Innovation, Strategy and Ethics at Western Digital Corporation

WDC

Introduction

What separates a successful company from companies that will inevitably fail? It may seem somewhat obvious that the best run companies may succeed while poorly run companies generally fail. But how can the primary constructs of success be stratified and defined? Is it through adept leadership? Perhaps intellectual property and patent protection plays a key role. Are companies that are able to raise huge amounts of capital the ones with the best chances for long-term survival?

This paper seeks to address the primary underpinnings and constructs that seem to make the difference, the ones that really matter, between world-class success stories and all of the companies that have failed or will likely fail.

Innovation

There is a large body of research directed at explaining and even predicting the underlying reasons for success and failure of business enterprises. Raynor (2011) describes the predictive underpinnings that purport to give us advance notice of the impending failure of any given firm that doesn’t embrace the tenets of disruptive innovation. A brief synopsis of innovation theories, along with the identification of similarities and differences, is summarized below.

One dominating theory began to emerge in the 1990’s to describe and characterize innovation and its resultant competitive advantage. Technology changes have accelerated, and companies that have experienced significant financial success have been characterized as innovative. Innovative firms pursue a strategy of sustaining technology changes, or technological improvements applied to an existing company product portfolio. These changes can be evolutionary or revolutionary (Christensen, 1997).

Contrasting “sustaining technology” to “disruptive technologies;” disruptive innovation relates to significantly differentiated technological breakthroughs that are so novel that competitors have not come to embrace nor even yet understand them. This type of innovation will generally take some time to gain traction, but given time will reach and finally exceed sustaining technology attributes to the delight and acceptance of customers. Although it may seem intuitive that a complete overhaul of the entire organization is needed for the success of impending disruptive innovation, this is generally not recommended (Christensen & Overdorf, 2000). The culture within a firm must have the infrastructure, talent and foresight to see new disruptive technologies before they arrive. A firm can be attuned to disruptive technologies, they can be the leaders in embracing these new ways, and they also construct barriers against disruption in the form of “momentum, tech implementation, ecosystem, new technologies and business models” (Wessel & Christensen, 2012).

The disk drive industry is a good example of disruptive technology. Capacity and storage began as customer-accepted normative attributes, but in time form factors and access times arrived and began to change the scene, offering new and valued attributes to customer products such as smaller and smaller yet more powerful PC’s and laptops (Christensen, 1997).

An extension of disruptive innovation led to a new term: Blue Ocean and Red Ocean strategies. Blue ocean strategy is the unknown market that has not yet been thought of nor exploited. Blue Ocean is a means of winning apart from competing (Kim & Mauborgne, 2005). The blockbuster innovations such as the iPhone or a Tesla electric car are such breakthroughs, characterized as blue ocean disruptive innovative products.

Red oceans, on the other hand, speak to the existing marketplace of competitors and products, each firm struggling to increase their own market share and reduce their costs to enhance overall profitability. These are the “known’s,” the status quo, products well on their way to eventual complete commoditization (Kim & Mauborgne, 2005).

Much of the research indicates blue ocean strategy is always preferable to the existing markets served by the red ocean firms, but there is not necessarily agreement that the distinction is all that clear-cut. In general being a “first mover” and pursing further incremental change offers advantages, but blockbuster and completely new categories present a potentially unacceptably high risk since customer acceptance is assumed although it has not yet been demonstrated (Barwise & Meehan, 2012). Many firms, especially the large, global firms such as Samsung, Toyota and Google, will have businesses that occupy multi-colored oceans. Indeed, Google’s primary source of revenue and earnings remains its advertising business. Ten years ago their advertising business was a breakthrough and novel blue ocean strategy, but Google now realizes it needs differentiation through fresh innovative products such as driver-less cars and Google Glasses to continue to claim their blue ocean berth.

While innovation and compelling differentiation are prerequisites to strong sales and earnings growth, the so-called “first movers” who embrace a blue ocean strategy (Buisson & Silberzahn 2010), another seemingly contrary strategy can also result in business success. This other approach, referred to as “fast second,” attempts to quickly follow and emulate what is perceived as innovative blue ocean nascent businesses (Markides & Geroski, 2005).

Traditionally firms focused on their existing product portfolio, and their existing markets, strive to sell more while at the same time reducing costs, all the time keeping quality at an acceptable level. Value innovation emerged as a systematic strategy aimed at improving both the value proposition to the company through inventive product changes that will have the effect of differentiating a company’s product from its competitors, while determining how to reduce the input costs simultaneously. Successful value innovation strategies can result in revenue growth, both units and dollars, as well as increased profitability proportionate to the reduction in resource input costs (Kim & Mauborgne, 2004).

Strategic Management and Planning

A company strategy is its battle plan to outperform their competitors. A strategy begins with a vision of what is possible, whether an entirely new and perhaps disruptive technology, or merely a novel way of further differentiating a product or service to take market share from incumbents. The acronym S.M.A.R.T. provides a framework for taking your vision from general into specific strategic objectives (Doran, 1981):

  1. Set Specific expectations
  2. The objective should be Measurable so you will know if achieved
  3. Attainability is key, set stretch objectives but not unrealistic ones
  4. Similar to attainability, the objective should be Realistic
  5. Set a Time frame, along with Who/What/How

A strategy can be alliterated in 35 words or less (Colis, 2008). The statement should say broadly what is the value proposition to the customer, as well as how it will be delivered at the right quality and the right price and the right time. A strategy is unique to a firm; it cannot be another company’s strategy. It must stand uniquely with each differentiable attribute that shows how the company can beat their competitors by performing faster, better, smarter and cheaper. Strategy is not operational effectiveness; it is about “being different” (Porter, 1996). Best practices such as lean manufacturing, six sigma and other effective measures for lowering costs and improving upon operational efficiency and effectiveness can be easily and quickly cloned by competitors.

A successful strategy will be a systematic, companywide integration that every operation and function is aligned with. The strategy will be optimized around what the company believes they can do better and differently than their competitors. It is not an annual plan or budget, but rather is a living plan that is changed as the environment and new information requires its modification.

Corporate Social Responsibility

Corporate Social Responsibility, or CSR is relatively new and enabled through the rapid sharing and dissemination of global information associated with the globalization of large company operations. Companies operating factories and selling across hundreds of countries have mostly benefited from moving beyond domestic consumption and taking advantage of low cost production in countries such as Vietnam, Myanmar, Bangladesh, Thailand or China.

Today a large company cannot expect to ignore CSR without eventually regretting having done so, and paying a price in terms of credibility or negative goodwill. Efforts to integrate vision, strategy, innovation, brand and product differentiation are complex and difficult to undertake, but the proactive, large, global companies do so to increase their chances of success. “Conscious Capitalism” (O’Toole & Vogel, 2011) focuses on dimensions beyond profitability and maximizing shareholder value; in spite of these CSR initiatives being potentially costly and difficult to undertake. The astute and environmentally aware company that expects overall success will recognize the importance of the “triple bottom line,” taking performance measurement into social and environmental dimensions, along with their traditional focus on profitability (Edgeman & Eskildsen, 2012).

If actions are undertaken to incorporate into the company vision an integration of social responsibility, large, high-visibility firms with large advertising outlays, will stand to benefit through “high customer awareness” (Servaes & Tomayo, 2013). Although these large, visible and public companies must pay attention to CSR, individual politicians, actors, sports figures and other celebrities have been blindsided by a CSR-related backlash they never saw coming. On August 8, 2014 NASCAR race car driver Tony Stewart allegedly ran down and killed 20-year-old racecar driver Kevin Ward Jr. The speculation of foul play was immediate and intense across all news and social media accusing Stewart of murder. In response Stewart was forced to suspend his plans to race that next day (Bonkowski, 2014).

Case Study: Western Digital Corporation

Western Digital Corporation (WDC) manufactures and sells storage and networking devices, primarily hard disk drives and solid state drives for data storage. Based in Irvine, California, WDC has been in business since the early 1970’s. WDC’s tagline is “All your content in one place, accessible anywhere. Absolutely,” with messaging across marketing, promotion and advertising emphasizing the adverb “absolutely” to provide customers with a sense that the products are reliable, even robust (http://www.wdc.com).

Over the decades products evolved from calculator chips to hard drive controller chips to controller printed circuit assembly boards, to integrated disk drives, today among only three disk drive companies left in a world where once there were dozens. Over the period of the evolution of storage drives, data storage capacities were initially measured in megabytes (1000 bytes), growing to gigabytes (1000 megabytes), and finally all the way to terabytes (1000 gigabytes), for internal and external PC and laptop data storage. The company has been traveling along a bumpy road that included bankruptcy and near bankruptcy over their years. How can WDC be characterized in terms of innovation and strategy? What accounts for their ability to survive and prosper? Table 1 provides key financial metrics for the past three years (http://yahoo.com).

In an industry of continuously changing value innovation through technological improvements, Western Digital Corporation avoids new risky or niche product designs, describing itself as a ‘fast follower,’ not a ‘pioneer.’ In a matter of months, not years, the newest and greatest disk drive products will have been utterly and completely commoditized, and not long after that, obsoleted (“‘Fast follower’ prefers profiting to pioneering – The Orange County Register,” 2013). WDC’s technology investments, along with both capacity expansion resulting from their acquisitions and organic growth, have resulted in operational execution excellence, driving financial success as can be seen in Table 1 (“Analyst Actions: eBay, Western Digital, THQ, F5 Networks,” 2008).

According to WDC’s 10K filed with the SEC on August 20, 2008, the strategy WDC is pursuing is to provide reliable and high quality products at the overall lowest possible cost of ownership. These products will, as a matter of intentional strategy, be efficient and fast. In so doing, WDC provides high customer value, achieves consistent and favorable financial results, and distinguishes itself in the highly competitive disk drive industry. WDC strives to grow revenue while minimizing and controlling operating expenses, and seeking a high utilization of assets in place (Western Digital Inc., 2008).

When it comes to innovation, one benchmark that is well correlated to both disruptive and value innovation is that of the highest “productivity of research and development.” CNBC publishes an annual list of the top producers of significant, productive, and innovative research and development expenditures (CNBC “The R&D Hall of Fame: Which companies got elected?” 2014). Only 28 companies, including WDC, have appeared on the list more than 10 years (see Table 2). In the past two years Western Digital Corporation has doubled their Research & Development expenditures to $1.5 billion.

So is Western Digital Corporation attempting to move from a “red ocean // fast follower” to a “blue ocean // disruptive innovator?” Over the past ten years WDC has increased vertical integration by acquiring Read-Rite (2003), formerly a supplier of read-write disk drive heads in the disk drive merchant market; and Komag (2007), a manufacturer of the platters upon which data gets recorded to the the disk drive (“Western Digital – Wikipedia, the free encyclopedia”).

In fiscal 2013 Seagate, considered a technology leader and pioneer across the three remaining disk drive companies ( Seagate, Western Digital and Toshiba), spent $1.1 billion on research and development to Western Digital’s $1.5 billion (www.yahoo.com). Western Digital today competes head-on in technology with Seagate. Once the domain of Seagate (50% market share), the disk drive enterprise market is under attack by Western Digital with it new helium technology that could put Seagate behind WDC in terms of market share within just a few short years if the new technology proves both reliable and cost-effective (“Hard disk drive market revenue set for double-digit decline.” Solid State Technology.)

Conclusion

Disruptive innovation is a means for achieving differentiated products and services at high gross margins. Red ocean and fast follower companies suffer the commoditization of their products along with shrinking gross margins. Differentiating through technological innovation and continuous work on strategy and planning is crucial for global companies to retain their throne of financial and strategic success. Strategy focuses on what a company will do differently than their competitors, and how that will be carried out in terms of an action plan. The alignment of the entire organization around the corporate vision, strategy, objectives, plans and tactics will help the company move efficiently and effectively forward as an integrated team.

An effective tagline, brand and goals surrounding corporate social responsibility will buttress and accentuate the company vision, to cement the prospects and financial goals and keep the competitors in the rear-view mirror. The commitment of Western Digital is to “sound corporate citizenship (that) starts with a strong company investing resources wisely, and then operates the company both ethically and efficiently” (Western Digital Corporate Social Responsibility Report, 2011). Within Western Digital Corporation it appears the company has successfully transformed itself from a “red-ocean, fast follower” into a technology leader by increasing and focusing research and development expenditures, and through acquisitions and organic growth, and increased vertical integration. WDC has retained its relentless pursuit of the lowest possible costs, but through the construction of their brand, they have “absolutely” built a formidable reputation as an innovator. Whether they can continue this progress through technology disruptions to come, especially solid-state storage and future technological breakthroughs in holographic and other technologies, remains to be seen.

 

References

Analyst Actions: eBay, Western Digital, THQ, F5 Networks. (2008, January 24).

Bloomberg Business Week Markets and Finance. Retrieved from http://www.businessweek.com/stories/2008-01-24/analyst-actions-ebay-western-digital-thq-f5-networksbusinessweek-business-news-stock-market-and-financial-advice

Barwise, B. & Meehan, S. 2012. Innovation Beyond Blue Oceans. Market Leader. (Q4). 24–27.

Bonkowski, J. (August 10, 2014). Don’t be too quick to judge Tony Stewart, let the experts do their jobs. NBC Sports. Retrieved from http://motorsportstalk.nbcsports.com/2014/08/10/dont-be-too-quick-to-judge-tony-stewart-let-the-experts-do-their-jobs/

Buisson, B., & Silberzahn, P. (2010). Blue Ocean or fast-second innovation? A Four-breakthrough model to explain successful market domination. International Journal of Innovation Management, 14(03), 359-378.

Cirjevskis, A., Homenko, G., Lacinova, V. (2010) New Approaches in Measuring and

Assessing Viability of Blue Ocean Strategy in B2B Sector, Journal of Business Management, 3,162–179.

Christensen, C. M., & Overdorf, M. (2000). Meeting the challenge of disruptive change. Harvard Business Review, 78(2), 66-77.

Christensen, C. (2012). The Innovator’s Dilemma. 1997. Harvard Business School Press, Boston, MA.

Collis, D. J., & Rukstad, M. G. (2008). Can you say what your strategy is? Harvard Business Review, 86(4), 82-90.

CNBC. “The R&D Hall of Fame: Which companies got elected? Retrieved from http://www.cnbc.com/id/101883932?__source=yahoo%7cfinance%7cheadline%7cheadline%7cstory&par=yahoo&doc=101883932

Doran, G. T. (1981). There’s SMART way to write management’s goals and objectives. Management Review, 70(11), 35-36.

Edgeman, R., & Eskildsen, J. (2012). Viral innovation: integration via sustainability and enterprise excellence. Journal of Innovation and Best Business Practice, 2012, 13.

‘Fast follower’ prefers profiting to pioneering. (2013, August 21). The Orange County Register. Retrieved from http://www.ocregister.com/articles/digital-79247-western-company.html

Hard disk drive market revenue set for double-digit decline. Solid State Technology. Retrieved from http://electroiq.com/blog/2013/02/hard-disk-drive-market-revenue-set-for-double-digit-decline/

Kim, W. C., & Mauborgne, R. (2004). Blue Ocean Strategy. Harvard Business Review, 82(10), 76–84.

Kim, W. and Mauborgne, R. (2004).Value Innovation. Harvard Business Review, 82(7/8), 172–180.

Kim, W. C., & Mauborgne, R. (2005). Blue ocean strategy: How to create uncontested market space and make competition irrelevant. Harvard Business Press.

Markides, C. C., & Geroski, P. A. (2004). Fast second: How smart companies bypass radical innovation to enter and dominate new markets (Vol. 325). John Wiley & Sons.

O’Toole, J. & Vogel, D. (2011). Two and a Half Cheers for Conscious Capitalism. California Management Review, 53(3), 3, 60-76. Retrieved from http://hbr.org/product/two-and-a-half-cheers-for-conscious-capitalism/an/CMR484-PDF-ENG.

Porter, M. (1996). What is Strategy? Harvard Business Review, 74(6) 61–78.

Raynor, M. E. (2011). Disruption theory as a predictor of innovation success/failure. Strategy & Leadership, 39(4), 27-30.

Servaes, H., & Tamayo, A. (2013). The impact of corporate social responsibility on firm value: The role of customer awareness. Management Science, 59(5), 1045-

Western Digital, Inc. (2008). 10-K Annual Report 2008. Retrieved from SEC EDGAR website http://www.sec.gov/edgar.shtml. Retrieved from http://www.sec.gov/Archives/edgar/data/106040/000089256908001165/a43088e10vk.htm.

Western Digital Corporate Social Responsibility Report. (2011). Retrieved from http://www.wdc.com/wdproducts/library/company/globalcitizenship/CorporateSocialResponsibilityReport2011LR.pdf.

Western Digital Hard Drives, Network Drives, Media Players. . Retrieved from http://www.wdc.com

Western Digital – Wikipedia, the free encyclopedia. Retrieved August 10, 2014, from http://en.wikipedia.org/wiki/Western_Digital

Wessel, M., & Christensen, C. M. (2012). Surviving disruption. Harvard Business Review, 90(12), 56-64.

Yahoo. Retrieved from http://yahoo.com

 

 

 

 

 

 

 

 

 

Table 1:

Western Digital Corporation: Selected Financial Metrics (www.yahoo.com)

Fiscal years à 2013 2012 2011
Revenue (millions) $15,351 $12,478 $9,526
Earnings (millions) $980 $1,612 $726
Research & Development (millions) $1,572 $1,055 $703
Cash Flow from Operations (millions) $3,119 $3,067 $1,655

 

 

 

Table 2:

Western Digital Corporation: Productivity of Research and Development (CNBC “”The R&D Hall of Fame: Which companies got elected?”)

 

 

 

 

 

 

 

 

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