When new technology comes onto the scene, it changes everything — temporarily — overturning the status quo and kicking off a mad scramble to understand and exploit the technology before competitors. Smart enterprises will accelerate past their rivals and gain market share at a phenomenal rate. But the opportunity is fleeting. If you have the business agility to recognize and exploit the technology during the market window, you can win big. If not, then you’ve probably sent your enterprise down a decade-long path of struggle and pain.
Take a look at the slide sequence from 11 to 16. There are a few takeaways here:
- There are two distinct phases for value creation: the value creation phase and incremental improvement phase.
- The value creation phase is short and explosive. Large market gains are made within the span of a few years. Market shares shift radically.
- The incremental improvement phase is long and slow. Not much appears to be happening here. While improvements come, they typically represent further optimization of the technology and are rarely “game changing.” Market share and profitability changes during this phase are very small and hard-fought.
- While there are always new technologies arriving on the scene, most fall into the incremental category. Game-changing technologies arrive only every decade or so.
The key here is to “make hay while the sun shines,” as the old saw says. You need business agility to capitalize on these fleeting market opportunities when they arise, making the most of them while the market window is open. If you fail to exploit a game-changing technology during the value creation phase, you’ll have to wait a long time before something else comes along to help you get back in the game.
A Market Window is Fleeting
The problem with new technology is that any advantage it confers is perishable. Over time, all the market participants adopt it. At some point, it ceases to be “new” and becomes just “how we do things around here.” The most obvious example of this might be the Internet and World Wide Web. New market entrants building ecommerce business models in the mid-to-late 1990s upended many of the existing market participants. For instance, Amazon.com exploded out of nowhere to become a substantial market force within a decade, threatening established players like Barnes & Noble and leading to the bankruptcy of others such as Borders Books.
But now, the Internet is old. Been there. Done that. Every business, large or small, needs a web site, and just being “on the Internet” is no longer a market advantage. In fact, things have flipped around completely, where being “off the Internet” is a substantial business handicap. These days, even mom and pop outfits have a web presence, and many engage in Amazon-style ecommerce. It’s fair to say that the Internet is fully factored into the business landscape at this point. Note that this doesn’t mean that new business models built on top of the Internet won’t emerge, but they won’t be the simple “web site + shopping cart = Internet riches” variety.
The Long Hard Road
If you miss the market window, you’re destined to travel a long hard road for about a decade. Once the main value creation phase is over, the market leaders have been established and it’s very difficult to increase your market share substantially. During the explosive, value creation phase, new market share is created out of thin air. Companies win the game by growing faster than their competitors, but everybody is growing. But when that stops, growth must come at the expense of another competitor.
The folks in mature consumer products markets face these challenges every day. The cola market, for instance, is not exactly new and exciting. Coca-Cola and Pepsi will spend billions of dollars on advertising, battling over a fraction of a percentage point of market share. And they have been doing battle for more than a century.
The Case for Agility
“Okay,” I hear you say. “I get it. Hit the window or you’ll be stuck on the long hard road. But how do I do that?”
Fundamentally, there are two ways to hit the market window for a new technology:
- Be omniscient. If you can see the future with perfect clarity, you’ll make the right move every time.
- Be agile. If you can turn on a dime, you can quickly orient your organization toward market windows after they appear.
Obviously, omniscience is the best method, but failing that, most of us have to use agility. Note that different organizations will hit the market window at different times. Some organizations will target certain technologies for very early adoption. Others will be “fast-followers,” letting others take the initial risks to prove out a given technology and verify that it’s valuable, but then rushing forward to embrace it before the market window closes. Whether a given organization is bleeding-edge or a fast-follower will depend on many factors. But organizational agility helps with each of them.
The next question, of course, is “What is agility?” I’m going to be writing a lot more about agility over the coming months here at Leverhawk, but you can find a down payment in an article I wrote for GigaOm earlier this year, titled “Business Agility, Fighter Pilot Style.” Boiled down, business agility is:
- Observing — You need to be watching the market all the time and bringing new information into your organization. You’ll do this better if you make it intentional and develop systems for collecting good data, but always expect the unexpected.
- Orienting — Once you collect raw data, you need to determine what it means. This is where skill and experience come in. Hindsight is 20/20. To be a winner, you’ll need to consistently ascribe accurate meaning to the data you collect.
- Deciding — Once you determine what’s really happening in the world, you need to decide what to do about it. There’s more art than science here, too. You’ll need good strategic and tactical thinkers to come up with a good plan.
- Acting – As I talk to people at various companies, they’ll frequently say, “We know what to do, but we can’t seem to do it.” Even the best plan can be undermined by poor execution.
In Part 1, we’ve talked about the importance of hitting a market window. When new technologies arrive, they quickly disrupt the status quo and it’s easy to change business metrics like market share and profitability. As the new technology becomes more widely adopted, however, things settle down and a new, stable status quo emerges. If you miss the market window and don’t exploit the technology advantage while it exists, your competitors will leap ahead of you and then lock in those gains for a long period of time. You’ll probably have to wait another decade before another game-changing technology appears. If you aren’t omniscient, they only way to consistently hit those market windows as they appear is to improve your business agility. If you can recognize and then react to opportunities, you can keep yourself in the game.
In Part 2, we’ll look at a case study.