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Saturday, 4 February 2012 |
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By discounting the power of IT, business is endangering itself
Sunday, 8 February 2004
A year ago, I wrote about why the current consensus on IT is wrong. Like Warren Buffett's Wall Street, company executives have a lemming like attitude towards technology. They follow their competitors instead of trying to beat them. But the reality that technology changes everything still applies, and companies are taking big risks by ignoring it.
IT is a certainly a possible source of competitive advantage in many industries. Yet executives are ignoring that source and taking a reactionary approach. "If no-one else is exploiting it, why should we?" they ask. Call me ignorant, but I thought the best time to exploit a competitive advantage is when no-one else is doing it. Resources are cheaper and the opportunities more plentiful. You also reduce the risk of someone else using technology to damage your own competitive position.
At a time when business has the most to lose or gain through technology, most executives are effectively ignoring it as a variable. The attitude is: "More of the same, please, but more cheaply" This is a big mistake.
For example, let's say you're an executive in a big international industry with lucrative revenues and a lot of political power. Innovation moves slowly in your industry and that's the way you like it. You take a "wait and see" attitude to new technology, because that's the easiest route. None of your big competitors are moving on it, so there's no danger, right?
Suddenly, a new competitor appears and uses technology to take a big chunk of market share from you. You use your political and legal clout to shut the competitor down, but an even more powerful rival emerges. These threats came not from the big end of town, but from small unknown operators.
You realise that ignoring technological innovation was a big mistake, and could rapidly destroy your company. Taking a reactive attitude to IT has likely cost you your business.
Does this sound like a fantasy vision from the late 90s? In fact, it's exactly what's happening to the music industry after the release of Napster and Kazaa. The entertainment industry as a whole is likely to fall victim to this phenomenon over the next few years. The incumbents took the same "wait and see" attitude that other sectors are following now, and it's costing them dearly.
Let's look at another example, the telecom industry's phone call revenue. Big incumbents like Telstra look unassailable to technological change in the short term. They own the infrastructure, so they control access. Their main threat comes from regulation not IT, right?
Once again, it looks like this view is going to be soon turned on its head. The creators of Kazaa have released Skype, a free voice over IP service that has big telcos around the world terrified. Their cash-cow is going to be killed, and the threat is coming from a couple of Dutch guys working with a small team of programmers in Estonia. By dragging their innovative feet. the incumbents have let an opportunity to control this technology pass them by, and they will be damaged as a result.
Don't take my word for it. Michael Powell, chairman of the US Federal Communications Commission recently said: "I knew that it was over when I downloaded Skype. When the inventors of Kazaa are distributing for free a little program that you can use to talk to anybody else, and the quality is fantastic, and it's free - it's over. The world will change now inevitably."
Australia's biggest media companies recently had one of their most lucrative businesses taken over by a start-up from Melbourne whose directors had no previous experience. If you'd have told Packer, Murdoch and Fairfax four years ago what was about to take place, they'd laugh. But that's basically what's happening with job advertising since the emergence of Seek. The big incumbents have missed the boat through complacency. Kerry Packer's buying 25% of Seek confirms that he recognises this.
What's striking is how many of the "crazy predictions" from the dot-com boom are coming true. From travel, to share trading, to the classifieds, big companies are finding out that they ignore technology at their peril. Yet that's exactly what most of them are doing.
Executives reading this will probably dismiss it as "dot-con" talk. Sure, there's problems in entertainment, classifieds and telecoms, but our industry's safe. There's no way anyone can touch us. This whole IT innovation thing doesn't count. It's somebody else's problem.
Famous last words!
Paul Knapp (editor@brainbox.com.au)
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