Capstone Project: System Feedback Loops for Palm

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Palm Feedback Loops

Feedback loops help firms to understand the implications of actions on their performance, in particular where these interactions have a high degree of co-dependency. Palm has found itself in a difficult market position, but has been given new life with the HP purchase. An analysis of Palm's feedback loops will help to better make sense of the factors that have driven Palm to its current position. This report will focus on two loops in particular. The first is the marketing-market share loop, wherein the more a company invests in marketing the greater the market share it can expect. The second is the innovation-perception loop, where a company's culture of innovation fuels the consumer perception of innovation, which in turn impacts the company's ability to attract innovators to its fold.

Feedback Loops

The first loop that will be analyzed is the loop between marketing and market share. A few years ago, Palm competed in the handheld computer industry with Research in Motion (Blackberry). When the industry began to shift to smartphones, RIM was in position quickly, while Palm moved more slowly. This allowed other competitors to enter the market for smartphones. By the time Palm was able to get a couple of phones on the market, it had some problems. Product quality was not one of them -- the Palm smartphones were critical successes. However, the marketing department had failed to carve out a specific niche for Palm. The phones were given uninspiring brands and the marketing message projected the image of Palm as a me-too company rather than an innovator in the field. Apple and RIM had specific target markets that helped to drive those two companies to dominant positions in the industry. When Palm launched its new operating system, again it failed to launch with the same degree of hype that was afforded Google's Android system and Microsoft's smartphone operating system. The result is that Palm was never able to capture a substantial market share in smartphones.

As competition in the industry has increased, Palm has consistently lost market share. Comparing Palm's performance in handheld computers with its performance in smartphones, the link is clear. When Palm was a dominant player in its industry, it was able to market itself as such. It was able to create a strong brand association in its marketing message. Palm was also able to negotiate better distribution deals. When it entered smartphones late, it was unable to match these successes. Palm could not project a message of industry dominance or superiority -- that had been taken over by Apple and RIM in their respective market segments. Palm was unable or unwilling to sign an exclusivity deal with the major telecom provider, and this crippled its ability to receive marketing support from either Verizon or at&T.

With strong market share, Palm had sufficient marketing resources. Without it, Palm was relegated to second-rate status both in terms of customer perception and in terms of its distribution deal. The company could not get preferential treatment from a major telecom provider. These marketing failures resulted in a decrease in market share. As Palm's market share steadily decreased, it found itself with a diminishing marketing budget. Palm no longer was able to spend the money required to put itself in the game with RIM, Apple, Google and Microsoft. It faces more competition as well in the coming year, from Samsung and Nokia. All of these firms have substantial marketing budgets and powerful marketing channels, superior to those of Palm. Unable to market against these firms, Palm stands to lose more of its market share. As this happens, Palm will have even less money with which to spread the word about its products.

The second feedback loop to be discussed is the innovation-perception loop. When Palm was an innovator in the handheld computer industry, it would not only afford to bring on top research and development staff, but the company could attract such staff. Talented R&D people want to work on top teams, they want to work for innovative companies, for industry leaders, and they want to be well compensated. Key to attracting these people, then, is the company's employer brand, specifically with regard to innovation. With the transition from handheld computers to smartphones, Palm lost its position as an industry innovator. This had a dramatic impact on the public perception of the firm. Palm became viewed as a me-too company. This could not have helped the company's employer brand. As a result, Palm's innovation capability is set to suffer. While its latest efforts have proven successful, without HP it is unlikely that Palm could have continued to be viewed as an innovative company and it certainly would not have viewed as an innovator. Product quality would inevitably have suffered.

Without the ability to attract good R&D talent, Palm would lose its ability to be an innovator. The products would become increasingly derivative and the company would be largely unable to compete as a differentiated producer. In order to be an innovator, Palm needs to be able to support its innovative products with marketing that remind the world how innovative those products are. Palm appears to have lost its standing as an innovation-first company when it switched to smartphones. That said, the company's webOS operating system was innovative enough to attract Hewlett-Packard.

Organizational Learning

The theory of organizational learning holds that the organization should learn from its experiences. In particular to the idea of feedback loops is that the organization can understand the loops that are occurring within the organization and make adjustments to its strategy to adjust for this. In the case of Palm it is difficult to say for certain the degree to which it has learned from these loops. The company would need to admit publicly its failures in order to admit learning in both cases. The company continues to position itself as an innovator, for example. This could mean that it realizes the important of having this perception in attracting top R&D talent, but it could also mean that the company legitimately still believes that it is a leader in its field.

It could also be argued that the takeover by HP indicates that Palm recognized its market position was untenable. Faced with declining market share and therefore marketing capacity, Palm must have recognized that this feedback loop was essentially a death spiral, and sought to bolster its marketing capabilities by being taken over by HP. This is an optimist's view of the transaction, however. More likely, Palm knew it was running out of money and was going to be taken over or run into bankruptcy. In either case, that Palm did not understand the nature of these two critical feedback loops early enough is what led to the company's downfall. It was the lack of learning that dictated Palm's current state -- no firm that came within an inch of bankruptcy can claim to be an effective learning organization.

There are tremendous opportunities going forward, however, for learning from these feedback loops. With respect to marketing, Palm has broken that loop. With HP's backing, Palm can increase its marketing capabilities dramatically, which may allow it to build its brand back up. HP's might will give Palm access to better distribution channels; the advertising budget may increase significantly. It is important to remember that feedback loops have the capability to flow in both positive and negative directions. With HP's power behind it, Palm can reverse the flow of the marketing-market share feedback loop.

Ultimately, organizational learning needs to be timely and it needs to be focused on the specific relations contained within valid feedback loops. For Palm, it was a failure of timely learning that lead to the company's downfall. Going forward, however, Palm has the opportunity to leverage the knowledge it has gained with respect to its feedback loops to turn its operations around. HP is critical to this, but so is the emergence of faster and more accurate organizational learning within Palm.

Learning Opportunities

The same can be said of the innovation-perception loop. Palm's historic reputation as an innovator is going to be married with H-P's reputation in the industry. This should help the company to attract better talent, knowing that there are going to be some high profile opportunities with the new HP/Palm company for new product development. This should reverse the course of this loop, again by taking HP's assets and applying them to the loop in order to reverse the negative course that was operating under the old Palm management team.

The marketing-market share loop is largely a reinforcing loop. Colloquially, this loop can be described as "it takes money to make money." As HP pumps marketing dollars into Palm, the predicted outcome should be market share improvements if not in smartphones then in tablets, one of HP's current major product focuses. The innovation-perception loop is a balancing loop in terms of the way it functions. There is a gap between the actual innovation level at Palm… [END OF PREVIEW]

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