I've just delivered an opening keynote in Mexico City for AMAP. The topic was STRATEGY IN THE AGE OF INNOVATION: How do we anticipate and leverage industry breakpoints? A very engaging audience and the weather was great.
The keynote was based on the notion that companies should not only be aware of when industry breakpoints are happening, but they can also strategically create one to upset the industry status and create an environment for a new game.
Most people understand what the S-curve is in terms of technology but less do on what it means in terms of organizational design and strategic innovation. If you are not the no. 1 or no. 2 market leader, then you should consider deliberately creating an industry breakpoint to upset the market leaders.
So how does one create an industry breakpoint and are there any pre-conditions? To make that happen, companies must be able:
- To learn about the breakpoint potential in the industry and have a sense of when it will happen (through strategic foresights)
- To commit to making a quantum organizational change (through creating a case for transformation)
- To have an economic engine (cash flow) to sustain the transformation (and do not take your eyes off from the core as you need it to sustain the transformation effort).
I’ve seen people making the mistake of getting extreme pressure from investors when their core businesses are eroding and the future business are at embryonic stages. I see industry breakpoints within the beverage industry; consumer electronics industry, fashion and active wear industry and even the advertising agency business.
At the very basic, more executives see the challenges and fail to understand the implications and how to manage them. The bigger the organizations the bigger the challenges are. Most would resort to hiring a top tier management consultancy and after months of analysis the recommendations would either be
- Invest in a particular product/segment/market that is growing and disinvest in markets that are too small
- Acquire a growing competitor to add to revenue per share
- Acquire a bigger competitor to gain better control of the market and increase market power.
None of these solutions are about innovation and worse; their key competitor would hire a management consultancy and came out with exactly the same recommendations. No wonder they are all locked into this zero-sum game. The reason people come to us is our ability to bring imagination and strategic foresights into the strategy process and creating new ideas not only to reinvent the core but also to re-imagine the future. So how do you recognize industry breakpoints? Here are the early signs:
- Falling demand for standardized products
- Declining margins in the industry due to low cost - good value competition
- Rationalization of the availability of new sources of supplies or technologies amplified signals
- New entrants pushing a new value curve supporting by different economics
- New entrants/existing competitor promoting new behavior that can be disruptive. And remember, it is far easier to try to create an industry breakpoints then reacting to one.
Many companies come to this too late and it is a lot harder to innovate when market share and earnings are under pressure. When earnings are under extreme pressure it will affect CEO’s credibility and even a good strategy can be misunderstood by analysts and critics.