When it comes to smartphone screens, size matters for Xu Yinghong

Apple China Push Threatened by Popularity of Big Screens

When it comes to smartphone screens, size matters for Xu Yinghong.

Shopping for a new handset in Beijing, the 25-year-old electrician was deciding between devices from Apple Inc. (AAPL) and Samsung Electronics Co. (005930) He was leaning toward the South Korean company’s Galaxy Note 3, with a 5.7-inch display, instead of the iPhone 5s that measures 4 inches.“The screen is bigger,” Xu said at the Wanshanghui Saige Digital Mall in southern Beij

Take the Bias Out of Strategy Decisions

by Freek Vermeulen  |   10:00 AM January 15, 2014

Some time ago, a London friend of mine in was diagnosed with a severe medical condition, which required urgent yet complex surgery. The condition is rare but, fortunately, there appeared to be several specialists both in Germany and France who had each treated hundreds of cases during their careers. When it comes to specialist operations, experience is key, so he was going to visit each of them and then make a decision.

However, when I spoke to him again, he had just decided where he was going to have the operation: in the hospital in his hometown in Spain. I was surprised; there was no specialist in that hospital. But he explained to me that he had flown to his home country for another opinion and that the local surgeon had made a good impression and was very pleasant. Moreover – he added – after the surgery, he would have to stay in the hospital for two weeks and it would be nice to do that near his family.

I was stunned. My friend is a rational guy, in charge of a large company.  I have no doubt that, if he had been making this decision for me, he would have immediately recommended me to go to one of the real specialists, wherever they were in the world. He would have told me that where I would spend the two weeks in a hospital bed and whether the surgeon was a good conversationalist are quite immaterial. But, when making this important decision for himself, emotional considerations took over. And unfortunately, the initial operation was not successful, and my friend ended up having to travel abroad to see one of the specialists anyway.

And many of us would make the same irrational decision, with the same troubling consequences. Whether it’s a personal choice or a strategic business decision, emotions often crowd out objectivity. After all, executives are only human, too. Precisely because strategic choices are such important ones, loaded with anxiety and uncertainty, when faced with a major decision people start to “follow their heart”, “rely on intuition” and “gut feeling”, overestimate their chances of success, and let their commitment escalate.

Good leaders don’t let their emotional bonds cloud their judgment. Sound strategy requires objectivity. What can executives do to remain objective, when it comes to strategic choices: what businesses to enter, what to focus on and invest in, when to pull the plug and abandon a previous course of action?

Make decision rules beforehand. One way is to develop and set a clear decision rule beforehand, when there is nothing concrete to decide upon yet. When Intel was still a company focused on producing memory chips, Stanford professor Robert Burgelman documented that CEO Gordon Moore had emotional trouble abandoning this product, which was losing them money, because it “had made the company” (famously declaring “but, that would be like Ford getting out of cars!?”), in favor of the much more profitable microprocessors. Yet, the change happened, because they relied on their so-called “production capacity allocation rule”.

Gordon Moore and Andy Grove, well before this actual dilemma became relevant, had put together a formula – the production capacity allocation rule – to decide what products would receive priority in their manufacturing plant. When top management had emotional difficulty deciding to abandon memory chips, microprocessors were automatically receiving more production capacity anyway, because middle managers sturdily followed the rule that they had been given before. Because top management had made the decision what sort of product should receive production priority well before it became a concrete issue, the strategic choice became detached from their emotion of the moment.

Tap into the wisdom of your crowd. A second method to depersonalize difficult decisions is to not leave pivotal choices in the hands of one or just a few individuals – usually top managers – but, instead, to tap into the wisdom of the company’s internal crowd. When I asked Tony Cohen – the previous CEO of television producer Fremantle Media, of programs such as the X-factor, American Idol, Family Feud, and The Price is Right – how he decided what new programs to invest in he replied “I don’t make that decision”. He resisted making such crucial investment decisions himself; instead he designed an internal system that identified the most promising ideas, by tapping into the collective opinion of his television executives across the world.

For example, every year, he organized the “Fremantle Market”; an internal meeting in London where Fremantle executives from all over the world presented their new ideas (usually in the form of a trail episode). Subsequently, an internal licensing system made sure that prototype programs that many of them liked automatically got funded. A particular idea that hardly any of them believed in would not receive any investment – even if Tony Cohen happened to like the idea himself. This way, the decision did not rest in the hands of any individual; no matter how senior.

The revolving door approach. Finally, a valuable technique is to explicitly adopt an outside perspective. Andy Grove, regarding his debates with Gordon Moore whether to abandon DRAMs, said “I recall going to see Gordon and asking him what a new management would do if we were replaced. The answer was clear: Get out of DRAMs. So I suggested to Gordon that we go through the revolving door, come back in, and just do it ourselves.”  Taking the perspective of an outsider – a new CEO, private equity firm, or turnaround manager – can help see things more clearly. Researchshows, for example, that people are very bad at estimating the time it will take for them to complete a project (e.g., write an assignment; refurbish a house) but they are good at estimating it for someone else. Asking them to take a third-person perspective has been shown to help objectivize a process, making someone’s judgment more accurate and realistic.

When making important strategic decisions, which are going to decide our faiths and those of our organizations, it is important to not let emotions and personal preferences cloud our judgment. Emotional commitment can be good, but not if it gets in the way of sound decision-making. Depersonalizing decisionmaking can sound cold or aloof, but it’s the best way to ensure a better outcome, for ourselves and our companies.

 

ing. “It’s more comfortable to look at if I’m watching videos or playing games.”

Apple is trying to boost its lagging share of the world’s biggest market by selling handsets through China Mobile Ltd. (941)’s 763 million users starting Friday. The iPhone maker faces challenges because many Chinese customers prefer to have one large-screen device for checking e-mail, browsing the Web and watching videos. Every other fourth-generation smartphone offered by China Mobile is at least a half-inch (1.27 centimeters) larger than Apple’s models.

The smallest 4G handset China Mobile sells is Sony Corp. (6758)’s Xperia SP M35t at 4.6 inches, which is 15 percent larger than the iPhones. The rest are larger than 5 inches.

About 40 percent of all devices using Google Inc.’s Android operating system sold this year through Chinese carriers will have screens measuring at least 5 inches, said Bryan Wang, principal analyst and country manager in China for Forrester Research Inc. That is about double the percentage of Android devices sold globally.

“China is driving the demand for large-screen devices,” Wang said.

Apple Pre-Orders

Suwon, South Korea-based Samsung is the biggest maker of phones using Android, offering models at various prices. Early recognition of the appeal of large-screen devices helped Samsung win the lead in China, said Duncan Clark, chairman of BDA China Ltd., which advises technology companies.

“A model with a bigger screen is key to take on Samsung,” Clark said of Apple. “Just look at the popularity of the Note and other models with much bigger screens.”

Samsung captured 21 percent of smartphone shipments in China in the third quarter, compared with Apple’s 6 percent, according to Canalys. Samsung ranked first and Apple fifth, with three domestic vendors in-between.

Pre-orders for the iPhone have reached about 1 million units, China Mobile said. Apple Chief Executive Officer Tim Cook and China Mobile Chairman Xi Guohua met in Beijing on Jan. 15, with the companies announcing a multiyear agreement.

10th Store

Xue Yujiao, a 25-year-old computer consultant, bought a Meizu MX3 with a 5.1-inch screen this week because he was frustrated with his Lenovo Group Ltd. handset’s 4-inch display.

“When I first bought the small one, all I did was talk on the phone, but now my demands are much greater,” Xue said in Beijing. “Now I watch a lot of movies on my phone, and the larger display is much better for that.”

Apple may introduce two larger-screen iPhone devices this year, Cleveland Research analyst Benjamin Bollin said in a note dated Jan. 13. Carolyn Wu, a Beijing-based spokeswoman for Apple, declined to comment on whether the company has plans to release a larger device.

Apple, which counted on China for more than 15 percent of its sales last year, opened its 10th store in the country this month.

One Device

Screen size also matters in China because mobile phones often take the place of tablets, personal computers and televisions. Apple’s potential customer pool is limited by the cost of the iPhone, which is more than the equivalent of $700.

Chinese carriers don’t offer the same levels of discounts and subsidies that carriers in the U.S. do. China Mobile will offer a free iPhone only with its most expensive data plan, which is a minimum 588 yuan a month, it said Jan. 15.

“Many consumers in China use smartphones as their first and primary device for multimedia content consumption due to limited budget,” said Lydia Bi, a research analyst at Canalys. “Apple will find it hard to continue justifying the decision of not catching up with the screen size in most devices.”

The largest handsets sold by China Mobile include HTC Corp. (2498)’s 8088 and the Coolpad 8970L made by China Wireless Technologies Ltd. (2369), both featuring screens measuring 5.9 inches.

The release of the iPhone through China Mobile coincides with the weeklong Lunar New Year celebration, a period that generated $86 billion in retail sales last year, as consumers went shopping during the break using their annual bonuses. Apple cut the price of its iPhone 5s and 5c at stores in China and Hong Kong on Jan. 10 for a one-day sale ahead of the shopping holiday.

Size Matters

Cook is counting on the agreement with China Mobile to boost market share and help trigger growth after its first annual profit decline in at least a decade. The company generated $27 billion in sales in what it calls Greater China, which includes Hong Kong and Taiwan, up 14 percent from a year earlier.

Apple will boost its business in third- and fourth-tier cities with the China Mobile deal, Cook said Jan. 15, according to the state-run China Daily newspaper.

Samsung shipped 91 million smartphones globally in the fourth quarter, according to an estimate by Seoul-based KB Investment & Securities Co. Apple shipped 33.8 million smartphones in the quarter ended Sept. 30, the Cupertino, California-based company said.

While China Mobile’s agreement to distribute the iPhone improves Apple’s outlook in the market, the handset’s prospects are mixed, in part because of screen size, said Sandy Shen, an analyst with Gartner Inc.

Eric Chan, a 29-year-old engineer in Hong Kong, replaced his iPhone 4 last year with a Samsung handset. Chan said he uses his phone for work and wanted a device on which he could look at e-mails on a single screen without a lot of scrolling.

The iPhone’s screen was too small for prolonged reading, he said.

“The size does matter,” Chan said. “That’s why I switched to the Samsung S4, which has a bigger screen.”

To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net