International Business

Unit 5: Your Future in International Business

BusinessWeek Global Business

Read the complete article and answer these questions from your textbook:

What trend is a competitive weapon?
What are some factors enabling this trend?

Speed Demons

How smart companies are creating new products—and whole new businesses—almost overnight

Last year on Feb. 14, Virgin Group Ltd. founder Sir Richard Branson got a provocative e-mail out of the blue. Gotham Chopra, son of self-help guru Deepak Chopra, had a proposal: Branson should team up with Indian entrepreneurs who were running a comics distribution business and create a new global comics and animation powerhouse—part Marvel Comics, part Pixar (PIXR). It fit Virgin's brand: Kids. Fun. Big. Risky. Branson asked his people to check it out. Boom! Bang! Shazam! By July it looked like a done deal, except for one thing. Virgin was moving so fast that none of its executives had ever laid eyes on the operation that was meant to be the heart of its new venture. "I needed to go to India to make sure it wasn't a shack in the jungle," says Virgin Books Ltd. chief Adrian Sington.

It wasn't, and Virgin Comics LLC was born. The company was revealed to the world on Jan. 6, and now Branson and Virgin Comics Chief Executive Sharad Devarajan are sketching out grand plans. They hope to build India into a multibillion- dollar comics market by plying its under-20 population of 500 million with mythic tales. And there may be huge opportunities for export to the West. Seven titles are due out in the U.S., Britain, and India in the coming months. Even animated movies and TV shows are on drawing boards in Bangalore. Virgin's quick entry into comics spotlights one of the most intriguing shifts in business today. Speed is emerging as the ultimate competitive weapon. Some of the world's most successful companies are proving to be expert at spotting new opportunities, marshaling their forces, and bringing to market new products or services in a flash. That goes for launching whole new ventures, too.

Virgin, which made its name in music, megastores, and airlines, may be the exemplar. In short order, it has entered one new business after another, including mobile phones, credit cards, bikes, fitness clubs, books, hotels, games, trains, consumer electronics, even space travel. "A good idea for a new business tends not to occur in isolation, and often the window of opportunity is very small," explains Branson. "So speed is of the essence."

The pace is picking up across such industries as retailing, consumer goods, software, electronics, autos, and medical devices. In many realms, the time it takes to bring a product to market has been cut in half during the past three or four years. At Nissan Motor Co. (NSANY), the development of new cars used to take 21 months. Now, the company is shifting to a 10 1/2-month process. In the cell-phone business, Nokia (NOK), Motorola (MOT), and others used to take 12 to 18 months to develop basic models. Today: Six to nine months.

It's all being driven by a new innovation imperative. Competition is more intense than ever because of the rise of the Asian powerhouses and the spread of disruptive new Internet technologies and business models. Companies realize that all of their attention to efficiency in the past half-decade was fine—but it's not nearly enough. If they are to thrive in this hypercompetitive environment, they must innovate more and faster.

Of course, speed has been important in business ever since the California Gold Rush. What's changed in recent years is that a slew of new techniques make it possible to get things done much faster. Start with global outsourcing. A vast network of suppliers around the world stands ready to do everything from manufacturing products to drawing up legal contracts. This helps companies create supply chains that are faster, more flexible, and more efficient than ever before.

AT THEIR FINGERTIPS

Take clothing retailer H&M. Every time it designs a new outfit, the Swedish company can choose on the fly among more than 700 manufacturers worldwide. It looks for the right skills, geographic proximity, and ability to finish the job quickly—and then gets the plant rolling in a matter of hours or days. Or consider Wipro Ltd., the Indian outsourcing firm. It does engineering and design for clients, and in some cases, part of its fee is based on the success of the product it delivers. Customers can keep costs low, until they know they've got a hit on their hands. "Our clients are under a lot of pressure to get new products faster into the market. Their core employment isn't adequate for it, so they're looking for partners who can do it for them," says Azim Premji, Wipro's chairman.

Then there's technology. The Internet has become ubiquitous, so companies can connect with talent anywhere in the blink of an eye, inside or outside the company. Open-source software can be plucked off the shelf to become the foundation of new software programs or Web sites. Algorithms can be used to slice and dice market information and spot new trends.

Perhaps most important, today's fleet companies are embracing a management approach that would have been heresy just a decade ago: If you don't fail occasionally, you're not pushing hard enough. Executives tend to try lots of things, expecting a number of them to flop. It doesn't matter as long as you produce a steady stream of hits. Even losers can burnish a company's reputation for innovation if they're seen as exciting experiments. "It's not just O.K. to fail; it's imperative to fail," says Seth Godin, a marketing expert and author of several books, including Unleashing the Ideavirus.

Virgin has had its share of flops. One example: It formed Virgin Electronics in July, 2004, and sold only a modest number of digital music players through that holiday season. Branson, who gets out as fast as he gets in, shut down the business in March, 2005. Google Inc. (GOOG) may be the highest-profile example of the new philosophy. It launches product after product, more than 100 in the past five years. Not all of them soar: one that didn't was Froogle, the comparison-shopping site. Marissa Mayer, who helps guide the company's innovations, says Google wants to try new things and see what resonates with its users. The approach, says Mayer, "frees you from fear."

In this world of possibility, laggards end up losers. The most aggressive companies tap into outsourcers for new products or use the Net to pull in ideas from unknown geniuses in Bangalore or Beijing. Rivals must follow suit or fall behind. The cell-phone business is just one sector where the competition is more intense than ever. Motorola came out a year ago with the RAZR, its ultrathin cell phone with camera and music player. Samsung Group answered with the Blade seven months later. Then on Feb. 1, Motorola came back with its SLVR, a phone that's even more svelte than its predecessor. "It's like having a popular nightclub. You have to keep opening new ones. To stay cool, you have to speed up," says Michael Greeson, president of market researcher Diffusion Group Inc.

A higher tolerance for failure doesn't mean ignoring the risks, of course. In certain sectors a string of losers can spell trouble. While consumer electronics companies pump out new products at a frantic pace, the industry as a whole barely ekes out a profit. "If you're not fast, you're dead. But if you're not also good, you're still dead," says George Bailey, a consultant at IBM Business Consulting Services. (IBM)

Opting out is no option, though. To goose revenues and profits, companies must introduce more products and jump into new markets. There are probably as many good recipes for up-tempo innovation as there are successful companies. No one model works for all industries or even all companies within a single sector. Yet when BusinessWeek pinged dozens of companies to see how they do things fast, patterns emerged. Here are some of their best practices for making the journey from concept to market.

FIND NEW WAYS TO SPOT HITS: While focus groups and market research are useful, they're not sufficient. So companies have come up with new techniques for sussing out great ideas. Electronics retailer Best Buy Co. (BBY) has begun checking with venture capitalists to find out what their startups are working on. Procter & Gamble Co. (PG) uses online networks to get in touch with thousands of experts worldwide. That helped the company produce 100 new products in the past two years. One example: It found a professor in Bologna, Italy, who had invented an ink-jet method for printing edible images on cakes. P&G used it to create Pringles potato chips with jokes and pictures printed on them—boosting Pringles growth into double digits. "This was terrific. We found a ready-to-go solution we could put into the marketplace," says Larry Huston, P&G's vice-president for research and development. The product came out in one year, rather than the usual three or four.

KEEP YOUR LAUNCH TEAM AGILE: Everybody knows that bureaucracy means death to new ideas, yet most companies still insist on forcing innovative products and ventures through a gauntlet of presentations and reviews and refinements. Not at Raving Brands, an Atlanta-based fast-casual restaurant franchiser. Chief Executive Martin Sprock talks a mile a minute and launches concepts nearly as fast. In the past five years, Sprock has unveiled six, including Fresh Mex, Asian fusion, and gourmet salads, and has another on the way. Raving Brands typically goes from finished concept to store opening in about a year. For some franchisers, it takes two years or more.

Raving Brands isn't so much a company as a SWAT team in chinos and polo shirts. Sprock meets with four or five senior partners every Monday to handle problems and talk over new ideas. They don't have a corporate office, so they gather at one of the restaurants. Sprock might come in with a new concept. (The gourmet salad idea came after he saw fancy salads being custom-made for busy New York office workers.) They'll bat around ideas. Then they'll split up to handle their specialties—recipes, say, or real estate. If somebody needs a quick O.K., they get Sprock on his cell. "We take a lot of pride in moving quickly and not having a committee sitting around and planning things," he says.

BREAK YOUR UNWRITTEN RULES: Every company has them. They're those mental crutches that say this is the way we do it because this is the way we've always done it. For routine matters, that's fine. But not when you're trying to create something new, and quickly. There's probably no industry more staid than wine. California's Jackson Enterprises was no exception, until it had to scramble to deal with a huge worldwide glut of wine in late 2004. Rather than pour juice down the drain, the company, known for its Kendall-Jackson brand, decided to do nearly everything differently. "We absolutely broke all the unspoken rules," says Laura Kirk Lee, marketer who led this campaign.

The company created two entirely new brands in a matter of weeks. Aided by design firm IDEO Inc., Jackson Enterprises brought together people from all parts of the business for a weeklong off-site brainstorming session, a first for the company, that shook up managers. In December, 2004, the whole group decamped to Palo Alto, a two-hour drive from headquarters in wine country, for the series of mind-expanding exercises. IDEO did all sorts of things to bring fresh points of view into the discussions, including inviting Stanford students with no background in wine to sit in. One of the key lessons for Lee was rapid prototyping, quickly patching together rough models of wine concepts so the group could see how they looked.

The team emerged from the marathon with 10 crazy ideas, and then settled on two of the less crazy ones. One, named by corporate attorney Tiffanie Di Liberty, was Wine Block, the first wine-in-a-box ever for Jackson. These are elegant, 1.5-liter cubes modeled on perfume packaging. The second was Dog House. These bottles have twist-off tops and a drawing of a dopey dog on the label. The price is $6.99, half that of a typical Kendall-Jackson bottle. Another departure: To get the wine ready for delivery in April, 2005, they operated a mobile bottling plant installed in the back of a semi in the parking lot.

The results have a hearty bouquet. Jackson expected to sell about 10,000 cases of each. Instead, both broke the 100,000-case barrier. The company has an even bolder new venture in the works, which is hush-hush for now.

HAND OFF TASKS TO SPECIALISTS: Outsourcing companies don't just do things more cheaply anymore; they can do them better and faster. Take the cell-phone business. What's in vogue changes as rapidly as clothing fashions, so companies must introduce a steady stream of new designs. Problem is, it typically takes 12 to 18 months to develop a phone from scratch. That's why cell-phone companies, both leaders and also-rans, are tapping outfits such as Cellon Inc. in San Jose, Calif., to design some or all of their models.

Cellon doesn't wait for customers to call before it starts engineering. It has a half dozen basic designs that it can quickly customize for a particular client. These designs include the chips and circuitry for various networks and combinations of features. Cellon, with operations in China, works with nearby manufacturers to prepare its designs for production. It takes just five months to go from design to market. That's crucial. The life span of a cell-phone model is now about nine months. If it takes 18 months to design a product, it's obsolete before it hits the market. In five years, 30 million phones designed by Cellon have been sold by the likes of Haier, Royal Philips Electronics (PHG), UTStarcom (UTSI), and some leading brands it is not allowed to name.

ONCE YOU HAVE IT RIGHT, REPEAT. Virgin took just six months to launch its first mobile-phone service in Britain in 1999. That was mainly because the company arranged with a cell-phone service provider to use an existing network rather than take the time and money required to build its own. Since then, Virgin has begun phone service in three countries using the same model, and it expects to launch in three more this year. By using the wireless networks of other companies, Virgin can concentrate on the marketing and customer service that it does best. "It's a template. We'll roll out in a new country every four to five months. It's fast and lean," says Will Whitehorn, Virgin's development director.

Fast and lean has a nice ring to it, but it's not a claim many companies can make. While some organizations have speeded up their innovation and formation of new businesses, they're the exceptions. Most are still bogged down in bureaucracy and old modes of doing things. That's a recipe for trouble. "There are two kinds of businesses: the quick and the dead," warns analyst Bruce Richardson of tech industry consultancy AMR Research Inc. That's probably an overstatement. But in an era in which once-mighty dinosaurs are struggling to survive, the alternative to fast and lean may soon be...gone.

By Steve Hamm, with Ian Rowley in Tokyo

March 27, 2006