SaaS: The Creative Destroyer

The concept of creative destruction was coined by Austrian economist Joseph Schumpeter way back in 1942 when he referred to a “process of industrial mutation that incessantly revolutionizes...

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The concept of creative destruction was coined by Austrian economist Joseph Schumpeter way back in 1942 when he referred to a “process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.” In recent years, it has often been applied to industries in which digital technology has replaced older, analogue technology – think vinyl records being replaced by the 8-track, then the cassette, followed by CDs, and then MP3. The process is indeed incessant and the pace at which old technologies fall by the wayside and are replaced by newer technologies is only getting faster. So, what of all the companies who had gained a competitive advantage in the production and sale of the older technologies? Consider traditional, dedicated storage providers like EMC, HP, and NetApp – are they doomed to have their profits eroded by enterprises beginning to leverage SaaS and no longer requiring traditional storage? Destined to be victims of the SaaS-generated tidal wave of creative destruction which Jérôme Lecat reckons will cause $20 billion to disappear from the traditional storage industry? Not necessarily.

Those who fail

It was NetApp’s announcement of 500 job cuts following another round of poor financial results that got me thinking about creative destruction, the companies that are swallowed up by it, and the ones that survive and thrive through wave after wave of new technologies. Kodak is a classic example of the former. It dominated the film and paper-based photography market for decades but failed to move with the trend towards digital photography out of complacency and a lack of a sense of urgency amongst its leadership along with a fear of cannibalizing its existing core revenue.

It’s not that Kodak didn’t see the digital revolution coming, in fact they invented much of the technology for digital photography – it was rather an unwillingness to make the difficult decision to change the direction of the company, making short-term losses in order to ensure its long-term survival and success. The same can be said of Nokia, whose technology is still key to Apple’s iPhone – it wasn’t a lack of foresight but a reluctance to challenge its own dominant position in the dumbphone market that kept it light-years behind its competitors in the smartphone market. It seems that the bigger and more dominant the company’s position in the old technology i.e. the more it has to lose and, therefore, the less likely it is to innovate and change its strategic direction.

Those who succeed

For every classic example of failure, there is always a classic example of success. Taking it back closer to our wheelhouse as SaaS professionals, we will all most likely be familiar with how IBM turned itself around when the computer market shifted from its traditional strong suit of mainframes to PCs. Although it took some time for the penny to drop, IBMs leadership took decisive action just in time to switch its focus from hardware to services and the company still thrives today.

The same can surely be said for Apple who recognized the trend towards mobile and decided to get out ahead of the curve rather than flogging its desktop Mac business where its core capability lay. Apple managed to become the leader in the new smartphone market through a willingness to innovate and change that became inherent in the organization. The question now is if that x-factor has survived its period of dominance or if complacency has crept in? Will Apple have the presence of mind and bravery to cannibalize its dominant position in the current smartphone market when the next wave of technological creative destruction comes? The one thing we know for sure is that it will come.

Who’s next?

From looking at the patterns of those companies that have failed or succeeded to recognize when their time had come, it may be possible to predict the next flop or roaring success. If you had asked me a couple of years ago when Steve Ballmer was still at the helm in Microsoft, I would have said that it could have been the next complacent Goliath to be slain by the innovative Davids of SaaS. Microsoft has been slow to shift focus away from its desktop PC and traditional software business but I am more confident in Satya Nadella’s ability to change the course of the company – not an easy task by any means given its sheer size – and to take it on the cloud and mobile journey.

If I were to lay a bet now as to another industry where major players will fail to accept the fate of their core business, fall victim to complacency and fear of cannibalization, and neglect to readjust in time to survive, my money would be on telco. Mobile operators’ core business has been so profitable for so long that they will struggle, and are already struggling, to see the writing on the wall. Core telco business revenues are in rapid decline in all developed markets as they face increasing competition from OTT services and while some (see Verizon’s recent acquisition of AOL) are making efforts to move with the times (and trends), others are holding on for dear life – not an advisable strategy.

What can we learn?

So what does this mean for us as SaaS sales people, product managers, marketers, and customer success specialists – and what can we learn? Well, taking a leaf out Clay Christensen’s book, we can aim to be ‘disruptive innovators’ and to anticipate customers’ future needs more so than their present needs. This is no mean feat and it implies continuous learning and development, following trends in technology and business and upskilling to meet their demands. We must be hungry for knowledge and adaptable to market forces but, more importantly, it is incumbent upon us to be the voice of dissension that nips complacency in the bud before it has a chance to take hold. The intelligence to know when a technology has run its course and the willingness to speak up and demand change is what will turn today’s SaaS professional into tomorrow’s SaaS founder, CEO, and leader.

It’s not an easy thing to do – that much is for certain. I’m reminded of climber Aron Ralston, of 127 Hours fame, and the incredibly difficult decision he made to sever his own arm that had become trapped by a boulder in order to save his life. The metaphor is an obvious one – and more than a little sensational – but the theory behind it is solid. Realizing before it’s too late that a part of our business needs to be jettisoned so that the rest can survive and move forward is one of the hardest decisions a leader will ever have to make – but remember there is inevitably another boulder of creative destruction hurtling towards you and it is best to keep moving, and moving quickly.

“Saying farewell is also a bold and powerful beginning” – Aron Ralston, Between a Rock and a Hard Place

By Michael Cullen @michaelcullen87

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