A potential client in a technology industry called me with an all-too-familiar story about his privately held company:
• Established decades ago as a niche technology company
• Successfully executed many technology evolutions and disruptions
• Earned price premiums for decades due to outstanding service and quality
• Survived the 2008 decline – hardest years in the leader’s professional life
• Previously distant competitors (by geography and technology) are moving into his markets intensifying price competition
• His largest direct competitor is now offering “one-stop full-line” solutions which are far more comprehensive than his company’s niche offerings
Furthermore, his company’s sales force used to work directly with buyers, with relationships keeping win rates high. Now an online bidding system decides which company gets each order. After becoming “qualified” to compete by proving his company meets quality and service standards, his company must bid anonymously online against other qualified suppliers. There is no feedback on why his company won or lost or how his company’s prices compared to that of the competitors.
Welcome to the “new-normal” for B2B companies in a flat to declining economy.
Age-old stories are contained in this company’s story.
• One story is the maturing of technology, creating easier entry and a closing of feature gaps by competitive technologies, both of which create a more competitive playing field. Once low-end copy-shops are now doing high-quality print work.
• Another story is the growing strength of the channel-loaders, the companies that enter into maturing technologies and bring a full-array solution to customers. These companies can completely eliminate market opportunities for companies supplying only selected technologies to the same customer group. When anesthesia equipment companies built machine and patient monitors into their anesthesia machines, they significantly reduced the sales of stand-alone monitors into the OR.
• The third story is disruptive innovation, stripped down versions of a given technology that lower price points, open new markets and steal share from existing markets. Notebook computers did just this.
• The final story is the disappearance of technologies as they are replaced by newer, better technologies. Remember how every household once had one or more land lines?
Technology is changing more rapidly in today’s economy. The fast pace of change often results in leaders become focused solely on their company’s technology strategy, seeking technology advances for the sake of remaining on the cutting edge. This is a mistake as technology decisions get made without a larger market-context.
Instead of asking “How can I move into the new technology?” leaders should ask the following types of questions:
• What do (or could) we uniquely do with each new technology? Which customer groups would most benefit from this? What business would we need to be in to best serve this market?
• What are the unmet needs of the customers we now serve or could serve? What frustrations and compromises do they experience dealing with today’s technology and companies providing it? How might new technologies solve these problems in ways competitors could not easily duplicate?
Understanding technology trends certainly informs these conversations. The answers should be defined for today’s technology and technology you could add. But the focus is on customer needs and solutions, which should always remain front and center.
Never forget that a business only exists if it can profitably solve customers needs better than the customers could solve on their own. Technology is a means to an end and not an end in itself.
For insight on business model strategy, read my recently released book, Beyond Price.
Fred H Schlegel says
Great post as always Kay. My heart goes out to the company being dragged into the online bidding space. That can be a brutal (and if mismanaged, deadly) transition.
For a company that is being dragged into a more commodity type competitive model like the an online bidding system creates – sometimes looking to industries that have lived in that world for a long time can provide significant hints on ways to manage the process. While in many ways construction seems worlds away from technology it sounds as if customers are beginning to treat them in similar ways….
Bill Welter says
Once again, a great post. Keep the messages coming.
Fred H Schlegel says
Absolutely. In many ways thats the coin of a good consultants practice… The ability to find and apply ideas from places the client would never have thought of. The excess capacity issue is huge and very problematic. I would think that discovering ways ways to distinguish yourself while still being price competitive can very often force radical shifts in business models.