Tuesday, December 21, 2010

Even tech industries grow up someday

When I started the professor gig back in 1998, I had a smug sense of superiority: I’m a tech strategy guy, and I didn’t worry about the dinosaurs and dying industries and boring stable mature industries.

Since that time, we’ve had the dot-com crash, the NASDAQ crash, a decade of sideways tech stocks (some still below all-time peaks) and in general a mature, commoditized IT industry, including once-great companies like HP and onetime high growth companies like Oracle.

This is not just IT, but also the onetime epitome of high R&D/sales ratio and science-based differentiation, i.e. big pharma. Reflecting declining returns to R&D, big pharma has underperformed the S&P 500 for 15 years — even before the dot-com crash — and has responded by budget cuts, layoffs and offshoring.

In other words, all industries grow up someday. Light bulbs and transistors and telegraph wire were once cutting-edge too. Masked (slightly) by mergers and acquisitions, companies like Oracle and SAP lost the ability for organic growth almost a decade ago. Today the tech products — like PCs or phones or tablets (or proprietary pharmaceuticals or PV panels) have to worry about cost-based competition and the perennial threat of substitutes.

Empires of Industry - Cola Wars (History Channel)Given that, I’m now convinced that every would-be high-tech MBA needs at least a half-semester (or one-quarter) course on strategic marketing in mature consumer industries. We have a lot to learn from selling autos and soap and sugar water — despite what Steve Jobs said about selling sugar water almost 30 years ago.

Yes, we’d like to think (thanks to Moore’s Law) we’re not peddling tail fins but instead an ongoing stream of incremental improvements. Still, well-run companies in mature industries have a lot to teach us about product proliferation, cost engineering, consolidation, and buying/selling companies, not to mention maintaining and leverage brand equity in the face of commoditization.

In fact, I just got through reading final exams about soft drinks in the late 20th century. From 1975-1995, the two major cola companies squeezed out the smaller companies as they grew their share from 45% to 73%. (Does anyone remember drinking 7-Up? Of being able to buy it in a restaurant or on a plane? I do.) This growth occurred as they also grew the pie, with per capita soft drink consumption almost doubling during this same period.

Sure, New Coke is right up there with the PC Jr. (what?) or Lisa, Apple /// and Newton (huh?) as great marketing flops. Still, while all the growth this century will come from developing markets, both KO and PEP stretched their run out for another decade through a variety of product, marketing, supply chain and corporate-level strategies. The US auto makers haven’t done so well — Ford better than most — but the Europeans and Japanese have coped well with a maturing market.

Of course, high-tech marketing people need to learn how to do real consumer marketing. Intel and Qualcomm have grown their own, while Apple’s top marketing execs came from Macromedia (a software company) and Target. (The difference between Jobs I and Jobs II was the intervening experience building a consumer brand at Pixar.)

Ideally, the course on strategic marketing would be combined with a course on consumer marketing. However, the reality is that at most business schools, these are two separate skill sets not found in the same person.

Once upon a time business strategists studied Sun Tzu or Civil War battles. In the 21st century, they should study the cola wars, diversification efforts by the Japanese auto makers, franchising by Ray Kroc, the re-invention of water and coffee, and the branding of generic acetaminophen and ibuprofen.

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