Strategic Choices in Converging Industries

As industries converge and seemingly unrelated businesses suddenly become rivals, managers must understand the new challenges and the long-term implications.

In the relentless evolution of technology and markets, many industries are in the midst of, or are approaching, major reconfigurations of their fundamental architectures and the way companies capture value.1 The changes are well underway in biopharma, nutrition products, health care and energy, where technologies and distinct knowledge bases are changing and converging. Perhaps the most dramatic example of such convergence is taking place in the booming space of telecommunications, information technology, media and entertainment, which many people now refer to as a single field, the “TIME” industries.2 The TIME industries are characterized not only by the variety of new technological products and services being launched at an ever-increasing pace but also by the surging complexity of their markets and how companies win. As some companies have expanded their scope, others have been forced to rethink and retool their strategies. In many ways, the TIME example offers a useful model for managers in other industries where convergence is less obvious. (See “Is Convergence Happening in Your Industry?”) The amount of change that the telecommunications and related industries have seen in recent years has been extraordinary. Back in 2001, then-Nokia chairman Jorma Ollila said that “the mobile Internet should remain ‘under the control of the mobile industry, and not the computer makers.’”3 But that vision disintegrated when Internet browsing became mobile. Ericsson and Siemens, once market leaders, have disappeared from the mobile handset market. Other companies, such as Apple, Google and Samsung, have increasingly dominated the smartphone marketplace and appear to be shaping the future. (See “A Changing Landscape in Mobile Handsets.”) While the changes have opened up new business opportunities for some companies, they have proved harmful to others. For example, Nokia’s brand has suffered, while BlackBerry is struggling to compete against the technical and financial power of giants such as Apple and Google. Despite its early promise, AOL Time Warner was not able to leverage the expected synergies at the intersection of Internet and media content. With convergence, companies that were in seemingly unrelated businesses can become rivals.

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References

1. F. Hacklin, “Management of Convergence in Innovation: Strategies and Capabilities for Value Creation Beyond Blurring Industry Boundaries” (Heidelberg, Germany: Physica/Springer, 2010); see also S. Brusoni, M.G. Jacobides and A. Prencipe, “Strategic Dynamics in Industry Architectures and the Challenges of Knowledge Integration,” European Management Review 6, no. 4 (winter 2009): 209-216; and I. Nonaka and G. von Krogh, “Tacit Knowledge and Knowledge Conversion: Controversy and Advancement in Organizational Knowledge Creation Theory,” Organization Science 20, no. 3 (May-June 2009): 635-652.

2. “TIME” abbreviation from European Parliament, “News Report: Jobs of the Future Require Multi-Skilling,” December 1, 1998, www.europarl.europa.eu; also see Arthur D. Little, “Web-Reloaded? Driving Convergence in the ‘Real World,’” December 2006, www.adlittle.com.

3. S. Baker, “Halting Microsoft’s March in Europe?” BusinessWeek, Dec. 21, 2001.

4. S.J. Berman, B. Battino and K. Feldman, “New Business Models for Emerging Media and Entertainment Revenue Opportunities,” Strategy & Leadership 39, no. 3 (2011): 44-53.

5. D.T. Lei, “Industry Evolution and Competence Development: The Imperatives of Technological Convergence,” International Journal of Technology Management 19, no. 7-8 (2000): 699-738.

6. F.M. Fai and G.N von Tunzelmann, “Industry-Specific Competencies and Converging Technological Systems: Evidence From Patents,” Structural Change and Economic Dynamics 12, no. 2 (July 2001): 141-170; and C.S. Curran and J. Leker, “Patent Indicators for Monitoring Convergence: Examples from NFF and ICT,” Technological Forecasting and Social Change 78, no. 2 (February 2011): 256-273.

7. F. Hacklin, M. Wallin, E. Aksüyek and G. von Krogh, “Teaming Up for Breaking the Boundaries: How Scientist Collaboration Led to the Convergence of Information and Communication Technology,” unpublished ms, April 2013; F. Hacklin and M. Wallin, “Convergence and Interdisciplinarity in Innovation Management: A Review, Critique, and Future Directions,” Service Industries Journal 33, no. 7-8 (March 2013): 774-788; and K. Pavitt, “Technologies, Products and Organization in the Innovating Firm: What Adam Smith Tells Us and Joseph Schumpeter Doesn’t,” Industrial and Corporate Change 7, no. 3 (September 1998): 433-452.

8. C.M. Christensen and R.S. Rosenbloom, “Explaining the Attacker’s Advantage: Technological Paradigms, Organizational Dynamics, and the Value Network,” Research Policy 24, no. 2 (March 1995): 233-257.

9. A. Davies, T. Brady and M. Hobday, “Charting a Path Toward Integrated Solutions,” MIT Sloan Management Review 47, no. 3 (spring 2006): 39-48.

10. S. Brusoni, A. Prencipe and K. Pavitt, “Knowledge Specialization, Organizational Coupling and the Boundaries of the Firm: Why Do Firms Know More Than They Make?” Administrative Science Quarterly 46, no. 4 (December 2001): 597-621.

11. R.A. D’Aveni, G.B. Dagnino and K.G. Smith, “The Age of Temporary Advantage,” Strategic Management Journal 31, no. 13 (December 2010): 1371-1385.

12. C. Shapiro and H. R. Varian, “Information Rules: A Strategic Guide to the Network Economy” (Boston: Harvard Business Review Press, 1999).

13. S. Nambisan and M. Sawhney, “Orchestration Processes in Network-Centric Innovation: Evidence From the Field,” Academy of Management Perspectives 25, no. 3 (August 2011): 40-57; M.A. Cusumano and A. Gawer, “The Elements of Platform Leadership,” MIT Sloan Management Review 43, no. 3 (spring 2002): 51-58; and A. Gawer and M.A. Cusumano, “How Companies Become Platform Leaders,” MIT Sloan Management Review 49, no. 2 (winter 2008): 28-35.

14. R. Adner and R. Kapoor, “Value Creation in Innovation Ecosystems: How the Structure of Technological Interdependence Affects Firm Performance in New Technology Generations,” Strategic Management Journal 31, no. 3 (March 2010): 306-333.

15. Cusumano and Gawer, “Elements of Platform Leadership”; Gawer and Cusumano, “How Companies Become Platform Leaders.”

16. “European Mobile ARPU Falls 20%: Mobile Data Revenue Not Yet Compensating for Declining Voice Prices in EU Mobile Markets,” March 10, 2011, http://gsmaintelligence.com.

17. R. Amit and C. Zott, “Creating Value Through Business Model Innovation,” MIT Sloan Management Review 53, no. 3 (spring 2012): 41-49.

18. The metaphor is borrowed from G. Morgan, “Riding the Waves of Change: Developing Managerial Competencies for a Turbulent World” (Hoboken, New Jersey: Jossey-Bass Publishers, 1988).

i. PwC, “Five Management Principles from Companies Modernizing Our Vehicles, Buildings and Electric Grids,” April 2012, www.pwc.com; Deloitte Touche Tohmatsu’s Global Technology Media and Telecommunications Industry Group, “Convergence Conversations,” 2006, www.deloitte.com; R.T. Hisey and J. Rhodes, “Convergence in the Life Sciences Industry: Can Partnering Make a Significant Impact?” Pharmaceutical Processing, Jan. 16, 2008; and S. Cockburn, H. Gmelin, and M. Peterson, “Convergence Reloaded: How Telecom Operators Can Best Capture Consumer Opportunities,” 2010, www.booz.com.

ii. See also Hacklin, “Management of Convergence.”

iii. C. Borés, C. Saurina and R. Torres, “Technological Convergence: A Strategic Perspective,” Technovation 23, no. 1 (January 2003): 1-13.

iv. International Telecommunication Union, “Recommendation Y.2001: General Overview of NGN,” June 30, 2004, www.itu.int.

v. F. Li and J. Whalley, “Deconstruction of the Telecommunications Industry: From Value Chain to Value Networks,” Telecommunications Policy 26, no. 9-10 (October-November 2002): 451-483; and Brusoni et al., “Strategic Dynamics.”

Acknowledgments

Fredrik Hacklin acknowledges support from the Helsingin Sanomat Centennial Fund, the MTEC Foundation at ETH Zurich, the Scandinavian Consortium for Organizational Research (SCANCOR) at Stanford University and swissnex San Francisco. Georg von Krogh appreciates financial support from the Swiss National Science Foundation (grant 100018-146439).

1 Comment On: Strategic Choices in Converging Industries

  • Praveen Kambhampati | September 23, 2013

    An excellent article on the emerging trends on technology changes and how corporates are compelled to choose between extinction and MoC (Management of Change). A good percentage of uncertainty in the current market trends can be attributed to the sweeping changes that are happening in the consumer behavior and the great promise that the Technology trends are unwinding every day.

    What was just focused on the convergence of Communication and IT as “ICT” is now transformed farther to evolve into a new rage called “TIME”. The impact on Media and Entertainment is very much visible, as an expected change to the technology followers and an utter surprise for those watching the happenings with increasing expectations at low cost.

    One point that the founder of BOX has mentioned about the IP rights indicates the secure approach to business. However the trade off could be disastrous for the organization. Focus of the organizations today should be more on Speed of Innovation and thought and less on protecting the Rights. it has little to do with the ownership because by the time the IP aspects are well addressed a new product a new innovation is into market and the IP becomes redundant. In the Manufacturing front large organizations like DuPont who have traditionally fought on IP rights on few products are disinvesting in the same product. Business is much more than protecting the IP is the message here. Unless the new product line is full protecting a product version on patent is useless. In a generation of “use and change soon”, and change my mobile every 6 months, traditional robust product blueprint would get into the frozen time frame sooner than expected.

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