How to respond to 'disruptive technologies'.

• Author: BOLTON, BART

What a board can do -- even a board with little technology experience -- to make sure company strategy is doing everything possible to stay ahead of the technological curve.

Every company has always had to deal with change. Keeping pace with changing markets, emerging demographics, and shifting consumer tastes is what a company must do if it wants to remain competitive and growing.

But in the last number of years, keeping pace has become more demanding. The

reasons are obvious. Technology -- and Internet technology in particular -- has sped up the normal change cycle and introduced new ideas and tools that fundamentally alter, if not threaten, existing business models. In his book The Innovator's Dilemma, Harvard Business School professor Clayton Christensen describes this process as "disruptive change." Through studies of the disk-drive industry, he persuasively shows how even well-managed companies can fail if they cannot cope with the disruptive technologies that shake their industry.

Christensen's thesis can be seen across the business landscape. As Andy Grove, the former CEO of Intel Corp., observed, over the next five years, every business will be an e-business or it won't be in business much longer. Ralph Larsen, CEO of Johnson & Johnson, suggests that "the ability of the Internet to provide direct-to-customer connections is an incredibly powerful business tool." He shares with many other senior executives the idea that technology has created so many new opportunities and competitive threats that we will "completely reshape the competitive landscape" over the next decade.

Perhaps what has been as striking as the technological change itself is the extent to which many large companies, successful in every way, have failed to see disruptive technology coming. This phenomenon is seen in every industry. The major television networks failed to anticipate 24-hour news. Barnes & Noble did not envision the potential of online bookselling. AT&T has only recently discovered the importance of broadband.

These examples of well-managed companies that failed to prepare for change should weigh heavily on the minds of every senior manager and board member. Every quarter, an array of data is presented to show how a company is doing: sales growth, revenue, earnings, new acquisitions, increased or decreased costs. Yet none of these figures reveals whether a company is keeping up with the larger shifts underway in the market. Compaq Computer, for example, had enjoyed successive quarters of impressive growth and produced enormous revenues when in February 1998 it announced the acquisition of computer pioneer Digital Equipment Corp. Business Week's cover story at the time trumpeted that the $8.7 billion deal would "reshape the entire world of computers."

A year later, Compaq's board ousted CEO Eckhard Pfeiffer, and the company's stock was in a nosedive. Compaq, it turned out, was not paying nearly enough attention to the made-to-order direct distribution system that Dell Computer had been perfecting. Dell's disruptive process of getting rid of distribution intermediaries has shaken the entire industry and created unrivaled growth for the upstart computer manufacturer. Compaq and other hardware manufacturers may have been paying attention to the traditional indices of corporate performance, but they weren't keeping their eyes on the technological shifts that were eating away at their once-successful business model.

Financial data are a lagging indicator of technological prowess. By the time quarterly data show that a company isn't keeping pace, it may be too late to play technological catch-up. To avoid being left behind, a company needs to develop a set of corporate antennae that are able to gauge what emerging trends have the potential to reshape traditional business space.

Developing new technology antennae

Where...