15.351 Managing Innovation And Entrepreneurship Spring .

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15. 351 Managing Innovation& EntrepreneurshipFiona MurrayMIT Sloan School of ManagementSpring 2008Competitive Implications ofTechnology & Market dynamics

RECAP Challenges Mind the gap TransitionKey ChallengesInnovator ÆEarly AdoptersCan you make product improvements that are necessary?Do the visionaries really reference the techies? E.g. are youworking with the right techies?Early Adopters ÆEarly MajorityCan you transform a visionary project into a productoutcome for the majority? Defense projects are hard forthis. Can you do this in another segment? E.g. hand tools tocars at A123. Can the mainstream really make it work?Early Majority ÆLate MajorityLate Majority ÆLaggardsCan you shift to a turnkey product?Can you build the right channel e.g. EMI’s failure in CTscannersDoes it matter?

SummaryzWhen attempting to fully analyze market segmentneed to consider the following dynamics:zzzzzzRole/importance of information flow – referencing amongcustomers, network brokers etc, thought leaders etc.Role of different cultures, social-psychological factorsChanging customer preferences – different economicsChanging customer buying behaviorsChanging technology – what is needed by sub-segment,can it be achieved etc.Changing infrastructure- complementary products,institutions, legal rules etc.

AGENDAzMotivation for today’s material: Market & technologyS curves provide an important foundation forcompetitive opportunity analysis.zInteraction of market & technology dynamics leadsto different opportunities & different competitiveoutcomes

Typical analyses often fail to put theopportunity in competitive contextTechnology assessment,dynamics & choicesMarketsTechnologiesMarket assessment ,dynamics & choicesHow do technology &market dynamicstogether providecompetitiveopportunities?

Where are the opportunities whencompetition is serving the ketLateMajorityOverservedmarket

Opportunities:over & under served customerszUnder servedzzzzzzReferred to as lead customersFrustrated with currenttechnologyWTP for enhancements &upgradesOften changing the technologythemselvesCan be hard to give thementirely new technology unlessthey can “tinker”Prefer fully integrated solutionszOver servedzzzzzCustomers who stop paying forimprovementsDiminishing marginal benefitsMay benefit when more“control” is put in their handsGood place for stripped downalternativesMay value other attributes

An alternative map of the technologyS curve & market dynamicsPerformanceUnder served customer needsEstablished technologyMainstream customer needsOver served customer needsTime

New technology S curve for underserved customersPerformanceNew technologyEstablished technologyUnder served customer needsMainstream customer needsOver served customer needsTime

Opportunities for under-servedcustomers?zzMay be served by newS-curvesNOTE: not alltechnology S-curvescome “up” from below– some are simplybetterzzzMay be easier to identify –firms are looking to theirlead users for continualstream of ideas BUT – some new ideasseem unreliable, toocostly – hard to riskincumbent reputation Beware of small nicheshere

Crossing the chasm from under servedniche into mainstreamAdoptionRateCrossingthe torsLaggardsTimeMaking the transition from “early adopters” to “early majority” users oftenrequires the development of quite different competencies: e.g. service,support capabilities, much more extensive training.

New technology S curve for overserved customers?PerformanceUnder served customer needsEstablished technologyMainstream customer needsNew TechnologyOver served customer needsTimeAdapted from: Christensen, Clayton M. The Innovator’s Dilemma: When New TechnologiesCause Great Firms to Fail. Boston, MA: Harvard Business School Press, 1997.

How to identify these “low end”innovations? Existing solutions are too costly or complexThere may be other dimensions of interest for example, speed in the case of home diagnostics or convenience inthe case of cell phonesBusiness model has low overhead and high asset utilizationPotential business areas where it is unattractive for the majorincumbent to respond If you are in strategy you will recognize this as “JUDO STRATEGY”EXAMPLESRed Bull: Instead of head to head with Coke etc. (which is what virgin Cola did), theyentered with a niche, unconventional outlets – new dimension of energy drinks.Similarly power bars Jakks Pacific: (CA-based toy and action figure maker) Entered the video gameindustry but did not confront Sony and Nintendo. Instead, has a cheap controller toplug into the TV with well known video figures (targets pre teen kids). Poor qualitybut inexpensive and fun! Compare this to Microsoft entering at the same time withthe Xbox – direct head to head competition, very costly.Motorola Razr: Low end innovationSKYPE: Low end innovation for telephone calls. Inconvenient but cheap .ignoredby the telecom giants

Christensen’s Insight:Impact of new technology S curve for overserved customersNew TechnologyPerformanceUnder served customer needsEstablished technologyMainstream customer needsInvasive TechnologyOver served customer needsAdapted from: Christensen, Clayton M. The Innovator’s Dilemma: When New TechnologiesCause Great Firms to Fail. Boston, MA: Harvard Business School Press, 1997.Time

Impact of new technology S curve for overserved vs. under-served customersGood example of both approaches: digitalphotographyzzKodak tried to apply it to the high end – toprofessional photographers.Fuji applied it to the low end to children’s toys etc.

Innovations for “over served” customersmay be valuable on another dimensionFor example: Semiconductor PhotolithographyCould remain a nichefor the “over served” ormay improve on originalperformance dimension& invade mainstreamSpeedScanningProjectionAlignersStep and RepeatAlignersYield

Industry DynamicsImplications for CompetitionDO ALL NEW S-CURVES LEADTO DISRUPTION?

8407678Year8032183In the disk driveindustry, changes intechnologicalleadership goeshand-in-hand withchanges in marketleadership1612840808182Year40Number of firmsoffering 5.25-inch drives1284Year85Number of firmsoffering 1.8-inch drivesNumber of firmsoffering 3.5-inch drivesNumber of firmsoffering 8-inch drivesClassic Case of the Disk Drive64z209192Year93zEntrant firms Established firmsFigure by MIT OpenCourseWare.-Low-end technologyS curve low-end ofmarket S curve disruption

Dilemma of DisruptiveInnovation (Christensen) Traditional strategy emphasizes the central importance of staying “close to thecustomer” Even in the best of circumstances, advantage relies on superiorresponsiveness to emerging customer needs Traditional source of advantage erosion from taking long-time customers“for granted.” At their earliest stages, low-end discontinuities don’t even seem likeattractive opportunities Focus is on “over-served” customer segments (those who do not want topay for the “extra” performance in the established technology) Dilemma: technology S-curve logic dictates that some (but not all)technologies originally focused on low-end market will ultimately provideperformance that competes directly with main customer segment –NICE OPPORTUNITY FOR ENTREPRENEURS

The TelevisionaryFarnsworth looked up from the tube. "That's it,folks," he announced with a tremor in his voice."We've done it—there you have electronictelevision."[Farnsworth] was a romantic, and in the romanceof invention the creative process consists of twodiscrete, euphoric episodes, linked by long yearsof grit and hard work. First is the magic momentof conception: Farnsworth in the potato field.Second is the moment of execution: the day in thelab. If you had the first of those moments and notthe second, you were a visionary. But if you hadboth you were in a wholly different category.Gladwell, M. “The Televisionary”. The New Yorker, May27, 2002.Seems like theclassic discontinuity a new technology Scurve that will behighly “disruptive” toincumbent RCA WHY NOT?

Dilemma of SustainingInnovation (Teece) Television was really a “high end” discontinuity – for customers wanting MOREthan radioBecause incumbents have their “eye on the prize” of their lead customers,MORE COMPLEX OPPORTUNITY FOR ENTREPRENEURS Makes it much more difficult to invade a market at the high end Even when the technology is new & hard to copy, incumbent will likelyinvest more resources in their own technology S curveOR They may try and buy the competition!Dilemma here is for the entrepreneur – is it worth head-to-head competition?DEPENDS ON IP POSITION e.g. biotech

Innovation & Competitive Advantage:A Synthesis & Entrepreneurial OpportunitiesUnderminesMarket AssetsClassic Disruptive Opportunities– may have onlylimited impact on technical expertise – more impact onmarket strategy – need to be fast!Classic discontinuity– two newS curves .opens up newmarkets & technology.Incremental innovation/Reinforces Technological expertiseMajor Incumbent’sAdvantage! Incrementalchange along technology Scurve or new component Scurve that is easily integrated ReinforcesMarketAssetsRadical Innovation/Destroys Technological expertiseOften targeted at lead users undermines competencies inmanaging the Technology S-Curvebut firms will rapidly try and follow –need strong IP here

Appropriate strategy is a consequenceof the commercialization environmentDo incumbent’s assets contribute tovalue proposition from newtechnology?NoYesCan start-up IPprecludeeffectivedevelopmentby theincumbent?NoThe Attacker’sAdvantage e.g.disk drivesReputation-basedideas trading e.g.CiscoYesGreenfieldCompetition e.g.video gamesIdeas Factoriese.g. biotech

ImplicationszzThe transition across technology & market S-Curves is acomplex challenge for any organizationDiscontinuity provides a window of opportunity to entrants,established firms often find transition a challengezzzCore competencies associated with one architecture may becomecompetency traps in moving between generationsNot only an organizational problem, but anti-cannibalization maylimit incentives to move as quickly as potential entrantsAt a point in time, advantage in technology-intensiveindustries depends on zzSatisfying Key Customer Segments (Exploiting the Mkt. S-Curve)Organizing Around the Technology (Exploiting the Tech. S-Curve) BUT advantage over time depends on transitioning between SCurves

Class 4 – BIG case studyzCase: Focuses on how BIG organizes and manages itscreative process to allow for repeated innovation in toys.zKey Decision: Focus your attention on the ways in which BIGmanages the creative concept development process and theidea triage process. Does this seem like the optimal process?Is this a process you are familiar with?zAdditional Assignment: watch the IDEO video (if you have notdone so recently!!) and compare to BIG:http://www.ideo.com/media/nightline.asp

Christensen’s Insight: Impact of new technology S curve for over-served customers Performance Time Established technology Mainstream customer needs Over served customer needs Invasive Technology Under served customer needs Adapted from: Christensen, Clayton M. The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail.