You may not be familiar with Xiaomi, but you likely will be soon enough. Xiaomi is a Chinese smartphone maker. It sold its first smartphone in 2011 and is already the third biggest player in the market. It also holds the distinction of being the most valuable tech start up going — yes, even more valuable than Uber. (See here and here for more.)
How did they get so big so fast? Mostly by being cheap. Their phones offer a level of value that, say, Apple cannot touch. A new iPhone without a contract with a carrier (i.e., without a subsidy) will set you back at least $600. If you want more storage and a bigger screen, that creeps up to near a thousand dollars. Xiaomi’s phones top out around $500 and they have offerings under $150.
So how does Xiaomi manage to offer so much for so little? That is the topic of a TechCrunch article (This Is How Xiaomi Keeps The Cost Of Its Smartphones So Low, Jan 19). Now part of their success is due to their distribution strategy. In China it sells only on-line. Hence, it can cut retailers or carriers out of the equation. But that is not the only factor. How they mange their product line and purchasing (and consequently their supply chain) also makes a difference.
[Hugo] Barra [the company’s VP of International] explained that Xiaomi is able to make price concessions thanks to the combination of a small portfolio and longer average selling time per device.
Importantly, Xiaomi continues to sell older devices (and tweaked versions of them) at reduced prices even after it releases newer models.
“A product that stays on the shelf for 18-24 months — which is most of our products — goes through three or four price cuts. The Mi2 and Mi2s are essentially the same device, for example,” Barra explained. “The Mi2/Mi2s were on sale for 26 months. The Redmi 1 was first launched in September 2013, and we just announced the Redmi 2 this month, that’s 16 months later.”
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Wearable computing is often talked up as the next big thing. So how hard can it be to build a smart watch? Pebble, an independent (i.e., not owned by an existing tech company) competitor had some significant delays as it moved from Kickstarter campaign to actual product. It essentially underestimated complications of sourcing materials and getting things built. But it doesn’t have to be so hard (Shanzhai: China’s Collaborative Electronics Design Ecosystem, The Atlantic, May 18).
A different story emerges in the burgeoning wearable electronics market of Southern China, one that is based on a rapid, flexible and open ecosystem called shanzhai 山寨.
Take, World Peace Industrial (WPI), a Taiwanese electronic sourcing company located in Shenzhen, as an example. The company’s application technology unit (ATU) spends millions annually to develop reference circuit boards, called gongban 公板 (“public board”). A gongban can be used by a variety of different companies, who either incorporate it in their products directly or build atop it as they please via modifications. ATU develops 130 gongbans annually in areas ranging from smart phones, tablets, smart watches, smart homes, and industrial controls—and distributes the designs for free. WPI then makes money by trading in the boards’ components.
“We call this shanzhai in Shenzhen. It’s a mass production artwork,” explains Lawrence Lin head of the Application Technology Unit at WPI. Thirty some companies in Shenzhen are shipping their own smart watches with gongban from ATU and gongmo (‘public case’) sourced from the massive shanzhai ecosystem, which consists of tens of thousands of companies that manufacture and distribute goods. …
In the emerging area of smart watches, WPI and other solution houses create gongban, which provide common electronic functions including Bluetooth connectivity to mobile phones, and sensors to measure the wearers’ movement, as well as monitor heart rate and other vital bodily statistics. These gongban are designed to fit into a variety of gongmo that are ready to be branded on order. The flexibility to mix and match gongban and gongmo enable companies to quickly put together their own smart watches with customized functions and styles for various niche markets. Today, customers of WPI ship close to 100,000 smart watches per month.
What do a gongban and a gongmo look like? Take a gander:
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Posted in Big Data, Call centers, Computers and high tech, Forecasting, Human resources, Services, Technology, Uncategorized, tagged Big Data, Human resources on April 22, 2013|
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We have already written in the past about the use of data analytics to best route customers to agents based on demographics and other characteristics. The NY Times has an interesting article on the use of data analytics to improve retention and employee-employer relationships (“Big Data, Trying to Build Better Workers“)
The article discusses the broader appeal of these ideas, but focuses on applications to call centers. Why call centers? In contact centers, customer service agents, that are hourly workers handle a steady stream of calls under challenging conditions, yet their communication skills and learning capabilities play a crucial role in determining both the employee’s tenure and performance. The article discusses a new startup, Evolv, which helps firms find better-matched employees by using predictive analytics.
Transcom, a global operator of customer-service call centers, conducted a pilot project in the second half of 2012, using Evolv’s data analysis technology. To look for a trait like honesty, candidates might be asked how comfortable they are working on a personal computer and whether they know simple keyboard shortcuts for a cut-and-paste task. If they answer yes, the applicants will later be asked to perform that task.
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Apple, the world’s highest valued company, and its relationship, both competitive and cooperative, with Samsung provide a wonderful setting to discuss some fundamental questions that relate to strategy and operations:
FIRST: Which one is the more sustainable provider of Apple’s competitive advantage: design or the business model?
- Daring Fireball’s John Gruber wrote three beautiful paragraphs to argue his view on what he termed “The New Apple Advantage“:
So let’s be lazy for a second here, and attribute all of Apple’s success over the past 15 years to two men: Steve Jobs and Tim Cook. We’ll give Jobs the credit for the adjectives beautiful, elegant, innovative, and fun. We’ll give Cook the credit for the adjectives affordable, reliable, available, and profitable. Jobs designs them, Cook makes them and sells them.
It’s the Jobs side of the equation that Apple’s rivals — phone, tablet, laptop, whatever — are able to copy. Thus the patents and the lawsuits. Design is copyable. But the Cook side of things — Apple’s economy of scale advantage — cannot be copied by any company with a complex product lineup. How could Dell, for example, possibly copy Apple’s operations when they currently classify “Design & Performance” and “Thin & Powerful” as separate laptop categories?
This realization sort of snuck up on me. I’ve always been interested in Apple’s products because of their superior design; the business side of the company was never of as much interest. But at this point, it seems clear to me that however superior Apple’s design is, it’s their business and operations strength — the Cook side of the equation — that is furthest ahead of their competition, and the more sustainable advantage. It cannot be copied without going through the same sort of decade-long process that Apple went through.
- James Allworth, co-author of How Will You Measure Your Life?, adds an important dynamic component to the argument by applying Clay Christensen’s theory to this question:
The design part of Apple’s equation is to their ability to redefine new industries as they did with the iPhone. Whether they go after the TV market next, or something else, it’s this integrated design component that will be crucial to their initial success. But compared to the business side of Apple, design actually generates much less sustained strategic advantage in any one product category, once performance in that category becomes “good enough”. The tech industry has always revolved around copying. Once folks work out how it’s done, everyone piles on. And at that point, it becomes much less about design than it does about how you operate your business.
- In summary: the answer to whether design or the operating model is the more sustainable competitive advantage is the typical MBA response to a tough question: “it depends.” The rather sophisticated reasoning involves the fact that products and services over time improve and then become “good enough” and the dimension of competition shifts. Notice that I did not say that design is a commodity and fully copyable (my personal favorite question: why can’t Lexus designs have the timeless sophistication and elegance as Mercedes?); rather, another dimension overtakes it in importance.
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A great article titled “The Ghosts of Sony” and authored by Jake Adelstein and Nathalie-Kyoko Stucky, came to me via a tweet by my good colleague Robert Swinney. (That’s one of the reasons I love Twitter!) It surely is worth a read as it prodded a few thoughts:
- History repeats itself: In our Operations Strategy class, we teach two cases that prominently feature Japanese companies both in the same scenario: they attack the incumbent (a Swiss and an American company, respectively) “from below” and gradually move up the food chain. This follows the typical innovation dynamics that Clay Christensen has promulgated. After Sony did the same, it became the incumbent and is now under attack by South Korean Samsung Electronic Co.
- Are management professionals good CEOs of tech companies? We need to see more than a few data-points but Sculley didn’t perform well at Apple either, nor did this work at Sony:
Former Sony executives and current employees blame the fall of the firm on the loss of brainpower and good employees during the reign of Nobuyuki Idei, from 1999 to 2005. Idei was the first Sony CEO to rise up entirely from a management background and in the “Who-killed Sony?” genre of books and articles; he is regularly the prime suspect. (more…)
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Many smartphones and tablets come in a limited set of variants. Take the iPad. It comes in two colors and can be had with or without a cellular data capability (itself available from two different providers). And there is the issue of storage. (I keep wanting to say “disk space” but that doesn’t quite describe the technology correctly.)
Apple offers the iPad with three different levels of storage — 16GB, 32GB, and 64GB — and picking the right amount is one of the harder choices for tablet buyers. Now the tech columnist of Slate argues that most people are being taken for a ride when they consider buying more than the minimum storage capacity (Storage Suckers, Jul 12).
Ever since the days of the iPod, Apple has boosted its bottom line through upgrades. The company offers the entry-level versions of its devices at a price that seems reasonable to many people. This entry-level price functions as a marketing come-on—a way to get you in the store. Once you’re there, your eye wanders to the next level. Is 16GB really enough space on my beautiful new iPad—won’t I feel cramped on a year or two? Shouldn’t I spring for more? It’s only $100 … .
That’s exactly what Apple wants you think. Once you decide to move beyond the entry-level iPad, the company’s profits soar. According to iSuppli, it costs Apple about $316 to make the low-end 16GB iPad, which the company sells for $499—a margin of about 37 percent, not including non-manufacturing costs. Doubling the storage space to 32GB costs Apple $17 more, but it charges you $599 for that model, boosting its margin to 45 percent. On the high-end Wi-Fi model, which offers you 64GB of space for $699, Apple’s non-manufacturing profit margin shoots up to 48 percent. But that’s not all! If you get an iPad with 4G cellular connectivity, you’re really in for it. The very top-end iPad, a 64GB model with 4G, will set you back $829 for a device that costs Apple $408 to make—a margin of 51 percent, or twice what Apple makes on the cheapest iPad. There may be other popular products that carry such a breathtaking markup, but I bet most of them are monitored by the DEA.
These enormous profit margins prompt two questions. First, why do tech companies charge so much for just a few dollars of extra stuff? Second, are they ripping you off? The answers are pretty simple: They gouge you because they can. And of course you’re getting ripped off! Try to remember this when you find yourself giving in to upgrade temptation. These days, for most people, upgrading to get extra space is usually overkill.
So I have one of those iPad with gobs of storage. Does that make me a sucker? (more…)
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We have posted in the past about Apple’s impressive operational expertise (see here) but now there is a report that puts are hard number to that. Business Insider reports that Apple’s turns are frankly absurd (Wow! Apple Turns Over Its Entire Inventory Once Every 5 *Days*, May 31, see also here)
Apple turns over its inventory once every five days. …
The only company on Gartner’s list of 25 companies that turns over its product faster is McDonald’s, which is not exactly in the electronics business. Dell and Samsung rank two and three in Apple’s category, turning over their inventory roughly once every 10 and 21 days respectively.
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