Need some well-informed techie to respond to this article about the perils for U.S. computer companies of their "lack of innovation". It appeared on the Motley Fool board.
>>ubject: Lack Of Innovation A Threat To U.S. PC Industry
>> Dow Jones Newswires -- August 4, 1999
>> AWSJ:Column:Lack Of Innovation A Threat To U.S. PC Industry
>>By BRIAN WALKER
(Editor's Note: This is an opinion piece from Thursday's Asian
Wall Street Journal. Walker spent the past five years as an
engineer and marketer in the Japanese PC industry. He is currently
a graduate student at Georgetown University's School of Foreign
Service.)
TOKYO (Dow Jones)--The personal computer industry is stuck in
a rut. Growth is strong but profit margins are being squeezed.
Product innovation isn't the primary means of growing profits
anymore, instead firms are squeezing profits from gains in
operational and manufacturing efficiency. How should firms
respond to this kind of difficult situation? The contrast between
Japanese and American companies reveals valuable lessons.
Compaq, IBM, Hewlett Packard and others have tried to create
value through a range of different strategies. These include new
services, product lineup integration through mergers, splitting
product lines into 'value' and 'performance' positioning, and even
through software development and bundling. However, none of
these have really compensated for the lack of core product
innovation.
Meanwhile, here in Japan the economic situation has inspired some
Japanese PC manufacturers to 'swing for the fence,' trying to hit a
home run with innovative products in the hope that profitability
will return. Sony did it with the Vaio ultra-slim notebook line.
Sharp did it with their Zaurus line of personal digital assistants. The
primary innovation in both cases was miniaturization, increased
quality and revolutionary features in the area of digital
convergence. In other words, Japanese firms have reverted to their
core competencies of engineering and applied technology research
and development.
In the American market, however, the picture is quite different.
With a few exceptions like the Gateway Profile, the products are
big, bulky, energy intensive and pretty much identical. Quality has
suffered, but because of greater focus on technical support
response, most customers are fairly satisfied. The products meet
the customer needs, run the latest software for about two years
and generally can be built to any specification required.
The problem is that all it would take is an aggressively priced hit
product farther down the curve of digital convergence and
miniaturization to knock the whole industry over. It is already
starting to happen with Sony's direct sales in North America.
There are some real obstacles to this scenario, but it can't be
dismissed. It's true prices are so low in North America that new
market entry for any firm would be a very expensive proposition.
And Japanese companies are much more cash constrained than in
previous years. But on the other hand, the Japanese are farther
down the curve of technological innovation than American PC
companies. Thus, a 'home run' product on the U.S. home field
would put them far ahead of the Americans.
The American PC industry is relying on a combination of market
development strategies from market leaders Dell, Intel and
Microsoft, that when viewed in aggregate have a nasty blind spot.
They are leading the industry into a vicious circle of lower margins,
decreasing product differentiation and worsening product
performance. Like a bicycle coasting without power, once
world-wide market growth slows the whole industry is in danger of
falling over.
The two words 'white boxes' strike terror in the hearts of most
American PC industry executives. They can only give one good
reason why someone should buy their product instead of a generic,
white box PC manufactured in a garage: lower product price due to
bulk parts procurement and greater manufacturing efficiency. The
'commoditization' of PC products has been a nightmarish trend
that the PC industry has been living with for years.
But American producers haven't done anything about it. The focus
on manufacturing and operational efficiency has led them to
sacrifice product innovation and product differentiation. As any
first year marketing student will tell you, product differentiation is
the key to growing and maintaining profitability. So why does the
PC industry seem to be stuck on this path?
As a product analyst and ex-systems engineer for Compaq Japan, I
worked with my counterparts world-wide to develop the new line
of Deskpro Commercial Desktop products for 1997. Our primary
focus had been on creating highly manageable products with the
best serviceability features that we could dream up. Like most
major PC companies, we had a special technology innovation team
that identified innovative solutions to customer demands and then
coordinated the development and implementation of such
technology. In 1996, Compaq's topnotch engineering capabilities
allowed us to propose new features for future PCs that are
revolutionary even by today's standard.
But for 1998 planning, everything changed and most of the
innovations were dropped. The change was a result of strong
pressure from Dell on Compaq's operational and distribution
inefficiencies. Product development changed radically. The focus
moved away from innovation and onto parts standardization, so
that the products could be manufactured more cheaply, as well as
giving the customer greater flexibility in choosing features.
It seemed like a good idea at the time. After all, Intel and Microsoft
were still constantly upgrading their core technologies. So Compaq
felt that once its operational nightmares were solved, it would be
able to compete on equal or better footing with Dell because of the
Compaq brand, wider product lineup and service solutions.
Unbeknownst to all of us, that was when Compaq was sucked into
the storm. We all lost sight of the fact that Intel and Microsoft are
just parts suppliers.
Given their status as near monopolies, it is easy to overlook this
key fact. Innovation by parts suppliers cannot substitute for
innovation by the product vendor for the end user. Intel has been
using the same P6 microprocessor core since 1995, with the major
improvements being processor packaging and speed increases.
They have added new command sets, but hardly anyone ever uses
them. Microsoft has just been adding on new bits and pieces to the
DOS operating system for years. This has turned Windows into a
huge amalgamation of extraneous features, most of which users
will never even be aware of.
Because PC makers have copied Dell's focus on efficiency in
manufacturing, operations and sales, and haven't paid attention to
product engineering, a large hole has opened up in the industry's
market development strategies. Who know if it will be the
Japanese PC companies, Apple or some other company, but
eventually somebody is going to introduce a product with strong
customer 'pull,' set at the right price. Then we could see a repeat
of the consumer electronics nightmare scenario of the 1970s when
American producers were decimated by better engineered imports.
The twin pillars of American PC industry, Microsoft and Intel,
may ensure American dominance of the PC industry in the short
run, but they will undermine its strength in the long run. If
American producers don't wake up to the innovation gap, their
success could be short-lived.
More about Dell Computer Corp.:
From leading business publications
From The Wall Street Journal<<
|
