But with hand-helds, buyers aren’t confined to streets—and they really want to usethem everywhere.Ohboshi saw this when the handheld market was just emergingand quickly realized that ext
Trang 1the country If you’re using a car phone (versus a handheld), you maydrive through a “dead area,” but you’ll be out of it soon Most peopleare willing to put up with that level of inconvenience But with hand-helds, buyers aren’t confined to streets—and they really want to usethem everywhere.
Ohboshi saw this when the handheld market was just emergingand quickly realized that extra investment would be required to extendconsistent service to all areas of Japan Once the issue had beenframed, every top executive realized that the investment simply couldnot be avoided; the new company simply couldn’t afford these kinds ofproblems for its fledgling handheld services If it became a commoncomplaint that DoCoMo’s StarTAC didn’t work except where youused a car phone anyway, sales would drop even lower It didn’t takethe spin-off team long to put all of the decisions in place to ensure thatnetwork complaints wouldn’t plague them into the future
Handsets That Didn’t Quite Work
Returning to his complaint analysis, Ohboshi found that handset issueswere a little more time-consuming Although there were few complaintsabout the StarTAC equipment, the Japanese-made responses (evensmaller and lighter phones) drew considerable fire from consumers.Ohboshi and his team worked on this one together They ended up actu-ally visiting the factories of NEC, Hitachi, Fujitsu, and Matsushita After
a set of discussions at Matsushita’s Kakegawa factory, it was determinedthat the central issue was components: Manufacturers either were notreceiving enough of the necessary components or were supplied withcomponents that were too large for the new, smaller phones
Handset manufacturers were doing their best to deal with theproblem, but the factory floor “workarounds” were leading to qualityproblems In true cockroach fashion, Ohboshi and his team scuttleddirectly to the offices of Toyo Tsushin, the supplier of the components,
to sort things out After a set of meetings, a rollout of new incentives,and a discussion of the importance of these components, the supplieragreed to the specs and volumes that DoCoMo’s manufacturersrequired—and made good on delivery
Trang 2Start-up Costs As High As Mortgage Payments
The final complaint issue was money And it really turned out to betwo different problems The first, startup costs, was born ofDoCoMo’s NTT heritage At that time, a customer who wanted tohave a home landline installed by NTT would pay about 70,000 yen—almost $650! The startup fee for a mobile phone was lower, but only
by a little, at about 60,000 yen But on top of that fee, the mobile
sub-scriber had to put down a deposit to guarantee return of the 100,000yen rental handset This made the startup costs of getting a cellularphone much more expensive than getting a landline With this pricingstructure, a relatively wealthy person might add a mobile phone as asecond line, but most of the market would not even consider getting acell phone; it just cost too much
Ohboshi knew that cellular phones could become DoCoMo’sgolden goose—but startup costs were threatening to kill this goosebefore it had a chance to lay any eggs As he and his team considered theprice barrier, they realized that the default NTT policy they had simplycarried over to DoCoMo (requiring a deposit commensurate with theprice of the telephone equipment) was a mistake in this new industry Itwas expensive and, less obviously, it just wasn’t necessary After all, even
if a cell phone was stolen, it couldn’t work without going throughDoCoMo’s network So the phone wasn’t all that desirable a target andstood a pretty good chance of being recovered And—here was the
kicker—even if it was lost or stolen, customers would still pay a
replace-ment fee, buying a new handset to retain the mobile service they hadcome to depend on Tradition and habit said otherwise, but a heftydeposit was no longer necessary With a short memo to the sales force,Ohboshi cut the startup costs of owning a cell phone in Japan by half
Airtime Too Costly to Actually Use
The second money problem, connection costs, had less to do withDoCoMo’s NTT origins and more to do with the industry’s state ofdevelopment A patient person might even have said it wasn’t a prob-lem at all, just a phase to grow out of in time Connection costs (“tar-iffs”) in Japan were almost triple the costs in the United States In
Trang 3essence, this just reflected different cost structures; about three times asmany Americans were using cellular phones, so American providers,and users, enjoyed economies of scale Ohboshi figured that whenJapanese used cell phones as much as Americans, the rates would drop
to about the same level But given the nation’s slow adoption of thisparticular technology, and other differences between the Japanese andU.S mobile markets, it looked like an intractable chicken-and-eggproblem Japanese were staying away from cellular phones becauseservice cost too much, but cellular service was never going to getcheaper with so few people subscribing To an impatient Ohboshi, thesolution seemed simple: Lower the connection costs to U.S levels, bet-ting that the number of users would quickly rise, thus making the ser-vice profitable even at the lower price
It was an amazing stroke of courage, insight, and perhaps someluck And it was another case where impatience paid off Until thattime, Japanese users had purchased only about 80,000 units per year,
on average, for more than a decade After DoCoMo’s price cuts, set sales rapidly shot to sixty times that level From 1995 to the end ofthe millennium, Japanese customers bought more than 5 millionDoCoMo phones per year
hand-CRISIS 2
The Case of the Plunging Market Share
No sooner had DoCoMo weathered the initial crisis—restoringhealthy sales after that life-threatening slump—than another crisisemerged This one came on with less drama But, in the long run, itposed an equal threat Although DoCoMo’s financial results lookedgood overall, Ohboshi was concerned about weakening market share
in Osaka and Nagoya After a few months it was clear that the marketshare problem was spreading to other areas of Japan as well Marketshare in Tokyo remained fairly strong, but how long could that last?And what was going wrong in the rest of the country?
Although Ohboshi’s experience in NTT had trained him well inmost issues of marketing and market research, there was one area that
Trang 4pre-1990s NTT could not have prepared him for Like its model,AT&T of the 1970s and before, NTT throughout Ohboshi’s yearsthere was a monopoly So actual competition—the driving force of life
in most businesses—just wasn’t a factor (There were plenty of otherchallenges As any career public servant can tell you, market competi-tion isn’t the only source of pressure in the world It just feels that way
to the rest of us.) Not surprisingly, DoCoMo’s market share issue wasall about competition
It took a while for Ohboshi’s team to understand the issuesinvolved in the market share mystery Why would market share bedropping outside Tokyo and not inside? What were the competitorsdoing differently?
The answer, it turned out, was an unforeseen result of DoCoMo’searlier stroke of genius—the one that opened up the market formobiles by dropping the price DoCoMo had originally adopted astrategy of targeting business people That made so much sense, it wasalmost painful: Mobile service was expensive, business people weremore likely than others to be able to afford cell phones, and they couldmore easily derive tangible value from mobility By targeting this keypopulation, DoCoMo could reduce selling and marketing expenses,focusing on the customer they most wanted They could also improveservice to these all-important business people
But with the surge in the Japanese mobile market—a surge thatDoCoMo had brought on—the environment changed WhenDoCoMo lowered the handset deposits and connect charges onphones, their competitors followed suit And the overall increase insales of phones created economies of scale that brought handset pricesdown from about 40,000 yen to 10,000 yen All of this combined tocreate an opportunity that DoCoMo’s competitors saw beforeDoCoMo itself did: Lower prices meant that the businessperson wasnot necessarily the marketing “sweet spot” any more
This was especially true for DoCoMo’s competitors, who hadnever had the strong position with business customers that DoCoMoenjoyed Pursuing less lucrative, but numerous, consumers, theyexpanded their distribution channels outside city centers into subur-
Trang 5ban areas The lower prices meant that there were more consumerswilling to buy, so they opened stores all over the country to service thisbroader need for cell phones.
DoCoMo’s best move wasn’t at all obvious Sure, competitors wereselling a lot of phones outside Tokyo But the plain and simple fact wasthat the best customers, and the highest margins, were still right whereDoCoMo had been targeting so successfully all along Japan’s (mainlyurban) businesspeople were still spending more on cell phone servicesthan the average consumer Looking at the complex market share pic-
ture, Ohboshi realized that he wanted to match the expanding service area of his competitors without diluting the level of service he was able
to give to his core customers—and all this while keeping prices low
“One lesson I learned from all of this was that what is most important about
management is speed.”
— KOUJI OHBOSHI
The impatient Ohboshi chose a solution that was extremely fast toimplement: Keep a small number of DoCoMo-owned stores in citycenters, then outsource the rest After one year of implementing theplan, DoCoMo actually owned just sixteen stores around the nation.But some 200 other DoCoMo shops were owned by others, mostlyelectronics manufacturers trying to sell handsets—Matsushita, NEC,Hitachi Using the leverage and freedom provided by these partners, ittook almost no time for DoCoMo to win back the market share dom-inance it had established early on
The impatient executive is often mistaken for the hasty or impulsiveone And there is a common, almost automatic, assumption that fast
Trang 6solutions are less than the best The phrase “quick and dirty” comes tomind But Ohboshi’s story demonstrates where both these beliefs gowrong Embracing speed does not mean sacrificing quality In this case,DoCoMo could have chosen a hasty solution, say, by expanding itscompany-owned stores from 16 to 200 during that same one-yearperiod But the quality of service to its key buyers might have been lost Rather than assuming that speed was more important than qual-ity, Ohboshi focused his impatient demand on the right goal: a fastsolution that still preserved DoCoMo’s most important customerbase That demand forced the team to do some innovative thinkingabout distribution channels The solution was still quick, but farfrom dirty; in the end, DoCoMo not only regained market sharewithout alienating business users, but also cemented relationshipswith some of its key equipment suppliers by giving them a piece ofthe retail action.
FIGURE 3-3 DoCoMo mobile-phone market share net increase.
SOURCE: NTT DOCOMO, INC.
Trang 7Box 3-4 DoCoMo subscriber growth.
The Case of the Self-Actualized Consumer
It wasn’t long before the impatient CEO was at it again This time,though, the crisis wasn’t thrust upon him Neither did it sneak up onDoCoMo, as the market share issue had Instead, this third crisis wascreated when Ohboshi impatiently looked ahead on the growthcurve, saw the day it would flatten out—and began trying to find asolution
By 1996, Ohboshi could see that the network was growing muchmore quickly than he’d anticipated This was great for revenue growth,but it also meant that the market would saturate quickly In the earlydays of DoCoMo, he had estimated an annual growth rate of 30 per-cent That sounded aggressive—to his former colleagues in NTT, it mayhave sounded insane—but almost conceivable And if the new company
could hit that number, it would face a growing market for fifteen years.
Plenty of time, then, to worry about saturation
Trang 8But as we know, DoCoMo’s growth was much faster—about 100
percent annually With the market doubling every year, Ohboshi mated that it would only be about five more years before the firm hit
esti-80 percent market penetration And it would be tough to get muchmore than that
Of course, growth in the number of users wasn’t everything Afterall, mobile phone operators are basically utilities Once users embracethe telephones, they have to pay for the service year in and year out Soeven with full market saturation, the business model is pretty sound
As long as you don’t lose customers, you have an annuity And if youcan persuade customers to use more volume, or drive down your owncosts, it is still possible to increase profits for quite some time In thiscase, however, the competition in the Japanese market was drivingannual revenue per user (ARPU) down And with ARPU dropping rel-atively quickly, and growth sure to slow, DoCoMo was looking at
three or four years of revenue growth Then what?
Stopping Commoditization Quickly
Facing the revenue growth question brought an even bigger threat tolight Once you begin imagining the mature market, you becomeintensely concerned about protecting market share and whatever abilityyou have to charge premium prices This is one of the places whereimpatience was most critical At a time when business could not havelooked better, Ohboshi’s mind had scuttled ahead to the day thatgrowth would slow From there, it had caromed to the Really Big Ques-tion: How could DoCoMo continue differentiating itself from the com-petition—especially in ways that mattered to the buyer? Building ontraditional NTT strengths, DoCoMo had done a great job of expand-ing its network and digitalizing service This gave it a real technical edgeover competitors—perhaps as much as a couple of years’ worth.The problem was that the people who really mattered didn’t know
or care about this edge The battle for customers was not being waged
on the technical front; it was a fight won or lost in large electronicstores around the country When consumers in Akihabara or Shinjukuwalked past a store like Yodobashi Camera or Big Camera, they were
Trang 9barraged by hundreds of types and colors of cell phones In that text, getting them to focus their attention on the reliability ofDoCoMo’s network, or the advantages of digital service, would require
con-a highly visible difference
And that was just the beginning As the cockroach president dered out into the frenzy of consumer cell-phone buying circa 1996, hediscovered even more threatening trends To Ohboshi’s shock, none ofhis DoCoMo phones were being displayed in the front of the store.The only companies with phones up front were the ones subsidizingtheir sales In some cases, the subsidies were almost total; Ohboshi saw30,000-yen phones being sold to consumers for 2 yen When hereturned to the office, he told his colleagues “this isn’t price destruc-tion any longer, this is price disappearance.”
wan-This was obviously a problem that required an innovative tion—or perhaps a more drastic approach Ohboshi was, of course,more eager than anyone to find it, more impatient about getting to thesolution quickly But he demanded that it be more than a gut-levelreaction In such an extreme and unexplored environment, it was crit-ical that DoCoMo understand the basic laws of the universe Whatwould economic principles—the equivalent of Newton’s laws—predictfor this world? Having studied law in school, Ohboshi had no formaltraining in economics But he had read economics books as an avoca-tion Now he turned back to those readings to try to understand what
solu-to do with “price disappearance.”
Basic economic theory didn’t give him much hope Once a producthas become a commodity, there is almost no way to turn thingsaround That told Ohboshi that the only way to get out of this messwas to jump to an entirely new level of competion—to change thegame, and fast With that in mind, he continued scuttling through aca-demic literature He felt sure he would find the right model to help histeam succeed in this strange new world He considered some generaleconomics theories that forecast the rise of the information economy—the importance of the material economy giving way to the immaterial.But in the end it was a classic theory from another wing of social sci-ence that really sparked his new thinking
Trang 10Thinking about the shift from a material economy to an tion-based one, Ohboshi turned to Maslow’s hierarchy of needs (seeBox 3-5) Economic theory was telling him that society was about tomove from a focus on material (which mapped roughly to “physiolog-ical” or “security” needs in Maslow’s hierarchy) to a focus on infor-mation (which seemed more related to the cognitive, aesthetic, andself-actualization needs higher up Maslow’s ladder) This shift, hedecided, must be reflected in the products that his company was going
informa-to produce Ohboshi had informa-to move DoCoMo from concentrating onthe physical to emphasizing the emotional
Box 3-5 Maslow’s hierarchy of needs.
1 Physiological: hunger, thirst, bodily comforts, etc.
2 Safety/security: out of danger
3 Belonging and Love: to affiliate with others, to be
accepted
4 Esteem: to achieve, be competent, gain approval and
recognition
5 Cognitive: to know, to understand, and to explore
6 Aesthetic: symmetry, order, and beauty
7 Self-actualization: to find self-fulfillment and realize one’s
potential
8 Transcendence: to help others find self-fulfillment and
real-ize their potential
Making Them Emotional
For guidance, Ohboshi then looked to the “emotional” products already
in the marketplace How did the firms behind these products create
Trang 11value? As president of a major brand in Japan, he had long known thatbrand was important But coming from an industry so based on tech-nology and physical performance, he’d never really tried to consider theelements of brands in terms of emotions before Once he had made thisconnection in his mind, he saw the evidence everywhere he looked Why were Japanese consumers willing to pay $500 for a Louis Vuit-ton bag when a $25 generic bag would fill the same function? Because ofthe emotional values attached to the brand Louis Vuitton Here was proofthat emotional content could be a big money maker About the time thatOhboshi faced the challenge of keeping DoCoMo differentiated in a world
of commodity bandwidth (1997), Moët Hennessy Louis Vuitton (LVMH)reported a 55 percent increase in sales in just six months
“So I thought we have to shift the focus
from the material product to service, which
belongs to the pleasure industry.”
— KOUJI OHBOSHI
Ohboshi was convinced that this shift from the physical to theemotional was an important idea to put into the company’s strategy.This has proven prescient As Patrick Lynch, one of our colleagues atthe Accenture Institute for Strategic Change, found several years later,successful wireless data products worldwide are often those that some-how create an intimate, emotional bond with the user Lynch’s analy-sis is summarized in Appendix A
For DoCoMo, Ohboshi saw, this strategy would have implicationsfar beyond marketing As he and his team started to envision what anew “emotional” marketplace for wireless communications wouldlook like, they saw that there were some technical changes that would
Trang 12make the transmission of emotional content easier One of thesechanges was the use of packet switching technology Emotional con-tent needed to be rich and instantaneous—there was almost no limit tothe amount of bandwidth humans would value in supplementing oreven replacing face-to-face experience
Conceptually, it had been a long journey for Ohboshi on this thirdcrisis, beginning with an eventual drop-off in revenue growth, andending up at the need for packet-switched emotional content Ofcourse, it hadn’t taken the cockroach president long to make theseleaps And, once there, he saw no reason to wait In fact, he thought itwould be easy to focus DoCoMo on this new challenge He had only
to share his vision of new technology supporting emotional productsand services, and the thinking behind it, and the firm would take off in
a burst of action, opening up a lead that no competitor could touch
Trying to Get Executives to Hyperspeed
But for a huge number of players, the distance was too great, the speedtoo fast, and the process too flexible Many in DoCoMo, from topexecutives on down, had come from NTT Though working, and sofar succeeding, in the hyperspeed world of information technology atthe turn of the millennium, they were thoroughly steeped in their oldsystems So key executives were not willing to buy into the new vision,
at least not immediately They thought that any new strategies for thecompany should be arrived at in a slow and methodical way It was
important to do all that nemawashi consensus building (see Box 3-6)
before any decision could be made—no matter how strongly the
pres-ident felt about a new idea And this problem went far beyond the ishimariyaku (director) level.
tor-But even if Ohboshi’s direct reports had been willing to sign off onthe strategy, he knew that the real struggle had to take place at lowerlevels in the organization There, the problem would be not onlyaccepting the vision, but conceding more concrete (seemingly trivial)battles The technical people who worked on the regular cellular sys-tem didn’t want to incorporate thinking from the new packet-switchednetwork They were reluctant—or at least slow—to implement this