The Art of Risk Assessment and Business Continuity
|19 June, 2013|
The buggy whip is a staple of management courses. Somewhere there is a mythical company which became very good at making buggy whips. It became the dominant company in its field. It didn't diversify. It stuck to what it was good at. And now it is gone. The horse and buggy has disappeared, and with it, the company that made the last buggy whip.
The message here is that there is a risk to just sticking to what you are good at. You get better and better at what you do, but ultimately a disruptive technology comes along and you're a historical footnote. (I know, disruptive technology is now an obsolete buzz phrase, but indulge me.)
It's interesting seeing new disruptive technologies coming along, and watching how companies react to them.
Take, for example, the advent of the IP phone. You can now buy two services: one provides you with internet connectivity, the other provides you with a telephone service anywhere you can get IP connectivity. The service doesn't have to be from your local telephone company. It could be from a company in a different state or in a different country. Calls which with stay within the internet can be “free”. Only calls which terminate on POTS (Plain Old Telephone System) lines still have to be paid for.
The difficulty for the telephone companies is that they have an installed base of POTS lines and phones. If they sell someone an IP phone, they lose revenue. Of course, if someone else sells them an IP phone, they lose even more revenue. A difficult decision to make, but clearly it is the last mile providers of the internet service rather than the IP or POTS phone providers who will make the money in the long run.
Why not the IP phone provider? Well if as an IP phone provider you charge me too much, I can always look for a better deal elsewhere. The last mile ISPs generally have the least competition, can bundle services, and are therefore able to command the highest price. (This argument only applies if you can take your telephone numbers with you. Otherwise there is a significant cost in changing supplier.)
Digital recording is another such technology. Even though there are still people who prefer the distortions of vinyl rather than distortions of digitisation, the analog part of the music industry is quickly being forgotten. I find myself explaining to my kids terms such as “record player” and “LP”. The CD and DVD are still convenient ways of delivering copies of streams of bits, but even that may change.
Another disruptive technology I first noticed at Christmas last year. The arrival of the LED Christmas light. If you've ever followed the North American tradition of festooning your house with Christmas lights you'll know two things: one — you always end up putting up lights on a cold wintry day; two — nothing is more frustrating than finding and replacing burned out bulbs.
LED Christmas lights are the answer, with a MTBF (mean time between failure) of 100,000 hours (that's eleven years of continuous use) the lights may well last longer than you do. Electricity consumption is a fraction of that of incandescent lighting. Last year there were just a few sets in the hardware store. This year saw major advertising campaigns and probably half the lights stocked are now LEDs. Next year I wouldn't be surprised if there are hardly any incandescent Christmas lights left.
Already LEDs are taking over in automotive applications, where the lights now last longer than the average car and can be located in places it would be impossibly expensive to service. If white LED technology develops a little further, it wouldn't surprise me to see household and office lighting moving in the same direction in the next few years. Already they are being used in architectural lighting.
Imagine light bulbs which use a fraction of the power and never need changing. Compact fluorescent light bulbs may be just another historical footnote.
It may all still sound like science fiction, but it's a major risk for the players in an industry which has been around since Joseph Swan invented the incandescent light bulb in 1878. (Suprised? Thomas Edison perfected a longer lasting (40 hour) bulb in 1879, but it was not until William Coolidge's tungsten filaments in 1910 that the invention became really marketable).
So the risk management questions you have to ask yourself are these: is there a new disruptive technology on the horizon which may fundamentally change what you can sell? And if there is, do you cannibalize your existing market or wait for someone else to do it for you?
Just as there is still a small niche for vacuum tube manufacturers in high end “retro” audio systems, there will always be a small niche for incandescent light bulb manufacturers too. In spite of the story I opened with, there are still successful (although small) buggy whip manufacturers. Indeed, while researching this article I came across Arizona Whip who will sell you a high-tech whip on the internet. I'm not sure how suitable the whip is for controlling a horse and buggy, but the whip does have LED lights on it.
Even buggy whip manufacturers can change.
Michael Z. Bell
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