technology management and strategy standards battles / timing of entry
TRANSCRIPT
Technology Management and Strategy
Standards Battles /
Timing of Entry
Standards Battles
01
How and Why Dominant Designs Appear
3
01_ Standards Battles
1. Definition of dominant design A single product or process architecture that dominates a product cat-egory, usually 50% or more of the market
Design Competition
(Standards Battles) Design Dominance
Mar
ket
Sha
re
AB
C
Kinds of Designs
Mar
ket
Sha
re
Kinds of Designs
A
B
C
4
01_ Standards Battles
2. Why this concept is importantA great number of cases show that a “certain design” dominates the market at a “certain time” under “certain conditions”
Need for research for this
phenomenon
……
What happens when a dominant design appears?
# o
f fi
rms Typewriters Automobiles
Electronic Calculators Televisions
Dominant Design’s advent
5
01_ Standards Battles
3. Why dominant designs are selected3.1 Learning Effects
The more a technology is used, the more it is developed and the more effective and efficient it becomes
Good Cycle
Technology is adopted
Salesrevenues
Reinvest and refine the technology
Self-reinforcing Mechanism(1)
Co
st p
er u
nit
Per
form
ance
o
n e
ach
un
it
Cumulative output
Cumulative output
“Learning effects”
6
01_ Standards Battles
3. Why dominant designs are selected3.2 Network Externalities
With network externalities, the benefit from using a good increases with the number of other users of the same good
Self-reinforcing Mechanism(2)
Size of Installed Base
Availability of Comple-mentary Goods
Users Producers
7
01_ Standards Battles
4. Multiple Dimensions of Value4.1 A Technology’s Stand-Alone Value
When a new technology is offered to customers, this new technology itself is valuable to customers
Birth of Airplane Birth of Cell Phone
Era of Automo-biles
We cannot fly.
Era of Air-planes
We can fly!
Era of Home Telephone
We cannot call outside house.
Era of Cell Phone
We can call anywhere!
8
01_ Standards Battles
4. Multiple Dimensions of Value4.2 Network Externality Value
The size of installed base and the availability of complementary goods add values to a technological innovation
Additional Value from other than Technology itself
We can just fly.
We can fly anywhere!
We can just call anywhere.
We can call anywhere to anybody!
Network Externality
Effect
9
01_ Standards Battles
4. Multiple Dimensions of Value
VHS format
Beta format
• High-resolution• Technical excellence
Superior Technol-ogy’s Stand-alone value
• Cheaper to manufacture• Many users of VHS ma-
chines
Network externality value
valu
eBeta VHS
TechnologyStand-alone
valueTechnologyStand-alone
value
NetworkExternality
value
VHS wins!!!
4.2 Network Externality Value(cont.)
Thanks to superior network externality value, VHS could beat Beta
10
01_ Standards Battles
iPod73%
SanDisk9%
Zune3%
Creative3%
Samsung2%
Other10%
5. Real Case(iPod)5.1 iPod’s Dominance over the World
There’ s no doubt that iPod is actually the ‘king’ of the MP3 market
Reference: www.bloomberg.com March 13, 2007
MP3 Market Share(2007)
11
01_ Standards Battles
5. Real Case(iPod)5.1 iPod’s Dominance over the World(cont.)
Increasing rate of iPod’s sales revenue is astonishing
Reference: www.roughlydrafted.com March 16, 2007
Number of iPod Purchased Quarterly from 2002 to 2007
12
01_ Standards Battles
5. Real Case(iPod)5.2 Why is iPod so successful Brilliant Feature
iPod’s brilliant feature (which is a technology’s stand-alone value) has made powerful impressions to customers
iPod Classic iPod Nano iPod Shuffle
iPod Product linesVarious MP3P Designs
13
01_ Standards Battles
5. Real Case(iPod)5.2 Why is iPod so successful User Experience
iPod’s user experience management could make customers happy and stay with iPod.
Nike + iPod sport kitiTunes
14
01_ Standards Battles
5. Real Case(iPod)5.2 Why is iPod so successful User Experience
Fun with iPod!!
15
01_ Standards Battles
5. Real Case(iPod)5.2 Why is iPod so successful Perfect Mate ‘iTunes’
User friendly interface and stable supply of songs of iTunes bind users strongly. This guarantees big advantages from network externalities.
A lot of users of iPod
Availability of almost every song in the world
Users MusicSuppliers
Self-reinforcing Mechanism in iPod case
iTunesiTunes
16
01_ Standards Battles
5. Real Case(iPod)5.3 Conclusion
The combination of Brilliant feature, user experience management and iTunes make the astonishing success
Gro
wth
of
iPo
d
Stand-Alone value
Time
Brilliant feature stimulates the first move User e
xperience
Management
Through user experience
management, strong installed base is formed
Maximizing Network externality value
Existing installed base and stable mu-sic supply through iTunes maximize
network externality value
Timing of Entry
02
When is the Proper Timing to Enter the Industry
18
Contents 02_ Timing of Entry
1. Definition of Timing of EntryIn technological innovation aspect, the timing of entry isa decision making for a firm to consider when it starts to spend money on R&D to produce certain products or service.
R&D Selling
Mar
ket
Time
High-end
Mass
Low-end
Entry Launching
19
Contents 02_ Timing of Entry
2. Terminology
Mar
ket
Time
High-end
Mass
Low-end
First-mover
Late entrants
Early followers
First-mover is the first to sell in a new product or service category. Early followers are early to the market but not first.Late entrants enter the market when or after the product or service begins to penetrate the mass market
20
Contents 02_ Timing of Entry
• A long-lasting reputation as a leader in that technology domain• Yielding sustained monopoly rents• Sustaining the firm’s image, brand loyalty, and market share• Shaping customer expectations about the technology’s characteristics
• Key locations• Government permits• Access to distribution channels• Relationships with suppliers
• The initial cost of the good• The cost of complements purchased for the good• Efforts and time becoming familiar with its operation
Extraordinariness
Exclusiveness
The characteristicsof advantages
3. First-mover AdvantagesBeing a first mover may confer the advantages.
Brand Loyalty and Technological Leadership
Preemption of Scarce Assets
Exploiting Buyers Switching Costs
21
Contents 02_ Timing of Entry
• Research and Development Expenses
• Undeveloped Supply and Distribution Channels
• Immature Enabling Technologies and Complements
• Uncertainty of Customer Requirements
Late Entrants Advantages• Ascertain how the product was created and how to focus its development efforts• Observe the market’s response to particular features of the technology• Utilize the developed enabling technologies and complements• Access to the exploited supply and distribution channels
Expensiveness
Easiness of transference
Evasiveness
The characteristicsof disadvantages
4. First-mover DisadvantagesBeing a first-mover may also have the disadvantages,while later entrants get the advantages.
22
Contents 02_ Timing of Entry
The more checks are on the list,the better earlier timing of entry is.
5. Factors Influencing Optimal Timing of EntryHow does a firm decide whether to at-tempt to pioneer a technology cate-gory or to wait while others do so? It depends on several factors.
Customers’ certain preferences
Much improvement
Mature enabling technologies
Available complementary goods
The threat of competitive entry
Increasing returns industry
Endurance against early losses
Enough resources
Reputation
Go for it!
23
Contents 02_ Timing of Entry
6. First-mover Vs. Early FollowerP&G’s Pampers crushed J&J’s Chux.P&G realized customers’ certain preferences.
1967 1968 1969 1970 1971 1972 1973
100
80
60
40
20
0
(%)
P&G
J&J
K-C
Others
Customers wantedsoft yet strong and moistureproofdisposable diapers with low price.
• With development of better nonwovens, softer top sheets made of rayon started transforming the baby diaper.
• It offered in two sizes, medium and large. In 1966, it launched a new C-fold design. and by 1969 started a third size.• P&G devised a high-speed, block-long assembly line that brought the price down from 10¢ to 5½¢
TIME. Product: The Great Diaper Battle. Jan, 24, 1969http://www.time.com/time/magazine/article/0,9171,900601,00.htmlDisposable Diaper Nethttp://www.disposablediaper.net/content.asp?2Stealing Sharehttp://www.stealingshare.com/content/1147639142265.htmThe disposable diaper industry in 1974http://www.slideshare.net/smehro/disposable-diaper-case
24
Contents 02_ Timing of Entry
At the best timing of entry,firms capable of producing the products or service
can reap the benefit from the market.
• Closer fit with customer requirements• Fast-cycle development processes• Fast development deployment processes
• Strategic alliance• Cross-functional new product development teams• Parallel development processes
Methods to improve the capability
Factors defining a firm’s capability
7. Strategies to Improve Timing OptionsTiming of entry is a matter of choice for a firm,but can it dive into the market when the tide is high?
25
02_ Timing of Entry
8. Real Case(IDIS)8.1 Who is ‘IDIS’?Korea venture ‘IDIS’ is the world leader in Digital Security industry
•Korea R&D oriented venture cf. R&D HR ratio: 40% (90people)
•World Leader in Digital Security
•Market share(07’): 15% in the world 35% in Korea
•Major product: DVR (Digital Video Record)
•Established in 1997
• “02’, 04’ Forbes 200 Companies : best under a billion“
Profile Annual Sales Trend
CSGR 30.1%
Source: Company Analysis report for ‘IDIS’ published by Dong-bu Research center (2008.07)
26
8. Real Case(IDIS)8.2 What is DVR?
a device that records video in a digital format to a disk drive or other memory medium within a device
Definition (from Wiki)
02_ Timing of Entry
Source: J.P. Freeman,2006 US & Worldwide Video Surveillance Market
27
8. Real Case(IDIS)8.3 DVR Market TrendAs market size is bigger and bigger, the need for DVR is changed
Market Size Paradigm shift for DVR
(US$ in millions)Need of surveillance
Need of Data Management
DVR Market size
CSGR 21.0%
Source: J.P. Freeman,2006 US & Worldwide Video Surveillance Market
02_ Timing of Entry
28
8. Real Case(IDIS)8.4 IDIS’s Timing of EntryDVR industry was emerged from 1998. SO IDIS is the first mover at DVR in-dustry
1998~2000 2001~
Present DVR indus-
try position
DVR Industry Life Cycle & IDIS’ Activities
97 Established IDIS & RnD Center
98 Developed frontier Security Sol.
99 Relationship with Samsung
00 Relationship with S1, PALCOM
01 Relationship with ADEMCO
04 Exclusive Provider of PC-Based DVR at New York Subway System
07 Intelligence AwardEntering
02 DVR full-lineup Completion
02_ Timing of Entry
29
8. Real Case(IDIS)8.5 IDIS’s First-Mover Advantages & Disadvantage
Advantages•Strong Relationship with BIG Client
•Brand Loyalty & Technology leadership
Domestic: S1, Samsung techwin, ComtechForeign: Honeywell, SIEMENS, ADT, PACOM etc
First DVR solution developerCumulated Know-how, Deep Trust
•Research and Development ExpenseR&D Expense rate: 8~9% of Total profitR&D HR: 40% of Total employee
•Undeveloped Supply and Distribution Channels Building Relationship with Hitron-systems (Outsourcing)
•Uncertainty of Customer RequirementsNOT Science-push, JUST Customer-driven Development
Disadvantages
02_ Timing of Entry
30
8. Real Case(IDIS)8.6 IDIS’s Factors Influencing Timing of Entry
First DVR solution
DevelopmentModel : IDR 1016
2000 Sydney OlympicAdvertising Chance to
Foreign Buyer
Turning point of CCTV
From VCR to DVR
WHY IN
2000?
Due to turning point of CCTV from VCR to DVR in 2000, IDIS started to de-velop the DVR solution and they succeeded in being First-mover
Source: JP Freeman Report, 2003
613
2234
4557
9487
7866
5543
0
20
40
60
80
100
2001 2002 2003 2004 2005 2006
Analog VCRAnalog VCR
DVRDVR
02_ Timing of Entry
31
8. Real Case(IDIS)8.7 Conclusion
Recommendation on Timing of Entry
Based on IDIS case
When you decide timing of entry
Analyze Market Trend
Identify Factors defining a firm’s capability
Decide Firm’s Targeting Market Position
Find and Execute Methods to improve the capability
02_ Timing of Entry
IDIS’s Key success factor is the Timing of Entering to DVR industry. Such a great timing makes IDIS more powerful than other entrants