MANAGEMENT.

The iPod is a textbook case for strategy. The strategic opportunity was presented by a flawed tactic of record companies and the failure of both record companies and the electronics industry to understand a new medium: the internet. Sony had the right foresight that both media and hardware will have to converge into one experience. It also acted on this foresight by acquiring media companies early on, but ultimately failed to pull its media and electronics assets together.  

The iPod took over the glory which until then Sony's Walkman held. It was Sony's engineering-driven culture under the visionary leadership of Akio Morita which made Sony the undisputed innovation leader in the seventies and eighties. He mobilized listening to music - the Walkman made it possible to get up from your chair and out of the room while listening to music. 

Apple added a crucial feature which would make the iPod the successor of the Walkman: It exploited the failure of the recording industry to provide a timely and consumer-friendly way of obtaining music. While the large recording studios, unable to come up with any new business idea, were wasting their time to track down and sue music downloaders, Apple offered both the hardware - iPod - and the software - iTunes - to make downloading and listening to music a hassle-free (and legal) experience. 

The strategic opportunity, exploited by Apple, was not only presented by the fixation of the recording industry on tangible recording media (first gramophone records, then tapes, then CDs), but also by the inability of the electronics industry to take on a problem the recording industry was unable to solve. 

The tactic of the gramophone industry, for most of the 20th century accustomed to to easy profit through tangible recording media, was to entrench and attack their own customers. After spectacular raids in the apartments of teenage music downloaders, the mere idea of Internet delivery as an alternative to tangible recording media was made a forbidden thought, effectively making it impossible for the recording industry to innovate and embrace the Internet as their next delivery channel. 

For electronics companies it looked too risky to take on the powerful recording industry. And for Sony electronics, the number one candidate to come up with a meaningful successor to its own Walkman, an iPod-like device would have felt like an attack on its own nest, because Sony had both: electronic devices to play music and content studios. Betting on convergence, Sony had acquired CBS records in 1987 (now Sony Music Entertainment), and Columbia Pictures in 1989 (now Sony Pictures Entertainment).

That sounded like a good idea in the late eighties: when you can offer both the content and the device, you couldn't go wrong, so the idea went. If there just wouldn't have been the Internet. That meant no walk to the record store, no shelves for records, no scratches in gramophone disks. (The Internet was around in the late eighties, but took off only after 1995.)

Apple was not an electronics company, it was not a recording company, but it was good in designing and matching hardware and software. After all, it was exactly this insistence on doing both the hardware and the matching software which made them the victims of Microsoft (which got big by taking a Graphical User Interface, earlier developed by Apple, and licensing it to Asian manufacturers). But that was during the last century.

The vision of Sony's previous CEO, Noboyuki Idei, was Sony as a convergence company. He rightly foresaw the importance of uniting content and delivery, hardware and software into one experience. During his reign, Idei fought against a company culture which was in the meanwhile petrified in the engineering mindset which had served the company well in its earlier years. Idei perhaps wanted Sony to become something around the lines what Apple is today. To that end, he even broke with an iron law of Japanese corporate culture and chose a Westerner as his successor.

Idei might have thought that choosing a new chief executive from a gramophone company would advance his idea of convergence. But this was the very same industry which, through its refusal to innovate, opened the strategic horizon for Apple. Howard Stringer, previously having worked 30 years at CBS, took over in 2005. Since then, Sony cut visionary developments. Sony cut jobs. Today, Sony is losing money. And while Sony was acquiring Ericsson in a bet for the mobile phone market - without much success - Apple worked on the iPhone, the product which was to redefine the mobile communications industry. 

Since 2005, Sony is worth a quarter less (-24%); Apple, on the other hand, is worth over five times more (+560%).

What are managers, what are they supposed to do, and how? We can find out a bit more when we look at the root of the word management. The English term "Management" is coming from old French "ménagement", meaning "conducting", "directing". The contemporary French "ménage" stands for Housekeeping. Management, then, is directing, and it has to do with good housekeeping. There are two word roots in Man-age-ment: "Man-" and "agere". The first, man-, comes from the Latin "manus", meaning "hand". This comes from Sanscrit "ma", there meaning "measure". "Manus" is the hand, our tool for gestures (orchestra conductors use their hands to direct their orchestra) and expression. The hand is used in fight, thus the Latin manus is often used as "bravery". In Latin, manus is also an artistic hand and as such can mean "the finishing touch". 

The Latin word manus is also the designation for a unit of war, a corps, and generally an organisational body or company. The meaning of manus contains another important insight here: The military corps is the "hand" which executes a military strategy, and similarly a company is understood as the "hand", the organ which executes a strategy and intent. The hand gestures and the hand makes. The latter is contained in "Manu facta" - the root of "manufacture". There is always the danger of overdoing, and so manufacta can be used as "overdone, artificial, fabricated" such as in "oratio manu facta" (oratio = speech) - an overdone, artificial speech.

The second root is the the Ancient Greek "agô"- to carry, convey, bring. In Medieval Latin, ago means "to set in motion, to drive". There it has a multitude of uses such as in se agere - "to set oneself in motion", or simply "to go". "Hoc agere" (hoc = this) then means "to attend to the matter at hand". The word agere converts some preceding nouns to action: It means "to express thanks" when attached to "gratias", when attached to "pacem" (pace = peace) it means "to keep the peace". Agere would also be "to deal with" and can also mean "to take a matter up publicly", "to incite to action", and "to be concerned".

Management combines manus, the directing gesture, with agere, setting into motion. In manus, there is both the meaning of leadership and bravery. In agere, there is the meaning of conveying, pointing at the vital need that managers must be communicators.  

Copying is a learning route to innovation. When I published my first article dealing with the topic in 2001, this seemed to be a counterintuitive idea to most. In another article in 2005, I proposed a model of development phases after the imitation stage. And indeed we have now reached a live example of a transition to the next stage: Chinese copies do not any more compete by price alone, but start to compete by new features.

Let us look at an innovation. There is a "long nose" in which the innovation brews, but does not quite reach a critical mass. Bill Buxton states the example of the mouse:

"Think of the mouse. First built in around 1965 by William English and Doug Engelbart, by 1968 it was copied (with the originators' cooperation) for use in a music and animation system at the National Research Council of Canada. Around 1973, Xerox PARC adopted a version as the graphical input device for the Alto computer.In 1980, 3 Rivers Systems of Pittsburgh released their PERQ-1 workstation, which I believe to be the first commercially available computer that used a mouse. A year later came the Xerox Star 8010 workstation, and in January, 1984, the first Macintosh—the latter being the computer that brought the mouse to the attention of the general public. However it was not until 1995, with the release of Windows 95, that the mouse became ubiquitous."

So there is a potentially long time in which the next hit is, in some form, already around (but you likely don't know). Then the innovation reaches critical mass. And then follows the long tail.


What I call the "coathanger" model of innovation combines the long nose, the innovation peak, and the long tail

In the "long nose" there can be several attempts, sometimes in different markets. Here the innovation is in the waiting. The boost comes along in the form of a change in the market environment. This can be 1) an external economic factor, such as he oil crisis of the early seventies which boosted fuel-efficient Japanese cars. This can be 2) another, previous innovation which changed the playing field so that a follower innovation can take place, shown at the example of Windows 95. Or it can be 3) a latent demand condition - an innovation which taps into a latent demand. This is the route to innovation which does not intrinsically depend on external change or another innovation - it sees a latent opportunity and changes the market by itself. The iPhone is a single product which out-innovated the telecommunications electronics competition and is now the dominant design for others to follow.

Innovations change the market environment and make way for other innovations: Windows 95, for instance, changed the playing field for computers worldwide, but was itself a follower innovation emerging from the long tail of the Macintosh. The Macintosh served as an inspiration, and Microsoft changed a fundamental feature: It was made available without a the need for a corresponding piece of hardware. This difference proved crucial, as it allowed Asian manufacturers to mass-produce computers with a useful GUI by simply licensing Windows.

In the long tail, the innovation changes the playing field and results in a multitude of derived products and services. There are principally three routes: Enhancing, competing with related products, and copying.

For enhancement to work, there must an option provided by the innovator to enhance the original (for the iPhone this would be the "made for iPhone" tag or the iPhone apps): This works as long as the secondary producer agrees to the rules set out by the original producer/innovator. If this is not available, or it appears preferable to compete, there will be a competition with related products. These are the related products which have been inspired by the original innovation and need to offer alternatives to compete with the original product: Since the arrival of the iPhone, competing manufacturers came up with similar products such as the Sony Ericsson Ixperia, BlackBerry Storm or Samsung i900. The chance to achieve a follower innovation is only given when competing with related products, although to get there the related product will need to provide a fundamental advantage - a mere tweak of the original will not do. And then there are the copies: Despite being in theory illegal, they usually compete by much lower prices, or, as recent developments show, by new features.

For copies, the price route- think Rolex fakes - works as long as the market knowledge is underdeveloped and a clone is easier accepted. This route is still taken by many smaller producers in China who target developing countries where consumer knowledge is lower. The more interesting clones compete by features. There is an array of Chinese iPhone clones, some of which have features differing from the ones provided by the original: For instance, one has a dual SIM card slot, ideal for people who frequently travel and want to avoid roaming fees.

The iPhone clones' new features do not yet fundamentally improve on the original. Rather the opposite, they struggle with details. Remember, the iPhone was out-innovating the Nokias and Ericssons not because it provided even more additional features, but because it radically improved on user interaction by removing clutter. It is not only the hardware, it is the combination of hardware - also the original iPhone is assembled in China - and smart software which makes it such a pervasive product. Still the iPhone clones which compete by new features are creating new, sometimes local niche markets in the long tail.




iPhone clones: Meizu, iOrgane, CECT Dual Sim, HiPhone, SciPhone.

Although there are more and more designers, products with design quality are hard to come by for most consumers on the globe. This is because developed design capability is not where there is production capability - an important observation, considering that design products are the largest chunk of creative industry exports worldwide. In Europe, where design is getting recognized as an important corporate asset, there is little large-scale production capability left, while it will take some more time once China has a design capability to match its massive industrial output.

For premier companies, design is considered a vital corporate asset which has to be protected - not least as these companies have substantially invested in design. These pictures illustrate part of the problem: Chinese car designs, looking quite familiar.

Bayerische Motoren Werke, Munich, and Shaanxi Qinchuan Auto (Build Your Dreams), Shenzhen

Since many years, Chinese companies are aware of the appeal of Western, but also Korean and Japanese brands and designs for Chinese customers. Approaches are mixed: Lenovo bought the IBM hardware business mainly for its tech know-how, but got the valuable IBM brand name rights only for a few years. British carmaker Rover's remains was bought by Nanjing Auto, while competing Shanghai Auto got the design rights of two Rover models. The Rover brand however, it's most valuable asset, went to Ford. Chinese companies until now shopped for foreign companies mainly to boost their technical know-how and seem to have underestimated the other main factors for attracting global consumers: Design and brands. Not having gotten the Rover brand, Shanghai Auto is now selling the Rover 25 and 75 models under "Roewe" - the Chinese pronounciation of Rover.



Global brands such as BMW have a substantial image and design edge over home-made Chinese products with local Chinese customers, a similar problem Korean industry faced with local consumers when opening its market in the nineties. Korea invested heavily in design - and now has both locally desired and globally recognized brands such as Samsung and LG.

Some Chinese companies are getting aware of the importance of design, such as Gangzhou-based GAG, which started to develop a - kind of "not intended for production"-looking - prototype with a young car design studio in Shanghai. Above-mentioned Shanghai Auto also recently came up with a new "Roewe" which was designed and engineered in Britain and is not based on the old Rover designs. Also Chinese brands Geely and Chery did show new concept cars. There is no defined identity or design language yet, but it is a start for Chinese companies to understand the importance of developing design capability. Early learning in design, especially in Asia, works via imitation - see also my articles Alchemy of Cultures (2001) and Imitated, Commodified, Experienced (2005).

The first Chinese companies are now moving from the imitation to an exploration stage, where many different design approaches are tried in a quite chaotic manner. Eventually, they will move to state of synthesis and dominant designs will appear. As can be seen in Japan and Korea, this is not a linear process; it is rather a learning loop, where outer influences repeatedly play a role - see for instance the LG Prada phone, the first co-branded phone with a fashion company, and Samsung's later Armani phone. Samsung also presented it's own iPhone-inspired product.

LG Prada phone, Samsung Armani phone, Apple iPhone, Samsung F700

On the road towards the knowledge economy, many developed countries have also developed design capability. At the same time, industry has steadily declined, not least because of cheap competition from Far East. Design capability is now concentrated in the North and West of the globe, while production is concentrated in the South and East.

Will all Europeans and Americans become knowledge workers, while the Chinese are merely producing the knowledge output of the West? Not likely. I think that on the long term the situation will become equalized - some production (for instance in the area of green technology - the next industrial revolution) will need to come back to the West, while the East will pick up in design capability.

In the meanwhile, designers need to orient themselves more globally, and national design organisations in developing countries need to open their markets to international designers. I doesn't make much sense when talented Western designers in the current economic downturn struggle for local commissions while at the same developing countries need the injection of talent. Designers need to think and act globally.




Some are ahead already: Tata, the Indian car maker which came up with the remarkable Nano, a more convincing (and much cheaper) micro-car solution than Mercedes' loss-making Smart, will soon tap into the talent pool of London by opening its first international design studio there this fall. Expect Smarter and better designed cars - made in India.

There are not only brand and product life cycles, also design is subject to life cycle phases which, when strategically deployed, add value.

More radical, innovative designs are most useful in the introduction phase. Once a brand or product is in the maturity stage, the target will be the majority of consumers in the middle of the bell curve, so designs are usually more toned down to appeal to the mass market - think HP or Dell. But is that the right approach?

There is always the crucial element of innovation required to keep a product in the loop, which might be lost when a company is focusing too much at the middle of the bell curve. Companies in mature industries often have a difficult relationship to innovation. On the other hand, innovator companies are often having trouble accessing mass markets.

The issue is the “chasm”, as Geoffrey Moore calls it. This chasm is bridged only by a handful of masters of the life cycle such as Apple. The trick clearly is to bridge the chasm, to be innovator and mature player at the same time.

The German Design Council and Zollverein School for management and design created a new Executive Education series: "Professionalising Design" is targeted at executives in the fields of design, product development and marketing.

On June 28th I will be talking about the essentials of the design briefing. Other speakers in the series include Roland Heiler (Porsche Design), Hartmut Esslinger (frog design), David Kuntzsch (ERCO), Hermann Steger (Dornbracht), Mirko van den Winkel (Moroso), Andrej Kupetz (German Design Council), and Ruth Soénius (Siemens). Attendence is limited, grab your seat here.

Your future starts here, German Design Council and Zollverein School of management and design, Essen, Germany, June 28.

Bogazici (Bosphorus) University, the premier University of Turkey (with a fantastic location right at the Bosphorus) and the Bogazici University Economics Club will host the anniversary 10th Brandmarker International Student Congress on Marketing Communication. Topics will be branding, socially reponsible marketing and interactive marketing.

I will be giving a lecture and conduct a creative session on June 19th. Other speakers include Alemsah Ozturk (41-29), Levent Erden (Euro RSCG), BJ Cunningham (Georgina Goodman), Salim Kadibesegil (Orsa), Annelies Poolman (Amsterdam Global Conference on Sustainability and Transparency), Daniel Levine (Avant-Guide) and Hansin Dogan (United Nations Development Programme).

Brandmarker International Student Congress, Bogazici University, Istanbul, Turkey, June 19.

Since 2000, allevio design has changed quite a bit. It started out as a multidisciplinary design studio with an edge in interactive design. Over time I moved the focus to design strategy and trend research. To gain creative independence from day-to-day commercial projects, I also started a range of projects envisioning the future - such as project 4391, parallel places, and mnemonic metropolis. Finally, in 2007, this has become a different company, and thus it has now a different name - mg strategy.

Whats in the name? mg are my initials, and, incidentally, the abbreviation for a special type of strategy - the minority game strategy, a nice and simple model with adaptive rules, yet complex behaviours (in which the players on the minority side win).

The new mg strategy website is now online at mgstrategy.com.

A bit of background about the new web structure: The former websites of allevio design, allevio.com and ixperia.com, are now pointing at the same content at mg strategy. The semantic database content such as the semantic pianist at ixperia.com has for now been scrapped.
Much of the content at allevio was carried over to the new site, although some was scrapped as it seemed not relevant anymore. The resources have been increased from 7 to 21 downloadable papers and presentations. All publications come in PDF, all presentations in Flashpaper. The section about explorations in interactivity was streamlined to contain 6 redesigned interaction experiments, and the project "architecture by algorithm/ mnemonic metropolis" was updated with a new flash presentation.

About Trends (PDF, 430KB) is an introduction to trend research and forecasting.

What actually are trends? This paper attempts to illuminate trends from viewpoints of cognitive science, psychology and sociology and introduces the trend domain model as a guidance for trend researchers.

It was first presented at the Product Development and Management Association, London 2003, and the Design Management Institute´s European International Design Management Conference, Barcelona 2004.

A new idea? Great!
A flowchart to avoid innovation.