August 8, 2013 | Written by: Andy Kim
If you reach back in history, there was a time when Korea was not a dominant player in global electronics. Yet, as we sit today, this compact Asian nation is truly a force to be reckoned with – a leader in the delivery of exciting and engaging new products and go-to-market approaches. Their industry leadership path followed 3 central principles:
a) vertical integration with steep internal competition and strategic supplier advantage
b) global first with the global integrated operation
c) cultural advantage with aggressive best practice adoption and “speed to market”
They made electronics better and faster than anyone else, and leveraged their global supply chain to present a market force. In examining what made them a force we find five lessons that others can examine and benchmark their approaches against:
1. Cultural fit:
– While in many parts of the world, collaboration is the watchword, sometimes “command and control” delivers competitive advantage. An effective copy- cat strategy enables rapid delivery. It also enables corrective actions quickly and seamlessly. As an example, the ability to reduce the weight or increase screen size can be rapidly delivered because the right focus can be placed on mission critical activities within days. This leads to delivery in weeks, not months.
– Intentionally duplicated project assignment for continuous competition among individuals up to the corporate organization can drive continuous best-efforts for survival at all levels. For instance, if three teams are working on tablets simultaneously, the pressure to be the best increases – as does the marketability and Bill-of-Materials controls for the end product. While this does result in clear winners and losers, the company gets the best.
2. Corporate Structure
– Independent P&Ls enable market competitiveness and maximize the profitable business growth. For example, a low-end laptop might not use the in-house components if it needs to hit a profit target. There are not subsidies, and teams need to be innovative without them.
– Aggressive compensation schemes (i.e. 50% of base salary is a fluctuating bonus.) are advantageous to retain talent in upturns and remain cost competitive in downturns.
3. HR is the control tower as the core front office
– Corporate owns and manages resources across functional areas with the proven track records. They lead with rigorous change management, including 360-degree reviews and evaluations. The right people are quickly placed into the right roles and expected to generate results, because they have proven successful along the path.
– In evaluation of executives, HR ensures that both innovation and P&L-related issues are reviewed at right levels to balance short-term growth and long-term preparation.
– Instead of being traditionally age-based in the corporate hierarchy they moved to a meritocracy environment. As a sample, the fast track in one company included high school graduates, females and foreigners – 30% were EVP level or above.)
4. Strategic Agility: Flexible and prompt response to the market
– 3 key enablers have driven success in smartphone business.
a) Be carrier-friendly: To encourage rapid handset adoption carrier specific hardware, solutions and even in business models are available. Exploring new retail set-ups and content give-aways allow differentiation for the carrier and the device. This means both the manufacturer and the retailer have skin in the game.
b) Preempt the demand: When you create a rich and highly competitive portfolio, you also have the ability to offer the broadest assortment. With the most frequent and broadest portfolio refresh with all sizes and shapes for all OS platform, each carrier can continuously offer their personal best. As strategic component supplier, they can control competitor volume ramp-up and fast response with earlier signal sensing.
c) Deep pockets drive outsized ad campaigns in 2012 but are coupled with large content team and strategic app developer support.
5. Aggressive adoption of best practices and talent acquisition beyond the electronics industry
– Marketing and brand management system can be borrowed – for instance from the branded experts in the consumer goods industry: Acquire the top marketing talents from the leading consumer companies to build and manage the brand equity
– CRM/Sales/Channel mgmt from the leading IT houses, technologies and methods
– Benchmark driven operation for constant improvement. (i.e. practice specific benchmarking becomes more important.)
Yet, Korea’s story has that aspect of any good tale – it shows struggles as well.
1. Some providers lack of aggressive leadership and brand vision: in this case, consensus management shows a lack of leading edge vision
2. Communication gap with foreign CXOs: While a company can operate globally, sourcing talent is a local game – and local talent can be marginalized when there’s a gap between those who lead and those who do.
3. Picking the wrong path, betting on legacy: As seen time and time again in the fast past electronics industry, placing bets with the currently leading technologies may cause a copany to ignore relevant emerging paths
4. Lack of differentiation beyond hardware: Those paths also extend beyond the device. Single features aren’t enough – no matter how powerful they may be.
Yet, it is possible to reclaim a strong position through
1. Back to basics: a marketing-driven company without R&D competiveness is not sustainable. Step one is the reprioritization of investment from marketing to R&D.
2. Back to the internal proven talents: No more foreign executives and appreciation of internally grown-up talents.
3. Tightening prevalent and expanding relationships: Given the support of Google, it is possible to take on entrenched players by using platforms for differentiation.
4. Subsidize business with broader CE portfolio: A solid broad portfolio can fund struggling businesses for a short time to “right the ship.”
5. Focus on perceived value – offering more value at a lower price can gain market share, but it can also be a slippery slope to commoditization. Using entries at multiple price points with clear positioning can help create new beach-heads.
Yet, as we sit here in 2013, we need to consider each company and country in the context of the broader electronics market:
– No company in electronics industry enjoyed their leadership position longer than a decade without significant innovation.
– “Copy cat” strategies may not deliver a sustained industry leadership position.
– “Cultural fit” to the hardware manufacturing business may not be true in the software-driven new era. While it is still too early to judge the effectiveness of their efforts in new areas, it is necessary to plan on how to catch up and compete in the new grounds of innovation.
– Beyond the box play: Differentiation in content and building the own controlled service platform still remains as the key challenges.
– Disruptive Business Models: Betting on service platforms business to change the game is a solid approach. However, a strong culture in one discipline – such as hardware must rapidly and effectively be parlayed into service-driven businesses.
– Service Capability: Ecosystem competitiveness and operational efficiency is critical to the successful transformation into service business. Knowledge protection vs. operational efficiency through partners has risks.
– Channel Integration: Channel control via refinements locally that can be, deployed globally can lock-in partners, but it must be followed by a continuously profit-creating pipeline of new products. The old systems must be updated and conbined with new eCommerce and other approaches. Responsiveness and balance are needed in a marketplace that is increasingly online.
While Korea still enjoys its advantages, you can bet they are still focused on innovation across business, commercial and operating models. The “copy cat” strategies that carried these giants into the new era of electronics may not be so effective in sustaining their industry leadership position. Embracing these recommendations in total has carried them successful this far but whether these advantages will be true in the software-driven new era is unclear. What is clear though is that the next evolution for these giants will be toward not only device-driven innovation, but creation of new customer experiences delivered through software.
Want to know more about the Software Defined Supply Chain? Check out why it matters here. We’ve also talked about business model innovation recently here