How to displace CAD and PLM industry incumbents

The stories about disruption are popular in today’s media. Uber for X. Airbnb for Y. You probably heard it many times. Known as Disruptive innovation, Clayton Christensen’s theory of industry disruption by new technology or products became popular (not without some controversy) for the last 20 years since Clayton M. Christensen published his first book – The Innovator’s Dilemma. You can read more here.

A disruptive innovation is an innovation that creates a new market and value network and eventually disrupts an existing market and value network, displacing established market leading firms, products and alliances. Disruptive innovations tend to be produced by outsiders and entrepreneurs, rather than existing market-leading companies. The business environment of market leaders does not allow them to pursue disruptive innovations when they first arise, because they are not profitable enough at first and because their development can take scarce resources away from sustaining innovations (which are needed to compete against current competition).[5] A disruptive process can take longer to develop than by the conventional approach and the risk associated to it is higher than the other more incremental or evolutionary forms of innovations, but once it is deployed in the market, it achieves a much faster penetration and higher degree of impact on the established markets.[3]

So, disruption is such a tasty word. You can feel it. It smells good. It means change of existing order, cool technology, innovation. Entrepreneurs are often claiming industry disruption by creating revolutionary products rethinking (or how it became popular to say – re-imagining) the old things in a new way. You probably remember my earlier article – How to innovate and compete with CAD and PLM behemoths. I shared few ideas how to innovate in CAD and PLM technologies.

Patterns of disruption article by Deloitte University Press brings an interesting perspective on how to anticipate disruptive strategies in a world of unicorns, black swans, and exponentials. It speaks how established industry incumbents perpetually face the risk of being disrupted by new entrants using new technologies, business models, or approaches to capture marketplace leadership.

There are no examples of “Kodaks of CAD and PLM software”. Engineering software incumbents didn’t face the level of disruption usually presented in books and articles. In my view, the reason for that is an extreme longevity of engineering software. For many years, CAD assets created the best insurance policy for software vendors and guaranteed that companies will keep using their software. PLM software is not so ubiquitous, but even mid-range manufacturing companies embarked into PLM journey on average invested $3-5M to acquire licenses, configure and implement PLM software. So, loosing this investment is a problem for these companies and people who made these decisions.

Does it mean existing CAD / PLM incumbents cannot be displaced by new vendors? I’ve been reading Deloitte article and looking for patterns that can fit CAD/PLM industry. The following picture presents possible ways to displace incumbents.

The #3 is in my view has the most potential in a current CAD/PLM market situation. New technology and business models can create a potential to deliver solutions to companies that didn’t consider PLM technologies before. It can be also a solution that fulfill long time dream of make 3D and PLM technologies available to everyone in a company.

How it might happen? Here is one potential answer – digital infrastructure. Existing software is limited to CAD files stored on a desktop and collaboration technologies developed 15-20 years using relational database and client-server architecture. Here is an interesting passage from the article:

Certainly, today’s ubiquitous digital infrastructure and the improving price performance of core technology components are fundamental to many new approaches. It is hard to imagine an Uber or Airbnb without the widespread adoption of all things digital and the rapid evolution of mobile and sensor technologies. At the same time, however, a new approach is more than just new technology. It involves thinking about the customer in a different way, reevaluating the relationship between brand and consumer, rethinking how value is created, and, generally, reimagining the possible in a world that is, by many accounts, poised in the elbow of an exponential curve. While digital will continue to redefine roles in the business environment and the relationships institutions have with individuals and each other, the next wave of exponentials—bringing advances in digital biology, the Internet of Things, 3D printing, artificial intelligence, and Blockchain—will likely further enable and expand these new ways of creating and capturing value.

What is my conclusion? Existing CAD and PLM vendors are trapped into existing business models and mature technologies. While to displace existing products in a short period of time might be mission impossible, the strategy to grow market and provide solution to users not involved into CAD / PLM business until now can be an option to disrupt a market. Just my thoughts…

Best, Oleg

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Disclaimer: I’m co-founder and CEO of openBoM developing cloud based bill of materials and inventory management tool for manufacturing companies, hardware startups and supply chain. My opinion can be unintentionally biased.