The ARENA Genome: Harmonic Strategic Planning

1. The ARENA Genome: Harmonic Strategic Planning Refinement Stages: Arena, Focus, Action Create Strategy Arena Layers: Corporate, Business Function- Define Hierarchy • Corporate Layer: Portfolio Businesses Maximize Value • Business Layer: Positioning Products by Market Strategy Business ACTION • Function Layer: Process, Project and Product Agile value drive • Dynamic Vectors: Change, Vision, Scenario. Leader Navigates Prof. Jacob A. Frankel, Chairman of Sovereign Advisory Group and Global Financial Institutions Group, Merrill Lynch: JIT inventory management will help quick recovery.

2. Orange Matsushita VHS Sony Beta Cellcom P IV $819->$352 Ampex $50K Power PC Pelephone Cost Skim Adoption Rate Utility Capacity Advantage Follower Cost Leader Hong Kong Effect Learning Curve Moor’s Law Niche Distributors IBM Effect Mass Market Time/ Quantity Time/ Quantity Business Action: Skimming (Type I disruptive Innovation) • Focus: Returning R&D investment, Constrained production capacity, Limited demand Cyrix K6 Celeron P III Niche Products 486 Satellite Iridium` Athlon Diversification, Cow Cannibalization Gillette Costs-4%/Y Hedged Skimming: Tang, RDC, Velcro

3. 2.Follower: IBM effect Open Architecture Outsourcing 3. Me Too:No Name Hong Kong Effect 2. Generic 1. Ethical Viagra Prozak Compaq Devoted Follower 1.Leader: Apple Closed Architecture Self sufficient IBM Cluster Motorola Intel Patent Mac OS SW Apple Computer MS, Lotus DOS/SW IBM Computer Peripherals Price 1st 50% 2nd 50% Apple Distributors IBM++ Dealers Time Compaq Education Business Business Action: Storming • Focus: Maximizing revenues during patent duration; Rigid demand Apple Peripherals Digital HP

4. Sony: $279+ RealNetworks Nintendo: Dolphin IBM+3D by ArtX MS Xbox $299.99 ($125) Launch: 800K games, 1.5M@2001 $500M marketing budget Ford Levittown Diners’ Zara IKEA McDonalds 1. Client Navigator Sony 1. Server Navigator Acrobat 2.Toyota Honda 2. Explorer NT 1.IBM White planes Business Action: Flooding • Focus: Market share leadership (Eyeballs, Hits); Lock-in+Oligopoly+Value added Economies of Scale Utility/User Total Cost Users Bob Metcalf’s Network Externalities

5. 100 Disk drive Market 80 Competitors 60 1980 1982 1984 1986 1988 1990 1991 40 20 Market consolidation Web surfing in US, 50% of time: • March 1999, 50B Mins: 11 sites (60%=110) • March 2001, 73B Mins: 4 sites (60%= 14) • 32% America Online Time Warner • 7.5% Microsoft • 7.2% Yahoo • 3.6% Napster 1918 Model T Oil Crisis Foreign 1/3

6. Low Cost Positive Loop Low Cost Differentiation Price Cost/unit Market Demand: Price Elasticity Production Function: Economies of Scale 3 2 1:Skimming 5 Dumping 4 Quantity Sold Quantity Manufactured

7. 2.Red Hat Komatsu Toyota, Korean 1.Shareware Copy Left: Gnu, Ada Dependable-Quality Earth-Moving-Equipment Strong service and Support Worldwide Availability Strong, Loyal Dealer Network Full Line of Quality Products Local Assembly Global Volume Premium Price High Retail Margins R&D Investment High Plant Investment Low Cost Low Debt Low Dividends High Margins Business Action: Piercing / Guerilla (Type II disruptive Innovation) • Focus: Penetrating through niche, transforming non-entity into recognized brand

8. Business Action: Komatsu’s strategic Roll-out – Skinning the Cat • Maru-C: “Encircle Caterpillar” • Protect home market against Caterpillar (’81:50% world earth-moving equipment vs.16%) • Licensing deals with: Cummins Engine, International Harvester. • Acquire technology and establish benchmarks. • Project Ace: Advance quality of small and medium-sized bulldozers above Caterpillar’s • Quality Circles companywide to provide training for all employees • Reduce cost while maintaining quality • Cost Down • Total Cost Down • Make Komatsu an international enterprise and build export markets • Develop Eastern bloc countries • Komatsu Europe marketing subsidiary established • Komatsu America established • Project B to improve durability and reliability and reduce cost of large bulldozers • Project C to improve payloaders • Project D to improve Hydraulic excavators • Establish presale and service department to assist construction projects in newly industrializing countries • Respond to external shocks that threaten markets • V-10 program to reduce costs by 10%; reduce parts by 20%. • ¥180 program to budget companywide for ¥180/$ when exchange rate was ¥240/$ • Response to Oil Crisis: Project E establish teams to redouble cost and quality efforts. • Create new products and markets • Accelerate product development to expand line. • Future and Frontiers program to identify new businesses based on society’s needs and company know-how. • EPOCHS: reconcile greater product variety with improved production efficiencies. • (’84:Caterpillar=43% world earth-moving equipment vs.Komatsu=25%)

9. ProLiant 1000 ProLiant 1000 Rack Mountable SystemPro ProSignia High Relative Level Low Time 1989 1990 1991 1992 1993 1994 Expandability Application Compatibility File and Print Compatibility Performance Price Expandability Application Compatibility File and Print Compatibility Performance Price Storability Reliability Servicability Configurability Security Manageability Business Action • How Has Compaq Stayed on Top of the Server Industry?, HBR

10. Real Power Importance Importance Disappointment Great Expectations Window of Opportunity Time Time Business Action: Strategic Grid US Office of Patents commissioner: “Everything that can be invented has been invented”, 1899 recommendation that his office be abolished. Strategic Turnover Factory Support

11. 90 91 92 93 94 95 96 97 98 99 Qualcomm 1999 annual Report p. 23Mobile-Station-Modem Phone Chipsets 6th Generation MSM 50% Smaller; 300Hrs Sand by Mixed signal; USB data interface MSM3100 Features MSM5000 2x voice capacity Faster data rates<153.6kbps iMSM Family High Data Rate technology<2.4Mbps Internet; support3rd party OS/Apps 5th Generation MSM 200 hours standby Faster data rates<86kbps IS-95A/95B Compliant MSM3000 4th Generation MSM Highly cost effective MSM2300 3rd Generation MSM Used in QCP800 phone MSM2 2nd Generation MSM Chipset Developed MSM1 1st Generation MSM R&D begins Time/ Release

12. 92 93 94 95 96 97 98 99 00 Wave PLM Features/ Function Points NT: Most Demanding Tasks User/Info Dir, Intelli-mirror NT4.0: Large Data Proc. 1997 update: Cluster 1.6M copies Windows CE NT3.51: Web Server No need for special SW NT3.5: Faster, Stable SOHO 2000: Premium, Professional, Small Business 93 NT3.1: 32 bit 29K copies 98: HTML editor 95: TCP/IP Apr 92: Win 3.1: Screensaver, TrueType Mar 93:MS-DOS 6 Disk Backup & Compression 5 4.1 88: DOS 4 Time/Release

13. Business Action: Float-glass process substitution W.Europe

14. 20 16 12 8 4 0 0 8 16 4 12 20 Business Action: Supply/Demand Chasm Typical Time Horizons by Industry, Mid-to-Late 1980s Transportation Systems Communications Systems Forestry, Oil & Gas Reserves Military Weapons Development Cycle (years) Pharmaceuticals Biotechnology Chemicals, Paper Mining Photographic Metal Products Automobile Medical&Dental Lodging Hotels Computers Electronics Fashion & Textiles Publishing Foods Software Tobacco Silicon Foundries Retailing&Entertainment Financial Services- Approximate Life Cycle of Products (years)