Wharton Chapter 2 - Avoiding the Pitfalls of Emerging Technologies

Wharton Chater 2 – Avoiding the Pitfalls of Emerging Technologies

Summary

The title of this chapter is self explanatory. Here Day and Schoemaker outline the traps that established firms often fall into when competing to develop emerging technologies, as well as possible remedies for to avoid these traps. These traps, or “pitfalls’, are said to often be the reasons as to why established firms fail in these development ventures. However, we must keep in mind that while this list does give large firms a rough guide to avoid losing, it is, “…not an exhaustive list of traps or solutions, these pitfalls and remedies have been prominent themes in academic research and discussions with managers.” The 4 pitfalls put forth in chapter 2 are:

1) Delayed Participation
Delayed participation or “watch and wait”, is when established firms sit back watching emerging technologies develop, but do not participate in them because they do not fit into the managers “mental models”. It is often because of these mental models that managers may not appreciate the opportunities that emerging technologies can possess. Examples given of a large firm that stood on the sidelines was IBM with the Haloid-Xerox 914 copier and the PC.

2) Sticking with the Familiar
When established firms stick with what they know as opposed to branch out into emerging technologies, often due to the lack of imagination and underestimation of profits. Staying with the familiar occurs for a few reasons; past success reinforces problem solving and decision making techniques, firms lack the ability appraise and assess technology properly and therefore often underestimate potential and/or “proprietary mind-set gets in the way”. Primary example here was Encyclopedia Britannica and the possibility of the putting their volumes on CD-ROM.

3) Reluctance to Fully Commit
This is a statement of attitude from the established firm and not a financial statement. That is, to be fully committed, the firm does not need to commit all the monetary resources needed up front, those can come as staged investments (it is actually more fiscally responsible if they come as staged). However, if the attitude of the top management is not in full support of the emerging technology then chances are, it will fail. Not in the market place, but rather at the particular firm. There are 5 main issues that hold firms back from fully committing;
1) Managers concern of cannibalizing existing profitable products (IBM mainframes vs. distributed computing)
2) Paradox in managerial risk-taking between bold forecasts and timid choices
3) Unclear profit prospectives and futures of the emerging technologies vs. current business lines
4) Established firms look to meet the current needs of their current customers. To make their revenue and profits today as opposed to in some undetermined future
5) Successful firms are not naturally “ambidextrous” in balancing the familiar with the unfamiliar

4) Lack of Persistence
While all of these traps go hand in hand with each other, this forth trap ties particularly closely with “Reluctance to Fully Commit”. If a firm is not fully committed, it can easily justify moving away from an emerging technology. These established firms have pressures to achieve revenue objectives and when an emerging technology is panning out, making any money any at times losing money it is easy for an uncommitted firm to “cut their losses”. This trap is the other side of another trap, the sunk cost trap, where a firm is overly committed to their core business and is often too quick to pull the plug on emerging technologies.

The key to established firms success in a given emerging technology is whether that technology has high level management sponsorship. If management doesn’t see the possibilities of the new technology, future monies probably won’t be allocated to its development in down times. To go along with upper management/executive support, Day and Schoemaker also give some solutions in overcoming the traps given above as well as other possible traps. Similar to the traps these solutions should be looked at collectively and firms can take away something by looking at each one and seeing how they apply wholistically to their business. These prescriptions do not match up one for one with the traps rather they should be used to provide direction. The prescriptions as listed by Wharton are:

1) Widening Peripheral Vision
Managers must be able to look beyond the poor initial signs that the emerging technology is producing. Disappointing results and limited functionality can all be overcome if the anticipated possibilities can be seen and projected. Managers must be able to predict where their new technology fits, what its possibilities are, what its markets look like and how they act. Three key principles to help guide the assessment of the markets are:
1) Paint the big picture
2) Use Multiple methods
3) Focus on needs not products

2) Creating a Learning Culture
Established firms need to always encourage collective learning, not just individual learning. One can lead to the other, but unless there is a free flow of information individual learning will not benefit the overall organization, characterized by:
1) An openness to a diversity of viewpoints - divergent thinking leading to convergent ideas/solutions
2) Willingness to challenge deep-seated assumptions - challenge the prevailing mental model
3) Experiment Continually - experiment to see what works and what will be a success
4) Deep Dialog - connect with colleagues at a deeper level to really encourage creative dialogue


3) Staying Flexible in Strategic Ways
Being agile and nimble allows a firm the flexibility to change its direction quickly, make quick necessary decision and adapt to a quickly ever-changing world. The example given is how Microsoft was able to divert its operations from developing for Windows and OS/2 in order to fight the browser battle with Netscape.

4) Providing Organizational Autonomy
Taking the development of the emerging technology out of the organization, will allow freedom and flexibility for the technology to grow and develop without being compromised by the organizations rigid structures and mental models.




Analysis

While it is mentioned I feel that there is not enough emphasis put on the role of the executive team and specifically the CEO (company visionary leader) in developing and providing a clear vision for emerging technologies. Through-out the chapter the authors give examples of how IBM seemed to miss every large emerging technology opportunity that they had a chance to be a part of prior to the early 90s, from the Xerox copier in the late 50s to the PC throughout the 80s. IIBM missed these opportunities and because they did they were a dying company. That was until Lou Gerstner stepped in as CEO from 1993 to 2002. As many articles and experts put it, he changed the culture at IBM. Before Lou arrived at IBM everyone seemed to be going in different directions with different objectives and goals. Mr. Gerstner provided direction for the different divisions at IBM, cut divisions that didn’t make sense and pursued emerging markets, technologies and business models that would return IBM to profitability. When Lou Gersnter started at IBM, IBM’s stock was at about $10, by April of 1999, it hit its peak during his tenure at $129.

If the fate of the emerging technology does in fact rest on the shoulders of the executive teams at established firms, what can we truly do to manage the emerging technology? How can we influence the fate of an emerging technology as managers in an established firm? If we take a step back and look at this another way how can we have influence of emerging ideas or business processes that we either manage or develop ourselves?




Resources

http://finance.yahoo.com/echarts?s=IBM#symbol=IBM;range=my

http://tip.psychology.org/models.html

http://postcards.blogs.fortune.cnn.com/2008/07/17/power-point-five-tips-from-ibms-turnaround-champ/

http://news.cnet.com/2100-1001-828095.html