Innovation Management 3rd meeting Technology phases Industry attractiveness and pressures Customer Value

The three stages of the technological life cycle Era of ferment (the fluid phase) Highly differentiated niche markets. High market uncertainty. Era of dominant design (the transitional phase) Reduced uncertainty. More head on competition between winners of dom.des. Less niche than before. Era of incremental change (specific phase) Oligopolistic competition. Standard product exstensions. High rivalry (if design open) Focus on processes. Era of discontinuity Old technology obsolete. Industry scrambling for new solutions

Industry attractiveness in the ferment phase Rivalry among existing competitors Low, since products are highly differentiated and often unique Threat of new entrants High, given high market and technological uncertainty, it is difficult to erect barriers to entry. Threats from alternate technologies with comparable price or performance Bargaining power of suppliers Low, since material and equipment used are usually general purpose Bargaining power of customers High, since products are still unique and most users are lead users Threat of substitutes High, especially from old products which are still viable substitutes in many applications

Industry attractiveness in the ferment phase Some strategies: Focus on niche products Build complementary assets to take advantage of the dominant design as it emerges Invest to try to influence the dominant design of the next phase

Industry attractiveness in the dominant design phase Rivalry among existing competitors Low, but the emergence of a dominant design increases rivalry leading to an industry shakeout Threat of new entrants Differentiated products ensure some level of protection from new entrants but threat increases with the emergence of a standard or dominant design. Low if ’winners’ of dominant design keep technology proprietary. High if winners license technology generously or if non-protected Bargaining power of suppliers Higher than in the fluid phase since materials and equipment become more specialized Bargaining power of customers Higher than in the fluid phase since products are no longer unique Threat of substitutes Higher than in the fluid phase since products are become more standard Lower if key patents exist

Industry attractiveness in the dominant design phase Some strategies: Focus on differentiated products Make investments in capacity, brand advertising, and process and product R&D in order to prepare for the incremental phase Contract with suppliers for equipment or specialized materials that will be needed for the next phase

Industry attractiveness in the incremental phase Rivalry among existing competitors High because of the commodity nature of products. May be reduced by such things as tacit collusion Threat of new entrants Low because of measures such as: irreversible investments in capacity, brand name, patents, special licenses or contracts, distribution channels, reputation. There may also be a threat from other technologies with better price and performance potentials Bargaining power of suppliers High for major suppliers of speiclized materials and equipment who are also sources of innovation, especiallly process innovation Bargaining power of customers Higher, since products are more or less a commodity Threat of substitutes High, especially from invading technologies

Industry attractiveness in the incremental phase Some strategies: Focus on low cost Emphasize quality Signal commitments by advertising, investing capacity in R&D

Industry attractiveness in the discontinuity phase Rivalry among existing competitors Low or high depending on reactions from incumbents Threat of new entrants High, since newcomers can use new technology to enter Bargaining power of suppliers Low, since their specialized materials and equipment may soon be replaced by general purpose materials and equipment Bargaining power of customers High, since discontinuity leads to fluid phase with its unique products Threat of substitutes High

Industry attractiveness in the discontinuity phase Some strategies: Ensure compatibility with old technology if technology exhibits network externalities Take steps to identify lead users

Establishing value Everett Roger’s (Diffusion Theory) has showed that customers perceive an innovation positively or negatively ac cording to 6 factors. Positive perception across the 6 factors raises the likely hood that the innovation will have a relative advantage compared to other solutions..

Establishing value 1. Relative advantage: The greater the perceived advantage, the faster the diffusion. Questions to ask: - What new benefits does the innovation offer? - Does the innovation cover all the benefits of existing product, process or service? - How much better is the innovation in terms of financial, time and other measures?

Establishing value 2. Observability: The easier it is to observe the advantages the faster the diffusion Questions to ask: - How can the benefits of the innovation be made more tangible and demonstrable?

Establishing value 3. Trialability: The easier it is for users to test the innovation, the faster the diffusion. Questions to ask: - Is the customer easily able to try the innovation to perceive the benefits forst hand? - Can a trial on a small scale be used?

Establishing value 5. Complexity: The simple the innovation appears, the faster the diffusion Questions to ask: - How can the innovation be designed to be simple? - How can extra features be developed in the product, process or service without adding unnecessary complexity?

Establishing value 6. Percieved risk: The lower the risk, the faster the diffusion Questions to ask: - What are the customer’s perceived risks of adoption? - How can they be minimized?