Management of Technology OM476

1
Management of Technology (OM476)

• Design Dominance and Timing of Entry
• February 8, 2006
• S. Fisher

2
Agenda

• How does existence of a dominant design affect
  innovation?
• Who benefits from dominant designs?
• What is the optimal timing of entry into a
  market?
• The role of first movers

3
Review Technology Cycles

• Selection of a dominant design results in a
  period of incremental change, until the next
  technological discontinuity.

4
Group Exercise

• Think of a technology for which there is a
  dominant design
• Something other than Microsoft, please
• What is the impact of this dominant design for
• The dominant provider
• Providers of complementary goods
• Consumers
• The industry as a whole

5
Battle for Dominant Design VHS vs. Beta

• 1974 Sony meets with JVC and Matsushita to
  discuss plans and design standards for home video
• 1975 Sony releases Betamax
• 1976 JVC rejects Sonys ideas, releases VHS
  (using some of Sonys technology)
• Division into 2 camps
• Betamax Sony Toshiba, Sanyo Electric, NEC,
  Aiwa, and Pioneer
• VHS Matsushita, Hitachi, Mitsubishi Electric,
  Sharp, and Akai Electric
• VHS ultimately became the dominant standard
  simpler, longer recording times, better marketing

6
Key question

• How does this innovation add value? What is the
  utility to the buyer? Dimensions include
• Productivity
• Simplicity
• Convenience
• Risk
• Fun and Image
• Environmental friendliness
• Remember Performance Indicator!

7
Network Externalities

• Also known as positive consumption externalities
• The benefit (or value) of using a technology
  increases as the number of people using it
  (installed base) increases
• Examples?
• Are there instances when the opposite effect
  occurs?

8
RFID (radio frequency identification)

• Technology used to track materials and products
  through the supply chain
• Essentially, more sophisticated version of the
  bar code
• Active vs. passive tags

9
RFID, continued

• Wal-Mart, US Department of Defense are requiring
  suppliers to use RFID
• Pros and cons of dominant design in this
  situation?
• Tags
• Readers
• Software

10
Compatibility and RFID

• Aliens ALR-9800 reader, designed primarily for
  EPC Class I Gen 2 compatibility, has cleared a
  major obstacle -- its compliance with Microsofts
  RFID technology.
• August 20, 2005 from http//www.rfidgazette.org/20
  05/08/microsoft_and_a.html
• Our latest solution suite combines modular
  flexibility and user-specified capabilities with
  ease of integration with IBM, SAP WM and other
  technologies,
• May 4, 2005 from http//www.catalystinternational.
  com/content/About_Us/pressreleases/latest/Catalyst
  Complete209.220Release.pdf

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Components of Value

• Technological utility
• Installed base
• Complements availability
• Greater value --- higher probability of adoption
  and design dominance

12
Timing of Entry

• Categories similar to Rogers categories for
  diffusion
• First movers
• Early followers
• Late entrants
• First mover advantages? Disadvantages?

13
Early follower advantages

• Learn from what the first movers have done
• Adopt new and more efficient processes
• Often have higher ROI in the long term, even
  without a significant sales advantage

Source Boulding and Christen (2001 October).
First-mover disadvantage. Harvard Business
Review.
14
Factors Driving Optimal Timing of Entry

• Certainty of customer preferences
• Degree of innovation (level of improvement)
• Enabling technologies and complementary goods
• Threat of competitive entry
• Ability to withstand early losses
• Reputational value
• Switching costs

15
When to enter first

• Likely advantage depends on rates of
  technological change and market growth

Short-Lived
Durable
Calm Waters -Both slow
Unlikely
Very likely

• Market Leads
• Market rapid
• Tech slow

Very likely
Likely
Technology Leads -Market slow -Tech rapid
Very Unlikely
Unlikely
Rough Waters -Both rapid
Likely
Very unlikely
Source Suarez, F. and Lanzolla, G. (April 2005).
The half-truth of first-mover advantage. Harvard
Business Review.
16
Next class

• Monday no class (Feb. break)
• Wednesday, Feb 15 Prepare Apple Computer case
  (2002 and 2005)
• Team 3 presenting
• Team 7 asking questions (and exec summary)
• All other teams preparing exec. summary