Archive for April, 2010

Branding Organizational Transformation

April 1, 2010

“We need to establish a new competency before we get into trouble.”
— Peter Chou, CEO of HTC, a Taiwanese handset maker.

After a successful run designing and building high-end smart phones for leading Western mobile operators, HTC is starting to develop its own brand to compete against the likes of Apple and Blackberry. The costs: shareholder skepticism (“things have been going so well!”), a loss of good customers who donʼt want to do business with an emerging rival, and an overhaul of corporate culture from one that focuses on efficiency to one that relies on branded innovation to compete.

Strong brands beget strong margins, so it should not surprise us when an industryʼs best ODMs (“original design manufacturers” such as HTC) decide to take their own innovations to market. Itʼs a risk we can associate with our decisions to outsource innovation in the first place. Manufacturers that leverage a distribution system they donʼt own will recognize a similar pressure coming from the other direction, in the form of retailer private label brands.

Of course, being sales organizations, itʼs easy for ODMs to underestimate the difficulties of building a brand and taking “it” to market. Still, we should anticipate that ODMs will get better at branding as they pursue strategies to “keep themselves out of trouble.” The same competitive pressures that compel ODMs to pursue brand strategies, though, may well keep many from transforming in the way Chou hopes to transform HTC. Rival suppliers will keep prices down and distract organizations from the hard business of transformation, and itʼs never easy to convince internal stakeholders to make enemies of clients.

ODMs that decide to pursue a brand strategy will need to commit fully to an organizational transformation, and will do well to resist temptations to “straddle the fence” by trying to build brands while still behaving like ingredient suppliers. Meanwhile, branded manufactures that outsource innovation may want to consider taking a longer- term view of the financial health of key suppliers, in the interest of protecting and growing those margins that their brands afford them.