MAS967 Technology Strategy for New Enterprises Class 2: The evolution of industries, technologies & markets Professor Fiona Murray

Course Details u Reading is missing from the course pack – it is now available on Sloanspace & the course website. u Course website is mas967 u The updated syllabus is also available on the websites u Today’s slides are also there

High failure rates…classic challenges for start-ups u Ralph Waldo Emerson’s problem... u Robert Kearns’ problem... u Xerox PARC’s problem… …Technology Strategy is about a powerful set of tools to solve these problems -- geared towards emerging technologies & technology- based start-ups

Effective strategies rest on answers to three key questions... Technologies Markets How will we create value? Can we capture this value in the face of competition? Do we have the organizational capabilities necessary to deliver it?

First Module : the first of three key questions mainly focusing on examples from communications... Technologies Markets How will we create value? Can we capture this value in the face of competition? Do we have the organizational capabilities necessary to deliver it?

The Industry life cycle as an S-curve Performance Time Ferment Takeoff Maturity Disruption

Key punctuations in the lifecycle T e c h n i c a l E f f i c i e n c y R&D Effort FERMENT TAKE-OFF MATURITY Selection Retention Variation Time Performance

A Key Framework: The industry life cycle Disruption/ Era of Ferment “Dominant design” emerges Maturity Incremental Innovation

Era of Ferment: u No one is sure how the new product » Can be packaged or sold » Who will value it » How it can be produced/distributed » Whether there is money in supplying it u Industry is up for “grabs” u PDAs used to be like this u eBooks are like this now u There is ENORMOUS uncertainty in many dimensions !!! u Its fun !!!

Takeoff- establishing the dominant design: u The way we do things around here – Model T u Key Technical Components, Architecture u Key Customer Needs: –Who is going to buy this, how are they going to use it? u Basic Elements of the Business System: –How shall we structure the value chain? u Hard to define ex ante

Understanding the life cycle is critical since it shapes strategic choices:

Organizational issues : Disruption challenges existing organizations severely

Competition Ferment Takeoff Maturity Competition - Industry “up for grabs” often based on innovation - Is this really an industry at all –”What is nanotechnology anyway?” - Who wants this product? How can it be packed or sold? - What is the right price? - Technical progress more limited – within these boundaries - Focus on improvements - Firms worry about volume, quality and price – “can we make 20 million units this week?” - Squeezing the profit out – margins often get thin - Economies of scale typically important - Lots of complementary assets – brand, distribution etc.

Technological activity evolves over the life cycle:

The Product/Process Transition In the beginning: Innovation focuses around product concepts, is led by small firms, and is largely exploratory Competition is on features: profits are made through differentiation. Once a dominant design emerges: Innovation focuses around process, delivery, service Most firms are forced out: the large firms that remain are increasingly structured, hierarchical. Profits fall as opportunities for differentiation fade.

Entrepreneurial Opportunities over the lifecycle Ferment Takeoff Maturity Opportunities New technologies & new markets to be explored e.g. current molecular machines??? Lower cost solution to the dominant design – compete on production, distribution Or enabling technology Few opportunities, but “disruption” is possible -Explore new markets -Establish legitimacy -Build an industry association -Survive -Ensure yours is the DD -Protect DD or share with others -Build C. Assets & customer base w/ appropriate $$$ in manu/dist. -Find ways to disrupt current industry -Establish a successful niche -Dominate one component of current architecture Actions

Dynamics driving industry lifecycle: Lifecycle of technologies & markets Effort Physical limits New Market Established Market New Technology High-tech Entrepreneurs High-tech entrepreneurs Old Technology Some entrepreneurs ????

Technology dynamics

Foster’s S Curve for a particular technology Parameter Value Effort Limits to performance

S curve examples: u Artificial Hearts u Sailing ships u Joint replacement u Protein separation u Switches u ….your favorite example

Technological innovation often the key to entrepreneurial opportunities presented by S-curve Performance Effort Takeoff Maturity

Technology-oriented opportunities u Bring improved performance through entirely new technology –e.g. molecular switches u Bring alternative performance through new technology –e.g. nano-robotics u Reframing the problem is an alternative way of stretching existing performance for entrepreneurs –e.g. human insulin –e.g. flexible chip manufacturing u Entrepreneur’s challenge is to stay on the S-curve and ensure that “their curve” becomes the dominant design