The Half-Life of Category Killers

Half-life is a concept from physics involving radioactive elements and isotopes.  It measure the time it takes for half of the radiation of the element to be emitted which is exponential in nature.

In business, the term has come to be used in reference to measuring how long ideas and innovations last.  Long is a bit of a misnomer.  When the term half-life is used in business, it is precisely to emphasize the ever shortening time that ideas and innovations are in the forefront.  The Wikipedia definition is perfect:  “Half-life is the period of time it takes for a substance undergoing decay to decrease by half.”

That is the very idea.  Business concepts, ideas, and innovations do not seem to have the staying power they once did especially in the segments where there is a steady stream of game changing Disruptive Technologies being developed.  Ideas come and go.  Business models come and go.  Businesses come and go.  They all seem to come and go at a faster clip.  The half-life of ideas, innovations, business models, and businesses seems to be getting shorter and shorter.

What prompted this blog entry?  It was reading an article in the Wall Street Journal about Barnes & Noble.  It seems like the category killer is on the ropes.  If it dies, it will be from the Disruptive Technology of e-books.

Barnes & Noble was one of the original category killers.  There were no real national book chains.  Most stores were independent local Mom & Pop operations.  Every nerd-ball book lover, yours truly included, at one time or another imagined owning and running a bookstore.  But, when Barnes & Noble emerged on the scene with centralized purchasing and distribution, new mammoth stores with unimaginable variety, and minimum wage associates instead of owners, small independents got crushed.

The Disruptive Technology was modern information systems, sophisticated sales tracking, centralized purchasing on a scale that insures having the lowest price, and well run and managed operations.  The independents had none of these things.  Wal-Mart was the model everyone followed.  Blockbuster did it in videos.  Tower Records was doing it in music.  Barnes & Noble did it in books.

But, it did not take long for another Disruptive Technology to emerge and make these innovative category killers look like dinosaurs.  In the Barnes & Noble, Tower Records, and Blockbuster cases, the Disruptive Technology was two pronged:

1. The emergence of internet commerce i.e. Amazon.com


2. The digitization of what each of these businesses were selling

Music became digitized on CDs, then mp3’s, files were traded… and then came Apple and the iPod.  Quicker than anyone might have imagined physical CD sales and the stores that lived off selling them died a very quick death.  This happened faster than the conversion of tape cassettes to CDs.

Next, it was movies.  Before going to cable, movies were released on VHS tapes.  People loved to rent VHS tapes.  Individual video shops sprang up everywhere.  These stores were soon killed by Blockbuster who rode the wave from VHS videotapes to DVDs.  But then, since the media was digitized and cable networks became so efficient, cable providers and channels began offering on-demand video of the new releases at the same time Blockbusters was getting them.  Why drive all the way to the store and hope that the newly released hit was even available?  With the click of a few buttons, you were watching the movie at home.  On-demand killed the rental business faster than the switch from VHS to DVD.

The same thing, apparently, is happening to print media.  As soon as it became digitized, and it has been since the popularity of the personal computer, the possibility of on-demand purchases from the comfort of your home or wherever you were became a possibility.  The advent of the e-readers with 3G connectivity has made this all a possibility.  We save trees, save space in our homes by not having books all over, and we can carry our entire library, or at large parts of it, around with us wherever we go.   Apparently, from the WSJ article, this is happening pretty fast as well.

The questions are:

1. Are such changes looming over your business?


2. Even if you see it coming, what is the probability you can change your business model and supply chains fast enough?

These questions must be asked, answered, weighed, and then acted upon to preserve the integrity and sustainability of your business.

At Cadent Resources, Inc. we advocate the Now and Future Analysis as taken from the classic paper of Gary Hamel and C. K. Prahalad titled “Competing for the Future” in the July-August 1994 Harvard Business Review.

We meet many managers who describe their companies as “market leaders” (With enough creativity in delimiting market boundaries, almost any company can claim to be a market leader.)  But market leadership today certainly doesn’t equal market leadership tomorrow.  Think about two sets of questions:

Today	In the Future
Which customers do you serve today?	Which customers will you serve in the future?
Through which channels do you reach your customers today?	Through which channels will you reach your customers in the future?
Who are your competitors today?	Who will be your competitors in the future?
What is the basis for your competitive advantage today?	What will be the basis for your competitive advantage in the future?
What skills or capabilities make you unique today?	What skills or capabilities will make you unique in the future?

If senior executives don’t have reasonably detailed answers to the “future” questions, and if the answers they have are not significantly different from the “today” answers, there is little chance that their companies will remain market leaders.

This was written sixteen years ago and maybe more true today than it was then.  Companies of any size and proportion have to ask and answer the questions posed by Hamel and Prahalad.  Answering the questions is not enough.  Planning and action must take place to ensure the longevity of ones business.

The examples used early in this posting all involve the digitization of media and involved dramatic changes in:

1. Who their competitors were:
   
   
   
   1. Apple
   
   
   2. Amazon
   
   
   3. Cable Service Providers
   
   


2. The channels of distribution.  All three lost to internet distribution of what was physically purchased i.e.
   
   
   1. Music CDs
   
   
   2. DVD's
   
   
   3. Books
   
   


3. The basis for their competitive advantage became outmoded.

The companies mentioned, Tower Records, Blockbuster, and Barnes & Noble are, or were, brick and mortar companies.  They had numerous store fronts and sold or rented physical goods distributed by physical supply chains.  They were outmoded, or currently in duress, by competitors who were able to market devices that allowed the internet and even wireless internet distribution of media.  The supply chain moved from a physical to digital transfer of goods.

Oddly, the new competitors were no upstarts.  Apple, Amazon, and Cable Service Providers (Comcast, TimeWarner, Cablevision, etc.) were all established businesses.  They simply took advantage of technology innovations, marketed products, and created new distribution networks to evolve and steal markets.

Barnes & Noble has been following Amazon since Amazon began.  They followed them first into on-line bookselling and followed on with their own e-reader after Amazon introduced Kindle.  Apparently, they have not done so to the great appeal of the buying public.

How does this translate to your business, big or small?

Take time, make the time, to seriously ponder the Now and Future analysis.  Read and evaluate the trends in the trade publications stacked up in your office.  Keep an eye on upstarts but watch what the big boys are doing.  Amazon, Apple, and even Wal-Mart are constantly evolving and may suddenly be a presence in the space you believe you had safely carved out for yourself.

Yesterday’s category killer is today’s target… and the half-life is decreasing.

While your business may not be in the same whirlwind of innovation and change as discussed in the case books, movies, and music, you still need to pay attention to the future and be mindful of the changes and trends that are evident now.  The Now and Future analysis outlined by Hamel and Prahalad applies to every business and organization that has to deal with change.  As the world is constantly changing and as many business writers and pundits note that the rate of change is accelerating, basically everyone needs to be attuned to what is happening in the marketplace and with competitors.

How is your business dealing with this rapid pace of change?  Has it caused you to re-evaluate the design of your supply chains?  Has the sales and operations planning process helped you improve the visibility of risks and opportunities in the markets you serve?

Note:  C.K. Prahalad passed away on April 16, 2010 at the age of 68.