Saturday, December 24, 2011

Blue Ocean Strategy essential to survive in the Smartphone Market 2011 – Future Outlook 2015

Wikipedia defines a smartphone is a high-end mobile phone built on a mobile computing platform, with more advanced computing ability and connectivity than a contemporary feature phone. Smartphones are no longer high end devices as many mobile makers like Samsung, LG, HTC, etc are not only launching smartphones in mid range but also at the lower range. In India there are low end android smart phones being launched at Rs 5000. Smartphones at low end are being launched by mostly local players that are not as feature rich and functional as high end smartphones but they have the essential smartphone features. Many mobile makers across the globe want the mobile users move to the smartphones from the basic dumb phones as it increases the opportunity to earn more revenue, sell more apps and increase their margins. Wireless carriers will also have an opportunity to increase their revenues as mobile users use their phones for other value added services other than calls and messages. Wireless carriers and mobile phone makers are collaborating to push more smartphones at all price points from Low end to high end. Subsidies are being provided by the wireless carriers to the mobile phone users in selling the devices and handsets and they intend to recover the subsidies through data plans and other value added services.

Apple, Samsung & HTC drive growth, RIM’s Blackberry crumbling in 2011 and Nokia Fighting back
Smartphone market had seen tremendous growth in 2010 (74% YoY) powered by iPhones, Blackberry and Android phones. The market was flooded by Samsung, HTC, Apple and RIM. But 2011 has been a slow growth year with around 35-40% YoY growth due to European Debt crisis and US Economic slowdown. Apple is the star performer with its iPhone and had been hugely successful as evident in the unit shipments and since its launch in 2007 there are five versions of iPhone that consumers appreciated and bought and Apple sold more than 150 million units till now. Apple iPhone has redefined the smartphone market and created uncontested market with new benchmarks that all the other smartphone vendors are still trying to reach. Every thing from the product design, software, hardware and even the Applications store has 500,000 apps have made iPhone a iconic cult product that consumers are willing to pay premium and even today Apple with its single product and total control on everything from Hardware, software and apps store is selling in millions. Apple along with iPhone and iTunes store through which music, videos, etc are sold has created a cult of users and since it reduced 3GS price to zero with contract, millions of new customers will buy iPhones. Apple is constantly innovating and improving the iPhone experience with addition of new features and new Siri the voice control Assistant is the new blue ocean offering.

Samsung is the next best performer in the smartphone that has sold more than 100 million units till now. Samsung is using a multi pronged approach launching smartphones on Android (Galaxy), Windows mobile (Omnia), Symbian and its own operating system Bada (Wave). Samsung launched smartphones with powerful chips, cameras, added features and functionality and android phones are supported by Android Market which has close to 500,000 apps. Samsung strategy has been very successful and it has given market dominance at least for one quarter. Samsung is using both the blue ocean strategy of targeting emerging market with its own mid range phones using Bada platform and swimming in the high end Red ocean market of smartphones with Android and Windows mobile phones. Samsung is also working with wireless carriers across the globe to push its smartphones into the market. Wireless carriers need Samsung to counter the iPhone. HTC is another vendor that has been flooding the market with windows and android phones. It released around 80 phones in 2011 based on various OS and is following Samsung and believes volumes will help it increase its market presence as is evident from its obscure position in 2007 to number 4 in smartphone market in 2011. HTC is suffering due to lack of a brand phone like iPhone or Samsung Galaxy and HTC recently announced a change in strategy from quantity to quality. It is planning to invest in brand and looking to offer more mid range phones in emerging markets along with high end. HTC adopted Red ocean strategy to survive in the smartphone market.

RIM’s Blackberry was a blue ocean product initially as it created uncontested market space in enterprise segment. Blackberry is a device which was a new type of wireless handheld solution for companies that saved time and money because employees can access email almost from any place at any time without having to go back to the office and is an example of the third principle of Blue Ocean Strategy: Reaching beyond existing demand. It became a must have device for all the C level executives, Top Managers, Political Leaders, Professionals, etc across the organizations and sold millions. As the consumer needs changed RIM also introduced new Blackberrys and launched various versions of the base models. But since the launch of Android into the market Blackberry started crumbling under the pressure and it has lost significant market share to Android. Blackberry once cult devices had seen its consumers move away due to lack of features, functionality like poor web browser, poor media player and not enough apps when compared to competitors. RIM is not able to compete in the Red ocean market, co-CEOs were initially skeptical about touch screen multimedia phones and later forced to launch such phones by wireless carriers and it no longer has its blue ocean advantage as consumers want multimedia internet phones not just email and messaging phones. RIM co-CEOs are promising revival of the product and are betting heavily on the QNX operating system and Blackberry 10 phones next year and are asking for patience from investors and stakeholders. For the time being it is planning to invest in the marketing and advertising campaigns for Blackberry 7 phones and looking for wireless carriers to push more phones till next year.

Nokia communicator line that was launched in 1996 was first smartphone and in 2000 the communicator line was enhanced with color screen and Symbian OS. The communicator line was a very expensive model and Nokia followed this with N series and launched the N95 in 2007 with range of multimedia features like 3G, 5 megapixel camera, etc. Symbian was the number one smartphone platform by market share from 1996 until 2011 when it dropped to second place behind Google's Android OS. Since the launch of iPhone and Android, Nokia rapidly lost market share in 2010 and N8, the touch screen smartphone with 12 megapixel camera and with video conferencing facility could not match its competitors. Nokia was forced to announce a dramatic new strategy in February 2011 that it will adopt Windows Phone 7 OS as its primary smartphone strategy along with its own Symbian OS platform. Nokia is working with Microsoft and is betting big the Windows Phone 7 OS and it launched Lumia at the end of the year. It also launched new Symbian phones supporting with the new OS update and is also launching the new N9 phone next year. Nokia is also committed to the Qt framework is at the core of Nokia's existing smartphone product line and Ovi Store consumers are downloading an increasing number of Qt applications. There is a place for third ecosystem in the Smartphone market and Nokia is betting that Windows Phone OS will be that and it is coordinating with Microsoft in terms of R&D and innovation. But both Nokia and Microsoft are facing the latecomer’s dilemma and they believe differentiation is the key like the one in Lumia phones large touch screen tiles rather than the grid of icons in iPhones and Android phones. But stakeholders are skeptical about the Nokia’s new strategy and look at this as a mere survival strategy not as a turnaround strategy.

Smartphone Market - Future Outlook 2015
According to IHS iSuppli Mobile Handset Market Tracker, global smartphone unit shipments will soar to 1.03 billion units in 2015, more than double the 478 million in 2011. This will cause smartphones’ share of global cell phone shipments to increase to 54.4 percent in 2015, up from 32.5 percent in 2011 Driven by booming sales of low-end models, shipments of smartphone will rise to account for more than half of the worldwide cell phone market. According to IDC, in 2011 vendors will ship about 472 million smartphones, about 55% above the 305 million shipped globally in 2010. IDC said 982 million smartphones will ship in 2015. IDC also forecasts Android phones will be market leader with nearly 44% of the global smartphone market in 2015, up from 39% in 2011. Windows Phone is expected to be in second place with a 20% share, growing from less than 4% in 2011. Apple iOS used in the iPhone will be in third with nearly 17% market share, down from 18% in 2011 and BlackBerry will be fourth in 2015 at 13%, down from 14% in 2011. Gartner and IDC endorse the Nokia and Microsoft collaboration strategy. Gartner too forecast a billion smartphones in 2015 and Android (49%), Microsoft (19.5%), Apple iOS (17.2%) and Blackberry (11%) will be the market shares. Both Gartner and IDC forecast drop in market share for Apple iOS as they believe Apple will be interested in maintaining margins rather than pursuing market share. The future will be dominated by open source OS market where the developers will be looking to develop Apps that can work on all the ecosystems irrespective the vendors and devices. The market will be fueled by falling average selling price, increased phone functionality and features, more applications in app stores, low priced data plans and manufacturers flooding the market with both the high end, mid end and low end smartphones at all the price points.

Discussion points:
  1. What is the role of Blue Ocean Strategy in Smartphone market?
  2. What is the role of innovation in the smartphone market and how do manufacturers keep on innovating?
  3. What should manufacturers do keep up their market share and how will RIM and Nokia regain their market share?

Tuesday, December 20, 2011

Blue Ocean Strategy in Smartphone Market - RIM co-CEOs facing severe criticism - Ripple effect of Apple iPhone & Google Android Success

Jim Balsillie and Mike Lazaridis are running Research in Motion (RIM) as co-CEOs since 1993 successfully until 2011 and the company had been through a turbulent year. Analysts and investors believe that co-CEOs are ruining the company. Lazaridis takes care of the technical side (Engineering & R&D) and Balsillie is responsible for the Finance, sales and marketing. Lazardis built Blackberry, a device which was a new type of wireless handheld solution for companies that saved time and money because employees can access email almost from any place at any time without having to go back to the office. Balsille sold the device successfully to Companies and Governments and created an uncontested market space with in the enterprise segment and Blackberry an example of the third principle of Blue Ocean Strategy: Reaching beyond existing demand. RIM co-CEOs turned it into a 20 Billion dollar business and Blackberry had become a cult device like Apple products and a must have device for all the C level executives, Top Managers, Political Leaders, Professionals and Non professionals across the organizations.

Source: Company Website

The success of the Blackberry had made the co-CEOs billionaires and since the launch of Blackberry 1999 sold millions of devices. The enterprise segment success had lead the company into consumers segments and particularly young people embraced Blackberry and were most attracted to its instant messenger feature. The device too had changed significantly since its launch which was a black & white phone with email and phone, costly and no multimedia features. As the consumer needs changed Blackberry came with features like better screens, camera, media player, touch screens, etc. RIM also started selling a higher volume of its low-end phones, such as the Curve or Tour series that are geared toward consumers upgrading to smart phones for the first time. Company also believed for continuing to grow in the crowded U.S. market is to develop targeted products for specific groups of customers and hence released many models of its seven series of devices RIM's strategy has been to leave the wireless carriers to handle the local marketing and it started advertising campaign focused on consumer directly in 2008. RIM was doing very well in the Smartphone market both in US and global markets and was also doing well even after the launch of Apple iPhone but the real problem started when the Google Android phones hit the market.

Apple iPhone & Android Phones Success
Apple launched iPhone in 2007 which is an internet and multimedia enabled Smartphone with touch screen and it totally redefined the Smartphone market. Apple iPhone has become a cult device and five generations of iPhone models have hit the market till now and Apple sold more than 100 million units till now. With half million applications in app store for the consumers to play with, iPhone is a great device that revolutionized the Smartphone segment with features like a portable media player (iPod), an Internet client with email, web browsing capabilities, multi touch screen, 3G connectivity, camera, etc. iPhone has provided consumers with an unique experience and it has been one of the most successful products for Apple that has generated significant revenues and profits. Apple iPhone created a blue ocean market where it has total control of everything from the product design, pricing, software, app store and development to the way it markets and sells its iPhones. Initially only AT&T was authorized to sell the phone. Apple had been able to sell the iPhone at a premium and consumers are more than willing to pay the premium because iPhone was such a magnificent device with functionality and half million applications in the app store that allowed its users to use for everything. Apple has total control on the hardware, software and provided limited access to developers to its code and it tightly restricts the apps on its app stores and allows only apps that are approved by it.

Android is a pack of software for mobile phones that contain an operating system with middleware and key applications which was originally developed Android Inc. that was acquired by Google  in 2005 and T-Mobile launched the G1 Android phones manufactured by HTC to the public in 2008. Android is now the largest OS in the smart phone market with 44% market share in Q3 2011. Android is an open source mobile platform where any one can create applications and sell them through Android Market. Android has close to half million apps in Android Market as of now. Android phones are being launched by mobile makers like Samsung, Motorola, HTC and other players that are easy to use and often come with functionality and features that are more powerful and useful than the Apple iPhone. Android phones were initially launched with bigger screens, resolutions, multi touch screens & powerful chips like 1GHz Qualcomm snapdragon processor compared to 512 MB RAM of iPhone. Android also has support from multiple networks AT&T, T-Mobile, Verizon, Sprint, etc. Google still has central control over the code but allowed various manufacturers to flood the Market with Android phones at various price points and the wireless operators have pushed them into the market through advertizing and various subsidies on the devices and data plans. Consumers too embraced the device as suggested by market share figures. Google Android targeted the 81% percent market that were not using the smart phones and target this uncontested market as part of the blue ocean strategy, with devices that had features, functionality and apps.

2011 Worst Year for RIM
It all started in the first quarter of this fiscal year when RIM announced that it is having problems gaining traction in new markets and shipping updated products. RIM shipped lesser number of Blackberry units and announced the delay in introduction of BlackBerry Bold 9900 and next version of BlackBerry OS 7 to late August. The BlackBerry 7 handsets launch was delayed because RIM redesigned the hardware and switched to a higher-performance processor, which caused delays as wireless carriers had a qualifying process for new phones. Also RIM could only sell only 500,000 units of the newly launched Blackberry Playbook tablet in Q1, 250,000 units in Q2 and 150,000 units in Q3 far below the company estimates. The company is forced to offer huge discounts on the tablets to push the inventory into the market and a pre-tax provision in the third quarter of fiscal 2012 of approximately $485 million, $360 million after tax, related to its inventory valuation of BlackBerry PlayBook tablets. Playbooks had been launched prematurely and had a number of software issues like problems with Flash content. Carriers like Sprint opted not to sell the Playbook as it got very poor reviews which had a significant impact as RIM always depended on its wireless carriers to push the products on to the consumers. Hackers were quick to hack the playbook and made a dent to RIM’s product security reputation.

RIM's new BlackBerry 7-based handsets sold well at launch and had helped company to meet its guidance of 14.1 million BlackBerry units but the revenue fell short of expectations as demand for older versions of Blackberry has drastically come down. Consumers completely lost interest in the Blackberry devices as the devices were slow, had few features, problems with browsers and lack of applications. RIM gave a bleak outlook for its Q4 i.e. 18 % drop in BlackBerry shipments (11-12 million units) and downgraded its expectations which made investors angry. Another issue is that during the Q3 call, RIM co-CEOs announced due to non availability of a more power-efficient dual-core processor until mid-2012, the BlackBerry 10 phones are not expected to arrive until late 2012. Blackberry 10 handsets will be the first the “mobile computing” handsets that RIM launches as it was all along launching messaging handsets and hopes the new handsets will turnaround the company next year. But the fact is US consumers that were addicted to Blackberrys have deserted them and with new iPhone next year and Android Phones being released aggressively, RIM plan of spending on a new marketing and advertising campaign in 2012 will not help RIM in retaining the consumers.

Blackberry outage occurred in October 2011 which was a massive outage for three days due to which messaging and browsing were affected as a result of a core switch failure in RIM's infrastructure and it affected BlackBerry users in Europe, the Middle East, Africa, India, Brazil, Chile and Argentina. Blackberry users had earlier too experienced outages in the last three years but not in the scale of the October 2011 outage. This happened just before the launch of the new iPhone 4S and it made a big dent to RIM reputation and the damage did not reduce despite the co-CEOs apologizing to their customers publicly. There has been a general perception that this outage was not handled properly by RIM in terms of communicating with their consumers. RIM is forced to give up the BBX name after a New Mexico ruling against using the BBX name and company is now referring the next generation Blackberry based on the QNX operating system as Blackberry 10. Next year RIM is launching the BlackBerry Mobile Fusion and the service will allow corporate IT departments to manage a fleet of Smartphones and tablets from a single web console—including rival iPhone and Android devices. This will help in raising the service revenues from current 24% but the company gets majority of revenues from hardware sales. RIM wants to be known as Product Company rather than managed services company.

RIM Co-CEOs criticism
Rim co-CEOs are being criticized by all the stakeholders and the ultimate proof for their poor performance is that they are no longer Billionaires as the RIM stock price had fallen significantly since mid 2009. They failed to understand the transformation that happened in the Smartphone market which is consumers’ preference towards a complete mobile computing with multimedia features device from just a messaging device. In 2007, Jim Balsillie stated that iPhone is not a threat to them, downplayed the significance of touch screens, felt that the Apple total control is dangerous and it is just another entrant in the Smartphone market with multimedia features. The first Blackberry touch screen phone was launched in November 2008 which was Blackberry Storm as the wireless carriers wanted a new device to counter iPhone. Mike Lazaridis even down played the touch screen only phones were not what the consumers wanted as late as in 2010 despite the phenomenal success of iPhone and other Android phones.  Not only had the Blackberry RIM co-CEOs blamed for the failure of Playbook tablet as they launched it prematurely that had severe problems but also for the delay that happened in introduction of new Blackberry and Playbook. They still believe that they can turnaround with the launch of Blackberry 10 and Playbook 2.0 next year in 2012 and are asking for patience from all the stakeholders.

The co-CEOs hold the position of co-Chairman also of the company which is being severely criticized by many and despite holding hold board meetings like any other corporation; they are accused of making the sessions a "non-event”. They have a tight grip on the company since past 27 years and since 2007 stock options scandal they are facing severe criticism and even more since mid 2009 the market cap reduced drastically and the blame totally lies on the co-CEOs. 2007 stock options scandal is about back-dating stock options that it gave to its senior executives in such a way that the options were made more valuable. Jim Balsillie was forced to step down from the role of Chairman but regained his position back after the 2010 settlement. Also they are criticized for not handling properly the proposed bans by governments of UAE, Saudi Arabia, India and other countries as Blackberry declined to provide greater access to the encrypted information sent by its devices. Recently an email surfaced supposedly from disgruntled executive in RIM that highlighted some of the key reasons for problems like lack of innovation support, lack of focus for the top management, failing to listen to the end consumer and understand their needs and the way the organization is become redundant with inefficient leaders and lack of quality employees.

RIM co-CEOs are also blamed for not communicating to the stakeholders about the delay in launches, in communicating the bleak outlook, fall in sales and accept failure of its Playbook tablet. They have overseen rapid depletion of the market cap since past two years (Share price fell 74% in 2011) and they are even now announcing more bad news than good news. They say transformation plan will turn around the company and asking for patience from the stakeholders. Research firm Strategy Analytics forecast RIM’s share of the US Smartphone market to fall to 12% in 2011, a sharp drop from 2007, when RIM had a 44% share. By comparison, Apple, which just started selling smartphones in 2007, is expected to grab a 24% US market share this year. The co-CEOs have decided to take a salary cut to token 1$ a year like Apple’s Steve Jobs, Google's Eric Schmidt, Sergey Brin, and Larry Page, Cisco Systems CEO John Chambers and Oracle's Larry Ellison who had at one time reduced their annual salaries to $1. They are also are believed to be holding closed-door meetings to discuss potential strategies for a shakeup in the company's leadership. But the fact remains nobody will be interested to take over as the CEO of RIM as long as both of them stick to their co-chairman roles. Their fate hinges on the company’s board of directors report by the end of January 2012 on management effectiveness in response to demands from investors. Investors and other stakeholders are asking for the co-CEOs to step down as they lost confidence in them and doubt their capability to turnaround the company and want new leadership to take over the company.

Why so much criticism after running RIM for 27 years? Smartphone market has been drastically changed by Apple iPhone and Google Android based phones. They have successfully developed and launched devices that are way over consumer requirements and in fact they have provided consumers devices that have powerful hardware, unique functionality and features and million of apps and consumers are ready to pay for the powerful mobile computing devices that help them browse internet, listen to music, watch videos and use social networks. Apple iPhone and Google Android are both Blue Ocean Market creators that are immensely successful. Blackberry earlier created its own Blue Ocean market with Push email technology on the phone and created an uncontested market space in the enterprise segment and its devices are cult devices that made executives addicted to Blackberry. But the present scenario is different Blackberry is no longer in Blue ocean but chasing the Red Ocean dominated by iPhone and Android phones. They are trying to follow the market leaders and it is till now not able to do it successfully. RIM co-CEOs believe that Blackberry 10 and Playbook 2.0 with QNX operating system will help them regain their lost market. They are betting big on this strategy and hope they will deliver this strategy to the consumers or else Blackberry will become another Palm in the Smartphone market.

Discussion Points:
  1. What are the reasons that are responsible for RIM bad performance?
  2. What should be RIM strategy to revive the company?
  3. Do the co-CEOs leave and bring in new leadership to take over?
  4. What should be the innovation strategy for the company and How to manage the product portfolio?
  5. How to survive in the Red Ocean of Smartphone market?

Monday, December 19, 2011

Blue Ocean Strategy in Smartphone Market- Blackberry losing out to Android Phones & iPhone

BlackBerry smart phone was launched by Research in Motion (RIM) in 2001 and RIM created a category of devices that allowed people to send & receive email reliably when away from office, easy to use, long battery life, multiple mailboxes at once, web browsing capability, traditional PDA functions like calendar, address book, etc and was an example of the third principle of Blue Ocean Strategy: Reaching beyond existing demand. BlackBerry was a new type of wireless handheld solution for companies and it created an uncontested market space with in the enterprise segment and companies saved time and money because employees can access email almost from any place at any time without having to go back to the office. RIM was able to reach beyond existing demand to unlock a new mass of customers (B2B) that did not exist before and aggressively partnered with wireless carriers to expand availability, with 100,000 installations of BlackBerry Enterprise Servers worldwide and currently has agreements with about 475 carriers and distribution channels in over 160 countries. In April 2009, RIM launched BlackBerry App World, a virtual storefront that collects BlackBerry applications in one central location and developers keep 80% of what they charge for their programs.

Source: Gartner

With its disruptive Product offering and unique blend of service and hardware solution the number of units of Blackberry sold raised from 500,000 in 2002 to 47million in 2010 and 38 million units in 2011 till third quarter. As of October 2011, there were seventy million subscribers worldwide to BlackBerry.Blackberry had become a cult device like Apple products and Blackberry was a must have device for all the C level executives and Top Managers in the organization and in fact Blackberry has become an addiction (symptoms included constant checking of emails, need to hold the device always, etc) that affected many professional and non-professional users of the device. Blackberry had become a status symbol for business leaders, managers and other professionals as the device had features like push email, instant messenger and easy use contacts and calendar that sync, etc and Blackberry owners liked to flaunt their device and realized a need to constantly stay in touch with their work. Business organizations and governments bought Blackberrys for employees and profited by employees using the devices. Many fortune 500 companies and US government including the President started using Blackberry extensively within their organizations and Blackberry became integral part of the organization IT and Communications strategy.

With such a huge corporate success RIM started to focus on consumers segments along with its global expansion into other countries. The initial models of Blackberry 5 & 6 series were black & white integrated phones. The 7 series were the first color phones and 71 series are the sure type phones without QWERTY keyboards. The 8 & 9 series phones were the most consumer friendly models that had more features like other phones with better screens, camera, media player, touch screens, etc.  RIM also started focusing on the consumers with the launch of Blackberry Pearl model in 2006 as the consumers were not attracted earlier because of lack of features. Pearl was a more consumer-friendly Smartphone, with a sleeker form as well as a camera and MP3 player. RIM also started selling a higher volume of its low-end phones, such as the Curve or Tour series that are geared toward consumers upgrading to smart phones for the first time. RIM's strategy has been to leave the telecommunications partners to handle the local marketing and it started advertising campaign focused on consumer directly in 2008. For global expansion RIM relied on the local wireless operators that had significant hold on their respective markets.

RIM had seen its Blackberry new subscribers came from the non business crowd like Teens, who loved BlackBerry Messenger and company believed for continuing to grow in the crowded U.S. market is to develop targeted products for specific groups of customers and hence released many models of its seven series of devices which also caused confusion to the consumers and developers could not develop apps. RIM announced the Blackberry Curve 8520, aimed at social media maniacs with buttons that allow users to upload media directly to YouTube and Facebook. RIM offers a wide range of devices that are highly subsidized by wireless operators as mass market consumers are more influenced by price than early adopters and this had led to the low average selling price even below RIM expectations. RIM expected to recover the revenue through data services and app sales. RIM also works closely with the wireless operators and it designs the products and service offerings as per their demand. One example is when operators wanted a device to counter iPhone Blackberry launched Blackberry Storm with sensory touch screen keypad. The overseas market other than US market has been a key growth market for RIM since last couple of years and RIM had invested heavily in these markets for growth.

Reasons for Blackberry down fall

Source: Gartner

Despite the fact that RIM is selling more units of Blackberry every year but its market share of the overall smart phone market is coming down. Android is growing at close to 900% YoY followed by Apple 90- 120% YoY in last two years. Android is seeing phenomenal growth as smart phone makers like Samsung, Motorola and HTC are flooding the market with more and more devices running android at all the price points. Apple is launching newer versions of iPhones with added features, functionality and millions of apps in its app stores. Apple generally focuses on the high end smart phone market that can afford to pay premium for the device but it also changed its strategy recently and is keeping iPhone prices near to the competitors high end models and started to offer smart phones at lower levels as it started selling its iPhone 3gs device free with a contract. This strategy of Apple had started affecting Blackberry and is also expected to affect the android phones too. RIM is not able to sell more units as Blackberry is perceived to be more of an email and messaging phone with weak web browser, few apps, poor media player for music & videos and ultimately poor web experience when compared to android phones and iPhone. The recent phones launched based on the Blackberry 7 OS did not match the consumer expectations. Blackberry is no longer in Blue Ocean Market as it was with email phone for Business consumers but it is now following Apple iPhone and Google Android phones in a Red ocean.

Post economic recession, Businesses had started encouraging employees to buy smart phones and employees are more interested in buying iPhone and other android phones that are laced with superior features, powered with advanced chips and software and have large number of apps in the appstore to use. RIM is not able to sell Blackberry to the end consumers as the need of the consumer has changed towards a complete internet phone that allows them to access the social media along with messaging and email. Blackberry has only 3000 apps compared to million apps in both Apple and Android stores. Developers’ complain coding for the BlackBerry OS can be a bind, with the API changes, the diverse specs on devices like screen resolution, form factor and GPS, WIFI and the touch screen and optimized coding between individual major versions of the operating. Another reason is frequent outages that are occurring and disrupting the services for days. Outages are cause of concern not only for users but also to the corporate customers as they are seeing business losses and communication problems. There have been apprehensions that Blackberry is no longer reliable and with severe pressure from governments regarding the server locations and data there is more concern for corporate consumers.

The co-CEO model is also being questioned. Recently an email surfaced supposedly from disgruntled executive in RIM that highlighted some of the key reasons for problems like lack of innovation support, lack of focus for the top management, failing to listen to the end consumer and understand their needs and the way the organization is become redundant with inefficient leaders and lack of quality employees. Even many analysts and other stakeholders are asking the CEOs to quit and bring in fresh leadership. Recent failure of the Playbook tablet is another reason. RIM is also losing out its core Enterprise customers recently as its competitors Apple iPhone and Google Android Phones have aggressively set targets on doubling their sales in next five years in enterprise segment. Despite the various security threats, outages and launch of more devices with advanced hardware and software features the business smart phone segment is expected to double in next five years. RIM is also not able to do proper marketing campaigns highlighting its core features and it is trying to compete with iPhone and android phones with its marketing campaigns. RIM has to refocus its marketing strategy and focus more on highlighting its core abilities till it gets a device that matches the competition in terms of hardware and software. RIM is able to sell its phones as the wireless operators are pushing them to their clients through aggressive pricing and cheap data plans.

2011 has been a year of turmoil for RIM as Blackberry is losing out at a greater pace to its rivals Android phones and Apple iPhones and the loss is more in the US market. Global market is presently contributing to growth but like US market is likely to loose steam in future. RIM management have failed to see the transformation that happened and how consumer needs changed from email and messaging requirement to a multimedia and fast browser internet phone that is needed for accessing the social media, use various applications, tools and browse high quality content on the internet. RIM has also lost several managers in recent months and announced layoff of 11 per cent of its workforce. Playbook has become the biggest flop in the company’s history and this has even put a lot of strain on the company financials. On top of all these recently in mid December RIM has announced that the new BlackBerry 10 phone powered by its new QNX operating system will be debuting only late next year as the availability of the a particular type of chipset will be only in middle of the next year. RIM believes its new QNX operating system will help to make up ground lost to Apple Inc's iPhone and iPad and Google Android powered phones.

RIM co-CEOs believe that the company will regain its market share next year with the launch of the new device and is committing significant advertising budgets for pushing the Blackberry devices into the market. RIM management is requesting patience from the investors and other stakeholders and it believes it can deliver results as it have strong technology, unique service capabilities and a large installed base of customers. With wireless operators saying there is requirement for one more operating system other than the Apple iOS and Google Android, Blackberry is banking on its QNX OS to deliver the goods as required by the operators. RIM also needs to work with application developers and encourage them to develop more apps for their device. Currently app developers are complaining about the different OS versions and different specs of various Blackberry devices. Blackberry still has huge install base and it is expected to hold onto its install base for some more time despite the onslaught from iPhone and other android phones. RIM is taking a major risk with its delay in launch of new phones with new operating system and its risks the drastic erosion of its brand and mindshare with its consumers. It seems as of now every body lost confidence on the current RIM Leadership and co-CEOs are saying the transition will revive the company next year.

Discussion Points:
  1. How did RIM lose its sight of the market evolution?
  2. What options do the company have to revive? ( Product, Innovation, Consumer needs and Software wise)
  3. How to protect its enterprise market and attract the consumer segment?
  4. How to tackle the onslaught from Apple iPhone and Android phones?

Thursday, December 15, 2011

Natural Disaster Risk Thailand Flooding Case Study – HDD Supply shortage rising prices, Major PC Makers cut production

Thailand worst floods in 50 years have created massive shortage of Hard Disk Drives in the market. Thailand is the world's second-largest producer of HDDs and accounts for 45 % of worldwide hard-drive production that include 2.5inch drives that are key components in personal computers. More than 25% of the world’s HDD assembly facilities are located in Thailand’s flooded areas. Seagate, Western Digital and Toshiba are the major manufacturers for HDD and have extensive production facilities in Thailand that are affected. IHS iSuppli and IDC have predicted that the overall shortage due to the flooding will reach 25% to 28% over the next six months. According to IHS iSuppli, the Thai floods will cause a 3.8 million shortfall in PC shipments in first quarter (JFM) of 2012. Total PC shipments in 2012 will be affected by the first quarter shipments fall and some even predict the shortages will continue till 2013 and this will likely mean higher prices and a reduction of the total number of PCs manufactured as well.

Digital Trends had reported that the prices of some hard drives have increased as much as 180%. Using the ten best-selling hard drives in Britain, France and Germany as a benchmark, Idealo claims that from the start of October to mid-November the lowest average price increased by 151% which means prices increased at an average rate of 5.4% per day. But since December prices are seeing significant decreases and consumers should expect fourth-quarter prices to be at least 30% higher than third-quarter prices. Supreme Distribution (Thailand DTK brand), expects prices of entry-level HDDs with a capacity of 500GB to 1,000GB to have increased by US$9.5 to US$12.7 or 20%. SVOA, a local computer maker and distributor, said HDD prices rose by 25% in the market in the later part of November and the shortage was continuing. Gartner predicts the end user price for HDDs will increase by 5 to 20% by the end of first half of 2012, and will only begin to ease in second half of 2012. The HDD costs trends will move to a 5-20% increase in costs in 2012.

HDD cost is around 7-10% of total cost and the rise in price of HDDs will lead to personal computers price also rising. Some of the PC makers like Acer and Samsung have indicated in rising prices and pass on the cost to the consumers. But HP is looking to absorb costs related to HDD price increases for as long as possible. The exorbitant HDD prices in November 2012 is because panic buying by the major PC makers, drastic fall in the production due to sudden flooding and manufacturers reporting major fall in production numbers and also there was talk of consumers being fleeced by some resellers citing the drastic shortages. But the prices almost corrected to normal levels of 30% price rise. Major PC makers have realized that the shortages cannot be overcome by the manufacturers and they have only one option of cutting down their production and accordingly all the PC makers including the chip makers have issue revenue and profit warnings for fourth quarter and next year. The external hard disk market where customers buy hard disks for external storage had also rose significantly and they are postponing their purchases till the prices come down to normal levels. 

Wednesday, December 7, 2011

Wisdom of Crowds @ IBM – Decade of Jamming and Impact on IBM

The concept of Jams in IBM evolved from the Jazz musicians doing jam sessions where musicians who never met before come together collaborate and create music. In IBM jams, employees & stakeholders spread across the globe that generally do not interact with each other, involve in the discussion and exchange of ideas around a specific topic or a set of topics and influence the company’s point of view on new markets, promising technologies, and emerging problems. A typical Jam lasts 72-hours, with people signing on despite their busy daily schedules for 30 minutes, or an hour at a time and the platform is a set of interlinked bulletin boards and related Web pages on IBM’s intranet, with centralized systems & control and seeking substantive answers to important questions and people will be motivated with a sense of participation and of being listened to, as well as generate valuable new ideas.

The first was known as “World Jam,” that was from May 21 to 24, 2001 and event started out as a scientific experiment with an invitation for all the 300,000 employees to participate and which had 53,000 visits to the home page, 6,000 employee comments and replies posted, 6 million hits in just three days. The event was possible as IBM had a globally distributed intranet in 165 countries that all of the company's 300,000 employees can access. Employees accessing their intranet were directed to a special World Jam link and directed to one of 10 forums that addressed problems ranging from work/life balance to sales tactics. Every forum had a moderator with his bio displayed and who moderated discussion and he/she nominated “best practices” in their areas, which were then voted on by attendees and the World Jam culminated with 10 Great Ideas. World Jam had questions like “How do you work in an increasingly mobile organization?” and “How do we get IBM Consulting into the C-suite?” etc.

In 2002 Jam focused on exchange of ideas about good management and the event was "Manager Jam," a 48-hour real-time Web event in which managers from 50 different countries swapped ideas and strategies for dealing with problems shared by all of them, regardless of geography. Some 8,100 managers logged on to the company's intranet to participate in discussion forums.

In 2003, IBM used the Jam solution to reexamine the company's core values since their inception nearly 100 hundred years earlier. IBM invited all 319,000 employees around the world to engage in an open "values jam" for 72 hours and hosted Intranet-based online discussions on key business issues with 50,000 employees. The discussions were analyzed by sophisticated text analysis software (eClassifier) to mine online comments for themes. Through ValuesJam, employees determined that IBM actions will be driven by three values: Dedication to every client's success, Innovation that matters, for IBM and for the world and Trust and personal responsibility in all relationships. Over 220,000 employees downloaded the "values manifesto" created as a result of the ValuesJam.

In 2004, another World Jam was conducted during which 56,870 employees exchanged best practices for 72 hours and generated 32,622 discussions and replies. They focused on finding actionable ideas to support implementation of the values previously identified. A new post-Jam Ratings event was developed to allow employees to select key ideas that support the values. Participants developed tens of thousands of ideas, which were later analyzed and distilled to create 191 proposals. Employees were then invited to rate the ideas. Senior management committed to action on 35 of the top-rated recommendations.

In 2005, Canadian government, UN-HABITAT and IBM hosted Habitat Jam for over three days. Tens of thousands of participants included urban specialists, to government leaders, to residents from cities around the world and discussed issues of urban sustainability. People from 158 countries registered for the jam and shared their ideas for action to improve the environment, health, safety and quality of life in the world's burgeoning cities. Over 8,000 ideas were distilled to 70 core ideas and these ideas shaped the agenda for the UN World Urban Forum, held in June 2006.

During IBM's 2006 Innovation Jam the largest IBM online brainstorming session ever held IBM brought together more than 150,000 people from 104 countries and 67 companies. As a result, 10 new IBM businesses were launched with seed investment totaling $100 million. The “Innovation Jam” took place in two three-day phases and the businesses that were created Smart healthcare payment systems, simplified business engines, 3-D Internet, Real-time Transaction services, Digital Me, Intelligent Utility Networks, Integrated Mass Transit Information system, Branchless Banking for Masses, etc. IBM's corporate-wide Smarter Planet initiative was launched in 2008 and the Smarter Planet initiatives came into being as a result of the Jam.

2008 Innovation Jam was dedicated to describing the “Enterprise of the Future” around four areas: Built for Change, Customers as Partners, Globally Integrated, and The Planet and its People and during four-day period, there were nearly 90,000 logins and 30,000 posts. Tens of thousands of people participated in the conversation from all around the globe including employees as well as customers, suppliers, partners, and industry analysts. It was designed to discuss more deeply the findings from IBM’s Global CEO Study 2008, in which more than 1,100 CEOs from a wide variety of regions and industries disclosed their aspirations. Jammers read through roughly 1.5 million pages. The average Jammer read 76 pages and spent just under two hours in the Jam, returning to the Jam on average eight times. The jam concluded that transparency, efficiency and adoption of corporate stewardship where in work with public sector.

In 2009 IBM conducted the Smarter Planet University Jam. Nearly 2,000 students and faculty from more than 200 universities from 40 countries took part in the Jam along with top IBM experts, clients and business partners. Students around the world brainstormed on topics including the skills students need to be competitive in the globally integrated economy; environmental protection, water management and conservation; fostering pollution-free and inexpensive energy; and providing advanced healthcare as the world’s population continues to grow rapidly, especially in developing nations. Results included need to create a new model of university education around smarter campuses, need for academia, government, and industry to work together and included initiatives like smart water management, smart healthcare, smart grids and cities.

In February 2011, IBM conducted Social Media Jam with over 2,700 participants from 80 countries representing corporations, academic institutions, nonprofit organizations and government agencies. Jammers discussed on key issues and generated new ideas on the major themes: Building the social business of the future, developing participatory organizations through social adoption, using social media to understand and engage with customers, determining what social means for IT and Identifying risks and establishing governance. Report synthesizing the 2,600 discussion posts and more than 600 tweets from the Jam highlight that ROI on social media is quantifiable, adoption is slow, increasing focus of integrating social activities and business processes is essential for success. Discussions touched upon the problems with email, how to create incentive for the sharing of knowledge, social networking’s involvement in government and how the culture of a company must shift to embrace social and an increased focus on integrating social activities and business processes.

Jams are not easy to conduct and one of the major issues is motivating the employees to participate in the jamming sessions. It takes planning, training, promotion and technology infrastructure to make employees and stakeholders participate actively. IBM is spending and had spent millions of dollars on the jam sessions and ROI from the Jams will be long term. Technology plays a critical part as Jams generate volumes of data and the conversations and posts need to be analyzed real time. The whole process has to be centrally controlled and the management should have necessary tools and training to analyze the data and use it in decision making. IBM has developed analytical and decision making tools during the various jams and successfully utilized the tools in understanding the values, sentiments and opinions of employees and other stakeholders.

Regional jams are another option where jams are conducted in countries in the local languages so that employees and other stakeholders can express their opinions more easily and effectively. IBM India on the occasion of IBM Centennial Year celebrations conducted an India specific jam in February 2011 and the highest response was in the area of building a smarter nation followed by personal career problems and complaints about company indifference. IBM India employees feel many of India's problems could be solved with technology as they IBM using technologies across the world as part of its Smarter Planet. IBM has seen great success through its adoption of jams and converted this jam technology into a solution and selling it to its clients.

Discussion Points:
  1. How to use technology like Jam in collaborating with employees and stakeholders to understand their opinions and involve them in organizational strategy?
  2. How to motivate employees and stakeholders to actively participate in jamming sessions?
  3. Jamming involves costs in terms of technology and promotion costs. What should be the ROI strategy?
  4. How to analyze the data and what tools should be used?
  5. What should management do and how to implement the ideas from the jams?

Sunday, December 4, 2011

Wisdom of Crowds @ Infosys - Talent Strategy 2015, Bubble & Radio Case Study

With an idea to revamp its decade old hierarchical system, Infosys started an initiative called ‘Talent Strategy 2015’ in September 2010, which conducted a three-month survey among its employees with a focus to create a talent related strategy for the organization. Along with survey employees voiced their opinion and suggestions via internal blogs, essays etc. ‘Talent Strategy 2015’ is a part of company’s five-year plan to ideate talent management paradigms and practices required for Infosys of 2015. The inspiration came from James Surowiecki’s book Wisdom of Crowds and the idea is that decisions taken by groups are often better than those made by an individual. Infosys will apply this principle to improve revenue per employee, deal with the large number of global hires, decentralize and democratize ideas and inputs, to make internal processes more flexible for its young employees, and stem attrition.

Through the survey, employees were asked to define the policies and initiatives they wanted. A 100-member panel from different business verticals and geographies along with business heads will look for ways to implement the ideas that have been accepted and the panel included employees between ages of 21 to 53 years, with tenures of half-a-year to 15 years. Some of the initiatives that were started after the survey are a team was set up to design a tool that will measure an employee’s productivity when they are working with mobile phones, Blackberry and iPad, create an internal job market where an employee can see the roles available and the compensation being offered for such roles, employees wanted to know the exact billing amount their roles generated, and the company also tweaked the talent retention policy as per the survey feedback.

Two reasons that prompted Infosys to take this initiative was higher attrition levels in 2010, changing demographic of its employees as thousands of freshers straight away from campuses across the country are joining and the rise of social media and adoption of social tools by younger employees being very high and they wanted to use the social media in doing their jobs, collaborate and share knowledge and build relationships with clients and service them better. Advantage for Infosys is that implementing social media tools and employee engagement models will improve the employee satisfaction and clients can also benefit, with employees collaborating with them and provide better services quickly. Global peers IBM and Accenture have generated significant ROI through adoption social media and tools in their organization and encouraging employees to use such tools. 

Infosys launched Talent Strategy 2015 in February 2011 and announced that the goal of this program is revamping its decade old hierarchical system and making internal processes more flexible for young employees this year to stem attrition and attract talent. Infosys  expects to see good results of these measures within the next 18 months and the company wants to stem attrition of employees particularly with 3-8 years experience and attract more experienced and skilled professionals into the organization. Analysts and other experts were very skeptical about the Talent Strategy but Infosys believes that in this strategy and are actively implementing through initiatives like Infy Bubble, Radio etc.

Infosys Bubble was launched in June 2011, is a combination of Facebook-like social networking features such as sharing pictures and moods, combined with Twitter-like capabilities to “follow” others. Around 80,000 employees have already signed on to “connect” at professional (“need advice on Java tools”) and personal levels. The site allows employees to connect with colleagues across the globe and also allows employees to post personal comments on any individual or senior officials. The social platform has 2, 61,030 connections and has 74,376 profiles. Infosys is trying to tap the wisdom of 20,000 former employees through this platform and hopes to gain more perspective on organizational problems from seasoned hands. Infosys Bubble is based on corporate social-networking platform; iEngage developed by Infosys and is built on top of Jive Social Business Software. Infosys iEngage can be deployed through Infosys cloud or client cloud in the SaaS model.

has launched its own radio station Infy Radio, which enables the staff to listen, request and dedicate favorite tunes. The radio station operates from 11 am to 7 pm and to tune in, employees have to download an application on their iPod or other handheld devices and plug in their earphones to listen to their favorite tracks. The radio service will run five days a week and will be a combination of Hindi and English music, RJ talk, Infy-related communication, leadership interviews. The proposal was made by members of our Voice of Youth Team during a strategy meeting in 2009. It is launched as a pilot in Bangalore and will be taken to other campuses in India over the next three months.

Infosys has joined a string of companies seeking to make better use of employees' experience and knowledge and Infosys Bubble gives widely scattered employees a new way to collaborate and also encourages innovation. These social platforms contain similar features as public social networks like Facebook, Twitter, and Google+ and also overcome barriers to communication, such as location and position within the organization. Companies believe that employees are a competitive edge for the business and employee’s ability to make more decisions and take part in the organization strategy formulation will be added advantage for the organization to innovate and survive in the highly competitive world. Infosys is trying to use the social media to stem attrition, encourage employee participation and motivate them to strive even more for organizational growth and ultimately recruit the best talent. Infosys is seriously adopting the Wisdom of Crowds framework seriously.

Discussion points:
  1. What will be the role of social media in employee’s engagement and how to profit from it?
  2. Will the social media strategy and Wisdom of Crowds work for Infosys?
  3. How internal social media can be used in customer relationship management and how to involve them?

Thursday, December 1, 2011

Indian Outsourcing Vendors - Non Linear Revenues critical for growth

For Indian Outsourcing vendors non-linear revenues have emerged as a new growth area for keeping the revenue growth engine running. These revenues account for only 10%-15% of revenues currently for large IT companies and they are planning to increase these revenues to be 20% of total revenues in the next three years and 1/3rd of total revenues in five years. Non-linear pricing models result in higher revenue productivity per employee and improved margins for companies. According to Morgan Stanley Research, a 5% shift of overall revenues to non-linear revenues that have higher EBIT margins of ~50% vs company average of 24-30% and can add 90-110 bps to the overall company margins. All companies have a margin gain of ~1% for every 5% move to non-linear revenues, assuming they are able to generate ~50% EBIT margins on the non-linear revenues.

Large Indian vendors have started signing big deals based on the non-linear pricing and models since couple of years and they are very confident to sign more such deals in future. Infact non-linear has become focus of these vendors and they feel that non linearity is essential for surviving in the highly competitive and commoditized outsourcing industry. All the vendors consider products, platforms and cloud offerings as non linear offerings. They have been investing on the platforms for almost a decade and recently started investing significant resources in cloud computing. Products like TCS Bancs and Infosys Finacle focusing the BFSI segment, the dominant focus vertical for these vendors are the only product offerings. Vendors also invested significantly in the R&D and have innovation labs and involve employees at all levels in innovation.

Tata Consultancy Services Limited
TCS non-linear strategy includes Financial Solutions that are End-to-end universal banking and insurance products and solutions. TCS BaNCS platform, developed in 2006, is a scalable platform that provides improved customer service through a high degree of straight through processing. Recently TCS Diligenta bagged the $2.2 bn Friends Life deal in UK and will deliver IT infrastructure and IT services with some policies migrating to TCS BaNCS Insurance, a globally recognized insurance platform. Since the Pearl Group deal in 2006, TCS had developed a platform in the U.K. to integrate multiple legacy systems on a single platform and these now functions on the cloud paradigm and TCS will migrate the policies of Friends Life to this one over the next 2-3 years. TCS is currently working on a suite of products targeting small and medium businesses (SMBs). Its ‘bank in a box’ offering for rural and cooperative banks has met with encouraging success in the Indian market.

TCS iON a cloud-based offering for small and medium enterprises and offers SMBs convenient options for businesses that are looking for cost-effective solutions to their IT needs. Also offer Application Cloud that is Software/Solution for end-to-end Business-IT application requirements for clients. On the BPO front it is offering Platform BPO which is vertical as well as horizontal platforms (HR, F&A). Currently for TCS, non-linear initiatives contribute about 5.5% of the total revenues with asset leveraging solutions contributing about 4%. The management has reiterated its target of generating about 10% of the incremental revenues through non-linear model by the end of this fiscal year. TCS is betting big on SMBs and platform based offerings as their non-linear initiatives.

Infosys Limited
IP, platforms and pricing models based on unit of work form the three broad areas of Infosys’ non-linear initiatives. Finacle, its traditional banking product suite leads their non-linear Initiative in IP based revenues. In expanding its IP based product portfolio Infosys launched cloud based business platforms and applications for functions like HR, procurement, social commerce, digital marketing. Cloud based offerings include a mobile app store platform Flypp, iEngage for social media and TalentEdge, a cloud platform for enterprises to streamline HR function. Aircel is using Flypp to develop its appstore. Infosys plans to increase the non-linear revenue contribution from under 10 per cent in 2011 to 33 per cent in next five years.

Another non-linear play is changing pricing models which is to transform the basic pricing model from competitive & commoditized rate card (Time & Materials) to per transaction (in BPO), per device (infrastructure management), per ticket (maintenance) and to a limited extent on business outcomes (e.g., uptime, cycle time reduction, share of revenue generation). Platforms are a major non-linear strategy for Infosys and it has more than 20 clients on platforms. Infosys’ biggest BPO platform play is its FY10 acquisition, McCamish Systems (a platform-based insurance processing solution provider). Smaller platforms such as Newspaper-in-a-box, HR outsourcing (Hire-to retire), Shopping Trip 360 (retail analytic solution) generate very limited revenues. 

Wipro Limited
Wipro has adopted four methods to drive non-linear revenue growth which is IP-led, shared services models, expanding its partner network, and leverage outcome-based models. Wipro is emphasizing on shared services which is servicing multiple clients simultaneously using common resources. Shared services drive over 50% of Wipro’s non-linear revenues and has been servicing its India infra management clients under this model from its Global Service Management Centre in India for nearly four-five years now. Platforms wise Wipro has an order-to-cash platform for manufacturing companies that it monetizes based on the number of concurrent users. Wipro has a ready-to-market hospital management solution on SAAS model.

Wipro deal with Unitech Wireless (linking Wipro’s revenues to the success of Unitech’s cellular network roll-out) is another non-linear initiative more outcome-based model. Flex Delivery’ is a non linear delivery model that Wipro uses to provide managed services to customers who require post implementation support for their enterprise applications and addresses the key pain areas of application management outsourcing. Wipro non linear thinking is more towards delivery innovation and shared services rather than products and platforms. Wipro plans to achieve 15% of revenues from non-linear pricing modes in next one year from current 11%.

HCL Technologies
HCL is focusing to become $10-billion company and it is planning to achieve this target through services such as transformation ideas, more business IT alignments, non linearity in the business model, on-site presence and less dependence on freshers. HCL Technologies drives ~12-13% of revenues from non-linearity which is higher than their Indian peers. Its focus on non-linearity is through transformation deals, investing in BPO platforms, products and end-to-end services. The company signed 20 transformation deals in Q1FY12 in manufacturing, media and publishing, telecom, BFSI and retail. HCL non-linear offerings include infrastructure management services and platforms related to telecom expense management and life insurance, which it had acquired post the buyouts of Liberata Financial Services and Control Point Solutions in July and August 2008, respectively.

Non Linear Revenues Challenge
Marketing of the non linear offerings have to be done by the vendors as they had not marketed these services earlier. But last couple of years with client’s budgets getting tougher and clients asking for more business value from vendors these offerings have started to pick up. The risk involved in non linear offerings is one of the factors that deter these vendors. Non linear models involve domain expertise, lateral hiring and need specific infrastructure and technologies. Vendors need to invest significant amount of resources and the non linear models need time to deliver and clients were not ready to wait for the ROI. Monetizing of non linear initiatives is a big challenge. Vendors have to be careful in terms of non linear models and offering outcome based-pricing models that are tying up revenues to specific business outcomes. Business outcomes can be influenced by other external environment and economic variables and in such case Vendors will loose billing and conflicts arise. Clients and Vendors have to work together for non linear models development and their success.

Vendors should understand client’s business and clients should give access to other parts of organization not only the IT department. The relationship is very crucial for the success of non linear models. Sales teams should be encouraged to sell more non linear pricing and increase its share in the total sales. Dedicated sales force for selling the non linear pricing solutions is another option. Sales and marketing teams along with the management should come up with the right mix for the linear and non linear models. The mix is critical because overall revenues will get affected when the billings get delayed or scrapped or conflicts arise in outcome based- billings. Vendors have invested in platforms for almost a decade and they have seen success in platform offerings in the past couple of years. But do not contribute significant revenues. Some vendors have even acquired smaller companies abroad for their platform based offerings and they are signing deals in this area. But Indian vendors have realized the necessity of the non linear revenues and are planning to increase the share of such revenues to 30% of total revenues in next five - seven years.  

Discussion points:
  1. What is the best mix of non linear to linear revenues should Indian vendors target?
  2. What are the risks involved in the non linear models and how to tackle?
  3. Are Indian Vendors investing for non linear revenues & what should they do for success?