Thought for the day:
Forget the next big thing
- Posted:
- 16:41 02 Jun 2004
- Topics:
- Supply Chain Management
The most enlightened suppliers are producing sustainable, reliable products that fix problems or improve efficiency, says Bob Jones.
After the debacle of the past few years, with the
combination of Y2K and post-dotcom blues, you would have thought
the IT industry had learned its lesson.
Looking back at the good old days, the pace of innovation seemed to
be ever-increasing and customers' appetites for the latest and
greatest technology seemed insatiable. But it is very different
now. Technology is no longer a fashion business, where products
change with the seasons. Instead, company executives are looking
for a cast-iron return on investment. Maintaining the status quo
has become a legitimate business strategy.
Some companies in the IT industry have understood that the market
has changed radically, but too many are still in denial, expecting
a return to the heady days when products were developed, launched
and sold at breakneck speed. The reality now is that although
customer interest and the market is picking up, we cannot expect to
return to the past.
That is not to say there are not hot areas - such as the security
market or wireless technology - but as these areas are few and far
between, suppliers still rush almost lemming-style for what they
perceive as the "next big thing". Not surprisingly, over-capacity
has become the scourge of the IT industry and sadly it is going to
end in tears for many suppliers.
It is a simple equation. Many IT products are already treated as
commodities, with the accompanying mass marketing and lower margins
that these types of products inevitably bring. However, an
essential element for a successful commodity is a large market
where economies of scale enable suppliers to make the level of
investment necessary to develop new lines.
But markets for innovative IT products are very different from
those for soap powder. Product volumes are initially small and
margins need to be high to sustain the business and to encourage
further investment.
Bringing radical new technologies into emerging markets inevitably
carries a high element of risk. The rate of change of customer
demand is much slower than either the industry's expectations or
the rate at which it is capable of producing new goods. The end
result is that commodity market principles are being applied to
innovative market products, making the whole equation neither
cost-effective nor sustainable from a business point of view.
Over time supply and demand will become more evenly balanced, but
customers will have learned from their experiences. Even today
users are buying solutions, not technologies. With so many
disappointments in terms of the return on investment of IT projects
in recent years, those holding the purse strings are passing a
critical eye over technology purchase orders. The more enlightened
suppliers are selling products that fix problems or improve the
efficiency of existing processes. Those who are still on a mission
to discover the next big thing are heading for disaster.
Bob Jones is managing director at
Equiinet
