Summary of Key Points
In the wave of digitalization, new technologies (such as AI and blockchain) do not necessarily disrupt all traditional businesses. Instead, they can interact in three ways: substitution, complementarity, or coexistence. Companies need to assess their relationship with these technologies based on their core values and choose the appropriate strategy—whether to discontinue or capitalize on them, embrace innovation and integrate it, or delve into tradition and focus on their core competencies—to avoid strategic mistakes caused by misconceptions and achieve sustainable development.
Detailed Analysis
1. **Substitution Relationship:** New technologies directly compete with existing businesses, either completely replacing them or extracting residual value.
When new technologies render a business obsolete, it represents a substitution relationship. This can occur in two scenarios:
- Rapid Displacement: For example, CRT TVs were replaced by LCDs, PHS phones by smartphones, and generative AI has impacted search engines. In such cases, companies should adopt a discontinuation strategy and quickly sell off or shut down the old business to allocate resources to new areas; otherwise, they may suffer significant losses. The challenge lies in managers being overly attached to past successes (path dependence) or misjudging the commercial viability of the technology, leading to delayed action.
- Gradual Erosion: For instance, streaming services are gradually attracting viewers away from traditional television, but television still has a market due to its authority. In this situation, a capitalization strategy can be used to extend the life of the old business while generating cash flow (e.g., by reducing new investments and focusing on existing products). However, it’s crucial not to relax just because things seem stable for a while, as overestimating the speed of erosion could result in losing even the remaining value.
2. **Complementarity Relationship:** New technologies can enhance existing businesses, providing additional advantages or improving efficiency. This can be achieved in two ways:
- Enabling New Business Models: For example, AI-powered customer service improves efficiency, live streaming breaks geographical barriers for sales, and Sam’s Club expands its reach with online channels. In these cases, a novation adoption strategy is appropriate—using new technologies to create new products, services, or business models. Timing is critical; using immature technologies too early can be costly, while waiting too long may result in missed opportunities. It’s also important to consider the context (e.g., live streaming works well for Chinese manufacturing companies but may not suit luxury goods).
- Optimizing Existing Processes: New technologies can streamline processes, such as online check-in for airlines, supply chain software for logistics management, or AI-assisted drug development (reducing the time from 13 years to 3 years). Here, a integration strategy is suitable—integrating new technologies into existing processes to improve efficiency. However, caution is needed to avoid issues like data silos caused by different systems across departments or alienating customers with forced digital adoption (e.g., requiring elderly customers to use electronic ordering systems).
3. **Coexistence Relationship:** New technologies and traditional businesses can coexist without direct competition, each maintaining their core values. This applies to two types of situations:
- Value Logic Conflict: Traditional crafts, aged wines, and luxury goods often rely on emotional, cultural, or scarcity factors, which digitalization (e.g., machine-made tea) may diminish. In these cases, a tradition emphasis strategy is necessary—strengthening the unique aspects of the product (e.g., highlighting the craftsmanship of handmade tea rather than mass production).
- Objective Constraints: Some services require personal presence (swimming, mountain climbing), interactive experiences (college education), or exclusive access (listening to master performances in concert halls). In these cases, a focus strategy is appropriate—narrowing the business focus to core customers less affected by new technologies and allocating resources accordingly. However, it’s important to be aware of potential disruptions (e.g., online streaming may attract some viewers away from traditional methods).
4. Common Mistakes Made by Decision Makers:
When facing new technologies, managers often make the following mistakes:
- Delayed Discontinuation: Hesitating to discontinue outdated businesses, leading to the depletion of residual value.
- Premature Abandonment: Discarding core businesses that should be retained due to their value.
- Futile Resistance: Persisting in traditional methods despite being quickly replaced by new technologies.
- Improper Timing: Adopting innovation too early (when technology is not mature) or too late (missing opportunities).
- Blind Integration: Implementing digital systems haphazardly, causing process disruptions or customer dissatisfaction.
The key is to accurately assess the relationship between new technologies and your business and choose the appropriate strategy. Avoid being misled by the notion that digitalization is an absolute necessity; instead, consider how to integrate it based on your core values and make informed decisions.
The essence of this article is that digitalization is not a binary choice of either adapting or not adapting. It’s about choosing the right approach or deciding whether to adapt at all, based on your company’s core strengths and goals. The goal is to clearly understand the potential impacts and select the most suitable strategy to avoid common pitfalls.