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Technology Management and Strategy Standards Battles / Timing of Entry.

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Presentation on theme: "Technology Management and Strategy Standards Battles / Timing of Entry."— Presentation transcript:

1 Technology Management and Strategy Standards Battles / Timing of Entry

2 Standards Battles 01 How and Why Dominant Designs Appear

3 3 01_ Standards Battles 1. Definition of dominant design A single product or process architecture that dominates a product category, usually 50% or more of the market Design Competition (Standards Battles) Design Dominance Market Share A B C Kinds of Designs Market Share Kinds of Designs A B C

4 4 01_ Standards Battles 2. Why this concept is important A great number of cases show that a “certain design” dominates the market at a “certain time” under “certain conditions” Need for research for this phenomenon …… What happens when a dominant design appears? # of firms Typewriters Automobiles Electronic Calculators Televisions Dominant Design’s advent

5 5 01_ Standards Battles 3. Why dominant designs are selected 3.1 Learning Effects The more a technology is used, the more it is developed and the more effective and efficient it becomes Good Cycle Technology is adopted Sales revenues Reinvest and refine the technology Self-reinforcing Mechanism(1) Cost per unit Performance on each unit Cumulative output “Learning effects”

6 6 01_ Standards Battles 3. Why dominant designs are selected 3.2 Network Externalities With network externalities, the benefit from using a good increases with the number of other users of the same good Self-reinforcing Mechanism(2) Size of Installed Base Availability of Complementary Goods Users Producers

7 7 01_ Standards Battles 4. Multiple Dimensions of Value 4.1 A Technology’s Stand-Alone Value When a new technology is offered to customers, this new technology itself is valuable to customers Birth of Airplane Birth of Cell Phone Era of Automobiles We cannot fly. Era of Airplanes We can fly! Era of Home Telephone We cannot call outside house. Era of Cell Phone We can call anywhere!

8 8 01_ Standards Battles 4. Multiple Dimensions of Value 4.2 Network Externality Value The size of installed base and the availability of complementary goods add values to a technological innovation Additional Value from other than Technology itself We can just fly. We can fly anywhere! We can just call anywhere. We can call anywhere to anybody! Network Externality Effect

9 9 01_ Standards Battles 4. Multiple Dimensions of Value VHS format Beta format High-resolution Technical excellence Superior Technology’s Stand-alone value Cheaper to manufacture Many users of VHS machines Network externality value value BetaVHS Technology Stand-alone value Technology Stand-alone value Network Externality value VHS wins!!! 4.2 Network Externality Value(cont.) Thanks to superior network externality value, VHS could beat Beta

10 10 01_ Standards Battles 5. Real Case(iPod) 5.1 iPod’s Dominance over the World There’ s no doubt that iPod is actually the ‘king’ of the MP3 market Reference: March 13, MP3 Market Share(2007)

11 11 01_ Standards Battles 5. Real Case(iPod) 5.1 iPod’s Dominance over the World(cont.) Increasing rate of iPod’s sales revenue is astonishing Reference: March 16, Number of iPod Purchased Quarterly from 2002 to 2007

12 12 01_ Standards Battles 5. Real Case(iPod) 5.2 Why is iPod so successful  Brilliant Feature iPod’s brilliant feature (which is a technology’s stand-alone value) has made powerful impressions to customers iPod Classic iPod NanoiPod Shuffle iPod Product linesVarious MP3P Designs

13 13 01_ Standards Battles 5. Real Case(iPod) 5.2 Why is iPod so successful  User Experience iPod’s user experience management could make customers happy and stay with iPod. Nike + iPod sport kit iTunes

14 14 01_ Standards Battles 5. Real Case(iPod) 5.2 Why is iPod so successful  User Experience Fun with iPod!!

15 15 01_ Standards Battles 5. Real Case(iPod) 5.2 Why is iPod so successful  Perfect Mate ‘iTunes’ User friendly interface and stable supply of songs of iTunes bind users strongly. This guarantees big advantages from network externalities. A lot of users of iPod Availability of almost every song in the world Users Music Suppliers Self-reinforcing Mechanism in iPod case iTunes

16 16 01_ Standards Battles 5. Real Case(iPod) 5.3 Conclusion The combination of Brilliant feature, user experience management and iTunes make the astonishing success Growth of iPod Stand-Alone value Time Brilliant feature stimulates the first move User experience Management Through user experience management, strong installed base is formed Maximizing Network externality value Existing installed base and stable music supply through iTunes maximize network externality value

17 Timing of Entry 02 When is the Proper Timing to Enter the Industry

18 18 Contents 02_ Timing of Entry 1. Definition of Timing of Entry In technological innovation aspect, the timing of entry is a decision making for a firm to consider when it starts to spend money on R&D to produce certain products or service. R&DSelling Market Time High-end Mass Low-end EntryLaunching

19 19 Contents 02_ Timing of Entry 2. Terminology Market Time High-end Mass Low-end First-mover Late entrants Early followers First-mover is the first to sell in a new product or service category. Early followersare early to the market but not first. Late entrantsenter the market when or after the product or service begins to penetrate the mass market

20 20 Contents 02_ Timing of Entry A long-lasting reputation as a leader in that technology domain Yielding sustained monopoly rents Sustaining the firm’s image, brand loyalty, and market share Shaping customer expectations about the technology’s characteristics Key locations Government permits Access to distribution channels Relationships with suppliers The initial cost of the good The cost of complements purchased for the good Efforts and time becoming familiar with its operation E xtraordinariness E xclusiveness The characteristics of advantages 3. First-mover Advantages Being a first mover may confer the advantages. Brand Loyalty and Technological Leadership Preemption of Scarce Assets Exploiting Buyers Switching Costs

21 21 Contents 02_ Timing of Entry Research and Development Expenses Undeveloped Supply and Distribution Channels Immature Enabling Technologies and Complements Uncertainty of Customer Requirements Late Entrants Advantages Ascertain how the product was created and how to focus its development efforts Observe the market’s response to particular features of the technology Utilize the developed enabling technologies and complements Access to the exploited supply and distribution channels E xpensiveness E asiness of transference E vasiveness The characteristics of disadvantages 4. First-mover Disadvantages Being a first-mover may also have the disadvantages, while later entrants get the advantages.

22 22 Contents 02_ Timing of Entry The more checks are on the list, the better earlier timing of entry is. 5. Factors Influencing Optimal Timing of Entry How does a firm decide whether to attempt to pioneer a technology category or to wait while others do so? It depends on several factors. Go for it!

23 23 Contents 02_ Timing of Entry 6. First-mover Vs. Early Follower P&G’s Pampers crushed J&J’s Chux. P&G realized customers’ certain preferences. 1967 1968 1969 1970 1971 1972 1973 100 80 60 40 20 0 (%) P&G J&J K-C Others Customers wanted soft yet strong and moistureproof disposable diapers with low price. With development of better nonwovens, softer top sheets made of rayon started transforming the baby diaper. It offered in two sizes, medium and large. In 1966, it launched a new C-fold design. and by 1969 started a third size. P&G devised a high-speed, block-long assembly line that brought the price down from 10¢ to 5½¢ TIME. Product: The Great Diaper Battle. Jan, 24, 1969,9171,900601,00.html Disposable Diaper Net Stealing Share The disposable diaper industry in 1974

24 24 Contents 02_ Timing of Entry At the best timing of entry, firms capable of producing the products or service can reap the benefit from the market. Closer fit with customer requirements Fast-cycle development processes Fast development deployment processes Strategic alliance Cross-functional new product development teams Parallel development processes Methods to improve the capability Factors defining a firm’s capability 7. Strategies to Improve Timing Options Timing of entry is a matter of choice for a firm, but can it dive into the market when the tide is high?

25 25 02_ Timing of Entry 8. Real Case(IDIS) 8.1 Who is ‘IDIS’? Korea venture ‘IDIS’ is the world leader in Digital Security industry Korea R&D oriented venture cf. R&D HR ratio: 40% (90people) World Leader in Digital Security Market share(07’): 15% in the world 35% in Korea DVR Major product: DVR (Digital Video Record) Established in 1997 “02’, 04’ Forbes 200 Companies : best under a billion“ ProfileAnnual Sales Trend CSGR 30.1% Source: Company Analysis report for ‘IDIS’ published by Dong-bu Research center (2008.07)

26 26 8. Real Case(IDIS) 8.2 What is DVR? a device that records video in a digital format to a disk drive or other memory medium within a device Definition (from Wiki) 02_ Timing of Entry Source: J.P. Freeman,2006 US & Worldwide Video Surveillance Market

27 27 8. Real Case(IDIS) 8.3 DVR Market Trend As market size is bigger and bigger, the need for DVR is changed Market SizeParadigm shift for DVR (US$ in millions) Need of surveillance Need of Data Management DVR Market size CSGR 21.0% Source: J.P. Freeman,2006 US & Worldwide Video Surveillance Market 02_ Timing of Entry

28 28 8. Real Case(IDIS) 8.4 IDIS’s Timing of Entry DVR industry was emerged from 1998. SO IDIS is the first mover at DVR industry 1998~20002001~ Present DVR industry position DVR Industry Life Cycle & IDIS’ Activities 97 Established IDIS & RnD Center 98 Developed frontier Security Sol. 99 Relationship with Samsung 00 Relationship with S1, PALCOM 01 Relationship with ADEMCO 04 Exclusive Provider of PC-Based DVR at New York Subway System 0707 Intelligence Award Entering 02 DVR full-lineup Completion 02_ Timing of Entry

29 29 8. Real Case(IDIS) 8.5 IDIS’s First-Mover Advantages & Disadvantage Advantages Strong Relationship with BIG Client Brand Loyalty & Technology leadership  Domestic: S1, Samsung techwin, Comtech  Foreign: Honeywell, SIEMENS, ADT, PACOM etc  First DVR solution developer  Cumulated Know-how, Deep Trust Research and Development Expense  R&D Expense rate: 8~9% of Total profit  R&D HR: 40% of Total employee Undeveloped Supply and Distribution Channels  Building Relationship with Hitron-systems (Outsourcing) Uncertainty of Customer Requirements  NOT Science-push, JUST Customer-driven Development Disadvantages 02_ Timing of Entry

30 30 8. Real Case(IDIS) 8.6 IDIS’s Factors Influencing Timing of Entry First DVR solution Development Model : IDR 1016 2000 Sydney Olympic Advertising Chance to Foreign Buyer Turning point of CCTV From VCR to DVR Due to turning point of CCTV from VCR to DVR in 2000, IDIS started to develop the DVR solution and they succeeded in being First-mover Source: JP Freeman Report, 2003 Analog VCR DVR 02_ Timing of Entry

31 31 8. Real Case(IDIS) 8.7 Conclusion Recommendation on Timing of Entry Based on IDIS case When you decide timing of entry Analyze Market Trend Identify Factors defining a firm’s capability Decide Firm’s Targeting Market Position Find and Execute Methods to improve the capability 02_ Timing of Entry IDIS’s Key success factor is the Timing of Entering to DVR industry. Such a great timing makes IDIS more powerful than other entrants

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