Few Strategy Mistakes Companies Make

When I checked the sales of Maruti Suzuki Kizashi and Grand Vitara I knew that some thing is definitely wrong. Since last 6 months a total of 5 MS Grand Vitara has been sold. Kizashi has been selling 1 or 2 each month for last 4 months.  Although these products have good specification but they are hardly successful. Why? Consumers expect a different value (low cost) from the Brand that Maruti Suzuki has created. However positioning the products in a premium segment created a confusion for the consumer. The obvious reaction is low sales. This tells that strategy is an important ingredient for the business which defines what activities are required for a successful business execution.

Every business operates in an ecosystem and here are few things to watch which can influence a business profit.

Relying on one supplier or partner

A renowned mobile company entirely focused on a multi-core chipset product from a semiconductor company for for years and could not come up with a quality product due to a number of issues in the chipset software. Message is obvious. Always look for multiple suppliers or partners to mitigate risks arising out of deliverable from them.

Too much focus on one customer and ignoring other potential high value customers

A global semiconductor company focused too much on a Mobile company to sell its smartphone chipset. It did not consider other upcoming customers or did not consider other markets to explore. Due to inherent issues in the Mobile company and stiff competition from Software Giants like Google and Apple, the Mobile Company lost a lot of market share. This reduced the volume order from the semiconductor company and eventually forced the company to close the smartphone business unit. Every company needs to assess the market periodically and should keep an eye on the growth potential of existing customers as well as that of rising players.

Lack of understanding of market and customer

Mahindra & Mahindra Auto clearly identified that Indian consumers can pay more if the quality is good. M&M XUV 500 is successful because it adapted a fresh look and urban design  to attract the consumers. They particularly like the aggressive outer body and comfortable interior at a reasonable price. TATA who was once a leader in this segment is not able to compete with its Safari product since the Safari still has an old fashioned look. What TATA needs is to build a product that has a new age look and doesn't have the niggles of old product.

Unable to identify what is urgent and what is important

Companies argue a lot on how the product needs to be made but forget to identify what is the need of the hour. A company in India sells smartphones. During the development of the product it identified a flaw when a game application is active the battery is draining at a higher rate than expected. However the launch date is in the corner. The company should prioritize the launch and focus on fixing the issue through software update. Many a times companies focus too much on fixing trivial issues. Every requirement should have a business value proposition. For example if a specific issue is fixed how much revenue loss will it save should decide the priority. If it is not correctly identified then the internal divisions often loose focus on what is important and what is not.

Relying on one product and ignoring the ageing process

Products mature and eventually become commodity. The companies should always identify the life time of the product and should take business decisions based on that. For example display technology has shifted from CRT to LCD and now to LED back lit. If a CRT product company has adopted the new technology it will sustain in the market. Kodak struggled financially in the late 1990s due to decline in sales of photographic film and its slowness in transitioning to digital photography. Last year it filed for bankruptcy. It sold its patent portfolio to other businesses.

Lack of understanding in holistic approach of product delivery

When competition is high the competitors will do anything to steal the order. It is important to build a relationship with the customer. In holistic approach it needs to be identified how the customer uses the product and how it needs to fit the purpose of the customer. For example A company delivers cakes online and has an expert chef. However some customers want to gift wrap it and also want a special message to be printed on top. Hence to offer better service the company should also invest and add these necessary activities into the its operating process. Inability to do so will attract competitors identifying the gap and bridging it.

Ignoring employee welfare 

Some times companies focus too much on customers and forget the employees. The managers chase developers for meeting customer delivery deadlines and penalize them for not meeting it. It makes the working environment extremely stressful. Eventually it leads to degrade of moral values and ethics in the company thereby decreasing productivity. Although the competition is cut throat the business should always create processes to handle delays and forecasts. For example during planning clear risks and capability of delivering must be identified and should be agreed with all stakeholders. In fact the most important message is businesses should know where to trade off and the reason behind it. Otherwise the business itself doesn't become sustainable in the long run.

Lack of understanding about skill set requirement

Many a times companies do not understand the right skill set required to do the job. For instance a company in India sells DVD player by assembling imported components. However it doesn't know how to enhance the quality of Audio, video through electronic design. Hence it can't compete eventually with companies like Samsung, LG who have good expertise in that domain. What the company needs is to build expertise in the area of Audio and Video to sustain. The assembling expertise is simply not enough. 

Lack of understanding of operating practice

Internal organizations within a company should create an operating practice which works. Absence of it creates a lot of confusion in execution. For instance A company in India sells customized POS terminals for each Customer. To build and customize a number of activities are performed including talking to customer for getting requirement, customization in the software, communication with the factory for production. Sometimes the marketing division off loads certain product showcasing work to engineering division and focus on another customer. In this approach the engineering division many a times misses to capture critical requirements of the customer as by nature this division is focused to deliver not to foresee the hidden opportunities. Eventually the company faces lot of difficulty to compete as the competitors cleverly capture all future requirements and become ahead in the market.

I will talk about few important aspects of strategy in detail in my next post.

The Mighty Apple

'Apple' has become a common consumer brand here. According to the report by CNBC more than 50% household in United States own at least one Apple product. What a penetration!

When I look at 5 years back almost everyone in my friend circle said, "Apple is a niche product. It sells its products at a higher price band. Who would buy Apple if already devices are available at more than 50% cheaper rates". People also speculated that Apple can't grow beyond a few percentage of the entire market. So what happened? Apple sold 35 million phones last quarter (Q1 2012). More precisely Apple is the 3rd largest Mobile Phone maker in the world according to IDC. Find the detailed report here.

Some say that Apple does a good marketing. But then why can't others? Well I agree that marketing is essential however there is more towards product making. Here are some of my points.

A wow product
Every product company says that they must make a wow product. Apple told them how to make it. Falling prices of semiconductor memories suddenly made MP3 players affordable. The market saw a surge of large number of mp3/ mp4 players available at affordable rates. Apple entered the market with iPod. Sold it at a very high price. However the iPod had a hard disk of much higher capacity in 50GB range (now at 160GB!). The iPod also had a very unique touch based circular wheel input as well as a very fast UI. One can scroll songs nicely by making a circular gesture.

People liked it because of iTunes (simple way of purchasing and transferring music), unique interface (circular), fast music scroll (powerful hardware).

If you closely look at it, to make such a product a very careful hardware and software design needs to be done which can fully utilize the hardware response as well as tune the UI effects seamlessly. The processor needs to be chosen suitably.

The point is Apple never compromised on design be it hardware or software when offering the end use case scenario. It includes choosing the right Processor, memory configuration, Graphics hardware, software stack. All are rightly placed to get fast user interaction and fluid style user interface (magical touch).

Since then iPod has undergone several phases (iPod classic, iPod Nano, iPod Touch etc). Apple also positioned each iPod into a different category and marketed them well.

iPod Classic - High data intensive user
iPod Nano    - For Joggers and Travelers  (Any generation)
iPod Touch  - For Gamer (Younger generation mostly)

The Best iPod is the iPhone.

The iPhone
Apple was never interested to make a device for common man at a very low cost. Instead they chose a product which does things in a simpler manner and whatever it does, it does them with the best performance. When first generation iPhone was launched in 2007 almost every mobile phone felt slow compared to it. Why? Because the processor was rightly chosen with a CPU frequency higher than other Mobiles' and it had one of the most powerful graphics hardware available at that point in time.

No Fragmentation across iPad, iPhone, iPod Touch
Apple never fragmented its platform by venturing into Low cost hardware, different screen resolution, multiple form factor products (slide screen, flip etc.). Absence of fragmentation makes designing the software extremely well. The API offering is good due to single product platform portfolio and guaranteed response time  of the Applications which the competitors could not match.

So in reality Apple attracted the developers.

Ecosystem (App Store, iTunes)
Developers always wanted things simple and wanted many ways to handle the devices
e.g. getting the device GPS position, getting current device 3D state in space
a good Development environment, a good developer support system etc.

and more precisely a good way to make money

The App Store gave them all. Apple made sure that the developers make money by launching their Apps in the Apple App store. In principle Apple also made a huge profit out of it by splitting the revenue with the developers.

Small companies made a fortune out of it (e.g. Rovio/ Angry Birds). They liked Apple and continued developing their Apps for Apple products.

At the same time Nokia/Symbian and Java developers also moved towards Apple by seeing slower growth in the respective products.

It was a cycle basically.

Apple always made sure that API offering is consistent across its device portfolio and that made the App design easier and also consistency across products like iPad, iPhone and iPod Touch.

This strategy internally made sure that the App developer has a higher reach across different segments thereby increasing profit and also it offered customers a seamless experience across multiple usage points. Customers felt they are interacting with same device be it their iPods or iMac. This reduced their paint points of sharing digital contents across devices they own. Credit goes to iTunes and iCloud.

Reduced pain points means customer delight and more device purchase.

Apple has now created a massive ecosystem.

In addition to is due to its standard connector across multiple devices it has a number of hardware accessories available viz. car accessories, music docks, backup battery dock, blood pressure docks, radar detection systems, heart rate monitor, Sports kit with Nike Shoes etc. This has delivered the customers an integrated user experience at multiple points of their lifestyle. 


A Standard connector facilitates wide reach of product portfolio (iPad, iPod, iPhone etc) and ensures that the manufactures sell them profitably by investing once on development and selling for multiple devices.


Unfortunately its competitors could almost never made their interfaces standard across their devices portfolio in older days. However now a lot of competitors are also adapting the same strategy using USB interface.

According to a recent report Apple has almost 73% of industry profit share while having 8% market share.

Apple taught the world how a large ecosystem drives more profit.


The next challenge for Apple to penetrate its brand across developing markets. In china Apple already has grabbed a large portion of Smart phone market share.

Can they do it for other markets as well? Lets wait and watch.

Smart Phone Worldwide Market Share

Following my previous post I got a feeling that a Smart Phone Market Share analysis would provide a clear picture.

Here it is. 2012 figure only consists of the Q1 results.

It can be seen how Apple and Samsung have grown almost a whopping 300% and 900% respectively between 2008 to 2012.




Source

The Nokia Story

The story needs no introduction about Nokia as a consumer brand. However when I saw the latest quarterly financial report of Nokia I was not at all surprised. The point is the market share is declining as well as the profit. One would assume it all happening because of Apple and Android OEMs. I feel there is more to it.

The story goes back in 2007 when Nokia had the highest market share in Mobile phone segment. It had a variety of devices to offer.

• clam shell (flip phones)
• sliding 
• phone with many degrees of freedom (N93 remember?)
• candy bar phones
• Symbian phones with multitasking ability
• S40 phones with low cost

It was a large company. It had to manage multiple platforms with many form factors. It used to license Symbian OS from Symbian Ltd. which was owned by multiple handset vendors [Nokia (>50%), Samsung, sony ericsson etc (<50%)].

Backward Integration

Nokia wanted to strengthen its focus on Smartphone and acquired Symbian. Nokia also acquired QT (Trolltech) which was doing UI development in a platform agnostic way. Nokia wanted to integrate Maps and navigation into the devices and acquired Navteq.

Nokia made a strategy to build devices with multiple platforms but with a common UI (QT).

However Nokia was not sure that it was dealing with too much complexity. Due to multi platform strategy and supporting a large type of devices Symbian software code became terribly complex.  Making a product out of Symbian OS + S60 UI layer of Nokia was arduous.

QT Apps

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QT

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S60 UI 

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Symbian OS

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Hardware Variation

A comparison internally made revealed that Symbian had almost 10 times code size as compared to Android! Lots of developers complained about the API inconsistency and Usage style. (Blame it on different CPU speed and screen size of Nokia phones!)

I was very much a part of Nokia then and witnessed humongous effort spent on sanitizing the bugs and also interfacing with the 3rd party Applications.

Every developer can understand what happens when you have too many layers and the processing power is low.

Decision making and execution was slow due to complex organisation structure leading to accountability vacuum. Making a phone was a great pain. 

Meego

Nokia also was doing Maemo (Linux variant) development to offer PC like computing on mobile devices. Plan was also there to put QT on top of it. Nokia also partnered with Intel's Moblin platform and created Meego!

However the execution was slow. Even if the products were well appreciated (N800, N9) they could not compete with the Apples and Androids due to small no. of 3rd party  applications availability and more precisely a small ecosystem.

Nokia event tried to make NetBook. Not sure if anybody remembers Nokia's Booklet.

The solution strategy

Nokia also came up with OVI store for the developers to launch Applications. Nokia tried to venture into other products like Ovi Music, Ovi Share etc. However they were badly managed. It took a long time to get Single Sign on working seamlessly. Mostly they didn't work. 

People were used to Google products then and telling them a different story was too naive to convince them to use OVI products.

Recently Nokia has announced to discontinue OVI branding. You can read it here.

Playing with APIs

API (Application Programming Interface) is very important to develop Applications. Nokia had a large set to varying APIs to attract developers.

• Java
• Symbian C++
• QT
• Posix
• flash
• java script

Maintaining each API adds to new set of complexity. What really developers wanted is a simple API which could work with all set of phones. Note that even Android can suffer from this issue due to large form factor variation of hardware. For instance HTC wildfire is too slow to run and can't run many Android Apps which run smoothly in HTC One S.

However Apple doesn't suffer from this due to one platform strategy.

The point here is due to simplicity nature of APIs a lots of developers migrated to Apple and Android resulting a smaller Symbian - Nokia ecosystem and larger Apple/ Android ecosystem.

Less Apps means Less Handset future usage. Customers didn't like this.

Nokia continually lost market share from 2008 till date.

People liked N8 but they liked Samsung galaxy more and iPhone even more.

Hardware Story

After 2007 several hardware vendors evolved and came up with great platforms. viz. Qualcomm and Nvidia. Nokia didn't make any single device with them even if they were having power packed performances. However Nokia wanted to launch multi-core platform on Symbian partnering with ST-Ericsson. Nokia invested a large chunk developing SMP enabled Symbian OS and UI layers however failed to launch any products in time. When every other player launched muti-core products Nokia had none to offer. Customers were disappointed.

The Comeback Strategy

Nokia hired a new CEO Stephen Elop in 2010 and decided to cut down the fat. Since then the company is under major restructuring including selling Symbian Unit to Accenture. It Partnered with Microsoft to use Windows Phone OS for the future smart phone devices. S40 is still alive catering to low cost devices and is getting better browser updates to penetrate mass consumers. 

The recent launches N800, N900 are quite appreciated in the market. The struggle continues to regain the lost market share.

The struggle story teaches a lot of lesson on Product making. Watch for my forthcoming post on Apple.

Image Source

Update:
The Smart Phone Market Share figure is found here.

Part 3: Understand Your Customer

In my previous blog I have talked about how the organisation layout is followed in most Product Startups. Often a lot of Product Startups dive into product making and forget the essence of market knowledge. This doesn't mean that the company should focus only on those requirements that are coming from the market. Sometimes there are some unexplored areas.

Lets closely look at the Product itself. It is basically a combination of Software and Hardware if we consider Information Technology based Business. During initial days companies generally focus on product making only. This involves designing the software and hardware and manufacturing it. Initially the requirements on which the Product is made is derived from the potential customers or market opportunity as seen by the founders. Once the product is made with the limited set of requirements it is marketed to potential customers. This is the time when ground realities hit.

I wanted chocolate in a Nice Box but you are selling it in a polythene

Often the engineering team focuses on making the software and hardware the most reliable. However is it desired. If one closely look at any software product, there are certain parameters that define quality. They are,

- Reliability (No issue on long run)

- Robustness  (No issue on bad input)

- Efficiency   (Fast and optimized)

- Maintainable

It is often very hard to follow all the parameters. Often engineering teams use all there energy to focus on increasing quality of the Product. But is it necessary at all ?

Here is the real case study of a Consumer Product Company X. When the marketing team comes up with the proposal to make a product, the Engineering team decides that it must make the software so secure that no one can crack it. However that makes it a tight product and enforces the Customer to use it in a special way. On the other hand market research reveals that similar product is already available in the open market and that has no protection. The company X marketing wants to simply sell the Product to promote it across variety of Customer spread across different regions.

There is a gap here between Engineering and Marketing teams of Company X.

The Company X must understand what is the purpose and what must be offered. In this case the marketing simply wants to promote and hence the focus should be on Branding and Communicating with the Customers. Investing on secure software offers no advantage over the competitor's product since the customers of Company X can get the unsecured Products in open market anyways and with simpler usability. Customers want this Product because they want to start a healthy Business relationship with the Company X not to buy a secure product with tighter control on usability. Basically they don't want security. They simply want the product to work. That's all. Sometimes it is not very intuitive but true.

The message is plain and simple, make the one that sells.

Part 2: Organization Layout and Conflicts

Yes it is important to manage people otherwise be ready for a disaster. It is always about "people factory" as Jack Welch says. Unless right kind of people are at the Job it is difficult to gain success. This is tackled by laying out a clear roles and responsibility structure in the company.

There could be deviations in org structure of startups with varied product areas. However most technology startups have similar role distributions. A typical organisation structure looks like this.

Although some roles overlap with each other during initial days, they become more and more important once company runs in its full pace.

One of the most important aspect is the way the organisation functions. It is essential for a startup in its initial days to be extremely agile since it needs to learn the way to make a successful product. That means having clarity in communication and taking leadership in problem solving inside the entire org. However once the startup forms a good base of customers and starts selling products sometimes these values dilute. 

There are times when the org goes through conflicts. The most observed ones are

• among developers
• between marketing and engineering

The senior developers generally play roles of architects/ designers. Due to the layered structure of software (assuming software products area) there tend to be multiple designers who possess conflict of opinion. The negative impact of this results a poor quality of software. Often it is ignored by the management who tends to incline towards few senior developers who has joined the company during initial days and hence get more respect. However the management is unaware of the situation that is building due to tension among the developers. Unless the problem is solved the quality is degraded.

It is the onus of the CTO or the VP engineering to identify and understand such issues and promptly address it. Often a good practice is to set up a process guideline for engineering development and ensure that it is followed religiously. An example is making a software design review with review guidelines. This ensures that the design is done correctly and also undesirable clash doesn't happen between the developer and the reviewer (generally a senior architect); thereby ensuring the quality.

There are also conflicts of interest between the Marketing and Engineering org. Very often the Marketing org functions in a sales driven way and the Engineering org functions in a optimized development (lazy but efficient; there is a point I'll clarify in another blog why I chose this). Sometimes optimized development hinders the sales demands. For instance the sales would require the product to implement a feature. However the Engineering is not ready to do that as it leads to improper hack or improper customization or poor maintainability which is difficult to comprehend for the Sales org.

This is classical problem but there is a solution to it. The respective heads must have the mandate to manage product. Product Management means making as well as selling the products profitably. Often there exists a product management org separately. The crux is there should be an effort to find out the cost vs profit of product features. Essentially a profitable (which could be a short or a long term benefit) feature is what a product needs. Hence it should serve as a guideline for prioritizing its development.

There are a lot of unanswered questions here. How to handle feature requirements etc. The upcoming post mentions them.

Challenges of Running a Technology Startup

      My Colleague says, "Hey, the company is not performing well. You know, the employee satisfaction is very bad". When I heard this it sounds like some familiar words. Oh, I've heard the same in my previous three companies! Welcome to the Indian IT company. I just woke up in the morning and said to myself that how challenging would it be to run a company. It is damn difficult. All the previous three companies I've worked with are very well known globally for world class products. So what has gone wrong here. Another thought was slamming the door and it says it would be even more difficult to run a Startup. Although some of the problems faced by Startup may be unique in nature I would focus here more on a Tech Startup and some common problems faced by them.

      Okay. Lets talk about some facts here. Typically a Startup is based on an Idea. An Idea is the soul of the Startup which leads to a number of activities. Generally some folks sit together and formulate a business plan. This includes,

- product concept ( concrete shape of idea )

- revenue model

- engineering process (hardware and software development)

- customer base identification

- marketing strategy

- operation strategy (recruitment, management structure)

- expense analysis (salary, real estate, licensing etc)

- competitive landscape (risks etc)

- some more stuffs like SWOT analysis etc (strength-weakness-opportunity-threat)

and the most important "how much money can be made if the plan is followed".

      Once the plan is made, they look for arranging the finance. Either it is from their own pocket or they look for an Investor who can fund. This some times goes tricky. Some times to convince the Investors they make some early prototypes. Once the money is arranged, the Startup is formed. Many a times it starts from a garage (or from a modest real estate not from a plush office) where few folks who are mostly tech savvy start developing a software in their personal laptops. However making a hardware based product requires little more professional touch. Here one also has to deal with the factory, shipping and arrange the reference boards which means talking to some Silicon vendors etc. Lets say so far so good.

      Now the marketing has signed some deals that means the company has to deliver the product by a date. The challenge starts here. The company starts recruiting people, renting a space, buying or renting few desktops or laptops, buying the hardware equipments, doing some legal stuffs like registration, finance specifics etc. Recruitment is once of the tough tasks. Every company expects to hire the best talent. However since it is a Startup the ball game is different. Typically recruitment is done through a recruitment agency or referrals. Since the first product is not made yet, the company tries recruiting people who have prior experience in a similar field. Some times they are paid 20-30% higher than the market. Some times even more! The catch here is, "how do you know who is the best resource". The most talented ones don't stay longer because they always keep looking for some better opportunities and the not-so-good ones have a low productivity. I feel that this is a classical problem which is been faced by most of the companies but probably they have to live with it. Many a times the companies try to keep a balance by having 20% skilled and 80% not so skilled but trainable. They also prefer freshers to lower the salary base. Freshers also have better enthusiasm to learn through experimenting which is beneficial to technology companies since they rely on innovation.

      Running a Startup has a lot of challenges. Only those companies win the battle who show courage of solving the problems.