Disruption, Innovation and large PLM vendors

Disruption, Innovation and large PLM vendors

innovation-disruption-plm

Manufacturing world is changing and it can bring new opportunities for transformation and changes. Few days ago, I posted an article Mature CAD/PLM vendors and startup behavior. The point I made in my conclusion is related to the business of established PLM companies – large vendors are mostly competing with themselves. PLM software is built for large companies. And despite multiple attempts to change something in PLM business, it is almost the same as it was 10-15 years ago. PLM is used by large companies. The majority of PLM deals are focusing on large companies and selling enhancements or replacement of PLM products. Will new digitalization trends create an opportunity to disrupt the established business?

I found an interesting article written by Jim Brown almost 7 years ago – Who will disrupt entrenched PLM vendors? Jim’s prediction made 7 years ago was right – disruption didn’t happen. It is 2017 and the same group of companies are still representing the majority of PLM business. Here is the passage from Jim’s article:

Maybe I am just a small thinker, but there seems to be a lot more talk about disruption than actual disrupting going on. Time to share my thoughts, with the expectation that I might be eating my own words on this very blog over the next couple of years. Will their be acquisitions? Mergers? Sure. The names may change (I didn’t expect UGS to become Siemens PLM), but the assets (software and customer base) are large enough to live in. In my opinion. Unless they fall to their own mistakes, I don’t see a sudden displacement coming.

At the end of the article Jim brings his perspective on why innovation is not happening fast in manufacturing.

Markets move slowly and software takes a long time to go away. Focus on the solution that meets your business needs, and that you feel you can grow with. Buy a solution that will fit the direction of your PLM vision. Keep an eye on new technologies and see where you can apply them. But I wouldn’t lose too much sleep about disruption right about now.

So, I guess, Jim won’t be eating his words and he was right. Disruption didn’t happen and nobody from existing PLM vendors wasn’t displaced yet. So, what does it mean for PLM industry?

Disruption is a theory that became popular for the last decade – thanks to Clayton Christensen’s book Innovator’s Dilemma. It introduced us to phenomenon of disruptive innovation.

In this revolutionary bestseller, innovation expert Clayton M. Christensen says outstanding companies can do everything right and still lose their market leadership—or worse, disappear altogether. And not only does he prove what he says, but he tells others how to avoid a similar fate Focusing on “disruptive technology,” Christensen shows why most companies miss out on new waves of innovation. Whether in electronics or retailing, a successful company with established products will get pushed aside unless managers know when to abandon traditional business practices. Using the lessons of successes and failures from leading companies, The Innovator’s Dilemma presents a set of rules for capitalizing on the phenomenon of disruptive innovation.

If I follow this theory, disruptive technology should have been expected to change the market by introducing new vendors and software. It happened in many industries in the past 2 decades, but not happened in PLM business. Isn’t it a good moment to understand what was done wrong innovators and what is unique in PLM business.

Article Disruption is not a Strategy is giving us some ideas. Read and draw your opinion. The following passage in my view is a key to understand the problem. –

Disruption as a Strategy Sucks. Christensen’s theory is vague. What is a new market? What does cheaper even mean? But the bigger problem with the theory is knowing what to do with it. You read the book, you want to start a company…what exactly does the theory advise you to do to create a disruptive company?

You can’t decide to start a disruptive business. You can’t take Christensen’s theory and use it to churn out disruptive companies. Don’t believe me? Try it. Cable TV, for instance, is too expensive and provides more functionality along a specific axis than most customers need. If you can think of a way to disrupt it, then why aren’t you doing it? It’s a giant pot of money just sitting there for you and Clay Christensen to take. None of the millions of people who have read The Innovator’s Dilemma has taken that pot of money because the theory doesn’t say how.

Christensen’s theory is descriptive, not prescriptive. It names a process but does not tell you how to generate that process. You might know disruption when you see it, but you only know it after the fact. You can’t know beforehand that if you create a new market it will grow big enough to sustain your company while you improve the quality of your product until you can go after the established market. You can’t know beforehand because, as Christensen himself notes, “markets that don’t exist can’t be analyzed.”

Article clearly says – build a strategy that will allow you to win. Word ‘disruption’ is not replacing the strategy. Technology is very important, but by itself is not creating a disruption. The point Jim Brown made in his article is a description of the market. PLM market moves slow and PLM software has long adoption cycle. Unless we change the paradigm, innovators cannot get a big chunk of market fast. Companies like Arena Solutions and Aras are 15-20 years old and still very small if you compare it to large vendors.

Take one of the factors – IP, continues innovation, lead time, complementary assets, switching cost, speed and optionality, and focus on how to build a sustainable market. Existing vendors are using the same factors to build the strategy to keep the status quo. The new PLM market strategy can be to build a replacement for existing products, capture new market, build a complementary solutions. Which option is the right one? Innovator’s Dilemma book doesn’t say any thing about it. However, without capturing the market, PLM innovation might not happen as it didn’t happen for the last 10 years.

What is my conclusion? Disruption and innovation are pretty words. To have a strategy to capture the market is an essential factor. This is a starting point. In addition to that, part of the innovation is to build a strategy that cannot be copied or borrowed by larger companies. Big companies are paying attention to small companies and copy or acquire them as soon as technology or products show them the way. And it is legitimate way to innovate in big companies. So, Jim Brown was right and this is what happened in PLM market after 2010. There is no lack of technologies these days. Market strategy is much harder thing to develop. Just my thoughts…

Best, Oleg

Want to learn more about PLM? Check out my new PLM Book website.

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.

 

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