Implications of Rapidly Evolving Technologies on Business Planning
The never-ending waves of technology impact nearly everything we experience, touch, imagine, and produce. In a business context, this progress influences the speed of production, productivity, delivery, and ultimately profitability. The costs and benefits of technology shifts create opposing forces on a small organization’s ability to forecast its operational needs, as well as its financial requirements.
Owing to the significant uncertainty, the evolution of technology and its vast implications are not easily discernible to a small business owner or start-up. The chief question is: how does a company plan for technological progress without being able to grasp its potential delivery and the associated costs?
Technology as a Cost
Companies predicated on leading technologies face the unique challenge of being early adopters and supporters. This can be a double-edged sword as staying on the cutting-edge may attract like-minded customers and earn reputational benefits long-term. But, chasing every technological shift and supporting all applications and services can be prohibitively expensive, and potentially distracting.
To this end, it can be incredibly difficult to know what technologies will “stick” and which ones will falter or disappear altogether. Historically, there are numerous instances of companies aligning with technologies that became obsolete as consumers and trade consortiums opted for different paths. Within the television and recording/playback industry, we have observed two formatting battles in recent decades: VHS vs. Betamax in the early 1980s; and Blu-ray vs HD-DVD (2006-2008).
Identifying the technologies and channels that will prevail several years in advance is a guessing game at best. However, there are a select few market research and trade groups such as the NPD Group, Gartner Group, Forrester Research, and IDC Research that keep abreast of developing trends across multiple industries. These research participants have outstanding track records when it comes to identifying technological advancements and providing macro, top-down forecasts.
Another readily accessible source for uncovering emerging trends are the equity analysts that conduct proprietary research on publicly traded companies. These market pundits often provide good insight into technology shifts and spending trends that impact larger market competitors. While industry and equity analysts provide a good baseline of likelihoods, it is ultimately up to the small business or start-up to chart their own path and decide which advancements could be meaningful to their enterprises.
Technology as a Benefit
Admittedly, we are taking great license in describing technology costs as a true benefit. Improvements in manufacturing and production and the anticipation of new product releases make prior technology generations less costly. While certainly not limited to semiconductors and integrated circuits, the relative and ongoing obsolescence makes computing power more affordable over time.
To this end, the chart depicting the cost of computing power relative to an iPad2 is truly fascinating. It underscores the cost effectiveness of computing power since the 1940’s. Replicating the equivalent computing power of an iPad2 using early 1980s technology and the then-popular Commodore 64 would cost on the order of $100 million.
Over the past 60 years, the undeniable benefit of technological progress has been increased productivity and the ability to offer consumers better products and services at lower cost. This has come by way of a host of factors, not limited to:
- increased automation and the associated reduction/reassignment of headcount;
- faster, more efficient manufacturing;
- proliferation of integrated circuits;
- miniaturization of electronic componentry;
- less waste and lower per unit input costs; and
- smaller manufacturing footprints.
The net result of these improvements has been lower operating costs (some of which have been passed onto consumers in the form of lower prices), increased quality, and a far better and more consistent experience for consumers.
Technology and Millennials
The availability of technology and its associated consumption resonates greatest with millennials. This inspired faction integrates technology into their lives much faster and more seamlessly than prior generations. The task of marketing to this demographic carries considerable costs that cannot be ignored.
In another narrative, Branding Power, we discussed the importance of millennials and the multi-channel marketing necessary to create a presence and maximize mind share. Effective branding requires a consistency of advertising, messaging, quality, product/service experience, and reach (in terms of social media and awareness). All of these conduits carry some form of embedded technology and associated costs.
Earlier in this piece we discussed how being an early adopter can be a double-edged sword as cutting-edge technologies may attract consumers, but such a strategy can be prohibitively expensive. Marketing to millennials and forging a presence across all the latest applications brings with it significant costs. Furthermore, there is no guarantee that some of these mediums will last beyond the current generation. Indeed, the impact of social awareness and its related marketing spend cannot be understated, and should never be ignored.
Piecing it All Together
The principal implication of rapidly evolving technologies is that business planners and forecasters need to be increasingly vigilant when it comes to projecting operating expenditures, particularly marketing-related initiatives. It is immensely challenging to create long-term operational forecasts when future technologies remain largely unknown.
Nearly every business is faced with certain implicit technology risks that frequently manifest themselves into hard expenses at some point. When it comes to technology spending, underestimating future costs can be hazardous to your financial model. As noted in our missive, The Art and Science of Financial Modeling, business owners frequently overestimate sales projections and underestimate operating costs. The net result is over-inflated profitability forecasts that could lead to a sizeable miscalculation in the amount of funding a business requires.
Deciding which technologies and applications are right for a business begins with an understanding of what your customers expect from your products and services. In other words, why does a customer come to you? What is the long-term goal of your business (aside from growing sales and maximizing profits)? How does technology (particularly social media) play into that equation? And, what is its relevancy going forward?
Properly assessing future needs is also a function of identifying what emerging technologies may impact your business. This is where market research organizations such as the NPD Group, Gartner Group, Forrester Research, and IDC Research can provide some guidance.
In summary, the best counsel we can offer is to identify subject matter experts who possess the requisite insight and follow the trends that suit your company’s operational and marketing direction. Identifying the technologies that show promise early-on, deciding on their efficacy within your enterprise, and budgeting for them conservatively is paramount to avoid being left behind and having to play catch-up. Viewing these initiatives as investments (as opposed to ongoing expenses) creates a mindset that tangible benefits can be realized over time. This potential payback may come in the form of elevating your brand and image, capturing new customers, and retaining existing clients – any one of which enhance long-term profitability.