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e-Xpertise in Industry Issue #25
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In this issue...
| Feature Article: |
The markets in China: As a first in a series on China, Ben Walter describes the markets in terms of first, second and third tier cities. |
| Hot Topic: |
Profitable R&D: Mike Evans describes a source of funding for R&D projects in Europe. |
| Book Review: |
Innovation Cell: Agile Teams to Master Disruptive Innovation by Burkard Wördenweber and Uwe Weissflog is reviewed by Peter Thorne. |
| Noticeboard: |
TEAM:
4-6 October, Birmingham, UK. |
Quote for Today
"Live
as if you were to die tomorrow. Learn as if you were to live forever."
- Mahatma Gandhi
Feature Article: The markets in China
There is no such a thing as "the Chinese market". China is a patchwork of regional markets at various stages of economic development, bound together as a nation, but separated by differences in governance, communications challenges, regional rivalries and poor infrastructure. Any aspiring market entrant must be prepared to deal with this reality if they hope to be successful.
The pragmatic accepts this and looks for ways to segment the market so that they can focus resources on segments that offer realistic opportunities. In this article we consider China as a collection of first-tier, second-tier and third-tier cities, each at a different level of development, each one primarily serving customers in its immediate geographic area. Building a bridgehead in the most cost-effective manner begins by selecting one or more of these cities and the constituency it serves.
There are four first-tier cities. Shanghai is the main business centre of the prosperous Yangtze River Delta. Shenzhen and Guangzhou, located within the even more prosperous Southern Pearl River Delta, are both cities of high economic development with well-established infrastructure. Beijing is still the leader in R&D and home to China's finest universities and research institutes as well as being the seat of government. Private-sector R&D facilities have been established in Beijing - Microsoft and IBM are notable examples. Beijing also offers Zhongguancun - a home-grown version of Silicon Valley. Many foreign enterprises begin by establishing a directly owned entity in one or more of these cities. This can be a major investment and while it demonstrates a long term commitment to the market, it may not be appropriate for every business. China's quality distributors will almost certainly be headquartered in one of these first-tier cities.
Second-tier cities cover other key regions, including cities such as Shenyang, Dalian, Tianjin and Harbin in the Industrial North East. The metropolises of Chongqing, Chengdu and Wuhan, cover the more developed areas of Western China. For specific industries - such as automotive - these second-tier cities may in fact house the majority of their customer base - "clustering" is common in China. Strong local distributors can usually be found in these cities. These distributors are familiar with the local market and will have existing relationships with potential customers - local knowledge and "access" are still very important in China.
The third-tier cities are numerous and catching up rapidly. Many are key cities in the far West, the South West and Central China. If there is a distinguishing feature of third-tier cities, it is that they serve areas that are economically undeveloped and less well provided for in infrastructure terms.
Clearly, the selection of your preferred base of operations can only be made once you have a clear understanding of the geographic distribution of your target customers. In our second article ofthe series we will consider the obvious next problem - identifying reliable sources of current market information.
There is a "golden rule" for companies developing and selling industrial
software packages. After the start-up phase, they must manage their business
model so that development spend is about one sixth of revenues. If they do so,
then they can enjoy profitable long term growth. We've studied these companies
for over 20 years and there are few exceptions, all of which have specific explanations,
such as the symbiotic relationship between Dassault Systèmes and IBM.
Many software companies start as technology companies and their senior staff
as technologists. It is natural that, when money comes in, they spend it on
software development. Many proudly boast on their websites that they spend 40%
of revenue on development, or that they have so many software engineers. However,
this can lead to technology push rather than customer satisfaction and demand
pull.
It is difficult to break this cycle, but there is one way, at least for those
companies that develop within the Europe. In all the arguments about the European
budget over the last six months, one fact got little attention: there is a pot
of money to encourage software development in Europe - the latest call allocates
€638m.
The mechanisms and details are beyond this short article but can be found at
www.cordis.lu.
European ownership of the business is not a criteria, it is development and
jobs in Europe that matter. In fact, similar arrangements exist in North America
and Japan, but these are much more difficult for non-domestic firms to harness.
A key criterion is that the development is a consortium of several distinct
organisations, perhaps a customer, a software development firm, and a university.
These arrangements are not for everyone. There is an overhead of elapsed time
and bureaucracy in both the application and co-operation during the project.
However, for those trying to correct their business model it can help to achieve
that vital balance between development and profit.
Mike Evans
Book Review: Innovation Cell. Agile Teams to Master Disruptive Innovation by Burkard Wördenweber and Uwe Weissflog
Springer, 2005, ISBN 3-540-23559-0AB, £23.
Authors Burkard Wördenweber and Uwe Weissflog used the process of an innovation cell to write this book. And it has worked! The structure combines simulated dialogue between the author and reader, essays and examples, in a way that is accessible and effective. The authors address innovation both from an external view (what happens, what is needed, what people do) and also at a deeper personal level - for example, making connections between the level of trust or organisational relationships between people and the impact this has on the type of communication they are capable of.
The authors distinguish efficiency ("doing things right") from effectiveness ("doing the right things") and develop this idea to show that, for businesses, both these capabilities are necessary, yet each has different requirements for types of approach, people and organisational forms. In particular, the unpredictability associated with innovation is the enemy of the predictable performance of the efficient organisation.
It is from these roots that Wördenweber and Weissflog explain the Innovation Cell of the title. It consists of a band of volunteers who are dedicated to a project, have full control over the project and will disband when the project is over. One aspect of the Innovation Cell that will not be easy reading for a number of IT vendors is that the members of the Innovation Cell must work in one room (implying there are limits to the capabilities of e-collaboration). This assertion connects well to the various social and personal characteristics that the authors link to disruptive innovation (creating a brand new concept). They position geographically dispersed teams as sources of continuous innovation refining and improving existing concepts.
Certain techniques are presented to overcome specific problems. For example, to help select people for an Innovation Cell, there is a description of a drawing and storytelling process that triggers individuals to think deeply about their achievements and strengths. This enables all involved to understand the extent to which individuals will fit into the team.
The book concludes by working through some realities of introducing and running an Innovation Cell in a corporate environment, and then finally tells the story of using the Innovation Cell approach to write the book. In these areas, as in the rest of the book, the authors cover many "difficult to ask" questions in a style that is both friendly and full of insights. They succeed in finding useful and workable connections between the "soft" issues of life, emotions and motivation, and the "hard" commercial need for innovative results. I thoroughly recommend this book.
TEAM: 4-6 October, Birmingham, UK . Combines DES 2005, TCT 2005, INSPEX 2005 and TOOLING.
CATpro: 4-7 October,Stuttgart, Germany. An international trade fair for innovative product development, data and process management.
APICS: 16-18 October, Kansas City, USA. Billed as the educational and networking event for operations management professionals.
SMAU: 19-23 October, Milan, Italy. Exhibition of digital technologies and applications.
SYSTEMS:
24-28 October, Munich, Germany. Described as the meeting place for technology
users from small and mid-sized enterprises (SMEs).
A full list of industry events can be found at IT industry events on the Cambashi website