1. Teradyne’s Aurora Project
Solving The Innovator’s Dilemma
Sailu Challapalli, Michael Chu, Annie Kuo, Emily Liu, Arundhati Singh, Erick Tseng

2. Roadmap Background The Aurora Project Analysis of Aurora
Teradyne
Motivation & Background
Organization
The Innovator’s Dilemma
CMOS
Windows NT
The Aurora Project
Analysis of Aurora
Extending the Aurora Methodology
Conclusion

3. Thesis The Aurora Project solved the Innovator’s Dilemma
However, the Aurora methodology is not a guaranteed solution to the Innovator’s Dilemma

4. Sources Key interviews Harvard Business School Bedford plant trip
Alex d’Arbeloff, CEO and Chairman
Marc Levine, Product Group Manager
Hap Walker, Group Engineering Manager
Tom Newman, VP Corporate Relations
Gordon Saksena, ICD Engineer
Harvard Business School
Video interviews
Case studies
Bedford plant trip

5. Introduction: Teradyne
Founded in 1960 by MIT alumni Alex d’Arbeloff and Nick DeWolf
Headquartered in downtown Boston
Industry leader for Automatic Test Equipment (ATE) for semiconductor manufacturing
Annual sales of $1.8 billion
8,000+ employees worldwide
Also a market leader in software, telephone, and PC Board testing

6. Teradyne’s Organization
Alex d’Arbeloff
Chairman and CEO
James Prestridge
Vice Chairman
Owen Robbins
Vice Chairman and CFO
George Chamillard
President and COO
Logic Test
(VLSI)
Memory Test
Mixed Signal
(ICD)
Integra Test
(Aurora)
Finance and Control
Sales and Service

7. Alex d’Arbeloff Chairman and CEO of Teradyne Heterogeneous Engineer
Vision
Networking
Business acumen
History of experimentation

8. The “Innovator’s Dilemma”
Established firms follow a technology trajectory in accordance with customer demands
These firms are not mobile enough to respond to emerging disruptive technologies
Technology Trajectories
Performance
Disruptive Technology
Sustaining Technology
Time or Engineering Effort

9. Key Components of Innovator’s Dilemma

10. Disruptive Technology
Characteristics
Cheaper and smaller
Initially worse performance
Higher trajectory slope
Gains initial foothold in low end markets
Potentially Disruptive Technologies in Semiconductor ATE
CMOS
Windows NT

11. ATE Hardware: CMOS As Disruptive Technology
CMOS vs. Bipolar ECL
Lower speed
Lower accuracy
Higher level of integration
Less power consumption
Simpler design
Industry trend toward CMOS

12. ATE Software: NT As Disruptive Technology
Windows NT vs. UNIX
Traditionally less powerful workstations
Not compatible with customers’ installed UNIX base
Reduced software development time and cost due to OLE/COM
Industry trend towards Windows

13. The Rise of CMOS and Windows NT
Performance
Time or Engineering Effort
Bipolar, UNIX
CMOS, Windows NT
Key low end niche market was microcontrollers

14. Roadmap Background The Aurora Project Analysis of Aurora
Motivations and Goals
Implementation
Results
Solving the Innovator’s Dilemma
Analysis of Aurora
Extending the Aurora Methodology
Conclusion

15. Market Environment Highly cyclical Semiconductor Testing Industry
ATE industry in recession
Recovery
Record earnings
1986
1990
1993
1995

16. Aurora Project: Motivations
Emergence of new technologies:
CMOS as predominant semiconductor technology
Windows NT as operating system
Competitors developing new technologies
Credence
“It was clear that our industry was recovering very quickly, and at that point I was looking beyond what we were doing to see what the holes were”
– Alex d’Arbeloff

17. Aurora Project Investigate CMOS and Windows NT
Produce smaller, cheaper testers
Target new customers in low-end ATE market
Microcontrollers
Small market share
Trade-off accuracy for cost

18. Aurora Project: Implementation Challenges
Teradyne as an immobile firm
Large
Established
Customer-driven
Public company

19. Key Leaders Marc Levine appointed general manager Hap Walker
Experienced software engineering manager in ICD
Total Quality Management (TQM) manager
Hap Walker
Background in hardware, software, and tester design

20. Aurora Project Created as small division
Separate facilities in Bedford, MA
Separate budget
Internal hires and new recruits
“Start-up” culture
Quick development
Reported directly to board of directors

21. The New Look and Feel...
vs.
J973 VLSI Tester
J750 INTEGRA Tester

22. J750: A Technical Success Reduced costs by 25% “Zero footprint system”
Elimination of bulky mainframe and interconnection cabling
95% parallel test efficiency for up to 32 devices
J750 IG-XL test software uses Windows NT

23. A Financial Success
Total orders valued over $200M in less than 2 years
Fastest product ramp in Teradyne history
Start of Aurora
Project
500 Systems
sold
350 Systems
sold
100 Systems sold
1995
1998
1999
2000

24. Solving the Innovator’s Dilemma

25. Roadmap Background The Aurora Project Analysis of Aurora
Sources of Internal Resistance
Extending the Aurora Methodology
Conclusion

26. Sources of Internal Resistance
Emigration of Talent
Customer Satisfaction
Technical Feasibility
Previous Instances of Failure
The Aurora Project was successful because Alex d’Arbeloff and Senior Management were able to overcome these difficulties.

27. Emigration of Talent Open mobility across divisions
Entrepreneurial
Empowers employees
Gambling the firm’s best engineers on a risky venture
Failure would waste valuable resources
Managers fear loss of talent to the Project
Jeopardizing the firm’s core business

28. Customer Satisfaction: Lack of Customer Interest
Testing business is very customer-driven
Based on long, well-developed relationships
Teradyne must be very responsive to customer needs
Very little customer interest in Aurora
Most customers required greater accuracy
Customers preferred familiar technology
Avoid wasting resources retraining technicians

29. Customer Satisfaction: “The Customer is Always Right”
Teradyne managers felt obliged to listen to customer needs and recommendations
Managers did not want to devote resources to undesired technology
“These projects are big bets. So you bet the division every time you do one of these things… The problem is that your customers lock you in.”
– Ed Rogas, Vice President of Logic Test Division

30. Technical Feasibility
Doubts about meeting device specifications
Device Speed
Device Accuracy
Software Compatibility
Backward compatibility with previous product line
Compatibility with other Integra test products
Software Compatibility:
- Even Hap Walker initially wanted to stick with UNIX.
- He was more familiar with the OS

31. Past Failures: History of Experimentation
Alex d’Arbeloff has a history of suggesting new technologies to the firm
Kinetrix
J401 Tester
Many past projects were unsuccessful
Many of these projects were also met with internal resistance but then initiated with d’Arbeloff’s backing

32. Roadmap Background The Aurora Project Analysis of Aurora
Extending the Aurora Methodology
Past Failures
Conclusion

33. Aurora’s Extensibility
Is the Aurora methodology a formula for solving the Innovator’s Dilemma…
1) Within Teradyne?
2) In any other company?

34. Past Failures: Kinetrix
Foray into Semiconductor Handling Business
Populated by 12 companies with no economies of scale to step forward
Technology was not developed with customers in mind
Collaborated with MIT mechanical engineers
Customers did not find the device familiar

35. Past Failures: J401 Tester
Project Goals
85% cheaper than existing testers
Easier to program
Implementation
D’Arbeloff set up a new facility three blocks away from Boston headquarters
Tom Newman hired internally to lead initiative
Startup culture
15 Years before J750
Aurora was 25% cheaper than comparable testers
Startup culture:
Drafted a business plan
Reported to a “Board of Directors”

36. Past Failures: J401 Tester
Results
Successfully met product specifications
Product was 75% cheaper
Programming interface was extremely user-friendly
No market adoption
Still too expensive for new intended market
No “correlation in test”
Sold only 24 testers in first two years
(compare to Aurora’s sales of 350)
15 Years before J750

37. J401 Tester: A Direct Correlation to Aurora
Both projects were…
Extremely ambitious
Met with similar internal resistance
Initiated thanks to Alex d’Arbeloff’s persistence and backing
Set up as startup ventures
Technically successful

38. Roadmap Background The Aurora Project Analysis of Aurora
Extending the Aurora Methodology
Conclusion

39. Conclusion
The Aurora Project did solve Christensen’s Innovator’s Dilemma
Overcame hurdles that are typical of large, established firms
Established a new product trajectory
Technology was successfully reintegrated back into the firm

40. Conclusion (continued)
Teradyne has not developed a formula for success
Too many uncontrollable forces
Market conditions
Technical feasibility
Company culture
The Alex d’Arbeloff Factor
` Customer Interest
Don’t know if customers will adopt technology or even change their minds
They respond to different market forces and different customers. Sometimes unpredictable
Technical
It just happened that the projects we’ve examined were technically successful
It would have been a different story altogether if specifications were not achieved.
Company culture
Not every firm can be or would want to be as entrepreneurial and experimental as Teradyne
D’Arbeloff
Was truly the one man pushing hard to make Teradyne entrepreneurial
Was the sole driving force behind Aurora Project and J401
Alex understood the value of Christensen’s discovery-based planning: diving into new technologies.
“It may be that you need a CEO like Alex d’Arbeloff as part of the formula [for solving the Innovator’s Dilemma]. He’s a very bright, very persistent person and he understood entrepreneurial startups.”
– Marc Levine, Aurora Project Manger

41. Closing Remarks
“Discovering markets for emerging technologies inherently involves failure, and most individual decision makers find it very difficult to risk backing a project that might fail because the market is not there.”
– Clayton Christensen, The Innovator’s Dilemma
“One must always be prepared for failure. Failure does not result in professional death. Instead, we must wrap failures back into the firm.”
– Tom Newman, J401 Project Manager
Customer Interest
Don’t know if customers will adopt technology or even change their minds
They respond to different market forces and different customers. Sometimes unpredictable
Technical
It just happened that the projects we’ve examined were technically successful
It would have been a different story altogether if specifications were not achieved.
Company culture
Not every firm can be or would want to be as entrepreneurial and experimental as Teradyne
D’Arbeloff
Was truly the one man pushing hard to make Teradyne entrepreneurial
Was the sole driving force behind Aurora Project and J401
Marc Levine: “

42. Teradyne’s Aurora Project: Solving the Innovator’s Dilemma
Questions
Teradyne’s Aurora Project:
Solving the Innovator’s Dilemma