It's the people, stupid !

This blog is a follow up on the one I wrote a while ago on the smiling curve. Next one will be about the REAL challenges for Thailand with respect to AEC.

So let’s say you are aware that the future is not at the bottom of the smiling curve. You decide to change your business model and move either upstream, in more R&D and component design, or downstream, to develop a brand and services. Hooray, problem solved !

Maybe. Let’s take a look at HTC. Up until a few years ago, HTC was the FOXCONN of today, doing the OEM assembly of hand phones for others (and doing it quite well). HTC understood the concept of the smiling curve and knew there was no profitable future in remaining an assembler. The company launched its own sleek designs and a cool brand, and was for a while the darling of investors and consumers alike (timeframes in the mobile phone business are short). Today HTC is struggling for market share against Apple or Samsung: from a 10.7% market share in Q2 11 HTC dropped to 4% end 2012 (source www.idc.com and Wall Street Journal 12 November). Its stock price trades as one sixth of its all time high at the beginning of 2011.

What went wrong ? It is not sufficient to just update your business plan and corporate website. A key challenge HTC has been confronted with is that it has not been able to build up its people’s competencies in hardware and software that would allow it to come up with products and applications that can challenge the competition (reported in Global Times China on 13 October). Although HTC continues to develop and bring to market new models, it seems the company is relegated to playing catch up with the big players. Not a recipe for survival in the long term (which means 2 years in mobile phone business) !

Having a fresh strategy going forward is definitely necessary for getting out of the smiling curve. But a company needs to drill down into every aspect of its business to evaluate the impact of this new strategy, and address the gaps. Designs and capital investment are very tangible elements of a new strategy and they can in the short term give the impression the execution is well on its way. Yet what really makes the difference is how people’s competencies are developed to fit with this new strategy. Any deficiency in this area will show its ugly head a few years down the road.

It might have been the economy in the past (http://en.wikipedia.org/wiki/It's_the_economy,_stupid) but in 2012, it's all about the people,  stupid !