不過之後圖片下的文字說明 已經被替換成“Police officers and Occupy protesters in Parliament Square on Saturday night. Photograph: Yui Mok/PA”， 變得和支持香港的民主訴求無關了。
為了證實衛報確實有過這樣的陳述，大家可以使用Demonstrators voicing support for pro-demoncracy campaign in Hong Kong evicited after three days of occupation 為關鍵詞搜索，並將以下對搜索結果的截圖一並貼出。
Rather than focusing on technological breakthroughs, Chinese companies
are finding new ways to innovate that reduce lead times and speed up
problem solving. Companies elsewhere should take notice.
Chinese companies are opening up a new front in global competition. It centers on what we call accelerated innovation
— that is, reengineering research and development and innovation
processes to make new product development dramatically faster and less
costly. The new emphasis is unlikely to generate stunning technological
breakthroughs, but it allows Chinese competitors to reduce the time it
takes to bring innovative products and services to mainstream markets.
It also represents a different way of deploying Chinese cost and volume
advantages in global competition.
Silicon Valley and other technology hotbeds may be able to match the
speed of Chinese innovation in particular sectors such as electronics
and Internet-based services. However, what’s distinctive about the
strongest Chinese competitors is their capability to combine accelerated
innovation with rapid scale-up to high volume at low cost, and to apply
these techniques across a wide variety of traditional industries. We
saw accelerated innovation being deployed in Chinese industries ranging
from pharmaceuticals, telecommunications and information technology to
medical and industrial equipment, consumer electronics and e-business.
Although it may not impact companies that are consistently able to
deliver breakthrough innovations, it presents real threats and
opportunities to many mainstream competitors.
The Push to Accelerate Innovation
We spent three years researching the way Chinese companies are
accelerating R&D and innovation thanks to the low cost and abundant
supply of Chinese engineers. (See “About the Research.”) We found that
Chinese companies are industrializing innovation to improve speed and
cost by applying lessons from production lines, pushing the boundaries
of simultaneous engineering to cut the lead times for new product
development, rapidly incorporating user feedback into new designs to
drive down the learning curve faster and restructuring their
organizations to speed up problem solving. These developments have
potentially huge implications for how companies should think about
global competition and whether they need to rethink and reengineer their
established innovation and product development processes.
Industrializing the Innovation Process
The classic image of innovation, especially early-stage R&D, is
of an inventor or a small team brainstorming and experimenting with new
ideas. Large-scale and tightly defined processes are generally seen as
inhospitable to creativity and innovation. Although innovation may be
systematized and scaled up to involve thousands of scientists and
engineers in some industries, such as pharmaceuticals and IT, the core
R&D activities nonetheless typically revolve around a set (perhaps a
large set) of relatively small teams.
A number of Chinese companies are challenging this conventional view
by pushing the boundaries of systemization and scale to a whole new
level in their efforts to accelerate innovation, leverage the potential
of a large pool of competent but often unexceptional technicians and
engineers and reduce costs. Their approach is to divide the innovation
process into a large number of small steps and then assign teams to work
on each stage. The goal is for this “assembly line” to accelerate the
process and deliver results quickly.
WuXi AppTec, a pharmaceutical, biopharmaceutical and medical-device
outsourcing company with operations in both China and the United States,
has embraced this industrialized approach to new product development.
Its work on a new drug for the treatment of chronic hepatitis C provides
a good example. As with most drugs, the development cycle involves
discovery, preclinical and clinical trials, regulatory approval and
marketing. Rather than relying on a small team working in the laboratory
with a few machines, however, WuXi AppTec began by dividing the R&D
process into a series of eight steps, with dozens of people assigned to
each step. The initial creation of the reactive intermediates required
specialized staff with at least master’s degrees and considerable
research training. The other steps required “R&D workers,” who are
graduates of trade colleges from which WuXi AppTec hires thousands of
employees each year. Rather than relying on automation (with its
associated high capital costs and risk of bottlenecks), WuXi AppTec uses
manual techniques that can be quickly scaled up or down as required to
keep the project moving rapidly. Efficiency is increased by using SAP’s
enterprise resource-planning software adapted from a manufacturing
assembly line to manage the innovation process. This highly
industrialized approach has enabled WuXi AppTec to complete projects two
to five times faster than comparable projects using conventional
approaches that the company benchmarked in the United States.
Pushing the Boundaries of Simultaneous Engineering
Traditionally, new product and service development has been organized
as a sequential “waterfall” process, where certain steps needed to be
complete before subsequent stages could begin. In recent years,
companies have tried to speed things up by tackling certain steps in
parallel, an approach pioneered by NASA and now commonly referred to as
“simultaneous” or “concurrent” engineering. Although the concept of
simultaneous engineering is simple, many companies have found it hard to
implement in practice because of barriers such as unwillingness by
engineers to release information early and difficulties in coordinating
multidisciplinary teams.1
Chinese companies, however, are not only embracing simultaneous
engineering but pushing it to new levels. Consider Lenovo Group Ltd.,
which acquired IBM’s personal computer business in 2005 and is
headquartered in Beijing and Morrisville, North Carolina. In 2005, its
new product development cycle was 12 to 18 months. Since then, Lenovo
has managed to cut the cycle in half by applying simultaneous
engineering across the entire innovation process, beginning in R&D
and continuing through design, manufacturing engineering, quality
control, procurement, marketing and service. For every project, team
members work on different elements in parallel, under the supervision of
one leader. Lenovo overcomes the usual problems of implementation by
breaking down its product designs into separable modules linked by
standardized interfaces; redesigning its software to be compatible
across all activities associated with the new product; establishing
short lines of communication where each team member can represent his or
her respective functional department; and introducing open design
processes where information is shared with the entire team as early as
possible.
Guangzhou Pearl River Piano Group Co. Ltd., which is based in
Guangzhou, China, and is the world’s largest piano maker, has applied a
similar approach to its manufacture of musical instruments. Pianos are
made up of four main components: the resonance system, the keyboard, the
pedal system and the case. Western piano manufacturers have
traditionally worked sequentially, with teams of two or three
professionals spending up to two years going through all of the steps to
completion. Pearl River uses a more industrial process. Recently, for
example, for its high-end Kayserburg pianos, the company used a team of
23 workers (including six designers, 10 individuals with expertise in
areas such as procurement, manufacturing and sales, three computer
engineers and two product testers). This team was supported by an
additional 40 craftspeople to enable rapid prototyping of possible new
designs. Using this approach, Pearl River was able to launch a range of
10 new Kayserburg pianos in less than five months, at a total cost of
just $1 million. Pearl River executives estimate that Western
competitors using traditional design processes and small teams would
have to invest around $10 million over several years to complete a
similar set of new designs.
Innovation processes based on industrialization and simultaneous
engineering are also being used in China to develop new Internet
services. Consider Tencent, a leading Chinese Internet service portal
that is based in Shenzhen and whose QQ instant messaging service has
more than 800 million active user accounts. Tencent developed a new
integrated calendar and reminder service by assembling a team that
included individuals from every function and speciality required to
host, launch and service the new product. This allowed Tencent to
coordinate all of the critical elements: the user interface, the
programming, the enhancement of the IT infrastructure and the
development of maintenance and customer service protocols. The project
was completed in just two and a half months, compared with a global norm
of six months or more. Tencent’s goal was to be first to market, but it
also wanted to develop a process for launching regular upgrades of the
calendar and reminder application based on what it learned from market
feedback.
Cycling Rapidly Through “Launch-Test-Improve”
When Tencent launched the first version of the QQ reminder
application, it was geared toward appointments, birthdays and
anniversaries. Users quickly pointed out that the product had a missing
feature: reminders for when their favorite sporting events were about to
begin. More surprising to Tencent’s developers, however, was the flood
of input they got from gaming enthusiasts who wanted reminders about the
schedules of computer-game tournaments. Within weeks, the Tencent team
released a new version that incorporated both functions. This rapid
cycle of launch-test-improve has now become core to Tencent’s innovation
process. Rather than nailing down a full-fledged product before launch,
the Tencent development team routinely launches ready-to-use new
platforms with limited functionality and harnesses user feedback to
improve the final product. To achieve this, the company has created
channels to encourage user feedback, to rapidly communicate this to the
R&D team and to ensure that the product architecture and design
process is sufficiently flexible to incorporate new functionality
quickly.
We saw similar rapid launch-test-improve cycles employed in almost
every Chinese company we studied. Mindray Medical International Ltd., a
company based in Shenzhen that is China’s largest maker of medical
equipment, for example, released the initial version of its BeneHeart R3
electrocardiograph machine into the market following 18 months of
product development. Soon thereafter, doctors asked for some additional
functions, such as the capability to monitor oxygen levels in a
patient’s hemoglobin and log electrical activity in the brain.
Hospitals, for their part, wanted to use the machine for constant
monitoring in intensive care wards rather than just for ad hoc testing.
Working with their marketing and sales colleagues, Mindray’s R&D
team started to design new models that incorporated these functions
almost immediately. Using this kind of rapid market feedback, Mindray
routinely launches new products every six months, in stark contrast to
the typical two-year launch cycles of some of its foreign competitors.
Each product improvement may be relatively simple, but in combination
the changes can transform the customer experience. Guangzhou Wide
Industrial Co., Ltd., which manufactures energy-saving evaporative air
conditioners, for example, found that units that expelled exhaust air
from the side had a tendency to overheat when customers installed
several of them side by side. In addition, customers complained that the
fans were irritatingly noisy at night. Within six months, the company’s
engineers redesigned the machines to expel exhaust air from the top and
introduced an automatic control system that reduced fan speeds at
night, when ambient temperatures are lower and less airflow is required.
SIM Technology Group Ltd., a designer and manufacturer of cell phones
based in Shanghai, practices an even more active form of
launch-test-improve. It launches new products based on market feedback
every month — compared with three to nine months for foreign
competitors. Some improvements are relatively minor (such as giving
users the ability to turn up the sound volume higher than competing
products in noisy urban environments); others are more significant (such
as doubling or tripling battery life). In most cases, rapid response to
market feedback drives the innovation process. After SIM Technology
launched a handset with a large font size and oversized keypad buttons
designed for senior citizens, for example, it received requests to add
an alarm function in case the user falls or becomes ill and satellite
tracking capability so relatives can locate elderly parents when they
are away from home.
A number of aspects of the current Chinese market environment
encourage companies to embrace rapid iteration cycles in the development
of new products. The Chinese market is particularly fluid and
fast-moving, with many first-time buyers and open-minded consumers and
relatively few regulatory hurdles to clear before new products can be
launched. Moreover, most Chinese companies have relatively little brand
equity and thus face limited risk if a new product fails.
Combining Vertical Hierarchy With Horizontal Flexibility
The final piece in the accelerated innovation jigsaw puzzle is the
way the organization makes decisions and solves problems as they arise.
In most of the Chinese companies we studied, project goals, budgets and
timelines were set by top management and cascaded down through a strong
vertical hierarchy; for many employees, even senior scientists and
engineers, the boss’s word was law. To foreign observers, such a
structure might appear to be excessively bureaucratic, with all the
attendant problems of inflexibility and sloth. But while the vertical
hierarchy is often rigid in these organizations, there is also a high
degree of horizontal flexibility, allowing for smooth and rapid flows of
resources and knowledge between peers in different departments and
functions. When an innovation initiative encounters a problem, the
project team (often under intense pressure from above) gathers together
everyone within the company who can help them in the mode of “huddle and
act” until a solution can be found. Huddle-and-act problem solving is
heavily based on personal relationships (consistent with the Chinese
concept of guanxi) rather than formal processes. This social dimension
has the added benefit that once the outline of a solution is agreed
upon, the individuals from the departments involved feel a strong duty
to implement their part of the answer quickly so as not to let the team
down.
When Chinese interviewees were asked to compare the huddle-and-act
approach to innovation they practiced within Chinese companies with what
they had experienced working in more traditional foreign multinational
companies, they pointed out a surprising paradox. Foreign multinationals
usually had flatter hierarchies than their Chinese counterparts, but
because that meant reaching consensus among a larger group of peers
across rigid departmental boundaries, the decision-making process was
often slower. Decision making inside multinationals also tended to be
more structured, with systematic processes for diagnosis and resolution
that often involved writing a report and then circulating it for comment
to areas of the business that might be affected. Although this approach
might help mitigate risk, it often reduces innovation to a snail’s
pace. By contrast, top-down goal setting combined with horizontal
flexibility can accelerate the innovation process dramatically by
enabling the organization to reconfigure itself continually to serve
customer demand, back new initiatives, solve problems as they arise and
speed up joint learning.
Implications for Global Competition
Accelerated innovation and many of the processes and techniques it
uses are not unique to China. Start-ups around the world and companies
in fast-moving environments such as Silicon Valley are speeding up the
pace of new product development and relying on beta testing to achieve
some of the effects of the launch-test-improve cycles we have discussed.
What’s noteworthy about the Chinese economy is its ability to achieve
accelerated innovation, with rapid scale-up, low cost and “good enough”
quality across a wide range of industries. The results may not lead to
fundamental breakthroughs, but that doesn’t mean that the innovations
cannot powerfully disrupt incumbents’ profit models. In fact, we believe
that the accelerated innovation capabilities being developed by Chinese
companies are becoming increasingly critical for global competition in
light of changes in the overall business environment.
First, today’s consumers are better informed than ever. As
information moves around the world at lightning speed, customers know
immediately whether or not your offerings are up to date. Yet recent
research shows that breakthrough innovators often have a harder time
capturing market share and cumulative profits than “fast followers.”2 For example, some have argued that even Apple has built its success “not as a pioneer, but as a user-centric fast follower.”3
The Chinese approach to accelerated innovation is about bringing
affordable new product designs to market in record time. This capability
is based on the idea that more and more markets reflect what Yun Jong
Yong, former CEO of Samsung Electronics, called the “sashimi theory,”
which he described as follows: Fresh raw fish can be sold at a premium
in an expensive restaurant; the next day, the fish can be sold for half
the price at a second-tier restaurant; on the third day, the fish sells
for one-quarter of the original price; and after that it is considered
dried fish.4
In practice, companies can earn a premium by staying abreast of
competitors’ pace of innovation and by having up-to-date products
available in volume at an affordable price — something Chinese
accelerated innovation is well placed to deliver.
A second, related point is that many of the approaches to
accelerating innovation we have described can also reduce costs.
Industrializing the innovation process, for example, requires more
people, but because it uses technicians who are less trained than
traditional R&D staff (and pays them less, over a shorter
development cycle), total outlays for a given project can be reduced.
Likewise, companies can rely directly on customer feedback, thus
reducing the need for expensive market research and fancy prototypes.
Third, accelerating innovation may be one of the most effective
responses to faster and more aggressive imitation by fast-following
competitors. Even where patent protection is available, trade secrets
and associated know-how are notoriously difficult to protect when
employees change jobs. Imitation is a natural result of the free flow of
knowledge moving around the world through new technologies, widespread
use of outsourcing and offshoring, and new competitors emerging from
countries, including China, where intellectual property (IP) protection
is relatively weak. These forces place a premium on an organization’s
capacity to innovate rapidly and stay one jump ahead.
Some companies have reengineered their
established innovation processes to meld the principles of accelerated
innovation with their own innovation know-how, often by finding ways to
leverage the experience of local employees.
Of course, some industries will be more directly affected by fast
innovation than others. The mechanisms Chinese companies are adopting
for accelerating innovation are likely to be most effective in products
where a “dominant design”5
or industry-accepted architecture has emerged, so that the innovation
process can be defined and easily industrialized. Accelerated innovation
is also likely to be a potent competitive weapon with products and
services such as mobile phones and social media applications, where
demand is driven at least in part by changing fashions or lifestyle
trends, resulting in short replacement cycles. As techniques for
accelerated innovation are further developed and perfected, however,
more and more industries that have historically relied on innovation as a
key differentiator will have to be mindful of the threat.
IP disputes may also complicate the ability of Chinese companies to
leverage the results of accelerated innovation in global markets. So
far, there has been relatively little IP litigation by foreign companies
arising from accelerated innovation. In fact, claims involving
foreigners account for less than 5% of all IP lawsuits in China;6
the vast majority of cases are between Chinese claimants. One important
reason is that accelerated innovation may provide an effective way of
avoiding conflict over IP because it enables rapid, parallel development
of innovative products without infringing on existing IP. Alibaba
Group, the Chinese e-commerce giant, offers a good example. It freely
acknowledges that it did not think up the original ideas behind its
Taobao Marketplace and Alipay products, which offer Chinese customers
services similar to eBay and PayPal, respectively. But the company has
used accelerated innovation to develop its own proprietary software and
associated infrastructure that underpin its services.
Responding to the New China Challenge
We see three ways for global companies, large and small, to respond effectively to the new wave of
accelerated innovation that is gathering pace in China. The first way is
for companies that are beyond the start-up phase to reengineer their
own innovation processes in accordance with the principles and
techniques of accelerated innovation being pioneered in China. The
second way is to tap into existing accelerated capabilities in China by
tasking local R&D units to focus on time-sensitive projects and by
hiring local staff with knowledge of how to speed up certain aspects of
the new product development cycle while reducing costs. The third
approach is to develop alliances with Chinese players in order to tap
into accelerated innovation know-how, especially at the stage of rapid
piloting and scale-up of new technologies and ideas. This last approach
should be particularly attractive to small- and medium-sized foreign
companies that face financial, regulatory and knowledge barriers to
commercializing their innovations at scale at home.
Reengineering Established Innovation Processes
Some companies have reengineered their established innovation
processes to meld the principles of accelerated innovation with their
own innovation know-how, often by finding ways to leverage the
experience of local employees. Dominique Neerinck, chief technology
officer of Belgium-based Bekaert, a global company that specializes in
steel wire transformation and coatings, summed up the strategy this way:
“We have had to review the whole R&D process to respond to the
Chinese challenge.” Bekaert makes products as diverse as shields for
electromagnetic interference, film coatings and champagne cork wire; the
first Bekaert business to take off in China was steel cords for
strengthening truck and automobile tires. Recognizing the growth
potential in China, the company has invested heavily in building R&D
capacity there. By reengineering its R&D process to achieve
increased speed and productivity, Bekaert’s R&D teams in China have
learned how to adapt their processes to use available grades of Chinese
steel, how to reduce energy consumption and how to innovate more
efficiently. The company has been able to introduce a variety of new
products, including construction materials, textiles, environmentally
friendly gas burners, window films and saws for solar-cell manufacture.
“Our innovation efforts were driven by the local opportunity but have
improved [our] global competitiveness,” Neerinck observed.
Focusing R&D Activities on Leveraging Accelerated Innovation Capabilities
Many foreign multinationals have preexisting R&D and innovation
activities in China. However, these efforts have been largely focused on
adapting existing products to the Chinese market. In general, the
multinationals have sensibly focused on “development” (as opposed to
research), but they have often used processes replicated from overseas
R&D centers rather than applying the lessons of Chinese accelerated
innovation. When AstraZeneca established its $100 million R&D
facility in Shanghai in 2006, for example, its initial research mandate
was “In China, For China.”7
Today, however, that facility operates as a full-fledged discovery
center focusing on diseases that are causing widespread and pressing
health problems in Asia. By shifting the focus of China R&D
activities to projects aimed at getting well-priced products launched
and scaled up quickly, companies can open up new opportunities to
leverage local capabilities for accelerated innovation. Indeed, the real
benefits come from breaking free of orthodox development processes and
learning from Chinese R&D approaches to accelerate the complete
cycle from discovery to product launch, as opposed to simply focusing on
a narrow part of the development cycle. When PepsiCo set up a new
beverage and food innovation center in Shanghai in 2012 (its largest to
date outside North America), for example, the main objective was to
“help PepsiCo speed consumer testing and get products to market faster,”8 rather than save on development costs.
Exploiting the Potential of Alliances With Chinese Partners
The final strategy for tapping into the potential for Chinese
accelerated innovation is to form an alliance with a Chinese partner. To
be sure, the risks of intellectual property leakage need to be
carefully managed, but some companies are finding that such partnerships
can be a fruitful way to combine well-developed overseas capabilities
for fundamental R&D with Chinese accelerated innovation know-how. In
addition to its own R&D initiatives, AstraZeneca, for example,
formed an alliance with a Beijing-based company, Pharmaron, in October
2012, in the areas of chemistry, drug metabolism and pharmacokinetics,
and efficacy screening. AstraZeneca’s primary goal was to accelerate
innovation. As Manos Perros, sponsor of the collaboration for
AstraZeneca, put it, “We believe it will help us progress projects
through our R&D pipeline more efficiently.” The impact is not
expected to be restricted to China but is intended to help “fulfill our
commitment to delivering meaningful medicines to patients worldwide.”9
Partnering is also an attractive option for smaller companies looking
to scale up new inventions and technologies quickly to the mass market.
Chinese partnerships offer not only the prospect of faster
commercialization but also access to capabilities for developing
complementary processes to manufacture products at large scale — an area
where many Chinese companies excel. Green Biologics Ltd., for example, a
start-up based in Abington, England, has developed advanced microbial
technology for the production of renewable chemicals and biofuels, such
as biobutanol, to replace petroleum-based chemicals used in plastics and
paint. Founded in 2003, the company struggled to market its technology
in Britain. So in 2010, it negotiated partnerships with two Chinese
companies to scale up technology that had shown promise on a small
scale. Within two years, Green Biologics was able to tap into the volume
market in China and open the door to mass-market opportunities in North
America and Brazil.
Instead of focusing on technological breakthroughs, Chinese companies
are organizing to make R&D and innovation faster and cheaper. They
are pioneering new ways of industrializing innovation, pushing the
boundaries of simultaneous engineering, leveraging rapid
“launch-test-improve” cycles and combining vertical hierarchy with
horizontal flexibility to enhance the innovation process. In a world
where consumers have almost instant information about whether a product
is truly leading-edge, where imitation by fast followers is relentless
and where there is growing pressure on innovation projects to deliver
more quickly with high cost efficiency, companies everywhere must
rethink traditional innovation and new product development processes.
The new frontier of global competition will be to combine the strengths
of traditional R&D with the new capabilities for accelerated
innovation emerging in China. The question for managers isn’t whether
one approach to innovation is superior or whether China is failing to
innovate. The key point is that Chinese companies are beginning to
challenge their global competitors on both speed to market and low
costs. To meet this challenge, companies of all sizes will need to
understand and leverage the potential of China in new ways.
References (9)
1. J. Ribbens, “Simultaneous Engineering for New Product Development: Manufacturing Applications” (New York: Wiley, 2000).
2. P.N. Golder and G.J. Tellis, “Pioneer Advantage:
Marketing Logic or Marketing Legend?,” Journal of Marketing Research 30,
no. 2, (May 1993): 158-170; C.C. Markides and P.A. Geroski, “Fast
Second: How Smart Companies Bypass Radical Innovation to Enter and
Dominate New Markets” (London: John Wiley, 2004); O. Shenkar, “Copycats:
How Smart Companies Use Imitation to Gain a Strategic Edge” (Boston:
Harvard Business Press, 2010).
Xiaomi, Not Apple, Is Changing the Smartphone Industry
by Juan Pablo Vazquez Sampere |
9:00 AM October 14, 2014
Determining which customer to target first is one of the most
critical decisions in the entrepreneurial process. Customers that are
relatively less risky and more predictable can make it easier for new to
firms gain a market foothold. One such set of customers is the nascent
middle class in emerging economies.
Why? First, as their financial situation improves they are anxious to
buy new things. Not quite able to afford the top brands, they’re
nevertheless willing to pay a little more for something they perceive
might be close. Second, because they can’t yet afford the high-margin
top brands, they’re not all that attractive to incumbents worried about
generating enough cash to cover their high fixed and variable costs. So
they exist in a sweet spot from an entrepreneur’s point of view: rich
and numerous enough to fuel a start-up’s growth and also poor enough not
to spur incumbents to respond.
Xiaomi, the four-year-old Chinese smartphone manufacturer, has found just such a sweet spot, and as a result is taking the smartphone industry by a storm. Pundits claim that Xiaomi is just a Chinese copycat of Apple, and not without some reason. Some point to Xiaomi’s product introductions, which are eerily just like Apple’s.
Others point out the strong similarities between Xiaomi’s operating
system (named MIUI) and Apple’s iOS. What’s more, Xiaomi’s products rank
among the best in the industry in terms of performance. All these cues
might lead us to believe that it is competing head to head with the
leading smartphone manufacturers.
However, looking at the full extent of Xiaomi’s business model
reveals just how different – and how disruptive — it is. For starters,
unlike Apple, Xiaomi is not targeting premium customers; it’s mostly
teens buying those high-quality phones, and hardly at a premium, since
Xiaomi’s prices are at least 60% lower. A neat trick. How does Xiaomi
pull that off?
To sell high-quality cell phones at so low a price, Xiaomi keeps each
model on the market far longer than Apple does. On average, a new
version of a phone is launched every 265 days in the industry – down
from 345 days in 2009. But Xiaomi doesn’t renew its product for two
years. Then, rather than charge high prices to cover the high cost of
state-of-the-art components, Xiaomi prices the phone just a little
higher than the total cost of all its components. As component costs
drop over the two-year period by more than 90%, Xiaomi maintains its
original price, and pockets the difference. So essentially its profit
formula is the opposite of Apple’s, which collects its highest profits
with the introduction of each model and needs to come up with new model
after new model to keep those margins up. When you consider how much easier it might be to profit from
plummeting component prices than from continual new feature development
(which sooner or later will likely overshoot the needs of most cell
phone customers in any event), the disruptive potential of the model
becomes clear.
One might worry that other low-end competitors could easily copy this
clever model, and to forestall that, Xiaomi has devised a creative way
to create some of the mystique Apple is so justly noted for. Essentially
it markets its phones to its price-constrained but status-conscious
teen base in much the same way that rockband promoters sell concert
tickets. Through an online retailer called Flipkart, potential buyers
preregister for a short sales window. They’re required to stay online
for at least two hours before the sale starts, and then only the first
20,000 lucky buyers get the opportunity to purchase. Human nature being what it is, after this awful experience, buyers end up wanting the phone even more.
Xiaomi is close to meeting its target of selling 60 million phones in
2014 with a business model well suited to expansion into other
developing economies. In a classical reaction to disruptive innovation,
the largest smartphone manufacturers were at first not motivated to
seriously challenge Xiaomi, since they could not be profitable at the
price these customers are able to pay. Now that Xiaomi is becoming a
significant competitor, the incumbents are still barely reacting,
launching simplified versions of their mature flagship products, as
Apple did with the iPhone 5c. But these are perceived as outdated,
as newer models, like the iPhone 6, are introduced amid great fanfare
in wealthier markets, and often end up being discontinued.
So far from being a copycat, Xiaomi presents a knotty disruptive
challenge to the largest smartphone manufacturers. As it continues to
expand in developing economies by marketing to the emerging middle
class, it remains sheltered from the competition by its margins and the
way it makes products profitable. Sooner rather than later, as it
continues to propagate its new business model, this disruptive
competitor is going to change how this industry works.
How Xiaomi Beats Apple at Product Launches
by Karan Girotra and Serguei Netessine |
9:00 AM June 2, 2014
The iPhone 6 is due in September.
The build-up to its launch will almost certainly follow the Steve
Jobs M.O. Device specifications will remain a closely guarded secret
until the launch date (unless an employee forgets his phone at a bar).
There will be long lines at stores. We probably won’t be able to
actually get the product for a couple of months after the launch. And,
of course, users (we) will have no input into what we actually get;
Steve Jobs’ dictum that “people don’t know what they want until you show
it to them” is still an act of faith for Apple’s management.
But is this the only way to launch new products? Let’s think for a
second about the risks inherent in this approach. Imagine that something
goes wrong and a hardware glitch makes it necessary to
recall and/or repair all products (remember the iPhone4 Antenna
problem)? Or what if a certain feature or the device as a whole is a
complete miss with consumers (think Apple Maps)?
All this secrecy comes at a price, both in the supply chain and
by creating a difficult workplace. Consider how many people have to keep
the secrets: factory workers, supply chain workers, and retail
employees. Current employees will work weeks of overtime and
self-employed contractors will be hired in the thousands. According to
some media outlets, Apple already announced restrictions for employee vacation in Germany, probably because of the launch. This elaborate planning process is complex, expensive, and risky.
But what is the alternative? In “Why The Lean Startup Changes Everything,” Steve
Blank argues for “experimentation over elaborate planning, customer
feedback over intuition, and iterative design over traditional ‘big
design up front’ development”. Blank’s approach is as relevant to new
product launches as to new companies: they are also highly uncertain,
with many unknown unknowns.
One of Apple’s competitors is already applying just such an approach to new product launches. Founded in 2010, Xiaomi is
one of the biggest Chinese smartphone companies. Its revenues last year
were already more than $5 billion — not bad for a three-year old.
Unlike Apple, Xiaomi produces its products in small batches, allowing
for easy changes based on user feedback. Every Friday there is a major
feature update of the operating system and a round of feedback from
expert consumers. Because Xiaomi only sells directly to consumers
(unlike Apple, which goes through many intermediaries), the company can
collect all this feedback and build it into the next generation of
devices.
In essence, the phone you buy this week can be different from what
you’ll buy next week. As one example of the benefits of this approach,
Xiaomi got its operating system translated into 24 languages by users
and the company didn’t spend a dime. User feedback led to the creation
of a very different and much more flexible device. Xiaomi allows users
to swap the battery, replace a memory card, change case backs, and
remove the SIM card.
Don’t get us wrong: we are not saying that Xiaomi has a better
product than Apple: they are priced differently and they appeal to
different segments of the market. We both use iPhones, not Xiaomi
products. But many companies that try to take clues from Apple’s
playbook on innovation will fail because they don’t have the marketing
clout and brand appeal to push products rather than pull ideas. Further,
Apple’s model is driven by the creative genius of individuals like
Steve Jobs, who are not easy to find. Without these resources, a company
might be much better off following the Xiaomi playbook.
Can Chinese Smartphone Darling Xiaomi Compete in Western Markets?
by Bryan Mezue |
12:00 PM September 24, 2013
n the week before Apple’s release of its latest generation of
iPhones, a lesser-known Chinese upstart, Xiaomi, had a launch party for
its new Mi3 phones. Led by its Steve Jobs-inspired CEO Lei Jun, the
company has experienced breakneck speed since its first smartphone
launch in October 2011. With a business model of at-cost hardware and
software up-selling, it recently raised its 2013 sales targets from 15
million smartphones to 20 million, and is now gazing abroad.
Lei Jun has hired ex-Googler Hugo Barra to head Xiaomi’s
international expansion. Barra has his work cut out for him: Chinese
companies have had mixed success so far in competing with top Western
brands on several fronts at once. For every success (like Huawei or
Lenovo), there have been stumbles (like Jianlibao and or Li-Ning).
Why have Chinese companies struggled to build consumer brands
overseas? The answer has been in large part a failure to meet consumers’
social and emotional needs. What Job Are You Doing?
For Barra and Xiaomi the “jobs-to-be-done”
theory, in particular, is relevant. Many internationalizing companies
fail because they pick the wrong jobs; addressing this can save both
Xiaomi and other companies money and strife.
The “jobs-to-be-done” theory articulates the gap between how
producers view and market a product and how customers actually use it.
Every time a customer buys a product, they are trying to do a job that
brings some value to them – and not necessarily what the product says on
the label. In the words of Harvard Business School marketing professor
Theodore Levitt, “People don’t want to buy a quarter-inch drill. They want a quarter-inch hole!” The jobs that customers want to do have functional, social and
emotional dimensions. For example, in buying a can of Coke (as opposed
to another drink), I might be addressing 3 jobs:
Functional: “Enjoying an affordable drink, or quenching thirst”
Social: “Signaling social status or social inclusion”
Emotional: “Exercising an emotional connection with the Coke brand”
The relative split of the functional, social, and emotional
dimensions helps explain how a challenger should best attack the
incumbent. For example, consumer brands tend to have more of a
social/emotional component to their jobs-to-be-done, while B2B products
are heavier on functional needs. This means that consumer brand
challengers must pay more attention to the social and emotional needs of
their customers (often through heavy marketing expenses), while B2B
players can afford to compete mostly on their product’s price and
efficacy. It is difficult and time-consuming to fulfill the social and
emotional jobs, and consumer brand challengers are often tempted to
replicate the incumbents’ strategies. But, in Clay Christensen’s disruption language, this approach puts them on a “sustaining” rather than “disruptive” path. And there the incumbents almost always win.
Li-Ning stumbled because it tried to target low-end customers of
Nike, and could not fulfill their social/emotional jobs better than Nike
without spending more money. According to the company’s vice-president
of digital operations, Craig Heisner, the company struggled after it “went right into a fiercely competitive overseas market going directly against the likes of Nike and Adidas”.
Similarly Jianlibao, formerly the number one beverage in China, lost
out on a frontal battle along the social/emotional dimension overseas
before coming back home to compete with Coca-Cola on functionality
(price and taste). Unfortunately, with its lower cost structure,
Coca-Cola had the patience to see this sustaining challenge through, and
ended up crushing the Chinese brand both domestically and overseas.
The better path for Chinese consumer brands seeking expansion to the
West is to focus on consumers not yet in the smartphone market. Instead
of targeting current customers of the incumbent (who already have
sophisticated social/emotional needs associated to the product), they
should target non-consumers with a compelling functional offering and
help mold their social/emotional associations. For example, when Honda
moved into the US motorcycles market, it found little success in
targeting existing American motorcyclists — it was only after it moved
to non-motorcyclists that it experienced success in creating a new
subcategory. B2B businesses can afford to go directly to the low end
(Japan’ steel industry and Korea’s semiconductor industry have achieved
success via this route) and compete on functionality, but consumer
brands should be more careful unless they have the budget for a long
fight. Hence the focus on non-consumers. Xiaomi’s Challenge
The implications for Xiaomi and Hugo Barra are clear. If Xiaomi
chooses to prioritize foreign markets with low penetration of iPhones
and high-end smartphones (e.g. India, African markets), the dominant
entry strategy is to focus on cultivating the vast pool of non-consumers
of high-end smartphones. Xiaomi’s resources should thus be directed
towards converting feature-phone users to their phones, or educating a
new generation of consumers without phones.
If Xiaomi decides to target markets with high penetration of high-end
smartphones (e.g. USA, Western Europe), Barra should take a more
patient approach. The first step should be to corner the (relatively
small) market of non-smartphone users. The step after that involves
seeking out non-consumption instances, e.g. selling Xiaomi software to
existing Android users, as an add-on. In doing this, Xiaomi can form a
“tribe” of loyal supporters with new emotional and social associations
who can provide the platform for a push into the lower segment of the
high-end smartphone hardware market. Only with this platform should
Xiaomi pursue direct competition for low-end customers of Apple and
Samsung. The strategy calls for a measured, careful approach – one that
first analyzes the jobs that current non-consumers of high-end
smartphones are trying to do (e.g. save money, “simplify my life”) and
creates a compelling value proposition for them.
With a valuation of $10 billion
after 3 years of existence, Xiaomi certainly has caught the eye of many
investors. But as Barra settles into his new role, he might find that
getting foreigners comfortable with Xiaomi’s name is the least of the
company’s internationalization problems.
