STRATEGY& TECHNOLOGY

1. STRATEGY& TECHNOLOGY DR. MARK FRUIN BUS 189, CHPT 7 SPRING 2010

2. TEAM ORGANIZATION • IT’S BETTER TO HAVE 1 TEAM MEMBER ANALYZE BOTH FIRMS IN THE SAME TOPIC AREA • KEY AREAS for ANALYSIS • GROWTH IN INDUSTRY & PRODUCT/MARKET SEGMENTS; BASED ON FUNCTIONAL AND B-L STRATEGIES • FINANCIAL PERFORMANCE; EARNINGS, ROI, ETC. • R&D, DESIGN, PRODUCTION, MARKETING, DISTRIBUTION & MANAGEMENT (VALUE CHAIN ANALYSIS) • FINANCIAL PERFORMANCE AND VALUE CHAIN ANALYSIS ARE OUTCOMES OF F-L, B-L & C-L STRATEGIES • IT’S BETTER FOR 1 MEMBER TO INTEGRATE, WRITE & INTEGRATE THE PROJECT • FOLLOW GOOD ESSAY GUIDELINES • SET UP ARGUMENT AS HYPOTHESES TESTING • 3-4 REASONS WHY “THIS COMPANY IS A BETTER INVESTMENT CHOICE FOR NEXT 3 YEARS” WITH SUPPORTING EVIDENCE • RECAP AND REITERATE

3. IMPORTANT DATES: REVISED SCHEDULE • MARCH 25 PROJECT DRAFTS DUE • ONLY OTHER POSSIBILITY IS APRIL 6, AFTER SPRING BREAK • APRIL 8 SECOND MID-TERM • APRIL 29 THIRD MID-TERM • MAY 6 CAMPUS FURLOUGH DAY • MAY 11 & 13: PROJECT PRESENTATIONS • MAY 20 LAST DAY FOR TURNING IN PROJECTS; EARLIER IS BETTER

4. Q: WHAT ARE HIGH-TECH IND? • A: INDUSTRIES IN WHICH UNDERLYING TECHNOLOGIES (SCIENTIFIC KNOWLEDGE) & COMPLEMENTARY PRODUCTS/SERVICES ADVANCE RAPIDLY (SAYS HILL & JONES, p. 210) • HIGH GROWTH = HIGH TECH? • OR, A MORE COMPLETE DEFINITION OF HIGH TECH • HIGH GROWTH • HIGH COST • HIGH RISK • HIGH COMPLEXITY

5. WHAT MAKES AN INDUSTRY HIGH-TECH • BESIDES FACTORS JUST LISTED, WHICH ARE INTERNAL TO THE INDUSTRY, THERE IS THE EXTERNAL ENVIRONMENT • NORMALLY, FIRMS ADAPT TO ENVIRON OR FAIL, BUT IS ADAPTING TO H-T ENV ENOUGH? • RICHARD D’AVANI & HYPERCOMPETITION, A STATE OF PERMANENT INNOVATION (NO EQUILIBRIUM, NO REST) • GARY HAMEL & STRATEGY AS REVOLUTION • ANNALEE SAXENIAN - SILICON VALLEY AS A REGIONAL RELATIONAL NETWORK OF CAPABILITIES

6. IMPORTANCE OF STANDARDS & DOMINANT DESIGN • TECH STANDARDS, WIDELY ADOPTED FORMATS, & DOMINANT DESIGNS • GENERALLY COME AFTER SHAKEOUT IN GROWTH PHASE • REDUCE CONFUSION • REDUCE COSTS • REDUCE RISK • ENHANCE COMPATIBILITY AND ADVENT OF COMPLEMENTARY ASSETS/RESOURCES/PRODUCTS • INCREASE OPPORTUNITIES TO MAKE MONEY • AGAIN, POST-SHAKEOUT; BEFORE SHAKE, EVERYONE THINKS THEIR TECH IMPLEMENTATION IS BEST; NO AGREEMENT

7. TECH STANDARDS FOR PCs EXAMPLES OF DOMINANT DESIGN (FIG 7.1) & THEIR INTERCONNECTEDNESS TO OTHER PRINCIPAL PIECES OF PUZZLE • OS (WINTEL STANDARD) • MICROPROCESSOR STANDARDS • INTERNAL HARD DRIVE STANDARDS • MONITOR STANDARDS • KEYBOARD STANDARDS • MODEM (TCP/IP) STANDARDS • CD (FLOPPY DISK) STANDARDS • PERIPHERAL SLOTS (USB) STANDARDS

8. COMMUNITIES OF PRACTICE • DRIVE TOWARDS STANDARDS • CREATE THEIR OWN ACTIVITIES/ECONOMIES THAT ARE NOT OTHERWISE AVAILABLE • BY WORKING TOGETHER INTENSELY, CREATE HIGH PERFORMANCE WORK GROUPS • CAN OCCUR WITHIN AND BETWEEN FIRMS • BOUNDARY SPANNING (BETWEEN SECTIONS, DEPARTMENTS, DIVISIONS & FIRMS) IN THIS SENSE IS OPPORTUNITIES ENHANCING • RELATIONAL PATTERNS BETWEEN WORKERS DEFINED BY SETS OF ACTORS/INTERACTIONS • ORG CHART DOES NOT DEFINE HOW WORK ACTUALLY GETS DONE

9. MUCH OF THE WORKING OUT OF DOMINANT DESIGN/STANDARDS • IS DONE COOPERATIVELY • SMALL NUMBERS COOPERATION • STRATEGIC ALLIANCES • JOINT VENTURES • COALITIONS & SUPPLY CHAINS • LARGE NUMBERS COOPERATION • INDUSTRY ASSOCIATIONS • SPECIAL ECONOMIC ZONES/INDUST. DISTRICTS • GLOBAL FIRMS & NETWORKS OF SUBSIDIARIES • INTERFIRM NETWORKS

10. ESTABLISHING STANDARDS • RECOGNIZING BENEFITS OF STANDARDS: FIRMS IN INDUSTRY LOBBY GOVERNMENTS • RECOGNIZING BENEFITS, FIRMS COOPERATE WITHOUT GOV HELP, OFTEN THROUGH MECHANISMS OF INDUSTRY ASSOCIATIONS • COMBINATION OF PUBLIC/PRIVATE EFFORTS • INDUSTRY STANDARDS EMERGE SELECTIVELY & PRIVATELY • PREEMPT COMPETITION • FIRST MOVER ADVANTAGES • COALITIONS OF RIVAL FIRMS/STNDRDS • BETAMAX (SONY) V. VHS (MATSUSHITA)/INTEL V. AMD

11. NETWORK EFFECTS • INCREASING AND DECREASING BENEFITS ARE POSSIBLE BASED ON NETWORK EFFECTS • SIZE IS IMPORTANT • COMPLEMENTARY PRODUCTS ARE IMPORTANT • HOW MANY DIFFERENT WAYS CAN NETWORK BE ACCESSED & USED? • FREE RIDING (FIRMS RIDE ON EMERGING CONSENSUS BUT DON’T CONTRIBUTE)

12. NETWORK EFFECTS • WHAT ARE THEY? • 2ND LAW OF SILICON VALLEY • BOB METCALFE, 3COM • AND 1ST LAW IS? MOORE’S LAW • EXTERNALITIES AND NETWORK EFFECTS - WHAT ARE THEY? • DEFINE EXTERNALITIES • SOME EXAMPLES

13. METCALFE’S LAW • COSTS OF NETWORK EXPAND LINEARLY WITH INCREASE IN SIZE, WHILE VALUE OF NETWORK INCREASES EXPONENTIALLY • HOW IS THIS POSSIBLE • DIFFERENT SORTS OF NETWORKS • STAR NETWORKS, THE SIMPLEST • SCALE FREE OR HUB BASED • HIERARCHICAL • RANDOM (NOT REALLY RANDOM BUT MULTIPLE CONFIGURATIONS POSSIBLE)

14. STRATEGIES FOR WINNING FORMAT WARS • ENSURE READY SUPPLY OF COMPONENTS • LEVERAGE KILLER APPS (APPLICATIONS) • AGGRESSIVELY PRICE AND CAPTURE MARKET SHARE • RAZOR & BLADE STRATEGY • COOPERATE WITH COMPETITORS (IMMEDIATELY PRIOR TO MATURE PHASE, BUT NOT AFTER) • LICENSE FORMAT • GET MORE USERS; BUILD CRITICAL MASS OF USERS

15. LAW OF DIMINISHING RETURNS • IN MANY INDUSTRIES, OTHER THAN HIGH-TECH, LAW OF DIMINISHING RETURNS HOLDS: • MARGINAL COSTS RISE AS OUPUT EXPANDS • INVEST MORE, SUCH AS IN LABOR, TO PRODUCE MORE • TRADITIONAL ECONOMIES OF SCALE & SCOPE • BUT IN H-T INDUSTRIES, SUCH AS SOFTWARE AND MULTIMEDIA, MARGINAL COSTS ARE ALMOST ZERO • PRACTICALLY ZERO DIMINISHING RETURNS

16. INTELLECTUAL PROPERTY RIGHTS AND HIGH-TECH • RECOGNIZE DIFFERENCE BETWEEN BIO-TECH AND SOFTWARE, FOR EXAMPLE • R & D INVESTMENT/HUMAN RISK • APPROPRIABILITY OF VALUE • MARKET CONTESTABILITY • THE VALUE OF SOFTWARE, FOR EXAMPLE, IS NOT DIMINISHED BY USE, QUITE THE CONTRARY • OLD NOTION OF COMMONS, NEW NOTION OF COMMONS • COMPLEXITY & COMPLEMENTARITY OF KNOWLEDGE

17. FIRST-MOVER ADVANTAGES • FIRST MOVER MORE EASILY EXPLOIT NETWORK EFFECTS (SPEED OF FADS DIFFUSING/SPREADING) • TIPPING POINTS FROM LAST CHAPTER • ESTABLISH BRAND LOYALITY BEFORE RIVALS APPEAR • HARNESS 4Ss BEFORE RIVALS; WHEN RIVALS APPEAR, CUT PRICES IN LIGHT OF 4S ADVANTGS ALREADY HELD • CREATE SWITCHING COSTS • ACCUMULATE VALUABLE MARKET, CUSTOMER, PROD & PROCESS KNOWLEDGE VIA FEEDBACK

18. FIRST MOVER DISADVANTAGES • FAST FOLLOWER STRATEGIES MAY BE SUPERIOR TO FIRST MOVER STRATEGIES • LEARN FROM MISTAKES OF OTHERS • INVEST LESS & DO MORE • CROSS CHASM ON BACKS OF OTHERS • CHEAPER, BETTER, FASTER ALTERNATIVES EXIT • PRODUCT VERSUS PROCESS INNOVATIONS • ECONOMIC BACKWARDNESS IN HISTORICAL PERSPECTIVE • ALEXANDER GERSCHENKRON, HARVARD U & NOBEL PRIZE WINNER • BUT CATCH-UP REQUIRES MORE & BETTER PLANNING • FALLS TO STATE TO COORDINATE & PLAN IN CENTRALIZED WAY

19. CAPTURING FIRST MOVER ADVANTAGES • BUILD HIGH BARRIERS TO IMITATION • KNOWLEDGE ABOUT MINOR/MAJOR INNOVATIONS • NEW INNOVATION HARD TO KEEP SECRET, HOWEVER • KNOWLEDGE ABOUT (HOW) & KNOWLEDGE OF, NOT THE SAME THING • KNOW-HOW, KNOW-WHEN, KNOW-WHO, KNOW-WHAT • DEVELOP COMPLEMENTARY ASSETS • MANUFACTURING CAPABILITY, MKTNG KNOWLEDGE, ADEQUATE SALES FORCE, SUPPORT • HARNESS CAPABLE COMPETITORS • A SMALL PIECE OF A BIG PIE IS BETTER THAN…

20. INNOVATION STRATEGIES • GOING IT ALONE • ENTERING INTO AN ALLIANCE • LICENSING INNOVATION • ALL 3 DEPEND ON: • INNOVATOR HAVING REQUIRED COMPLEMENTARY ASSETS OR NOT? • HEIGHT OF BARRIERS TO IMITATION • # OF CAPABLE COMPETITORS

21. INNOVATION TYPES • INCREMENTAL - MOST OF IT; MOSTLY MATURE STAGE OF ILC • RADICAL - ONCE IN A BLUE MOON • SOMETIMES CALLED “BREAKTHROUGH” INNOVATION • BY DEFINITION, REQUIRES LOTS OF RESOURCES • LIKELY TO OCCUR AT ONLY ONE OR TWO POINTS IN INDUSTRY LIFE CYCLE • DISRUPTIVE/DISCONTINUOUS • ONLY OCCASIONALLY IN ‘HIGH-TECH’ INDUSTRIES WHERE COMPETING TECHNOLOGY PARADIGMS & DOMINANT DESIGNS ARE OVERTAKEN • A NEW MARKET SPACE IS CREATED W/I INDUSTRY LIFE CYCLE

22. CHRISTENSEN & DISRUPTIVE TECHNOLOGY • CLAY CHRISTENSEN, HBS, ARGUES THAT ESTABLISHED FIRMS ARE OFTEN AWARE OF NEW TECH BUT TOO INVESTED IN OLD TECH TO PAY HEED TO IT • PARTLY NIH SYNDROME • PARTLY LACK OF CUSTOMER INTEREST IN NEW, UNPROVEN, EMERGING TECH AS A RESULT, ESTAB FIRMS CONT TO IMPROVE (INCREMENTALLY) & INVEST IN OLD TECH UNTIL ONE DAY…

23. DISRUPTIVE TECHNOLOGY • OFTEN TAKES A RADICALLY DIFFERENT VALUE CHAIN TO COMMERCIALIZE A DISRUPTIVE TECHNOLOGY • WHEN MAINSTREAM PRODUCTS ARE EXPENSIVE AND INCONVENIENT; LOOK OUT • NANO CAR FROM TATA; REDUCE PRICE TO $2500 WHEN CHEAPEST ALTERNATIVE IS $7500 • LOW COST INNOVATION MAY BE THE FUTURE • SMALL FIRMS WITH ENTREPRENEURIAL MANAGERS ARE MORE RISK TAKING • IN GENERAL, IN H-T INDUSTRIES SMALL FIRMS ARE ESTABL TO TAKE RISKS BIG FIRMS BUY SMALL FIRMS BECAUSE THEY ARE INNOVATIVE & TO REDUCE COMPETITION

24. DIGITAL EQUIPMENT CORP • DEC ENGINEERS COULD DESIGN A PC WITH EYES CLOSED • PLANS FOR PCs at FOUR DIFFERENT TIMES • CURRENT BUSINESS MODEL WAS FOR MINICOMPUTERS WITH LARGE SCALE COMPUTING POWER, LARGE SALES FORCE, AND IN-FIELD SUPPORT FOR CUSTOMERS • WHY ABANDON SALES OF HIGH MARGIN, HIGH PRICED COMPUTERS IN FAVOR OF PCs?

25. DEC & DISRUPTIVE TECHNOLOGY • DEC WAS VULNERABLE TO DISRUPTIVE TECHNOLOGY • RIVALS SEE DIFFERENT SEGMENTS THAT ARE UNDERSERVED IN THE SAME INDUSTRY • NON-MAINSTREAM BECOMES MAINSTREAM • DISRUPTIVE DOES NOT ALWAYS/USUALLY MEAN RADICAL • DISRUPTIVE MEANS PICKING OFF THE LESS ATTRACTIVE SEGMENTS OF A BUSINESS AND RUNNING WITH THEM • IF ENOUGH CUSTOMERS FOLLOW, NEW MARKET SEGMENTS ARE BORN

26. OTHER EXAMPLES • TOYOTA AND CREW MAX • TOO LATE TO THE PARTY? • MAHINDRA & MAHINDRA PICKUPS • HIGH TOWING/HAULING, ECONOMICAL (DIESEL), UTILITARIAN & AFFORDABLE • APPLE & iPHONE & iPAD • HONDAJET • ONE OF THE FEW COMPANIES MAKING BOTH AIRFRAMES AND JET ENGINES • ORIGINALLY, NEEDED AN AIRFRAME TO TEST THEIR ENGINE, SO THEY DESIGNED ONE

27. SOURCES OF INNOVATION • INNOVATIONS ARISE THROUGH INTERACTIONS • INNOVATIONS OFTEN STIMULATED WHEN INTERACTIONS OCCUR BTWN HETEROGENEOUS ACTORS • HOMOGENEOUS ACTORS ARE NOT AS LIKELY TO ROCK THE BOAT • EFFORTS TO CLARIFY, ALIGN, RE-ALIGN, RE-INTEGRATE, & RE-CALIBRATE RESULT IN INNOVATIONS • ON THE OTHER HAND, IT’S A LONG WAY FROM A BETTER IDEA TO A BETTER PRODUCT

28. CAUSES & CONSEQUENCES OF INNOVATION • IN WHAT SORT OF ORGANIZATIONAL, INDUSTRY AND INSTITUTIONAL CONDITIONS ARE INNOVATIONS LIKELY TO OCCUR • ORGANIZATIONAL? • INDUSTRY? • INSTITUTIONAL? • ATTITUDES OF MANAGERS TOWARDS DIFFERENT SORTS OF INNOVATION • WHAT SORT OF FIRMS, IF ANY, SHOULD PURSUE INNOVATION-BASED STRATEGIES AS B-L STRATEGIES? • SUCH AND SUCH FIRMS AT SUCH AND SUCH MOMENTS IN THE INDUSTRY LIFE CYCLE??? • ARE THERE FIRMS THAT FIT THE PART?