A NEW ERA FOR BUDGETS
Do you have your money where your future is?
Even some of the most cutting-edge and tech savvy companies often struggle with the idea of staying on top of disruptive technologies, instead, opting to continue with older products in
a misguided attempt to maximize profits.
BY JACK TSOI
While it might seem to make sense that current tech should be continued for as long as possible to avoid the costs of switching over, this is the mindset that leads to failure. As you’re waiting, others are likely swooping in, picking up the
new tech and changing the landscape.
WHY DISRUPTION INVESTMENT IS IMPORTANT
To see the problem of lack of disruptive technology investment in action, we need to look no further than Kodak film. What was once the name in camera and film production is now a defunct business that the next generation will lump together with such marvels as corded telephones and rear projection televisions.
What brought about the demise? During Kodak’s heyday, they were making mega cash from every point of the film development process and in no hurry to give that up. This is why, when a young Steven Sasson developed a rudimentary version of the digital camera back in 1975, Kodak barely acknowledged the innovation and continued with what had been working for them.
While the company did make a hefty sum on the patent for the digital camera, it was completely unable to compete with other digital camera companies by the time they finally decided to get their toes wet. This is an example of how emergent ideas are rejected or can’t be seen by those that have political power within your business. Kodak not only failed to invest in this one innovation, they failed to see the big picture and consider the whole next generation and their upcoming needs.
Kodak is far from alone in this short sightedness and we can find similar examples in companies like Blockbuster who could not keep up with what video streaming services offered. Other, once unshakable industries like banking, are also being disrupted as digitization changes the very way millennials conduct business.
INVESTING IN THE FUTURE OF POTENTIAL.
The challenge with traditional budgeting is that all spending needs to be justified with predictable ROI (return on investment). In reality, not all future benefits are easily predictable. This is where the lack of certainty on ROI is commonly one of the top drivers in stalling company transformations.
Would a parent ever say to a child, university isn’t worth it unless the child can prove that they can earn an expected ROI? The answer is no, because the parent intuitively knows that the investment in the child’s education has life chang- ing potential without knowing exactly how much ROI can be generated.
A responsible management team needs to carve out funding for a disruptive innovation budget to fuel the future growth while ensuring the survival of the company. It is an investment with no guarantee of a return. But when removing the financial roadblocks of the investment, it clears the road for true potential change.
ACCELERATED GROWTH AND YOUR DISRUPTION INVESTMENT
But how much do we need to invest to dominate the market? Unlike other investment types, your disruption investment has the potential to grow exponentially, doubling itself over and over. Just look at how two of the most successful companies in the world have prioritized their disruption investment today.
According to BusinessInsider.com, “Apple spent 2.8 billion on R&D last quarter, ” and quoting Bloomberg, “Amazon.com Inc. passed Volkswagen AG late last year to become the world’s biggest corporate spender on research and development.”
Clearly both Apple and Amazon have invested heavily on their research & development budget to come up with new and innovative technologies to disrupt themselves and their competition continuously. As result, Apple’s market cap is now valued at over US$800B (101% growth in 5 years) and Amazon is over US$750B (525% growth in 5 years).
To put this into terms we Canadians can appreciate, con- sider the curve of a hockey stick. It may seem your progress is following a straight line then, suddenly, major acceleration as it reaches the blade and finally, “nothing but net… profit!”
Another way to guarantee you’re prepared for disruption? You’re holding it in your hands. At Disruption, we’re consistently bringing our readers the information they need to move forward in their businesses and ensuring you can run with disruptive technology and not let it run over you.