Emerging Technologies Still Emerging

By Randy Bean

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Once burned, twice shy. That could be the mantra these days when it comes to emerging technology.

In the wake of rampant investments in new technology products and firms during the late 1990's and early 2000's, Fortune 1000 (F1000) businesses are showing greater caution than ever when it comes to incurring potential risk. With tens of millions of dollars of software investments sitting unused, underused, or with companies no longer in existence, big F1000 buyers are looking to take the safe route.

As one F1000 CIO recently expressed it, "If we could buy everything from IBM we would, even if we had to wait a few years to get the functionality we needed".

The implications of this new mindset for emerging technology firms and their investors are troubling. More and more large firms, even in an improved IT spending environment, are deferring investments in emerging solutions, or are taking the more conservative approach of choosing to wait for an established vendor to develop the required functionality.

Even in the instance of those emerging firms that are experiencing success in selling a new technology solutions, many are being compelled to execute the deal through a large systems integrator such as IBM Global Solutions. How did this state of affairs come to pass, and what can innovative F1000 firms do to mitigate the risks of technology adoption?

Over Exposure

The period from 1996-2000 was a heyday for emerging technology companies. Fortune 1000 firms embraced enterprise software companies to address their needs for CRM, ERP and BPM, among other needs. In addition, the promise of the Internet as a new customer channel, and the challenge of Y2K, fueled IT spending.

Organizations consumed by Y2K found that they did not have the bandwidth and resources to cost-effectively build out internal applications when they could be purchased through enterprise software firms. In retrospect, this was a golden age for the software vendor.

However, the resulting IT spending frenzy resulted in a glut of solutions. F1000 firms over-bought. Venture firms over-invested. There was a supply that would far exceed the eventual demand. In many instances, there were multiple investor-backed companies founded to address the same highly specialized problem.

In the wake of the market pullback of 2000-2002, many F1000 organizations were forced to take a critical look at severe expense reduction and elimination of redundant technologies. Many organizations sought to put in place far more rigorous enterprise software standards. Understandably, this makes the challenge of emerging technology adoption all the more difficult. When risk mitigation takes precedence over technology innovation, technology innovators face a major challenge.Smaller Share, Smaller Pie

While spending on IT declined sharply beginning in the 2000-2002 timeframe, spending on emerging technology solutions from little known firms declined even more calamitously. This state of affairs has been compounded by the new rigor imposed by many organizations around system consolidation.

One CIO explained recently how their firm had "bought one of everything", driven by business users ferociously trying to meet their business requirements in the hyper-competitive environment of 1996-2000. This same organization has now imposed a rigorous centralized IT strategy, whereby it has been made nearly impossible for businesses to purchase new technology without approval from the CIO and corporate technology organization.

Mitigating Risk

To mitigate the risks of new technology adoption, organizations are employing multi-tiered approaches. A number of firms have established or reinvigorated internal organizational groups focused on identifying and vetting promising new technology approaches and solutions. In some instances, the larger firms will even consider taking an investment position to help stabilize and ensure the longevity of a highly promising solution.

One of the critical issues for many F1000 firms is to identify solutions that are ready for prime time, based on initial successes while operating at scale at other F1000 firms. These "development stage" companies may be particularly compelling options for large firms looking to mitigate the risks while taking a more aggressive approach to innovation.

Promising development stage companies are typically below the radar screen of the large industry and financial analyst firms, yet may be establishing a formidable track record of success in the marketplace.

Regaining Competitive Advantage

Whether it means a 50x process-time improvement or a faster way to go to market with a new product solution, emerging technology represents a highly leveraged way for a business to rapidly gain competitive advantage in a congested market.

Industry leaders have gone through a process in recent years of wringing out excess expense and consolidating their core technology investments. As the business climate begins to improve, these same firms will likely refocus on differentiating themselves based on advantages such as speed to market, improved business processes, and building out their customer channels. A renewed focus on growth and competitive advantage is bound to generate an increased level of investment in technologies that will enable this growth and differentiation.

Not all of this will be achievable through the established players. F1000 firms will have to slowly embrace some of the newer, emerging technology options, but with a greater rigor and attention to mitigating the risks than was evident during the past decade. Eventually, this will be good news and mean improved fortunes for technology innovators. However, the process will be evolutionary and cautious.

The days of throwing caution to the winds are not likely to reappear on the foreseeable horizon. Fortune 1000 firms will seek to mitigate the risks entailed through emerging technology adoption, but once they have found the right solution for their particular needs, they will embrace the approach boldly.

Randy Bean is a managing partner at Boston-based NewVantage Partners, advisors to Fortune 1000 CIOs on emerging technology approaches and best practices. For more information, go to www.newvantage.com or call 781-643-9235.