The Power of the Factories

Slide 1: G O O D THE POWER OF THE 4 FACTORIES L I F E PROF. DR. HARTMUT ESSLINGER TREND-TAG HAMBURG MAY 2008

Slide 2: Instead of concentrating on “brand identity”, marketing has to shift its focus to the question of the consumers’ identity.

Slide 3: WHAT ABOUT PRODUCTS?

Slide 4: Designers, executives and marketeers could be a lot more creative with their concepts and designs because the factories in the Far East are able to produce a lot more flexibly than specialist circles realize.

Slide 5: BRAND SHIFTS

Slide 6: THE WORLD’s TOP 100 BRANDS 2007: by Economics 1. Google 26. Home Depot 51. UBS 76. Goldman Sachs 2. GE (General Electric) 27. SAP 52. Target Stores 77. T-Mobile 3. Microsoft 28. Gillette 53. ING 78. Colgate 4. Coca Cola 29. Mercedes 54. Canon 79. Subway 5. China Mobile 30. Oracle 55. Sony 80. Chanel 6. Marlboro 31. HSBC 56. Morgan Stanley 81. IKEA 7. Wal*Mart 32. Tesco 57. Chevrolet 82. Royal Bank of Scotland 8. Citi 33. ICBC 58. Nissan 83. VW Volkswagen 9. IBM 34. Verizon Wireless 59. Chase 84. Cartier 10. Toyota 35. Starbucks 60. Motorola 85. Hermes 11. McDonald’s 36. Honda 61. China Construction Bank 86. Best Buy 12. Nokia 37. Dell 62. Accenture 87. Barclays 13. Bank of America 38. Bank of China 63. Nike 88. Avon 14. BMW 39. Royal Bank of Canada 64. Harley Davidson 89. Gucci 15. HP 40. Porsche 65. Wachovia 90. Zara 16. Apple 41. Deutsche Bank 66. Budweiser 91. Washinton Mutual 17. UPS 42. eBay 67. Orange 92. Amazon 18. Wells Fargo 43. Yahoo 68. Marks & Spencer 93. BP 19. American Express 44. Samsung 69. FedEx 94. AIG 20. Louis Vuitton 45. Ford 70. AT&T / Cingular Wireless 95. ABN AMRO 21. Disney 46. L’Oreal 71. Siemens 96. Auchan 22. Vodafone 47. Banco Santander 72. State Farm 97. Asda 23. NTT DoCoMo 48. Pepsi 73. H&M 98. Lexus 24. Cisco 49. Carrefour 74. JP Morgan 99. Esprit 25. Intel 50. Merril Lynch 75. TIM 100. Rolex Source: Milward Brown

Slide 7: THE WORLD’s TOP 100 BRANDS 2007: present or former frog clients 1. Google 26. Home Depot 51. UBS 76. Goldman Sachs 2. GE (General Electric) 27. SAP 52. Target Stores 77. T-Mobile 3. Microsoft 28. Gillette 53. ING 78. Colgate 4. Coca Cola 29. Mercedes 54. Canon 79. Subway 5. China Mobile 30. Oracle 55. Sony 80. Chanel 6. Marlboro 31. HSBC 56. Morgan Stanley 81. IKEA 7. Wal*Mart 32. Tesco 57. Chevrolet 82. Royal Bank of Scotland 8. Citi 33. ICBC 58. Nissan 83. VW Volkswagen 9. IBM 34. Verizon Wireless 59. Chase 84. Cartier 10. Toyota 35. Starbucks 60. Motorola 85. Hermes 11. McDonald’s 36. Honda 61. China Construction Bank 86. Best Buy 12. Nokia 37. Dell 62. Accenture 87. Barclays 13. Bank of America 38. Bank of China 63. Nike 88. Avon 14. BMW 39. Royal Bank of Canada 64. Harley Davidson 89. Gucci 15. HP 40. Porsche 65. Wachovia 90. Zara 16. Apple 41. Deutsche Bank 66. Budweiser 91. Washinton Mutual 17. UPS 42. eBay 67. Orange 92. Amazon 18. Wells Fargo 43. Yahoo 68. Marks & Spencer 93. BP 19. American Express 44. Samsung 69. FedEx 94. AIG 20. Louis Vuitton 45. Ford 70. AT&T / Cingular Wireless 95. ABN AMRO 21. Disney 46. L’Oreal 71. Siemens 96. Auchan 22. Vodafone 47. Banco Santander 72. State Farm 97. Asda 23. NTT DoCoMo 48. Pepsi 73. H&M 98. Lexus 24. Cisco 49. Carrefour 74. JP Morgan 99. Esprit 25. Intel 50. Merril Lynch 75. TIM 100. Rolex Source: Milward Brown

Slide 8: THE WORLD’s TOP 100 BRANDS 2007: electronic products & e/retail 1. Google 26. Home Depot 51. UBS 76. Goldman Sachs 2. GE (General Electric) 27. SAP 52. Target Stores 77. T-Mobile 3. Microsoft 28. Gillette 53. ING 78. Colgate 4. Coca Cola 29. Mercedes 54. Canon 79. Subway 5. China Mobile 30. Oracle 55. Sony 80. Chanel 6. Marlboro 31. HSBC 56. Morgan Stanley 81. IKEA 7. Wal*Mart 32. Tesco 57. Chevrolet 82. Royal Bank of Scotland 8. Citi 33. ICBC 58. Nissan 83. VW Volkswagen 9. IBM 34. Verizon Wireless 59. Chase 84. Cartier 10. Toyota 35. Starbucks 60. Motorola 85. Hermes 11. McDonald’s 36. Honda 61. China Construction Bank 86. Best Buy 12. Nokia 37. Dell 62. Accenture 87. Barclays 13. Bank of America 38. Bank of China 63. Nike 88. Avon 14. BMW 39. Royal Bank of Canada 64. Harley Davidson 89. Gucci 15. HP 40. Porsche 65. Wachovia 90. Zara 16. Apple 41. Deutsche Bank 66. Budweiser 91. Washinton Mutual 17. UPS 42. eBay 67. Orange 92. Amazon 18. Wells Fargo 43. Yahoo 68. Marks & Spencer 93. BP 19. American Express 44. Samsung 69. FedEx 94. AIG 20. Louis Vuitton 45. Ford 70. AT&T / Cingular Wireless 95. ABN AMRO 21. Disney 46. L’Oreal 71. Siemens 96. Auchan 22. Vodafone 47. Banco Santander 72. State Farm 97. Asda 23. NTT DoCoMo 48. Pepsi 73. H&M 98. Lexus 24. Cisco 49. Carrefour 74. JP Morgan 99. Esprit 25. Intel 50. Merril Lynch 75. TIM 100. Rolex Source: Milward Brown

Slide 9: THE WORLD’s TOP 100 BRANDS 2007: with own core factories 1. Google 26. Home Depot 51. UBS 76. Goldman Sachs 2. GE (General Electric) 27. SAP 52. Target Stores 77. T-Mobile 3. Microsoft 28. Gillette 53. ING 78. Colgate 4. Coca Cola 29. Mercedes 54. Canon 79. Subway 5. China Mobile 30. Oracle 55. Sony 80. Chanel 6. Marlboro 31. HSBC 56. Morgan Stanley 81. IKEA 7. Wal*Mart 32. Tesco 57. Chevrolet 82. Royal Bank of Scotland 8. Citi 33. ICBC 58. Nissan 83. VW Volkswagen 9. IBM 34. Verizon Wireless 59. Chase 84. Cartier 10. Toyota 35. Starbucks 60. Motorola 85. Hermes 11. McDonald’s 36. Honda 61. China Construction Bank 86. Best Buy 12. Nokia 37. Dell 62. Accenture 87. Barclays 13. Bank of America 38. Bank of China 63. Nike 88. Avon 14. BMW 39. Royal Bank of Canada 64. Harley Davidson 89. Gucci 15. HP 40. Porsche 65. Wachovia 90. Zara 16. Apple 41. Deutsche Bank 66. Budweiser 91. Washinton Mutual 17. UPS 42. eBay 67. Orange 92. Amazon 18. Wells Fargo 43. Yahoo 68. Marks & Spencer 93. BP 19. American Express 44. Samsung 69. FedEx 94. AIG 20. Louis Vuitton 45. Ford 70. AT&T / Cingular Wireless 95. ABN AMRO 21. Disney 46. L’Oreal 71. Siemens 96. Auchan 22. Vodafone 47. Banco Santander 72. State Farm 97. Asda 23. NTT DoCoMo 48. Pepsi 73. H&M 98. Lexus 24. Cisco 49. Carrefour 74. JP Morgan 99. Esprit 25. Intel 50. Merril Lynch 75. TIM 100. Rolex Source: Milward Brown

Slide 10: Brand owners and OEMs have damaged their business by giving away their original competences for short-term gains. A BIRTHRIGHT FOR A LENTIL SOUP

Slide 11: OEMs design Me-Too products with limited profits because the real opportunity for Innovation and Marketing is neglected in favor of “safe designs” which are defined by fears and muted requests. Then they are downgraded by acceptance testing. A BIRTHRIGHT FOR A LENTIL SOUP

Slide 12: Most designs forwarded by Brand owners to ODMs also don’t have “Factory-Smartness”: neither anymore in design nor in business acumen (e.g. 60 – 40% procurement). A BIRTHRIGHT FOR A LENTIL SOUP

Slide 13: Result: both conceptual improvements and potential cost-savings by meaningful innovation are close to impossible. A BIRTHRIGHT FOR A LENTIL SOUP

Slide 14: The power center in the Industrial Consumer Technology Business has shifted to the Customer(s) and to the Factories (ODMs and ECMs). The OEMs & Brands are lost between. OEM = Original Equipment Manufacturer / Brand Owner ODM = Original Design Manufacturer / Design & Product Owner ECM = Electronic Contract Manufacturer / Process Owner THE SEISMIC SHIFT

Slide 15: The Power is with the Factories. Akio Morita THE FORGOTTEN TRUTH

Slide 16: FACTORY SHIFTS

Slide 17: SOME OF THE WORLD’s TOP ELECTRONIC MANUFACTURERS Hon Hai / Foxconn Flextronics / Solectron Compal Inventec Quanta Mitec Wistron Arima Clevo NEC ….

Slide 18: SOME OF THE WORLD’s TOP ELECTRONIC MANUFACTURERS Hon Hai / Foxconn Flextronics / Solectron Compal Inventec Quanta HP Mitec Dell Wistron Apple Arima Clevo ….

Slide 19: SOME OF THE WORLD’s TOP ELECTRONIC MANUFACTURERS Hon Hai / Foxconn Flextronics / Solectron Compal Inventec Quanta HP Mitec Dell Wistron Apple Arima Clevo NEC ….

Slide 20: SOME OF THE WORLD’s TOP ELECTRONIC MANUFACTURERS Hon Hai / Foxconn Flextronics / Solectron Compal Inventec Quanta HP Mitec Dell Wistron Apple Arima Clevo NEC ….

Slide 22: S/he who controls innovation and design, controls identity. THE STARTING POINT

Slide 23: PROCESS SHIFTS

Slide 24: PRODUCTS ARE VERY COMPLEX

Slide 25: SONY was the first Consumer-Electronics company and brand with a fully integrated Value and Supply Chain from Marketing to Design, from Innovation to R&D, from Production to Logistics and from Brand Building to inspired Customer Relationships. SONY was back then the “PERFECT COMPANY”. SONY Brand CUSTOMERS Marketing SUPPLIERS RETAILERS Components Advanced Research DISTRIBUTORS Sub-Assembly Design ASSOCIATIONS Service R&D Production Logistics 1975-85: THE SONY MODEL

Slide 27: APPLE was the first Consumer-High-Tech company with a design focus. It shared Value and Supply Chain with world-class Partner-ODMs (e.g. SONY, SAMSUNG, CANON, TOSHIBA ..). APPLE is very Brand and experience driven and has liberated Brand, Design and Marketing from the “SCM BS” APPLE ODM Brand R&D (with APPLE) CUSTOMERS Marketing Production RETAILERS Advanced Research Logistics DISTRIBUTORS Design Components R&D (with ODM) Sub-Assembly Service 1984+: APPLE MODEL

Slide 29: DELL was the first High-Tech company without a factory – basically buying generic products and components in Asia and then offering PCs “to order”. DELL pioneered the “cost-down” and “efficiency-up” methodology. Software enabled inter-corporate automation of simple but time-consuming processes. DELL ODMs Brand R&D CUSTOMERS (Design) Production CORPORATE Marketing Logistics CONSUMERS Selling Components Sub-Assembly Service 1990+: THE DELL MODEL

Slide 31: TARGET STORES & BEST BUY were the first MASS RETAILERS with a customer-facing strategy by defining what the customers need an want – and only then define and decide what they buy from a BRAND or OEM and sell. They use the Supply Chain for “Trading Up” and “Conditioning of the Value”. OEM ODMs Brand R&D? CUSTOMERS Design Production RETAILERS R&D? Logistics Target, Best Buy.. Marketing Components Amazon, CostCo.. Selling Sub-Assembly Service 2000+: THE RETAIL MODEL

Slide 33: PRODUCT LIFECYCLE MANAGEMENT (OLD) INTEGRATED PLM MODEL

Slide 34: FRACTIONED PRODUCT LIFECYCLE MANAGEMENT (NEW) OUTSOURCED PLM MODEL

Slide 35: A STRATEGIC GIVE-AWAY

Slide 36: As short-term economics – and not sustainable strategy – so far are driving PLM in the consumer electronics industry, we are facing extremely boring products, dead-end marketing and profits way too small for all players involved. 2006+: THE CURSE

Slide 37: Due to the internet, we have totally informed consumers, who don’t pay more if there isn’t “extra value” in the product … …or a very satisfying customer experience. 2006+: THE CURSE

Slide 38: This current business model is extremely wasteful, both in regards to economics and ecology. 2006+: THE CURSE

Slide 39: Polarization prize-driven “Commodity Products” and experience-driven “New Luxury Products” 2007+: STATUS QUO

Slide 40: Power Loss Brands/OEMs who gave their technical Know-How away, now they are basically “Brand Retailers”. 2007+: STATUS QUO

Slide 41: Power Gain Factories/ODMs who gained prowess in innovation, design and process, now they hold the key to competitive advantages. 2007+: STATUS QUO

Slide 42: Outsourcing, Energy and Ecology Energy and logistic costs as well as recycle needs increase - and public awareness requires more sustainable products. 2007+: STATUS QUO

Slide 43: High-paying Jobs are lost. As the qualified “specialty worker” jobs are being moved abroad, the new available jobs are lower-paying “service worker” jobs. The Middle-Class is getting impoverished. 2007+: STATUS QUO

Slide 44: Dreamcom is a small Swiss Start-Up which wants to revolutionize the market of Notebook Computers by putting ergonomics and usability above “cheap”. In order to achieve this ambitious goal, Dreamcom and frog implemented a collaborative partnership with Wistron in Taiwan and P.R. China, DREAMCOM Brand CUSTOMERS Marketing WISTRON RETAILERS Design Conceptual Design DISTRIBUTORS Engineering Operations Components Service Assembly Service 2008+: THE DREAMCOM MODEL

Slide 45: ALL NOTEBOOKS ARE EQUAL

Slide 47: ALL NOTEBOOKS ARE EQUALLY WRONG

Slide 49: …WIRKLICHKEIT Image: Patrick van Hecke

Slide 50: …WIRKLICHER …WIRKLICHKEIT Image: Patrick van Hecke Image: Richard Ellenson

Slide 51: THE COST OF BAD ERGONOMICS “Notebooks sind fuer staendiges Arbeiten am zugewiesenen Arbeitsplatz nicht zugelassen.” “Notebooks are not legal for permanent work on an assigned job.” Verordnung über Sicherheit und Gesundheitsschutz bei der Arbeit an Bildschirmgeräten (Bildschirmarbeitsverordnung - BildscharbV) GUIDELINE OF THE EUROPEAN COUNCIL BRUSSELS 90/270 29 May1990

Slide 53: WISTRON, Taipei & Kunshan

Slide 55: WISTRON, Taipei & Kunshan

Slide 59: FINAL PRODUCT

Slide 61: AN INNOVATIVE, SWISS-CHINESE NOTEBOOK-COMPUTER

Slide 62: DESIGN SHIFTS

Slide 63: Convergent Design Customers will value non-physical experiences over “products”, and human-driven digital usability will become a market driver. 2008+: THE NEXT TRENDS

Slide 64: TANGO communicator for children with cerebral palsy www.blink-twice.com

Slide 65: Social Network Design By education, people will become design and innovation literate, and require products “just the way they want it”. . 2008+: THE NEXT TRENDS

Slide 68: Re-Use replaces Re-Cycling Early-Stage product strategies replace the current waste process. Products will be modular and will synchronize component lifecycles. 2008+: THE NEXT TRENDS

Slide 69: LongTerm Phone > Base frame for modular components > Display, interface as clips > Sensors for food and pollutants > Power crank

Slide 70: Design Re-Cycling Well-proven “Design Classics” will be “re-designed” for modern technology. This re-connects good industrial history with a more cultural future. 2008+: THE NEXT TRENDS

Slide 71: Hommage to Ettore Sottsas “Valentine PC” University of Applied Arts, Vienna – ID2 www.creativeDNAaustria.com

Slide 72: Open Source Design Patents and Intellectual Property rights will be re-defined. Sharing of ideas and concepts leads to a “new industrial rice culture”. 2008+: THE NEXT TRENDS

Slide 73: MONEY BUYS – EMOTION SELLS

Slide 74: SOURCING SHIFTS

Slide 75: H I G H OUT SOURCING & ! T E C H

Slide 76: A FEW DESIGN FOR MANY

Slide 77: PROGRESS IS TOP-DOWN

Slide 78: FROG DESIGN: TRIBON

Slide 81: H I G H HOME SOURCING & ! L O V E

Slide 82: MANY DESIGN FOR A FEW

Slide 83: PROGRESS IS BOTTOM-UP

Slide 85: H I G H GREEN SOURCING & ! L I F E

Slide 86: > Hybrids: TOYOTA PRIUS… > Fuel Cells: liberation from Big Oil > Solar & Wind Energy: dropping the “grid” > Communication: Internet vs. Telco-Monopolies > Traffic Management: Smart Flow vs. Traffic Jams > Waste Management: Recycling vs. Waste BEATING OUT THE MONOPOLIES

Slide 87: LEARN WARE

Slide 88: NATURAL WARE

Slide 89: DATOO WEAR

Slide 93: POWER SHIFTS

Slide 94: THOMAS JEFFERSON “All men are created equally free and independent; they are endowed by their Creator with certain inalienable rights, that among these are life, liberty, and the pursuit of happiness." OUR BIRTH RIGHT

Slide 95: > Starting early in Schools (end the waste of talents) > Honing expert skills and apply holistically (teams) > The end of “Creative Egotism” (benefits over style) > Usability and social integration (humanize industry) CREATIVE EDUCATION

Slide 96: > Sustainability (ecology, culture, economics) > Humanistic Business (profitability beyond money) > Science & Technology (focus on balance) > Industrial Modularity (apply components like food) CREATIVE EDUCATION

Slide 97: Brand owners and OEMs are becoming virtual entities with mostly cultural and emotional assets. These are defined by their unique and differentiating innovation and design processes they must invent by working better with the factories. 2010+: POWER SHIFTS

Slide 98: Market value and success will be defined by the ability to anticipate, project and manage the fulfillment of their customer’s expectations, needs and dreams. 2010+: POWER SHIFTS

Slide 99: New business strategies will be defined by non-materialistic fantasies. Creativity and cultural inspiration are the core of the new market advantages. 2010+: POWER SHIFTS

Slide 100: High-mix & low volume products which combine mass-produced high-tech modules with local creativity and affinity-driven concepts, will bring high-paying specialty jobs back 2010+: POWER SHIFTS

Slide 101: Values define Identity. Design has to abandon “dying in beauty” and will have to create holistic statements of inspiring interactivity and story telling. 2010+: POWER SHIFTS

Slide 102: “If a story is not about the hearer he will not listen. And here I make a rule – a great and interesting story is about everyone or it will not last.” John Steinbeck (East of Eden) A NOBEL PRIZE FOR DESIGN

Slide 103: G O O D FORM FOLLOWS 4 EMOTION L I F E h@frogdesign.com