Business is dynamic. Regardless of how well-positioned you are, how thoughtfully you’ve planned for the future, or how well you satisfy customers, your strategic plan will not always be on target. For the sake of this article, we can assume that much to be a fact of life. So if we can’t perfectly predict the future from where we stand, we need to be able to quickly recognize when our plans need to change. One way to do this is to look for “break technologies.”
At any given point in time, the market will find equilibrium. To deliver goods and services at that singular instance, industries will adopt production and distribution models. If you are at all familiar with Michael Porter’s work, think about this as an industry developing its value chain. Beginning with gathering basic resources and ending with delivering goods to customers, markets and businesses will optimize the value chain in order to deliver goods and services to consumers at optimal levels.
However, as Clayton Christensen aptly points out, disruption occurs over time — not in a specific instant. While the value chain will optimize for specific circumstances, often technologies are created that eliminate the need for certain pieces of an industry’s value chain. For example, in recent years, the Internet eliminated the need for paper milling and production in industries that distribute information. In the 1990’s, cellular technology eliminated the usefulness of physical phone lines in the telephone value chain. And in one of my personal favorite examples, in the early 1900’s, the automobile eliminated retailers’ need to put products as close as possible to people’s homes. In its simplest conception, a “break technology” breaks supply chains and value networks in at least one industry.
Allow me to walk you through an example: retail grocery and the emergence of the supermarket. In the early 1930’s, the supermarket was widely regarded as a flash in the pan by many industry experts. In urban areas, the retail grocery market was dominated by corner store grocers who delivered food to within walking distance of customer homes. While the supermarket itself implored no different technologies than its corner store competitors, by hosting fewer bricks and mortar locations and increasing inventory turns, it was able to undercut other grocers’ prices in the market. But even with its ability to sustain lower prices, the new model had little support.
Fast forward to the end of the decade, where the supermarket model was the dominant format for grocery shopping. What changed? It wasn’t as if all of a sudden people realized they wanted lower prices. That basic desire had existed long before the supermarket caught hold. What changed was the consumer’s ability to patronize the supermarket store format. Over the course of the 30’s, a huge population of Americans gained access to the automobile — a technology that made the corner stores’ system of last mile distribution nearly obsolete.
In the years preceding the proliferation of the automobile, a business model emerged that best suited the retail and technological landscape at the time. Without cars, no reasonable amount of savings would convince people to walk additional miles to a store. However, with the mass-adoption of the break technology, the whole landscape changed rapidly and a new model had the ability to emerge to the satisfaction of consumers — and to the chagrin of corner store owners (and their static view of competition).
What do the Model T and supermarket history have to do with business today? Everything. In the past century, air travel, phone networks, the PC, the internet, VOIP, and many more technologies have redefined industries by breaking value chains. In any situation where a part of your industry’s production or distribution process becomes obsolete, a break technology is likely responsible. It’s easy to see how the Xerox machine displaced the employees of law firms tasked with typing up copies using carbon paper. But what’s most interesting is that break technologies can redefine industries even when they’re outside of our or our competitors’ business models. Think about this. While we spend a great deal of time looking at our strategy, our competitors’ strategies, and the technologies that affect us dramatically — how often do we consider the impact that peripheral technologies will have on how we compete? The car changed what the “right” model for retail grocery looked like. LTE mobile Internet will dramatically impact airport Hudson Booksellers everywhere by enabling tablet makers to distribute magazines without retail space or long download times. These are just two of countless examples.
Your value chain is big and it’s complex. It’s been developed to satisfy your customers given the technological landscape of the day. But the technological landscape is constantly changing. So let me posit these questions: Will your business be affected by mobile internet? By Near Field Communications (NFC)? By 3-D printing? By cloud storage? More importantly, will your business model need to change?
To answer these questions, I suggest taking three steps:
1) Understand Your Value Chain
Outline, in detail, how you create and deliver the products and services your customers value. Know each step up the value chain distinctly and understand that the chain will have to evolve over time.
2) Be on the watch for break technologies
Keep a close watch on information, transportation, and production technologies. Think about how each new technological development could make pieces of your value chain obsolete.
3) Prepare to deal with the Innovator’s Dilemma
In many situations, you’ll be able to recognize the emergence of a break technology. Embracing change is the difficult part. Familiarize yourself with the innovator’s dilemma and determine how to disrupt your own business. The new technological landscape will bring new winning business models — figure out how to make sure you participate.
The ability to identify “break technologies” is just one step in building and sustaining successful enterprises. But if you do get it, you’ll be that much closer to ensuring your organization’s viability into the future.