Consider this: In developed countries, the average life expectancy of a computer fell from six years in 1997 to just two years in 2005. And cell phones in developed nations are tossed on average after less than two years’ use.
Always a ferociously competitive and fast-moving industry, the stakes in electronics and high tech are getting even higher. Being lean and mean will only get you a seat at the table. To win in this challenging environment, companies also need exceptionally flexible operating models that combine global scale and efficiency with outstanding local execution.
Few are in a position to achieve that difficult balance alone—and few would attempt to do so. Indeed, thanks no doubt to its multinational heritage—electronics and high-tech companies were among the first to globalize—the sector has long recognized that capitalizing on the strengths of outsiders can deliver significant benefits. For example, as a result of Toshiba Corp. outsourcing after-sales support for spare parts, including repairs and returns, for several countries, the company cut inventory levels by 10 percent and halved its scrap costs while increasing spare parts availability from 84 percent to 95 percent, thus boosting customer satisfaction. The industry’s recent past is filled with similar examples of partnerships and collaborations designed to secure and support competitive advantage.
Small wonder, then, that as they brace for the challenges of the upturn, so many electronics and high-tech companies are looking to enhance existing business networks—or build new ones.
Leveraging the strengths of a variety of players—technology, content and service providers, channel partners, suppliers and even customers—can significantly enhance the flexibility companies need to compete effectively in volatile and uncertain markets. And connecting with a wider network of stakeholders in tough times has specific advantages too.
Collaboration can strengthen a company’s chances of fighting off new, low-cost competitors, for example, as well as provide more options in the struggle to satisfy ever more demanding consumers. Moreover, companies that move forward together, rather than separately, will stand a much better chance of staying on top of change, identifying new opportunities and managing risk.
Alliances, after all, don’t just help deliver integrated services and solutions at lower price points. Partnering with others can open up new growth possibilities—a significant advantage in an industry that thrives on innovation and change. Witness, for example, how Cisco Systems has teamed with a private real estate developer and other technology providers to build a new smart city near Seoul (see sidebar 1).
There is, to be sure, a considerable disconnect between the capabilities that electronics and high-tech companies identify as essential to building a successful collaborative operating model and how close most of them are to having those capabilities in place.
Consider specialist skills and talent, and innovative IT. These two capabilities were deemed critical to efficient and effective networking by respondents to a recent Accenture survey of 30 industry executives from both developed and emerging nations—a broad sample of electronics and high-tech companies with annual revenues ranging from less than $4 billion to more than $10 billion.
Moreover, these capabilities are also key competitive differentiators for electronics and high-tech companies. And alliances that provide access to specialist skills, technologies and know-how—wherever they may reside or originate—position companies for competitive advantage.
These capabilities in turn rely on human capital, which more than half of our survey respondents single out as having become more important during the downturn. Yet only 17 percent strongly believe that they are currently well positioned to attract and retain the best global talent. A third of them are still not going abroad for new sources of either innovation or highly skilled talent. In addition, only 15 percent of those that leverage outsourcing are finding access to specialized global talent a top benefit.
The findings with regard to IT are equally concerning. Effective, interoperable IT infrastructures are essential to efficient flows of information, knowledge transfer and collaborative working both within and between organizations. Sixty percent of COOs said that building flexible and efficient IT systems to enable relationships, both internal and external, had grown in importance since the downturn—yet only 7 percent said it was a top focus driving operating model decisions.
What’s more, the use of information and communications technologies that support more flexible operations, data mobility and global interconnectedness is remarkably limited. Only 24 percent of respondents use “crowdsourcing” or open-source innovation, for example; less than a quarter take advantage of virtual or mobile platforms; and a mere 14 percent use cloud technologies. Most striking of all, almost a third have failed to implement any of these critically important IT innovations.
Boosting market position
The exceptions, however, are showing a clear way forward. Leading companies know that the development of alliances, partnerships and networks is not just about strategic agreements and common objectives. Realizing the full value of such arrangements demands operational changes—changes in the way processes and structures, as well as people and technologies, are organized, worldwide.
It’s crucially important to ensure that new organizational and governance structures are well designed, of course. But our survey reveals that the industry recognizes talent and technology as the truly critical components of an optimized global operating model. And leading companies have focused their network-building efforts on developing these key capabilities.
When it comes to talent, they are reaching out globally. Nokia, for example, has been working on deepening potential global talent pools by running an annual competition, “Calling All Innovators,” which challenges young application developers for mobile use and the Web to submit entries for locally relevant content in four categories—eco/being green, entertainment, productivity and life improvement. Cash prizes range from $5,000 to $50,000. (Since the competition was launched, a fifth category was added: the Economy Venture Challenge. Developers compete for a $1 million prize for the best idea for a new mobile product or solution designed to improve the lives of people in the developing world.) Winners get the chance to promote their applications through Nokia outlets and other channels. And all winning entries are reviewed for possible preloading on future Nokia devices.
It’s a similar story with the search for technological innovation. Networking with technology partners to fill capability gaps has put EMC Corp. on the leading edge of new cloud computing technologies, for example (see sidebar 2).
Leading companies have also boosted their market positioning by partnering with others to expand the range of their offerings. For example, Apple’s all-inclusive ecosystem of products and services owes its success in large part to a strategy of leveraging what the company calls “Apple Developer Connections” with both large and small-scale product developers. And Acer’s closely integrated relationships with channel partners support the Taiwan-headquartered company’s strategy as it competes globally on volume (see sidebar 3).
By broadening their options and making them more flexible, collaborations of all kinds are helping these leading companies adapt their global operating models to the uncertainties of the upturn. Alliance partners have brought them closer to consumers, especially at the local level, sharpening their market intelligence and deepening their customer connections. Partnerships have also contributed key capabilities that they would otherwise have to build themselves, from scratch.
As a result, they have the talent and technologies that empower them to exploit opportunities earlier and faster than their competitors. In tomorrow’s hyper-competitive and capricious markets, such assets are likely to prove valuable indeed.
Sidebar 1 | Cisco Systems: Partnering for sustainable growth
Making connections comes naturally to Cisco Systems. The electronics powerhouse was among the pioneers of the multi-protocol routers that first enabled computers to communicate across network boundaries.
But Cisco’s commitment to connectivity transcends its role as a facilitator of the World Wide Web. The California-based company is also a leading example of how joining forces with other businesses can support future growth ambitions—a key goal for electronics and high-tech companies as they prepare for the economic upturn (see story).
In Cisco’s case, those ambitions are bold indeed. The company aims to become a major player in what it calls “transformational solutions”—systems and services that address the growing global need for sustainable urbanization. And partnerships, along with acquisitions of innovative technologies and talent management initiatives, play a major role in the Smart+Connected Communities strategy that Cisco launched back in 2009.
Cisco’s Smart Connected Buildings solution, for example, connects buildings over an IP network to enhance their energy efficiency by allowing building managers to remotely monitor energy consumption and adjust it by using automated demand-response programs and tapping renewable technologies. The solution is being put to work in a number of “smart” cities that Cisco is building in partnership with governments, property developers and other technology providers across Asia and the Middle East.
In South Korea, for instance, Cisco is collaborating with Gale International, a New York City–based real estate company, to build New Songdo on 1,500 acres of land close to Seoul’s Incheon International Airport. Hailed as a prototype for the city of tomorrow, Songdo is smart, green and sustainable. Its buildings have been designed to minimize greenhouse gas emissions—they have already earned Leadership in Energy and Environmental Design (LEED) certification from the US Green Building Council—and when finished in 2015, the city will boast a digital infrastructure, provided by Cisco. The system will integrate Songdo’s water, power, traffic and telephony in a single Internet-enabled utility, thereby facilitating operational efficiencies and enhancing environmental sustainability through better resource management.
Building on its collaboration with Gale, Cisco plans to take the smart city concept into China. The two companies will be working together, for example, to develop a smart city project in Hunan Province. And in partnership with Saudi and Malaysian developers, Cisco is also providing networked information and communications technology solutions for Jazan Economic City, a 100-million-square-meter smart city project in Saudi Arabia.
Sidebar 2 | EMC: Collaborating in the cloud
One of the hottest stocks in the 1990s—EMC Corp., the world’s largest provider of enterprise data storage platforms—fell from grace when the dot-com bubble burst. Today, however, EMC is back, reaching for the stars.
Thanks to the company’s 2001 decision to abandon its go-it-alone approach in favor of collaboration and partnership, EMC has not only dramatically broadened its product portfolio. It has also become a leader in the provision of cloud computing technologies—what CEO Joe Tucci calls “the biggest wave in the history of information technology.”
Since 2002, EMC has bought more than 40 software, hardware and IT services companies, at the same time expanding its business network of channel and technology partnerships—and leveraging synergies between the two.
One of the company’s key acquisitions was an 80 percent stake in California-based VMware, which specializes in virtualization software that offers flexibility and cost savings by running multiple computer systems on one physical machine.
Meanwhile, a joint venture with Cisco, dubbed VCE, bundles EMC storage gear, VMware management tools, and Cisco networking and computing products with dedicated Internet hosting services. Yet another partnership, this one with Dell, helps provide the data center servers to support EMC’s Atmos cloud platform. EMC has also developed its own cloud technology, VPLEX, which allows organizations to combine storage within their data centers into a single, virtualized storage pool.
The company owes much of its success in cloud computing to work carried out by RSA Laboratories, which became part of the EMC Innovation Network when EMC acquired RSA Security in 2006. Since then, EMC Research China, which also works on cloud technologies, has been established. And in keeping with the Innovation Network’s motto—“Expand knowledge locally; transfer it globally”—the company ensures that the work of local researchers, who are often located near leading universities, is shared (via teleconferencing and social media) with colleagues globally, and especially with those responsible for product development.
Sidebar 3 | Acer: Leveraging channel partnerships
Already one of the world’s largest computer makers, Acer aims to overtake Hewlett-Packard Development Co. in 2011 as the leading global seller of portable computers. If it succeeds, the Taiwan-based company will owe much of its accomplishment to an innovative approach to collaboration that leverages channel partnerships to expand global reach.
Over the past decade, Acer has reinvented—and reinvigorated—its business model by pioneering an indirect go-to-market approach in which it develops complementary strategic alliances with key resellers and distributors. In addition, having spun off manufacturing operations in 2000, it focuses instead on selling its own desktop and notebook systems as well as those of its acquisitions (Gateway, e-Machines and Packard Bell).
Acer’s partnerships—such as the Acer Channel Excellence Program, which rewards resellers who do a minimum of $100,000 in calendar-year sales with enhanced sales support to them—helped sustain the company’s strongest profit growth in nearly three years in the first quarter of 2010: up 63 percent on the same period in 2009. And as Acer positions itself to sell more mobile devices in China and other emerging markets, its multi-brand, multi-partner approach promises to pay off yet again.
In May 2010, for example, Acer signed an agreement with Founder Technology Group Corp., the second-largest PC vendor in China, to jointly develop IT products for the world’s most populous nation. The agreement, which leaves Founder in charge of production and after-sales service but gives Acer control over the Chinese company’s planning, marketing and supply chain management, is expected to boost Acer’s business in China significantly.
The company reckons that sales in China will account for 25 percent of total revenues in 2011—up from 5 percent in 2009. Thanks to its collaboration with Founder, Acer expects to become the second-biggest player in China’s PC market in the next few years, posing a challenge to Lenovo, the homegrown market leader.
Acer also plans to partner with companies in the Malaysian market, where it already ranks No. 1 in notebook and PC sales. As in China, the plan is to strengthen its position by forming collaborations to sell new products like the LumiRead, an e-reader that can accommodate up to 1,500 books, as well as smart phones, mobile devices and a new line of servers targeted at small and medium-size businesses. Indeed, as Acer looks to widen its interest in software and content, still more localized collaborations across key emerging markets seem likely.
For further reading
“Open innovation: How to create the right new products, the right way,” Outlook, October 2009
About the Authors
Hans Von Lewinski heads Accenture Electronics & High Tech in Asia Pacific. In addition, he is the global lead for Accenture’s Communications, Media and Technology*/Supply Chain group. With more than 19 years’ experience with Accenture, he previously led the company’s supply chain value transformation group in Europe and oversaw Accenture’s supply chain work in the electronics and high-tech industry in the United Kingdom and Ireland. Mr. Von Lewinski participates regularly in conferences and has published a number of articles on high-performance businesses.
Armen Ovanessoff is a senior research fellow and senior manager at the Accenture Institute for High Performance, where his focus is on macroeconomic, geopolitical and business trends in emerging markets. Mr. Ovanessoff launched the Institute’s bureau in India and is regularly involved with its research on region-specific trends, as well as India’s position in the global economy. Most recently, he has been overseeing Accenture’s research on the future operating models of multinational organizations. Mr. Ovanessoff, who manages Accenture’s strategic partnership with the World Economic Forum, is based in London.
Joshua B. Bellin is a Boston-based research fellow at the Accenture Institute for High Performance. He has researched international operating models in a diverse set of industries, including electronics and high tech, retail, oil and gas, and telecommunications. His insights have been published in the Wall Street Journal, MIT’s Sloan Management Review and Strategy and Leadership, among other publications.
*formerly Communications & High Tech