When iTunes launched illegal downloading became obsolete and the entire music industry was rearranged. Then came the iPhone, which redefined how we interface in the digital universe. Every company needs that kind of executive leader — which I refer to as the Chief Obsolescence Officer. The conventional leadership paradigm is based upon making your products stronger and expanding the value chain that you have already established.
That approach typically leads to better versions of existing product portfolios. But ultimately that is just a way to enhance your status quo, and it rarely results in genuine innovation. Focusing on obsolescence, on the other hand, changes the mindset and trajectory of innovative thinking. It is what leads to radical and disruptive innovation.
The jet engine made propeller propulsion obsolete. The transistor made relay technology obsolete. The mobile phone made landlines obsolete, and the smarter iPhone made ordinary cell phones obsolete.
Given the size, technological savvy, and manufacturing clout of Samsung, Apple will find it hard to beat them at the smart phone engineering game. Where Apple can win, however, is by making the iPhone obsolete — along with all other current smart phones including those sold by Samsung. Think about your own company. How much effort is put into perpetuating the existing paradigm?
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Obsolescence risk is the risk that a process, product, or technology used or produced by a company for profit will become obsolete, and thus no longer competitive in the marketplace. This would reduce the profitability of the company. Obsolescence risk is most significant for technology-based companies or companies with products or services based on technological advantages.
Obsolescence risk is a factor for all companies to some degree and is a necessary side effect of a thriving and innovative economy. This risk comes into play, for example, when a company is deciding how much to invest in new technology. Will this technology remain superior long enough for the investment to pay off?
Or will it become obsolete so soon that the company loses money? Obsolescence risk also means that companies wanting to remain competitive and profitable need to be prepared to make large capital expenditures any time a major product, service, or factor of production becomes obsolete.
Budgeting for obsolescence risk is challenging because it is difficult to predict obsolescence and the exact rate of technological innovation. A publishing company is an example of one that faces obsolescence risk.
As computers, tablets, and smartphones have become more popular and affordable, more consumers have started reading magazines, newspapers, and books on these devices instead of in their print forms.
For the publishing company to remain competitive, it must minimize its investments in the old paper publications and maximize its investments in new technologies. Even as it makes this shift, it must remain alert to new and unimagined technologies that could supplant the currently popular ways of reading and require still more investment. The stock market "graveyards" are littered with dead companies whose products or technology were rendered obsolete.
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