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Strategic Choices in Converging Industries

Book Description

In the relentless evolution of technology and markets, many industries are in the midst of major reconfigurations of their fundamental architectures and how companies capture value. When industries converge, companies that were in seemingly unrelated businesses can become rivals. Managers need to recognize the different drivers and the types of strategic choices that are available to them. Turning a blind eye as the industry’s ecosystem begins to change can be costly. Perhaps the most dramatic example of industry convergence is in telecommunications, information technology, media and entertainment, which many people now refer to as a single field, the “TIME” industries. This article is based in part on interviews at 26 companies in these industries. The authors identify four main drivers of industry convergence: technological advancement, open architectures and standards, policy and regulatory reforms, and changes in customer expectations and preferences. In addition, the authors describe four strategies companies have used to sustain growth in converging industries: technology pioneer, market attacker, ecosystem aggregator and business remodeler. Technology Pioneer Technology pioneers enter the market early and make strategic choices on the appropriate technological specialization as well as the control of intellectual property. New ventures following this path recognize that they need to demonstrate the technological potential of their inventions and evaluate the conditions for early customer adoption. Successful technology pioneers pursue these goals by driving standards, becoming the technology of choice and negotiating nonexclusive licenses. Market Attacker Market attackers try to exploit the commercial application of advanced technologies and tap into revenue opportunities generated by the fragmentation of well-established value chains. A particularly effective strategy is to team up with an incumbent and collaborate vertically in the value chain. This often involves three steps: establishing relationships with partners; consolidating the engagement model; and extending their partnerships, weighing different paths to expand scale and reach. Ecosystem Aggregator Ecosystem aggregators attempt to exploit the market opportunities resulting from a wave of emerging technologies. Typically, they are incumbents in the industry and leverage their competences and market experience to establish an innovation platform aimed at complementary products and services. In doing so, they enhance the overall value of the core offerings, taking advantage of what are called network effects. Business Remodeler Companies with dominant market positions, a significant customer base, strong brand equity and established networks can become business remodelers. Such companies are well positioned to redefine the core business model. Business remodelers need to develop an understanding of why value is shifting and identify the new sources of value. They typically begin by building direct relationships with their existing customer base. As the process of convergence advances, the authors note, companies have the ability to change course. A technology pioneer, for example, might decide that it’s better to become a market attacker.