Obsolescence Insurance, a New High-Margin Business for EMS Companies
by 
Lisa Cairns
Managing innovation is not necessarily about product or component innovation – it is importantly also about knowing how to extend strategic models into new markets, whether geographic and/or business. Just as the semiconductor and electronics supply chain continues to diversify and penetrate more deeply into once niche markets (e.g., automotive, health and fitness, industrial automation, oil & gas (O&G), among others), there is an increase in strategic ventures to new geographic locations. But the disruptive change cycle extends much deeper than this.
It is a truism that there are many challenges to growth into new geographic markets: forex, local business cultures, new vendor relations, end-product marketing, certifications and regulations, and logistics are just some of the many hurdles to overcome. Yet these are not new challenges, not ones that haven’t bedeviled executives and supply chain officers repeatedly. After all, as Heraclitus, circa 500 BCE, knew even then: "Everything changes and nothing remains still," (as interpreted by Plato).
So what is new in this current cycle of change in our industry and along our supply chains? Gartner's 2014 Business Transformation and Business Process Management Key Initiative Overview underscored some important new challenges to process management that resonate:
These days, there often is no experience curve to go down. Forces such as cloud, social, mobile, big data, digital business, smart machines and the Internet of Things (IoT) jeopardize long-held assumptions about operational best practices and how to best engage with value chain partners. A new generation of change agents is needed, one that is capable of delivering "Big Change" — a capability to successfully alter ongoing operations and deliver big outcomes in a complex, high-risk environment fraught with volatility, ambiguity, novelty and diversity.
Certainly the pace of change has quickened and along with that, the ability to establish entirely new supply chains and reach new markets more rapidly than ever before. Leveraging digital business capabilities is increasingly critical to gaining new market competitive advantages. One example is the case of Xiaomi and their digital business strategies for marketing devices, online stores, and growing their global presence to compete with industry leaders like Samsung and Apple, for example.
Not only does Xiaomi represent an interesting case study of a new competitive force, the market strategy they adopt clearly reveals a new trend in managing innovation – leveraging agile and highly-localized supply chain relationships to increase cost efficiencies. As they move into Brazil and continue to have an eye on new geographic market growth, one question is whether they will be able to replicate the existing successes in supply chain strategies into their new markets. This codification of processes and then the replication of them into new markets is a real test of the company’s innovation management success (and maturity).
While Xiaomi continues to be an interesting case study for rapid market entry and expansion, there are deeper questions and management changes at play in industry writ large. One core change to innovation management is the challenge facing Chief Supply Chain Officers (CSCOs) to balance both traditional efficiency requirements and new growth strategies, as discussed in a recent Gartner report, "2015 CEO Survey: Bimodal Balance Is Required for the Future of Supply Chain." The responsibilities of CSCOs and the definition of supply chains now have a wider scope – no longer the domain of logistics, sourcing, and vendor relations alone, strategic business innovation has extended to include supply chain design as a source for real competitive advantages. The ability implement the right digital solution to the right opportunity can extent efficiencies learned from one arena into new markets and afford agility at critical market entry points.
With executives extending the challenge of innovation strategy for growth from the traditional arena of product and market scope to include supply chain innovation opens yet another door for significant changes along supply chains. The role that digital business is having in growth strategies is not limited to reaching, engaging, and enhancing customer experiences; importantly, from the supply chain side, the implementation of the right systems and metrics at the right point in change management strategies afford established efficiencies during times of rapid, agile, and innovative market growth.
New strategies for managing innovation that are embedded in the bimodal balance challenge placed on CSCOs and in the role of digital business, as Gartner has explored, affords a new type of agility, one that enables systems and therewith companies to quickly respond to unstable situations. As Gartner research posits: “Unlike a stable process, the unstable process does not depend on repetition of known steps, but on adapting to the situation. The instability inherent in this is used to increase its ability to respond to a wide range of unexpected or seldom-seen disruptions […].” Such an agility in process management truly opens innovative growth opportunities and has the potential to dramatically change the nature of supply chain relationships.
No longer placing greater weight on a set of favored partners, rather, these new, agile, digital business processes could have the capability of automating the selection of supply chain partners based on what is the most efficient and best connection series for the existent scenario, rather than following our long-standing relational connections favored by human network patterning. Will the future of our supply chains move from the hands of humans to more efficient faceless algorithms? The globalizing extension of supply chains has weakened the social network relationships that had characterized vendor relationships. This weakening in what was once a close-knit set of interpersonal relationships opens the door for being usurped by the more efficient, agile, and adaptive digital business management.
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