Pursuing a Vision or Chasing a Market?

by Neale Martin published August 14, 2006 in Telephony Telephony

Changes in the telecommunications industry are relentless, fast and furious. From disruptive technology announcements to colossal mergers, industry observers are continuously challenged to sort out the truly revolutionary from the merely mundane. What does eBay's acquisition of Skype portend? How about Intel's decision to exit the communications and applications chip market while simultaneously investing $600 million in Clearwire? Will AT&T's U-verse change the way Texans watch television?

In sorting out the critical from the trivial, a good starting point is to look past the announcements and seek the driver behind the decision to pursue a given strategy. For me, it comes down to one critical distinction: Is the company pursuing a vision or chasing a market?

Companies that pursue a vision are driven by a view of the future that compels them to focus corporate resources on positioning for the future. Conversely, companies that chase markets are driven by the recent past, rationalizing the use of capital based on business case analysis and financial metrics such as return on investment capital.

Is one strategy better than the other? The answer depends on two critical elements, one internal and the other external.

The internal element relates to the core competencies of a company. Consistently innovative companies hire, train and reward talent based on fulfilling the vision. They are much more comfortable with risk and typically have longer time frames for determining success.

Companies adept at capturing markets pioneered by others have an operational advantage over competitors. In talking with several Dell executives a couple of years ago, I asked when the company would come out with a tablet computer. “When there is a market for them,” was the confident reply. Dell is content to let others discover/develop new markets, sure that its manufacturing and distribution prowess will allow the company to capture a large share of new markets.

The external element relates the nature of the opportunity. Is the market shift evolutionary or revolutionary? Ted Turner turned his anemic Atlanta UHF station into a multibillion-dollar media conglomerate based on his vision of using a new communications satellite to feed cable TV's insatiable thirst for content. Yet timing is as important as clarity of vision. Many companies that attempted to recreate Turner's success in online media failed because they were too early to market.

Most opportunities are evolutionary in nature, and companies with classic competitive advantages normally dominate. A company with a lower cost structure, better distribution channels and/or a more recognized brand can show up late and still win the battle for market share.

One could argue that the cable industry was visionary in upgrading its networks over the last few years to provide digital, high-definition video, voice and high-speed Internet services over a hybrid fiber-coax plant. But what of the major telecom players?

It certainly appears that Verizon's FiOS is a big bet on Ivan Seidenberg's vision, while Project Lightspeed is driven by Ed Whitacre's much more pragmatic business case analysis. The underlying questions then is: Does IPTV and other new products/services represent an evolutionary or revolutionary market opportunity? If the opportunity is revolutionary, does Verizon possess the entrepreneurial DNA to reap substantial new markets? Or, if the opportunity is only evolutionary, does AT&T have a competitive advantage over existing cable competitors?

The same sets of questions are also germane in evaluating new broadband wireless opportunities. Will WiMAX, 3G or 4G services revolutionize communications and disrupt the business models of the incumbents?

If markets change faster than incumbents can react, visionary companies will win. However, if it evolves slowly, companies with established competitive advantages will dominate.