Management gets all the love when business is good; so, its only fair they get all the blame when things go bad. This pressure varies per industry.
Business leaders of companies that profit off technical intellectual property have the most at stake due to the always evolving and highly competitive technology industry. Thus, to set these leaders apart, make sure to pay attention to how a leader answers the following question:
What are you doing to ensure your (our) technology isn’t displaced?
“We are investing in more R&D”, is not an adequate answer.
For an external audience, that answer may suffice; however, internal employees should never accept this from their leaders or risk their company or technology becoming obsolete.
Answering that question properly requires long term vision, which is why increasing profit via cost out is usually the go-to for many business leaders. Vision is incredibly difficult and some investors are not patient enough for “long term vision”. Regardless of the justification for a cost out strategy, one thing remains true: innovation is technology-driven, not finance-driven. When finance is the primary means for innovation, subpoenas and broken hearts usually follow suit. By finance-driven, I’m not only referring to cost-out; I am also referring to the false mindset that innovation equates to doing things “cheaper and better” instead of a focus on the long term implications.
Think about the highly competitive retail industry and how Walmart was able to differentiate itself from its peers. By thinking outside of the box, Walmart bet big on its distribution centers and supply chain to improve efficiency and scale, which eventually placed the company in a position where no other peer can effectively compete in. They are not a technology company but they are technology-driven.
I’ll use Figure 1 to revisit the question: What are you doing to ensure your (our) technology isn’t displaced?
Figure 1 Performance and Price
In Figure 1, there are three different products sold by three different companies. Product A is a low-end piece of technology, while Products B and C are mid-market and high-end items, respectively. The challenge all three products face is increasing performance at their current price levels or cheaper, but this is difficult. An unlikely route all three products will take is increasing price at the same performance level. What will typically occur is that each product will try to expand into a competitor’s space to steal market share, either via a product downgrade or a new product line. This type of scenario puts Product B in a tough position because Products A and C will most likely creep into Product B’s wider mid-market space to expand their markets, thus locking Product B on the performance and price curve. If Product B is unable to move north, it will get displaced.
For an example, let’s imagine that there is a negative correlation between engine heat and engine performance; let’s also imagine that an engine auto-interprets heat sensor data into its performance algorithm, real-time; thus, the more precise the senor in the engine, the better the engine’s performance. If Products A, B, and C are engines with varying preciseness in their heat sensors (hence, varying performances), then each company might become occupied with improving its heat sensing preciseness at a lower cost or creep into a competitor’s market. But is this the right type of competition? Why not instead focus on reducing or eliminating the engine’s heating problem, which requires more investments in R&D and potentially higher long term profits?
There are three aspects of technology that all technology leaders should have experience in as a foundation for becoming technology visionaries: the development, application, and commercialization of technology. Of the three, commercialization requires the most business acumen and it emphasizes that numbers are the way to encourage growth (e.g. lower cost is better). There is nothing wrong with this mindset; however, leaders with only experience in commercialization are simply figureheads with a strong appetite for numbers…delegators with an over reliance on the expertise of others.
Article is inspired by a conversation with one of the smartest people I know, Chris Keimel.