Dave Shen

The best preparation for managers to ‘a future war with the past’ is to develop a corporate culture where customers are considered in the decision-making process.    It seems obvious but it happens quite often.  Too much success for organizations can reduce the importance of the customer wants and needs while more attention is focused on the organization itself (company objectives and personal objectives)  – whether it’s acquiring more companies (builder-> imperialist), to developing research projects (pioneer –> escapist), to perfecting process (craftsman –> tinkerer), from decentralized to added bureaucracy (salesmen –> decoupling).  Jeff Bezos, in his message to Zappos employees (Amazon recently acquired Zappos for $900 million US) — was that if you focus on customers, mistakes are more forgiving.  Too often, companies lose sight of this — and as a result, they lose their customers.

Apple, lost in the PC war with Microsoft, focused their efforts in consumer electronics.  The lessons they learned from their experiences in the PC industry helped translate into their success in the iPod and iPhone products.   They were not first to market for both products — and the industries were highly competitive — but what they were able to offer was a simple and elegant user experience to digital music players and smartphones, leveraging their marketing, R&D, technology, and supply-chain prowess.   Microsoft, on the other hand, has unfortunately not figured this out yet (XBox is an exception) and because of their monopolistic practices in the PC industry, tried to apply a similar approach towards the media player (Zune) and smartphone product categories (Windows Mobile) but failed.  Microsoft’s arrogance towards product development and its failure to capture customers and Apple’s successes has resulted them to emulate similar practices… the challenge for Microsoft is that they were once agile and nimble but have become large and bureaucratic.    The product launch of Microsoft Windows Vista was a disaster — because they released a product which had too many bugs and it was slow and consumers looked for alternatives.

Keeping abreast of your competition, trends within the industry, understanding operations to reduce cost, getting to know your customer (feedback) are critical to challenge the status-quo, in order to create uneasiness and to combat complacency.  By doing so, companies have a greater chance in growing over the long-haul.

Because market conditions are dynamic and competitive, a firm needs to ensure that their corporate strategy is rooted in business strategies that produce sustainable competitive advantages. Companies that are especially in the early stages of growth of the firm should focus on a portfolio of businesses that can leverage, enhance, or create strategic assets which are important to long-term competitive advantages of diversification. It can be related if the firm has existing competencies that can be leveraged but there can be situations where a firm wants to enter a business that does not have all the assets to form the new business. Acquisition would be an example of unrelated diversification. Upon Steve Jobs return to Apple in 1997, Apple had primarily focused on the PC market. But he had realized that it could no longer win the “PC” business against Microsoft and conceded it to be lost — the focus of Apple was to focus its products to center around the consumer’s digital lifestyle — photos, video, music. In 2001, it had introduced the iPod — not the first MP3 player on the market but it was unique because it had an end-to-end ecosystem — where Apple controlled the entire user experience. The iPod business allowed Apple to leverage their marketing, user experience, technical, and industrial design competencies and using another corporation’s MP3 Player development experience (PortalPlayer) to develop new strategic assets support its new business strategy — and new life into Apple. Its success with the iPod has allowed them to diversify again into the smartphones business.

Firms need to exploit the three sources of competitive advantages: natural differences, scale economies, and scope economies in order to optimize efficiency, risk, and learning simultaneously. Although it has been discussed that labour costs may be lower in for certain countries and that may help configure the value chain, it is also an advantage for the MNC to have certain functions such as R&D to better understand the regional market’s customer needs. Their primary focus in R&D is hiring the best talent for research, not cost.  Although Microsoft’s main R&D facility is in Redmond, WA, they have 6 R&D facilities in 3 continents.    The largest lab outside is Microsoft Research Asia in Beijing, where 200 researchers are developing next-generation multimedia applications and Asia-specific computing technologies. Having R&D labs globally allows Microsoft to develop products that are unique to a particular market — but also acts a global think tank where there is mutual collaboration amongst the teams.

Firms should look to exploit scale economies by expanding its total volume of sales and reducing cost per unit.  Expanding the product into new markets increases volume and therefore enable to lower costs.  For example, Apple is able to purchase components such as NAND Flash drives at a fractional cost because of their large order requests.  The cost to develop to an MP3 player that is of similar experience will be lower than other rivals because they are able to take advantage of their economies of scale.  In certain cases, it may be prudent for a MNC to avoid increase complexity and outsource certain functions to suppliers in order possess operational flexibility.

Firms need to exploit scope economies as a source of competitive advantage i.e.knowledge, brands, functions, markets, suppliers, customers, channels, government– this can help reduce cost of developing new products and move the experience curve further down.  The mobile technology markets in Japan and South Korea are at at least five years ahead of the North American markets — firms in this space with presence in this regions could help develop new products by gaining thru the learnings and challenges faced.  Companies like Samsung and LG have leveraged their product development for the North American market.

Watching the New York Yankees play in when I live in Toronto, Canada is a bit difficult — since the Blue Jays get the obvious baseball coverage.  I had been looking at MLB.TV — not only do I get to watch the Yankees, I get to watch all games LIVE or previously recorded — all available with a click of a button.  For several years, MLB had been using Microsoft technology in their front-end — most recently with Silverlight… that is until this year, when they decided to use Flash to stream their content. With the help of the NexDef plug-in, I am able to watch all games in HD!  I was pleasantly surprised to get HD-quality over a Wi-Fi and broadband connection.  The NFL, NBA, and NHL need to take notice — last year, MLB.TV had 500,000 subscribers at $120 … They are going to attempt to grow/maintain those numbers in difficult economic conditions.

There is a report today that Microsoft and Verizon are in negotiations of developing a new mobile phone codename “Pink” — something completely different from Windows Mobile 6.5 or Windows Mobile 7.0.  It’s a recognition within Microsoft that Windows Mobile is not the next generation mobile OS — Apple Cocoa Touch, Google Android, Nokia Symbian, and the much-hyped Palm Pre OS.  I do sense a similar pattern in which they decided to develop their own media player in the Zune but it has been a disaster in terms of sales.  Attempting to copy a similar user experience from a competitor will not necessarily “switch” customers or entice folks who want the “real” deal (as evidenced by iPod 75% market share).

Microsoft has yet to figure out an online strategy and their mobile strategy has not generated the same revenue as they had received in OS licensing on the desktop. Somehow I figure Microsoft is going to keep trying until they get something right.