Message to replicators: be prepared

by Klaus Oestreicher

I have been researching innovations in the home entertainment industry in great depth. With other colleagues from countries around the globe I tried to find patterns: which way replicators seek to find a profitable future in the face of radical, sometimes disruptive, innovations from outside the industry?

After a long time of what we call in academia "inertia," where strategic thinking was much more focused around the link between optical discs and traditional content, increasingly replicators have started to think beyond those industrial boundaries. While some are trying to find the future in extended or optimised services for their existing clients in the field of home entertainment, others are considering different markets and clients altogether. Nanotechnology, medicine, e-business for all types of industries are only three examples where players in the replication sector break into new and different markets.

An analysis of the environment of the whole industrial ecosystem leaves very little doubt that the decline of physical products will continue. All statistics and research about consumer behaviour indicates that there are no visible signs for a return to the profitable times of the past.

Our investigations show that this trend has gone too far to find any evidence that consumers will return to the physical product. In academic speak, and regarding many other industries, fighting radical or disruptive innovations with marginal or incremental improvements never works.

But this does not mean that the replication industry cannot think in different ways. Academics Kim and Mauborgne have designed their so-called red and blue ocean strategies. Red, filled with the blood of competitors battling, leaving oneself frequently much weaker than before the battle, or blue, the discovery of a new world, involving different ways of exploiting existing well-developed and managed resources and capacities and create value. By adding some new competencies this value can establish the basis of a new future, which offers a perspective of industrial renewal.

Sticking to the old ways of doing business will likely work only for some very few optical disc manufacturers. 3D and other innovations in the pipeline might offer some relief, but the question is for how long? The virtual, immaterial space will catch up quickly and the status quo will be restored, namely, physical products will keep fighting against virtual services. The lowest price is always more expensive, than the zero-cost model of P2P.

Intellectual property laws could not stop consumers from freely accessing copyrighted content in the past and this behaviour is not going to change in the future. There are simply not enough courts and lawyers in this world to handle all lawsuits. This is the stark reality!

What is needed at such a crossroad is a different strategic thinking. Where do we want to be in five years time? Do not forget, Internet2 is already knocking at our doors; again the virtual world will have an impact on our virtual consumption, with dramatic effects nobody can foresee today. In Truman Capote’s words, “the utopia of the morning will be the reality of the afternoon.” What does a replicator dare to do?

Replicators are highly skilled. They manage sophisticated manufacturing processes, which many other manufacturers cannot handle easily. This is already a blue stripe in the wide ocean of opportunities. Of course, they need more – a radical, innovative change management, which is not so easy to achieve. Do not forget that innovation via technology is only half the innovation game, the other half is market linkages, innovative forms of doing business.

Constraints and obligations are everywhere and they are difficult to overcome. But waiting too long to alter the course may prove fatal. Fortunately, there are signs that an increasing number of replicators are already thinking in new terms.

US academic Kevin Kelly said that companies should give up the perfectly known to embrace the perfectly unknown. This is not necessary yet, but a hybrid position of carrying on with the perfectly known – manufacturing optical discs – while preparing for the yet unknown, is not a bad strategy.

These reflections are not meant to draw a dark picture, but nudge replicators to discover opportunities. Those who are prepared for the future will be those finding it!