MKTG 511

Dr. PetersenWeek 3 – January 24, 2007Winter Term 2007

Class Agenda

Recap of KittyHawk Case Team One – SWOT Presentations

BREAK

Review of key concepts

HP: Flight of the Kittyhawk Questions to be answered in the response (no more

than two written pages): With respect to market planning / marketing strategy

– identify what you perceive were the two most critical mistakes made by the Kittyhawk team. Be sure to describe the mistake, and provide an explanation as to the consequences of the mistake (i.e. why you believe it was a critical mistake).

For each of the two mistakes identified above, provide an alternative fix (action such as a research project, expert or customer interview etc. or specific analysis) that would have prevented the mistake.

Describe the Kittyhawk project in the context of Table 2-1 (pg. 51) in Innovator’s Solution.

Disruptive Technologies

Why do many good companies fail? Companies that

are well-managed and progressive listen to their customers study and act on market trends invest significant resource in R&D 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

Death SpiralNot

Growing

4. Resources spent on growth are

wasted making the need to

grow more urgent

3. Massive investments of resources are required

to get big fast

1. Values Change demanding that growth

ventures become very big very fast

2. An aggressive strategy is the only way

to get the numbers to work

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

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

Disruptive Vs Sustaining Technology

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 don’t exist can’t be analyzed

3. Technology Supply may not meet market demand

Additional Reasons Wrong Value Network

Context of corporation’s 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

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 aren’t interested The markets seem small and uncertain Resource for main line technologies will receive the

dominant share to maintain sales growth and profits

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

You can’t 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?

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?

Some Lessons Learned To commercialize a disruptive technology, there are two

choices 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

Components of Internal Analysis

Figure 3.2Figure 3.2

Creating Value By exploiting their core competencies or

competitive advantages, firms create value

Value is measured by A product’s performance characteristics

The product’s attributes for which customers are willing to pay

Firms create value by innovatively bundling and leveraging their resources and capabilities

Creating Competitive Advantage

Core competencies, in combination with product-market positions, are the firm’s most important sources of competitive advantage

Core competencies of a firm, in addition to its analysis of its general, industry, and competitor environments, should drive its selection of strategies

The Challenge of Internal Analysis Strategic decisions in terms of the firm’s resources,

capabilities, and core competencies Are non-routine

Have ethical implications

Significantly influence the firm’s ability to earn above-average returns

To develop and use core competencies, managers must have Courage, Self-confidence, Integrity The capacity to deal with uncertainty and complexity A willingness to hold people (and themselves)

accountable for their work

Resources, Capabilities and Core Competencies

Core Competencies Resources and capabilities that serve as

a source of a firm’s competitive advantage:

Distinguish a company competitively and reflect its personality

Emerge over time through an organizational process of accumulating and learning how to deploy different resources and capabilities

Activities that a firm performs especially well compared to competitors

Activities through which the firm adds unique value to its goods or services over a long period of time

Building Sustainable Competitive Advantage

Four Criteria of Sustainable Competitive Advantage Valuable Rare Costly to imitate Nonsubstituable

RPVYou must know and address what your organization is capable and incapable of accomplishing

Resources

• People

• Technology

• Products

• Equipment

• Information

• Cash

• Brand

• Distribution

Processes

• Hiring & Training

• Product Development

• Manufacturing

• Planning & Budgeting

• Market Research

• Resource allocation

Values

• The criteria by which prioritization decisions are made

• Ethics

• Cost structure/ income statement

• Size of opportunity

Value Chain Analysis

Allows the firm to understand the parts of its operations that create value and those that do not

A template that firms use to: Understand their cost position

Identify multiple means that might be used to facilitate implementation of a chosen business-level strategy

The Basic Value Chain

Inbound Logistics

Operations

Outbound Logistics

Marketing and Sales

Service

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Five Business-Level Strategies

Figure 4.1Figure 4.1

SOURCE: Adapted with the permission of The Free Press, an imprint of Simon & Schuster Adult Publishing Group, from Competitive Advantage: Creating and Sustaining Superior Performance, by Michael E. Porter, 12. Copyright © 1985, 1998 by Michael E. Porter.

Vertical IntegrationVertical Integration

Growth Strategies

Market Penetration

Product Development

Diversification

PresentProducts

MarketDevelopment

MarketDevelopment

NewMarkets

PresentMarkets

NewProducts

The Market Attractiveness-Business Position Matrix

Bu

sin

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Po

siti

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Market AttractivenessH

igh

Me

diu

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ow

High Medium Low

Invest/Grow

SelectiveInvestment

Harvest/Divest

Figure 7.5

Environmental Forces

Demographic Economic Socio-Cultural Natural Technological Political-Legal

Population and Demographics

Size Growth rate Age

distribution Ethnic mix Educational

levels

Household patterns

Regional characteristics

Movement

Economic Environment

$ Purchasing Power$ Income Distribution$ Savings Rate$ Debt$ Credit Availability

Types of Industrial Structures

Industrial economies Industrializing economies Raw-material exporting economies Subsistence economies

Social-Cultural Environment

Views of themselves Views of others Views of organizations Views of society Views of nature Views of the universe

Natural Environment

Shortage of raw materials Increased energy costs Anti-pollution pressures Governmental protections

Technological Environment

Pace of change Opportunities for innovation Varying R&D budgets Increased regulation of change