Magazine article Foreign Policy

The "C" Word: Forget Disruption-Convergence Is What Really Has Corporations Fearing for Their Lives

Magazine article Foreign Policy

The "C" Word: Forget Disruption-Convergence Is What Really Has Corporations Fearing for Their Lives

Article excerpt

These days, the trendy word "disruption" casts fear into many business leaders' hearts. As the Internet has reordered commerce with startling speed, mighty companies have found themselves upstaged by tech newcomers, from Spotify to Amazon to Uber, which see a fresh way to meet an old demand. As this revolution gathers pace, however, there is a second word that deserves more attention than it currently gets: "convergence." The "c" word is generally understood in geographical terms--the Internet links disparate parts of the world, and so economies are drawn closer together. But there is a second, equally important meaning: the collapsing together of product categories and business sectors. In this sense, convergence poses a huge headache for incumbent companies, particularly those with big bureaucracies that rigidly resist change. To understand the phenomenon, look at Sony's legacy in consumer music. Two decades ago, the Japanese company's Walkman was so popular that it not only sold extraordinarily well, but also defined an entire product category. (This is the holy grail of consumer marketing, achieved by only a few other brands, such as Hoover and Band-Aid.) Most observers assumed Sony would parlay its success in analog devices into domination of online music. After all, Sony seemed to have everything it needed to create a digital Walkman: departments specializing in computing, consumer electronics, and brand design--and an in-house music label to boot.

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But there was one hitch. Sony's units operated as silos because the business sectors to which they pertained traditionally had been distinct. There was so little collaboration among the company's corporate tribes that when it started experimenting with the concept of a digital Walkman, engineers from different departments worked discretely. As a result, in November 1999, Sony launched two competing versions of the product. (Just to add to the confusion, it would eventually create a third.) Unsurprisingly, these items cannibalized each other on the market and failed.

Into the fray leapt Apple, with an innovative approach. The company saw that the businesses of software, hardware, and content (in this case, music) were converging rapidly, so it created a single team to develop a holistic product. The result was the iPod-iTunes combination, which stormed the market in 2001. Sony was left in the dust.

Viewed in 2016, this saga might look like ancient history, particularly in a corporate world obsessed with quarterly earnings. Yet it has profound implications for companies that today seem as powerful as Sony once did.

In the automotive sector, for instance, leaders are touting record sales as Americans rediscover their love affair with the car and people in emerging markets purchase more vehicles too. Behind the scenes, however, the hot topic is whether the likes of Ford and Toyota will be disrupted by Silicon Valley. For as the Internet makes it possible to build self-driving smart cars and other new transportation technologies, entrepreneurs at Google and Tesla are muscling into territory once controlled by the behemoths of Detroit, Germany, and Japan.

But disruption is only part of the story. Convergence is happening here too. Information technology (IT) no longer exists as a sideshow in the auto sector. …

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