No one wants to tell you their problems. Few are even willing to face up to them. It is much easier to give your suppliers the solution and have them go build it. But this invariably fails because it cuts out the strength of the supplier, which is being able to translate the problem into a product solution. But to do this, one must understand the customer more than they understand themselves. So, you must watch them, not listen to them.
Teradyne has been such a master of watching and not listening over the years that they have been often thought of as arrogant. One of the oldest and most successful ATE companies over the years, they have consistently followed the maxims of watching the customer, not listening, and serving customer needs, not wants. This is dangerous, because at some point you must act on the belief that you know more about the customer than they know about themselves. Teradyne made that gamble with its A500 mixed signal tester. They were the first tester manufacturer to decide that customers would need a new type of tester to test mixed signal devices. While most were making minor upgrades to their testers based on direct customer inputs, Teradyne looked ahead to what customers were designing. This led them to believe that the customer would need to test both the analog and the digital parts of the circuit in a way that guaranteed that events occurring in both were synchronous. They got ahead of the pack because they figured this out before most customers. Early decisions based on watching customers led to a tool that was configured to meet these needs. This system, the A500, ultimately came to dominate this market, displacing LTX, which had dominated the market for over 10 years.
This can be a dangerous Maxim to follow. It is easy for the development department to stay in its silo and move forward, making decisions without regard to market opinion. The process must be driven from marketing, which must evaluate future needs of customers correctly and drive the development effort. I say this in terms of the job, not the position or title. Most of the best marketing organizations for product development are fully integrated with development. Often, the top marketing person runs all of development.
No one should dare design anything without some customer push. Disregarding the customer can only spell disaster. Teradyne’s success with the A500 goes back to the maxim on needs, wants, features, and benefits. Customers will always tell you what features they want. But will seldom offer what they really need and the benefits they will obtain by having their needs met. The easiest way to market is to build what the customer wants. But at best, it will result in mediocre results and at worst can be a disaster. If designing in a vacuum without customer push is the height of arrogance, then designing to the features they want is the height of cowardliness. You must strike a balance between the two, which is why the maxim of watching, not listening to the customer is so critical. Only by closely watching them, can you gain an understanding of their true needs and benefits.
The reason why this dichotomy occurs is that customers have an intrinsic understanding of the application, while the supplier’s designers have the intrinsic understanding of how these must be translated into product. When customers try to design a product, or designers listen exactly to what the customer cries for, they invariably create an application in a tool. Failure to cover the market broadly results and the tool finds itself with one customer. Schlumberger’s Deft tester is a classic example. It is only when system designers gain the customer’s intrinsic understanding of the application that magic occurs. Part of being successful here is developing an ability to accurately forecast what will be the customer’s needs as time passes and more is known and to leave enough flexibility in the product’s design so that you can easily adapt to changing customer requirements when you can’t forecast them. It is the latter where Teradyne has proven most successful historically.
I can give you an example of the former strategy. In the late eighties and early nineties, most customers believed they could skip i-line and go directly to DUV. ASML correctly perceived that there was too much infrastructure missing for DUV to be successful at that time. They ignored customers’ calls and continued to develop i-line, knowing they would need an advanced tool when early DUV failed. The other stepper manufacturers listened to customers, got trapped, and had to backtrack into i-line. By intentionally ignoring customer wants and addressing needs, ASML was able to establish a business position in an area where most thought it would be impossible for a small European company to make any headway. ASML used its better strategic understanding of the market as a springboard to becoming the fastest growing lithography company of the nineties and ultimately the largest lithography company in the world. Want more examples? Agilient’s 93000 tester. Applied Materials’ Hexode etcher and Endura. KLA-Tencor’s suite of inspection tools for copper. Nikon’s push into immersion. Novellus’ Concept One and their push into copper. What is great about these strategies is that a company develops a reputation for having a better understanding of its customers’ needs than its customers have. Upper management in the customer base eventually comes to trust the vendor’s judgment more than its own technical staff. This puts the vendor in a very powerful market position.
This maxim can guide you in many other ways. When the downturns of 1996 and 2000 hit, everyone in the chip equipment industry should have known that the industry was building up too much capacity. All you had to do was look at the obvious: too many fab announcements and too much spending. When 1995 came to a close, there was $350B worth of fab investments in place at various stages of completion. In good times a billion dollars of investment generates roughly 1.0 to 1.5 times that amount in chip revenue growth. Using this rule of thumb, the industry added enough capacity to increase revenues by $50B in 1995. Worse, it continued to add capacity at this rate in 1996 and 1997, only serving to degrade the revenue producing potential of the equipment (another way of saying chip prices fell). Just before both downturns, as I questioned this insanity the answer was invariably, “this is what customers are saying, and all these customers must know more than you do.” Just before downturns emerge, customers always think they need more capacity and are losing share. Conversely, as upturns emerge, customers almost always think they have more capacity than they will ever need. Both can be seen to be false. The lesson to be learned is never to listen to them, but to watch them closely.
Reprinted from the book: Maxims of Hi-Tech —
Rules of Engagement for a Fast Changing Environment . . . or how to thrive in what is the extreme sport of business