Expanding On The Industrialist’s Dilemma
First, read the excellent thoughts from Aaron Levie, CEO of Box. Already Did? Good. Here are some additional thoughts.
Innovators Dilemma vs Industrialists Dilemma
In the “industrialists dilemma” concept, Levie writes:
The digital landscape is putting companies … in significant positions of strength relative to traditional incumbents, who are still spending too many resources on capabilities that no longer differentiate them.
Innovators Dilemma posits (my view) that given sufficient time, startups will rapidly gain marketshare from incumbents who have overserved the market, by forcing them to retreat to high margin zones that are no yet addressed by the startup.
This venerable book has been studied over decades and every incumbent management team in the valley understands it, and applies it practically by a) self-cannibalization (witness Apple and Jobs) and b) Acquisition (witness Oracle) and c) Lower priced Offerings to serve as a firewall against the startup.
In other words, every business has high margin and low margin customers. Some of the low margin customers tend to be extremely demanding while very frugal with their spend?—?which most businesses are glad to shed, if collectively this group wasn’t so critical to making revenue goals. When a startup comes along and tries to snatch this away, most companies will not put up a fight.
If however, a threat is towards the high margin customer base, there is usually an over-the-top reaction to protect it?—?this is the typical forefront of large corporate wars?—?Oracle vs SAP etc.
What is often missed out is the concept that it is a critical pre-condition that incumbents (as inefficient as they may be) must exist to ensure that the startup challengers do not completely dissolve in a commoditization battle leading to a zero-sum game. For example, what will happen if in a perfect vacuum the taxi industry were to roll over and die, and it was left only to Uber and Lyft to fight for the spoils? Why, they’d merge in a heartbeat and create a great monopoly?—?a.k.a. the new taxi cab industry?—?this time with a mobile app.
The tendency is for the CIO to say, “What assets do I have and how do I repurpose them for this new era?” When really, you have to do away with your legacy environments and vendors if you’re going to be competitive in this new digital experience economy. (emphasis mine)
That is the rub. You cannot “do away” legacy?—?its called legacy for a reason. Legacy is what support your high margin business that pays bills and keeps the lights on. The key is to figure out a “transition”?—?a state that lets you not only introduce new technologies, but also make sure that you are moving away from older, non-differentiating technologies at a controlled, but rapid pace. Understand that you need to protect the path of the money?—?what keeps the lifeblood of the business flowing?—?and experiment everywhere.
Read more: https://medium.com/@rajmatazz/expanding-on-the-industrialist-s-dilemma-c0fa081e7d62