Have finally got around to moving to an updated backend/infra database. Will be posting all my subsequent blog posts from here. Have titled this as Travelling on the Silicon Road - Part 2. I plan to write more on management and strategy issues with specific insights to the semiconductor world in this blog.
Read an interesting article, “Capture more value” by Stefan Michel in the latest HBR issue (October 2014). The article talks about how companies while putting in efforts in value creation often lose focus on value capture, thus leaving money on the table. It describes 5 different innovation categories in value capture – Changing the price setting mechanism, changing the payer, changing the price carrier, and lastly changing the segment.
Most of us in the semiconductor industry would confess to be “techno snobbish “. Working at leading edge technologies and in the scaling race, we often miss out the salient point – customers want technology benefits and not technology per se. While we are steadily moving towards treating the hardware chips and systems as modes for creating value and not just solely numbers in nanometres, we have a long way to go in exploring various possible and often innovative ways on how we can optimally leverage the value we create. Value capture is sadly under prioritized.
Let me take a few examples on some varying stages of value capture in this industry…..
Capturing value by changing the price setting mechanism:
The idea is to set the price according to the product’s value or worth to the customer. Memory (DRAM and NAND Flash) pricing is a good example here.
Changing the price carrier:
Price carrier is what the seller is hanging the price tag on. Semiconductor IPs is a good example here. IP vendors have evolved their IP strategies from treating IPs as fillers for differentiating hardware sockets in a system towards ensuring that the IP works not just as an isolated unit but also in the complete system. It subsequently evolved towards IP plus services and then is moving towards offering the customer a complete IP (hardware, services, software) platform solution. The price tag has moved from the die space to differentiating value provided to the customer and then the complete valued package. Bundling and unbundling of various EDA licenses is another example where the EDA company is changing the price carrier.
Changing the payer:
It may not always be the case that it is only the consumer of the product/offering who pays for the value he receives. Like in some media where content is offered free to the public, the costs are shared by the advertisers. An example I see here is that of Qualcomm’s push to the China fabless design houses to design using its cores. Am not sure of the veracity of this but understand that in China, Qualcomm recovers its IP royalty not from the design houses there but from the system houses which use the design solution (with the Qualcomm core) from these local design houses.
One of the potential big biz for us is in the Internet of Things….. and it is especially in this space that the semiconductor industry needs to think hard and differently from its traditional value innovation and capture strategy - if it doesn’t want to be left out with just a fraction of the pie. I will do a separate post on this shortly.
Do you see other examples of value capture in your industry? What is your opinion on this? Would be keen to hear your ideas and perspective on this.
Anticipating customer requirements – often implicit – and identifying technology trends early in the product or technology development cycle in order to have a sustained revenue growth is crucial for any high technology industry. It is more so in the semiconductor industry which has its own economic cycles (typically 4 years of crests and troughs), high costs and technological complexities. Throw in the uncertain macroeconomic conditions coupled with increasingly dynamic and uncertainty in gauging market needs, shortening market window availability and the spiralling costs of trying to stay on the leading edge. And what does one have – a highly challenged R&D team with limited resources and the pressure to stay perched, if not ahead, on the curve.
And this is where R&D Efficiency gets all the more critical.
R&D Efficiency is the Return on the R&D investment, a tangible measure of what an entity gets for the number of R&D dollars invested.
Traditionally, the R&D team’s objectives are set along with inputs from the Biz and Technology Strategy group, Marketing & Sales group and sometimes the Field Application groups (usually a highly under leveraged asset) – and being aligned with the company’s top level vision and objective and with the available resources. Once handed down with the R&D mandate, the various R&D teams get onto what they have been trained to do best – R&D. And these mostly get done in silos with not much of active bridges of communication, let alone brain storming, between each other.
In my last post, Mining the seams, I mentioned about facilitating R&D folks to be market savvy – not to turn them into marketers but to facilitate in aligning R&D investments with market needs and achieve R&D efficiency. Having recognized that an issue exists is the first step. Making the necessary steps for the transformation follows. And this is especially catalyzed when all indicators point that maintaining the status-quo will be more dangerous than venturing into unknown.
Quite often even the well intentioned initiatives get watered down during the implementation or transformation phase. A new design flow, a more efficient way of mapping the customer requirements into your product/technology roadmap, moving into adjacencies, hedging R&D bets etc. are often “lost in translation”.
I revisited an old HBR article recently which throws light on how one can lead a sustainable transformation in an organization. It is titled, “Leading Change: why transformation fails” by John P. Kotter.
It lists 8 steps in transforming your organization:
• Establishing a sense of urgency
• Forming a powerful guiding coalition
• Creating a vision
• Communicating a vision
• Empowering others to act on the vision
• Planning for and creating short-term wins
• Consolidating improvements and producing still more change
• Institutionalizing new approaches
It is a very interesting and informative piece and would serve us well to keep in mind while transforming to increase our entity’s R&D efficiency.
This was the phrase that actually caught my attention in an informative article, “Decision making Marketing” in the HBR July-Aug ‘14 issue.
The main problem in decision making referred to in the article is the communication falling through across the different silos in an organization thus impeding effective decision making. Challenges include divergent assumptions, lack of alignment and shared commitment across the organization structures - amongst others. Reorganizing the structure/reporting doesn’t often address this completely. Sometimes it just creates more or different silos and the challenge remains unaddressed. Mining the seams helps address this by working closely across functions, avoiding organization bottlenecks and getting work done quicker and more efficiently than in the past. While the article mainly talks about the challenges involved in decision making for marketers when they need to communicate across domains of product development, sales, finance etc., the same is true for any other function too.
Here are my thoughts mapping this to the various spaces I worked in …Am keeping mining the seams as central (rather than decision making) and I may be taking another interpretation and possibly an extension of the main theme from the article.
An IC development program requires close interaction between various functions – Marketing, Design, Manufacture, Planning, Packaging, Testing, IP, Finance, Legal etc. Islands of expertise in each can be found aplenty. However what are rare and very much needed are people who can effectively communicate across these seams for decisions made in various phases of the chip development affect others. A design decision taken in isolation from say packaging can result in a major chip gaffe.
Another example is the R&D functions in an organization. Going by Donald Stoke’s model, one can lean towards pure research (Bohr) or gravitate more towards the applications part (Edison) or find a central niche (Pasteur). For those in the latter two especially, we see a major need to mine the seams. R&D professionals need to align their research to the market requirements and move towards what can be termed – Technology substitution to Technology Epiphany. These means getting out of their labs and well……..mine the seams. Aligning market research to your innovation requirements, mapping the customer needs (explicit or implicit, existing or potential) to your R&D or technology road map needs effective communication across functions…mine the seams.
I regularly conduct training workshops for facilitating R&D folks to be market savvy – not to turn them into marketers but to facilitate in aligning R&D investments with market needs and achieve R&D efficiency. Absence of communication to communication falling through the seams is issues frequently observed.
The first step is to recognize the issue exists – it is surprising how many of us are in a state of denial. Strategies and tools are available to address the challenge.
One of the initiatives taken is to have cross functional teams to facilitate the communication flow. However in most places, these work on “passing the baton” theme rather than “playing the new new product development game” a concept proposed by Hirotaka Takeuchi and Ikurjiro Nonaka – “Stop running the relay race and take up rugby” – the ball gets passed back and forth within the team as it moves as a unit up the field.
Temporary teams set up for a project and disbanded on project completion is another way. The teams here owe their commitment to the project rather than solely to the departments they belong to. Requires tweaking the KPI and other performance markers but such dynamic structures have shown good results.
It pays to mine the seams!
On a recent flight to Penang (a biz trip and not a vacation!), I was thumbing through a special edition of HBR – Essential reads for Global leaders” and came across this interesting and old HBR article “What is Strategy?” by Michel Porter. While this was published in HBR Nov-Dec 1996 issue, it reflected so much of today’s biz world, especially the hot competition amongst the smart phone and now the tablet vendors that I wanted to share it here.
First the article outlines the difference between Operational Excellence (OE) and Strategy – something that is so often confused in today’s biz arena. OE means performing similar activities better than rivals. Strategy is the creation of a unique and a valuable position, involving a different set of activities. It is creating a fit among its activities. The essence of strategy is not just of what and how to do but very much of what NOT to do.
Some statements from the article, which resonate so well in today’s market of smart phones and tablets –
“Gradually managers have let operational effectiveness supplant strategy resulting into zero-sum competition, static or declining prices ad cost pressures”
Take the example of Mediatek. By providing a cheap reference design and a complete system, it became a game changer for the shanzhai market in China. However, this was more of an OE coupled with targeting the right market. With Spreadtrum making inroads in the same space at even more competitive prices, Mediatek is now losing ground to such rivals and is tweaking its strategy.
“Competitive convergence is one reason why OE is insufficient. As rivals imitate one another’s improvements in quality, cycle times, or supplier partnerships, strategies converge and competition becomes a series of races down identical paths that no one can win”
“Strategic fit among activities is fundamental. It is harder for a rival to match an array of interlocked activities than it is merely to match a process technology or replicate a set of product features” – Now is this not exactly what Apple is doing (user experience pervades all activities within the company. Everything Apple does just re-enforces this and it has a close end-to-end system to ensure this)? The others are following it with a “me-too” approach, which can provide an explosive growth for an interim but not last long.
On approaches to preserve growth and re-enforce strategy – “One approach is to look for extensions of the strategy that leverage the existing activity system”
I look at RIM and its foray into tablets with Playbook here. RIM’s strength with its Blackberry phones has been enterprise. Analysts attribute RIM’s decreasing influence to the growing trend of CIO’s decisions on smart devices to be used by the enterprise employees as being increasingly based on what the employee uses as a consumer – thus skewing it away from the enterprise world which had always been RIM’s strength and essential to its strategy.
But then look at it from another perspective. Tablets are not just being used as a general consumer product – for the consumer to be connected. It has a tremendous potential (and is already being used thus) for enterprise productivity. RIM needs to see how to connect or rather leverage on this fit and communicate the strategy better to the customers who value this enterprise productivity.