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The End of Business as Usual

All the buzz about Windows 8 has put an exclamation point on something many in the technology industry already knew: Mobile devices are changing business models. Early reviews of Windows 8 say that the OS is clearly meant for mobile devices, and that PC users are going to have a hard time moving away from the desktop.

The New York Times published an article today on how many industry behemoths seem to be playing catchup in the mobile business. Intel was late to the party and is now building mobile chips. PC sales are lagging, so Microsoft is betting on Windows 8 to ease its transition away from pure computing. Google, no longer content being a search engine provider, has developed the Android OS and is looking at new uses for hardware. These and other companies are entering businesses that are nontraditional for them, and the implications for the supply chain are significant.

Last week, EBN featured several stories that highlight this shift. They covered such topics as the possibility of Amazon buying a chip company, whether the PC is being replaced by the smartphone, and Google's entry into the cargo security business.

Companies seem to be moving away from the idea of core competency. A decade ago, businesses were narrowing their areas of expertise to focus on what they do best. Companies that built stuff focused on manufacturing. Those that invented stuff focused on R&D and IP. Those that made chips focused on embedding more functions on to a chip and left the manufacturing to fabs. Software companies developed software, and hardware companies developed hardware. Outsourcing was a key part of this strategy, and manufacturing was left to the experts.

Now we have Amazon, Google, and Microsoft entering the hardware business and finding new markets for that hardware. If you read the business case each company lays out, these strategies appear to make sense. Regardless of whether they succeed or fail, the electronics supply chain will play a big role in their fate.

In addition to manufacturing chips, Amazon will have to forecast demand for them, move them around the world, and possibly sell them to its competitors. Amazon, Microsoft, and Google will be under continuing pressure to release products that are better, faster, and less expensive. They will have to select and qualify suppliers. They will have to vet manufacturing partners to avoid accusations of labor and environmental abuse. They will have to increase efficiencies in the physical movement of their goods, and they will have to explore options we haven't even considered yet.

If the last few years have taught us anything, it's that nothing is too far-fetched. Companies that were once synonymous with their products (Nokia with mobile phones, RIM with BlackBerry, HP with computers) are stumbling badly. A search engine provider developed a wildly successful mobile operating platform. Apple got a black eye for, of all things, worker abuse. And vertical integration is trendy again.

Companies such as Amazon, Google, and Microsoft are new to the hardware game. If anything, the supply chain will become more important to them as their business models evolve. For these OEMs, it's no longer business as usual. And that's a huge opportunity for the supply chain.

20 comments on “The End of Business as Usual

  1. _hm
    October 23, 2012

    Of all these organizations, big blue IBM is missing. It will be very interesting if IBM jumps in to this market. They are great and they can redefine or reinvent novel market. This may be true for GE and others.

     

  2. SP
    October 23, 2012

    Yes it would be interesting to see how these companies especially Google will perorm in hardware market. They seem to have taken some real bold moves. Hardware is a completely different business and its not that easy like search engines or pure software. The supply chain is an important factor in developement or failure of the hardware businesses.

  3. Susan Fourtané
    October 24, 2012

    _hm 

    IBM is doing great in different departments, including cloud computing, and contributing to make cities smarter targetting different angles. Why missing? 

    -Susan

  4. Nemos
    October 24, 2012

    I am a bit worry about it because the big players became more and more bigger but if the result will be “They will have to vet manufacturing partners to avoid accusations of labor and environmental abuse.” then let it be 😉 

  5. Barbara Jorgensen
    October 24, 2012

    IBM wasn't included in this overview, as many companies weren't, because it doesn't fit the model. IBM was vertically integraed and then outsourced. It was in computers, and still is in computer-related business. As much as it has developed and provided services, it still manufactures hardware. I would argue it is still solidly within its core competency, minus the chip making and PC manufacturing.

  6. Barbara Jorgensen
    October 24, 2012

    Rich–fantastic video post–thanks for the comment and the well-thought-out reply. I agree, business as usual left the building around the same time Elvis did. I did not mean to imply that these companies are entirely breaking new ground in the industry but they are breaking new ground as far as their particular business models go. (Software to hardware vs. build the hardware and then figure out what to do with it.)

    I also agree that there is a feel of desperation to this — I believe of all of these companies Facebook has the least chance of suceeding in the long run. I'll leave that discussion to another day.

    I do have to say, however, that entering the chip business, if that's what Amazon intends to do, is a BIG stretch for a company that has never manufactured anything and in fact relies on OPI (other peoples' inventory) to exist. Sure, it's building warehouses now (remember clicks not bricks???) but I think it is woefully unprepared to manage a chip business. In this particular case, I think the supply chain should be all over this move. TI, BTW, has always been a leader, not  a follower in regard to its channel strategy. In that way, Amazon may not have to retool everything. I am very curious, however, how they intend to accomplish this. 

  7. _hm
    October 24, 2012

    @Susan and Barbara: Yes, I agree with you. But it is interesting when this big orginization has some revolutionary idea.

     

  8. prabhakar_deosthali
    October 25, 2012

    Along with the talk that the software companies are trying to enter the hardware business and vice versa, there is also the talk about vertical integration where every company now wants to have the manufacturing capability of its own for everything required to make a product – from chips to hardware and the software.

    In This scenario I doubt whether the supply chain business will grow or shrink.

  9. Susan Fourtané
    October 25, 2012

    _hm, 

    I think Barbara didn't mean to say the opposite, as she explained in a comment below. I also think IBM always comes up with great things, and is one of the companies that has remained out of trouble. 

    -Susan

  10. Wale Bakare
    October 25, 2012

    I just love these two — Google and Amazon! OEM would no longer be Apple Vs Samsung anymore, even with Microsoft joining them makes it more interesting.  No doubt they're entering into hardware simply because of booming in mobile device markets, especially in the developing nations.

  11. Eldredge
    October 25, 2012

    IBM also puts a great deal of emphasis on protecting their IP and building a large portfolio, which helps them protect their domain.

  12. Wale Bakare
    October 25, 2012

    >>is one of the companies that has remained out of trouble<< @Susan, why do you think IBM is staying out of trouble? Although, IBM's strategy is totaly different - but still pretty well in hardware business, may be more of software applications now.

  13. Wale Bakare
    October 25, 2012

    Yes, i agree with you. IBM's does not want to break its business tradition and culture.

  14. Eldredge
    October 25, 2012

    I think is is much more into the software application business than hardware at this point.

  15. Susan Fourtané
    October 25, 2012

    Wale, 

    Unless I have been missing something I haven't heard of IBM being involved in the law suit circus. 

    -Susan

  16. Himanshugupta
    October 25, 2012

    I think the reason behind IBM's success is its ability to turn the slowdown tide by innovating or diversifying in different domain. Right leadership, talent pool and product portfolio are also possible reasons. 

  17. t.alex
    October 26, 2012

    Will we see Google cars soon 😉 ? I suppose these cars help us drive without much effort

  18. Wale Bakare
    October 27, 2012

    @Susan, i agree with you. Well, i think is pretty much into smart cities/societies and cloud innovations. We have come to believe that, any technology firm could get caught  and perhaps left behind if its research & development switch off a bit.

  19. Taimoor Zubar
    October 29, 2012

    “Companies seem to be moving away from the idea of core competency.”

    @Barbara: I think the major reason behind this is the fact that areas that companies considered to be their core competency are becoming obsolete and redundant. Companies can no longer rely on them to generate future revenues and thus need to find newer options. We've seen several well-established companies fail because they couldn't realize that their core competency had become useless.

  20. Taimoor Zubar
    October 29, 2012

    I think IBM has certainly been amongst the companies who have been into innovation and have stood strong as times have change. IBM has constantly changed it's product and service mix as well as it's business processes to cater to the market changes. Also, it had acquired and disposed off business operations as needed. The example of this is when it sold off the laptop division to Lenovo when the market had become saturated.

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