What to do if new tech disrupts industry

17 Jan, 2020 - 00:01 0 Views

eBusiness Weekly

New technologies create revolutionary products, open new markets and lower costs. But they also confuse and create many opportunities to make mistakes.

Unfortunately, the past does neither tell which path to follow, nor what mistakes to avoid. Successful companies, however, carefully assess how the new technology will affect the structure of their industry, and then adapt their business models.

They may begin by assessing how the new technology will change the scale that firms need to be competitive. They may discover that their strength lies in redefining their place in the vertical chain.

Or, ultimately, they may realise that a new technology will toughen competition and force them to deal with commoditisation.

Find your efficient scale

Technological disruptions may change the scale that your firm needs to be competitive. When Morris Chang founded Taiwan’s TSMC in 1987, he decided to become the world’s first pure play foundry, a semiconductor firm specialised in manufacturing chips designed and marketed by others. Chang realised before almost anybody else that the programming language invented by Lynn Conway and Carver Mead in 1979, which allowed chip manufacturers to receive the instructions to print a chip in an electronic file, would lead to fabless semiconductor firms.

These are highly specialised firms that design and market special purpose chips, but are too small to own a plant. When fabless firms exploded in the early nineties, TSMC quickly reached the large scale it needed by servicing a growing number of them, and became the world’s largest pure play foundry.

Thirty years later, Chang’s business model, which reconciles small-scale in chip design and marketing with manufacturing plants that cost billions, is the main form of organisation in the semiconductor industry, and TSMC has been one of the main beneficiaries.

Find your place in the value chain

Technological disruptions redefine your place in the vertical supply chain. The ion-lithium battery market is expected to grow tenfold between now and 2028, and so far R&D and growth has been driven by large battery firms and megaplants. But Cadenza, a battery technology company, decided to eschew manufacturing.

Batteries are made of electrochemical cells, and when one overheats it may catch fire and create a thermal runaway that burns the battery. Cadenza invented a package, which resembles an egg case, where each cell is isolated to prevent runaways. Once cells are isolated, they can be packed closer to each other, increasing the battery’s range (key for electric vehicles), and its cost per kWh.

But Cadenza also wants to standardise battery design and reconfigure the battery supply chain.

For example, the packaging can be assembled with less than 50 components, most of which can be mass produced and sourced from independent suppliers. Dense packaging simplifies the electrical connections between cells, which can be assembled like legos to build the battery.

And because the design is independent of the battery’s electrochemistry, the same battery architecture will work if a better electrochemistry appears and the same plants will be able to manufacture them.

Cadenza’s focus on streamlining manufacturing may seem to be in contradiction with its decision not to manufacture batteries. Instead, it specialises in technology development, and licenses its proprietary packaging architecture to established manufacturers that already have customers and distribution. Cadenza’s bet is that if many manufacturers join, its technology will become the industry standard for electric vehicles and grid storage, benefit from multiple firms competing to reduce costs, and diffuse fast.

Think how you will deal

with tougher competition

Technological innovations that connect customers with manufacturers enlarge markets, but also squeeze margins. Consider manufacturing platforms like Xometry and 3D Hubs, which allow customers to upload specifications and receive almost instant quotes from manufacturers. As Marco Annunziata explains, platforms enhance efficiency in three ways.

First, customers and manufacturers spend less time discussing technical specifications and negotiating prices. Second, when different manufacturers produce a similar part in different ways, platforms facilitate comparisons and guide the customer’s choice.

And third, platforms vet and monitor manufacturers to guarantee quality and performance.

By facilitating comparisons, platforms enlarge the market. But now customers can run an auction and pick the manufacturer with a click.

Manufacturers who can develop and protect a competitive advantage that is difficult to replicate will benefit from larger markets. But if nothing substantial differentiates one manufacturer from another, margins will get squeezed, customised manufacturing will become a commodity, and the industry will consolidate. Successful firms will be those that can grow fast, contain costs, and make a profit with small margins.

A technological disruption will change the structure of your industry, and will force you to adapt your business model. When deciding which business model your
firm needs, use your knowledge about your industry to assess how your scale and place in the vertical chain will change.

And do not be deterred by the ways in which your market and firm worked in the past. An early adaptation of your business model to the emerging industry structure may well make the difference between seizing the opportunity or failing. — Forbes.

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