Managing A Business Whose Operations May Become Obsolete

Contents
Introduction
Obsolescence in the third world
Spotting an upcoming change.
Stages

1. The blip
2. Window dressing
3. The shake up
4. The Eclipse
5. The Capsize

What to do with a threat of Obsolescence
Effect on the downstream sectors.
A Practice we will never see again
Conclusion

Products and services that may soon become obsolete target="_blank">

Introduction

It has been said that the only certainty in life is change itself.
This implies the way we do, analyze, and perceive things are all candidates for change.

This change will therefore always affect the providers of services, industries, manufacturers of goods, the consumers and the public in general. These become obsolete as cheaper or more efficient ways of providing them appear.
Where these changes result in substantial reduction in cost, convenience of use and time for the user or consumer, this is regarded as a disruptive change for the manufacturers. Their methods of production may now become obsolete, if there is a substantial reduction in production costs by upgrading.

A case in point is the production of color prints from negatives developed from 35 mm films. The long processes have now been cut short by direct production of prints from digital cameras, which are even being incorporated into cell phones.
It can therefore be safely predicted that the 35 mm cameras, and the films which provided the storage for the images may soon show up in the museums.

Obsolescence in the third world
Most of these products may have their downstream supply chains in the third world, as sources of the raw materials used, some sub assembly lines, wholesalers/ distributors, or end users.
The investment in the technology being employed will now become obsolete. This will also affect users, where costs are usually incurred in training a long army of specialists, support staff and technicians who rely on the obsolete technology for their livelihood whether in or out of employment.

However, these third world markets offer an opportunity for an extended life and constitutes a major issue in third world countries.
There is an army of stakeholders who find it difficult to upgrade to a more recent or modern product for several reasons:-

1. They have made so much investment in the now obsolete product they are not ready to dump. This includes training in mastering an equipment that works with the obsolete product, and not with, or may not be needed with the new one.
2. They just cant go through the retraining process, simply just out of unwillingness, age or limited education.
3. Some are not even aware of the new process and/or its advantages/benefits.
4. Some confuse the new technology with a cost cutting exercise or planned obsolescence, instituted for the benefit of the manufacturers. They therefore argue so religiously in favor of the old process/technology.
5. The old systems still meet their needs eg. mobile handsets or 16 bit micro computers.

To them only an unbearably high cost of maintenance of the old technology will compel them into upgrading, or changing into the new technology.

In the 1970s, the newer cars which came into the Nigerian markets utilized double barrel carburetors. The auto mechanics, most of them, trained in servicing the single barrel ones could not figure out how to handle them.
So whenever problems arose involving the double barrel carburetor vehicles, the auto mechanics would advice the owners to convert, at a considerable expense, to single barrel carburetors. A big market then arose for the conversion of newer double barrel carburetors to the single barrel types.

As time went on, they now started to understand the workings of the double barrel carburetors, by which time, cars with fuel injectors started dominating the Nigerian market.
Again, the mechanics advised the owners of such vehicles to convert to double barrel carburetors whenever a problem arose with the fuel injectors, thereby introducing a big market for the conversion process.

This is just an example of resistance to newer technology. Many cars with automatic transmission systems were converted to manual transmission, with the explanation that they are “not for our roads”.
The middle level manpower, trained to manage technologies about to become obsolete, often divert considerable resources portraying the newer technology as untested, unreliable or “not for our environment” rather than brainstorm on ways to employ their expertise in the management of the new technology.

Spotting an upcoming change.
The operators of any technology especially in the third world must have more than just a passing knowledge of its operation.
This will make detection of an upcoming change recognizable.

Operator must:-

1. Know why the product/service is successful.
2. Understand what can reduce its success, or replace it altogether.
3. Possible developments that can make it irrelevant.
4. View developments in relation to their products or services which can enhance the products.

Stages.
An impending disruptive change usually follows these broad stages, although not accurately in all cases:-

1. The Blip. The new product shows up on the horizon:- The mainstream product makers dismiss it as underpowered or too expensive. The mainstream product seems irreplaceable, as it still exhibits some marked advantages over the new product.
   Typical example was the mainframe versus personal computers.
2. Window dressing. For the more expensive product, large scale production eventually reduces the costs. For the underpowered product, a new invention or development is incorporated and the performance gap reduces. Mainstream producers react by revamping their production line and making their products more useful and appealing. There appears to be a respite in the assault.
3. The shake up. The new product catches the attention of the general public. For the ones with open technologies, newer innovations are incorporated immediately and the new product gets more power and attention with the market contracting for the mainstream product. Meanwhile, the mainstream producers reorganize, downsize and cut costs, and in some cases, unbundle units.
   Their production gets leaner and the financial markets applaud the new move.
   Their stock prices rebound, and then, life goes on.
4. The Eclipse. The new product now has more producers and partners, who now get more innovative. Intense competition now drives down prices. The industry attracts new entrants as it gets bigger.
   There is specialization among those who create a niche in the manufacture of the components, thereby getting gradually more sophisticated with time.
   The mainstream product is now eclipsed by the new product.
5. The capsize. The mainstream companies now become the target of takeoves, mergers or face liquidation.

Many do not observe these developments, and are eventually caught off guard.

Who would have believed that Digital Equipment Corporation (DEC), a pioneering manufacturer of minicomputers, under whose PDP-11 the famous C programming language was developed, would be taken over by Compaq, a micro computer company then in existence for only sixteen years?

Sometimes, trying to accommodate a disruptive change may result in a conflict of interest for the manufacturers or provider of services.
A telecoms company, for example, providing long distance and international calls, may have its services threatened by the provision of fast internet services, through which cheaper internet calls can be made, or with the prospects of email attachments replacing fax services.

What to do with a threat of Obsolescence.

1. The first step is to assess the new technology. Understand how it works to see if you can leverage your market position to handle it. If, for example, you operated a computing center for the giant (International Computers Limited (ICL) computers, how would you gradually introduce Apple II micro computers to your customers without offending your principal?
   If you have an agreement forbidding you to promote a rival product, then assess the principal's preparedness towards this new technology and make a proposal. You may win the consent to market the emerging technology along with your existing product, or persuade your principal to agree to deploy the new technology, either by the establishment of a subsidiary/department, or the acquisition of one firmly established in the emerging technology.
2. Find out if you are cut out to do what it involves. For example, does it require mass production or marketing of several items with slim margins if you are already involved with marketing a few high margin products worth a couple of millions of dollars?
   A business involved in accepting films, producing and developing the negatives, before printing will see how it can copy digital images and print such with color printers, or selling digital printers and supplies. The latter might be better if the cost of high quality printers fall, and your customers would rather print the pictures themselves.

Otherwise, an early exit strategy should be most appropriate. You can sell the business while the goodwill value is still high or consider putting the facilities acquired over the years to alternative use. You may invest in a company utilizing the new technology and offer good advice and counsel as a non executive member of the board.

Effect on the downstream sectors.
For the downstream marketers in the third World, some disruptive changes did not harm as much as it did its manufacturers. Examples are:

1. Transition from gramophone records and VHS/Betamax videos to CDs and DVDs. Sellers simply stocked the two products.
   However, they had to exercise some discretion regarding the maintenance of inventory levels especially for those dealing with hardware.
2. Electronic (email) versus physical mails. While emails may never totally replace physical mails, especially with regards to sending physical documents and greeting cards, the advent of the electronic version obviously reduced the demand for the service provided by the physical mail companies.
   The latter however, still has some staying power in many third world countries as internet access is still low. Many cannot use their mobile phones to access the internet.

Some industries here however, are facing serious challenges.
Examples are:-

1. Land based telephone Systems. In the third world, poor management by Government owned telephone companies stifled its growth. Most consumers now see wired land based telephones as a reminder of the difficult times.
   Challenges faced by many new owners in laying cables and efforts at starting fast fiber optic based services do not seem to be catching the attention of most consumers.
2. Cinema or movie houses appear be losing their appeal to most Nigerians. With the advent of digital large screen and high definition television sets, cable and satellite video systems.
   Many cinema halls have been converted to Churches, ware houses, or multipurpose halls. That cinema going culture appears to be disappearing in this part of the globe.

A Practice we will never see again.
Once upon a time, there were machine operated accounting systems. A name than comes to mind is “kalamazoo”, with bound pre printed forms. Then came the practice of smaller companies, taking cash and journal books to “commercial computing centers” or to a company, willing to lease some of its computer time , where a section of the computer building or office would be marked “Sensitive equipment. Out of bounds to unauthorized persons”.
The contents of the books will be keyed into the system in a separate office and stored in giant tapes. After running the tapes, ledgers will then be printed on fan folded ruled computer paper from giant daisy wheel or dot matrix printers which would be taken back to the client's office for scrutiny.
Today, the computers are affordable and transactions are usually carried out real time. For most companies, provisional financial reports are ready the day after the end of the accounting period pending the results of physical stock verifications and reconciliations.

Conclusion.
Business operators and investors in the third world will only be able to make maximum benefit of their investments if the issue of disruptive change and obsolescence is taken seriously.
While the nature and structure of most third world economies will still give obsolete goods some extended life time, the global economy will eventually render the products unsellable.

Products and services that may soon become obsolete.