Is there a link between short product life-cycles and shrinking company longevity around the world?
The average lifespan of a company listed in the S&P 500 index of leading US companies has decreased by more than 50 years in the last century, from 67 years in the 1920s to just 15 years today, according to Professor Richard Foster from Yale University.
Product lifecycle are shrinking at the same time according to many commentators, for example, 50% of revenues across industry are generated from new products launched within the past three years. This suggests that long-term product ‘cash cows’, which stay in a company’s portfolio without change for many years, are becoming a thing of the past.
“Research and development is always a delicate balance between maintaining a long-term view and remaining sensitive to short-term financial objectives,” observes Mark Vergnano, executive vice president at DuPont.
DuPont implemented a new rule in 2010 that mandates that 30% of revenue must come from innovations the company has created in the last four years – significantly below the cross industry norm despite the company’s $2bn research and development budget. Perhaps chemicals have a longer product lifecycle than other industries because of the significant barrier to competitive entry caused by huge development costs.
Simply put there are two business zones in the product lifecycle, the zone of cost and risk during development and introduction and the zone of value. One does not have to be an MBA to understand that shortening cost and risk whilst extending value is a good business option. Combined with this the faster that we can get to market, the more time we sit in the zone of monopoly and ought to be able to build market share and maintain higher prices. All in all, speed to market is a critical business success factor.
If your product is IT related, either software or driven by a large IT component, the old fashioned approach of building large infrastructures up-front and hoping that customers will come is not going to be effective. Cloud based infrastructures are much more aligned to agile and flexible product development (DevOps) and ought to be adopted across industry sectors.