Tuesday, July 29, 2008

Another Mega Merger Fails

Today’s business headlines screams: Alcatel-Lucent chairman, CEO to resign

And I say – “Another one bites the dust”

Mega mergers often fail to deliver value. Ever since I started watching the M&A activity, Almost all the mega mergers have failed to deliver value for the shareholders and the deal makers – the CEO of the acquiring firm is always forced to resign when the merger fails to improve share holder value.

To understand this better, just look at the history of recent mega mergers:

Also see:

Monday, July 28, 2008

Product Management - Developing breakthrough products

How does companies such as Apple, P&G, Nokia, Ikea, Google, Tata Motors, Toyota etc., comeup with so many successful products? How do successful companies - GE, IBM, Microsoft, Cisco, Unilever, Intel, HP, etc., maintain their market supremacy?

The secret to success lies in their ability to spot market winners ahead of the competition. Spotting a market winner is not an art - but it is no science either.

In political leadership circles, there is a saying - "The best way for one to become a leader is to identify a bunch of people walking in a particular direction and then walk in front of them"

The same logic can be applied in the marketplace: Identify the market needs and provide them with a product that meets the need.

This idea sounds so simple, yet for most companies - it is very difficult to implement. It doesn't mean that the company leaders cannot identify the market needs. They surely can. But they cannot quantify the market opportunities - and thus spend endless cycles waiting, watching and trying to quantify the opportunity - even when the competition runs ahead.

For example, given the current high oil prices - customers are demanding lower cost transport options, yet leading car manufacturers: GM, Ford, Toyota, Volkswagen, Nissan-Renant are still pondering over electric cars. On the other hand, Tata Motors is working its way on two alternative cars: An electric car & an Air car.

In software arena too there are plenty of examples. IBM completely missed the ERP market opportunity to SAP; DEC lost the PC opportunity to IBM; SAP lost the CRM market opportunity to Siebel; Microsoft lost the Internet search engine business to Google.
Similarly, a decade ago, Toyota was able to speed past Chrysler, Ford & GM with its hybrid car technology. While the Big three decided to wait & watch. Now GM & Ford are desperately trying to play catch-up in the hybrid car market.

Also see: Toyota will beat GM to the plugin electric hybrid

Why do incumbents stumble so badly?
Managers at incumbent companies see the emerging opportunity - but are almost always constrained by the existing management policies, current product lines, current product priorities and above all, constrained by lack of verifiable data - to make the correct decisions on emerging technologies.

It is not that managers do not see the market trends - they do. But in large companies, all decisions are based on numerical data. In case of demands for new products, such data is hard to come by and in absence of such researched data, managers are forced not to make any decision - and instead they opt to wait and watch.

In addition to lack of market data, managers will have to justify their investment decision on new products based on the existing "hurdle" rate. The current hurdle rate used for investment decisions are based on the current business and current products, and it has no relevance for new business lines, yet company managers (& investors) insist on using the current hurdle rates. This prevents companies from investing in new product opportunities. For example, Digital Corp - which was the market leader in Mini computers had all the right components to succeed in the PC market: it had the technology; engineering expertise; and market knowledge, yet in the end the company made a decision not to enter the PC business - because any business which has less than 40% margins is not a business to be in.

How Can Product Managers Overcome this?

When it comes to new product introductions - Product managers should be the ones taking the lead and evangelizing the entire organization. That also puts the onus to prove that the new products are commercially viable - i.e., the new product meets or beats the current hurdle rate.

Not surprisingly, product managers often stumble at this challenge.

Since there are no solid numbers one can rely on, Product managers will have to be creative and have to come up with other means to promote & propagate the need for this new product. In my experience, I have used product Opportunity Gap model to evangelize new product introductions.

Product Opportunity Gap Model (POG)

Identification of the market opportunities is at the core of this model.

A market opportunity exists when there is a gap between what is currently available on the market and the possibility for new or significantly improved products. A product successfully fills a product opportunity gap only when it meets the conscious and unconscious expectations of consumer and is perceived as useful, usable and desirable. Successful identification of a market opportunity is a combination of art & science. It requires a constant monitoring of factors in three major areas:

1. Business
2. Economic
3. Technology

Changes in the "BET" factors create a need for new products.

Product Opportunity Gap model puts the facts infront all stake holders and make them think how to fill the gaps in the existing products. Identifying product gaps will lead to product extensions and new product introductions.

As you can see Product opportunity gap varies from organization to organization. Identifying the product opportunity gap and positioning your product as the one which fills the gap.

POG Business Case for TATA electric cars:
Always start with listing the business factors affecting the existing product lines.
Business Factors:

  • Sustained High Oil prices
  • Global warming & pollution concerns
  • Lack of competition in this market
  • Inter city commute uses
  • Similar products currently in the market

Economic Factors:

  • High Inflation
  • Relative Cost Advantage of electricity Vs Petrol/Gasoline
  • Existing Electric Infrastructure

Technology Factors:

  • High charge capacity batteries (Lithium Ion Batteries are now available)
  • Efficient motors & Generators (dynamic breaks)
  • Light weight technologies (leverage learning's from Nano project)
  • Low maintenance ( Car maintenance is much lower in an electric car)

BET factors show that there is a need for electric cars in Indian markets. All the long term trend lines points to the market need, so at this point the audience would be convinced about the need for electric cars.

At this point, product manager should ask a budget for prototype development and market study. Developing a prototype will help in identifying the real costs, benefits and thus build a first cut financial model for the new range of electric cars.

A good advantage of "BET" model is that it makes people think about all factors that are driving the need for a new product. Stakeholders can be made aware of the existing trends in the business environment - and let them make a decision.

Closing Thoughts

Developing breakthrough products is a tough. The traditional rules of building financial models and projections do not work when it comes to developing new products. Therefore one should concentrate on evangelism within the company to build a need for new products. Product Opportunity Gap model is a tool for evangelism - and it brings all the points on to the table. At this point, the product manager’s job faces the moment of truth. If the stake holders agree to pursue the product opportunity internally, then product manager must then take charge and drive the project. Alternatively, stakeholders may prefer to launch a special purpose vechile (SPV) or a separate company to pursue this new opportunity. If that’s the case, product manager has done his job successfully and it is time to hand over the reigns to someone else. If the stakeholders shoot down the idea, then product manager still has opportunity to continue evangelize within the company and influence the stakeholders.

Friday, July 25, 2008

Gain Competitive Advantage Through New Product Development

In today’s competitive world, companies do not compete on price or delivery alone. Introduction of new products or new product features has become a main source of competitive advantage. The best example of this strategy is that of Pepsi Co. For decades, Pepsi Cola & Coca Cola battled for supremacy in the cola market, however in 1990’s Pepsi gained market share, improved profitability and became World No. 1 beverage vendor by introducing slew of new products. See: The Pepsi Machine

Similarly, Apple Inc., has repeatedly outwitted competition by introducing radical new products: iMac, iPod, iPhone, iTunes, OS X etc.

In high tech world, companies can hope to survive only if they introduce new products. Old products will rapidly become obsolete & new products becomes the only source of future revenue.

New product development provides an opportunity to change the competitive landscape. New products can help company gain new customers, retain existing customers and increase profitability. In short, new products is the only source of competitive advantage - if executed correctly. And this puts the spot light on the product manager. Product manager’s role in defining the new product: specifications, features, performance, pricing et al, is vital to gain competitive advantage.

Retain existing customer base

Customer’s needs keeps changing with time. In order to retain current customers, business must constantly adapt to meet the changing requirements. For example, if GM were to keep making the same model of the cars as they did in 2000, then today it would be out of business. Companies need to constantly introduce new products to keep the existing customers exited and happy.

Another example of product stagnation & hence losing market share will be that of Motorola. For a long time Motorola made & sold only analog phones - even when the service providers had moved to digital networks. Then came Nokia with sleek digital phones & stole the market share from Motorola in 1998. (see: HOW MOTOROLA LOST ITS WAY Also see:Zombie Businesses: How to Learn from Their Mistakes)

The problem with most SME (Small & Medium enterprises is that they fail to keep up with the market - they have one/few successful products, and the management concentrates on execution & improving operating efficiency for a long period - that they forget to update their products. Eventually competition comes up with a better product and throws the incumbent out of business. For example Design Acceleration Inc. Had a great software - "Signalscan", over a period of time other competitors emerged - forcing Design Acceleration Inc. to merge with Cadence Design systems.

In India, Nirma a Gujarat based consumer and industrial products company once dominated the washing detergent market with its "Nirma" brand washing Powder. But the company failed to introduce new products - and depended solely on the flagship product for sales. Consequently its market share has plummeted and the brand has lost its relevance to most consumers.

Cannibalize yourself

Best way to retain the current market share is to attack your existing products with newer & improved products. The new products must be aimed at customers of existing products and at similar products (from competitors). Cannibalizing existing products is a surest way to retain market share, remain fresh & current in the market place - and win some market share from competition (if they do not offer exciting new products to match)

Today, cannibalizing existing products is a standard practice at all the foutune-500 firms. The best examples can be seen in Computer industry & Auto industry - where companies routinely introduce new products that replace their existing ( & even best selling) products.

On the contrary, few firms have resisted this trend of cannibalizing current product lines - and have protected their products from changes. Cocoa Cola, Dove Soap, Nevea Creame, Budweiser, Chivas Regal, Old Spice after shave etc. Are good examples of products that have been protected. These products have not changed - but the marketing of these products are always renewed to keep these products fresh in people’s minds. Companies try out newer advertisements, new packaging forms etc. to inject a sense of freshness into these "classic" products. However, one must be prudent enough to introduce derivative products for each of these "Classic" products to defend from competitive products. For example, Budweiser introduced "Bud Lite" to protect the main brand from "low-carb" competitors.

Leapfrog the competition

In most markets, everyone knows who the competition is - and they know its history, its behavior, its pricing and usage. Knowing the product so well will also reveal its venerability, thus allowing competition to introduce a better product. The same logic can be applied in the reverse. I.e. Introduce a product that is way ahead of what the competition already has in the market.

The new product should be so much advanced that it will take years for the competition to catch-up. In the mean time, the new product would have become the new market leader.

Apple Inc. is the best example of this "leapfrogging strategy. Every time when Apple was written off as dead in computer industry, Apple springs a surprise - that takes everyone by storm and builds a strong market position. First it was with iMac - a colorful integrated computer which was so innovative that every school kid in the US wanted one.

Apple did the same with iPod. Apple was not the first company to introduce a mobile MP3 player - there were several others, but then Apple came up with a new & exciting player that took the market by storm and soon became a market leader - and in the process displaced even SONY’s Walkman. Today - SONY is still smarting from its defeat on the mobile music player business - and still does not have a product that can really compete with Apple. (Incedently, SONY also implemented the leapfrog strategy with its original "walkman", Trinitron & Playstation)

Apple repeated this strategy with stunning success - with iPhone. By introducing a radical new product which was years ahead of the competition, Apple became the market leader in the Smart phone market - ahead of Nokia, Palm, & Blackberry.

Leapfrogging the competition is not an easy strategy to pull off. It requires deep innovation capability, deep pockets to invest in R&D & finally investors should have the "guts" to take the risk.

Meet the latent demand

Customers who use your current product will always have newer needs, and often wish that the current product could do more than what it does today. This is a latent demand for a newer product - which can be effectively be exploited by product improvements. For example, when MP3 players become popular, customers of Nokia wanted to listen to MP3 songs on their cell phones. Nokia responded accordingly - and today MP3 players is a default feature in most of Nokia phones. Similarly, Nokia also added camera, video players, email, file manager and a host of other features to their cell phones via new product introductions. By doing so, Nokia was able to retain its dominant position - and even gain market share for business phones from Blackberry & PALM with its E-series phones (E50, E51, E61, E65, E90 etc.)

Raise the bar

One can raise new barriers to entry through new product development. Companies such as Intel, Cisco, Microsoft, Toyota, Honda etc., constantly keep releasing new products at regular intervals - so that competition cannot catch-up and this also discourages new entrants into the market. The new products raise the performance/quality standards with every new release.

This strategy requires companies to have a well defined product road map and deep engineering capability that allows them to introduce new products are regular intervals - which keeps raising the performance/quality continuously, so that competition cannot keep up with the pace of technological improvements and lose out.

For example in the world of automobiles, Toyota has been making steady improvements to its hybrid cars so that GM, Ford, & Chrysler cannot really compete with Toyota when it comes to fuel efficiency. Similarly, Intel has raised the performance of its "Pentium" & "Centrino" processors through successive new products and today AMD is struggling & losing money - as it falls behind technology development.

Pre-empt competition by raising customer expectations

Companies can make pre-announcement of new products with new features - so that it attracts the customers and in turn make them wait eagerly for the new product to be released - instead of buying the product that is readily available in the market today. This strategy will help protect the market share at times when the competition has a slight edge in the market place.
For example, Apple recently announced iPhone 3G phone which supports corporate email, but it was not available immediately - but in the interim period, made people wait eagerly for the new iPhone - instead of buying a Blackberry.

Similarly, Boeing did a pre-announcement of its "Dreamliner - 777" which had state-of-the-art design, major fuel economy improvements & promised very long flying ranges. This pre-announcement from Boeing made customers place early orders & wait. Thus taking away customers from its arch rival - Airbus Industries.

Raising customer expectations will work only if the company can deliver. If company raises expectations and does not deliver, then it will see reversal of fortunes.

Closing thoughts

New product development is a surest way to retain & gain market share. Successful product companies have a history of introducing new products at regular intervals; they have a well defined product road map; deep engineering capability; innovation and R&D capability.
If you are not introducing new products at regular intervals, then its almost certain that your competition can eat your lunch.

Wednesday, July 23, 2008

Handling a Product Recall

As a product manager, I had to face an unpleasant experience of a product recall. A customer had discovered a defect in the current product, and the company had to deal with the situation. The product in questions is an enterprise software used to manage IT infrastructure. In that sense, we were lucky that it was a software bug, and we could quickly control the damage by advising all customers not to install the latest version of the software and quickly followed it up with releasing the corrected version of the software and the issue was quickly resolved. Dealing with this product recall issue, led me to write this article on how to mange a product recall.

Product recall

If a company has many products and stays in business for quite some time, then it will have to deal with product recall. A product recall is often a result of quality test slippage or design oversight. In most cases, it is the customers who will notice the defective product - and notify the company - and that becomes a moment-of-truth. All the past success, the brand reputation and the future success are at stake. Product managers will have to strike out the correct balance between cost control and brand damage.

A product recall is every company's nightmare. For a product manager, it is a very distasteful task - but a very challenging one. Handling a product recall: deciding and executing it successfully give a true measure of a product manager. The challenges involved are tremendous - especially when there are multiple forces influencing the decision.

A product recall is a public admission of quality failure: i.e, the company failed to deliver on the promise done to customers. If done correctly, customers will admire the company for its honesty and sincerity - which will in turn build a stronger image. But if the recall is badly handled, customers will lose trust with the company & its products - thus losing on market share & future sales.

In many ways, a product recall is a wake up call for the company. Often times a product recall happens because there were several missteps in the past and it is time to correct them. It is a call for the company to review & change its internal processes. Product recall also allows the company to reset customer expectations, reset product reputations and if handled correctly, it gives a new start for the product.

The success of any product recall program will depend on how faces the problem, how promptly and decisively executes the recall. The customer will have little patience - when a defect is discovered, so the speed in which the recall is handled & how the company make the customer feel comfortable is vital for the success of the program.

Dealing from a customer point of view

Once a product defect has been found out, a recall must be handled from the customer point of view in order to protect the brand value & reputation. Shareholders and company profitability may suffer in the short run.

From a customer point of view, a product recall has seven steps:

  1. Contact: Contact each customer individually.( The means to contact the customer may vary based on the number of customers)
  2. Explanation: Provide clear explanation of the product defect & the problem.
  3. Actions required: Tell the customer what actions he needs to take. How to identify if the customer has a defective part and what actions are required from the customer.
  4. Procedures: Establish the procedure for product exchange. This will involve dealers, retailers, salesmen, service providers, service personnel etc. This also involves the distribution chain to be in place to collect & ship the defective product - and also to distribute the replacement part.
  5. Acknowledgment: Record an acknowledgment of the replacement from the customer.
  6. Compensation: Provide compensation for the loss/damage incurred by the customer on account of the defective product. In many times, companies provide a voucher - a discount for future purchase.
  7. Closure: Set timelines for closing the recall & ensure that the product recall met its objectives in terms of numbers.

This is a general framework, it can be modified to meet the requirements of the specific product.

Internally, there are several things a product manager should do when dealing with a product recall. The first of which is do decide if a product recall is necessary.

Making a recall decision

When ever a defect is found at the customer site - or when a customer makes a complaint, the first step should be resolve the customer problem. But determining if a product recall is necessary is very challenging. There are no standard procedures or process to make that decision in most cases. The decision is easy only when there is a safety related issue or when the product fails certain regulatory compliance. But most product defects found by the customer falls outside these categories and that create a tough challenge. The challenge here is to manage the customer perceptions - and that needs to be handled swiftly and effectively. At the end, the customer must either be convinced that there is no product defect ( or there is a quick & simple work around ). Or the company must be convinced that there is a need for a recall.

If the customer is not convinced, then the company reputation is at risk.

An unsatisfied customer can come down heavily on the company & can adversely affect the company's reputation. (see Dell Quality Control Issues Not Going Away: Dell stumbled badly in 2007 with quality issues and the company refused to recall its products & own up its responsibility. Also see: It's Bad to Worse at Dell ). In case of Dell - in today's connected world, even one customer problem can cause severe damage to company's reputation. (see: http://www.obscurehideout.com/ )

At this point product management should take over the customer issue & start a methodical process to see if the situation warrants a recall. The process includes the following:

  • Check for Safety aspects: Ensure that the problem being reported does not have the potential to cause damage or physically hurt the user/customer
  • Check if there are bad component(s): See if the inputs/parts to your product had any defective parts or known quality issues.
  • Check if the product's performance violates the openly published data: See if the product does not comply with the published performance or with the contractual performance information.
  • Check if there was any known process issues: Check if there any process related issues during the manufacturing of the product in question. Sometimes process related issues during production - may have resulted in flaws being discovered at customer site.
  • Check for hidden/latent flaws: There are times when inside people would know that the product has a hidden defect or there is a possibility of failure after some usage. Many times, insiders - employees either at manufacturing, QA or design engineers would be aware of a latent flaw, but they had not raised an alarm - because they thought that the problem would never occur at the customer site.

    "There is a one-in-million chance that this will fail, so we decided to pass the product" A good example of this will Intel's Pentium bug. Intel engineers knew of the problem, but decided to ignore it.

    Ford's knew about the stability problem with Ford Explorer SUV for a long time. (see: http://www.fordexplorerrollover.com/history/Default.cfm )

    If any of the above conditions turns out to be true, then you are looking at a potential product recall.

Handling a Product Recall

Once the decision to recall a product is made, there are lot of next steps to be implemented immediately. The actual steps may vary from organization to organization, but at a high level - it has to include the following:

  1. Notify the organization and all stake holders (including dealers, distributors & associated third party people of the impending product recall.
  2. Communicate to all customers of the defect - in order to prevent damages & potential liabilities.
  3. Create a recall management center to speedup decisions
  4. Hold up production if needed
  5. Update QA/Quality assurance process.

Do not drag the issue or delay a recall

The most important point that every product manager should remember is to never drag or delay a recall decision. Dragging on the issue or denying the issue will severely harm company's reputation. Denying defects will only make the customer more agitated - and this will lead to increased legal hurdles, damaged brand reputations & lower sales.

Ford & Firestone denied any defects for a long time (see: http://www.fordexplorerrollover.com/history/Default.cfm ) and in the end Ford had to pay huge sums of money.

Closing Thoughts

Product recall is one of the tough decisions to make and execute. It takes guts, skill and leadership to pull off a successful recall. A successful product recall is the one which enhances the company's reputation and brand image. However, frequent recalls will damage the company reputation. On the other hand stonewalling a recall demand by customers will immensely hurt the company's image and future sales.

One must always remember that a product recall is mainly due to quality testing failures - so it is always better to invest more in quality testing & improvement programs rather than shortchanging on quality & using a recall later. So treat a product recall as a blemish on the internal quality control process - and that should not be repeated.

Monday, July 21, 2008

Global Corporations & Product Positioning

Last week, there were two news articles which caught my eye.

One was in Wall Street Journal on Levi Strauss: “Levi Strauss is retooling its signature button-fly 501 jeans so that they will have the same fit in each of the 110 countries in which the company says they are sold.”

The other was on Business Week on McDonalds: "The brand position is different in different parts of the world," he says. In the U.S., customers tend to eat on the go, and around 70% U.S. sales come from drive-throughs. Europeans prefer to linger. "In Europe it's more about the experience," he says. "It's convenient and a destination place at the same time."

To make the Golden Arches a place where Europeans want to hang out necessitated a major design overhaul. Hennequin, as French country head, refurbished the chain's outlets there, and he was tapped to do the same across the 40-country-strong European operation. He created a McDonald's design studio outside Paris to come up with a range of eight design packages from which franchisees, who account for 68% of European outlets, can choose.

Both companies are global leaders in their fields; both companies cater the general public – with lifestyle products and now both companies are moving in different directions of globalization with their products. McDonalds is becoming more local in Europe – by differentiating from the US operations and localizing the offerings to meet European tastes. While Levi Strauss is moving in the opposite direction – by developing a standardized product across the globe.

Interestingly, the financial results of these two companies are also moving in opposite directions. Levi Strauss is seeing a steady decline in income – from a peak of $7.1 billion in 1997 to $4.4 billion in 2007, while McDonalds is showing a steady increase in revenue in Europe.

This article is not a debate of localization of products Vs Globalization of products. Instead, I will concentrate on the fundamental principles of product positioning in a global economy and talk about the choices product managers have when positioning products for different markets.

Product Positioning

Product Managers have several choices in positioning a product in a global market – by varying two levers: Price & product localization (or product customization), which is illustrated below.

Products can be positioned anywhere in this two by two matrix, but in each market (or geography), there can be only one price-localization point for a particular product. The same product can be positioned differently in different markets. For example, Levi Strauss can position its signature button-fly 501 jeans at different price points in different markets or it can choose to have a standard global price.

Note that Levi Strauss has the option of placing its 501 fly button jeans at different price points – and that translates to different value points in different markets. For example if the Jeans is sold at (say) $40 in the US – it is perceived as Value-for-money, while in Malaysia, the same product may be priced at $30 and be perceived as a premium product.

If one were to opt for a global product, then the product pricing & positioning in different markets will have to be carefully planned – in view of the perceived value the product offers to customers. If the value positioning is wrong in one geographic market, then it has serious implication to other markets – in terms of brand reputation. Similarly, for a global product, if the pricing difference varies greatly between two geographic markets, then customers will choose the bypass the organized supply chain & procure the product from the lowest priced geography; which disturbs channel relationships. To illustrate this, if Levis Strauss prices 501 jeans in the US at $24, and prices the same in India at $2100 ($ 50), then customers in India and/or retailers can choose to buy it from the US rather than in India.

Localization also has its pitfalls

McDonalds for a long time followed a global standardization policy: All its restaurants serve similar food – fast, clean and good food. All the restaurants have a standard ambiance and is value positioned in the value of money segment. McDonald’s also establishes its global standard for developing its supply chain – from procuring raw materials to distribution.

However, in the recent times, McDonalds is becoming more open to experimentations and is localizing its product offerings – not just the menu, but also the ambiance and supply chain.

Successful localization for a global company is often difficult as it runs against the standard established practices, also the knowledge gained in one market cannot be used in other markets, and lastly the success of the local operation becomes tightly tied to the local people who run the local operation.

Implications for Technology Products & Companies

High tech products or engineering products such as Aircrafts, Computers, software, Medical equipment, chemicals etc are often positioned as a global product. The product is sold in only one format all over the world and at a same price.

However, the differences in taxes in various markets cause a price difference – which in turn result in “Grey” markets. Intel microprocessors for example is available at a lower price in the grey market, while the same product is available at a higher price through authorized dealers.

Similarly, Dell Laptop Dell XPS M1350 is available at:

US$999 in the US
US$1234 in UK
US$1140 in India

NOTE: Pricing is for an identical configuration in each of the three countries

This price differential makes people buy the Laptop in the US – and for use in India.

The same story is true for HP laptops as well.

Another downside of having a global standard pricing is that it results in diminished demand in other markets. For example most of the enterprise software – like Oracle 11i, SAP etc are sold at a uniform price – a price based on the US costs and demands. This leads to reduced sales in Asia, where customers prefer to use a lower cost alternative such as MYSQL or RAMSOFT ERP etc. In case there are no alternatives, businesses in Asia will prefer not to use such expensive systems – and may use increased labor instead or use it more judiciously. (or may simply choose to use a pirated version)

The trend is however changing. Asian companies have learnt to bargain harder and thus procure the same product at a huge discount. (See Reliance telecom story). Software companies have started the practice of discounting on the price when selling to Asian/African markets. This results in having a global product priced differently in multiple markets. (Discounting is mainly done in-order to maximize marginal revenues)

Many companies have started (albeit slowly – and half heartedly) to localize their products. Microsoft Vista & Microsoft XP is a good example of localization. Product positioning of Microsoft Vista will approximately look like:

Similarly, product positioning for EMC2 SMARTS will be like:

Closing Thoughts

Product positioning in multiple markets is a challenging task. In the initial phase of globalization, companies typically tend to follow a “global product” strategy. In the next phase, companies try out various localizations to increase sales and market share. As the companies evolve – they develop new set of global products from local products – “Glocal products” which is a mix of localization for the global markets.

Consumer product manufacturers such as Unilever, P&G, Toyota are good examples of such companies – they have few global brand names – but all of them have a localization content.

Product managers can use the two-by-two matrix to plan their product mix and then position their products in multiple markets.

Wednesday, July 09, 2008

Building an Innovative organization

If you are a leader of an organization, then the responsibility for building an innovation oriented organization is on you and the share holders. As a leader, the main responsibility for idea generation is on you. So what should one do to build an innovative organization?
This question is not a simple one to answer. The role of leadership in building an innovative organization is a complex one, and is deeply involved in all phases of innovation. To begin with, lets discuss the high level responsibility of the leader.

A leadership is responsible for:
  1. Working with shareholders to develop strategies for profitability/growth through innovation.
  2. Hiring creative individuals
  3. Encouraging creativity & innovation in the organization.
  4. Create opportunities & platform for employees to submit & promote their ideas.
  5. Create a manangement structure that nourishes/incubates innovative ideas.
  6. Implement process that convert accepted innovative ideas into product innovation.

Get shareholders approval

The organization exists only to create wealth for share holders. Innovation by nature is an investment - with uncertain returns, therefore the first step is to get share holders approval for an innovation strategy. Investors or the board of directors must approve the investments & the risks associated with innovation. For example, companies like HP, IBM, Pfizer, Genetech, GE, Apple, Intel, Google, P&G, Nokia and others allocate resources for innovation - through clearly marked R&D expenses or for experimental projects. The budget & the plan must be approved by the sharesholders before it gets to implementation.

Hiring Creative Individuals

Innovation & creativity starts with individuals. The company leaders are responsible for hiring creative individuals for the key roles. For example,Masaru Ibuka hired Akio Moritaand that partnership led to creation of SONY. Intel hired Vinodh Dham - who was responsible for creating "pentium" microprocessors.

It is the leaders responsibility to hire creative individuals & give them enough authority & responsibility to pursue innovation. Without the right set of people, the company’s innovation efforts will fail.

Encourage Creativity & innovation

Creative individuals will need a suitable work atmosphere for innovation. The leaders must set an example at work in creating a culture of innovation, by encouraging people around them to be innovative, soliciting creative ideas and implementing truly innovative ideas. The leaders should create an image of being open minded and innovative - within the organization. For example, Robert Noyce, Gordon Moore & Craig Barret - all ex-CEOs of Intel were accomplished R&D professionals, thus setting the right tone for the entire organization.For more details on creating a culture of Innovation see:

Closing Thoughts

Company leadership - both the CEO (CXOs) and the shareholders are primarly responsible for building an innovative organization. If a company fails to be innovative, then the leaders are solely responsible for it. But if the company succeeds in innovation, then the top leadership should step aside and ensure that the creative individuals who worked on the project take all the accolades.