IBM, to a large degree, invented the information technology industry. For the first half of the 20th century, it dominated the market for tabulating machines. Then digital computing posed new challenges and, by the 1950s it had begun to cede ground to UNIVAC, which led to Thomas Watson Jr’s $5 billion gamble to build the System 360.
That effort was transformative, but by the 1980s the company had fallen behind again and it was only the crash development of the PC that saved it from irrelevance. Yet this time, it did not return to dominance, but was consistently outmaneuvered by smaller and nimbler competitors, like Microsoft and Intel.
Lessons from one era often cannot be applied to the next. In the 50s and 60s, IBM’s singular focus proved decisive. A generation later, agility and speed to market became key attributes. Today, we’re entering a new era of innovation in which the basis of competition will shift from disruptive to fundamental technologies. Here’s what you need to do to win:
Widen And Deepen Connections
IBM’s System 360 was a fully integrated product, with its own hardware, software and peripherals. Once you bought into it, you were locked in. You could scale up or scale down within the 360 family of computers, but you couldn’t go outside of it. Customers got continuity, but lost flexibility.
Later Microsoft dominated the industry by using the operating system as a choke point. It didn’t demand that you buy all of its products, but rather used its position to extract value out of device manufacturers and other software developers. This strategy made Microsoft the most valuable company on the planet.
Today the major tech companies are selling technology like a utility by making their products available through platforms like Microsoft’s Azure, Amazon Web Services and IBM’s Bluemix. That means anyone can access the world’s most powerful technologies, build on them and combine them with other technologies at will, simply by connecting to an API.
This is not wide-eyed altruism, but a clear-eyed strategy based on new realities. In a networked world, competitive advantage is no longer the sum of all efficiencies, but the sum of all connections. You win not by building moats and controlling what’s inside, but by creating linkages to a larger ecosystem.
Rethink The Scientific Method
For the past several centuries, the gold standard for solving problems has been the scientific method. You gather some background information about the problem you want to solve, form a hypothesis, devise an experiment to test it and then analyze the results and draw some conclusions. It’s a bit slow and cumbersome, but generally has served us well.
Today, however, an alternative is emerging. There are a number of efforts in discrete fields, such as The Cancer Genome Atlas and the Materials Genome Initiative that collect and share massive amounts of data online. Researchers, often aided by powerful machine learning algorithms, can query these databases and identify new patterns.
The results of this approach have been subtle, yet startling. By aggregating and analyzing massive amounts of known data, we can drastically narrow down possibilities and save enormous amounts of time and money — possibly a 10x improvement or better. That opens up massive opportunities to do research that would otherwise be cost prohibitive.
To understand the impact, consider materials research, which can significantly improve product performance. Typically, this type of research is only viable for large enterprises targeting huge addressable markets. But with a 10x improvement in cost efficiency, smaller companies in more niche markets will be able to create better, more profitable products.
Look For The “Hair on Fire” Use Case
The most salient aspect of the new era of innovation is that instead of devising new applications for steadily improving technologies that have been around for decades, we will be struggling to identify profitable uses for technology we won’t understand very well. That changes the game significantly.
For example, it used to be that every new generation of devices had more powerful technology, but they worked essentially the same way that previous versions did. However, new computing architectures like quantum computing and neuromorphic chips are fundamentally different and will require new algorithms, languages and protocols.
Other technologies, like genomics, nanotechnology and robotics will increase our abilities to such an extent that we will struggle to understand the implications. Ethical considerations, especially with artificial intelligence, will create other challenges that we also don’t fully grasp — and probably won’t for some time.
Typically, when you launch a new product, you want to scale as fast as possible. But with technology you don’t understand, it’s better to move more slowly by identifying a hair on fire use case — a customer that needs a problem solved so badly that they are willing to overlook early difficulties. As we venture so quickly into so many unknown areas, this will have to become a standard practice.
Focus On Networks Rather Than Nodes
In 1991, Linus Torvalds released the Linux kernel on the Internet and invited anyone who wanted to download, use and modify it. In an amazingly short amount of time, a community built up around Torvalds’ initial code and the open source movement began to gain steam. Microsoft CEO Steve Ballmer, seeing a threat, called Linux a cancer.
Today, open sourcing intellectual property has become a common practice and it’s hard to find any technology that doesn’t have at least some open source elements. What large firms have learned is that it’s often more effective to leverage communities to advance basic technology and build proprietary products on top of them.That’s why in 2015 Microsoft announced that it had changed its mind and now loves Linux.
The truth is that innovations have always been combinations and, in a networked world it is no longer feasible for firms to build moats to protect proprietary technologies. Competitive advantage has become less about what you can own and control and more about what you can access.
This will become even more true in the new era of innovation, when we struggle to leverage technologies that we do not fully understand. Firms that want to be on the cutting edge are actively participating in a wide range of collaboration platforms, from manufacturing hubs to open source communities.
So in this new era, we will find it even more essential to focus on networks rather than nodes. The best way to become a dominant player will be to become an essential partner.
An earlier version of this article first appeared in Inc.com