Legacy investments refer to the large capital investments that traditional firms have made in assets and infrastructure related to their core business over decades. However, with rapid technological changes, many legacy firms are struggling to compete with more nimble startups. This article looks at the challenges faced by automakers as an example, and discusses how they can adapt to the market changes instead of going extinct.
Legacy automakers face existential crisis amid electric vehicle boom
The rise of electric vehicles like Tesla poses an existential threat to traditional automakers. They have huge legacy investments in engine and manufacturing plants optimized for internal combustion engine vehicles. But the future is in EVs, so they risk becoming obsolete if they don’t quickly adapt. Many are belatedly shifting R&D spending into green tech.
Government aid risks ossifying legacy firms before modernization
There are calls for government aid for legacy automakers to save jobs. But subsidies for idling workers may just entrench old technologies and business models. Aid should focus more on helping firms invest in new tech instead of propping up legacy operations. Otherwise state aid could delay much needed change.
Legacy firms should avoid indiscriminate cuts to future investments
In recessions legacy firms have often severely cut R&D and capital investments for new tech to prop up existing business. But this short term thinking delays their ability to compete in growth areas and transition business models. They should pare back legacy investments instead of crimping future competitiveness.
Legacy firms face tough change management challenges amid rapidly evolving technology changes. Rather than indiscriminant cost cuts, they need aid to thoughtfully re-direct resources to new growth areas while winding down legacy operations.