovator’s Dilemma’.”

    As I see it, however, the popularity of “The Innovator’s Dilemma” contributed to what seems to be a widespread fear of being disrupted. Disrupt yourself before someone else does seems to be a common belief today. In light of this, it appears that conventional wisdom no longer supports the view that incumbents are timid about technological change. Instead, today’s conventional wisdom seems to entail a fear of disruption, which may sometimes be followed by a panic-like response.

    Some experts have even portrayed disruption in a way the seems to encourage panic. I took the opposite approach and wrote my blog post “Don’t Panic. It won’t Save You from Market Disrupters”. And, twenty years after introducing the theory of “The Innovator’s Dilemma”, Clayton Christensen wrote an article clarifying the concept and pointing out that profitable businesses should not be shut down merely because disruption might loom. His article, which I blogged about, essentially helps to stave off panic. Yet, today, with so many worries about disruption, conventional wisdom seems to encourage doing something before it’s too late, and is not as timid about adopting new technology. In my view, however, such an urgent emphasis on disrupting yourself can easily bring major problems because there is much potential for it to get implemented in a misguided way.

    That’s why I think it’s great that the Economist article does mention the company Marconi. According to the article, “Formerly called GEC, it was Britain’s largest industrial firm in the 1990’s but collapsed after wrecking its balance sheet with acquisitions of fashionable but flaky tech firms in 1999.” I think the Marconi example is so relevant because it’s very easy to incur huge losses chasing technology that does not mesh well with a company’s strengths. Bogged down in fears of disruption, companies may pursue the wrong technology, and doing so can have a disastrous impact on a company’s bottom line. Thus, companies must think through what kinds of new technology they are pursuing and make sure it is right for them.

    The Economist article further highlights the potential dark side of pursuing technology as it points out that GE “has axed some digital projects judging them extravagant.” As I see it, this too is valuable information for companies embarking upon a move toward the latest technology. As I wrote in an earlier newsletter, merely identifying tech trends early like GE did is not enough. The technology pursued needs to be compatible with a company’s strengths.

    That’s why it’s good that the Economist article not only discusses several of the large incumbent companies that are now pursuing high tech, but also mentions that shifting into high tech is not a panacea and doesn’t always work out. As I see it, what this really means is that, as many more incumbent companies go after technology, they must make the assessment effort to identify and choose to pursue those technologies that are right for their business.

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