Technology & Strategy

GEST-D-484

Manuel Hensmans

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Next week

• Present your case in terms of relevant

– Sources of innovation

– Types and patterns of innovation

– Standard war dynamics

– Timing of entry patterns

– Porter’s 5 forces framework

• current position firm in industry dynamics

– Conclude with most important lessons of the

past for the present strategic position

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Case study

• Draw up at least 2 versions

• 1st version

– Follow presentations’ outline

• Including conclusions

• Do this for both presentations

3

Case study: 2nd version

– Executive summary (about 1000 words)

– Lessons from the past for company (+- 2500 wds)

• Relevant elements of presentation 1

– Sources, types/patterns, standards, timing

– Current strategic position / fit with core

competences (about 1500 words)

– Strategic direction for the future (about 2500 words)

• Scenario analysis (year 2021)

• Translate strat direction in ecosystem strategy

• Translate strat direction in collaboration strategy

• Translate strat direction in organizational strategy

• Translate strat direction in project mgt strategy

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Last week

• Part II: Industry dynamics techn innov

– Class 5: Standard Wars

• Why do dominant design(s)/standard(s) emerge in

industries

– Increasing returns to adoption

» Learning-curve effects

» Network externalities

» Path dependency

– Government regulation

Last week

–What are the multiple dimensions shaping

which technology rises to the position of the

dominant design/standard?

–Firm strategies can influence several of these

dimensions, enhancing the likelihood of their

technologies rising to dominance

• Different types of outcomes of standard wars

– Discuss desirability

Today

–“Why Entrepreneurship is for you!”

• Dimitri Gielis & Emile Fyon

–Timing of entry is an important strategic

decision

• What are first mover advantages

• What are first mover disadvantages

–Entry timing is a function of many factors

• What factors?

– Is entry timing really a choice for firms?

• Importance cycle development process

–Quiz!

Categories of entry strategies

• Categories of entry strategies

– First movers

• are the first entrants to sell in a new product or service

category (“pioneers”)

• Correspond roughly to following customer adopter categories

– Innovators & early adopters

– Early followers (or early leaders)

• are early to market but not first.

– Early adopters & early majority

– Late entrants

• do not enter the market until the product begins to penetrate

the mass market or later

– Early majority – late majority - laggards

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Remember?

Diffusion of Innovation & Adopter Categories

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PRODUCT FIRST MOVER FOLLOWER WINNER

Jet Airliners De Havilland (Comet) Boeing (707)

How many

first movers

out of 18?

Float glass Pilkington Corning

X-Ray Scanner EMI General Electric

Office P.C. Xerox IBM

VCRs Ampex/Sony Matsushita

Instant Camera Polaroid Kodak

Pocket Calculator Bowmar Texas Instruments

Microwave Oven Raytheon Samsung

Fiber Optic Cable Corning Many companies

Video Games Players Atari Nintendo/Sony

Disposable Diapers Proctor & Gamble Kimberly-Clark

Ink jet printer IBM and Siemens Hewlett Packard

Web browser Netscape Microsoft

MP3 music players Diamond Multimedia Apple (iPod)

Operating systems for

mobile phones

Palm OS Android

Laser printer Xerox, IBM Canon

Flash memory Toshiba Samsung, Intel

E-book reader Sony (Digital Reader) Amazon (Kindle)

Who wins: first mover or follower?

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PRODUCT FIRST MOVER FOLLOWER WINNER

Jet Airliners De Havilland (Comet) Boeing (707) Follower

Float glass Pilkington Corning First mover

X-Ray Scanner EMI General Electric Follower

Office P.C. Xerox IBM Follower

VCRs Ampex/Sony Matsushita Follower

Instant Camera Polaroid Kodak First mover

Pocket Calculator Bowmar Texas Instruments Follower

Microwave Oven Raytheon Samsung Follower

Fiber Optic Cable Corning Many companies First mover

Video Games Players Atari Nintendo/Sony Followers

Disposable Diapers Chux Proctor & Gamble Follower

Ink jet printer IBM and Siemens Hewlett Packard Follower

Web browser Netscape Microsoft Follower

MP3 music players Diamond Multimedia Apple (iPod) Follower

OS for mobile phones Palm OS Android Follower

Laser printer Xerox, IBM Canon Follower

Flash memory Toshiba Samsung, Intel Followers

E-book reader Sony (Digital Reader) Amazon (Kindle) Follower

Who wins: first mover or follower?

Why does first mover bias persist?

The market often perceives first movers as having

advantages because it has misperceived who was first.

First movers have higher failure rates (47% vs 8%) and

lower market shares than early followers (10% vs 30%)

“First-mover advantage” myth dates back to the late 1980s:

one of the causes of the dot.com bubble

Bio-sciences & prescription drugs exceptions to the rule

First-Mover Advantages

• Being a first mover can confer the advantages of:

– Brand loyalty and technological leadership

• + patents during emergence industries – E.g. Xerox’s patents on the xerography process

– General Electric’s patent on Edison’s orginal lightbulb design

• But! 60 % of all patents imitated within 4 y of being granted – Rarely a source of sustained competitive advantage, except in pharma & specialty chemicals

» May actually increase chances of substitution by functionally equivalent technologies

– Preemption of scarce assets – E.g. Royal Dutch Shell acquires leases

– Exploiting buyer switching costs – E.g. medical doctors reluctant to change to new drugs (learning about properties & side-effects)

– Reaping increasing return advantages

• Moving up the learning curve earlier

• Building installed base

• Path-dependence

First-Mover Disadvantages

• However, first movers often bear disadvantages also:

– High research and development expenses

– Undeveloped supply and distribution channels

– Immature enabling technologies and complements

• What is an enabling technology?

– Component technology that is necessary for the performance or desirability of a

given innovation

– Uncertainty of customer requirements

– Liable to incumbent inertia – Tendency for incumbents to be slow to respond to changes in the industry

environment due to their large size, established routines, or prior strategic

commitments to existing suppliers & customers

• E.g. vs

Boeing & incumbent inertia – more sophisticated production practices

• Fewer HR problems (less workers & more contract workers)

– common cockpit configuration

– Short-and long-haul / lower training + maintenance costs

– twin engines/wider aisles: reduced flying costs

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Year

1995 69.7 13

1996 64 32

1997 60 35

1998 50 50

1999 45 55

2000 45 55

2001 47 53

2002 43 57

Global Aerospace Industry Market Shares (in %)

Whether and When to Enter? – Study: 30 years of data on whether and when an

incumbent in one subfield of the medical diagnostic imaging industry would enter another subfield. Findings:

• If only one firm can produce an inimitable good, it can enter if and when it wants. If several firms could produce a good that will subsequently be inimitable, they race to capture the market.

• If good is highly imitable, firms prefer to wait while others invest in developing the market.

• Firms were more likely to enter if they had specialized assets that would be useful in the new subfield or if their current products were threatened by the new subfield.

• Firms entered earlier when their core products were threatened and there were several potential rivals.

Research Brief

Hardest industries to pioneer?

• New-to-the-world technology • Cost successful tech

• + cost all techs that did not become marketable

products

• + costs to educate potential users

• + Deep pockets needed to wait for

– Necessary suppliers, distributors and complementary

goods to emerge

» E.g. Segway

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Obstacles to the Hydrogen Economy?

• Hydrogen offers an inexhaustible and environmentally friendly fuel source that could be used to power automobiles and the electrical grid that serves homes and businesses.

• However, several serious obstacles stood in the way of utilizing hydrogen for energy:

• Hydrogen vehicles would require a new fueling infrastructure.

• Isolating hydrogen for energy in an environmentally-friendly way requires a major shift to windmills or solar energy which were not considered mature technologies.

• Implementing hydrogen as a primary energy source requires the cooperation of numerous stakeholders, including government, automakers, oil (or other energy) companies, etc.

Industries that require major

changes in other industries…

Hardest industries to pioneer?

• Very high minimum efficient scale

– Very costly & risky to pioneer

• Jet engines, submarines, energy production…

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Discussion Questions: 1. Why did most of the early PDA companies fail, even if

they had innovative and sophisticated product

designs?

2. Could early PDA companies have done anything

differently in order to survive?

3. Why was Palm successful where so many others had

failed?

4. Was being late to the smart phone market a

disadvantage for Apple? What factors enabled Apple to

successfully enter when it did?

From PDAs to Smart Phones:

The evolution of an industry

Question 1

Why did most of the early PDA companies fail, even if they

had innovative and sophisticated product designs?

• Under-developed enabling technologies slowed PDA adoption

– Handwriting recognition software, modems, battery & memory power

» Many PDA companies ran out of money by 1994

• Did not have deep pockets to wait – Microsof delivered final blow with its WinPad announcement

» Great example of company leveraging its reputation to thwart establishment of a dominant design before its own entry

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Question 2

Could early PDA companies have done anything differently

in order to survive?

– Don’t believe first-mover hype – From 1990-1993, a flurry of companies began developing PDAs

and analysts predicted millions would be sold by 2004.

– Early entrants need much more capital than they think • Revenue base will be very small for long period of time

– Focus on more specialized customer needs • Firms that survived shakeout focused on vertical markets

– Inventory scanning or in-field sales estimates

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Question 2

Could early PDA companies have done anything differently

in order to survive?

– This suggests that…. • early PDA companies may have benefited from

– Joint ventures with larger firms with deeper pockets

– Consortium with developers of complements, enabling technologies

» Common standard could have emerged

» Combat effect Microsoft’s announcement with credible commitment

– Acquisition by larger firm with deeper pockets (as with Palm)

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Question 3

Why was Palm successful where so many others had

failed?

• Entered late (1996)

– When a greater understanding of consumer preferences

was emerging

– Palm learned from others’ missteps

• Produced simpler, less expensive device

– Less complex and risky buying decision to consumers

• Both factors enabled quicker earning revenues

• Palm extended its capital resources

– Acquired first by US Robotics and then 3Com

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Question 4

Was being late to the smart phone market a disadvantage

for Apple? What factors enabled Apple to successfully

enter when it did?

– No disadvantage at all

– Apple capitalized on fact that

• Many enabling techs (batteries & memory) and complementary techs (GPS,

wirless internet…) were becoming well-developed

• Enabled Apple to offer smartphone that was not only streamlined & stylish

– But also contained an exceptional range of features

– Apple’s key competence

• Develop very intuitive & attractive interface (as with Mac)

• Interface significantly more valuable with complex full-featured smartphone

than with a simpler device like the Palm

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Factors Influencing Optimal

Timing of Entry 1. How certain are customer preferences?

• If customer needs are well understood, enter the market earlier – E.g. e-commerce frenzy of late 1990s

» Belief that websites needed exciting graphics & sounds became their downfall

» Customers not high-speed Internet access or enough processing power

2. How much improvement does the innovation provide over previous solutions?

• An innovation that offers a dramatic improvement over previous generations will accrue more rapid customer acceptance.

3. Does the innovation require enabling technologies, and are these technologies sufficiently mature?

• If the innovation requires enabling technologies (such as long-lasting batteries for cell phones), the maturity of these technologies will influence optimal timing of entry.

Factors Influencing Optimal

Timing of Entry

4. Do complementary goods influence the value of the

innovation, and are they sufficiently available? • Not all innovations require complementary goods, but for those that

do (e.g., games for video consoles), availability of complements will

influence customer acceptance.

5. How high is the threat of competitive entry? • If there are significant entry barriers, the may be less need to rush to

market to build increasing returns ahead of others.

6. Are there increasing returns to adoption? • If so, allowing competitors to get a head start can be very risky.

Factors Influencing Optimal

Timing of Entry

7. Can the firm withstand early losses? • The first mover bears the bulk of R&D expenses and may endure a

significant period without revenues; the earlier a firm enters, the more capital resources it may need.

8. Does the firm have resources to accelerate market acceptance?

• Firms with significant capital resources can invest in aggressive marketing and supplier and distributor development, increasing the rate of early adoption.

9. Is the firm’s reputation likely to reduce the uncertainty of customers, suppliers, and distributors?

• Innovations from well-respected firms may be adopted more rapidly, enabling earlier successful entry.

Strategies to Improve Timing

Options

• Timing of entry

– Choice or not? What do you think? Ideal scenario?

• To have more choices in its timing of entry, a firm needs

to be able to develop the innovation early or quickly.

– A firm with fast-cycle development processes can be both an

early entrant, and can quickly refine its innovation in response to

customer feedback.

– In essence, a firm with very fast-cycle development processes

can reap both first- and second-mover advantages.

Quiz

• Now do a little True/False quiz to test

your knowledge individually!

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