Reaching for accuracy and opportunityWhat could those executives be thinking? Here's the second installment of the Tao of TAM and SAM.
In my last column, I discussed how those executives in the corner suites calculate what the market needs, from what to sell and when to sell it, to how to sell it so buyers can differentiate the product from the competitor's. These critical concerns have a direct impact on which products, programs, and projects flourish and which don't. Usually, market needs are independent of the importance or coolness of the technology.
I introduced these important influences: the TAM and the SAM for embedded solutions. The TAM (total available market) is the realistic potential market size possible for the product under discussion. The SAM (served available market) is the sweet spot of achievable sales, the key subset of the TAM. In discussing TAM and SAM further with a friend, she reminded me that I left unsaid a fuller view of the impact of these two variables. I was reminded that the value and use of TAM and SAM for corner-suite discussions and analysis was sometimes murky, rarely presented to the project engineering level, and needed more clarity.
First, it's important for the corner suites that business decisions are data driven. Their business styles have them looking for conclusions in presentations to validate (or better develop) their own thinking in data-driven directions. At the same time, they concentrate on drawing their own conclusions from data set findings. If the data has the flexibility to respond to unanticipated questions the suites raise, their confidence in the data increases. Their decisions surrounding project funding, technology investments, and headcount are likely to be firmer. These are the outgrowths of TAM and SAM.
The human dimension is always present. In preparing for and attending meetings with these groups, the group leader, CEO, VP, or GM always has his seat reserved. Whatever the style, authoritarian or collegial, he's eager to probe data snapshots.
Whenever the external data presents contrary points of view to internal data, the original organization advocates of the thesis need bulletproof or flame-retardant clothing. Whatever the business culture, the corner suites that appear to be most effective want market data insights to complement "organizational wisdom." For many, the objective is to have a parallel data track inside the firm where the model is derived from finance.
Reliability of data
Second, suites see data as data. This isn't just a tautology. The suites are surrounded by internal operating data. Finance, sales, and manufacturing are the primary sources. The data is characterized by control and confidence. Usually, it accurately and precisely represents the reality of the organization from an internal view. Further, there are the mandates of the Sarbanes-Oxley (SOX) law passed in 2002 that require corporate suites to attest to the validity of data for public companies and material events.
Market data needs the same robustness. Large firms have minimum lower boundary levels for market size, growth rates, and geographies for investment. The changing time series of market data is anticipated to signal emerging opportunities and needs. Yet, at points along the time series, the data is thin. There's a chasm the faithful must be ready to march across. For example, Microsoft received little credit for being one of the leading implementers of this thesis. In embedded solutions, Microsoft struggled through its forgotten At Works launch and three other embedded operating systems versions to evolve into and influence the current XPe and CE and their special variants.
Link to emerging futures
Third, the TAM and SAM are broadly constructed from business and market variables that aren't under the control of any single company or consortium. This is characterized as exogenous data; it's primarily external data representing the overall market. The SOX described earlier relies on endogenous data, internal data representing a single company. The exogenous data relies heavily on primary data collection, modeling, and the likelihood and timing of market events. Such events are economic and industry-specific in character. Economic events include changes to GDP, interest rates, and business cycles. More industry oriented events include special industry initiatives, the introduction of new ICs, adoption of more productive software, and rate of expansion of open source initiatives. For this reason, the TAM and SAM represent best approximations with some limitations.
Establishing preparedness and readiness for still-emerging markets is difficult terrain. It requires knowledge of the mechanisms for adoption and probabilities for how and why they occur. In this mix, we know technology and industry standards, whether created from associations or grown up through use, have significant impact. For example, the adoption rates of Linux and post-PCI hardware in embedded systems continues the historical track built by GNU and ISA. And it's unlikely there would have been the MP3 player without Napster. Another element of the mix is the relentless nature of cost reduction and productivity improvement requirements. This has fueled the semiconductor fabrication manufacturing facilities in Hsinchu Park in Taiwan and the Pasir Ris wafer park in Singapore. Each of these have an effect on the way engineering is viewed as it works through its embedded solutions.
Lastly, the TAM and SAM, whether used in regular planning cycles or new program funding requests, is the kick-off point for discussions surrounding market share, sales and service coverage, and commitments to new technologies. In the same way that requirements documents and specifications drive the engineering process, so too TAM and SAM present a quantifiable starting point for business operations. They create the ability to develop a time-phased program for committing business assets. Also, they encourage metrics for plan measurements. With this roadmap, the variances are available to the corner suites to alert them when corrections are necessary.
The plans that are finally hammered out in the suites are traceable to TAM and SAM roots. Certainly, the plans have additional inputs. At the same time, the effects reach across the firm. In the sales suites, TAM and SAM influence thinking for territory alignment and sales quotas. This use allows sales to plan the timing for opening new sales offices, locations of bricks and mortar offices, and the focus for sales strategies. Service organizations use them to align service territories and grades of service support and determine which services will be web-based and which field-based. Within the engineering domain, these two variables are precursors to product requirements and specifications. There's a strong influence on project schedules, budgets, and target milestones and dates.
TAM and SAM are visible constructs to achieve data-driven decision making. They spawn clear and focused metrics. Using these capabilities produces a more transparent and transportable planning process for the organization. Objective setting and meeting objectives becomes clearer for line and staff engineers. This sets the stage for flexible norms and procedures within engineering and elsewhere. The standards for operations are linked to the objective data, encouraging development of an organization that benchmarks itself for continuous improvement and response to market changes.
Paul Zorfass is the director of embedded hardware and systems for Venture Development Corporation. He analyzes end-user vertical industry segments, specifically embedded systems. He is chairman of the Boston chapter of IEEE Communications Society and earned an MA in math and physics from the New York City Colleges and an MBA from Northeastern University. You can reach him at email@example.com.