Note to semiconductor companies: adopt retail strategies to stay up on consumer needs

Technology executives are not satisfied with their companies' effectiveness in reacting to market changes or anticipating them, a new study finds. Some lessons learned from the retail industry and more-sophisticated hedging strategies could offer insights, particularly for the semiconductor industry.

By Debra Bulkeley, Executive Editor -- Electronic Business, 6/28/2007

A recent study reports that companies are having trouble anticipating market change and are limited in making effective course corrections.

The study, "Competition at the Crossroads: Strategic Planning and Action in Disruptive Markets," was conducted by theBusiness Performance Management Forum and Deloitte Consulting's Technology, Media & Telecommunications group and surveyed more than 180 technology industry executives.

"We are seeing that companies are doing a good job of having a competitive strategy in the product markets," says John Ciacchella, a principal with Deloitte Consulting and leader of its technology industry group. "Where they are struggling is in competing in new markets," he adds, mentioning consumer products specifically.

Part of the challenge for the companies, especially in the semiconductor sector, has been adjusting to the swiftness of the change in consumer demands. Whereas 30 years ago, technology companies enjoyed the long shelf lives of defense products and then enterprise applications with their three- to seven-year life cycles, now companies need to move to 12- to 18-month product life cycles in the consumer products world.

This also means that companies need to be nimble to adjust to rapidly changing market needs.

"The consumer world is a winner-take-all market," Ciacchella says. "Consumers don't care if there are three suppliers for the MP3 player; they want the iPod. In a business-to-business market, it's a little safer. In the business-to-consumer market, there are a few established companies, and if I line up with the wrong design and I lose, I'm dead."

The surveyed executives also said they lack the resources, in terms of talent and information, to effectively plan for change.

"The semiconductor guys struggle with what's really happening with demand on the consumer end," Ciacchella says. They also need to know who their potential competitors are. "Apple was never in the music business before, but it is now," he says.

What they need at their disposal, he adds, are tools that give them the information they need in order to make informed decisions, similar to what the financial and retail markets currently do.

Ciacchella says that some semiconductor companies have started hiring people with retail and consumer experience "who understand Best Buy and Wal-Mart." Their retail strategy expertise in understanding the consumer market can be transferred to semiconductor companies. "It's a matter of taking the tools and techniques applicable to other situations and seeing how they can apply it to their market," he adds.

Other factors contributing to the level of competitiveness and change in the technology industry, the survey found, include the rise of global competitors, declining barriers to entry due to outsourcing, and on-demand business models. 

• Although most respondents say their companies are able to identify market-altering change, only 25 percent believe they can anticipate such changes.
• Executives also give their companies poor marks for their ability to take adequate action in the face of these changes. Only 35 percent of the respondents said the executives responsible for managing course corrections were "very effective" in this role.
• The vast majority of respondents, 92 percent, believe that competition is intensifying in their industry sector.
• Some 96 percent say their sources of competition have changed in just the past two years, among them 44 percent who say their sources of competition have changed significantly.
• Respondents indicate that senior management is spending more of its time on the strategic planning process but also that their companies' investments in strategic planning processes, tools, and talent have not increased as fast as revenues.