In this episode we will explore :
- Why companies, especially in Germany are focusing on the wrong thing when it comes to “digital transformation.
- Why the over-reliance on technology can massively hurt your company. I’ll do this by citing various examples from vastly different industries and fields.
- Why companies are not and will not become innovative by using technology and why there's very little opportunity to gain a lasting competitive advantages against competitors,
- The very dangerous assumption of why, despite the increased importance of IT, this does not translate into a lasting competitive advantage,
- What distinguishes proprietary from infrastructural technologies,
- How competitive advantages erode over time, by looking at past technologies,
- What makes IT a simple commodity input and not a strategic advantage to enterprises,
- Why companies need to focus on threats rather than opportunities and should keep IT expenditure in check,
- Why companies should not be first-movers and why there’s no shame in following your competitors when it comes to adopting new IT technologies.
Why Technology matter a lot Less than you Think
- Don’t rely on technology to solve your fundamental or essential problems or to compensate your inadequate competencies in your company.
- Technology is only an ENABLER that will amplify the skills or core competencies of your company.
- Learn the fundamentals first and get the essentials out of the way first before you even THINK about technology.
- Simply having access to technology doesn’t make you a better artist. Having a paint brush doesn’t make you Picasso. Just because you buy the most advanced camera doesn’t make you a pro photographer or simply buying a formula 1 race car doesn’t make you Michael Schumacher.
- Just because a certain technology makes skills more accessible, doesn’t make it any easier and can even disadvantage beginners that are still learning the fundamentals skills to reach a pro level. Restricting access to features and fancy tech would be a much better option.
- But the increased accessibility to technology creates an even bigger problem. Now that technologies such as videography are much more accessible, it has also created a lot more competition. Now, everyone is creating high-quality 4K content.
- Having constraints or putting them in place helps people become more creative - especially in innovation. There’s a German proverb that illustrates this point very well: “Not macht erfinderisch.” (Necessity begets ingenuity.)
Why the increased importance of IT does not translate into a lasting competitive advantage
- Agencies, digital consultancies and technology companies have strong, vested interests in selling technology products and services to businesses.
- Most CTOs hire IT & strategy consultancies to help them better utilize their IT and to differentiate themselves to gain an advantage from their competitors.
- Behind this view lies a very faulty and dangerous assumption, one that assumes that because the importance and availability of IT has increased, so too has its strategic importance.
- For technology or any resource to be truly strategic and able to create a sustained competitive advantage, it needs to be scarce not ubiquitous and do something competitors don’t have or simply can’t replicate.
How competitive advantages erode over time - A brief history lesson
- Proprietary technologies are owned by a single company e.g. pharmaceutical company that has a patent for a specific active ingredient. If competitors find this technology hard to replicate then a company has a long-term strategic advantage that enables it to earn higher profits than its competitors.
- Infrastructural technologies provide far more value when shared than when used by a single company e.g. railroads. The value created by keeping this technology priority is insignificant compared to when its shared.
- These inherent characteristics and economics of infrastructural technologies, make it inevitable that technologies such as railroads, telephone lines or electricity will be shared and become part of the business infrastructure.
- In the beginning, infrastructural technologies acts more like a proprietary technology, due to the fact that in these early stages is often limited in terms of access through physical limitations, intellectual property rights, high costs or simply a lack standards. It’s only during this time a company can gain a competitive advantage over its rivals.
- Managers falsely believe that the advantages of infrastructural technologies will continue indefinitely. But once the buildout begins to subside, the opportunity to gain a competitive advantage have mostly vanished.
- By simply reducing a competitive advantage to the superior use of technology actually does companies a huge injustice. Their advantage comes from very distinctive and basic business models which were often developed before the use of any particular technology.
- The potential for technology to create a strategic and differential competitive advantage for a company deteriorates as it becomes more accessible and affordable to all market participants.
Why IT is the ultimate commodity
- IT shares all the characteristics of in infrastructural technology. Its inherent characteristics make it the perfect a commodity, perfectly reproducibly at the byte level, lending itself to even faster rates of commoditization.
- The distinguishing or superior use of technology will erode by outsourcing IT processes and will bring other companies to competitive parity. Once the process has been automated or outsourced, the additional returns from new advances diminish very quickly.
- The internet has accelerated this commoditization of IT by providing a distribution channel for generic software and massively decreasing costs and thus democratizing computer technology. It has also leveled market entry barriers for competition. Even the most advanced IT system quickly becomes available for all.
Why companies should not be first-movers in adopting new IT
- Competitive advantages that derive from the characteristics of infrastructural technologies are only possible in the early phases, which are associated with high cost and a lack of standardization.
- The barriers that proprietary applications and systems can provide in the early stage against competition can dissolve quite rapidly, quickly turning the competitive advantage into a liability rather than an asset.
What should companies do?
- Companies should focus on threats rather than opportunities.Once a technology or any resources becomes critical to stay competitive, but insignificant to the strategy, the risks it creates become more important than the benefits it can provide.
- If companies can't capitalize on the use of new technology to defend this advantage for a significant period of time in order to pay back those higher costs of being a first-mover, then it makes more sense to wait until the costs have come down.
- Let your competitors make the mistakes and take on the risks as the technology matures and standards become more reliable. As costs decrease you can achieve the same level of capability for a fraction of the cost. For this reason alone, companies need to pay much more attention to the ROI on their IT investments.
- Studies on corporate IT spending clearly show that more IT spending rarely translates into better company performance.
- Unfortunately, there are no short cuts in life. Sure technology can make things simpler to start and more accessible for more people, but will not make you an expert. If there is a technology that can accomplish this, then that market would be flooded with experts, driving prices down or it would be automated all together.
Links & Resources Mentioned
Articles from the Episode
Videos from the Episode
- Maslow's hammer (Wikipedia)
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David C. Luna: LinkedIn
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This podcast looks at innovators and companies that are changing the game and how they took their initial idea and created a game-changing product or service, while giving you unique perspectives and insights you’ve probably haven’t heard elsewhere.
David and his guests discuss real-world practical advice on how to best harness the creativity of your employees and go from idea to product or service that has the potential to radically transform your business.
They also share lessons they’ve learned along the way to effectively accelerate, incubate and scale innovations within small, medium and large enterprises, all while separating hype from reality and replacing bullshit bingo with common sense.
The show is hosted by David C. Luna, author, keynote speaker and founder of GAMMA Digital & Beyond.
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