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Management of Technology (OM476)

Management of Technology (OM476). Design Dominance and Timing of Entry February 8, 2006 S. Fisher. 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.

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Management of Technology (OM476)

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  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 Sony’s ideas, releases VHS (using some of Sony’s 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 • Alien’s ALR-9800 reader, designed primarily for EPC Class I Gen 2 compatibility, has cleared a major obstacle -- its compliance with Microsoft’s RFID technology. • August 20, 2005 from http://www.rfidgazette.org/2005/08/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/CatalystComplete%209.2%20Release.pdf

  11. 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

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