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It's a classic problem of disruptive technologies covered in "The Innovator's Dilemma." The author's advice is for companies to create independent subsidiaries

by Empact 15y ago

It's a classic problem of disruptive technologies covered in "The Innovator's Dilemma." The author's advice is for companies to create independent subsidiaries to take on the new technology, so that "competing with themselves" is internally consistent within the subsidiary, even if it's inconsistent across the company. Certainly a good move when the alternative is obsolescence.

mediaman 15y ago
This works better when the subsidiary does not rely on the parent's infrastructure. In this case, if the subsidiary relies on the parent's pipe to each household, it's easy to imagine the boss of the traditional cable division constantly lobbying the CEO against the subsidiary disruptor; imagine the endless political claims: - Our margins pay for the fixed costs of the pipe; if this subsidiary compromises our margin, the whole company will be unable to pay our fixed costs! - This subsidiary should be charged the economic costs of supporting it: let's charge them a fixed rate per line to access the company's infrastructure. By the way, here's our cost accountants' report showing that this fee should be high. It's only fair. - This subsidiary would only show earnings significant enough for Wall Street to care at a point in the future in which you will probably have moved on in your career, Mr. CEO. In the meantime, you'll be punished by the Street for development costs. Etc., etc. Even with good intentions, when the air supply for a subsidiary disruptor is provided by the threatened parent, politics will probably win even if it costs the company in the long run.
tsotha 15y ago
It might actually make sense for cable companies to do nothing but milk existing customers for as long as possible. Sure, new technology is going to upend their rice bowl, but they don't have to speed up the process and they can make a lot of money in the interim.

by Empact 15y ago

mediaman 15y ago

This works better when the subsidiary does not rely on the parent's infrastructure. In this case, if the subsidiary relies on the parent's pipe to each household, it's easy to imagine the boss of the traditional cable division constantly lobbying the CEO against the subsidiary disruptor; imagine the endless political claims: - Our margins pay for the fixed costs of the pipe; if this subsidiary compromises our margin, the whole company will be unable to pay our fixed costs! - This subsidiary should be charged the economic costs of supporting it: let's charge them a fixed rate per line to access the company's infrastructure. By the way, here's our cost accountants' report showing that this fee should be high. It's only fair. - This subsidiary would only show earnings significant enough for Wall Street to care at a point in the future in which you will probably have moved on in your career, Mr. CEO. In the meantime, you'll be punished by the Street for development costs. Etc., etc. Even with good intentions, when the air supply for a subsidiary disruptor is provided by the threatened parent, politics will probably win even if it costs the company in the long run.

tsotha 15y ago

It might actually make sense for cable companies to do nothing but milk existing customers for as long as possible. Sure, new technology is going to upend their rice bowl, but they don't have to speed up the process and they can make a lot of money in the interim.