Wharton - Chapter 2: 1 Chapter and 4 Pitfalls

This chapter discusses four "traps" that an established company can fall into when investing in emerging technology. Simply put, they can "wait and see" and let another establishment do the due-diligence of innovation, and then only enter the market if it seems to have a future. This could be tragis because they will lose the early-adopters of that product, and may never be able to catch the innovative firm in market share or technology to gain a strong foothold. This would be a bad mistake. Another trap a company can fall in to would be to stick to their familiar business model and product. This should not happen to a successful company, because they would know that if they do not innovate, they will become obsolete. I liked the books example with Encyclopedia Brittanica, which was a great example. But also if companys only stick to what they know, the natural evolution of an industry could take them down. I think of Union Pacific for this example. A once great railroad and transportation company that did not recognize the innovation that was coming along with the creation of the automobile. With UP's resouces and knowledge of transportation, they could be bigger than Mercedez-Benz if they had got into the market when Benz did. Third, if a company does not fully commit to an emerging echnology, it may be the first thing scratched when their balance sheet starts to look a bit unfavorable. I think this could be attributed a lot to the way American investors value a company. Investment and stock is valuated based on quarterly results, so if a company were to invest in a technology that would pay off immensely in four years at an increased expense now, then investors would bolt. American investors seek immediate gratification and results, so this would leave the comapny no choice than to only make decisions that keep them in the black on their balance sheets. Having survived the first three traps, a company must not fall into the fourth one: not be persistent. they have to realize that sometimes products or technologies hit the market before the market knows it needs them. The comapny must be ready to not pull a profit for many years in order to realize the full potential and success of their product. The book mentions Knight-Ridder as an example of what not to do, and USA Today as a success story. I think of Amazon.com when I read this. They had substancial losses at first, but with persistence they are the online bookstore leader, even over such powerhouses as Barnes and Noble and Borders.
The ways an established comapny can avoid these pitfalls lies in the culture it creates within it's organization. Emphasis and support into "collective learning" and critical thinking in collaboration will allow the company to "think outside the box" and always challenge the things they think they know. From this chapter, I also have a better understanding why large, successful businesses that own other businesses operate them as a completely seperate unit. Although PepsiCo owns Pizza Hut, for example, operating Pizza Hut as its own autonomous unit creates the flexibility and culture that Pizza Hut needs to survive in its market. PepsiCo wsa not made great selling Pizzas, so PepsiCo lets that business unit that knows what they do best operate to their niche. I think PepsiCo and it's subsidiaries are a great example of the right things for an established company do when appraoching emerging technologies.