Jun 5, 2011
Investor Value in Technology Industry - A Key Factor
Originally published at https://prasanjeev.wordpress.com on June 5, 2011, a time when I was pursuing my Full Time MBA at Ashridge. Some of it, reading today, I find it very amusing! :)
It has been an unusual week and a half. Three days of absolute stretch were followed by the study of an extraordinarily amazing subject — creating [Shareholder] value. At this point of time in my life, I am convincingly convinced of the true objective of a business — to create value for the investors’ money**. However, this post is not about trying to convince you, my faithful reader, about business objectives. Now that I am convinced about the objective of a firm, the question I asked myself was, how can technology industry players deliver on it? Why technology industry, you might ask. Well, 2 reasons — my last assignment (on organization lifecycle, for which I chose a semiconductor company) and a report I read today about Nokia on economic times.
If I have to draw a single line conclusion from my assignment on Organization Lifecycle, it would be — Technology industry can be your best friend or your worst bête noire. Of course, each industry has its own supply-demand alignment, defined by the ‘time to market’ measures. But with technology industry, innovation and time to market become the key, and the source of competitive advantage.
Case at hand: Nokia. But before that, let’s define Time To Market (TTM, technologists love acronyms, don’t they!). Wikipedia defines TTM as the ‘time taken between the conception and the time at which the product is being made available to customers’. This clearly applies to first of its kind products (iPod, for example). Then there is a second type of TTM, which is the time taken for the incremental changes, mainly in response to customer feedback, to reach the market. Technology, being the way it is today, touches everyone’s life in many ways than our past generation could have imagined, and will permeate even more in future. (Funny, however, that each generation knows exactly how to make the best of available hi-tech products in the market without much problems.) This has lead to a cyclical effect: companies giving us innovative products, faster, and we expecting more and more each time, faster and faster. It has also pushed out the horizons of our imagination, and we dream even more of the day when artificial intelligence will be a reality. Net result: Innovative products are no more fantasies, rather a requirement.
But, this cyclical effect has a downside: you just can’t stop. It is no more a hare and tortoise race out there, but all hares running against each other, upon each other, trying to stay ahead of each other. This leads us to one of two situations:
- One in which a hare gets exhausted and retracts (the dreamy-eyed startups, who vanish without a flash)
- The other one in which a hare leaves the competition way behind and establishes itself as the ‘market leader’ (Nokia, for a very long time, and continues to be slightly). This can be a beautiful position to be in, one might think. Well, we all know the story…when the competition is not in the visual range of the hare, it does the cardinal mistake of closing its eyes and exiting the state of consciousness, only to re-enter to see its lead diminished, or in fact, lost. Nokia’s competition still has some way to go to catch up, and only time will tell if Nokia completely lost the plot and the climax.
The present though is not looking very good for the Finnish company, which brings us to the article ([Updated] link: https://www.bloomberg.com/news/articles/2011-06-03/nokia-breakup-worth-52-gain-to-battered-shareholders-real-m-a). Nokia is now worth $25.6 billion, from $300 billion 4 years ago, 77% of shareholder’s money lost! Its individual assets, including patents, is worth more than the company (finance is a strange world, I must say). Has the company hit the bottom of the ocean? Should the giant of our times accept defeat, or fight back? Should it look for a different market space/segment, and leave the smartphone arena to iOS and Android? Well, there are a lot of people who still want a phone only for mobile talking, although the number is shrinking. In my opinion, Nokia should break down its hardware, find incremental benefits in memory, processing speed resulting in quicker response to a user’s input compared to its competitors, price it in-between the android phones and the iPhones. Or create an app-store that is better than android’s open market place, and cheaper than the iPhone’s grandeur offerings. (I must confess that I have not investigated the strategy that Nokia is planning to adopt.)
A radical step might be to look at the convergence of mobile, PC and cloud solutions, now that they have Microsoft as partners. There are options, but to regain its lost control over the market and reset its fortunes, it has to go radical. Hey, I am just a naive observer, and these are no mantras for success from an expert. But, one thing’s for sure, Nokia needs to do something quickly, Very Quickly.
One is compelled to ask at this stage, is there nothing a company competing in such a dynamic and demanding (for new) market place do, to sustain growth over a longish period of time, other than product innovation and improved TTM? The answer will follow in my next post, hopefully sooner. Please leave any questions you might have in the comments section, and I will try answering as many as I can in my next post.
** Reflecting over this statement with additional 9 years’ experience, I’d modify this to - A business’ Objective is to obsessively solve a chosen customer problem, with Investor Value being the Key Result.
