Wednesday, April 19, 2017

Staying ahead of market transition is the key for success in the competitive market

In the article introducing Cisco’s business strategy, its CEO points out that the key factor for Cisco’s success is to anticipate, capture, and lead through market transitions. I totally agree with this idea, since the customer’s preference lead the market demand and production innovation in this more and more competitive market.

Seizing the developing trend in the market is crucial for most of the companies, especially those with a simple product line or simple corporation structure. For example, once the public no longer used film in photography and used the digital camera instead, Kodak’s market share and revenue decreased drastically; Nokia was overconfident on its Symbian system and feature phones, lagging behind the trend of smartphone innovation, which led Nokia lost its No.1 cell phone producer position. Therefore, under intense competition today, there is no second chance for the company taking a wrong strategy in market transition. Thus, the company must pay enough attention to each time of market transition, which is not merely a challenge for corporations, but also an opportunity.

The CEO emphasizes the importance of companies paying attention to the market transition. The most important rule for a company is to stay ahead of technology shifts. The first reason for staying ahead of market transition is that the research and development of new product and technology may need a long period. For example, launching a new style of laptop, car, cell phone, even running shoes all take a few years. Introducing a new product with revolutionary functions or concepts may take longer time. Therefore, if a company does not update new product before its peers do so or wait until customers require, the company may be far behind the other competitors. Secondly, sometimes the market is defined by some revolutionary product. To be specific, few people had ever imagined that cell phone could replace PC to some extent before iPhone coming out; few people had ever expected that cars could be affordable by almost everyone before Ford Model T. Moreover, sometimes launching a new product could increase consumer’s switching cost significantly, which is very beneficial for the company. For example, after getting accustomed to the function of iPhone purchasing some APPs from Apple Store, people may keep buying iPhone when they want new cell phones, which could save both time and money, compared to switching to another brand.

The analysis above shows that a company should be bold in innovation. But in the research and development process, the company cannot waste money on technology which will be outdated soon. For example, Motorola spent billions of dollars on Iridium Satellite Communications. But the technology providing data and voice for satellite phones was replaced by other technologies in a few years, leading the bankrupt of the project. The Cisco also ensures its leading position in innovation by acquiring and merging start-ups. But a company must also evaluate its strategy before making a series of acquisition. Yahoo has purchased a lot of small innovative enterprises, which takes up a large proportion of budget and decrease its capital liquidity. The wrong evaluation for the investment on acquired start-ups portfolio led Yahoo performed not very well in the recent decade.

In conclusion, a company should be bold in innovation and carefully estimate its strategy in the market, customer demand, and own R&D process when facing market transition. Only in this way, could the company perform as good as Cisco and rise up its ranking in its industry.

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