1. Management of Technology (OM476)
Design Dominance and Timing of Entry
February 8, 2006
S. Fisher

2. Agenda How does existence of a dominant design affect innovation?
Who benefits from dominant designs?
What is the optimal timing of entry into a market?
The role of first movers

3. Review: Technology Cycles
Selection of a dominant design results in a period of incremental change, until the next technological discontinuity.

4. Group Exercise
Think of a technology for which there is a dominant design
Something other than Microsoft, please
What is the impact of this dominant design for:
The dominant provider
Providers of complementary goods
Consumers
The industry as a whole

5. Battle for Dominant Design: VHS vs. Beta
1974 – Sony meets with JVC and Matsushita to discuss plans and design standards for home video
1975 – Sony releases Betamax
1976 – JVC rejects Sony’s ideas, releases VHS (using some of Sony’s technology)
Division into 2 camps
Betamax: Sony Toshiba, Sanyo Electric, NEC, Aiwa, and Pioneer
VHS: Matsushita, Hitachi, Mitsubishi Electric, Sharp, and Akai Electric
VHS ultimately became the dominant standard – simpler, longer recording times, better marketing

6. Key question…
How does this innovation add value? What is the utility to the buyer? Dimensions include:
Productivity
Simplicity
Convenience
Risk
Fun and Image
Environmental friendliness
Remember Performance Indicator!

7. Network Externalities
Also known as positive consumption externalities
The benefit (or value) of using a technology increases as the number of people using it (installed base) increases
Examples?
Are there instances when the opposite effect occurs?

8. RFID (radio frequency identification)
Technology used to track materials and products through the supply chain
Essentially, more sophisticated version of the bar code
Active vs. passive tags

9. RFID, continued
Wal-Mart, US Department of Defense are requiring suppliers to use RFID
Pros and cons of dominant design in this situation?
Tags
Readers
Software

10. Compatibility and RFID
Alien’s ALR-9800 reader, designed primarily for EPC Class I Gen 2 compatibility, has cleared a major obstacle -- its compliance with Microsoft’s RFID technology.
August 20, 2005 from
“Our latest solution suite combines modular flexibility and user-specified capabilities with ease of integration with IBM, SAP WM and other technologies,”
May 4, 2005 from

11. Components of Value
Technological utility
Installed base
Complements availability
Greater value --- higher probability of adoption and design dominance

12. Timing of Entry Categories similar to Rogers’ categories for diffusion
First movers
Early followers
Late entrants
First mover advantages? Disadvantages?

13. Early follower advantages
Learn from what the first movers have done
Adopt new and more efficient processes
Often have higher ROI in the long term, even without a significant sales advantage
Source: Boulding and Christen (2001 October). First-mover disadvantage. Harvard Business Review.

14. Factors Driving Optimal Timing of Entry
Certainty of customer preferences
Degree of innovation (level of improvement)
Enabling technologies and complementary goods
Threat of competitive entry
Ability to withstand early losses
Reputational value
Switching costs

15. When to enter first
Likely advantage depends on rates of technological change and market growth
Short-Lived
Durable
Calm Waters
-Both slow
Unlikely
Very likely
Market Leads
Market rapid
Tech slow
Very likely
Likely
Technology Leads
-Market slow
-Tech rapid
Very Unlikely
Unlikely
Rough Waters
-Both rapid
Likely
Very unlikely
Source: Suarez, F. and Lanzolla, G. (April 2005). The half-truth of first-mover advantage. Harvard Business Review.

16. Next class Monday – no class (Feb. break)
Wednesday, Feb 15 – Prepare Apple Computer case (2002 and 2005)
Team 3 presenting
Team 7 asking questions (and exec summary)
All other teams preparing exec. summary