Marketing of High-Technology Products and Innovations Jakki J. Mohr Chapter 2: Strategy and Corporate Culture in High-Tech Firms

Internal (within the firm) Considerations in High-Tech Marketing © Jakki Mohr 2001

Strategic Market Planning Process in High-Tech Markets © Jakki Mohr 2001

1. Define the Business Arena Potential customer segments that could be served;  Potential applications or functionality that could be provided to these customers;  Possible technologies and capabilities that could be used to create the applications or functionality; and  Possible role for the organization in providing the value to the customer versus the roles of others in the market chain. © Jakki Mohr 2001

2. Identify Attractive Opportunities Thoroughly segment the market Assess profitability of serving each segment © Jakki Mohr 2001

3. Understand the Market Environment Depict market flows/supply chain Understand buyer behavior © Jakki Mohr 2001

4. Assess Resources and Competencies Financial resources Technology platforms Intellectual capital Manufacturing capacity Brand equity Capabilities (including skills and knowledge) © Jakki Mohr 2001

5. Understand the Competitive Challenge Identify the actual, potential and indirect competitors Determine: How each competitor competes Their current and likely future performances What drivers underlie their business strategies Consider likely competitive responses to opportunity What are this competitor’s areas of weakness or vulnerability that the firm could exploit? © Jakki Mohr 2001

6. Make Tough Strategic Choices Decide whether opportunity should be pursued What will it be worth to win? Is the market opportunity attractive enough? Is the strategy powerful enough to generate a sufficient level of profitability? If not, are there compelling reasons to proceed? © Jakki Mohr 2001

6. Make Tough Strategic Choices (Cont.) Select/develop best strategy to take advantage of opportunity Achieve leadership position in the opportunity? © Jakki Mohr 2001

6. Make Tough Strategic Choices (Cont.) Do synergies exist within the portfolio of opportunities being considered Leverage a common technology Leverage a common market chain Are the strategies for the various opportunities reasonably consistent? © Jakki Mohr 2001

7. Plan Critical Relationships With other firms in the market chain With organizations outside the market chain Company with a complementary product or service © Jakki Mohr 2001

8. Complete the Winning Strategy Pricing Marketing Communications © Jakki Mohr 2001

9. Understand the Profit Dynamic Develop a detailed financial model for each opportunity More refined profitability analysis based on detailed understanding of complete marketing strategy and associated costs Look for modifications to enhance opportunity’s overall profitability. © Jakki Mohr 2001

10. Implement the Strategy Make sure people who will implement are involved in the strategy formulation process Commitment © Jakki Mohr 2001

“Liability of Bigness” Traits of large firms can inhibit their ability to develop radical innovations: Bureaucratic Focused on economies of scale Core competencies become core rigidities © Jakki Mohr 2001

Three Characteristics of Core Competencies Difficult for competitors to imitate Significantly related to benefits end-user receives Allow access to a wide variety of disparate product-markets. © Jakki Mohr 2001

Tree Analogy to Core Competencies © Jakki Mohr 2001

Implications of Core Competencies in Strategic Planning Resource allocations may defy conventional logic Violate ROI criterion © Jakki Mohr 2001

When Core Competencies Become Core Rigidities Core rigidities: ingrained routines, knowledge, and skills become strait-jackets that inhibit a firm’s ability to develop new products built around unfamiliar skills, routines, and new knowledge. Ex: cultural norms, over-reliance on existing technologies © Jakki Mohr 2001

How to Avoid Core Rigidities Creative Destruction Proactively develop next-generation technology that may obsolete current technology Ex: Develop Web-sites that undermine current distribution channels Corporate Imagination Expeditionary Marketing Culture of Innovation © Jakki Mohr 2001

4 Elements of Corporate Imagination (1) Willingness to overturn price/performance assumptions Incremental improvements to existing technologies (which move along the same price/performance curve) vs. Radical innovations which allow greatly-improved performance at roughly comparable prices as existing technology Technology life cycles (see next slide) Ex: Moore’s Law © Jakki Mohr 2001

Technology Life Cycles © Jakki Mohr 2001

Some Implications of Technology Life Cycles New technologies often come from companies not selling current generation of technology Incumbents often invest in both improving existing technology and developing new Incumbents often underestimate viability of new developments Therefore, new technologies can catch established firms by surprise © Jakki Mohr 2001

4 Elements of Corporate Imagination (Cont.) (2) Escape the “tyranny of the served market” Excessive focus on current customers Obscures the fact that customer needs may change over time and may be solved in radically new ways Therefore, look for market opportunities outside of existing product/markets. © Jakki Mohr 2001

4 Elements of Corporate Imagination (Cont.) (3) Use new sources of ideas for innovation Rather than using standard marketing research tools, use lead users and ethnographic observation (empathic design) (Discussed fully in Ch. 5) © Jakki Mohr 2001

4 Elements of Corporate Imagination (Cont.) (4) Get out in front of customers. Lead them where they want to go before they themselves know it. Requires being “close to the customer” AND not being blinded by existing rules and procedures. © Jakki Mohr 2001

Box: Breakthroughs in Corporate Strategy Don’t be constrained by existing industry boundaries Competitors can be found in many places: Direct competitors, suppliers, partners Product form competition competition between product classes vs. between different brands of the same product Firm may not control all critical assets © Jakki Mohr 2001

Box: Breakthroughs in Corporate Strategy (Cont.) Bring new voices into the strategy formulation dialogue. Create new connections across technologies, hierarchical levels, geographical and business units Come from a new vantage point Have passion for discovery and novelty Be willing to experiment (vs. focus on efficiency) © Jakki Mohr 2001

Be a Market Pioneer?? PROS CONS First mover advantage creates entry barriers Economies of scale Experience effects Reputational effects Technological leadership Buyer switching costs Higher profits and higher share Define product exemplar Higher consumer awareness Large development costs Market uncertainty © Jakki Mohr 2001

Pioneers (“First Movers”) (Cont.) Successful Pioneers Have technological foresight Understand the market Have marketing acumen Understand competitors’ strengths and weaknesses A bit o’luck © Jakki Mohr 2001

When do “late” movers succeed? Identify overlooked product position Undercut pioneer on price Out-advertise or out-distribute the pioneer Innovate superior product Innovate superior business/marketing strategy Reshape the category © Jakki Mohr 2001

Two ways to improve new product success rates Improve the odds on each individual product introduction—the “hit” rate. Gather as much information as possible, tailor the product Drawbacks: time consuming, market needs may change before launch. “Ready, Aim, Aim, Aim.” Increase the number of forays into the market—the “times at bat”—Expeditionary Marketing Many quick incursions into the market increases learning about the market Low-cost, fast-paced incursions allow quick re-calibration Combination of speed and learning enhances success © Jakki Mohr 2001

Expeditionary Marketing © Jakki Mohr 2001

Expeditionary Marketing: Advantages More accurate learning of customer needs Time between market learning and product launch is shortened Maximizes odds that product delivered matches customer’s needs Customer needs less likely to change in the short-term Implication: Issue is less being right the first time, but being able to accumulate market experience, and quickly adapt market offerings © Jakki Mohr 2001

Insights in the Ability to Learn from the Market Competitive advantage derives less from having information, and more from the superior ability to use information. Interpersonal and organizational trust enhances the use of information. © Jakki Mohr 2001

Insights in the Ability to Learn from the Market (Cont.) Caveats in using information Merely using some information is insufficient to generate superior performance. Using knowledge held by marketing managers contributes to superior performance. Relying too excessively on organizational memory can inhibit innovativeness. It is the marriage of marketing knowledge with technological knowledge that leads to effective product innovation. Improvising with respect to product strategy may be effective—but only when a high degree of information is shared both within and across the organization’s boundaries. © Jakki Mohr 2001

Nurturing a Culture of Innovation Characteristics of a firm that fosters innovation— Identifies market needs that are divergent from (rather than congruent with) existing strategies Roles and responsibilities of key players may not be clearly defined in early stages Screening for new product ideas not based on formal criteria, but done informally based on technical/market merit © Jakki Mohr 2001

Characteristics of Organizations Who Foster Innovation (Cont.) Role of product champion is key Tireless crusaders for idea Innovative firms have reward system and culture to promote influence of product champions Personnel given time and incentives to be innovative Tolerate risk and “mistakes” © Jakki Mohr 2001

Skunk Works Isolate new venture groups outside the normal organizational hierarchy Cons: - Signals a corporate culture that has impediments to innovation (Creativity doesn’t happen within normal operating procedures) - Isolates the creative process Pros: - Allows for more creativity, unfettered by existing corporate protocols. © Jakki Mohr 2001

Applying Lessons of Innovativeness to Businesses’ Internet Experiences New business models came from industry outsiders Competitive Volatility Core rigidities and the tyranny of the served market: Existing companies bound by existing rules of the game and existing customers Underestimation of new competitors Need for creative destruction © Jakki Mohr 2001

Applying Lessons of Innovativeness to Businesses’ Internet Experiences (Cont.) Expeditionary Marketing: Shorter learning cycles Quicker opportunity to adapt strategies Understand core competencies Reliance on skunk works Pioneering advantages © Jakki Mohr 2001

“The Liability of Smallness” Financial Resources Reliance on venture capital Formal companies/banks Informal “angels” What Venture Capitalists Look For: Management Team Marketing Plan Technology/Product ROI © Jakki Mohr 2001

Other Resources for Start-Ups Technology incubators Partners (Ch. 3) © Jakki Mohr 2001