Here is a story of the fire than tipped the balance within an industry.
Two stalwarts in the mobile phone industry in March 2000 were equally impacted by the same event – a lightning fire in the chip manufacturing plant of their common supplier, Philips, in New Mexico.
Both Nokia and Ericsson experienced the business disruption to an equal extent as a result. Fire damage to the stocks was extensive.
More importantly, the manufacturing capacity was damaged and it was difficult to estimate the time for repairs.
Nokia has invested months, if not years, in creating and perfecting a robust and responsive business network, while Ericsson’s business network was relatively a middle-of-the-line affair that worked well when things were good.
After the fire, Nokia was able to see the full impact of the chip shortage on its own business, as well as the entire industry with a lot more clarity than Ericsson, and even Philips.
Moving quickly, it activated other parts of its business network to shore up supplies, to redesign some of the chips to manufacture them in other plants, and to take pre-emptive steps in the network.
Ericsson let the situation evolve at its own pace and made decisions more reactively.
The resulting gain in profitability and market share for Nokia, and the loss of these for Ericsson tipped the balance of the industry to an extent where within a few years Nokia pulled far ahead of the Ericsson which never caught up with its erstwhile equal rival.
Source: The 5-STAR Business Network http://www.5starbusinessnetwork.com
I write about The Supply Chain CEOs, The 5-STAR Business Networks and Unchain Your Corporations. My website is at http://viveksood.com
Virtually all its shareholders gave their approval, and with a stroke of pen the Finnish firm that once dominated the global mobile phone market officially announced the sale of its mobile phone unit to Microsoft Corp yesterday.
The $US 7.4 billion deal will see Nokia transform its business model into a telecom equipment and network services provider, a major step towards re-bundling itself into a super networked business. The move was given a green light by virtually all Nokia equity owners, who saw it was time to let go of a high-fixed-cost and increasingly-low-margin division. The company has been lagging behind at number 8th in the smartphone arena, although it still maintains number two position in the overall mobile phone market according to Gartner. Chairman Risto Siilasmaa told investors. “We have no doubt that this is the right decision.”
Talks surrounded Nokia’s string of wrong turns in the past such as investing in the smart phone technology too early (as noted by former chief executive Jorma Ollila), and reaping poor results from software design efforts. “Nokia’s high fixed costs signal underlying issues in its supply chain management.
The network of supplies has not been optimally selected and articulated to maximize its product offerings to the end customer. At the same time, both Apple and Samsung have created partnerships to leverage their business network to the maximum. For example Samsung’s partnership with Android allowed it to bypass costly software development that plagued Nokia. Similarly, most of Apple componentry is still manufactured by its business network partners” – said Vivek Sood, author of “Move Beyond the Traditional Supply Chains: The 5-STAR Business Network.”
A key reason cited for the poor performance of Nokia’s phone division is not enough innovation. While its rivals such as Apple and Samsung continue to gather momentum with their smart phone lines revamped utilizing the core of their business network partners, Nokia’s only notable attempt was when it embraced the Windows operating system in 2011. Even so, the move did not substantially lift Nokia to its market leading position decades ago. Life after mobile handsets for Nokia will include attempts to make its existing business units profitable, by focusing on its infrastructure. Speculations are already underway about the new moves.
For example acquisition of Alcatel-Lucent’s wireless-equipment unit could build a substantial competency base to enable robust market competition. A super networked business is created by a business forming strong supply networks that allows efficiency and effectiveness in three core competencies: customers, infrastructure and innovation. Vivek Sood, who is the CEO of Global Supply Chain Group, said: “Now that Nokia has freed itself of its past legacies, it is the perfect time to focus on its core competency and cherry-pick its partners that can complement the gaps. If done properly, Nokia can then re-emerge as a super networked business again ready for the next few decades.” Click here to get first three chapters of the book The 5-STAR Business Network
This article is an extract from The Five Star Business Network, written by Vivek Sood
“It’s really hard to design products by focus groups. A lot of times, people don’t know what they want until you show it to them.” Steve Jobs (1955 – 2011), Business Week, May 25 1998
“In most people’s vocabularies, design means veneer. It’s interior decorating. It’s the fabric of the curtains of the sofa. But to me, nothing could be further from the meaning of design. Design is the fundamental soul of a human-made creation that ends up expressing itself in successive outer layers of the product or service.” Steve Jobs (1955 – 2011)
When Apple first launched its iPod music players in November 2001, no one had an inkling what it would lead to in a decade’s time. The first salvo that Apple fired in what eventually became a market domination of the mobile phone market, did not look like a mobile phone at all. Indeed, none of the mobile phone players – whether market leaders such as Nokia or Ericcson or followers such as Samsung, Siemens, LG, and many others – displayed any sign of discomfort at the launch of iPod. The entire battle of iPod and iTunes was fought on the turf of the music industry’s drive to save itself from $0.99 per tune pricing policy of Apple.
Fire-Aim-Ready Innovations keeps your competitors guessing your intentions
Ironically, an industry which was half decimated by music piracy was busily fighting the very network which could save it – while the industry that would eventually be decimated was cheering on. When the iPod first came out, all the competing products in the market were clunky, large and erratic in their functioning. Transferring music files from CDs to computer to digital music devices was a major task, and piracy and peer-to-peer sharing was rife on the internet. Many observers doubted the wisdom of selling tracks on iTunes when they were freely downloadable on the internet. With its white headphones, small form factor, easy to use interface, user friendly computer link to both Mac and Windows, iPod quickly became an epitome of ‘cool’ from 2001-2006. As successive versions of iPod were issued (we will cover version update in much more detail in Advanced Product Phasing) newer features, more capacity, updated iTunes software for computers were introduced luring the customers to buy many more versions of iPod. Newer products in the same genre – iPod mini, iPod Nano, iPod shuffle, iPod Touch – were introduced to further capture the market, each with its own round of successive generations.
Each step in the Fire-Aim-Ready Innovation generates multiple platforms for future innovation
Apple was making huge inroads into the hearts and minds of the customers – especially non-Mac users who had no previous experience with the iconic brand. At the same time it was gaining expertise, knowledge and experience in small portable gadgets learning how consumers interacted with these, learning what the missing pieces in the existing gadgets and most were importantly building key connections with the network of suppliers, developers and other network participants who would eventually make the iPhone a resounding success. Meanwhile, smart phones were becoming popular with consumers and Blackberries with the corporate markets.
When Apple fired its second salvo in the battle for mobile phones, it was still not fully ready in the traditional sense. For example, most corporate IT barons scoffed at the idea of using iPhones for corporate emails and networks because of the missing security features. Even the cameras on the first version were far more basic than those on the other smart phones on the market at that time. However, the first iPhone was still an outstanding success which can be attributes to its massive consumer following from iPods, its ‘cool’ advertising, far superior user experience, reputation for delivering on its promise, and a number of sticky and unique features which were marketed very well.
Behind the scenes, Apple had already assembled an outstanding network of suppliers ranging from Foxxcon – the Chinese assembler to Fingerworks – the developer of the then unique touch screen software to the ARM the licenser of the CPU. Working closely in a huddle with these suppliers, who were each sworn to secrecy, Apple retained its leadership position in product development time compared to its competitors by outpacing them significantly, while at the same time raising the product quality to level that leapfrogs the competitors.
Its innovations were truly disruptive in the industry, even though it always leapfrogged the competitors rather than take the low road to disruption as suggested by Clayton Christensen in his theory. The disruption in the industry is evident from the fact the RIM – the maker of Blackberry – is now on the ropes unsure of its own financial future.
If this article interested you, you can read more in the book
As everybody knows, three giants in the tech and software world have amassed an incomparable power in recent years from their networks and their strategies. With a vast range of products, they have stitched up the market amongst themselves. But what are the strengths and weaknesses of each giant?
What are the deep business and supply chain implications of the battle of these Titans?
Each one of them is a Business-to-Business Network in its own way with excellent partners and supply chain participants. Apple has its own ecosystem, which is not just their customers, but also thousands of programmers and app developers as well as millions of sellers on iTunes. That is Apple‘s biggest strength.
The same goes for Amazon, with an ecosystem including a very large customer base as well as thousands of sellers that sell their products on their website.
On the other hand, almost everybody uses Google as a search engine, which means they have the largest market share now in the mobile operating systems with Android. Google also owns YouTube and many other digital properties. Each one of them has a formidable Supply Chain, Business-to-Business Network or Supply Network in its own right.
Yet now, all three of them are facing problems in different ways.
Apple is facing problems because its success has always been based on creating the next big product, especially if you look at Apple’s history (iPod à iPhone à iPad). Now, Apple is launching the new Apple watch, which is not a very successful product in my mind. IPhone 6 is obviously just a minor update of the previous successful iPhone. That is where Apple is currently failing. However, they are creating some really innovative services such as Apple-Pay, which allows you to use your mobile as a NFC-based payment option, and Apple-SIM, which allows you to roam at a very low cost in foreign countries.
Apple continues to profit from past supply chain and product successes, and sits on top of huge pile of cash. Amazon, on the other hand, does not make much profit, although it has a very high growth rate of revenue (it grew by around $24 billion in two years) and still growing.
But they invested in a number of things, which did not turn out that well. This type of experimentation is in the DNA of the company, and at the moment, it is not a big problem, at least not yet. Nonetheless, a couple of these investment, noted by analysts and commentators, have raised red flags in my mind. Amazon Fresh seems to be a resurrection of the business model of an failed company called Webvan, which invested $1 billion in this field and went bankrupt in two years.
Amazon also continues to invest in expanding its business in India, which is a very competitive environment. With local market players who know the local characteristics much better, and a chaotic marketplace, this is perhaps the most uncertain field for Amazon in my view. The competition may not even be from other B2C e-commerce companies; every man with a mobile phone and a bicycle is a potential competitor. Amazon persists in investing in these two markets.
This could be much more harmful to Amazon than their mobile phones or other hardware devices that they keep creating every few months. They are losing money on those but for a purpose: they are trying to lock customers into the Amazon Network. Nevertheless, these products will never replace iPhones/iPads or equivalent Samsung products and will always be number two in customers’ minds.
The question is: Where is Amazon’s next platform for growth?
Amazon’s “unsexy” B2B business, a “$8 trillion bet”, has been growing silently in the background, perhaps making it eight times bigger than Alibaba and the biggest 5-STAR Business Network on earth.
AmazonSupply, a wholesale and distribution hub, started in 2005 and has grown to carry 2.2 million products, ranging from office equipment to industrial components, materials and more. After nearly 15 years of languishing on the wayside, the B2B exchanges are finally coming true, slowly.
Already, wholesalers are whispering about the threats from AmazonSupply; although many specialty wholesalers and distributors are somewhat confident that their turf is safe from the giant’s claws due to their highly segmented market.
Nonetheless, AmazonSupply, Alibaba, or B2B exchanges, could become so powerful that they will suck small players into their enormous vacuum of suppliers. The process can even accelerate if trust keeping mechanisms are built into B2B exchanges.
Seller and buyer ratings, as well as seller/buyer protection seen on sites such as eBay and PayPal are not enough to cover the sheer size of B2B transactions. Even the current rating system on Alibaba will not suffice, should this attractive market grow in the years to come.
Looking at Google, basically revenues of advertisements relating to search engine are stagnating/saturating. Fake clicks are being identified much more easily. People are becoming more careful of what they are spending on online advertisements. Android and YouTube are two engines of growth for Google. Google has declared a strategy of continuing investment in its YouTube products
It is easy to argue that Apple has the best chance of leading the pack in 5 years’ time depending on what kind of new hardware they manage to create in the next 2-3 years. Google and Amazon are probably equal second depending on whether Amazon succeeds in its strategy to capture Business-to-Business markets or whether Google manages to monetise YouTube as much as they can.
Equally likely, new competitors might emerge on the horizon – like superUber! That will be very interesting to see.
ABOUT VIVEK SOOD:
Vivek is the Global Supply Chain Strategist and Author who works globally with large and mid-size corporations to FIX their Business-to-Business Networks in order to their multiply profits.
In that last 14 years he created several new breakthroughs in Supply Chain – including business transformations led by SCM 3.0. His more than 400 projects have spanned approximately 84 countries on five continents, with clients ranging from fortune 500 companies to innovative green technology companies.
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If you are a HR professional, recruitment or HR consultant – and you think your clients might benefit from these insights about business transformations – feel free to forward this blog series via email or linkedin. The nature of your industry is changing rapidly as a result of forces mentioned in this article.
Contact: Angela Crown, Angela.Crown@globalscgroup.com
Due: November 26, 2013
Specifically, Intel plans to manufacture chips to order for other companies instead of solely making its own as per tradition. By extending its foundry service, Intel could soon be making components for rivals such as Samsung, Nvidia and Qualcomm.
This is seen by many experts as a bold departure for Intel, a decision that the current CEO is more willing to make than his predecessor Paul Otellini.
Given that Intel’s sales forecast for next year does not include any drastic change, and so does the capital spending on equipment and facilities of around $US11 billion, the company needs to adapt its supply chain strategy to stay competitive.
Another measure for Intel to tackle the below-analyst-expectation revenue in 2014 is focusing more on providing what consumers want rather than trying to push its own designs, said Brian Krzanich – the sixth Intel’s CEO.
“One of Intel’s competitive advantage is its aggressive investment in manufacturing technology, which is fed by its sale volume. To ensure the cycle goes on smoothly, the company is refining its market understanding as it should be.” – said Vivek Sood, CEO of Global Supply Chain Group.
Famous for its effective product development cycle encapsulated in the “tick-tock strategy” since 2007, Intel is doing what they can to avoid becoming insular. The PC market is predicted to be down in the “low single-digit” percent, albeit the decline rate may be slow due to improved demand from enterprises and some developed markets. “Our view is that it’s declining but it’s beginning to show signs of stabilization”, said Krazanich.
Meanwhile, the mobile market is expanding rapidly, prompting Intel to start manufacturing chips for companies that are beating it in mobile phones, Krazanich confirmed.
Moreover, Intel will also focus on developing parts for a smaller number of phone makers with large sales volumes. Intel’s newly appointed President Renée James said: “In addition to Intel’s traditional areas of strength, increased integration will be Intel’s future and we plan to leave no computing opportunity unserved”.
Intel’s CEO said the company needs to catch up with the ultra-fast pace of mobile growth by delivering new products. The company also plans to have chips in sub-$100 devices and ship more than 40 million tablet chips in 2014.
Given the fact that the mobile chip market is dom
inated by ARM, Intel plans to be serious contender with next year’s release of Atom chips for smartphones and tablets. A line-up of new products is already announced as Intel pursues its goal of boosting mobile chip graphics performance by 15 times by 2016.
“Intel is not giving up on mobile. It is trying to bring its advanced product phasing to the new competitive landscape, which has earned it the top position in the PC component industry.” – said Sood, author of “Move Beyond the Traditional Supply Chains: The 5-STAR Business Network”.
Intel has long been the model of Innovation. In particular, its famous tick-tock product development strategy has been hailed as a case study for learning how to balance the current product profitability with the pipeline of future products. For example, when I was researching an appropriate public domain case study for my book The 5-STAR Business Network I could not find a better example of Advanaced Product Phasing (APP) than Intel. At that time I wrote in the book:
Gordon Moore, Intel’s founder, predicted that the number of transistors on a chip would double every two years. Moore’s law was put in practice for many years and it ultimately led to Intel’s tick tock strategy. Intel’s ‘Tick Tock’ strategy was developed in 2007 and refers to the change in their processor technology. Each year, the ticks and tocks alternate, ticks refer to downsizing of the previous microarchitecture and tocks refers to new microarchitecture. During a tick cycle, new process technology is developed, which enhances the performance of previously produced microprocessors. A tock cycle consists of an entirely new processor or product. Many say that this rhythm of development sets Intel apart from other companies, as having a fixed timeline allows the business to produce products at pre determined intervals, and yet manage the product profitability carefully. ‘Intel has successfully alternated and delivered the next generation of silicon technology as well as new processor microarchitecture year after year’ (podtech.net). —
— Overall, Intel appears to be doing the impossible: investing in new technology while simultaneously maintaining and investing in their existing product line-up developments. This system creates a pipeline of continuously flowing products, which are both innovative and sold in large volume, making Intel one of the most successful Fortune 500 companies while producing the largest amount of microprocessors in the world.
Intel managed its transition from a manufacturer of memory to micro-processors admirably. During the transition from memory to microprocessors, Intel’s number one concern was becoming the best microprocessor company. Former CEO Andy Grove created a system called Strategic Long Range Planning. Essentially, this strategic framework allowed Grove to do things his way. ‘I became very distinctive in prescribing the strategic direction from the top down. This defined the strategy for all of the groups, and it provided a strategic framework for different groups at different levels of management.’ (Grove as quoted on aomonline.org)
However, the next transition – to mobile processors is proving to be far more challenging. To start with, Apple is not as easy a customer as IBM was for PCs. Samsung produces its own processors. Other players in smartphone market are too small to give any economies of scale in large scale manufacturing.
While quaterly profits do not tell a full story, Intel has just annouced the second quarter in a row where its profit fell more than 25% – this report in Wall Street Journal carries the full story. In its press release Intel said:
“Amidst market softness, Intel performed well in the first quarter and I’m excited about what lies ahead for the company,” said Paul Otellini, Intel president and CEO. “We shipped our next generation PC microprocessors, introduced a new family of products for micro-servers and will ship our new tablet and smartphone microprocessors this quarter. We are working with our customers to introduce innovative new products across multiple operating systems. The transition to 14nm technology this year will significantly increase the value provided by Intel architecture and process technology for our customers and in the marketplace.”
No doubt, the continued softening of the PC market is not only hurting HP and Dell, but also partly responsible for what is happening at Intel. The key question is that while Intel is extremely good at Advanced Product Phasing (APP), is it capable of proving itself adept at Fire-Aim-Ready (FAR) Innovation? Without innovation, and creation of new product for where the market is moving too – cloud based mobile gadgets, Intel is likely to continue to lose ground.
What should Intel do in this scenario? Make a deal with Apple at any cost? Invent its own mobile gadgets? Help create an equivalent of Dell for the mobile market? What else? You comments are welcome below:
iPhone 6 has not been released yet and the crowd that likes to call itself THE INNOVATORS is waiting with bated breaths to again stand in queues for whole nights for the next re-incarnation of the great innovation.
Here is the challenge for this crowd – and a thought experiment for the rest of us.
Why not design and build your own iPhone 7, or at least a phone that rivals the features and functionality of one?
You might imagine that is impossible – but the facts speak otherwise. In fact, we will talk later in this post about a man who has actually done something of that nature.
Afterall, the chipset, the screen, the key componentry – even the assembly service can all be sourced from third parties. A rival operating system can do pretty much what the iOS does. And, the best news of all is that the sum total of all the parts and services add up to far less than what it costs to buy one. Of course, it is not as easy as I make it sound – there is a question of minimum volumes, inventory management, marketing, selling and supply chain management.
But, as I explain in my forthcoming book 5-STAR BUSINESS NETWORKS, even these services can be modularized and outsourced.
Who is already doing this?
Sammy Ohev-Zion, the Chief Executive Officer of Bluproducts is in news this week. In the article titled Meet the tiny, Florida-based phone maker that thinks it can beat Samsung, by David Pierce, his story is covered in quite a lot of detail. The article quotes Sammy as follows:
Ohev-Zion told me, “for a startup company to be able to manufacture — if you weren’t one of these billion-dollar companies you didn’t have the access or the technologies to make your own mobile devices.” But that’s all changed, and Ohev-Zion found that he could build a good phone for the same price as the other guys, and sell it for a lot less. He used his connections to get Blu phones in stock at Amazon, Newegg, Best Buy, and others, and began rolling out newer, better phones at a blistering pace. He believes, and says without a moment of hesitation, that Blu is going to be a real player in the smartphone industry sooner rather than later.
If it costs no more than $299 to make a phone of equivalent quality and features, where does it leave the big mobile phone manufacturers when smaller, nimble players such as Bluproducts start creating and using their 5-STAR Business Networks to bring better products to the markets faster and cheaper. The article goes on to quote the features vs. price comparison as below:
Ohev-Zion, CEO of Blu Products, a relatively unknown manufacturer based in Miami, Florida, says it would cost $299. That’s how much the company’s latest flagship phone, the Blu Life One, will cost unlocked from Amazon or a handful of other retailers when it’s available at the end of April. It’s a 5-inch HD phone with a 13-megapixel camera and stock Android 4.2 (save for a Blu wallpaper), in a thin and light body that appears to hold its own next to the Galaxy and Droid devices of the world.
And the reasons for the price differences you ask? Well as per the article it is all in the marketing budgets and corporate headquarters costs of the big guys (which sound at least partly true). I am sure as a reader you will have your own opinion on that – which you can share below.
But a bigger question to reflect on is this – are we likely to see someone come along and do to mobile phone equipment market what we saw Michael Dell do to the PC market?
When will be able to buy customized hand-sets – with just the right combination of hardware components and features to suit our particular needs? Seems like that day is not far off!