Last month, I analysed Napa Valley-type companies, with long lead-times for R&D, and long product lifecycles.  This month, let’s look at how a completely different type of company operates: Silicon Valley-type companies with very short lead times and lifecycles.

 

Their planning and product development horizons are based on Moore’s Law, named after Gordon E. Moore, the co-founder of Intel.  He suggested that the power of transistors in an integrated circuit would double every year.  Since then, 18 months has become accepted as the standard timescale.

smartphones.png

 

The chart highlights the implications of this lightning-quick development cycle in the smartphone market.  2 years ago, Samsung was leading the pack, with a third of the global market.  But by the end of last year, their market share had crashed to just 20%.  Apple had just completed a spectacularly successful iPhone 6 launch, whilst low-cost Chinese players such as Xiaomi were wooing customers with great features at affordable prices

 

So imagine you are Samsung’s CEO for a day.  What would you do to rescue the company?

 

Unfortunately, you don’t have much time.  Unlike the Napa Valley companies discussed last month, you are effectively in crisis mode.  Your mobile phone profits fell by two-thirds in Q4 as sales collapsed.  And you know, from the complaints of Samsung phone users, that a range of problems has been left to fester for years.  The New York Times listed 3 of them in a recent article:

 

The plastic hardware looked cheap, the most promoted features were mostly useless and the software was too complicated.”  

 

It’s also clear today that your vast marketing budget hasn’t built real brand-loyalty.  You’ve instead been operating in the middle-market, where many people bought your phones only because they wanted a larger screen, or didn’t want to pay Apple’s prices.  Now they have a choice, customers are deserting very quickly:

 

  • Some have switched to Apple now it has released a bigger phone
  • Others have gone to Chinese suppliers offering similar phones at half your price

 

Your very latest phones confirm the deep-seated problems. They do offer a better user experience, but they can’t hide your lack of good software.  Instead the phones contain apps from Google, Microsoft and consumers’ own carrier as well as your own, to try and fill this gap.  But can this be a permanent solution?

 

As CEO, you’ve also got to worry about the quality of your top team, who have allowed all these problems to develop.  And a quick assessment of the market suggests that your middle-market positioning may no longer be supportable.  So should you instead accept the inevitable, and sell off the consumer business whilst it still has value?  That would at least leave you free to re-focus on the manufacturing operations, where you still have a good reputation.

 

It’s your decision as CEO.  And as you’ve probably just realised, your main problem is that as a Silicon Valley-type company, you really don’t have much time to decide, before customers disappear forever.   Good luck!

 

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Paul Hodges is chairman of International eChem (www.iec.eu.com), trusted advisers to the chemical industry and its investment community. He is a member of the World Economic Forum’s Industrial Council on chemicals, advanced materials and biotechnology, and presents the ACS ‘Chemistry & the Economy’ webinars.