Invest in Innovation
Technology companies are easily left behind in the world of consumer technology. A post in December of last year highlighted the importance of constant innovation in the technology product cycle. The article painted a pretty bleak picture for companies who are not always on the crest of the latest technological breakthroughs--those who fall behind get left behind. It follows that they have to resort to aggressive licensing and litigation strategies which, because there are so many "bad" patents, becomes a wasteful cost to this country's innovators. This need not necessarily be the case.
Missing the innovation boat
The main message is that innovation in the technology industry, especially consumer technology, should sit high on the list of priorities for any company that wants to see continued successful business. While a company with one or more highly successful “cash cow” products may seem as though it’s making money and performing well, where it’s investing that money can be a better indicator of where the company is going. Investing all a company’s profits back into these cash cows, to gain more market share for example, seems like a reasonable strategy on its face. Without more products in the pipeline, though, there’s trouble. To get more products in the pipeline means investing early and often in research and development to continually develop new products which could become future money-makers.
Once your main money-makers start losing market share it’s often too late recover with new products. At least it’s very difficult, and requires a significant shift in strategy. Unfortunately, this means that many companies can get caught in the “innovation trap:” getting caught heavily invested in increasingly obsolete products and unable to generate the cash to move quickly into a new market role. Companies like Netscape, Palm, Sony, Nokia, and many others were once giants in their respective markets because of a particularly successful innovation, but were cast aside as consumer interests shifted and their products failed to follow suit. Each of these companies failed to innovate, and each got left behind.
Breaking the cycle
Some companies do recover from this, but it requires a significant shift in strategy. Common elements to companies that have been able to do this are early recognition of dwindling market share, and agility to adjust to a heavily innovation-focused market strategy. For most tech companies this means cutting products and re-focusing heavily on innovation in a particular market niche. Let’s look at a prominent example: IBM.
Fig. 1: IBM's BlueGene supercomputers, started as a research initiative in 1999, now regularly tops the list of the world's fastest and most efficient supercomputers.
In the late 90s, IBM was riding a high. It’s share prices grew steadily through the decade because of years of success in personal computing. Their share prices began to reflect stagnation around the turn of the century, stabilizing and eventually began to plunge in 2003 and 2004. In 2005 the company sold its personal computer business to Lenovo, and re-focused all its development efforts and innovation into what was previously a small portion of the business--supercomputers and large-scale network architectures. This shift is not the first in IBM’s history, and this agility is what distinguishes a long-time success like IBM from the countless other tech companies that have come and gone during its lifetime.
By quickly re-orienting their strategy like this, companies like IBM have been able to not only recover, but become highly successful, if not in the markets they were originally known for. IBM has innovation in their DNA, and are therefore not tied to one particular product--when they could no longer innovate in personal computing, they moved on without flinching.