Failing to see the fundamental changes in the markets and the technology relevant to a company can lead to dire consequences including a total shutdown. The CEO of cisco discusses the importance of understanding these Technology shifts, how to identify them and respond to these changes and consequences in failing to do so in his article.
Despite having a huge expertise and market in main frame computing, IBM’s inability to foresee the changing paradigm towards personalized computers made it lose a great opportunity. Apple and Microsoft, two startups that could leverage on this fundamental shift in computing are ahead of IBM today. Apple and Microsoft reported net incomes around $45 billion and $16billion respectively ahead of IBM’s $11 billion. Similarly, Kodak which was a leader of film photography filed for bankruptcy in January 2012 due to its slow transition to digital photography. Surprisingly, Kodak was the first company to make a digital camera way back in 1975 and it dropped the idea because “it could threaten its photographic film business” . This rhymes with what the author means when he says “When you’re a large company with significant market share, it’s tempting to view market disruptions as a threat, but we view them as an opportunity”. Had Kodak viewed it as an opportunity as opposed to a threat, it could have still been the leader of the photographic industry.
The key indicator is always the customer. Cisco’s ability to understand these changing needs of its customers, Ford and Boeing for fast Ethernet made it acquire Crescendo Communications which was making advances in that area. Once the change is identified, there are three possible ways to adapt to it.
1. If the change is seen well in advance, build the required capability internally
a. Amazon’s transformation into a leading cloud service provider
2. Making an acquisition
a. Google acquiring Nest a startup in IoT devices and Cisco acquisition of 174 companies
b. Yahoo’s mistake in deciding not to acquire google signifies the importance of acquisitions. Yahoo could have acquired google (Alta Vista in 1998) in 1998 for $1 Million and for $5Billion in 2002(Yahoo offered only $3Billion). In 2016, Yahoo was acquired for $4.6 Billion by Verizon and Alphabet (Google is a subsidiary) is worth around $498 billion .
3. Third strategy is a spin in. Set aside some of the resources to pursue the new change as a spate company, provide the necessary support, closely monitor the progress and acquire it once successful.
Back in 1864, Cornelius Vanderbilt a famous steamship entrepreneur, saw the emergence of railways and understood their importance and advantage in supply of goods over land. He sold all his ships and invested in railways which made him one of the richest men in America . It is necessary to take bold steps to be successful. As the author says “By the time it’s obvious you need to change, it’s usually too late. Very often you must be willing to make a big move even before most of your advisers are on board. You have to be bold”.