Marketing of High-Technology Products and Innovations Product Development and Management in High-Tech Firms

Chapter Overview Technology Maps “ What to Sell ” Product Platforms and Derivatives “ Stopping ” rules in new product projects Intellectual Property

Review of other Product Management Concepts (covered earlier in the text) Classification for high-tech products –Incremental versus Breakthrough (Chapter 1) Technology Life Cycles (Chapter 2) Adoption and Diffusion of Innovation (Chapter 6)

Technology Maps Define a stream of new products ( breakthroughs + derivatives ) company plans to develop over time. Used for: –Commitment to new product development –Allocation of resources A flexible blueprint that must be updated regularly

Technology Map: 4-Step Process

1. Technology Identification Inventory of firm ’ s valuable know-how that may be sources of revenue generation –Products –Processes Such as superior manufacturing skills –Management practices Such as knowledge management

2. Decide on needed additions Where does firm need new skills/products to round out its offering? –“ Make vs. buy ” decision Internal development External acquisition –Partnering

Adding New Technology: Focus on Development Risk Internal Development –New development close to existing skills –Confidentiality reasons –“ NIH ” (not invented here): Only good technology is developed internally. External Acquisition –Someone else has already developed –Save time and effort –Let others take risks first –Keep up with competitors –Obtain technology for existing brand name/marketing resources

3.Commercialization Decision: “ What to sell? ” Focus on Marketing Risk Continuum of options, based on the additional expenditures customers must incur beyond the cost of the purchase to derive the intended benefits of the technology –Know-how only –“ Proof of concept ” –Components to OEM –Final products to end-user –Service bureau

Lean Towards Selling Know-How When: Technology lacks fit with corporate mission Lack of financial resources to exploit technology Tight window of opportunity and lack of speed Market smaller than expected/business unlikely to be profitable When allowing firms access to technology is most appropriate (next slide) When range of technologies in market is diverse

Allow other firms access to technology (license) when: Network externalities: more value as more customers use a product –Tends to favor position close to know-how But, know-how hard to price, which pushes away from selling know-how. –Seek standardization of technology via licensing, etc.

Lean Toward Selling End-Product When: Firm ’ s components are incompatible with general industry standards. –What if firm competes at end-product with iconoclastic (radically new) product? Hard to get third-party developers

Sell at Multiple Points on the “ What to Sell ” continuum when Offering technology to competitors may encourage industry standardization –License know-how or sell components on an OEM basis Firm may have skills in some segments but not others Major buyers require second source To maximize rate of return on technology investment

4. On-going product management Managing platforms and derivatives “ Killing ” products – Destructive Creation Protecting intellectual property

Product Platforms and Derivatives Develop a set of subsystems and interfaces around a common underlying technology “ platform ” –Common structure for development/production of a stream of derivative products –Single design and components shared across set of products, using same underlying technology

Platform Strategy is Attractive in High-Tech Markets Unit-one cost structures Allows for rapid development of market share/revenues Speed and flexibility in going after niches –“ gap filling ” Modularity for customers to “ plug-and-play ” different firm ’ s products. –Industry standards

Product Platforms and Derivatives

Defining appropriate platform Design for high-end of the market –Incorporate as many features as needed for this segment –To recover high fixed costs –Makes it easier to sell lower priced versions at only modest incremental cost (vs. vice versa) Subtraction of features! –Consistent with both lead user and chasm concepts

When to “ Kill ” New Products? Escalation of commitment –Product champions and technology enthusiasts are perennial optimists –Personal stake in project –Biases in interpreting information Recall info that confirms beliefs Ignore info that disconfirms beliefs Re-interpret neutral info as positive, and even negative info as positive!

More information is not the answer! Foster internal culture that fosters open questioning. Remove project from core of the firm “ De-couple ” withdrawal decision from prior investments –Different manager make the decision Rely on benchmarks established at outset

Protection of Intellectual Property “ Original works that are creations of the mind ” and to which the inventor has rights to protect. How to protect it? –Patents –Copyright –Trademark –Trade Secret

Patents Confer owner the right to exclude others from making, using, or selling product or process for specific time period –In U.S., 20 years from date of filing Three criteria applicant must meet: –Useful : performs some function that benefits humanity –Novel : no prior evidence of invention exists –Nonobvious : no suggestion of invention exists, even when multiple writings are combined

Two Types of Patent Applications in U.S. Provisional: –$150, 1 year time frame to “ hold ” –Allows inventor to do further research –Establishes a “ priority date ” of invention Utility: –$790 for examiner to render a decision –Granted or denied; applicant can appeal or re-file (another $790)

Disadvantages in Using Patents Patents are public information –From time of filing in countries outside US –From time of grant of patent within US –Competitors may “ invent around ” Patent owner must enforce rights Costly!

New Issues with Patent Protection Can now patent “ business methods ” –Effective July 1998 –Implications: Patents on E-commerce business models/methods Patents on medical treatment methods

Tension in Granting Intellectual Property Rights Foster creativity and “ common good ” –Give inventors incentives (exclusive rights to revenue from their inventions) Inhibit spread of creativity and consumer welfare –Slow spread of valuable commercial innovations –Lack of competition and access

Steps in Granting Patents Hire patent agent –Provide thorough, accurate understanding of invention Assess state of prior art: –Is the idea truly novel? Draft the claims to define the boundaries of the invention Draft drawings and application in easy-to- understand terms

Trouble Spots in Patent Protection Inventor has previously disclosed idea prior to filing application –At a conference, with investors, etc. –Fatal in foreign protection –US grants one year “ grace period ” from disclosure Conflict patent rights that infringe on others

Patent Process (Cont). File patent application ($790) If patent granted: –Pay “ issue fee ” ($1320) –Pay “ maintenance ” fees 3 ½ years: $ ½ years: $ ½ years: $3160

International Filing Under PCT File within 1 year of national application to claim priority back to original filing date PCT enables filing one application in home language Determine individual countries PCT application published 18 months after priority date At applicant ’ s option, examiner will issue “ search ” report and/or preliminary judgment of patentability

International Filing Under PCT PCT application enters designated countries and goes before examiners in each Translation is required, with fees Rights must be enforced in each country

Patenting Costs

Copyrights Protect tangible form or manner in which idea is expressed, not the idea itself. –Example: software code Grants inventor right to reproduce and distribute copyrighted works Term is: –Life of author + 50 years -or- –Shorter of 75 years from publication or 100 years from creation of work Easy to obtain © –Register with US Copyright office in case lawsuit is filed

Trademarks Names, symbols, devices to distinguish/ identify goods Protects firm against unscrupulous competitors who try to deceive/mislead customers

Trade Secrets Any concrete information that: –Has commercial value useful to company –Secret generally unknown –Not easily ascertainable Developed at some expense –Provides competitive advantage

Trade Secrets (Cont.) Financial, business, scientific, technical, information including patterns, plans, compilations, formulas, designs, methods, programs, etc. To be granted “ trade secret ” protection, firm must take reasonable steps to protect information

Premised on the notion of confidential relationships Nondisclosure Agreements (NDAs) –Signer will not disclose information Noncompete Agreements –Signer will not establish/join a competitor ’ s firm within a given time frame/territory Invention assignment clauses –Grant firm rights to employees ’ inventions

Patents or Trade Secret Protection? Patents When: –Product will have long market life –Product can be reverse- engineered –Protection can/will be enforced –Corporate policy Trade Secrets When: –Secret not eligible for patent protection –Product life cycle is short –Patent would be hard to enforce –Secret is not detectable in the product (via reverse engineering for example)

Effective Proprietary Information Programs Focus on employees Morale Look to senior managers ’ behavior –Stand behind security programs Share information on a need-to-know basis only

Effective Proprietary Information Programs Have a stated policy that is enforced via monitoring Use caution in sharing information in partnering relationships (including nondisclosures) Have awareness of competitive intelligence tactics of other firms

Managing Intellectual Property An asset base that deserves strategic focus Patent inventions that fit business strategy