Let risk tolerance guide your company’s timing on investments
Sponsored article by SYSPRO
Innovation—It’s a byword for our times. Technology is changing so quickly and is having such a deep impact, it’s literally changing how our brains work. Children have already started to adapt to our technological world, but we’re only human and technology is changing the world faster than we can cope. And that, my friends, is a source of opportunity.
The early adopters advantage
You see, because technology is changing our world faster than we can cope, it provides plenty of opportunities to use technology to gain a competitive advantage.
Companies are in a technological arms race that humans are ill-adapted to win. Technology’s early adopters seem poised to realize the biggest benefits. The early adopters realize the benefits of new technologies in the form of competitive advantage. They get the longest returns on their investment in technology.
Other companies will eventually see the benefits the early adopters are reaping and will follow their approach—realizing a competitive advantage over the late adopters. This position may not be as profitable as the early adopters, but these companies will still have a chance to recoup their investment.
Finally, the late adopters will be compelled to invest in technology to keep up. They won’t realize any advantage, only an absence of disadvantage. As a result, the money they put in to technology isn’t an investment, but rather a sunk cost.
The people problem
As mentioned earlier, humans are ill-adapted to win in a technological arms race. At the individual level, our brains lack the capacity to process all of the information technology throws at us in any given instant.
At the organizational level, technology is outstripping our ability to use it. One major obstacle to Big Data in your typical global enterprise, for example, is the company silos that have grown up to make big business manageable.
Big Data is data hungry and it works best with more data. Silos break business down into manageable chunks, but these chucks aren’t set up for sharing.
The winners of this technological arms race are going to be the organizations that give the technocrats the power to break down those barriers and implement technologies that help our individual, processing-poor brains cope with information overload.
A simple problem is not so simple
Wouldn’t it be wonderful if the solutions to our business problems were as simple as breaking down silos and investing in technology?
Disassembling silos is challenging enough for most organizations, but technological investment has claimed many early-adopters as victims. They don’t call it the bleeding edge for nothing.
The early adopters take the greatest risk. They spend the most money and the chance their gamble fails is higher than those who wait a little. Their rewards are outsized too, of course, and they still have a better chance at realizing a return on technological investment than the late adopters who are guaranteed to not gain any advantage.
Simply adopting a fully-baked technology solution isn’t a guarantee of success. ERP companies, for example, go under or are bought out by bigger companies to add to their solutions portfolio. Bigger ERP portfolio companies regularly write off underperforming acquisitions, leaving the early adopters out in the cold.
The same holds true with virtually any other technology product. Early adopters have to be smart.
The advantage of being difficult
The bigger, more challenging the investment, the harder it is for competitors to replicate. Customizing your ERP system is costly. Creating a Big Data application from scratch is costly. Automating routing on your shop floor is costly. But the harder it is for your competitors to follow, the longer you will retain the competitive advantage.
The risk of investing in a difficult-to-replicate technological advantage is that someone will release a turnkey solution that provides the same advantage at a fraction of the price.
If someone releases an ERP module that does the same thing as your customization, then your competitors can quickly catch up without incurring the same expense.
The advantage your custom Big Data application provides is quickly eroded when someone releases a turnkey solution that lets companies get the same benefit without specialist knowledge. Given the speed of technological innovation, these risks are very real.
Being called an innovator is attractive, but innovation isn’t always the right answer. Business managers need to understand that investing in technology is a balance between risks (which go down over time) and rewards, which also reduce over time.
The big wins are alluring. The risks are there, but so are the rewards and some companies make it a habit of running ahead of the competition and winning.
But there’s nothing wrong with letting someone else get blood on their shirt and making your investment when there is still some advantage but without the same amount of risk.
Balance the competitive advantage you’re looking to gain from the technology with the risks. Account for your organization’s appetite for risk, and invest accordingly.
Odete Passingham is the marketing director at SYSPRO Canada. SYSPRO is an ERP application consisting of finance, distribution and manufacturing controls for mid-size companies. To contact Odete, email: email@example.com or call (604) 451-8889. Learn more about SYSPRO at www.syspro.com
This article is part of the Manufacturing Growth & Innovation Centre, showcasing strategies for manufacturers on the move.