strategy+business is published by PwC Strategy& Inc.
 
or, sign in with:
strategy and business
Published: January 30, 2007

 
 

Seven Counterintuitive Trends

In 2006, the number of cards in circulation in the United States increased by double-digit percentages. But the overall amount of interest and fees collected did not grow; it takes more and more effort to chase the same desired business. Debit cards, much less profitable than credit cards for banks that issue them, are gaining in adherents. And regulatory scrutiny of bankruptcy, predatory lending, and minimum payments is increasing in many areas.

The financial-services industry is thus poised for another new wave of credit card innovation. We’ll see more cards oriented to particular niche markets; alliances among banking chains; and, probably, banks that market their transparency, reliable advice, and flexibility alongside their rewards.

5. The globalization of R&D. The outsourcing of R&D to the emerging markets of Asia is taking off, with a particular emphasis on software design and development. China and India will account for 77 percent of all newly established R&D sites between 2005 and 2008.

Some of the motive is labor arbitrage: to take advantage of the highly skilled talent available at significantly lower cost in economies like India and China. But the cost differential between professionals in advanced and developing countries is rapidly declining, and other motives for engineering services outsourcing (ESO) are growing more compelling. For example, engineering facilities in China can capitalize on being close to the factories where so many products are being made. Also, as markets grow in India and China, it helps innovative companies to have an R&D staff located in those countries, where they will be familiar with consumer preferences. Relatively few companies have reaped the potential gains from these sites so far, in part because they have not yet coordinated their R&D efforts into well-designed networks. But some farsighted companies are improving their global innovation footprints, and they will set the standards for the rest.

6. The rising use of software in manufactured goods. There is more embedded software in many children’s toys today than there was in the Apollo lunar module. The same is true for appliances, tools, and even consumer products like toothbrushes — let alone for automobiles. That’s why the German industrial giant Siemens employs more software engineers than Microsoft.

This use of software will increase in 2007 as two technologies for tracking location and movement become more commonplace in everyday life. Radio Frequency Identification (RFID), embedding miniature transponders in products and animals to send unique digital ID signals, has been around since the 1940s, and Global Positioning System (GPS) satellite-based navigation technology is equally well-established. But when combined with embedded information technology, they are leading to a world in which software is everywhere, keeping track of many more things.

Already, Monsanto is developing seeds equipped with RFID chips to be sown into the soil; they can help monitor and transmit information about weather and soil conditions. We will see self-authenticating passports, drivers’ licenses, and other forms of ID; new kinds of mobile payment (in Japan, more than 30 million cell phones are now equipped with chips capable of processing swipeless transactions); and laptops that automatically adjust themselves to new business applications as they cross international boundaries. The implications for privacy are already much discussed, but we have yet to see them tested by a legal case that creates a popular backlash; we don’t yet know whether public opinion will deem convenience or privacy more important.

7. Simplicity matters. We do know, however, that the complexities of embedded software have unleashed a growing countermovement toward simplicity. Often both underused and unappreciated by many customers, hyper-engineered feature sets also account for the majority of bugs, quality issues, and user-adoption tribulations. Hence the much-noted success of the Apple iPod, the Motorola Razr, and other simple but elegant devices. More will follow, as ease of use and feature simplicity become key technology selling points. For example, Apple’s iPhone introduction this year may lead to a major shake-up in consumer electronics as other companies, emulating the same approach, enter the market with intuitive technologies.

 
 
 
Follow Us 
Facebook Twitter LinkedIn Google Plus YouTube RSS strategy+business Digital and Mobile products App Store

 

Resources

  1. Olaf Acker, Niklas Dieterich, and Christopher Schmitz, “Dueling Technologies at the Point of Sale,” s+b, Spring 2006: Mobile payments could transform the purchasing experience, but these systems have so far failed to spark much interest in the United States and Europe. The reasons reveal a great deal about the prospects for innovative financial services, and about the underlying nature of infrastructure change. Click here.
  2. Nikhil Bahadur, Edward Landry, and Steven Treppo, “How to Slim Down a Brand Portfolio,” s+b, Autumn 2006: Consumer packaged-goods companies have awakened to the risks of an overextended brand portfolio and begun to cut the fat with a vengeance. Click here.
  3. Doug Bartholomew, “A House Divided: Manufacturing in Crisis,” IndustryWeek, November 1, 2005: Overview of the “civil war” between large and small manufacturers as they battle in a landscape marked by expensive raw materials and competition from low-cost countries. Click here.
  4. Stewart Brand, “City Planet,” s+b, Spring 2006: Get ready for cosmopolitan slums with thriving markets, aging residents, and the most creative economies in history. Click here.
  5. Vinay Couto and Ashok Divakaran, “How to Be an Outsourcing Virtuoso,” s+b, Autumn 2006: As the turbulent global services industry matures, a highly skilled cadre of master providers and customers is emerging. Click here.
  6. Kevin Dehoff and Vikas Sehgal, “Innovators without Borders,” s+b, Autumn 2006: For companies that want to build a global growth engine, offshoring innovation is both a challenge and a necessity. Click here.
  7. Frank Galioto, Jason Kerins, Steffen Lauster, and Deanna Mitchell, “The Matrix Reloaded: The Multi-Axis Organization as Key to Competitive Advantage,” Booz Allen Hamilton white paper, January 2007: Consumer packaged-goods companies that master the matrix organization enjoy a competitive advantage that is powerful, sustainable, and highly adaptable as market and company priorities change over time. PDF download.
  8. Thomas Goldbrunner, Yves Doz, Keeley Wilson, and Steven Veldhoen, “The Well-Designed Global R&D Network,” s+b Resilience Report, May 15, 2006: A new study by Booz Allen Hamilton and INSEAD finds that organizations benefit when they configure their innovation networks for cost and manage them for value. Click here.
  9. Ronald Haddock, Christian Koehler, and Edward Tse, “A New Era for Chinese Vehicle Manufacturers: Opportunities and Challenges for Chinese Automakers as They Expand Overseas,” Booz Allen Hamilton white paper, January 2007: Strategies for Chinese automakers to grow in their home market and expand globally. PDF download.
  10. Steve Hedlund and Tom Pernsteiner, “Why Systems Haven’t Been the Solution for Suppliers,” Booz Allen Hamilton white paper, March 2001: Why automotive systems suppliers have been unable to generate adequate returns on their investments. PDF download.
  11. Barry Jaruzelski, Michael Busch, and Jay Kumar, “The Stealth Software Challenge,” s+b Leading Idea, December 12, 2006: Just about every product on the market, from planes to toasters to Legos, relies on microprocessors to work, but manufacturers usually treat software development for their products as an afterthought. Therein lies the problem. Click here.
  12. Edward Landry, Andrew Tipping, and Jay Kumar, “Growth Champions,” s+b, Summer 2006: How marketers can drive the only metric that matters. Click here.
  13. Matthew G. McKenna, Herve Wilczynski, and David VanderSchee, “Capital Project Execution in the Oil and Gas Industry: Increased Challenges, Increased Opportunities,” Booz Allen Hamilton white paper, March 2006: A Booz Allen survey of oil majors and suppliers revealed the pain points in supplier relationships. PDF download.
  14. Peter Parry, Varya Davidson, and Andrew Clark, “Crisis in the Oil and Gas Industry,” s+b Leading Idea, November 21, 2006: A skilled labor shortage threatens to stall the boom in investment and exploration. Click here.
  15. Jeremy W. Peters, “Auto Supplier Dana Files for Bankruptcy Protection,” New York Times, March 3, 2006: Overview of supplier bankruptcies in the automotive industry, including Delphi, Dana, Collins & Aikman, and Tower Automotive. Click here.
  16. C.K. Prahalad, “The Innovation Sandbox,” s+b, Autumn 2006: To create an impossibly low-cost, high-quality new business model, start by cultivating constraints. Click here.
  17. John W. Schoen, “Auto Industry Rocked by Delphi Bankruptcy,” MSNBC.com, October 10, 2005: An analysis of how Delphi reached this point, and the bankruptcy’s effect on the automotive industry. Click here.
  18. Lord Andrew Turnbull, “Toward a Flexible Energy Future,” s+b, Winter 2006: When the price of fuel reflects all the costs, government and industry will know where to invest. Click here. 
  19. Herve Wilczynski, Matthew McKenna, and David VanderSchee, “Unprecedented and Unseen: The Next Great Energy Challenge,” s+b Leading Idea, November 9, 2006: As the oil and gas industries ramp up “megaprojects” to meet demand, few companies really know how to manage them effectively. Click here.