Underdogs Achieve When Strategy Aligns with Market Needs

It is natural to expect that those who won in prior battles will continue to win in future ones, but underdogs can upset the structure when they focus on the right strategy. In 2005, Boeing, Motorola, and AMD each reversed their downward decline or questionable market position to achieve strong performance. How they achieved their wins provides insights for all involved in creating and implementing corporate strategy.

Boeing

Since 2001, Boeing has trailed Airbus in orders for new aircraft. It appeared safe to assume that Airbus, with generous government financing for product development and a new wide-body aircraft under development, would continue to dominate the market and strip market-share from Boeing. But, in 2005, Boeing captured orders for 1,002 aircraft in comparison to Airbus’s 697.

To achieve their turnaround, Boeing focused product development on meeting the needs of the financers of aircraft purchasers and revamped their sale force.

The financers of aircraft place a higher priority on the total costs of ownership than on the initial purchase price. To address their needs, Boeing designed their aircraft to utilize less fuel, improve flexibility, and increase reliability.

• According to Air France’s CFO Calavia, a Boeing 777 uses 15% less fuel per seat than an Airbus A340-300 of comparable vintage.
• Boeing 777 uses 2 engines rather than 4. Outside of improving fuel efficiency, the reduced engine count reduces maintenance requirements.
• Boeing’s redesigned aircraft enables purchasers to choose between GE and Rolls Royce engines, and swap engines within 24 hours compared to the typical 1 month.
• Boeing restricted cabin configurations and placed lighting and entertainment systems in the floor to lower the cost of remodeling aircraft cabins.

To improve their sales force, they removed layers of bureaucracy and pushed decision making down in the organization. These changes were accompanied by a new approach to sales and a new sales methodology. The results include a shortened sales cycle and a sales force that is more able to meet customer needs.

While Boeing focuses on the needs of the people who make the aircraft purchasing decisions, Airbus demonstrated misguided lethargy. Airbus points to the research that indicates that passengers feel safer in aircraft with 4 engines rather than 2, but passengers don’t purchase aircraft. Airbus routinely prices their product lower than Boeing, but discounts in the initial purchase price don’t imply that a customer captures greater value. And, to top it off, Henri Courpron, President of Airbus’s North American Subsidiary responded with complacency to the situation by stating “In a duopoly, you are going to loose to your competitor about half the time.”

Motorola

After creating the cellphone market, Motorola entered a long decline ceding market share to competitor after competitor. Onlookers felt comfortable stating that Motorola produced strong technology but lacked any strategic marketing skills. But, in 2005, Motorola reversed its long decline by capturing 19% of the global market, up a whopping 5.5% over the year prior.

To achieve this turnaround, Motorola ditched distracting businesses and increased their focus on cellphones. Their semiconductor business was spun-out into Freescale and off other non-core businesses were sold. Prior concerns such as the hypercompetitive lifecycles associated with chipsets became secondary to new concerns such as product design and consumer marketing.

Out went the engineering focus. In went the consumer focus, including channels, partnerships, and marketing.

With their renewed focus, Motorola developed products and marketing aimed at attracting trendsetters. Their Razr became the epitome of coolness and the “Hello Moto” branding campaign entered into a buzz marketing virtuous cycle. Currently, Motorola is aiming to top their prior success with the next generation Pebl and Slivr.

While Motorola demonstrated their design ability, their main competitor, Nokia, floundered in an inadequate attempt to enter into the mobile gaming market. The N-Gage paled in the face of fierce competitors in the mobile gaming market such as Nintendo’s Game Boy and Sony’s PlayStation portable. Nokia’s move left them struggling with market coordination challenges of both gaining software developers to create compelling games for their handset and gaining gamers to purchase their handset.

AMD

Since the beginning of the WinTel partnership, AMD played second fiddle to Intel in the personal computer processor chip market. But, in September of 2005, AMD surpassed Intel in supplying chips for personal computers sold in US retail stores for the month of September 2005.

To overcome their competitor, AMD focused on enabling customers to try-out new computers at retail outlets. Intel however has continued to focus on their direct-to-the-consumer channel strength, most notably their partnership with Dell. Unfortunately for Intel, their past strategy may not be appropriate for the current market.

Not only has Dell has made market statements that indicate their partnership with Intel is not set in stone, and they may include AMD products in future models, but Intel’s strategy may be poorly aligned with the current market demands.

The maturing of the personal computer market, like other maturing markets, is showing signs of increased price sensitivity. In the more mature personal computer market, an increasing portion of consumers fail to perceive a significant performance variation between the different processor chips. As such, consumers are more willing to purchase the AMD product once product trial has demonstrated the efficacy of their chips.

More problematic for Intel is their failure to combat this challenge, and, their effective choice to support AMD’s rise. Intel’s choice to decrease their broadcast advertising support of their “Intel Inside” branding campaign weakens their ability to thwart AMD’s encouragement of consumers to learn the points-of-parity of their products and encourage price sensitivity. Perhaps Kim will shake things up at Intel.

Lessons Learned

The case studies of Boeing, Motorola, and AMD each demonstrate a number of lessons for the market strategist.

1. Long-standing competitive hierarchies are not set in stone. Underdogs that utilize resources wisely can out-maneuver competitor to upset the status quo.

2. Each of these companies created and implemented strategies that are aligned to the current market need. None of them took a “copy-cat” or “me-too” approach but rather they took an approach that uniquely combined market information and corporate strengths to create a compelling value proposition.

3. None of these competitors were in a horrid position to start with. Boeing, Motorola, and AMD were each at a Number 2 position within their market prior to implementing their winning strategy. As such, they had the resources to compete.

These lessons are transferable. And, it appears that companies are taking these lessons to heart. One of the points of Mr. Fields “Way Forward”, the executive drafted by Chairman and CEO William Clay Ford to lead the company’s overhaul, is to “quit trying to sell fords to people who won’t buy them; focus instead on likely prospective customers”. Even Ford is ready to focus on the battles it can win by aligning their market strategy with the segment of customers whose demands they can fulfill.

_______

References

• Lynn Lunsford and Daniel Michaels, “After Four Years in the Rear, Boeing is Set to Jet Past Airbus”, Wall Street Journal, 10 June 2005, p A1.
• Paul Merrion, “Which way is Boing Going?”, Crain’s Chicago Business, 4 December 2005, p 4.
• Lynn Lunsford and Daniel Michaels, “Boeing Likely Won 2005 Orders Race”, Wall Street Journal, 6 January 2006, p A10.
• Daniel Michaels, “Airbus Soars, but Big Model Is Drag”, Wall Street Journal, 16 January 2006, p A3.
• Sara Silver, “Motorola’s Profit Surges as Market Share Grows”, Wall Street Journal, 19 October 2005, p B3.
• Julie Johnsson, “Ghosts of Moto past?”, Crain’s Chicago Business, 21 November 2005, p 2.
• Don Clark, “AMD Tops Intel in Supplying PCs”, Wall Street Journal, 8 November 2005, p B4.
• Jeffrey McCracken, ” ‘Way Forward’ Requires Culture Shift at Ford”, The Wall Street Journal, 23 January 2006, p B1.