Management Information

By Mark Eaton

Product life-cycles are shortening, with new products hitting the market faster and faster. At the same time, consumers are spending more time on the Internet looking for products and services, and seeking out suppliers who can deliver them with maximum value at a competitive price. This is a tough, challenging situation that should scare complacent businesses. But it offers exciting opportunities for smart business people who recognize the need to understand the external business environment and have the internal processes to enable them to quickly turn changes in the market into new products and services.

Rapid History of Rapid Growth Back in the 1980s the notion of an Information Superhighway was touted around the mainstream media. Over the next few years this mind-boggling notion went from a science fiction scenario to a slow but functioning reality.

A few far-sighted manufacturing businesses installed fast always-on connections and some created websites, although most of them were little more than online brochures. A few also saw the benefits of e-mail but most dismissed the flexibility of the Internet as irrelevant to their business. Many invested significant amounts in alternative ‘fixed’ technology that quickly became outdated such as EDI (Electronic Data Interchange) networks that connected two companies through a single dedicated line. Even the mighty Microsoft seemed to regard the Internet as a sideshow; it allowed Netscape to become the dominant Internet browser of the early Internet and well into the mid 1990s before realizing that it was missing a trick.

In many respects consumers were quicker to embrace the Internet, even with the limitations of dial-up access. In 1990 there were around 2.6 million people using the Internet, with 2 million of them in the United States . By the end of 1997, there were 99.96 million Internet users worldwide . Two years later there were 280 million worldwide, and within another two years it almost doubled to 530 million, with 16% of those accessing the Internet wirelessly. In 2005 global Internet users tipped over the magic billion to reach 1,080,000,000 users . It’s largely thanks to consumer uptake that companies have been forced to recognize how the Internet can be used as both a marketing and a sales channel to reach huge markets

Because of the speed of this change, many businesses, and not just manufacturers, have not been able to keep up with developments – missing out on opportunities to find new collaborative partners, actively market their products or develop new services for customers. A wide range of business have seen market share (and profits) slump as products become outdated faster than new products and services are introduced. They have seen costs slashed by competitors producing in lower-cost countries and buying low cost technologies, as well as the introduction of alternative products and technologies.

According to one e-manufacturing site, the critical issues that need to be faced up to include:

• Reduced consumer switching costs with the Internet making it easier for an existing customer to find, contact and collaborate with competitors

• Rapid comparison of prices, particularly low value or commodity items, allowing customers to drive costs down faster than companies can improve performance

• An increasing number of customers are placing their requirements and posting tender opportunities via the Internet, making it likely that organisations who are not linked to portals relevant to their industry will miss out on sales opportunities

• The Internet provides opportunities for enhanced customer service (such as online updates for delivery etc) which in turn allows for organisations to differentiate themselves more easily

• Recognising that there will be a need to invest as much in developing brand and services as there will be in leading edge production technology to enable businesses to ‘stand out’

• Lastly, the Internet is driving the desire for consumers to place smaller orders, in shorter timescales whilst expecting a greater number of options – something which manufacturers with inefficient systems will find significantly increases their production costs and reduces profits

Opportunity Bites However, for other businesses, the rapid change in technologies has offered significant opportunities to turn things around. Take the case of Apple.

In 1997, when it was already clear that the Internet was here to stay, Wired magazine ran an alarming cover story about Apple Corporation, asking readers to “Pray” under the headline “101 Ways to Save Apple - An assessment of what can be done to fix a once-great company.” In little over a decade Apple had gone from being a pioneer of mass personal computing to being a niche player serving a dwindling band of loyal users.

And now, just eight years or so after the call to rally round the iconic company, Apple is alive and very well. Its amazing recovery owes a lot to its out-of-the-blue dominance of portable digital music players, a product category that barely existed in 1997. In the first quarter of 2006 Apple shipped 8.5 million iPods, some 60% more than in the same quarter of 2005, taking total iPod sales to 50 million worldwide since 2001. With iPod sales bringing in $1.7 billion in Apple’s second quarter, the iconic music player now generates more money than Mac computers at $1.57 million. And now that it has started producing Macs with an Intel CPU, Apple is expecting the “halo effect” of the iPod to lure Windows users into buying Macintosh computers.

That’s not all. Apple, who’s product dominates the market through their approach to partnering and brand development, also dominate another category that didn’t exist in 1997 – downloadable music. In the space of just over two years, since Apple’s iTunes Music Store was launched, broadband Internet users worldwide are now spending more than $1bn a year on song downloads. Apple has sold more than 600 million songs in two and a half years, and in the US iTunes ranks as one of the leading music stores alongside major bricks-and-mortar retailers. It has also added Podcasts and Video downloads to its offering.

Industry analysts reckon that iPod and iTunes have not only added to Apple’s bottom line, they have also given a significant boost to the company’s computer brand. In short, Apple’s fortunes have been turned around by music, yet music wasn’t mentioned in any of the 101 ways to save Apple in 1997. There are few magazines more switched on than Wired magazine yet nobody there suggested music as a route to salvation – it was down to the insight of the Apple management and their ability to size up an opportunity and deliver a solution which saved the day.

Before iTunes and the iPod, the music industry had been fighting a rearguard action against illegal file sharing – millions of people copying each other’s music for free through peer-to-peer systems such as Napster and Kazaa. For many analysts, the music industry was “broken” with no prospect of fixing itself. Its only recourse was to track down and prosecute file-sharers. Then along came Apple, a complete outsider, to show the way forward and put together the first site to offer a really wide range of legal music downloads.

Not bad for a company that looked ready to die in 1997.

So What? At the heart of the Apple story were two new technologies – MP3 (or similar music compression systems) and broadband Internet; without them none of its success would have happened. More importantly, Apple’s management were able to recognize that their experience in developing digital technologies would enable them to rapidly break into digital music – and they used this expertise to market and launch a leading edge product before their competitors were able to recognize the change that was coming.

Broadband and MP3 enabled Apple to go from nowhere in the music industry to become a highly-influential industry player in a few short years. The underlying technologies have existed for some time – high-speed Internet, file compression codecs and ever-higher-capacity, smaller data storage systems. Yet any industry analyst forecasting this scenario back in the late 1990s would have been dismissed as a dotcom-crazy fantasist – but that did not stop the Apple management.

For decades big music companies dominated the music business. They looked after the promotion of the artists and their music, and the distribution of their LPs and later their CDs. It was only through them that artists could reach big audiences. But once the Internet was established and file-sharing was flourishing, the big music companies could see their grip on music distribution slipping.

All this had serious implications for all the traditional players who are between the artists who create products, and their audiences who consume them. And beyond the music business it has serious implications for any business who can size up a change in the market. Apple’s innovation was recognizing the shift from physical to digital product would (and could) continue and that they were well placed to capitalize on it.

The iPod+iTunes case history shows that there are probably existing technologies waiting to be configured and combined by smart entrepreneurs in such a way as to make current business models irrelevant. And it’s absolutely certain that soon-to-be-invented new technologies will be applied to leverage the Internet in ways that defy prediction today.

So here’s a closing thought, the Apple story tells us that a key skill for manufacturing businesses in the 21st Century is the ability to spot trends early enough and to convert those trends into market-leading products and services, backed by effective marketing, as quickly as possible.

What do you think?