I was speaking in a panel at the Ivey Venture Forum this week with more than 150 guests, great event with 10 companies entering the final and presenting their ideas from recycling technologies to therapeutic technologies. Thanks to Jeff Szeto for inviting me. I was asked by Ron Close, the moderator (Residence Entrepreneur of MaRS and Ivey School of Business) the question of does strategy means for start-up. Ron was asking some very good questions. What does strategy means for new venture start-up? I gave a long answer.
But the short one is they need to see beyond the product and see how their products will evolve and fit in with a specific industry architecture, whether it is an evolution of the existing one of the transformation of the current. Understanding industry architecture can impact how you develop your product roadmap and even points of exit. That way you will be better position to align yourself with the other key players to capture value from your innovation. Perhaps unsurprisingly, people see their own idea as the center of the universe and everything revolves around it. Industry architecture is not yet a common business term, it is the foundation to deciding on your business model.
Industry architecture can be shaped by technological changes, strategic intent and competitive dynamics. How many of the first generation PC design/manufacturers are still around today? What about the HDDVD? Xerox and Apple invented the graphical user interface, but Microsoft Windows dominates the PC market with a follow-on graphical user interface. Apple did invented the PDA category (remember the Newton?) but Palm became leader, Apple stikes back 10 years later with the iPhone. The first portable music player was produced by another manufacture and now iPod dominated the market. It was released in 1998; the Eiger Labs MPMan was the world's first MP3 player, boasting 32MB of internal memory -- expandable to 64MB. And Google was not the first browser. Many innovations simply did not create value for the innovators. In fact most do not.
New venture is a team sport or a music band. What would Beatles be without John or Paul or George or Ringo? Most innovations yield don’t value on a stand-alone basis. They need to find a place in a new eco-system or industry architecture. Every one under the same architecture requires complementary hardware, software, services, channel and customer access. The delivery of product/process innovation often requires the employment not just of complements, but also of many inputs/components up and down the vertical chain of production and sometimes consumption (even customers or advanced users).
The power of the innovator of new technology is often compromised by whatever economic might is possessed by owners of required inputs/ components. Apple is an exception as they influence (dictate is a better word) many of the platforms they designed. It is a great position to be in but not many are lucky to be in that position. Industry architectures characterize the nature and degree of specialization of industry players (or "organizational boundaries" or role in the value chain) and the structure of the relationships between those players.
A simple example here, the Segway is a great invention and innovation. It solves a personal transportation problem but in the process creates many new problems. They include questions such as when Segways are being used on sidewalks, would they be subject to the rules of the road that apply to pedestrians under the Highway Traffic Act? If the Segway is being used on roadways or highway shoulders, the traffic laws that apply to bicycles and cyclists would apply to the Segway operator? Will they get a speeding ticket? Do they need to yield to pedestrians and bicycles, if there is not enough space to safely pass? Are you allowed to talk on your cell phone when riding a Segway? These are just a few examples. If they had worked with urban planners and city governments early on, they would have enjoyed a real success.
Without any understand of industry architecture, there is no strategy. Industry structure determines how an industry architecture looks like. Industry architectures sometimes change without us knowing it, sometimes they evolve slowly and sometimes as a sudden shift caused by disruptive changes such as technology or regulations. An economist’s view of that is to look at the nature and intensities of competition and pricing dynamics, while a marketer’s view is more on the managerial aspects such as market definition, customer definition and channel choices. There are some overlap on the two but both are important analysis to understand the emerging architecture of an industry and finding a unique role to play there. As the architecture changes, profits migrate and value creation formula changes at the same time. Consider the increasingly untenable position of large media company telecommunications operators, automobile and financial services.