As a practitioner, I used to think my company is different from all other companies. It was a popular belief; comparisons across companies would often bring a response – “but we are different”. At an industry level, it wasn’t even questioned by most that industries are very different.
However, as I acquired an outside perspective, it became clear to me that insiders focus on differences (or uniqueness) whereas outsiders (especially academic outsiders) focus on the commonalities. When I see hundreds of companies in dozens of industries, I look for commonalities – the patterns. This post is in the spirit of finding commonalities across industries to learn and use that knowledge.
The lighting industry has been facing some pressure on pricing and intense competition for several years now. However, a key challenge for the industry has been coming from compact fluorescent lighting (CFL). CFL is a significantly more energy efficient lighting and lasts a lot more than incandescent bulbs. If a CFL lasts 10 times as long as an incandescent bulb does, the replacement demand for incandescent bulb goes down by 90% as CFL replaces incandescent lighting. Now if one could sell a CFL for 10 times the price of incandescent lamp, perhaps producers will find little change in their overall situation. However, consumers have been reluctant to pay 10 times the price and thus the technology didn’t take off for quite some time. As producers have brought down the price of CFL to less than 10 times, consumers have begun to show an interest in the technology. However, as this happened, we have an emerging rogue innovation in the lighting industry.
While CFL was torturing the incumbents, LED emerged as an alternative technology. LED promises a light bulb life even greater than 25 times the life of incandescent lamp. Again, the prices in this segment will drop to less than 8-10 times the price of incandescent lamps; that’s when the technology will take off. However, with 97.5% reduction in replacement demand for bulbs, lighting majors (GE, Osram Sylvania, and Phillips) are looking at major profit destruction in future.
As LED takes off, the LED segment will witness a dramatic growth. Whereas incumbents in incandescent lighting will see a reduction in profit for every LED bulb they sell ( as it will eliminate the need for 25 incandescent bulbs), non players in lighting (such as Cree) will witness profit increase as they play in lighting segment.
Lighting majors are now facing a rogue innovation of a magnitude that CFL was only a preview of. Lighting industry will witness what analog camera industry witnessed a few yeas ago – a tectonic shift in the industry.
Will lighting majors learn the lessons from camera industry or will history repeat itself? One of my favorite historians (Will Durant) made a remark once that history doesn’t repeat itself – it only rhymes. I am wondering if history of camera industry will rhyme with the future of lighting industry?
From where I see it, firms such as GE, Phillips and Osram have a lot to lose while firms such as Cree have a lot to gain. Nevertheless, these are not foregone conclusions – the incumbents that understand the insidious nature of rogue innovation may be able to tame this rogue innovation whereas newcomers who don’t understand it may end of with the fate of those dozens of startups in camera industry that we never heard of. A clever strategy built on the lessons of rogue innovations in the past will decide if history will rhyme in the lighting industry or not.
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