Political Strategies: High Stakes for High Tech Companies

By: M. Mastrangelo

Does your company have a sophisticated political strategy? If you are a relatively new high tech company, then your political strategy will likely fall under one of the following three possibilities: 1) Your political strategy is nonexistent; 2) Your political strategy consists of some lobbying in Washington and some PR work; or, 3) Your political strategy consists of the CEO flying to Washington for an eleventh hour meeting with your Senator ten minutes prior to a vote that could have a devastating impact on your company’s bottom line.

But this seems like harsh criticism, after all, you are spending most of your waking hours trying to develop the vanguard of new technology and stay one step ahead of all of those competitors out there. What’s more, politics has nothing to do with your company’s area of specialization. So why get involved in politics? The textbook answer is that you get involved because playing the political game right could result in a competitive advantage for your company. Stated more bluntly, if you are not involved in the debate, others will be making decisions that might doom your technology before it even has a chance to compete in the market.

In order to look at the complexity of political strategies, and potential consequences for being a non-participant in the debate, consider the case of Digital Virtual Displays (DVD’s). DVD’s are the follow-on technology to compact disc’s. Technological improvements will allow a single disc to store an entire movie, and the technology will allow users to write onto the discs and to digitally copy from disc to disc. Therein lies the rub. This technical ability to make perfect copies creates a potential conflict between copyright owners and equipment manufacturers. This conflict will likely be settled in a political arena.

Let’s look at developments to date. On the non-government side, equipment manufacturers wished to avoid a repetition of the old Betamax/VHS problem; i.e., developing competing standards, so a Technical Working Group was set up to negotiate technical differences and incorporate the best features of competing systems. The DVD is actually the result of negotiation and compromise between Sony and Philips on one side; and Toshiba and Time Warner on the other.

Potential Government Involvement: In March of 1996, the Motion Picture Association of America (MPAA) and the Consumer Electronics Manufacturing Association (CEMA) jointly submitted proposed legislation to Congress that would require technical standards in DVD players and recorders. (NB: This includes personal computers. ) The proposed legislation would however exempt video data streams that are broadcast over the air or through cable. This would allow consumers to continue one-generation copying from broadcast movies, but would bar them from copying disc to disc. At first glance this seems like a solution that is similar to copyright protection afforded to VCR duplication. It allows the owners of copyrighted materials to be compensated for their work, but also allows a legitimate market for VCR’s. But does this treatment bear closer scrutiny? Does it make sense to distinguish in the law a bit of information that is broadcast from one that is on a hard medium. Isn’t a bit of information a bit of information?

The MPAA/CEMA proposal has also been criticized because other groups that would be influenced by government action were not initially consulted. One group that is opposed to the recommendations is the Interactive Multimedia Association DVD Special Interest Group (IMA DVD SIG). This group consists of equipment manufacturers and has about 10,000 individual members. One general objection that this group has is that the US government would become involved in setting up technical standards in the PC industry. More specific objections are that performance will be degraded, and that there will be unnecessary complexity in system design.

Getting back now to the central question of this article. Suppose you are a small to medium sized high tech company that might be able to provide at least a piece of the technology supporting DVD. Or suppose you are a larger company that would actually manufacture complete DVD systems. Do you think your bottom line might be affected by what happens in Washington in the coming months? Suppose you have a system that is ready for market. How much would a delay in the resolution of the copyright issue cost your company? Maybe $50 million per month of delay? Shouldn’t your voice be heard in the debate?

Now here is a quick self-graded quiz to judge the level of your company’s savvy in dealing with political strategies. Can you name a member of congress that would likely sponsor legislation described above? Can you name the state the member is from? Does your company have an office or plant in that state? Are the employees of that plant organized into a grass-roots organization. Do they have a Political Action Committee (PAC)? Did your company describe their position on the issue to the member a year ago? Regardless of which side your company is on in the DVD debate, are you a member of a special interest group or trade association that supports your views? Have you communicated with that group in the past week to see if any legislation affecting your company is on the horizon?…If you can answer yes to most of these questions, then chances are that your company is making a serious effort to develop a coherent political strategy, and your government relations people are earning their paychecks. On the other hand, you might not even have a government relations office. This may be the first time you have even considered these questions.

We briefly described the DVD issue not to take a position in that debate, but instead to illustrate the complexity of political issues that can have a real impact on your cash flows and revenues. If you ignore this aspect of business, you run the risk that only your competitors will have a voice in the outcome. If however, your company is making a serious effort at addressing political strategies, and applying information technologies to political strategy problems–the company may enjoy a distinct competitive advantage.