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Developing and Managing a Successful Technology & Product Strategy

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1 Developing and Managing a Successful Technology & Product Strategy
Professor Rebecca Henderson MIT Sloan School of Management Phone: (617) ,

2 Who are you, and why did you come?

3 Who am I? Eastman Kodak LFM Professor, MIT Sloan School
SB in Mechanical Engineering, MIT PhD in Business Economics, Harvard Research focus: Building on technology to generate growth: why is it so hard and what can be done? Work in: Semiconductor capital equipment, Aerospace, Automotive, Branded Consumer Goods Pharmaceuticals & Biotech, IT, Telecommunications

4 What is a “strategy” anyway?

5 Effective strategies answer three key questions:
How will we Create value? How will we Deliver value? How will we Capture value? 8

6 How will we create value?
How will the technology evolve? How will the market change? How will we capture value? How should we design the business model? Where should we compete in the value chain? How should we compete if standards are important? How will we deliver value? How do we manage the core business and growth simultaneously? How do we use our strategy to drive real resource allocation?

7 Outline: Why do I need an innovation strategy?
How will we create value? How will we capture value? How will we deliver value? Doing strategy in practice 4 85

8 Why have a strategy?

9 Why have a strategy? 1. To make choices

10 Is This Your Project Pipeline?

11 Overload at PreQuip Rate of Utilization (percent) –– 289.9 307.9 226.9
54 123 86 286 24 352 75 215 153 29 Resources Required for Completion (months) Active Projects 1 2 3 4 5 . 26 27 28 29 30 (formal development projects by number) Implied Development Resource Allocation (months) This year Next year Year after that 40 38 50 92 24 48 62 60 29 14 36 172 150 13 80 93 23 22 120 95 8 24 12 20 4 36 9 30 18 3 Months to Completion (desired) (customer support, troubleshooting) All Other Support Activity –– 430 Total Development Requirements –– 2783 2956 2178 Available Resources (months) –– 960 Rate of Utilization (percent) –– 289.9 307.9 226.9

12 Overcommitment destroys productivity
Average Value-Added Time on Engineering Tasks 100% 80% 60% 40% 20% 0% 1 2 3 4 5 6 Number of Projects per Engineer

13 The Timing and Impact of Management Attention
Phases Knowledge Concept Basic Prototype Pilot Manufacturing Acquisition Investigation Design Building Production Ramp-Up High ABILITY TO INFLUENCE OUTCOME Index of Attention and Influence ACTUAL ACTIVITY MANAGEMENT PROFILE Low

14 Why is it so hard to kill project #26?
It’s a “good” project! Good managers can meet stretch goals (and I’m a good manager) Making difficult decisions takes time & energy It’s very hard to kill projects without a strategy

15 Reasons to have a strategy: 2. To be able to change it

16 A Key Framework: The industry life cycle
Era of Ferment/ Discontinuity Maturity “Dominant design” emerges Incremental Innovation 14

17 The Industry Life Cycle as an S curve
Performance Maturity Discontinuity Takeoff Ferment Time 6 17

18 The S-curve Maps Major Transitions
Maturity Performance Discontinuity Takeoff Ferment Time 6 17

19 Transitions often challenge existing organizations severely

20 But they also create major opportunity
Corning glass Cookware to optical fiber HP Instrumentation to computers IBM Mainframes to PCs to Services Eli Lilly “Random” drug discovery to genetics and genomics

21 Discontinuities are hard!
Answers to the key strategic questions: How do we create value? How do we capture value? How do we deliver value? CHANGE!

22 Course Outline: First Day: Second Day: How will we create value?
How will the technology evolve? How will the market change? How will we capture value? How should we design the business model? Where should we compete in the value chain? How should we compete if standards are important? Second Day: How should we deliver value? How do we manage the core business and real growth simultaneously? How do we use our strategy to drive real resource allocation? 4 85

23 How shall we create value?

24 The first of 3 key questions
How will we Create value? How will we Deliver value? How will we Capture value? 8

25 Creating Value: Understand how technologies will evolve
(Both your own and those on which you rely) Understand how customer needs will evolve Develop world class products and services that meet customer needs

26 Agenda Predicting Technological Change
The Delphi Model Trend extrapolation Predicting the Evolution of Customer Needs Basic segmentation Crossing the chasm New technologies, new needs

27 Can one forecast the path of technological change?
But Delphi models Forecasting by analogy Trend extrapolation

28 Delphi Models Ask the experts! Pros Cons A committee?
Structured questionnaires? Pros Field experts are often years ahead of day to day practice: technologies do not “come from no where” Cons They sometimes have little knowledge of possible applications They can be enthusiastic

29 Forecasting by Analogy
The Internet will be like: Personalized medicine will be like: The Xbox will be like:

30 Forecasting by Analogy
Is nanotechnology like semiconductors? Or like biotechnology? Or like something else altogether?

31 Dimensions in Silicon and in Biology
red blood cell ~5 m (SEM) diatom 30 m Simple molecules <1nm DNA proteins nm bacteria 1 m 10-10 10-5 10-9 10-7 10-6 10-8 10-4 10-3 10-2 m Photo credits, bio, L-R GFP: RCSB Protein Data Bank E.Coli: Dennis Kunkel Red Blood Cells: James A. Sullivan, Diatom: Dept of Biology, Indiana University Silicon, L-R CdSe nanocrystal: Andreas Kadavanich, Alivisatos Group, Dept of Chemistry, UC Berkeley Nanotube memory device: Lieber Group, Dept of Chemistry, Harvard University SOI transistor/Cu wiring/PowerPC Microprocessor chip: IBM SOI transistor width 0.12m semiconductor nanocrystal (CdSe) 5nm Circuit design Copper wiring width 0.2m Nanometer memory element (Lieber) 1012 bits/cm2 (1Tbit/cm2) IBM PowerPC 750TM Microprocessor 7.56mm×8.799mm 6.35×106 transistors control biological machines

32 Is nanotechnology like biotechnology?

33 Is nanotechnology like biotechnology?

34 Trend analysis The future is often much like the past, only more so

35 Trend extrapolation: Semiconductors

36 Issues in Trend Extrapolation
Which parameter shall I predict? Do all good things come to an end? Exploring the difference between progress as a result of the passage of time, and progress as the result of returns to effort Predicting progress in complementary technologies

37 Do all good things come to an end? Technological exhaustion
Physical limit? Performance Performance is ultimately constrained by physical limits E.g.: Sailing ships & the power of the wind Copper wire & transmission capability Semiconductors & the speed of the electron Time 9 20

38 Evolution of Measurement-While-Drilling tools S-Curve
Physical limit: signal attenuation Continuous M.P. - FSK 3G Continuous M.P. - BPSK 3G Performance = Data Transmission Rate (bit per second) Continuous M.P. - 2G Shallow wells only All well conditions Continuous M.P. - 1G Positive Mud Pulse 2nd Generation Negative Mud Pulse Positive Mud Pulse Dominant Design = Continuous Mud Pulse Telemetry R&D Effort (measured in Generations = +/- 3 years )

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40 The Evolution of Palomar’s Products: Laser Based Skin Treatment
Ruby Laser Material Product Price Cost Year EpiLaser™ $150K $80K 1996 E2000™ $130K $60K 1997 LightSheer™ $100K $40K 1998 SLP1000™ $65K $25K 2000 EsteLux™ $40K $ 4K 2001 MediLux™ $50K $ 4K 2003 NeoLux™ $30K $ 4K 2003 StarLux™ $80K $ 5K 2004 Lux Handpieces $10K $ 1K Home Devices ? ? ? LightSheer 400 pounds MediLux 48 pounds 120 Pounds

41

42 Moore’s Law at Work 4.25 years 10x reduction every 7.5 years
$1,000,000,000.00 10x reduction $100,000,000.00 every 7.5 years $10,000,000.00 $1,000,000.00 $100,000.00 10x reduction every 4.25 years $10,000.00 Dollars per MIP $1,000.00 $100.00 $10.00 $1.00 $0.10 $0.01 1959 1969 1979 1989 1999 2009 [Source: Hans P. Moravec ]

43

44

45 Modeling the returns to effort vs. time
Performance Performance may be a non linear function of effort expended: in mature industries more and more effort may lead to less and less progress, while progress in emerging industries may be “surprisingly” fast Effort 9 20

46

47 Reflections on the S Curve
Which unit of analysis? Industry? Firm? Technology? Product? Which dimension of performance? Effort vs. time? Can performance limits be predicted? The S curve is best viewed as a tool for triggering discussion, not as a “scientific reality”

48 The Evolution of Markets or Predicting the pattern of customer needs

49 Market Evolution over the Life Cycle
Market segmentation Crossing the chasm New markets, new needs: The Innovator’s Dilemma 29

50 The Key Question: Who buys a technology as it evolves?
Performance Time 30

51 Understanding market dynamics: Basic segmentation (Rogers)
Units Bought Early Majority Late Majority Early Adopters Laggards Innovators Time Adopters differ by, for example, social, economic status -- particularly resources, affinity for risk, knowledge, complementary assets, interest in the product 14 19 31

52 Understanding market dynamics: Crossing the chasm: (Moore)
Units Bought Crossing the chasm? Early Majority Late Majority Early Adopters Laggards Innovators Time Making the transition from “early adopters” to “early majority” users often requires the development of quite different competencies: e.g. service, support capabilities, much more extensive training. 20 14 32

53 Managing customers at moments of discontinuity
Who buys a technology when it is first introduced? Performance New technologies sell to: - New customers - With new needs - Often at lower margins Time 21 33

54 The Innovator’s Dilemma: “Disruptive” technologies may threaten established firms
Invasive Technology Established technology Performance Mainstream customer needs Niche customer needs Time Clay Christensen: The Innovator’s Dilemma 34

55 Unpacking the Innovator’s Dilemma: The case of the power bar

56

57 Step & Repeat aligners initially sold to customers with different needs:
Speed Scanning Projection Aligners Step & Repeat Aligners Yield 35

58 But then they improved enough to take the whole market
Speed Scanning Projection Aligners Step & Repeat Aligners Yield 35

59 S&R 2 Scanning Projection Aligners S&R 1

60 Initially, PDAs did not seem to be a threat to PCs:
Speed, Power, Memory PCs ? PDAs Time 35

61 PDAs sold to customers with different needs:
Speed, Power, Memory PCs PDAs Weight/cost 35

62 But as PDAs improve they may come to challenge PCs
? Speed, Power, Memory PCs PDAs Weight/cost 35

63 Or consumer preferences may change
Speed, Power, Memory PCs ? PDAs Weight/cost 35

64 Exercise: Industry Evolution
Consider the two industries: Publishing (Books or music) Cellular telephony For each industry: Sketch the relevant S curves. What are the appropriate (technical) measures of performance? Are there more than one? Where is this industry now? Are there major growth areas or discontinuities on the horizon? Sketch the likely trajectory of customer needs Choose one industry and be prepared to present your results to the group 24

65 Managing the change in customer groups may be the hardest task!
Performance Leading edge customer focused research may be a critical capability Effort 24 36

66 The marketing strategy issue at a major materials supplier:
Biomaterials work CR&D SBU 3 SBU 2 SBU 1 ? ?

67 What can be done? “Ready, aim, fire” Small scale experiments
Market research of all kinds: Conjoint analysis Direct customer contact Virtual products Lead user research Significant resources required?

68 Creating Value: Understand how customer needs will evolve
Understand how technologies will evolve (Both your own and those on which you rely) Develop world class products and services that meet customer needs

69 How shall we capture value?
Uniqueness, Complementary Assets & the Structure of the Value Chain

70 The second of two key questions:
How will we Create value? How will we Deliver value? How will we Capture value?

71 How shall we capture value?
How should we design the business model? Where should we compete in the value chain? How should we compete if standards are important?

72 Or: What determines the Inventor’s Share?
Suppliers Customers Imitators, followers Inventor 54

73 Is it the case that great ideas = pots of money?
Coca Cola Xerox (early) Wal Mart Viagra Dell Nylon Value captured Apple Xerox (late) RC Cola Value created (through “raw” invention) 53

74 Three key ideas: Uniqueness Complementary assets
Controlling the knowledge generated by an innovation Complementary assets Controlling the assets that maximize the profits from innovating Understanding the dynamics of the value chain Should we buy our suppliers? Distributors? Should we outsource our manufacturing… distribution… sales… capability? 55 39

75 Uniqueness is very important:
If a particular innovation, or the knowledge on which it rests, can be completely “appropriated” (i.e., completely controlled or protected) then the innovating firm may be able to maintain a unique position. This is a tremendous source of bargaining power. 58

76 Sources of Uniqueness Intellectual property protection Secrecy Speed
Patents Finite length The right to prohibit “producing” Copyrights The right to prohibit “copying” Secrecy Trade secrets & non compete clauses “Tacit” knowledge Speed 59

77 IP in historical perspective

78 Boston University and NBER
The Intellectual Property Owners Association Survey on the Strategic Management of Intellectual Property in America’s Corporations Iain Cockburn Boston University and NBER Rebecca Henderson MIT and NBER

79 Survey methodology Targeted at senior IP managers, typically Chief Patent Counsel Depth at the expense of breadth: 18 page questionnaire, more than 120 questions! Core sample frame: IPO membership, supplemented with additional mailing to Delphion list Response rate: 1/3 of IPO membership, 5% of others. N=66.

80 Sample characteristics
Sample of responding companies dominated by large manufacturing companies Chemicals 22% IT and communications 44% Life sciences 15% Mechanical 16% Average sales $20bn, 2001 market cap $44bn Average of 14 full time IP attorneys, 264 patent applications, $91MM licensing revenue

81 We found: Many companies report limits to the effectiveness of patents: 43% (!) agree that “many of our most important ideas cannot be effectively protected with patents” Yet most rate formal IP rights the most important means of controlling the use of technology Contract law (NDAs, NCAs etc.) also highly rated

82 Strategic use of IP? Our overall impression is that the IP strategy of the majority of companies is defensive Non-confrontational responses to competitors Relatively conservative and cautious policies Companies are ambivalent about the role of IP in business strategy Many report that profitability and returns to R&D are linked to strong IP positions and aggressive strategic posture, but few report activity by their company consistent with this…

83 Competitive interaction in IP
65% of surveyed companies report that the most profitable companies in their industry “react aggressively to IP activity by competitors” But Less than 20% would attempt to “fence in” an aggressive competitor by building IP assets More than 90% do not “always evaluate competitor reactions” when filing patents Only 1/3 anticipate triggering an “arms race” if many new patents are filed

84 So It is critically important to proactively develop an IP strategy that is tightly integrated to the strategic goals of the business But…

85 Uniqueness is powerful but often difficult to maintain
Legal mechanisms can be costly to create, and then even more costly to enforce: and sometimes they require public disclosure Secrecy may be difficult to maintain Speed is hard work, and sometimes imitable 60

86 What are Complementary Assets?
Those assets that allow a firm to make money, even if the innovation is not unique: The answer to the question: If our innovations were instantly available to our competitors, would we still make money? Why? 61

87 In the best case, complementary assets should be tightly held
Complementary assets that are tightly held are not easily available to entrants or to most competitors 62

88 Types of Complementary Assets
Things you can do Manufacturing capabilities Sales and service expertise Things you own Brand name Distribution channels Customer relationships COMPETENCIES RESOURCES 63

89 In successful firms, competencies create resources, and vice versa:

90 Exercise: Complementary assets are: Uniqueness is: Position:
Frozen foods Publishing Cell phones Your industry/firm Complementary assets are: Available Tightly held Easy to maintain Uniqueness is: Hard to maintain 67

91 Uniqueness & Complementary Assets over the Life Cycle:
Maturity Takeoff Ferment 80 52

92 Managing discontinuities means managing complementary assets:
Maturity Performance Discontinuity Takeoff Which of my complementary assets are useful? Ferment Time 6 17

93 Uniqueness & Complementary Assets: Strategic Imperatives
Defend uniqueness if possible and appropriate Build complementary assets in advance of competition At moments of discontinuity ask: Are my complementary assets useful? If so, which ones?

94 How shall we capture value?
How should we design the business model? Where should we compete in the value chain? How should we compete if standards are important?

95 Power in the Value Chain

96 Porter’s “5 (actually at least 7) Forces”: Thinking about the balance of power
Political, regulatory and institutional context Entrants “Complementors” Suppliers Rivals Buyers Substitutes 69

97 C.Assets/Uniqueness speak to Rivalry and the Threat of Entry.
Entrants Suppliers Rivals Buyers Substitutes 69

98 Porter reminds us to think about the structure of the value chain:
Entrants Suppliers Rivals Buyers Substitutes 69

99 Powerful suppliers and buyers may constrain profitability
69

100 Does this mean that if the money is down (up) stream we should forwards (backwards) integrate?

101 If the money is in lobster restaurants, should the lobster fisherman go into the restaurant business?

102 Key Questions: When should an entrepreneurial firm develop it’s own:
Manufacturing Distribution Sales … capabilities? When should a mature firm outsource it’s:

103 Exercise: Under what conditions should an entrepreneurial firm develop it’s own: Manufacturing Distribution Sales … capabilities? And when should it subcontract/partner for them?

104 Comparing “make” vs. “buy”
Startup Asset Supplier Startup Asset Supplier

105 Key Considerations: How easy is it to write contracts?
How tight is the IP regime? How much uncertainty is there? “Specificity” of the asset – how “thick” is the market? What will happen to “entrepreneurial energy”? What will be the key complementary assets going forward?

106 Make vs. Buy over the life cycle
Performance Mostly Buy? Mostly Make? ???? ???? Time 6 17

107 So “make” (i.e. do it in-house) if:
There are significant IP worries There are likely to be contractual problems We can’t be sure of getting the “fair” price We can’t be sure they’ll do the work “right” I.e., when market are “thin” or there is limited information We have unique competencies that are relevant And if buying won’t destroy everyone’s incentives to be creative and energetic

108 But remember… One cannot “buy” profit – if everyone knows it is there – it will be in the price Besides, shouldn’t we “stick to our knitting”? Wouldn’t you rather deal with an independent firm, whom you could fire, than an internal subsidiary?

109 Control & Coordination
Make vs. Buy Entrepreneurial Drive, Freedom from the “old ways” Make Buy Control & Coordination

110 Standards and Strategy: Competing in Increasingly Open Worlds
Professor Rebecca Henderson MIT Sloan School of Management Phone: (617) ,

111 What is a standard? A standard is a specification that allows for interoperability Eg: Cups and lids Pistons and engines Telephones and sockets Speakers and amplifiers Hardware and software

112 Questions: What is a standard? What are switching costs?
What are network effects? What is positive feedback? What does increasing returns mean? What does it means when a market “tips”? What is lock-in? What is the significance of “winner-takes-all”?

113 Answers: A standard is a particular interface, format or system that allows for interoperability Switching costs are incurred when a customer changes from one supplier or marketplace to another. The greater the costs, the more difficult it is to switch A product or technology benefits from network effects or network externalities if a significant part of its value to a consumer lies in the size of its (actual or anticipated) installed base, or market share Positive feedback involves a chain of consequences that produces a dynamic outcome by feeding off itself – an amplification effect Success becomes self-reinforcing with increasing returns to scale. Demand creates further demand If consumers believe that one standard is going to capture a very large share of the market, and that a competing standard is not viable, then the market will “tip” towards the more successful standard Lock-in occurs once a market has tipped. Switching costs may be high, and it is therefore difficult to get a market to tip to an alternative standard The Microsoft operating system monopoly exemplifies “winner-takes-all”

114 Outline Moving from “product” to “systems” competition
Coming soon to an industry near you: the push for public open standards Will all markets “tip”? – managing the complexity of standards evolution Making money in an open world

115 It’s not just about high technology
Bicycles Financial services Health care Automobiles

116 The challenge Selling products Selling (parts of) interconnected
Performance Selling (parts of) interconnected systems Time 6 17

117 Selling Interconnected Systems
Selling Products Customers who care about products “on their own terms”: is this the right product for me? Build the “best” product Best designed Lowest cost Most reliable Selling Interconnected Systems Customers who care about the total system experience: will this connect with the rest of my world? Control the architecture Or Influence the architecture and build the best products within it

118 These transitions raise both strategic and organizational questions
What strategy should we pursue? Performance How do we execute it? Time 6 17

119 The push for public open standards

120 The pros and cons of open standards

121 Thinking about the dynamics of the strategic space
Access is: Open Closed Details of standards are available to all: no single firm has control over how they evolve: no charge for their use E.g. TCP/IP, HTML Standards are owned and controlled by the public sector but are not freely available E.g. Cryptography Public Control is: Details of standard are made available to all: but owner has control over how the standard evolves and may charge for use E.g. Nintendo, Palm OS Technology may be standard, but details are not made available beyond the firm E.g. Landmark Graphics, IBM 360 Private 64

122 In practice these boundaries are fuzzy:
Access is: More Open More Closed More Public Linux Symbian Control is: IBM 360 CDMA Mercury/ Corba Windows More Private 64

123 Conventional logic (1): What do customers prefer?
Access is: More Open More Closed More Public Control is: More Private 64

124 Conventional logic (2): What do producers prefer?
Access is: More Open More Closed More Public Control is: More Private 64

125 Wireless communications in transition
Market Share Service Provision T-Mobile Orange NTT DoCoMo Vodafone Network Operation Applications Vodafone Live! Nokia Symbian Series 60-90 Microsoft Linux Microsoft Live! Microsoft Windows UI Motorola Siemens Samsung Sony Ericsson UIQ SavaJe Operating Systems Windows Value Share Device Design Clones and Asians Device Manufacture EMS Players BREW Chipset Design Motorola I-250 and beyond Infineon Qualcomm W-CDMA Chipset Manufacture TI

126 Or: Getting a standard established
Will all markets tip? Or: Getting a standard established

127 Tipping Markets “tip” when one standard becomes the preferred choice of nearly every consumer VHS Windows on the PC Not all markets tip: in some markets multiple standards co-exist UNIX vs. Windows on servers Sony vs. Microsoft in video games Palm vs. Windows CE in PDAs Multiple standards in cellular phones

128 “Great products” vs. “Architectures”
Consumers base their purchase decision on the intrinsic value of the product to them What would this be worth to me if I were the only buyer in the world? Competition on the basis of features, price etc Architectures Consumers base purchase decisions on the size of the (actual or projected) installed base and/or the (actual or projected) availability of network externalities How many other people are likely to buy this product? Competition on the basis of the size of network effects: installed base, availability of complementary products etc

129 With Strong Network Effects Market Share Itself Creates Value
Value of standards Driven product Value to consumer Conventional product Actual (or anticipated) size of the installed base 31 44

130 If network effects are important, markets may “tip”
1 Probability the next consumer chooses to buy A 28 A’s share of installed base 1 28 41

131

132

133 VHS Betamax

134 Tipping dynamics differ with the strength of network effects
Products with extensive N.effects Value to consumer Products with “threshold” network effects Conventional product Actual (or anticipated) size of the installed base 44

135 Markets with moderate network effects only tip once critical thresholds are reached
1 Probability the next consumer chooses to buy from Firm A 1 Firm A’s actual or anticipated share of installed base

136 Will this market tip? Market Share Service Provision T-Mobile Orange
NTT DoCoMo Vodafone Network Operation Applications Vodafone Live! Nokia Symbian Series 60-90 Microsoft Linux Microsoft Live! Microsoft Windows UI Motorola Siemens Samsung Sony Ericsson UIQ SavaJe Operating Systems Windows Value Share Device Design Clones and Asians Device Manufacture EMS Players BREW Chipset Design Motorola I-250 and beyond Infineon Qualcomm W-CDMA Chipset Manufacture TI

137 How are standards established?
Standards “win” when a critical mass of consumers have adopted them OR: When a critical mass of key players believe that the standard will be adopted.

138 Establishing a standard: Sun
Sun founded in 1982 to focus on the workstation market “Open” standard: Standard components, UNIX operating system

139 Sun (2) 1980: Apollo founded 1983: Apollo has $18m in sales, dominates the workstation market -- uses a proprietary operating system 1983: Sun has $1m in sales, mostly to universities Lead customer, Computervision “likes the technology but doesn’t find the company credible” -- “we love your technology but there is no way you can supply it. Apollo is the standard in the industry, well financed and well managed.” What should Sun do?

140 Establishing a standard
Introduce a great “product” Come to market ahead of competition Build expectations Develop, or encourage the development of, complementary products and services Give it away: put the standard in the public sector

141 Making money in an open world

142 Where’s the money? Competition in a closed, private world

143 Where’s the money? Competition in an open private world

144 Where’s the money? The challenge of an open public world

145 Making money in an open public world
Competing on a level playing field: Do it better, faster, cheaper, in a more integrated way… Leverage “complementary assets” Be part of the evolution of the playing field: Exploring “soft” standards

146 Business models in the different quadrants
The technology is: Open Closed Compete on a level field Move to “soft” standards? Run hard Public Control is: Encourage the “ecosystem” Embrace/extend Run hard Deliver a best in class system Run hard Private 64

147 Exploring soft standards
A “soft” standard is a specification that is completely compatible with current public standards but offers enhanced functionality and performance It offers customers the security of knowing that they have avoided being “locked in” and an upgrade path to the public standard Plus the functionality and performance of a more finely “tuned” technology May permit significant premium pricing and the generation of customer loyalty

148 Soft standards in action:
Perf. Public standard Time

149 Managing soft standards
Maintaining customer trust is critical: The instant they come to believe you’re trying to lock them in, there will be trouble The technology task is complex. The “soft” standard must be: Better than the public standard Compatible with the current version Compatible with future versions Ensuring that the “soft” technology is embodied in future generations of the technology may be a central strategic goal

150 Summary The move from “product” to “system” competitions raises both strategic and organizational issues And increases the force behind the push for open standards Not all markets tip: but as network effects (connectivity, complementary services, tools, products) become more important, more and more will. Getting a private standard established in these kinds of worlds is likely to be very hard Fortunately, there are ways to make money in an open world - but managing a “soft” standard requires sustained attention

151 Summary

152 Two day outline: How will we create value?
How will the technology evolve? How will the market change? How will we capture value? How should we design the business model? Where should we compete in the value chain? How should we compete if standards are important? How will we deliver value? How do we manage the core business and real growth simultaneously? How do we use our strategy to drive real resource allocation?

153 Putting the pieces together….
Technology Competition Markets Organization Maturity Takeoff Ferment 87

154 Tomorrow: Organizational Competence & Change
Performance ? ? Time 88

155 For tomorrow: KODAK Evaluate Kodak’s digital imaging strategy to date
“B+” or “F”? How would you evaluate the decision to invest in digital imaging: In the 80s? In the 90s? Now? Given that they made the decision to invest, how would you evaluate their execution? What should Kodak do next? Where should they try to play in the digital value chain? How should they organize their digital efforts?


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