Accenture analyst Kumu Puri provides a strategic perspective from CES 2009. This includes some great advice for tech executives to lead and manage through difficult economic times and the things successful companies will do to come out stronger on the other side.
Editor's note: This is a guest post from Accenture analyst Kumu Puri. Although this is aimed primarily at executives of consumer electronics companies, we think the strategic advice in this article is also very applicable to many IT leaders and IT industry executives.
One of the most unusual Consumer Electronics Shows (CES) of all time unfolded last week in one of the world's most unusual places: Las Vegas. This annual gathering—a 41-year-old event and now the world's largest annual consumer technology trade show—was unconventional because of an expanded focus. There was the usual intense interest in the latest gadgets. But much more time than usual was spent on business issues such as corporate strategies, investments in innovation, business operations and processes, and transformational business models. Gadgets shared center stage like never before with business topics and concerns.
There were more meetings than usual where discussions put aside the latest technology fascinations and products and zeroed in on how companies should lay the foundation for taking out costs of their businesses over the next 12 months, and how they can lay the groundwork during this downturn so they can come out stronger and more differentiated after this cycle ends.Soon after the 1990-1991 recession, Accenture research found a clear distinction between U.S.-based companies that followed a strategy of managing their cost structure and strengthening their strategic position and the rest. Those who took the bolder path outperformed their industry peers for six years following the recession. One way to outperform over the long-term is to invest in innovation. Companies who spend more wisely than their competitors during downturns come out of them positioned better with faster and more sustained growth. The key is to balance long-term and short-to-medium term results.
Specific areas for investments in innovation during a downturn include:
- Hardware product research and development and engineering;
- Software engineering and integration with hardware; the software within a consumer electronics product has become a major differentiator in the consumer electronics market, and companies that develop compelling applications will be well-positioned for future growth;
- Sales and marketing transformation; this includes streamlining administrative tasks so sales and marketing people can spend more time selling and marketing and less doing administrative work;
- Process innovation; simplifying all processes throughout a corporation, thereby working to reduce overall operating costs while improving customer satisfaction.
During this unprecedented economic situation, now is not the time to hunker down and wait things out. That's a recipe for failure. Now is the time to take action on several different fronts, including laying the groundwork for transformational and structural changes. Indeed, being proactive in these challenging times is a recipe—in fact an imperative—for managing through this market cycle, fine-tuning differentiating capabilities, growing market share and profits, and achieving high performance.
Other areas in which consumer electronics should consider making moves are:
Strategically cutting costs
The most pressing challenge for high-tech companies is rapid cost management and cost take-out, particularly in the next 12 months. In times of uncertainty, keeping costs low to preserve profit margins is paramount, and the 12 month window should be focused on taking out costs that are relatively obvious and easy to implement, and that generate immediate revenue and profit returns. Also, based on Accenture's research, cost-cutting needs to be balanced against funding future growth. Cutting costs associated with declining or overlapping product categories, while preserving investments in emerging categories, is an approach that balances short-term needs with long-term performance.
Sharpening consumer focus
An increasingly critical driver of consumers' purchase decisions is the overall experience surrounding the product. This lasts from the time they open the box, through their use of the product, through when they might seek technical assistance. Companies seeking a stronger, sustainable differentiation beyond price focus on the user experience. In fact, Accenture's High Performance Business research has found that high performing companies examine their customers by segment, geography, and usage patterns. These exceptional achievers then personalize and boost the quality of the customer experience to more closely match what consumers want.
Driving operational excellence globally
Consumer electronics companies need to adopt a new networked operating model that can address their company's need to grow, access talent, secure resources, manage volatility and risk, and achieve superior and sustainable economic returns. In many cases, this new model is made possible by outsourcing select business operations. These include outsourcing of supply chain, global training and development, and finance and accounting operations. The current market downturn provides an opportunity to embrace a corporate-wide, global operating model aimed at lowering operating costs. This transformational move could deliver new and profound differentiation versus competitors who make more conventional and conservative moves. Now is the time for changing business models and industrializing processes so they are more repeatable and reusable.
Acquiring key capabilities and assets
In this market environment, consumer electronics companies need to think proactively about how potential acquisitions may better position them in the marketplace. In Accenture's experience, companies that acquire a target firm in a recession benefit from a lower "entry price" and less competition. Consumer electronics companies with a strong financial position can make strategic use of acquisitions to achieve economies of scale, reduce capacity—and therefore price pressure—and add to organic growth. Of course, successful merger and acquisition integration remains a key driver for achieving estimated synergies regardless of the economic environment.
Maintaining pricing discipline
Accenture has found that companies that drop their prices too aggressively and across too many products and services are usually making a big mistake. Cutting prices too aggressively makes it much tougher to raise prices when market conditions improve because the price cuts de-value the company's brand and consumers will be more reluctant to pay their normal prices. Before pulling the pricing-cutting lever, consumer electronics companies need to consider which products in their portfolio are differentiated and where to take action. This is also the time to fine-tune the product mix by, for example, focusing on entry-level products that meet the needs of belt-tightening consumers. Contrary to expectations, all pricing power is not lost. For example, a new Accenture digital lifestyle survey of 3,000 Americans found that, because of the global economic recession, 56 percent of respondents indicated they were less willing to spend more for environmentally friendly consumer electronics. Companies might reconsider whether to cut prices of their best 'green' consumer electronics to address these consumers. Or they might focus their efforts on the 44 percent of consumers still willing to pay a 'green' premium.
Focusing on specific market segments
Continue to invest in well-targeted market segments such as broadband connectivity and mobility. The same new Accenture survey revealed that nearly 44 percent of the people surveyed do not plan to drop those connections during a prolonged recession. According to the survey, only 3.7 percent of those surveyed are willing to stop using home Internet access-the lowest percentage of any connectivity service. Ranking second lowest was mobile phone service (8.7 percent are willing to stop using) and cable or satellite TV (9.6 percent are willing to stop using).
Despite these challenging times, the current economy offers great opportunities for consumer electronics companies to make aggressive changes to their businesses to grow stronger. They need to capitalize on the convergence of electronic device, network and content industries to deliver compelling new consumer experiences. At the same time, they need to streamline and focus their operations. If they do all this, they'll be well on their way to achieving high performance.