In the January, 2008 edition of the Harvard Business Review, Daniel C. Snow shared some research he’s been doing on product transitions—when one dominant design or conventional product gives way to a different or more up to date version. A phenomenon that he has studied is a pattern in which the performance of threatened older technologies rapidly improves, extending their life cycles and simultaneously slowing down the adoption of new technologies. Examples of such “last gasps” include manual versus computerized typesetting, CISC versus RISC architecture for computer processors and steel versus aluminum bicycle frames.
The conventional wisdom about such performance surges is that the managers in charge of processes based on older technologies, when threatened, invested urgently in improving them. Snow’s research finds otherwise. Instead, he finds that the last gasp phenomenon stems from two overlooked mechanisms.
A retreat to defensible ground. What happens here is that markets in which the older technologies perform poorly are the first to adopt newer methods. This leaves the older technology working in markets for which it is better suited—and makes the performance appear to improve as a result. In other cases, retreating from some markets allows greater focus—and subsequently greater learning—in those that remain, which has the effect of actually improving performance.
Use of the new to improve the old. In this situation, the older technology borrows innovations developed to support the newer technologies, again improving their performance.
These explanations surrounding new technology adoption and the persistence (or decline) of older technologies have important implications for technology-based venturing. For one thing, the managers of new ventures need to be quite explicit about their assumptions regarding how quickly a new technology will displace an older one, and deliberately figure out how to test those assumptions. Failing to anticipate the reaction of competitors is a major reason new ventures fail. Secondly, managers in charge of older technologies are highly likely to mistake the improvement of financial and technical performance during a ‘last gasp’ for long-term health. This happened in the case of integrated steel mills coping with mini-mill competition. As mini-mills gobbled up the low end of the steel market, the performance of the integrated mills improved, since they were selling higher-margin steel. But this performance was not to last – eventually, the steel mills were subject to a massive restructuring of their entire industry.
It’s interesting to speculate about whether such transitions as the move to ‘cloud computing’ from a PC base will reflect this pattern.