What’s an ‘in­dus­try’?

Financial Mirror (Cyprus) - - FRONT PAGE -

Car­mak­ers are afraid of Ap­ple. YouTube, Net­flix, and Ama­zon are up­end­ing the tele­vi­sion in­dus­try. Skype, Face­book, Twit­ter, Snapchat, and oth­ers have changed con­sumers’ no­tions of how – and how much it costs – to com­mu­ni­cate with one an­other. Sec­tors and in­dus­try de­lin­eations as we know them are break­ing down.

Once upon a time, those de­lin­eations es­tab­lished a fairly clear-cut world. Car com­pa­nies made cars, and they were in the au­to­mo­tive in­dus­try. Phone com­pa­nies en­sured that we could speak to one an­other over great dis­tances, and they were in the telecom­mu­ni­ca­tions sec­tor. Broad­cast­ing com­pa­nies made tele­vi­sion shows, and they were in the me­dia sec­tor.

Ev­ery­thing was neat and or­derly. An­a­lysts could eas­ily cat­e­gorise com­pa­nies and tell the mar­kets what they were worth, boards could over­see firms with a view to share­hold­ers’ hap­pi­ness, and all was right in the world. Un­til it wasn’t.

That world – in which clearly de­fined sec­tors en­able easy clas­si­fi­ca­tion of what a com­pany does – is dis­ap­pear­ing be­fore our eyes. Is Ap­ple a tech­nol­ogy com­pany or a luxury watch­maker? Is Google a searchengine firm or an up-and-com­ing car com­pany man­u­fac­tur­ing driver­less ve­hi­cles?

But, for ev­ery Ap­ple or Google, there are com­pa­nies that seemed in­no­va­tive but be­came ob­so­lete or fell be­hind. Ko­dak and Nokia, for ex­am­ple, pro­vide a cau­tion­ary tale for com­pa­nies that be­gan life as in­no­va­tors.

Nokia, in par­tic­u­lar, was long held up as a case study in cor­po­rate rein­ven­tion – the very epit­ome of con­stant, top-to-bot­tom change. Here was a com­pany that en­tered and ex­ited sec­tors as needed: pa­per, tires, rub­ber boots, and tele­coms. And yet it has lost its way; with the sale of its mo­bile-phone busi­ness to Mi­crosoft, many doubt that it can re­cover and rein­vent it­self yet again. (Of course, even if Nokia has run out of road, its loss may be Fin­land’s long-term gain, as star­tups begin to blos­som from the minds of the com­pany’s highly skilled ex-work­ers.)

Many tra­di­tional com­pa­nies, too, have fallen be­hind be­cause they hewed too closely to their tra­di­tional def­i­ni­tions. Like Ko­dak, other sto­ried brands have not in­no­vated: Po­laroid, Ra­dio Shack, Bor­ders, Aquas­cu­tum, Block­buster, and the list goes on. Their man­agers thought they were do­ing the right thing: not los­ing sight of the “core busi­ness.” Their board mem­bers knew the in­dus­try and had all the right cre­den­tials to over­see the man­agers.

But both man­agers and board mem­bers were wear­ing blin­ders. They did not make room around the ta­ble for those who could see that the com­pany’s des­tiny did not lie only straight ahead, but also off to the side.

Too many com­pa­nies are too slow to have tough con­ver­sa­tions about strat­egy and to ask whether the right peo­ple are in place to push them hard enough and far enough, show­ing them vis­tas that are not vis­i­ble from where they feel most com­fort­able. Com­pla­cency has never been an op­tion; but in an en­vi­ron­ment in which star­tups can over­turn an en­tire sec­tor in the space of a few years, what once seemed like sound strat­egy can now amount to rest­ing on one’s lau­rels.

Tra­di­tional com­pa­nies are only now com­ing to terms with the re­al­ity that earlystage com­pa­nies might chal­lenge them in a se­ri­ous way. Swiss watch­maker Tag Heuer, for ex­am­ple, has just an­nounced that it will cre­ate a part­ner­ship with Google to catch up in the high-stakes battle for the world’s wrists.

Many tra­di­tional com­pa­nies, how­ever, con­tinue to be­lieve that be­ing top­pled by up­starts can hap­pen only in the “tech­nol­ogy” sec­tor. But what sec­tor does not rely on tech­nol­ogy? How many com­pa­nies that could be clas­si­fied as tech­nol­ogy com­pa­nies could also be clas­si­fied as some­thing else? As the ecom­merce web­site Etsy pre­pares for its IPO, should an­a­lysts call it a tech­nol­ogy com­pany or a re­tail com­pany? The biotech­nol­ogy com­pany 23andMe is mov­ing be­yond ge­netic spit tests and into the com­pet­i­tive and pricey world of drug dis­cov­ery. Phar­ma­ceu­ti­cal com­pa­nies ig­nore that at their peril. Bank­ing and fi­nance, oil and gas, higher ed­u­ca­tion – no sec­tor is im­mune.

Per­haps in­evitably, even those firms that are most re­spon­si­ble for blur­ring the lines be­tween sec­tors are not im­mune to the con­se­quences. In a legal case be­tween Ap­ple and A123, a man­u­fac­turer of bat­ter­ies for elec­tric cars, A123 ac­cuses Ap­ple of vi­o­lat­ing a non-com­pete agree­ment that its en­gi­neers signed. One de­fense strat­egy that Ap­ple is us­ing is to ar­gue that it is not vi­o­lat­ing the agree­ment, be­cause it is in a dif­fer­ent in­dus­try.

But, in a world in which a com­puter com­pany that has al­ready rev­o­lu­tionised the mu­sic busi­ness and the telecom­mu­ni­ca­tions sec­tor, and that now makes watches, could soon start man­u­fac­tur­ing elec­tric cars, one can only ask, “What is an in­dus­try?”

Ob­vi­ously, Ap­ple has been ask­ing that ques­tion for years. Tra­di­tional com­pa­nies must learn to ask it as well. An idea catches on, money piles in, and be­fore any­one can check their ana­logue wrist­watch, the ground has shifted.

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