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How to Confront Relentless Commoditization

{complink 2470|IBM Corp.} is marking its centennial anniversary with a broad range of activities starting today and continuing through the year. The company is showcasing its history with essays; stories about the “100 IBM innovations that helped shape the last century“; films; a Celebration of Service Day; and a book offering “an in-depth look at three dimensions of IBM's impact on technology, on business, and on the modern world.”

The book, titled Making the World Work Better , can be previewed here. The celebration is worthy because of the phenomenal impact IBM has had on global business and on the high-tech sector in particular. As I noted in a separate blog, though, the company should also be concerned about what the next decade will look like. (See: Happy 100th Birthday Big Blue – What’s Next?.)

What can the electronics industry still learn from IBM? There's a lot. As part of its 100th birthday anniversary, IBM has produced a package of valuable lessons learned from its past with a review of critical issues facing major companies in today's global market.

It addresses issues such as how companies should deal with the tensions among constituents and how they can outlive their founders; corporate nationality in a global market; what should and should not change in a business; and how leaders can plan for the long-term in a world focused on short-term thinking. I drew the headline for this blog from my favorite section of the package: “How Does a Company Confront Relentless Commoditization?”

In my opinion, commoditization is a major challenge for the electronics industry. I have reproduced IBM's comments and recommendations below. Let me know if you think the company's advice can help mitigate the impact of price erosion in the electronics industry.

    The technology field is cruel to those who fail to make the leap from era to era, but tech companies are hardly alone. The hand of commoditization spares few. The question becomes, as leaders, what to do about that.

    Our lesson learned: You have to keep going to the future. Partly, it’s about creating new spaces to move into — investing in good times and bad. This requires a kind of institutional patience; upside benefits rarely come this quarter, or even next year. Sometimes, they never come.

    But it’s not just about what you create. It's also about what you choose to leave behind. Every institution, by its nature, favors the ideas, products and services that made it successful. Leadership often requires shedding emotional attachment to that heritage.

    Consider the IBM Personal Computer. This wasn't just a breakthrough invention and successful IBM business. It was a product that spawned a whole new sector of our industry. But several years ago, it became clear that the PC was not central to our future — or the future of computing. So we got out — a move that scratched almost $11 billion in annual revenues from our books. This was just one of several similar moves over the past 10 years. All part of the perpetual motion of building higher-value businesses.

    Moving to the future can also include reinventing what you have — as we repeatedly have done with our mainframe business. Despite repeated pronouncements of its imminent demise, we've increased installed mainframe capacity 1,000 percent over the past 13 years.

    The largest lesson we have learned is about value creation itself. Every leader has to determine how “the new” is born. We have realized that innovation itself is ever evolving. Over a century, we have added fundamental research to development. We have collaborated with universities and governments. We embraced open source. We selectively acquired companies. And most recently, we have generated ideas at population scale via social media. We have learned that a profitable idea can come from many sources.

4 comments on “How to Confront Relentless Commoditization

  1. AnalyzeThis
    June 17, 2011

    I think that's a well chosen excerpt and it really makes me want to read the book.

    “It’s not just about what you create. It's also about what you choose to leave behind.” I agree. And I actually posted yesterday how smart I thought the sale of the PC business was to Lenovo, in hindsight.

    I think many organizations do not heed this advice and that's why so many companies fail to have the lifespan and long-term success that IBM has enjoyed. Too often executives fail to adapt and attempt to continue to rely on the successes of the past, even when they are objectively past their prime. Change can be difficult, and it's very easy to form an emotional attachment either to specific products, people, or methods of doing things. Sometimes you just need to throw out the idea of reviving past success and either let it die or gracefully exit before everything goes downhill.

    Anyhow, thanks for pointing this out Bolaji!

  2. FLYINGSCOT
    June 17, 2011

    From my own experience I believe companies that do not do well are those that oftentimes try to “flog a dead horse” for lack of ability, fear or leadership to do anything else.  Successful companies set the trends.  Next are companies that can anticipate trends or follow very quickly with fast turn products.  Bringing up the rear are those that try to do what they have always done and not do it well enough ANYMORE.  In high tech this trait of hanging on to something that should be dropped is often exacerbated by poor (and substantial) investments in internal technology where outsourcing should have been employed.

  3. prabhakar_deosthali
    June 19, 2011

    The world must acknowledge that it was because of IBM that the world saw the PC coming to their desktop. In early 80's the strategic decison by IBM to make the design of the PC open to all the third party developers and system integrators was the key to make the PC a commodity. For many years , a PC made by the thrid party developers used to be called IBM-PC-Compatible to give the credibility to the product and to give the guarantee to the customers that it would run all that software and hardware ,that would run on the original IBM PC.

     

    If at that time IBM would have decided to keep the PC design their proprietary , then the world might not have seen the proliferation of the commoditized computing that is available today.

  4. Ariella
    June 20, 2011

    Good observation, Flyingscot. It's rather like the quote, “Some people make things happen, some watch things happen, while others wonder what has happened.”

     

     

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