Case study: why TomTom is a map for mastering international markets

"In 300 metres, turn right, then turn left.” The calm, measured tone of a TomTom satellite navigation device, giving just this sort of advice, is increasingly familiar to drivers around the world thanks to the Dutch company's successful growth strategy.

But executives can learn much more from TomTom than, simply, how to find the most efficient route to their next meeting; the company's story is also an excellent example of just how effectively new businesses can take control of markets.

First and foremost, TomTom produces a product that solves a real and universal problem, in this case: getting lost. It offers consumers an original product with genuine global appeal. The company has a clear, simple strategy based on considering all issues from the customer's perspective, not its own. With this foundation, the following characteristics have enabled TomTom to become the world's leading provider of navigation systems.

1. A flexible, entrepreneurial approach

TomTom started life in the Netherlands in the 1990s as a mobile software company; by 2002 it had transformed itself into a supplier – but not manufacturer – of consumer products. It has developed a flexible, scalable business model that outsources many of its non-core activities, thus allowing it to focus its in-house activities on the design and development of products, and on managing relationships with its retailers and customers.

TomTom has also managed to grow rapidly without sacrificing its entrepreneurial attitude. One aspect of this mindset is the acknowledgement that good ideas can come from any level within the company – they do not have to be something handed down from above. Its entrepreneurial culture also allows people to make mistakes, which supports innovation by allowing individuals to share their ideas without worrying that a failed idea will be the end of their career.

2. Focused innovation with the customer in mind

When Frans Pauwels and Pieter Geelen started the business they developed all sorts of different software programs for mobile and hand-held computing devices, particularly PDAs (personal digital assistants).

"In the early days we were not focused on navigation systems but on all kinds of applications such as dictionaries, personal finance products, games and route planners,” Pauwels said when interviewed for an IMD case study.

"Our first customer was an entrepreneur who was importing wooden ducks from India and needed a barcode reading system.”

But by 2002, customer demand for a stand-alone route mapping function sharpened the business's focus. "It was clear to us that the need to get from A to B without getting lost went way beyond PDA owners,” Pauwels explained.

It made sense, then, to focus on developing the products that consumers wanted, particularly as there were few other players specialising in this area.

This focus goes beyond its product line: even with this niche attention to detail, TomTom does not attempt to do everything. Instead, it concentrates on three things: software, distribution and building the brand. Manufacturing has been outsourced so that the company can maintain its competitive advantage by concentrating on innovation, thus making its products more appealing.

This sharp focus means that TomTom's business is small and lean, and thus able to respond fast to the changing demands of consumers. This is important because the internet and the global nature of communication mean today that, in many ways, speed of execution is now often more important than strategy. A decade ago, if you had a great idea you would patent it and protect it for 10 years; now you have a great idea, and three months later, you will see a copy of it.

The way TomTom, and other entrepreneurial companies like it, beat copiers and bigger competitors are with its ideas pipeline. It is very important that when you introduce the first generation of a product you already have generation two ready and the third generation in the pipeline. Combine that preparation with focus and you know that even when copies enter the market, your speed will enable you to stay ahead.

3. Global view allows access to under-penetrated markets

While the business is focused on one sector niche, it is fairly diversified geographically. By 2007, TomTom had secured more than 50 per cent market share in Europe. Despite this, no single European country represented more than 25 per cent of TomTom revenues, while only five (France, Germany, Italy, The Netherlands, and the UK) represented more than 10 per cent of revenues each. At the end of 2007, it also had 30 per cent of the US market and was expecting this to catch up with the European market within three years, both in terms of market penetration and the number of units sold per year.

In other words, rather than concentrating on owning the entire Dutch market, TomTom is looking for a significant chunk of the international market. This means that it has hundreds of millions of potential consumers, very few of whom already have a satellite navigation system. Despite the company's leading global market share, it still considers itself to be operating in an under-penetrated market. Indeed, one of the characteristics of TomTom's products is that they appeal to any driver who wants a convenient way to find their way to new locations without getting lost, or having to pull over to consult a map every few miles.

In summary

Building a global brand is not something that can be done gradually, step by step. It has to be done fast if it is to work. It first needs to be built on offering a product or service that meets a specific global market need. And it must acknowledge that winning in an international environment means making a pro-active effort to understand the world in global terms, which in turn requires the business to have a wide range of global perspectives.

These lessons can be applied for most any company in any industry throughout the world.

Dominique Turpin is the Nestl Professor and President of IMD, the leading global business school based in Lausanne, Switzerland. He co-directs IMD's Orchestrating Winning Performance program.