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Connected Consumer Challenge

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Information about Connected Consumer Challenge

Published on September 9, 2011

Author: ronnees1

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IBM Global Business Services ElectronicsExecutive ReportIBM Institute for Business ValueThe connected consumer challengeExtending the electronics experience through services

IBM Institute for Business ValueIBM Global Business Services, through the IBM Institute for Business Value, developsfact-based strategic insights for senior executives around critical public and privatesector issues. This executive report is based on an in-depth study by the Institute’sresearch team. It is part of an ongoing commitment by IBM Global Business Servicesto provide analysis and viewpoints that help companies realize business value.You may contact the author or send an e-mail to iibv@us.ibm.com for more information.Additional studies from the IBM Institute for Business Value can be found atibm.com/iibv

IntroductionBy YangJin KwonToday’s electronics consumers expect muchmore than quality devices – they demand a quality experience. Their interest has shiftedfrom the device itself to what they can do with the device. Electronics companies needto capitalize on this trend by offering not only advanced technology via products, butalso services designed to enhance the consumer experience. To successfully expand theirfocus, device manufacturers will need to build capabilities that foster collaboration,glean customer insight, enhance service operations, and upgrade their softwaredevelopment capabilities and IT infrastructure.Suffering the effects of decreased product differentiation, Our latest industry study provides key insights to help guidestalled growth and lowered margins, device manufacturers are electronics companies in this pursuit (see sidebar: Researchlooking for new growth opportunities. At the same time, they methodology). To provide the compelling experiences thatare faced with increasingly demanding consumers. With the consumers desire – and those experiences they don’t yet knowproliferation of connected devices and continuous improve- they want – electronics companies must expand their tradi-ments in network accessibility, todays consumers expect to do tional focus on quality product manufacturing to include newmore with their connected devices. They demand high capabilities for service excellence:performance and enhanced, integrated device experiences. As aresult, there has been a clear shift in value from the devices • Open collaboration – Support and facilitate collaboration withthemselves to the consumer’s experiences with them. consumers, among employees and with external parties to uncover and test new ideas and seamlessly deliver innovativeResponding to this value shift poses a challenge for many services.electronics manufacturers. To succeed in today’s connected • Customer insight – Capture consumer and usage data toworld, they need to seek innovative ways to get closer to generate new insights, and apply those insights to developconsumers. Device manufacturers need to focus on creating intuitive and relevant products and services, as well asproducts and associated services that together meet consumers’ personalized and effective marketing strategies.demands for superior experiences, ultimately transforming theway they live, work and entertain themselves.

2 The connected consumer challenge• Service operation – Get past the idea of simply manufacturing • Flexible infrastructure – Manage the consumer experience devices and establish the necessary framework to enable through flexible yet efficient technical delivery mechanisms. service design, development and operation. Explore creative options to reduce the initial cost burden and• Software development – Keenly focus on software – the driving overcome IT complexity. force behind connected devices and associated services. Develop a plan to quickly and efficiently acquire necessary skills, as well as build long-term competence.Research methodologyAs part of this study, we conducted a global consumer electronics industry executives and senior managers. Wesurvey of approximately 1,000 consumers in five countries also interviewed executives from adjacent industries,who were current users of connected devices and members of academia and industry analysts. The interviewsassociated services. In addition, we interviewed 32 and survey were supplemented with secondary research, including financial analysis of individual companies.Industry interviews Consumer survey 56% Consumer electronics 22% United States 19% Office equipment 21% Japan 13% Adjacent industries 21% United Kingdom 6% Other electronics 20% Germany 6% Others (analyst, academia) 16% China

IBM Global Business Services 3Mandate for change comparison, when Apple introduced its first generation of theThe electronics business is among the most fast-paced indus- iPad in 2010, one millions units sold in less than a month (28tries today. Device manufacturers face numerous complexities days). And in March 2011, Apple sold close to one million units– from continuously changing consumer needs to mounting of its iPad2 during the device’s debut weekend alone!5technological advances. As network accessibility and high-speed connectivity continueFor example, both consumer demand and expanding tech- to improve, the potential audience for these connected devicesnology have contributed to the rapid – and continued – growth expands, as does the quality of their experiences. For example,of connected devices. Worldwide smartphone shipments are by 2015, a total of 380 million subscribers in the United States,predicted to grow from 303 million units in 2010 to more than the European Union, Scandinavia, China, Japan and South925 million units by 2015 – a compounded annual growth rate Korea are predicted to have access to mobile data through(CAGR) of 25 percent.1 And this growth is not just in the area Long Term Evolution (LTE) networks.6 In addition, consumersof personal devices but also home devices. The installed base of have a variety of connectivity options, with continued growthnetwork-enabled TVs is forecast to grow at a CAGR of approx- in fixed and mobile broadband subscriber counts and otherimately 70 percent from 2009 to 2014, at which point there will wireless infrastructure technology, such as Near Field Commu-be roughly 220 million network-enabled TVs installed nication (NFC) and Bluetooth.7 The end result is a growingworldwide.2 number of connected consumers with faster access to data and services at their fingertips.In the context of this period of rapid growth, two new trendsare visible. The first is an increase in the number of different Consumers’ voracious appetite for connected devices seems indevice types, many of which are blurring the lines between no way satisfied. These devices allow consumers to do moresmart phones, PCs and entertainment centers. For example, things faster and more easily – and this is increasingly whatPanasonic’s Viera tablet is intended more as a TV companion they desire and, quite frankly, expect. They expect to synchthan a stand-alone device.3 As another example, the Peel content on their smartphones, mobile music players, PCs,universal control lets consumers turn their iPhone or iPod tablets and in-vehicle systems. And they expect the process toTouch into a TV remote via a free application and a small be simple for them. Today’s consumers don’t want easy-to-battery-powered wireless hardware transmitter. Rather than understand user manuals for their devices; they want devices solists of channels, the Peel presents consumers with pictures and intuitive and consumer centric in their design that they don’tsummaries of shows grouped by genre on their iPhone or iPod require manuals.Touch.4In addition to more device diversity, there has also been asignificant acceleration in device adoption in a “winner-take-all” market mode. For example, when Apple introduced the “Suddenly, people have started to thinkiPhone in 2007, one million units were sold in 74 days. In differently about electronics… They want software that’s intuitive and makes things easy to use. They want applications, content and services.” Consumer electronics executive, Asia

4 The connected consumer challengeLooking back, the electronics industry has seen its focus shift However, understanding the need to “get closer” to customersthrough the years – from production quality in the 1990s to and successfully doing so are two separate things. To helpefficient distribution and delivery in the early 2000s. Today, the electronics companies gain a deeper understanding of whatspotlight is clearly on the consumer experience. In this age of consumers actually want from their electronics products, asexperience, electronics companies need to step out of their well as what they think about their current connected products,product-oriented safety zone and seek innovations that extend we asked consumers about their purchasing decisions, currentthe value of their physical products. They need to expand their service quality and thoughts on collaboration.focus to include services associated with products that enhancethe consumer’s experience. Purchasing decisions Consumers consider a variety of factors when making elec- tronics purchasing decisions. Price and specifications are keyConsumers in the age of experience factors – and will remain important in the future. However, ourSuccess in this new age of experience demands a deep under- survey did reveal some changes in what consumers willstanding of consumers and their needs and expectations. consider when making future purchases. Consumers indicatedAccording to the IBM 2010 CEO Study, electronics executives they will place more importance on all purchasing criteria. Inclearly understand this requirement. Ninety-four percent of particular, the importance of Internet connectivity rises,the electronics CEOs surveyed rated “getting closer to surpassing both brand and design (see Figure 1). Devicecustomers” as the number one priority for the next five years.8 interoperability, service availability and customer service also gain greater importance. Importance of purchasing criteria Future purchases 85% Price 3% 82% Product specification 3% Past purchases 71% Internet connectivity 8% New focus areas Price 82% for manufacturers 69% Brand 3% Product specification 79% 69% Device interoperability 9% Brand 66% 69% Design 6% Design 63% 68% Content/service availability 9% Internet connectivity 63% 65% Customer service 6% Device interoperability 60% Content/service availability 59% Customer service 59%Source: IBM Institute for Business Value Connected Devices Consumer Survey. N=988.Figure 1: Consumers have a growing interest in what they can do with their devices.

IBM Global Business Services 5When making future purchasing decisions, consumers will to interact with consumers, how best to reach them and whatplace a much greater emphasis on what they can do with a topics to discuss. Because there is so much room for servicedevice and how they can utilize its capabilities to the fullest improvement, newcomers also have a significant opportunityextent. To create products that meet the changing demand, to gain market share.device manufacturers need new or renewed focus on emergingcriteria. Collaboration Effective collaboration with consumers could go a long wayService quality toward improving the lukewarm service quality ratings.Our survey revealed that consumers are not particularly Fortunately, the majority of consumers are ready and willingsatisfied with their current service quality. When asked to rate to collaborate. But are electronics companies prepared tosatisfaction with aspects of services they are currently using, leverage this opportunity?consumers rated most at roughly 50 percent (see Figure 2).Obviously, there is great opportunity for progress in all aspects Although only 17 percent of consumers have collaboratedof service, in particular those relating to how service providers with device manufacturers in the past, 73 percent are inter-and device manufacturers interact with consumers. To improve ested in future collaboration. This not only provides anthese interactions, companies should reflect on the breadth and opportunity to improve service quality through consumerdepth of their consumer interactions, as well as consider when input, but also to embrace collaboration across the lifecycle of a product. Service quality satisfaction level Scope for improvement Number of services 58% Stable provision of services 56% Provision of user information 56% Usage support 54% Account management 53% Device interoperability 52% Interaction with service provider 46% Interaction with device manufacturers 44% 0% 50% 100% Source: IBM Institute for Business Value Connected Devices Consumer Survey. N=988. Figure 2: Consumers demand considerable improvements in service quality.

6 The connected consumer challengeIn what areas are consumers willing to collaborate? While they Collaborating conditionsare willing to offer new ideas, participate in development Past preferenceactivities and provide input on usage, they are less interested in New incentives to encourage Future preferenceendorsing a product or service (see Figure 3). This could be consumer engagementdue to a hesitancy to offer personal support for a product or 75% 75%brand before becoming completely familiar with and knowl- 73% 72%edgeable about it. Rather, consumers seem to prefer fully 70% 69%digesting a product and sharing their experiences on their 65%own terms. 56%Areas willing to collaborate Ideate Develop Launch Support 75% 80% 55% 79% Opportunity to Future financial Immediate Want to be provided benefit like financial benefit share myProvide product Participate in Be a product or Provide usage cash back or like interview fee ideas and new productsand service mock-up or beta brand review discount coupon experience before othersideas version testing ambassador before launch Source: IBM Institute for Business Value Connected Devices Consumer Survey. N=988.Source: IBM Institute for Business Value Connected Devices Consumer Survey. N=988. Figure 4: Most consumers prefer incentives to motivate futureFigure 3: Consumers are willing to collaborate with electronics collaboration.manufacturers. Our survey results make it clear that electronics manufacturersIn addition to understanding the areas in which consumers are need to maintain an open line of communication. But what iswilling to collaborate, it’s also important to consider their the best method? We found consumers want to talk directly tomotivations, how these motivations change over time and how manufacturers, using online communication methods. E-mailto cater to these motivations. For example, the most common is the most popular method (35 percent), followed by commu-driver for past collaboration was the desire to share ideas and nication via the manufacturer’s Web site (23 percent). Third-experiences. While still motivated by the opportunity to share party Web sites (14 percent) and personal blogs (6 percent) areideas, consumers now are more enticed by incentives such as less popular.first use of products and financial benefits (see Figure 4). Wedo not necessarily believe consumers will collaborate only when Finally, as manufacturers build their circle of collaboration,offered some material benefit. However, we do recommend they need to use it to clearly communicate the value of thecompanies get creative in offering incentives to motivate services offered. Our survey revealed that 80 percent of thoseconsumers to share their needs and ideas. who expect to spend more on services in the future are early adopters. Therefore, electronics companies are going to have to make a compelling value proposition to convince average consumers to open their wallets wider for services.

IBM Global Business Services 7Challenges in the age of experienceIn addition to assessing consumers’ attitudes, we also inter-viewed electronics industry executives to gauge their “It is getting harder to maintain a leadershipknowledge of, interest in and motivations relating to services. position in the industry if you stick to products only. We need to reconfigure the hardware toOur survey revealed that 88 percent of executives view servicesas a way to become more competitive by differentiating their meet customers’ needs and provide solutionsofferings. We found that most electronics executives are not and services that customers want to enhancedriven by the potential for new revenue streams or deeper their experience around the products.”customer relationships. Rather, most believe that services Consumer electronics executive, Asiaofferings will add more value to their hardware and, therefore,make them more competitive. Many feel that if they don’tbranch into services, they will be at a competitive disadvantage. intimacy also will open up new avenues to monetize theWe also asked electronics executives about the opportunities consumer relationship – in ways manufacturers never wouldthey foresee from a venture into services. Although some have imagined in an unconnected world – such as throughpredict services will lead to improved operational efficiency, online advertising or mobile payment services.the majority believe the greatest opportunities are in the areasof innovation and growth. Ninety-seven percent believe Before any of these opportunities can be realized, however,services will lead to product and service innovation, while 83 electronics manufacturers must recognize some fundamentalpercent predict it will lead to new opportunities. They believe differences between manufacturing and service. These rangea more intimate consumer connection, which is enabled from the types of relationships formed with consumers andthrough service, will in turn help companies introduce more vendors to the differences between product and serviceinnovative and relevant products and services. More customer consumption (see Figure 5). Manufacturing Service Intimacy with channels (e.g., on and offline retailers, network Intimacy with end users operators) One-time transaction Ongoing relationship Hardware manufacturing and delivery are separable. Service production and delivery are inseparable. Consumption Consumption happens after the production. happens at the same moment as production, meaning production and delivery are equally important. Activities are relatively linear and easily definable in modules. Activities are complex and require interactions with multiple functions within the company.Source: IBM Institute for Business Value.Figure 5: Electronics manufacturers must recognize the fundamental differences between manufacturing and service.

8 The connected consumer challengeElectronics executives also must wrestle with how the incorpo- Customer-facing functionsration of services will affect various functions within their In anticipation of these changes, electronics executives shouldcompanies. The majority of executives believe that customer reconsider how their companies interact with consumers today.relationship management, followed by marketing and customer To begin the transition, they need to shift their mindset fromservice, will feel the most effects, with offering plan and one-time transactional product sales to building relationshipsdevelopment just behind these customer-facing functions (see with individual consumers. They also need to expand theirFigure 6). messaging, moving from communication focused only on product features to messages about the consumer’s experienceDevice manufacturers, most of which sell products online or with the product. In addition, customer-facing functions canvia retail outlets, now find themselves facing a direct relation- prepare to shift from their typical demand generation activitiesship with consumers. Therefore, customer-facing functions to activities designed to generate and utilize customer insightsneed to anticipate how to proactively respond to and benefit for future innovation. In fact, all functions can strategize thefrom the incorporation of services. best ways to use the additional – and more reliable – consumer data that can be obtained through the direct relationship that services offers.Corporate functions most impacted by services Offering plan and development Obviously, a move to services and more complicated connectedCustomer relationship management 81% products will also have a strong impact on offering plan and Marketing 74% development. For example, project management will become Customer service 74% more complex because the creation of service-enabled devices Offering plan and development 71% requires the involvement of multiple functions within the orga- Delivery 39% nization. In addition, more complex products tend to have Manufacturing 23% more development hiccups, particularly relating to hardware and software integration. The growing importance of Customer-facing functions embedded software, which plays a key role in connectivity and 23%Source: IBM Institute for Business Value electronics industry executive interviews. enabling services, is also an issue for device manufacturers, asFigure 6: Executives cite customer-facing functions as the areas software development is not a core competency area for most.most impacted by a move to services. Electronics manufacturers need to prepare for more structured and rigorous development coordination to combat these forces. “The product roadmap should be in line with the service roadmap from the beginning... We have started thinking about services first before we think about hardware devices.” Consumer electronics executive, Asia

IBM Global Business Services 9Organizational change With consumersElectronics executives expressed relative confidence in their As our survey revealed, consumers are willing to collaboratecompanies’ abilities to adapt to the tactical requirements – but are much more likely to do so with the right incentives.associated with becoming a service provider, such as the need Because active consumers are a scarce resource, companies willfor new processes and supporting technology infrastructure. compete to capture these valuable consumers by danglingWhat they are more concerned about are the less tangible but carrots such as new product experiences and financial incen-more fundamental challenges associated with cultural and tives.organizational change. Electronics manufacturers also need to provide the rightWhen asked what roadblocks they anticipate on the path forums to facilitate collaboration with consumers. As they toldforward, 71 percent of executives cited organizational us in our survey, consumers prefer direct online communica-misalignment and lack of required skills. Fifty-eight percent tion with device manufacturers. Therefore, electronicscited lack of top management’s awareness of the importance of companies should prioritize their online touch points. From itsservices. These concerns are valid. Organizations optimized own Web site to its representation on external sites (e.g.,for manufacturing could experience delays in decision making YouTube, Twitter, Facebook, etc.), a device manufacturer needsregarding important investments or overlook potentially to speak with one voice through unified messages aimed at itsinnovative service ideas. Expanding into services requires a target consumers.company-wide shift in mindset, with each area centering itselfon customer needs. Sony Ericsson, for example, has successfully created a “content triangle” using its corporate Web site, Facebook and YouTube.New capabilities for the age of experience Content shared on one site is always linked to the other two,To deliver a superior consumer experience through services, driving traffic between the three. In particular, Sony Ericssonelectronics companies need to build new competencies and has used its Facebook page to recruit ambassadors, encour-expand their focus areas. Based on our research, we identified aging consumers’ involvement through features such asfive key capabilities to help guide them. “Question of the week,” “Fan of the week” and quick surveys. The strategy appears to be working, with the company’sOpen collaboration Facebook page growing from three hundred thousand fans toElectronics companies need to establish open collaboration three million fans in just nine months – and continuing towith consumers, among employees and with external parties to grow to more than six million fans.9identify and validate new service ideas.

10 The connected consumer challengeFinally, electronics companies need to establish collaboration With external partiesguidelines to both facilitate the free flow of communication In the connected world, no single company can provide theand, at the same time, create boundaries for this flow. For ultimate experience consumers want. Rather, companies haveexample, if conducting a live collaboration forum with to work more tightly with organizations within their ownconsumers, a company could suggest discussion themes, assign industry, such as component manufacturers, as well as playersfacilitators, designate a timeline and communicate how they outside their industry, such as content providers and Internetplan to use the information received to help ensure an service companies. However, external collaboration is a neworganized event that generates useful insights. concept for many electronics organizations. We suggest they adopt collaborative best practices from organizations inAmong employees adjacent industries, as well as educate themselves aboutIdeally, collaboration among employees should be embedded potential partners’ revenue models and industry culture. Inin the corporate culture and woven into everyday business addition, because collaboration is a give-and-take process,processes. By connecting employees via collaboration and device manufacturers must be willing to share insights and, atsocial networking technologies, companies provide a forum the same time, clearly state their goals and expectations.where ideas can be shared, refined and prioritized. Customer insightFor example, consumer electronics retailer Best Buy has Electronics companies need to take a fresh look at consumers,successfully promoted open collaboration among employees – viewing them through a new lens that reflects their evolvingand even extended this collaboration to serve consumers. Best role. The consumer is no longer simply a buyer, payer and userBuy created Twelpforce, a program that uses Twitter, a microb- of a product. Today’s consumers can also serve as designers andlogging and social networking site, to solve customer service cocreators of experience, as well as ambassadors and qualityissues. Employees offer technology advice and answers for control experts.consumers who Tweet questions or complaints about elec-tronics devices.10 As of April 2011, Best Buy had amassed more Electronics manufacturers that offer services have the opportu-than 43,000 Tweets and almost 35,000 followers.11 nity to interact directly with end users and, as a result, gain more visibility into their experiences. Service offerings open the door to more consumer interaction, as well as the ability to continuously gather data throughout the lifecycle – from purchase through usage (see Figure 7).“The value of services is derived from dataand analytics. We and our partners mustshare data and insights both ways.”Office equipment manufacturer executive, United States

IBM Global Business Services 11 Pre-sale Sale Post-sale Product Upgrade/ Purchase Set up Use Get help research replace Product • Product information • Basic user information only (registration) is optional • Usage issues • More types of data on users and usage • More and deeper interactions • No time lag in collecting data Product and • Product • Installation • Usage data (e.g. • Usage • Product service information information purchase, issues upgrade • Basic user • Billing location, usage data information information duration, • Purchase history frequency, etc.)Source: IBM Institute for Business Value analysis.Figure 7: Companies offering both products and services have more opportunities for consumer interaction and data collection.Companies can then use analytics to turn the data into valuable Service operationinsights and integrate these insights into their strategies and For manufacturing-oriented companies, creating and deliv-business processes. For example, understanding when and how ering service could be an entirely new operation. To beconsumers use a product and what services they use can lead to successful, they need to establish a service organization andnew product and service innovation, as well as timely end-of- create effective service operations that are embedded in dailylife decisions, which can be extremely important in this business processes, particularly those associated with servicefast-paced industry. In addition, customer insight can also help design, sourcing and managing partners, and service perfor-companies better target their marketing tactics and campaigns mance management.to the right audiences, as well as assist in budget and resourceallocation using techniques such as optimization of thecustomer portfolio. “Instrumented products provide more intelligence about their customer. This changes how to market to customers.” Office equipment manufacturer executive, United States

12 The connected consumer challengeService organization Service designExpanding a focus on manufacturing excellence to also include Scenarios mapping the end-to-end consumer experience –service excellence will require creating either a separate from purchase to usage in a home or work environment – canorganization or a service team integrated within the product be helpful first steps in defining and determining the rightorganization. Each option comes with pros and cons. For service offerings. To help generate innovative product ideas,example, a separate service organization could leverage electronics companies have used various observation methodscommon infrastructure and resources across various develop- to better understand how consumers use their products. Evenment projects. However, there is a risk that the product and the chip maker, Intel, has hired anthropologists and socialservice organizations might operate as silos rather than scientists to better understand consumers and how they useintegrated partners. After examining the advantages and devices on a day-to-day basis.12 The same techniques anddisadvantages of both options, each company must consider its resources can and should be applied to service design as well.unique characteristics, such as number of product categoriesand resource availability, and then evaluate which option best In addition, companies need to create service roadmaps andaligns with its services vision. align them with their product roadmaps. In fact, service and product roadmaps should be in synch from the very beginningClearly designated roles and responsibilities are also critical to of the planning process to help ensure product specificationssuccess. Traditional electronics companies produce products support the functionalities required for specific services and tothat require minimal local attributes and then deliver them help avoid additional development cost due to changes inacross the globe. However, services need to be highly personal- hardware design required by services.ized for local consumers. As a result, it is extremely importantto distinguish between local team and headquarter roles to Partner managementhelp enable operational efficiency, superior service delivery In most cases, service offerings require a variety of partnersand, most important, deeper customer intimacy. such as content providers, developers and network operators. Picking the right ones and maintaining an amicable relation- ship with them will be critical. From negotiating a mutually agreed upon revenue model to defining intercompany product and service testing, well-defined processes and procedures will help ensure a quality partnership.“Manufacturers need to be global to achieveoperation efficiency for devices. However, at For example, Apple has made concerted efforts to engage the developer community as a partner by creating an attractivethe same time, they need to be local to provide revenue-sharing model and supporting developers withservices that meet local consumers’ needs.” well-established development tools.13 These efforts appear toConsumer electronics executive, Asia be working; in a recent survey, developers cited the iPad and iPhone as the top two mobile platforms for which they are most interested in developing applications.14

IBM Global Business Services 13Service performance managementThe establishment of key metrics will be crucial in measuringservice performance. As our survey results confirm, consumers “Software is increasing in importance…yet,have high expectations regarding service quality. However, we don’t have the best practices, organizationalwithout service quality and efficiency metrics, it’s nearly structure and mature capabilities to leverageimpossible to get an accurate performance view and difficult tomake improvements. Companies should utilize the more direct software to the fullest extent.”and intimate end-user relationship that results from services, as Office equipment manufacturer executive, United Stateswell as the supporting infrastructure, to collect and monitorservice quality data in realtime and, if necessary, take action toimprove performance and communicate improvement plans Flexible infrastructurewith consumers. To effectively provide services, electronics companies need a flexible infrastructure that allows them to create and provideSoftware development the services as well as manage the devices. This obviouslySoftware enables device intelligence and product differentia- requires some investment. However, executives cited “lowtion – it is the backbone of connected devices. As a result, upfront investment” as the top criteria for setting up thedevice manufacturers need to beef up their software capabili- supporting infrastructure (see Figure 8).ties and address issues such as a limited understanding ofsoftware among many industry leaders and scarce softwareresources within the industry. For example, Samsung Elec-tronics has expanded its search for skilled software developers Important attributes of supporting infrastructureby aggressively seeking talent on a global basis – not just in Low upfront investment 72%India, but also in other emerging countries such as Poland,Bangladesh, China and Vietnam.15 Ease of global operation 56% Openness and ease of integration with related infrastructures 48%In addition to seeking talent, companies should focus on howthey can build software-related knowledge and assets. We Scalability to accommodate a 44% dynamic number of productssuggest electronics executives focus on three key actions: Low operational cost 32%• Build a common software platform that flexibly 23% accommodates changes and helps increase component Source: IBM Institute for Business Value electronics industry executive interviews. reusability.• Standardize and internalize software methodologies to reduce Figure 8: The majority of electronics executives want a low initial dependency on specific individuals and optimize software investment in infrastructure. resource allocation.• Don’t recreate the wheel; identify the core capabilities needed within the company and leverage external parties with skilled resources in noncore areas such as testing to rapidly increase the scale and quality of software development.

14 The connected consumer challengeMany manufacturers are uncertain about future servicessuccess and understandably hesitant to invest heavily at this B2B in the age of experiencepoint. Given this reluctance – as well as the fact that elec- The age of experience not only affects the electronicstronics companies do not have in-house expertise for complex business to consumer (B2C) market, but also the businessIT services – we suggest device manufacturers explore creative to business (B2B) segment. Many B2B companies (e.g.,and flexible ways to both reduce the cost burden and overcome office equipment manufacturers, B2B divisions of consumerIT complexity. For example, outsourcing to a third party or electronics companies, network equipment providers,employing a service delivery platform (SDP) in a cloud medical equipment manufacturers and industrial automationenvironment could allow electronics companies to achieve a companies) are also expanding their focus to include theflexible infrastructure without large up-front capital costs. end users and their experiences with products.These options may relieve the pressure to build in-house skills Although hardware products are still the main focus forto implement, manage and expand the platform. At the same most of these companies, they are also adding high-valuetime, they could reduce operational expense and allow the services relating to the end users’ broader experiences andcompany to share the deployment risk with an experienced processes associated with the products. Examples includevendor. diagnostic assessment services (e.g., reactive status maintenance), prognostic assessment services (e.g.,A flexible infrastructure can also be more than just the avenue predictive maintenance), workflow management andfor connectivity; it can also provide a new way to enhance the process automation/optimization services.consumer experience. For example, Amazon Cloud Drive is a An example of a B2B move into services can be found inservice that lets consumers store music, photos or videos on Xerox, which has strategically focused on transformingcloud servers and access them from anywhere through a Web itself from a pure office products and production equipmentbrowser or application.16 This provides consumers with manufacturer to a global leader in business process andflexibility in terms of device usage, allowing them to access document management. In early 2010, Xerox acquiredtheir data from anywhere – even if their device memory fails. Affiliated Computer Services Inc., a business process outsourcing (BPO) and IT services firm, to help accelerate its growth in services. By combining Xerox’s strengths in document technology with ACS’s expertise in managing and automating work processes, Xerox hoped to create new market opportunities in BPO, as well as help fulfill its vision of “owning” all aspects of document management.17 The strategy seems to be working; Xerox’s services business has increased and was more than 60 percent of its total revenue in 2010.18

IBM Global Business Services 15Are you ready to extend the electronics Conclusionexperience? Consumers are making electronics choices today based onAs electronics industry leaders contemplate the move to the experiences a particular device can offer. This value shiftservices to deliver a more compelling consumer experience, we is forcing electronics companies to expand their traditionalsuggest they consider some strategic questions: product attribute-based view to include service. Pursuing services in no way means these companies should abandon• Does your company have a clear understanding of why you their focus on manufacturing devices. Rather, they should need to provide a total experience with your products and extend their focus to include related services that address services? consumers’ demands for enhanced experiences.• What kinds of opportunities do you expect by adding service offerings to your products? While there will be some hurdles on the path to services, we• Do you know what experiences your customers expect from believe electronics manufacturers can successfully transform to your service? win in the age of experience. We suggest they prepare for their• For which services should you partner and for which should journey by focusing on collaboration, customer insight, service you invest in building your own capabilities? operations, and software and technological capabilities.• Do you understand how interaction with consumers changes in the service business? To learn more about this IBM Institute for Business Value• What challenges do you anticipate your company facing? Do study, please contact us at iibv@us.ibm.com. For a full catalog you have plans to overcome these challenges? of our research, visit:• Do you have a clear understanding of the risks and inhibitors ibm.com/iibv that could keep you from becoming a service provider? Be among the first to receive the latest insights from the IBM Institute for Business Value. Subscribe to IdeaWatch, a monthly e-newsletter featuring executive reports that offer strategic insights and recommendations based on our research: ibm.com/gbs/ideawatch/subscribe

16 The connected consumer challengeAbout the authors ReferencesYangJin Kwon is the electronics leader for the IBM Institute 1 “Worldwide Smartphone 2011-2015 Forecast and Analysis,for Business Value. She has a proven track record in the Document #227367.” International Data Corporationelectronics industry as a strategy and transformation consul- (IDC). March 2011.tant. In these roles, YangJin helped global electronics 2 “Worldwide Network-Enabled Entertainment Devices incompanies innovate their businesses and operating models, the Home 2010-2014 Forecast, Document #226175.”transforming the way they do business. She is a coauthor of International Data Corporation (IDC). December 2010.“The future of connected health devices: Liberating the (CAGR calculated by IBM based on IDC data.)Information Seeker” and also developed electronics industryinsights based on the IBM 2010 Global CEO and Global 3 “Panasonic’s Android-based Viera Tablet unveiled at CESCHRO studies. YangJin can be reached at yangjin.kwon@ 2011.” Engaget. January 5, 2011. http://www.engadget.kr.ibm.com. com/2011/01/05/panasonics-android-based-viera-tablet- unvieled-at-ces-2011/Contributors 4 “A ‘Pear’ gives Apple devices an easy way to control TVs.”Bruce Anderson, General Manager, Global Electronics All Things Digital. March 2, 2011. http://ptech.allthingsd.Industry, IBM Sales and Distribution com/20110302/a-pear-gives-apple-devices-an-easy-way-to- control-tvs/Paul Brody, Global Industry Leader, Electronics Industry, IBMGlobal Business Services 5 “Apple iPad reaches 1 million sales faster than iPhone.” Reuters. May 3, 2010. http://www.reuters.com/Kevin Custis, Global Partner, Strategy and Change, IBM article/2010/05/03/us-apple-ipad-idUS-Global Business Services TRE64002T20100503; “Apple iPad 2 sales seen clearing 1Wendy Dao, Electronics Industry Champion, IBM Center for million units.” Reuters. March 12, 2011. http://www.Applied Insights reuters.com/article/2011/03/14/us-apple-research-idUS-Sungyoul Lee, Managing Partner, IBM Global Business TRE72D30020110314Services Korea 6 “LTE: A compelling answer?” LTE Roadmap andEric Lesser, Research Director and North American Leader, Forecasts. IDATE News. IDATE. September 21, 2009.IBM Institute for Business Value http://www.idate.org/en/News/LTE-Roadmap-and-Fore- casts_599.htmlAjit Gangadharan, Senior Consultant, IBM Global BusinessServices IndiaKalman Gyimesi, Industrial Sector Leader, IBM Institute forBusiness Value

IBM Global Business Services 177 “Global Fixed Broadband Service Revenue to Exceed $210 14 “Apple gets developer momentum as Android fragments, Billion in 2014.” ABI Research. March 10, 2010. http:// survey finds.” AppsBlog. The Guardian. April 26, 2011. www.abiresearch.com/press/1621-Global+Fixed+Broadban http://www.guardian.co.uk/technology/appsblog/2011/ d+Service+Revenue+to+Exceed+$210+Billion+in+2014; apr/26/apps-apple-android-developer-survey “Mobile broadband subscriptions to hit one billion mark in 15 Hwang, Inhyuk and Soonwook Choi. “Samsung Elec- 2011.” News Center. Ericsson. January 11, 2011. http:// tronics, Building soft power competitiveness.” MK Business www.ericsson.com/news/1478480; Maisto, Michelle. News. April, 13, 2011. http://news.mk.co.kr/v3/view. “Google, Nokia NFC Commitment Sets Off ‘Explosive php?year=2011&no=233127 Growth’: iSuppli.” eWeek.com. December 21, 2010. http:// www.eweek.com/c/a/Mobile-and-Wireless/Google-Nokia- 16 Naone, Erica. “Amazon beats Apple to music streaming.” NFC-Commitment-Sets-Off-Explosive-Growth- Technology Review. March 30, 2011. http://www.technolo- iSuppli-481760/; “Bluetooth CAGR in Industrial/Medical gyreview.com/web/37209/?p1=A3&a=f; “Introducing Market to Eclipse 84% from 2009 through 2014.” Press Amazon Cloud Drive.” Amazon Web site, accessed April releases. In-Stat. February 17, 2011. http://www.instat. 27, 2011. https://www.amazon.com/clouddrive/learnmore com/press.asp?Sku=IN1004686MI&ID=3044 17 “Xerox Completes Acquisition of Affiliated Computer8 “Capitalizing on Complexity: Insights from the Global Services.” Xerox press release. February 8, 2010. http:// Chief Executive Officers Study.” IBM Institute for Business news.xerox.com/pr/xerox/NR_2010Feb8_Xerox_ Value. May 2010. http://www-935.ibm.com/services/us/ Completes_ACS_Acquisition.aspx; Hartley, Paul. “The ceo/ceostudy2010/index.html ACS-Xerox deal: was it a smart move?” Real Business at Xerox. October 1, 2009. http://realbusinessatxerox.blogs.9 Jordan, Hugh. “Sony Ericsson’s content triangle boosts fan xerox.com/2009/10/01/the-acs-xerox-deal-was-it-a-smart- base.” Reputationline. March 29, 2011; Sony Ericsson move/ Facebook page, accessed May 2, 2011. https://www. facebook.com/sonyericsson 18 “Xero

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