Risks of business obsolescence

An uncertain future awaits the 700 IT professionals and administrative staff of Nokia Technology Center Philippines in Quezon City. Citing tough market conditions, cost structure and the need to consolidate R&D (research and development) activities to fewer locations, Nokia has announced it will close its operations in the country by the third quarter of the year.

That announcement reportedly surprised its employees who were engaged in the design of digital technology-based next-generation equipment that would enable Nokia to match up with its competitors in the communications field.

From the late 1990s to the early 2000s, Nokia was the world’s leading supplier of mobile phones that used GSM (Global System for Mobile Communications) or digital technology, which was superior to the cumbersome analog system.

So profitable were Nokia’s operations then that in 2000 it accounted for 4 percent of the gross domestic product of Finland (its home base), 70 percent of Helsinki’s stock exchange market capital and 14 percent of corporate tax revenues.

Sadly, Finland’s multinational pride has joined the ranks of technology companies that once held sway in their business fields but failed to maintain that position because the competition came up with better products or innovative substitutes.

Remember pagers, facsimile machines, floppy disks, overhead projectors, cathode ray TV and camera films? Their hot market streaks ended with the entry of smartphones, scanners, flash drives, power point devices, LED plasma TV and storage disks, respectively.

The decline of once dominant tech companies may be attributed primarily to their failure to foresee the preferences and tastes of their target market.

While they were probably enjoying the perks and privileges of being on top of their game, their competitors (or disruptors as they are now called) quietly engaged in R&D activities that made their products obsolete or less useful.

To paraphrase a popular business adage, the competition was able to produce a better mouse trap.

By the time these companies woke up and saw their inventory piling up unsold, newbies had made substantial inroads in their market. The oldies’ catch-up efforts were either too late or too little.

It’s textbook management lesson that business cannot stand still. It has to be on its toes to maintain or expand its market share and keep the competition at bay with new or better products and services.

Only monopolies, duopolies and businesses that enjoy government protection from competition that can sit back, relax and operate as they please without worrying about profit losses.

With the rapid developments in technology and emergence of internet-based means of communication, today’s businesses have to think out of the box to make their products and services attuned to the needs of their target market and made available to them with the least hassle or inconvenience.

Innovate or perish. That’s the name of the game for today’s tech companies if they want to maintain healthy bottom lines. With the help of venture capital, startup companies are slowly giving established tech companies a run for their money.

Often, the initial action of a company whose main product has reached a certain level of obsolescence is to file for bankruptcy in the hope that a temporary reprieve from its creditors would enable it to reconfigure its operations and become profitable again.

But that’s easier said than done. Unless a white knight comes to the rescue and invests heavily in the distressed company, the bankruptcy petition eventually results in its closure and, in the process, throwing its employees out of job.

That fate befell Kodak (the pioneer in cameras), Blackberry (the erstwhile favorite smartphone of world leaders) and Compaq (a once popular personal computer brand), to name a few.

Like the cycle of life, in business, sometimes you’re up and sometimes you’re down. INQ