It is a common, preconceived notion that if you’re not the first to do something, you will forever be at a disadvantage over whoever was first.
Now I’m not trying to say it’s bad to be the first to do something.
Take the landing on the moon, as an example. As the first human to walk on the moon, the words of Neil Armstrong – “that’s one small step for man, one giant leap for mankind” – will forever be etched into our collective memories and history.
But in the context of business decisions on adopting a new technology or process or releasing a new product, the truth is a little murkier.
Just because someone is first at something doesn’t mean they will dominate a particular market long-term, or what the book Play Bigger: How Pirates, Dreamers, and Innovators Create and Dominate Markets coins as a “category king.” As the book explains, a category king usually takes up between 70-80% of a particular market’s profits and value.
Let’s examine the indispensable search engine.
Google was by far not the first search engine – who reading this remembers AltaVista, Ask Jeeves, or even Yahoo Search? All of these came before Google.
But over time through innovations that made Google unique, it became the category king of search to the point that it became a verb. How many times have you said or heard “Google it” in the last week? The authors of Play Bigger elaborate:
Our term for the companies that create, develop, and dominate new categories is category kings. Importantly, category kings are not necessarily the companies that first hatch an idea or patent and invention. A single cool product launched into the universe doesn’t make a category king. Category kings take it upon themselves to design a great product, a great company, and a great category at the same time. A category king willfully defines and develops its category, setting itself up as the company that dominates that market for a long time. [emphasis added]
I feel this subject is especially relevant right now with news of so many companies currently jumping on the ChatGPT and AI bandwagon. The thought swirling in my head – how many are rushing in with the attitude of “this looks cool, we should do this” instead of giving thought to whether this is good for their business and customers?
A previous article from 2020 (decision-making during the pandemic) talks about a similar topic – companies taking a reactive approach to adopting novel technologies (like ChatGPT today) or releasing new products (like the mp3 player 20+ years ago) could come to regret it.
Of course, being innovative is how companies survive and thrive, especially in today’s world. The purpose of today’s article isn’t to dissuade innovation or being first in the market. There are certainly benefits to seeing a need and helping to satisfy it, BUT…
The drawback to being the first to rush into something means you will encounter and have to address all of the problems that inevitably arise.
A new product or system may sound great at first. However, at a minimum, careful consideration must be given to upstream dependencies and downstream consequences of any decision. If the only consideration is the immediate need and perceived benefit, implementation will be inefficient, and the company will always be going from one crisis to the next. Other devastating consequences can include staff overwhelm and disgruntled customers among others.
Later entrants to a new market or technology on the other hand will see and address these problems, thus, setting them up to potentially (not guarantee) assume the title of category king.
We referenced Google earlier, but another great example of this is found in the story of the mp3 player. The Apple iPod was by no means the first entrant to this market, but what they did do is carefully understand the problems others were having and refined their product to where it became the category king of what was back then a new technology.
Also, a category king doesn’t have to include these sorts of public-facing or consumer products and services but can encompass anything that defines and develops something new in how we live. For example, Peter Drucker is considered the category king of “management thinking.”
Thankfully, companies don’t have to fly blind.
Business development and disruptive innovations represent a more advanced use or purpose of risk management tools.
Others and I have mentioned countless times before and will continue to mention that ERM must be about more than preventing failure if it’s going to play an active role in the company as opposed to a passive, documentation role.
According to the latest State of Risk Oversight Report from NC State, companies have a long way to go in this respect. In an article discussing this report from a few years ago, I stated that companies will continue to not realize any strategic benefit from risk management as long as it is considered a separate activity from running the business.
One area where ERM can play a more active role is to ensure decisions around new products, adopting new technology, or even new business processes, are well-informed – for both risk and opportunity.
It’s not that executives, strategic planners, and managers are necessarily being reckless. They do, however, often make decisions without complete information or an understanding of how their actions could impact other areas of the organization.
Paraphrasing from Play Bigger, ERM tools like risk appetite, scenario planning, root cause analysis, and Monte Carlo simulation can help decision-makers “…better understand what they already know.” ERM tools like these and others help the company understand the chances a particular product or initiative will succeed, helping them take actions to either improve the chances of success or providing a level of assurance that a particular decision is better.
The actions and decisions applied for doing disruptions or disrupting your industry may not be seen as risk management as such – and so be it. However, it is all the tools and processes of risk management that enables an organization to do it successfully.
To thrive in the years to come, companies will need to be innovative and adapt to constantly shifting sands…but not recklessly innovative. Innovation alone will not suffice – companies who hastily jump into novel technologies like ChatGPT and other AI tools may end up doing more harm than good to their long-term prospects.
Has your company jumped on something hastily just to later regret the decision or cede to a competitor?
We’re interested in hearing your perspective and experience with adopting new technologies, introducing new products, or implementing other innovations in your company. Please don’t hesitate to leave a comment below.
And if your company is struggling to implement strategic ideas effectively and would like help on using risk management tools to help your company build a strategic advantage, feel free to contact me directly to discuss your specific situation and potential paths forward.
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