It’s my view that many of the current strategic – meaning dominant – tech vendors face difficult transitions as they find their place on the value/value-add continuum, and some of these companies may never find a place that affords them the same stature or profitability they enjoy today. These companies, blinded by high margins on the current generation of products or overly comfortable with their existing market share, may cling too long to perceived ‘strategic assets’ or ‘core competencies’ that are fleeting in this digital age.
Outside of a dog, a book is man’s best friend. Inside of a dog, it’s too dark to read.Groucho Marx
Dear Vorticians,
Last week, I began discussing the yin and yang of value and value-add, two key forces driving change in the enterprise IT market. I used HP as an example of a company caught in the crosshairs of this value/value-add conflict – not as cost-efficient and value-oriented as Dell and not as effective as IBM at moving up the value-add chain. (In IBM’s case, a value-add based on expertise in services and systems integration.)
A number of Vorticians weighed in on my position that the dominant tech companies in the next wave of IT growth will be marked by either their value play or their value-add play. It will be the rare company that straddles the fence. I’ll get to those comments in an upcoming missive, and I encourage others to weigh in on this point. (That number again, listeners, is mailto:jgallant@vortex.net .)
It’s my view that many of the current strategic – meaning dominant – tech vendors face difficult transitions as they find their place on the value/value-add continuum, and some of these companies may never find a place that affords them the same stature or profitability they enjoy today. These companies, blinded by high margins on the current generation of products or overly comfortable with their existing market share, may cling too long to perceived “strategic assets” or “core competencies” that are fleeting in this digital age.
Geoffrey Moore, my stalwart VORTEX companion, has quite neatly captured this challenge in his writings and presentations on the concepts of “core” and “context.” Core, in Vortician Moore’s parlance, are those skills, assets, ideas – whatever – that truly differentiate your company and generate the value add. Context is everything else. Recipe for success: accentuate core, minimize context. Meaning, stop devoting resources to things that don’t really differentiate you.
In the case of Dell – and this is my view, though Vortician Moore may share it – core is not the ability to invent new technology. Dell leaves that to others. Dell’s core is the skill at packaging the innovations of others and delivering them more efficiently, and at higher margin, than other companies. It’s not R&D, it’s process.
Two stories in this week’s Wall Street Journal shed light on the concepts of core and context, value and value-add.
In one piece, we learn how the aforementioned HP is under assault in its printing business, which is no small problem given the high profitability of the group and how much the rest of HP depends on that profit. On the end, HP is assailed by value players, including the aforementioned Dell, that are pounding away at pricing. On the other end, HP is battling hard against companies like Xerox as it attempts to add more features (value-add) to its printers. (I was amazed to learning that Epson was willing to sell printers at Christmas time for a net of only nine bucks after rebates with multiple partners. How’s that for value?)
HP’s printer group is trying to find its place on that value/value-add continuum and that makes for trying times.
Separately, the Journal‘s lead story on Thursday details how U.S. companies like Apple and Kodak are turning the tide in consumer electronics vs. Japan, Inc. Why? The U.S. companies are innovating in software and leaving the manufacturing to outsourcers. The tables are turned and the skills/assets (i.e., the core) that the Japanese companies have emphasized – manufacturing, chip development, end-to-end development – are turning out to be less valuable than the core for U.S. companies – developing cool new features for commodity hardware.
Next week, I’ll show you how this core/context, value/value-add dynamic has played out in one major industry, telecommunications, and how the current market upheavals there are a result of these forces.
For now, I bid you adieu and I encourage you, as always, to share your thoughts with me at mailto:jgallant@vortex.net .
Bye.
