Make Yourself Obsolete or Your Competitors Will

As history teaches us, maintaining the status quo may keep you in the money in the short term, but long term it can hurt your company and your industry. You have two choices: Make yourself obsolete, or your competitors will, warns Patrick Lefler.

Peter Drucker tells a great story about how the leading American consumer electronics manufacturers fumbled away their technological advantage during the early days of the transistors.

“In 1947, Bell Laboratories invented the transistor. It was at once realized that the transistor was going to replace the vacuum tube, especially in consumer electronics such as radio and the brand-new television set. Everyone knew this; but nobody did anything about it. The leading manufacturers–at the time they were all American–began to study the transistor and to make plans for conversion to the transistor “sometime around 1970.” Till then, they proclaimed, the transistor “would not be ready.” Sony was practically unknown outside of Japan and was not even in consumer electronics at the time.

But Akio Morita, Sony’s president. read about the transistor in the newspapers. As a result, he went to the United States and bought a license for the new transistor for a ridiculous sum, all of twenty-five thousand dollars. Two years later, Sony brought out the first transistor radio, which weighed less than one-fifth of comparable vacuum tube radios on the market, and cost less than one-third of what they cost. Three years later Sony had the market for cheap radios in the United States; and two years after that, the Japanese had captured the radio market all over the world.

So why did American manufacturers reject the transistor when it was clear that it was going to replace the vacuum tube? Drucker thinks the manufacturers rejected the transistor because of a “not invented here” mindset in that it was not invented by one of the electrical and electronic leaders at the time–RCA and General Electric. He felt that it was a typical example of pride in doing things the hard way. The American manufacturers were so proud of the way their products were built that they viewed the new transistors as “low-grade, if not indeed beneath their dignity.”

My take is different. I think that the American manufacturers were scared of introducing the transistor too early because it would make their existing product obsolete. The problem, of course, with this strategy is that if you don’t continue to innovate and make your own products obsolete, then somebody else will. In this case, their fear of cannibalizing themselves allowed Sony to step-in and devour their high-margin radio business.

Here’s the takeaway: if you don’t continue to innovate and make your own products obsolete, then somebody else will.

Patrick Lefler is the founder of The Spruance Group – a management consultancy that helps growing companies grow faster. He is a former Marine Corps officer; a graduate of both Annapolis and The Wharton School, and has over 20 years of industry expertise.