May 1

1
May 1

• Kitty Hawk and Disruptive Technology

2
Kittyhawk

• How a company can anticipate a disruptive
  technology, do their marketing homework, form an
  appropriate partnership, follow the rules of
  product development and still not produce a
  successful product.
• 1. What would you rate as the strengths and
  weaknesses of the way HP structured and supported
  the Kittyhawk Development team

3
Strengths Weaknesses

• Strengths
• Split from the rest of the company
• Focus, different style
• Brightest, flexible employees
• Great top-level support
• All the resources they need
• Empowerment (less bureaucracy)
• Very cross-functional
• Weaknesses
• Bad market timing (tight market window)
• Biased view of the market (field of dreams)
• Biased consultants
• Relied on success of customers products (OEM
  dilemma)
• Expectations too high
• Bad technology projection
• Ready, fire, aim goals set up before market
  research.

4

• 2. What do you think of the way the team set out
  to find a market for the Kittyhawk? What correct
  turns and wrong turns did they make?
• Went to a conference to learn about the market
• Got customer feedback
• Independent researchers
• Nintendo (but couldnt get cost down)
• BUT
• Made assumptions that customers products will be
  successful
• There is a difference between I like it and I
  will buy it
• Got greedy and went after many markets
• Cultural issue with cheap, dumb

5
Independent researchers

• Learn about the market from within the company
  itself.
• Everyone in the company is positive biased.
• Philosophy if there was a market, would you

6

• 3. What are the root causes of failure of the
  Kittyhawk program. Show by an Ishikawa diagram.

7
(No Transcript)
8

• 4. What should HP of done in hindsight?
• Be realistic
• Finish what you start (core competencies)
• Stick to the goal dumb goal
• Look for markets that are already there
• Hedge their bets
• Highest cost is opportunity cost (have to take
  risks and pour it on)

9
What if you were the innovator 5 years from now
working in HP. What would you do?

• Look at what is in the market
• Build what customers really want
• Not as secretive about product
• Improve marketing
• Look at what your customers customer want

10
Issue of adjusting revenue projections

• Program Drivers Dilemma
• To get attention in a noisy, high expectation
  environment, innovator needs to project a
  rapidly growing big hit, else the program is
  stillborn
• Drives an exaggerated market growth rate and an
  exaggerated production ramp
• Ugly Result Reality doesnt support projections
• Questions
• What would you do if you were the Innovator?
• What would you do if you were part of the
  leadership of the company?

11
Case notes and additional questions

• Big constant loss of share and decreasing part of
  HP sales despite .5B revenue
• Concentrated on upper end of the market
• Conflict between supporting present market and
  entering new market
• How scientific was the decision made by Hackborn
• What was the quality of the managers who joined?
  What was the cost of having them join?

12
Case notes and additional questions

• Did they have a common vision?
• Was an expanding market for mobile computing
  reasonable?
• Was 3 new technologies reasonable?
• Glass substrate
• higher level of integration
• piezoelectric accelerometer (at 10)
• Japanese manufacturer-a watch company- a good
  idea?
• Why was the engineering so much better than the
  marketing?
• Why didnt they make the 50 price point?

13
Kittyhawk Update

• No heads rolled!
• Summer of 1996 HP announced it was closing DMD
  and exiting the disk drive business
• Many employees thought that Kittyhawk destroyed
  the business
• Preempted best employees
• Lost step in the high end market which generated
  profits
• Lost market share
• Felt company would never catch up to leaders

14
Disruptive Technologies

• Why do some good companies fail?
• Companies that
• are well-managed and progressive
• listen to their customers
• study and act on market trends
• invest significant resource in RD
• allocate capital to provide the best return
• in short do all the right things and are held
  as paragons for their success
• . . . .and then collapse

15
Death Spiral
Not Growing

• Values Change
• demanding that growth
• ventures become
• very big very fast

4. Resources spent on growth are wasted making
the need to grow more urgent
2. An aggressive strategy is the only way to
get the numbers to work
3. Massive investments of resources are
required to get big fast
16
Disruptive Vs Sustaining Technology

• Sustaining Technology
• can be incremental or radical
• improve the performance of established products
  along the trajectory that mainstream customers
  have historically valued

17
Disruptive Vs Sustaining Technology

• Disruptive Technology
• Result in worse product performance
• Underperform existing products in mainstream
  markets
• have features that a few fringe customers value
• typically smaller, cheaper, simpler, convenient
  to use

18
Examples of Sustaining Technologies

• Semiconductor process technologies
• Automotive technologies e.g. IC engines
• DRAM, CISC microprocessor
• Jet Engines
• Construction
• Factory automation

19
Examples of Disruptive Technologies?
What companies are Vulnerable?

• Internet
• MEMS
• Disk Drive
• Genetic Engineered foods
• Genetic Engineered drugs
• Wal-Mart, Dell inventory management
• Hybrid Vehicles
• Small Turbines
• Fuel Cells

20
Disruptive Technologies and Exploitative Companies

• Company
  Technology
• Cisco Packet switching
• Dell Computer Direct to customer
  retailing and high asset turns
• Pixar Digital animation
• eBay Internet auctions
• E-mail (ISPs) Internet
• Endoscopic surgery (Many) Fiber optics
• Sharp Flat Panel Displays
• Ford (Model T) Assembly Line
• Kodak Simple point and shoot
• DEC, Prime, Data General minicomputers
• GE Plastics, Dupont, Dow plastics
• Sony solid state
• GE medical MRI, CT
• Xerox Xerography

21
Disruptive technologies
22
Why do good companies miss the revolution?

• 1. Companies depend on investors and customers
  for resources
• requires high profits
• requires following the lead of customers who may
  themselves be blindsided
• mainframe industry
• minicomputer industry
• 2. Markets that dont exist cant be analyzed
• 3. Technology Supply may not meet market demand

23
Additional Reasons

• Wrong Value Network
• Context of corporations business environment
  leads to missing competition arising from outside
• Organizational Structure
• Companies organized by a products substructure
  fail when fundamental architecture changes
• Core Competencies
• Firms fail when a technological change destroyed
  the value of competencies previously cultivated
  and succeeded when new technologies enhanced them
• Technology S-curves
• Firms fail when they miss inflection points along
  their main product thrust and specifically when
  they miss technologies advancing in related
  fields
• Wishful thinking

24
Are these companies clueless?

• Not every technology that looks disruptive is
  feasible.
• You cannot chase every possible disruptive
  technology to cover all your bets
• Even technologies which are well-researched and
  appear to be potentially disruptive can be very
  difficult to bring to market
• Companies are unable to allocate sufficient
  resource to test marketing them because they will
  always fail any rational allocation process (e.g.
  portfolio management to be discussed in the
  future)
• Their normal customers arent interested
• The markets seem small and uncertain
• Resource for main line technologies will receive
  the dominant share to maintain sales growth and
  profits

25
Does this mean that you must drop what you are
doing and pursue these future threats?

• You cant abandon your present customers
• You could be wrong about identifying the
  inflection point of your present technologies and
  the reality of the threat
• Examples
• Semiconductor lithography transition from optical
  to x-ray, e-beam
• Electric Car transition from IC engine
• Supersonic transport transition from subsonic
• Nuclear energy transition from steam turbine
• Others?

26
Is all lost?If you are an established,
successful company, how do you counter?

• Choose 1 or 2 disruptive technologies that
  concern you the most and participate
• Set up separate organization in separate location
  with constrained funding
• Alternatively, invest in start-ups
• Manage expectations as markets are found for
  disruptive technologies by trial and error

27
Shaping ideas to become disruptive litmus tests

• Is there a population of people who historically
  have not had the money, equipment or skill to do
  this thing themselves and as a result have gone
  without or have had to pay someone with more
  expertise to do it for them.
• To use the product or service, do customers need
  to go to an inconvenient centralized location?
• Are there customers at the low end of the market
  who would be willing to purchase the product at a
  low price with less (but good enough)
  performance?
• Can we earn money at this low price?
• Is the innovation disruptive to all the
  significant incumbents?

28
Some Lessons Learned

• Two choices To commercialize a disruptive
  technology,
• Push the technology to its limits to serve an
  established market or
• Accept the current capabilities and seek a market
  which values the inherent attributes of that
  technology
• Customer input can be extremely misleading
• need a less risky, less expensive way of learning
  market needs
• For new technology, need to assess probability of
  success of collateral technologies
• The total probability equals the product of the
  individual probabilities
• New markets need time to develop
• Incubation period needed
• Inconsistent with meeting high corporate
  expectations
• Great opportunity for start-ups

29
This leads to the question. . .What Products
will customers buy?

• Of 100 new product development projects launched
• 60 are abandoned in the RD Stage
• 16 are withdrawn from the market
• Rest succeed commercially
• Big reason for failure- poor segmentation of
  market