Products have a life cycle. They are introduced to the market and the standard model of the life cycle follows an S-curve of growth maturity and decline. Products go into decline for a variety of reason. It could simply be a matter of public tastes changing. Today, a prominent reason for products entering the decline stage of the life cycle is technological change.
A prominent example of technological change leading to product decline is the market in processing chips. Although there is some evidence that Moore’s law is no longer applies; for many years the market for chips followed the pattern of double the number of semiconductors on the chip every eighteen months. Of course, when the processing power increased, the old chips became obsolete.
History is littered with such changes. The replacement of steam trains with diesel electric trains, the rise of the smartphone, digital cameras over film cameras. The last of these examples is particularly interesting. Kodak invented the digital camera sensor. They then let others develop it as Kodak continued to focus of producing film rolls. Kodak eventually had to file for bankruptcy protection.
Technology can destroy old industries and creates new ones. In the 1960s very few saw a market for home computers.
Businesses are often faced with a host of technological threats. Not just products but technological change in supply and distribution chains (e.g. e-books and music downloads), changes to customer habits (such as internet shopping, fast food home delivery apps), changes to production processes (e.g. 3D printing). Good managers, or perhaps lucky managers, know some technological threats will never materialise as a threat but others will have a major effect on their business.
It is common for new technology to be developed outside and industry and then applied to that industry. Often the new technology is developed by new firms entering the market (disruptors)
New technology is often crude and expensive at the outset and sales of old technology may initially continue to grow following the product life cycle curve. However, the old technology tends to decline within 5 to 15 years of the new technology being introduced.
Existing firms in a market can respond to the new technology in two ways:
- Develop new products containing an improved version of the old technology
- Fight on two fronts; continue with the old technology whilst developing a presence in the market for the new technology.
When new technology arrives, an existing market member may be facing a host of new market entrants.
So what are the potential strategic responses to the arrival of new technology:
- Do nothing
- Monitor the new technology through environmental scanning and forecasting
- Fight the new technology using public relations; or in extreme circumstances through the courts. For example, Apple and Samsung fought a long legal battle over the technology in each others smartphones.
- Increase organisational flexibility to be better able to address technological threats
- Avoid the technological threat by withdrawing from the market and going and doing something different. John Menzies went from running high street newsagents and stationers to becoming a trade distributor of computer peripherals.
- Improve the existing technology in your market e.g. more efficient and cleaner petrol and diesel engines.
- Maintain sales by modifying your marketing mix – Price cutting, increased advertising budgets, better after sales service: a non-technological response.
You could also participate in the new technology. Dyson bought the firm holding the patent for solid state rechargeable batteries with the intention of putting them in his now abandoned electric car project. He also bought a ventilator patent from researchers when the UK government called for a simple design of ventilator in response to Covid-19.
Such participation in new technology can be seen as a defensive action or as an attempt to achieve market leadership.
In deciding to adopt new technology, you need to assess the strategic dimension. What is the level of acceptable risk? What commitment in terms of finance, non-money assets and time does adopting the new technology require? What is the correct timing of the commitment? Do you capture early adopters or aim for the mass market? Do you develop the new technology within your firm or do you gain the technology through acquisition?