Focus, Focus, Focus
I was reading with interest the EETimes’ interview with NXP’s new CEO Kurt Sievers. Obviously not a great time to be taking over any company as the new CEO! But a couple of things he says, particularly about focus and market share caught my eye.
There has always been a tension in business strategy between having a broad portfolio which spreads the risk, and focus: focus, if done properly helps you conserve your efforts and resources, and if done properly should deliver higher returns.
NXP, with its previous history in Philips and Philips Semiconductors was a European mid-size player with a broad portfolio, but particularly since investment in NXP by venture funds (BlackRock, T. Rowe Price Associates, Inc etc), there has been a real sharpness and focus. Some of this is the usual buying (acquisition of Freescale in 2015 and wireless connectivity assets of Marvell in 2017) and selling (disposal of their RF Power Division was sold to JAC Capital [since rebranded as Ampleon], then Nexperia in 2017). Some of it is their product and market focus (4 market applications [which NXP call ‘verticals’ or ‘End Markets’]: Automotive, Industrial and IOT, Mobile, and Communication Infrastructure, with an underlying theme of ‘Secure Connectivity’ with the strap line “Secure Connections for the Smarter World”.
But what I really like is how this translates into real strategic decisions, such as where to invest in R&D. Sievers cites “Focusing on business and investment in the market segments in which NXP is most likely to outperform others…” This is significant. It’s not just about investing in something because they can do, but because doing so will enable NXP to outperform its competition. Of course, Sievers had over 25 years’ experience already working at NXP and Rick Clemmer as his previous boss, so this attitude and discipline would be been instilled in him for a long time.
The practical application of this approach is not just to focus on where the company can get market share, but where it knows it can dominate through winning superior market share. This concept is called Relative Market Share (RMS), and it’s been part of the business culture at NXP for years, e.g. see NXP’s Semiconductors Company Presentation of February 2015, where they talk about investing in ‘Core & High RMS business’, or see a previous Business Blog I did (https://www.marketing-generics.com/blog/item/why_relative_market_share_rms_is_a_better_metric_than_market_share) which explains the thinking in more detail (It’s not the Market Share per se that you have, but the share relative to your next largest competitor).
In the end it comes down to choosing what you do (should be doing) and not doing, and this is a management discipline. As Sievers goes onto say “We know what we do, and we know also what we do not do. Because semiconductors offer such a broad array of opportunities every other day, the only way to win is to be very focused on where you really want to lead, where you really want to outperform others and out-innovate your competitors.”
Let’s see how this works out when the COVID crisis is over and NXP can experience less volatile market conditions.
Posted on: Thursday, June 04, 2020