Rewiring electronics: Discovering strategies for sustainable growth from a business ecosystem perspective

Electronics represent a growing value add for today's product markets, but electronics companies seem reluctant to choose what appears to be the most promising growth strategy: diversification with new products into new markets.

An ecosystem analogy can help electronics companies better understand how they can interact with each other to surface new opportunities, ease entry into new markets and achieve sustainable growth. Strategies based on innovation rather than domination can enable growth of the entire ecosystem -- and the companies that comprise it.

By taking the ecosystem view, global electronics companies can capture new growth by focusing on markets where electronics products are a core value add.

In the 2004 IBM Global CEO study, electronics executives cited growth as the top priority for their industry. Respondents overwhelmingly considered profitable growth (revenue growth paired with cost reduction) to be the primary key to success. But IBM research also indicates that they tend to rely on the traditional strategies of market penetration, product development and market development to achieve growth. Diversification -- growing with new products in new markets -- ranked lowest among perceived strategic opportunities for growing revenues.

In interviews conducted by the IBM Institute for Business Value, electronics executives indicated that their reluctance arises from a high perceived risk of pursuing diversification in the wake of recent market downturns. While strategic retrenchment is often an appropriate response to uncertain conditions, over time the urge to avoid risk can take on a life of its own -- often to the detriment of companies in high-turnover markets like electronics.

Indeed, analysis by IBM shows that playing it safe is not a winning strategy in today's electronics marketplace. The rate of electronics industry revenue growth has been falling since the end of the late-1990s boom era and is not expected to rebound in the coming years. The telecom industry provides one example. After growth spikes in 2000, electronics companies within the telecom industry value chain -- from telecom equipment providers to semiconductor manufacturers -- are in most cases stagnant or even suffering declining revenue growth.

To read the complete study, download the PDF file at the top of this page.