Product Styling - The New Competitive Differentiator


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In the electronics industry, technology is largely at parity – offerings from electronics companies are similar in general, and every innovation in features or functions that is introduced can be copied quickly. In addition, model supply chains have become tightly linked and highly competitive. These factors have raised the stakes and eroded profit margins for electronics companies. How, then, can electronics companies gain a competitive edge in today’s marketplace?

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Product Styling - The New Competitive Differentiator

  1. 1. IBM Business Consulting Services Product styling The new competitive differentiator in electronics deeper Executive brief
  2. 2. Product styling Introduction Led by the personal computer segment, the electronics In the electronics industry, technology is largely at parity industry built a model supply chain that is tightly linked and – offerings from electronics companies are similar in highly competitive. Vertically integrated companies became general, and every innovation in features or functions that outmoded, replaced by companies that specialized in is introduced can be copied quickly. In addition, model standardized components and software and did business supply chains have become tightly linked and highly with each another. competitive. These factors have raised the stakes and eroded profit margins for electronics companies. How, Though swift at capturing and extending cost reductions then, can electronics companies gain a competitive edge and efficiencies, this evolved supply chain model led in today’s marketplace? to product commoditization and standardization. Any innovation that a company produced could be copied One of the top differentiating competitive factors that quickly and usually at a lower cost. Therefore, competitive 1 is emerging for electronics products is product styling. advantage was fleeting. Rapid technology change and This trend is creating new opportunities for electronics short product lifecycles contributed to the further erosion companies. This paper discusses these new opportunities of profit margins. and recommends actions electronics companies can take to exploit this competitive differentiator. Ratcheting up the competition – again What happened in the personal computer segment is Background influencing the rest of the electronics industry, from TVs The electronics industry has been transformed due to cell phones. Clear-cut product category definitions largely to the personal computer segment. For decades, are blurring, and companies that once specialized are the electronics industry’s primary objective for personal undertaking new ventures. For example, leading companies computer products was to offer the most power and Dell, Gateway and Hewlett-Packard are competing in functionality for the lowest possible price. This focus resulted consumer electronics; Microsoft has entered the market for in tremendous innovation and a proliferation of products at cable television set-top boxes, video game consoles and prices that virtually everyone could afford. It also began to mobile phone operating systems; and Motorola, which once erode profit margins for electronics companies. concentrated on cell phones, is reentering the TV business 2 after a 29-year absence. 2
  3. 3. Product stylingThese companies are buying many of the same com- But price alone doesn’t win consumers’ hearts. Recog-ponents for their primary electronics or PC business as they nizing this, Samsung decided to focus on product styling.are for their new ventures. Therefore, they enter the consumer Today, Samsung is moving uptown.electronics market equipped with procurement experienceand can produce high volumes and low costs that match Samsung’s brand value has more than doubled since 2000,or exceed the best traditional consumer electronics players. from $5.22 billion to $10.85 billion. In just two years, fromThe result is a heightened competitive environment. 2001 to 2003, Samsung leapfrogged from the number 42 spot on the list of the world’s most valuable brands to spot 5A reflection of this heightened competitive environment number 25. No other company’s climb comes an ever-shifting positioning and focus of players inthe electronics industry. Former mobile phone leader While increases in brand value can be driven by increasedQualcomm, for example, recently exited the market advertising spending, low prices or quality, Samsung tookfor mobile phone handsets because it couldn’t keep another route and made product styling the centerpiece 3pace with the industry’s rapid cycle times. Compare of its transformation. The results are that, in just five years,that to Samsung, a former laggard in the mobile phone Samsung’s product designs have garnered 18 prestigiousindustry who enjoyed a 51 percent rise in its mobile Industrial Design Excellence Awards (IDEAs) from thephone sales in 2002, even though it raised prices by Industrial Designers Society of America – a record that is 4more than 10 percent. second only to Apple’s. Obviously Samsung’s focus shift to product styling has paid off.Samsung’s secret to success:Product styling Apple styles its way to prominenceFive years ago, Korea’s Samsung Electronics Company Another turnaround story is Apple, who clawed its way backwas the industry’s lowest common denominator. from the brink of bankruptcy to become the world’s 20thSamsung’s products were considered low-end and were most valuable brand. Apple’s key to competitive successsold in Kmart, Wal-Mart and similar discount stores. As is cool styling. From the candy-colored iMacs of 1998 tosuch, Samsung’s products had just one major advantage the sleek, white iBooks of today, cutting-edge design has 6over its competitors: a cheaper price. restored Apple’s shine. 3
  4. 4. Product styling Apple’s market-leading MP3 player, the iPod, delivers Although winning designs occasionally are achieved basically the same functions as its competitors’ products using current industry processes, producing such but commands a price premium of as much as 50 percent designs on a consistent basis requires focus, disci- due to a sleek, clean styling that is both practical and pline and a radically different approach to product beautiful. Apple recently announced that it has 31 percent development. Tom Kelly, General Manager of the of the MP3 player market in terms of units sold – but 55 prominent design firm IDEO, touts an approach to this 7 percent when measured by revenue. challenge that integrates the concepts of classical 9 corporate R&D departments and innovative designers. The iPod is a prime example of the premium commanded by superior styling. In the past, when consumer electronics Samsung is one company that is following this approach. were much more expensive, buying decisions were driven The company has changed its development approach by price advantages and feature differences. Today, as by doubling its design staff to 350 in the past five years consumer electronics become less expensive and less and changing its reporting structure to give stylists differentiated, buying decisions are driven by product greater authority. Designers once reported to engineers styling. In an industry suffering from price pressure and and product planners, but now command equal levels lacking strong feature-function differentiation, the trend of authority in the company. Collaboration with the rest toward price premiums commanded by better and more of the company is considered key. Design teams work distinctive styling is set to continue. across the company, collaborating with everyone from blue-sky market researchers and manufacturing experts Finding the style formula to engineers, thereby tapping the company’s full breadth 10 The growing link between innovative style and strong of expertise. brand value is evident. Other electronics companies that have benefited from the advantages of superior product Other leading companies, too, have changed their product styling include IBM with 15 IDEAs, Hewlett-Packard with 12 development models. In setting out to revitalize Apple, 8 awards and Microsoft with 11 awards. In spite of this trend, CEO Steve Jobs purposely implemented a new product however, electronics companies that focus on style remain development model, teaming Jon Rubinstein, a practical in the minority. electrical engineer, with Jonathan Ive, a trendy British stylist. Together, the team has led the development of such Apple hits as the titanium PowerBook G4 laptop and the sleek new iBook laptops. The two men complement and 4
  5. 5. Product stylingbalance one another, with the engineer vetoing the stylist’s As demonstrated by these companies, superior stylingmore outrageous design ideas and the stylist pushing to requires a fundamentally different approach to design 11make every new product a design innovation. than what most electronics companies currently practice. Styling is no longer an afterthought but a key elementAt Sony, lead stylist Teiyu Goto and his team operate with driving the product design. Styling has been givenunprecedented autonomy and authority, answering only to equal footing with software and electronics, resulting intop management. The styling team wages ongoing battles a strong styling influence in the final product. Processeswith Sony’s engineers so that good styling consistently are revamped to be highly integrated and collaborative.trumps issues of engineering difficulty. The belief driving Stylists take the lead in capturing customer requirementsthis changed product development model is “if we don’t and serve as the final arbiters of what is acceptable.constantly create something new and grow the business, Market intelligence and manufacturing expertise shape 12Sony is finished.” the look and feel of the final product as much as hardware and software.Whirlpool is using advanced mechanical design tools inits product development model to capture market share. Integrating mechanical design excellenceThe company is cost-effectively creating market-specific In the electronics industry, however, styling is more thanvariations of its products based on consumer preferences a pretty package. A product must be functional as wellin different countries. For example, Whirlpool developed as aesthetic. The color, shine or shape of a mobile phonedifferent versions of its new, low-cost washing machine, body may catch the consumer’s eye, but this phone alsowhich features four long legs for consumers in Brazil, must protect the internal components from wear andcasters for consumers in India, and a foldable top for tear to earn the manufacturer repeat business. To designconsumers in China, based on the company’s market packaging that also meets rigid functional specifications,research concerning consumer preferences. Whirlpool styling tools must be tightly linked to analytical tools.produces all three products from the same basic design,using design software to automatically adapt the design to But rapid changes in consumer tastes and demands are 13specific market preferences. forcing companies to work at an extremely rapid pace. Global distribution complicates the equation, introducing enormous product variations and the need to manage them. A key challenge in building a better styling business 5
  6. 6. Product styling process and infrastructure is achieving rapid custom- solutions not only for exterior styling but also for testing ization without compromising time-to-market or quality. The and manufacturing analysis for a large number of product only practical solution is to build multiple products on a variations using digital mock-ups, can be applied to the common platform, enabling design re-use and morphing. electronics industry as well. To achieve seamless blending of mechanical design with Style-conscious companies don’t have to build physical software and hardware engineering requires the ability to prototypes but instead can use digital mock-ups to iterate rapidly, continually moving toward optimum styling engineer and test models and evaluate manufacturability. without sacrificing performance metrics (e.g., rigidity, heat Strong mechanical design solutions allow companies to dissipation, water resistance). Analysis and testing of significantly reduce design cycle times while eliminating designs against real-life requirements must be performed design errors that previously remained undetected until quickly and accurately, with the results fed back into the manufacturing began. design and engineering chain. These same solutions allow reuse of standard items and Increasingly, complex mathematical analysis must be parts catalogs. Inventories of existing designs can be re- performed at the earliest stages of design to meet used as the starting point for new styles, enabling rapid critical – and increasingly narrow – market windows morphing from the old product to the new. The system without sacrificing quality. Only the most sophisticated automatically adjusts all related parts and systems each mechanical design systems support such cutting-edge time a change is made, facilitating customization of a requirements. Engineering data must be seamlessly single style for multiple markets. Analysis is performed linked to mold development to achieve the speed and early in the design cycle, speeding the team’s arrival at accuracy required to enable the supply chain to deliver an optimum combination of performance, look and feel. parts that are right the first time. Some tools even allow designers themselves to perform basic analysis, facilitating early identification of the most Learning from proven processes promising design approaches. Unlike the electronics industry, automotive and aerospace manufacturers traditionally have focused heavily on A few electronics companies have begun to apply mechanical design, including styling. As a result, these these tools to their own competitive challenges. Audio industries have already developed sophisticated powerhouse Clarion, for example, is focusing on continuing processes, process automation and Product Lifecycle innovation and improvement of its product lines using Management (PLM) tools that dramatically reduce the time PLM solutions. According to Toshiyuki Nakazaki, Clarion required to develop products. These tools, which include Malaysia’s Director of Research and Development, 6
  7. 7. Product stylingestablishing new market categories requires insight Recommendationsin recognizing consumer trends, a shorter product Electronics companies that want to increase their competitivedevelopment turnaround time and producing high-quality edge should consider upgrading their styling capabilities. Asproducts. He adds, “The adoption of PLM solutions has a first step, management should perform an analysis. Thebeen instrumental in capturing, managing and sharing following key activities should drive this process: 14corporate know-how.” • Assess the skills required for implementing industry- leading styling capability. Organizations that have madeSimilarly, Taiwan-based Acer Inc., a personal computer the transformation, including Apple and Samsung,manufacturer, is using PLM tools to promote collaboration typically have needed to increase staffing levels andamong its internal teams and suppliers. The solution upgrade staff skills.automates all project, document and product structure • Assess the organizational alignment to position stylingmanagement as well as Bill of Materials (BOM) and on a par with other development teams.workflow processes administration. • Review business processes so that, when integrated,Acer’s IT Business Group follows a strategy it describes mechanical, electrical and software design activitiesas “empowerment through innovation.” This strategy is come together in a competitive cycle time.intended to keep Acer in a top position within the highly • Identify the number of derivative products that can becompetitive worldwide IT industry by employing advanced successfully launched from a single platform. Helpcollaboration systems to continually enhance the ensure that design analysis tools can keep pace with 15company’s innovation competitiveness. variations, each of which must be individually tested. • Assess infrastructures for mechanical design. The newest tools have significant productivity advantages over older systems and leverage best-in-class capa- bilities developed originally for the automotive and aerospace industries. These actions will help position companies to make the transformation to a company that is driven by product styling and responsive to market demands. 7
  8. 8. Product styling Conclusion It’s proven that consumers today pass over less stylish Electronics companies’ use of product styling to gain offerings and willingly pay a substantial premium for stylish 16 competitive advantage requires an iterative process that products. Therefore, electronics companies that want to adds steps to the typical product development process. gain a competitive edge today should shift their focus to The give-and-take between styling and mechanical design product styling choices for consumers. and electronics engineering must be ongoing, without lengthening design cycles. In fact, modern tools and Few markets are more competitive than the electronics processes that accommodate a highly iterative process industry. The successes achieved by Samsung, Apple and serve to reduce design cycles while increasing innovation. Sony with styling-driven products are not exceptions or anomalies; they exemplify the emerging business model. Electronics manufacturers now have a chance to apply In an electronics industry with razor-thin margins, the price these proven processes to their competitive challenges. premiums earned from superior styling could mean the By doing so, electronics companies can be more: difference between profit and loss. • Focused on consumer preferences • Responsive to market dynamics • Variable in product options offered • Resilient in the face of rapidly shifting consumer preferences. Product styling, of course, is not a substitute for other measures of quality, such as features, functions, durability, usability and reliability. But styling does provide another choice for consumers, and it’s one the marketplace has embraced. 8
  9. 9. Product stylingAbout the authors ContributorsPaul Brody is an Associate Partner with IBM Business Gray Bachelor, Electronics Industry Strategy, IBM ProductConsulting Services and a member of the Product Life Life Cycle ManagementCycle Management and Supply Chain Management Tom Friel, Solutions Marketing, IBM Product Life Cyclepractices. He can be reached at ManagementDr. Hagen Wenzek is an Associate Partner and leadsthe Global Electronics Industry team for the IBMInstitute for Business Value. He can be reached Osterday is the IBM Global PLM Solutions Executivefor the Electronics Industry and can be reached 9
  10. 10. Product styling About IBM Business Consulting Services References 1 With consultants and professional staff in more than 160 “When the Butterfly Flaps Its Wings.” IBM Institute for countries globally, IBM Business Consulting Services is Business Value executive brief, 2003. 2 the world’s largest consulting services organization. IBM Pringle, David, Drucker, Jesse and Ramstad, Evan. Business Consulting Services provides clients with business “Cellphone Makers Pay a Heavy Toll for Missing Fads.” process and industry expertise, a deep understanding of The Wall Street Journal, October 30, 2003. technology solutions that address specific industry issues 3 Ibid. and the ability to design, build and run those solutions in a 4 Ibid. way that delivers bottom-line business value. 5 “The Top 100 Brands.” BusinessWeek Online, August 6, 2001 and August 4, 2003. 6 Ibid. 7 Martell, Duncan, “Apple rolls out cheaper iPod, claims top mkt share” Reuters, San Francisco, January 6, 2004. , 8 IBM Business Consulting Services analysis, 2004. 9 Kelly, Tom et al. “The Art of Innovation.” 2001. 10 “Pink-Haired Designers, Red Cell Phones – Ka-Ching!” BusinessWeek Online, June 16, 2003. 11 Tam, Pui-Wing. “Designing Team Helps Shape Apple Computer’s Fortunes.” The Wall Street Journal, July 18, 2001. 12 Guth, Robert A. “Details, Details.” The Wall Street Journal, October 1, 2001. 13 Jordan, Miriam and Karp, Jonathan. “Machines for the Masses.” The Wall Street Journal, December 9, 2003. 10
  11. 11. Product styling14 “Clarion Accelerates Product Development with PLM Technologies.” IBM case history, 2003.15 “Acer Inc. Seeks Shortest Time-to-Market in Industry with Product Lifecycle Management Solutions from IBM and Dassault Systemes.” IBM press release, January 2004.16 IBM Business Consulting Services analysis, 2004. 11
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