Management of Technology (OM476) Design Dominance and Timing of Entry February 8, 2006 S. Fisher

Agenda How does existence of a dominant design affect innovation? Who benefits from dominant designs? What is the optimal timing of entry into a market? The role of first movers

Review: Technology Cycles Selection of a dominant design results in a period of incremental change, until the next technological discontinuity.

Group Exercise Think of a technology for which there is a dominant design Something other than Microsoft, please What is the impact of this dominant design for: The dominant provider Providers of complementary goods Consumers The industry as a whole

Battle for Dominant Design: VHS vs. Beta 1974 – Sony meets with JVC and Matsushita to discuss plans and design standards for home video 1975 – Sony releases Betamax 1976 – JVC rejects Sony’s ideas, releases VHS (using some of Sony’s technology) Division into 2 camps Betamax: Sony Toshiba, Sanyo Electric, NEC, Aiwa, and Pioneer VHS: Matsushita, Hitachi, Mitsubishi Electric, Sharp, and Akai Electric VHS ultimately became the dominant standard – simpler, longer recording times, better marketing

Key question… How does this innovation add value? What is the utility to the buyer? Dimensions include: Productivity Simplicity Convenience Risk Fun and Image Environmental friendliness Remember Performance Indicator!

Network Externalities Also known as positive consumption externalities The benefit (or value) of using a technology increases as the number of people using it (installed base) increases Examples? Are there instances when the opposite effect occurs?

RFID (radio frequency identification) Technology used to track materials and products through the supply chain Essentially, more sophisticated version of the bar code Active vs. passive tags

RFID, continued Wal-Mart, US Department of Defense are requiring suppliers to use RFID Pros and cons of dominant design in this situation? Tags Readers Software

Compatibility and RFID Alien’s ALR-9800 reader, designed primarily for EPC Class I Gen 2 compatibility, has cleared a major obstacle -- its compliance with Microsoft’s RFID technology. August 20, 2005 from http://www.rfidgazette.org/2005/08/microsoft_and_a.html “Our latest solution suite combines modular flexibility and user-specified capabilities with ease of integration with IBM, SAP WM and other technologies,” May 4, 2005 from http://www.catalystinternational.com/content/About_Us/pressreleases/latest/CatalystComplete%209.2%20Release.pdf

Components of Value Technological utility Installed base Complements availability Greater value --- higher probability of adoption and design dominance

Timing of Entry Categories similar to Rogers’ categories for diffusion First movers Early followers Late entrants First mover advantages? Disadvantages?

Early follower advantages Learn from what the first movers have done Adopt new and more efficient processes Often have higher ROI in the long term, even without a significant sales advantage Source: Boulding and Christen (2001 October). First-mover disadvantage. Harvard Business Review.

Factors Driving Optimal Timing of Entry Certainty of customer preferences Degree of innovation (level of improvement) Enabling technologies and complementary goods Threat of competitive entry Ability to withstand early losses Reputational value Switching costs

When to enter first Likely advantage depends on rates of technological change and market growth Short-Lived Durable Calm Waters -Both slow Unlikely Very likely Market Leads Market rapid Tech slow Very likely Likely Technology Leads -Market slow -Tech rapid Very Unlikely Unlikely Rough Waters -Both rapid Likely Very unlikely Source: Suarez, F. and Lanzolla, G. (April 2005). The half-truth of first-mover advantage. Harvard Business Review.

Next class Monday – no class (Feb. break) Wednesday, Feb 15 – Prepare Apple Computer case (2002 and 2005) Team 3 presenting Team 7 asking questions (and exec summary) All other teams preparing exec. summary