Managing technology and innovation

Managing Technology and InnovationManaging Technology and Innovation
Customization
 Toyota is gearing itself to deliver a custom built car
within five days of receiving the order.
 Dell promises delivery of a customized PC within a few
days of receiving the order.
 Motorola delivers their made-to-order cellular phones
the next day to customers anywhere in the United States.

Customization
 Standardization starts upstream - raw materials,
fabricating
 Customization starts downstream - special features &
services
 Key question is how far upstream in the value chain can
or should product/service be customized?

Customization
 Standardization Strategies for Enabling
Customization
– Part Standardization: By using common components across
members of a product line, the firm reduces costs (due to
economies of scale), reduces inventories (due to risk pooling),
reduces parts proliferation, and improves the predictability of
requirements for components.

Customization
Customization
– Process Standardization: requires that the process be
modular and enables the firm to store inventory in semi-
finished form (before full information about demand is
realized) and later customize the product according to
requirements.
 Benetton's sweater-making process primarily consists of two stages: knitting
and dyeing. The original process was to dye first and then knit based on
requirements. However, the main source of demand uncertainty came from the
choice of colors that customers wanted. So in order to exploit that Benetton
resequenced the process by first knitting the sweaters and then dyeing them
after perfect demand information was obtained.

Customization
Standardization Strategies for Enabling
Customization
– Product Standardization: offer large variety of
end products, but stock only a few in inventory.
 Advertise availability of products far greater than
actual availability on average.

Customization
Customization
– Product Standardization (continued)
 If customer requests product version not normally stocked, the
manufacturer either makes the product after receiving the
order or, downward substitutes (provides the customer one of
the available models that has a superset of features required by
the customer.)
– Downward substitution is quite common in the semiconductor
industry where a higher speed/functionality chip (under
appropriate circumstances) is marked as a lower
speed/functionality chip when the lower-end chip is not available
in inventory

Speed
It is not enough to be fast - one also has to
achieve a better balance of speed, low cost,
high performance, and high quality.
For example: Rule of 10X - technology in question must be
10 times better than what it is replacing.
More accurately, Consumers need to perceive new
technology to be 10 times better to think it worth the
upheaval of changing.

Speed
Speed depends on the ability to:
1. Initiate and manage change inside company
2. Use and provide leverage in market chains
to initiate change in other companies.

Speed
Ability to change inside the firm depends on ability
to avoid the “competence trap”
Competence trap:
firms that strive for competence within a given
strategy can become trapped in this strategy and
miss opportunities for strategic change

Speed
Competence trap derived from routines and
procedures successful in past:
promotion and hiring
incentive systems
capital budgeting
organizational structures
personal commitment to status quo

Speed
Some methods for avoiding the competence
trap:
 Avoid organizing around strict product
“modules”(Intel’s emergent product teams).
Avoid complete dependence on existing customers and
suppliers for new product & service ideas (Microsoft’s
multiple vendors of X-Box software).
Focus new product development teams entirely on
unserved markets (Nokia’s evolution into “wireless
home”).

Knowhow
The critical role of CLUSTERS in global strategy
Competition is dynamic, depends on innovation, search for
strategic differences
Location affects competitive advantage through impact on
productivity and productivity growth

Knowhow
 A Cluster is a critical mass of companies in a particular field in a
particular location and include a group of companies, suppliers,
firms in related and complementary industries, infrastructure
providers, knowledge creators, and collective associations.

Knowhow
Clusters improve productivity by
 providing access to specialized inputs and information,
 facilitating complementarities among cluster participants,
 improving performance measurement
 improving rate and success of innovation
 lowering barriers to entry

Knowhow
Cluster theory and Globalization
 a firm must harness advantages of spreading activities across
locations but also capture the innovation advantages of home
base
 outsourcing reduces locational disadvantages, but limits access
to cluster-associated resources
 locating in cluster may reduce overall costs

Knowhow
 Examples of Emerging Clusters in Nanotechnology:
– Northern California
– Austin, Texas
– Tsukuba, Japan
– Stirling, Scotland

Time Pacing: Combining Speed and Knowhow
Time Pacing
 Creating new products or services, launching new businesses, or
entering new markets according to the calendar.
 Time-pacing is not (just) SPEED ;
– It is synchronizing SPEED and INTENSITY OF EFFORT.

Time Pacing: Combining Speed and Knowhow
 Manage TRANSITION and RYTHM
– Transition: capable of moving into new products, businesses,
markets, acquisitions, mergers, etc.
– Rhythm: in sync with cycles linked to external agents – customers,
suppliers, competitors, and even regulators.

Industry Case: The race for the world VCR market
Product development is a 100-yard dash;
Industry development & transformation is a triathlon.
Stages of Industry Development and Transformation
1. Competition for Industry Foresight and Intellectual Leadership
2. Competition to Foreshorten Migration Paths
3. Competition for Market Position and Market Share

Competition for Industry Foresight and Intellectual Leadership
Race to commercialize VCR spanned decades, rather than years
Ampex, 1959 - 1st VCR; Matsushita, late 1970’s - first mass
commercialization of VHS standard VCR
VCR was 1st major innovation in consumer electronics
commercialized first in mass markets by Japanese firms, rather
than U.S. or European companies.

Competition for Industry Foresight and Intellectual
Leadership
Philips, Sony and Matsushita (JVC) each worked for close
to 20 years to produce VCR for home use.
New Product Adoption Model - Technologies: Learning
how to make extremely precise, revolving video-
recording heads presented major competence-building
challenge to all comers.

 New Product Adoption – Product Functionalities and
Customer Segment
 Continued experimentation in marketplace with multiple
models.
The more rapid the pace of market experimentation, the
quicker the learning about what customers really want in a
product.

Gain deeper understanding than competitors of trends and
discontinuities - technological, demographic, regulatory, or
lifestyle
Trends and discontinuities will transform industry boundaries
and create new competitive space
New types of customer benefits, or radically new way of
delivering existing customer benefits

Competition to Foreshorten Migration Paths
Creating an industry standard
battle between Sony’s Beta, JVC’s VHS, and Philips’ V2000
winner reaps benefits of software availability, licensing income,
and economies of scale in component production

Sony took early lead, 85% market share by end of 1976
JVC introduced 2-hour record time
JVC co-opted licensee partnerships - Telefunken (Germany),
Thorn (Great Britain), Thomson (France), RCA and GE (U.S.).
These companies were initially sourcing components and
finished VCRs from JVC

Influence the direction of industry development
Race to accumulate
– necessary competencies,
– test and improve alternate product/service concepts,
– attract coalition partners who have critical complementary
resources,
– construct product/service delivery infrastructure,
– get agreement around standards

Competition for Market Position and Market Share
Wide selection of VHS brands and models, relative to Beta,
convinced software suppliers to back VHS and w/in two years
market battle between Beta and VHS was over.
Philips launched V2000 18 months after VHS - D.O.A.!
Matsushita sold several million VCRs around the world,
continuing to reduce costs and improve features

Competition for Market Position and Market Share
Centered around well-defined parameters of value, cost, price
and service
Maximize efficiency and productivity
Craft appropriate market positioning strategy
Building worldwide supplier network
Preempting competitors in critical markets.

The Future of the VCR, DVD, etc.??
Today, a TV set is the focal point of the average living room; In
the future, digital TVs and their accompanying devices will be
hidden until they are turned on.
Home media center have a single control unit that incorporates
receivers, tuners, decoders, a CPU, and an embedded OS and an
embedded camera and microphone for video e-mail and voice
mail.
Display innovations: First step - gas plasma; Next - streamlined
displays based on light-emitting polymers.
Speakers will continue to shrink in size, following the trend in
today's satellite speaker systems.

Managing technology and innovation

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