March 3, 2013

Winning in the Technology Industry – Capabilities, Coherence and the Right ‘Way to Play’

With the future of organizations such as RIM still uncertain, Booz & Company identifies the strong need for technology companies to build coherence – by aligning their value proposition (or their ‘way to play’) with their distinctive capabilities and their portfolio of products and services – so as to ensure their survival and success.

The ever-evolving technology industry is punctuated by constant innovations and breakthroughs; moreover, communications and computational power is becoming increasingly commoditized.  As it does, success in the technology sector has grown more dependent on building the right capabilities in support of the right way to play, and offering the products and services that best suit that strategy. The mobile handset sector is a case in point: in recent years, Research in Motion (RIM), has not kept up with the capabilities that were required to win in the new market landscape. Now its very survival is uncertain. On the other hand, an elite group of companies – including Apple, Google, and Microsoft, among others – have consistently outperformed their rivals. In line with this, Management consulting firm Booz & Company has assessed the pivotal role that capabilities have played in the evolution of the technology industry and how coherence between a company’s key capabilities, its ‘way to play’ and its portfolio of products and services is a crucial driver of success.


Innovations and Industry Evolution – The Reality

The evolution of the technology industry is often described as a series of unconnected innovations that shook the world, and that just somehow happened. This view, however, is simplistic: The technology industry is made up of distinct companies – including Amazon, Apple, Facebook, Google, IBM, Intel, Microsoft, Oracle, and Research in Motion (RIM) – and the evolution of the industry is determined by the strategic decisions these companies have made, the successes they’ve had, and the mistakes they’ve made.

“These companies, and others, have each set out a game-changing ‘way to play’ in the market – their value proposition – and built the capabilities system and developed the product portfolios needed to ensure that they would win in the marketplace,” said Pierre Peladeau, a Partner with Booz & Company. “What matters isn’t simply creating the most innovations; it’s being clear about how you want to add value, having the right system of capabilities needed to innovate in line with that value proposition, and then winning with those innovations in the market.”

For many of the companies that have been marginalized or have disappeared altogether, their mistake wasn’t losing their respective technological battles. Some stuck to old ‘ways to play’ and focused on established forms of brand management or increasing scale rather than adding value in a way that remained attractive to customers. Others tried to shift and adapt their ‘ways to play’, but couldn’t build the capabilities they needed to turn their new strategies into winners in the marketplace.

The Hidden Link: All the builders of the great tech companies of the past 30 years have understood the factor that matters most: it is the often hidden link between rapid technological innovation and deep customer understanding.  Indeed, the value of customer insight is often overlooked in technical circles. But had it not been for the prowess that the industry has developed over the decades in meeting customers’ needs and desires, one can imagine a world in which the purely technological advances we have witnessed remained devoted solely to producing esoteric systems.

The importance of customer insight must not be underestimated. It is not something that can be bought or installed on a stand-alone basis. The companies that succeed with it are those that have developed it as part of their overall business identity.

“In this day and age, competition is becoming ever more fierce.  As a result, every company in the industry must look closely at exactly who it is competing with and in which sectors,” explained Roman Friedrich, a Partner with Booz & Company. “It must choose its ‘way to play’ accordingly, based on the unique capabilities that it can use to differentiate itself from competitors. Then, it must further invest in these capabilities, and in the products and services that align with its selected ‘way to play’ – in order to achieve the coherence that will make it a winner in the marketplace.”


The Evolution of the Mobile Sector

The transformation of the mobile handset sector clearly illustrates the interplay between technological change and business model innovation. It wasn’t until the early 1990s that the sector really took off and, soon after, a slew of new companies jumped into the business.

In the 2000s, however, a number of early handset makers, including Alcatel, Siemens, and Sagem, already dropped out of the market.

“These companies didn’t have the capabilities – proficiency in consumer marketing, ability to innovate, and the necessary understanding of how consumers actually use their devices – that most of the survivors had,” added Peladeau.  

Since then, the sector has gone through several rounds of disruption. Then came the first true BlackBerry. Released in 2003, the device combined a phone with a very effective e-mail client. RIM had put together the right type of device—an easy-to-use e-mail and voice phone that functioned securely in corporate settings—and combined it with a capabilities system, generating the coherence that gave it the right to win.

The most significant disruption after the BlackBerry occurred in 2007, when Apple introduced the iPhone, which combined a phone and e-mail with powerful Web-surfing and content features. The iPhone wasn’t the first smartphone, just the first truly successful one – thanks not only to the product’s features but also to the very coherent system of capabilities that Apple built up to develop, distribute and sell it, and to link it to other devices and populate it with hundreds of thousands of mobile apps.

 “Apple’s ability to understand the needs of the consumer, its obsessive attention to detail in both design and usability, and its understanding of the importance of creating an end-to-end controlled ecosystem all combined to make its new phone the most successful consumer electronics device to date,” said Friedrich.

In response to the success of Apple’s iPhone, a number of other handset manufacturers have followed suit. So far, Samsung has been the most successful at this strategy. RIM, however, failed to adapt. It waited too long to build the differentiating capabilities needed to compete with the new market leaders.


Winning in the Future

As technology continues to evolve, industry players must keep seeking out and building new capabilities and ‘ways to play’ that will give them the right to win in ever-changing markets.

Not all capabilities deserve the same consideration, but there are at least five that every company in the technology industry needs now. The way that they are incorporated, and the relative emphasis they receive will vary by enterprise, depending on the company’s ‘way to play’.

The five key capabilities include:

  1. An understanding of what consumers want: gaining an intimate understanding of how customers interact with their mobile devices coupled with an understanding of the multitude of potential new uses offered by devices linked to each other and to sensors.

  1. An ability to analyze consumer data: capturing and analyzing all manner of data about who their users are and how they use their devices and services.

  1. Innovation proficiency: developing new ways for users to communicate and interact with the digital world through the launch of new devices, features, and specific services that will shape industry evolution.

  1. Ecosystem management: developing an internal ecosystem to manage the end-to-end customer experience, and the means to interact with and leverage partner and external ecosystems.

  1. Design and user experience: designing and delivering a compelling and usable user experience on a wide variety of devices – both current and yet to be invented.

The Right Stuff: Companies looking to stay competitive and to outperform in the future need to take several steps to prepare themselves to gain the right to win. These include:

  • Identifying a compelling ‘way to play’ that can win in the market but doesn’t require a major move away from their current capabilities.

  • Understanding which capabilities will support that ‘way to play’ and drive differentiation in the market.

  • Adapting their organizations to nurture the essential capabilities they already have, and disinvest in the ones that will not be critical.

  • Identifying the elements of their value chain that they need to control to establish sustainable differentiation.

  • Aligning their service and product portfolios with their chosen ‘way to play’ and their capabilities.

To conclude, the technology industry has been a major driver of value and economic growth over the past several decades, and it will likely remain so. Companies will continue to develop new technologies and new ways to interest consumers in using those technologies. The key to success will be understanding what those consumers want, and then creating the best ways to give it to them. The right to win will depend on the company’s ability to ensure coherence by aligning its value proposition (or ‘way to play’), its product and service portfolio with a group of differentiating capabilities that no one else, not even a technology innovator, can match.