1. STRATEGY& TECHNOLOGY DR. MARK FRUIN BUS 189, CHPT 7 FALL 2009

2. TEAM ORGANIZATION IT’S BETTER TO HAVE 1 TEAM MEMBER ANALYZE BOTH FIRMS IN THE SAME TOPIC AREA –KEY AREAS GROWTH IN INDUSTRY & PRODUCT/MARKET SEGMENTS; FUNCTIONAL AND B-L STRATEGIES FINANCIAL PERFORMANCE; EARNINGS, ROI, ETC. R&D, DESIGN, PRODUCTION, MARKETING, DISTRIBUTION & MANAGEMENT (VALUE CHAIN ANALYSIS) IT’S BETTER FOR 1 MEMBER TO INTEGRATE, WRITE & INTEGRATE THE PROJECT –FOLLOW GOOD ESSAY GUIDELINES SET UP ARGUMENT AS HYPOTHESES TESTING 3-4 REASONS WHY “THIS COMPANY IS A BETTER INVESTMENT CHOICE FOR NEXT 3 YEARS” WITH SUPPORTING EVIDENCE RECAP AND REITERATE

3. IMPORTANT DATES: REVISED SCHEDULE OCT 27, SLIDES AVAILABLE ON-LINE; NO CLASSROOM MEETING NOV 3: DRAFTS OF GROUP PROJECTS NOV 3: SECOND IN-CLASS MID-TERM USING CASE 12, INFOSYS CONSULTING NOV 24: THIRD IN-CLASS MID-TERM, USING CASE 31, EASTMAN KODAK DEC 1: GROUP A PRESENTATIONS DEC 8: GROUP B PRESENTATIONS DEC 11: FINAL PROJECT DUE IN MY OFFICE

4. Q: WHAT ARE HIGH-TECH IND? A: INDUSTRIES IN WHICH UNDERLYING TECHNOLOGIES (SCIENTIFIC KNOWLEDGE) & COMPLEMENTARY PRODUCTS/SERVICES ADVANCE RAPIDLY (SAYS HILL & JONES, p. 229) HIGH GROWTH = HIGH TECH? OR, A MORE COMPLETE DEFINITION OF HIGH TECH –HIGH GROWTH –HIGH COST –HIGH RISK –HIGH COMPLEXITY

5. WHAT MAKES AN INDUSTRY HIGH-TECH BESIDES FACTORS JUST LISTED, WHICH ARE INTERNAL TO THE INDUSTRY, THERE IS THE EXTERNAL ENVIRONMENT –NORMALLY, FIRMS ADAPT TO ENVIRON OR FAIL, BUT IS ADAPTING TO H-T ENV ENOUGH? –RICHARD D’AVANI & HYPERCOMPETITION, A STATE OF PERMANENT INNOVATION (NO EQUILIBRIUM, NO REST) –GARY HAMEL & STRATEGY AS REVOLUTION –ANNALEE SAXENIAN - SILICON VALLEY AS A REGIONAL RELATIONAL NETWORK OF CAPABILITIES

6. IMPORTANCE OF STANDARDS & DOMINANT DESIGN TECH STANDARDS, WIDELY ADOPTED FORMATS, & DOMINANT DESIGNS –GENERALLY COME AFTER SHAKEOUT IN GROWTH PHASE –REDUCE CONFUSION –REDUCE COSTS –REDUCE RISK –ENHANCE COMPATIBILITY AND ADVENT OF COMPLEMENTARY ASSETS/RESOURCES/PRODUCTS –INCREASE OPPORTUNITIES TO MAKE MONEY AGAIN, POST-SHAKEOUT; BEFORE SHAKE, EVERYONE THINKS THEIR TECH IMPLEMENTATION IS BEST; NO AGREEMENT

7. TECH STANDARDS FOR PCs EXAMPLES OF DOMINANT DESIGN (FIG 7.1) & THEIR INTERCONNECTEDNESS TO OTHER PRINCIPAL PIECES OF PUZZLE –OS (WINTEL STANDARD) –MICROPROCESSOR –INTERNAL HARD DRIVE –MONITOR –KEYBOARD –MODEM (TCP/IP) –CD (FLOPPY DISK) –PERIPHERAL SLOTS (USB)

8. COMMUNITIES OF PRACTICE CREATE THEIR OWN ACTIVITIES/ECONOMIES THAT ARE NOT WIDELY AVAILABLE OTHERWISE –BY WORKING TOGETHER INTENSELY, CREATE HIGH PERFORMANCE WORK GROUPS –CAN OCCUR WITHIN AND BETWEEN FIRMS BOUNDARY SPANNING (BETWEEN SECTIONS, DEPARTMENTS, DIVISIONS & FIRMS) IN THIS SENSE IS OPPORTUNITY ENHANCING RELATIONAL PATTERNS BETWEEN WORKERS DEFINED BY SETS OF ACTORS/INTERACTIONS

9. MUCH OF THE WORKING OUT OF DOMINANT DESIGN/STANDARDS IS DONE COOPERATIVELY SMALL NUMBERS COOPERATION –STRATEGIC ALLIANCES –JOINT VENTURES –COALITIONS & SUPPLY CHAINS LARGE NUMBERS COOPERATION –SPECIAL ECONOMIC ZONES/INDUST. DISTRICTS –GLOBAL FIRMS & NETWORKS OF SUBSIDIARIES –INTERFIRM NETWORKS

10. ESTABLISHING STANDARDS RECOGNIZING BENEFITS OF STANDARDS: FIRMS IN INDUSTRY LOBBY GOVERNMENTS RECOGNIZING BENEFITS, FIRMS COOPERATE WITHOUT GOV HELP, OFTEN THROUGH MECHANISMS OF INDUSTRY ASSOCIATIONS COMBINATION OF PUBLIC/PRIVATE EFFORTS INDUSTRY STANDARDS EMERGE SELECTIVELY & PRIVATELY –PREEMPT COMPETITION –FIRST MOVER ADVANTAGES –COALITIONS OF RIVAL FIRMS/STNDRDS BETAMAX (SONY) V. VHS (MATSUSHITA)/INTEL V. AMD

11. NETWORK EFFECTS INCREASING AND DECREASING BENEFITS ARE POSSIBLE BASED ON NETWORK EFFECTS –SIZE IS IMPORTANT –COMPLEMENTARY PRODUCTS ARE IMPORTANT –HOW MANY DIFFERENT WAYS CAN NETWORK BE ACCESSED & USED? –FREE RIDING (FIRMS RIDE ON EMERGING CONSENSUS BUT DON’T CONTRIBUTE)

12. NETWORK EFFECTS WHAT ARE THEY? 2ND LAW OF SILICON VALLEY –BOB METCALFE, 3COM –AND 1ST LAW IS? MOORE’S LAW EXTERNALITIES AND NETWORK EFFECTS - WHAT ARE THEY? –DEFINE EXTERNALITIES –SOME EXAMPLES

13. METCALFE’S LAW COSTS OF NETWORK EXPAND LINEARLY WITH INCREASE IN SIZE, WHILE VALUE OF NETWORK INCREASES EXPONENTIALLY HOW IS THIS POSSIBLE DIFFERENT SORTS OF NETWORKS –STAR NETWORKS, THE SIMPLEST –SCALE FREE OR HUB BASED –HIERARCHICAL –RANDOM (NOT REALLY RANDOM BUT MULTIPLE CONFIGURATIONS POSSIBLE)

14. STRATEGIES FOR WINNING FORMAT WARS ENSURE READY SUPPLY OF COMPONENTS LEVERAGE KILLER APPS (APPLICATIONS) AGGRESSIVELY PRICE AND CAPTURE MARKET SHARE –RAZOR & BLADE STRATEGY COOPERATE WITH COMPETITORS (IMMEDIATELY PRIOR TO MATURE PHASE, BUT NOT AFTER) LICENSE FORMAT –GET MORE USERS; BUILD CRITICAL MASS OF USERS

15. LAW OF DIMINISHING RETURNS IN MANY INDUSTRIES, OTHER THAN HIGH-TECH, LAW OF DIMINISHING RETURNS HOLDS: –MARGINAL COSTS RISE AS OUPUT EXPANDS INVEST MORE, SUCH AS IN LABOR, TO PRODUCE MORE TRADITIONAL ECONOMIES OF SCALE & SCOPE –BUT IN H-T INDUSTRIES, SUCH AS SOFTWARE AND MULTIMEDIA, MARGINAL COSTS ARE ALMOST ZERO

16. INTELLECTUAL PROPERTY RIGHTS AND HIGH-TECH RECOGNIZE DIFFERENCE BETWEEN BIO-TECH AND SOFTWARE, FOR EXAMPLE –R & D INVESTMENT/HUMAN RISK –APPROPRIABILITY OF VALUE –MARKET CONTESTABILITY THE VALUE OF SOFTWARE, FOR EXAMPLE, IS NOT DIMINISHED BY USE, QUITE THE CONTRARY –OLD NOTION OF COMMONS, NEW NOTION OF COMMONS –COMPLEXITY & COMPLEMENTARITY OF KNOWLEDGE

17. FIRST-MOVER ADVANTAGES FIRST MOVER MORE EASILY EXPLOIT NETWORK EFFECTS (SPEED OF FADS DIFFUSING/SPREADING) MAY BE ABLE TO ESTABLISH BRAND LOYALITY BEFORE RIVALS APPEAR MAY BE ABLE TO HARNESS 4Ss BEFORE RIVALS; WHEN RIVALS APPEAR, CUT PRICES TO REFLECT 4S ADVANTAGES ALREADY HELD CREATE SWITCHING COSTS ACCUMULATE VALUABLE MARKET, CUSTOMER, PROD & PROCESS KNOWLEDGE VIA FEEDBACK

18. FIRST MOVER DISADVANTAGES FAST FOLLOWER STRATEGIES MAY BE SUPERIOR TO FIRST MOVER STRATEGIES –LEARN FROM MISTAKES OF OTHERS –INVEST LESS & DO MORE –CROSS CHASM ON BACKS OF OTHERS –CHEAPER, BETTER, FASTER ALTERNATIVES EXIT –PRODUCT VERSUS PROCESS INNOVATIONS ECONOMIC BACKWARDNESS IN HISTORICAL PERSPECTIVE –ALEXANDER GERSCHENKRON, HARVARD & NOBEL PRIZE WINNER –BUT CATCH-UP REQUIRES MORE & BETTER PLANNING –FALLS TO STATE TO COORDINATE & PLAN IN CENTRALIZED WAY

19. CAPTURING FIRST MOVER ADVANTAGES BUILD HIGH BARRIERS TO IMITATION –KNOWLEDGE ABOUT MINOR/MAJOR INNOVATIONS –NEW INNOVATION HARD TO KEEP SECRET, HOWEVER –KNOWLEDGE ABOUT (HOW) & KNOWLEDGE OF, NOT THE SAME THING KNOW-HOW, KNOW-WHEN, KNOW-WHO, KNOW-WHAT DEVELOP COMPLEMENTARY ASSETS –MANUFACTURING CAPABILITY, MKTNG KNOWLEDGE, ADEQUATE SALES FORCE, SUPPORT HARNESS CAPABLE COMPETITORS –A SMALL PIECE OF A BIG PIE IS BETTER THAN…

20. INNOVATION STRATEGIES GOING IT ALONE ENTERING INTO AN ALLIANCE LICENSING INNOVATION ALL 3 DEPEND ON: –INNOVATOR HAVING REQUIRED COMPLEMENTARY ASSETS OR NOT? –HEIGHT OF BARRIERS TO IMITATION –# OF CAPABLE COMPETITORS

21. INNOVATION TYPES INCREMENTAL - MOST OF IT; MOSTLY MATURE STAGE OF ILC RADICAL - ONCE IN A BLUE MOON –SOMETIMES CALLED “BREAKTHROUGH” INNOVATION –BY DEFINITION, REQUIRES LOTS OF RESOURCES –LIKELY TO OCCUR AT ONLY ONE OR TWO POINTS IN INDUSTRY LIFE CYCLE DISRUPTIVE/DISCONTINUOUS –ONLY OCCASIONALLY IN ‘HIGH-TECH’ INDUSTRIES WHERE COMPETING TECHNOLOGY PARADIGMS & DOMINANT DESIGNS ARE OVERTAKEN –A NEW MARKET SPACE IS CREATED W/I INDUSTRY LIFE CYCLE

22. CHRISTENSEN & DISRUPTIVE TECHNOLOGY CLAY CHRISTENSEN, HBS, ARGUES THAT ESTABLISHED FIRMS ARE OFTEN AWARE OF NEW TECH BUT TOO INVESTED IN OLD TECH TO PAY HEED TO IT –PARTLY NIH SYNDROME –PARTLY LACK OF CUSTOMER INTEREST IN NEW, UNPROVEN, EMERGING TECH AS A RESULT, ESTAB FIRMS CONT TO IMPROVE & INVEST IN OLD TECH UNTIL ONE DAY…

23. DISRUPTIVE TECHNOLOGY OFTEN TAKES A RADICALLY DIFFERENT VALUE CHAIN TO COMMERCIALIZE A DISRUPTIVE TECHNOLOGY –WHEN MAINSTREAM PRODUCTS ARE EXPENSIVE AND INCONVENIENT; LOOK OUT –NANO CAR FROM TATA; REDUCE PRICE TO $2500 WHEN CHEAPEST ALTERNATIVE IS $7500 LOW COST INNOVATION MAY BE THE FUTURE SMALL FIRMS WITH ENTREPRENEURIAL MANAGERS ARE MORE RISK TAKING –IN GENERAL, IN H-T INDUSTRIES SMALL FIRMS ARE ESTABL TO TAKE RISKS BIG FIRMS BUY SMALL FIRMS BECAUSE THEY ARE INNOVATIVE & TO REDUCE COMPETITION

24. DIGITAL EQUIPMENT CORP DEC ENGINEERS COULD DESIGN A PC WITH EYES CLOSED –PLANS FOR PCs at FOUR DIFFERENT TIMES CURRENT BUSINESS MODEL WAS FOR MINICOMPUTERS WITH LARGE SCALE COMPUTING POWER, LARGE SALES FORCE, AND IN-FIELD SUPPORT FOR CUSTOMERS WHY ABANDON SALES OF HIGH MARGIN, HIGH PRICED COMPUTERS IN FAVOR OF PCs?

25. DEC & DISRUPTIVE TECHNOLOGY DEC WAS VULNERABLE TO DISRUPTIVE TECHNOLOGY RIVALS SEE DIFFERENT SEGMENTS THAT ARE UNDERSERVED IN THE SAME INDUSTRY –NON-MAINSTREAM BECOMES MAINSTREAM DISRUPTIVE DOES NOT ALWAYS/USUALLY MEAN RADICAL DISRUPTIVE MEANS PICKING OFF THE LESS ATTRACTIVE SEGMENTS OF A BUSINESS AND RUNNING WITH THEM –IF ENOUGH CUSTOMERS FOLLOW, NEW MARKET SEGMENTS ARE BORN

26. OTHER EXAMPLES TOYOTA AND CREW MAX –TOO LATE TO THE PARTY? –MAHINDRA & MAHINDRA PICKUPS HIGH TOWING/HAULING, ECONOMICAL (DIESEL), UTILITARIAN & AFFORDABLE APPLE AND iPHONE HONDAJET –ONE OF THE FEW COMPANIES MAKING BOTH AIRFRAMES AND JET ENGINES –ORIGINALLY, NEEDED AN AIRFRAME TO TEST THEIR ENGINE, SO THEY DESIGNED ONE

27. SOURCES OF INNOVATION INNOVATION ARISES THROUGH INTERACTIONS INNOVATIONS ARE OFTEN STIMULATED WHEN INTERACTIONS OCCUR BETWEEN HETEROGENEOUS ACTORS –HOMOGENEOUS ACTORS ARE NOT AS LIKELY TO ROCK THE BOAT EFFORTS TO CLARIFY, ALIGN, RE-ALIGN, INTEGRATE, & CALIBRATE RESULT IN INNOVATIONS –ON THE OTHER HAND, IT’S A LONG WAY FROM A BETTER IDEA TO A BETTER PRODUCT

28. CAUSES & CONSEQUENCES OF INNOVATION IN WHAT SORT OF ORGANIZATIONAL, INDUSTRY AND INSTITUTIONAL CONDITIONS ARE INNOVATIONS LIKELY TO OCCUR –ORGANIZATIONAL? –INDUSTRY? –INSTITUTIONAL? ATTITUDES OF MANAGERS TOWARDS DIFFERENT SORTS OF INNOVATION WHAT SORT OF FIRMS, IF ANY, SHOULD PURSUE INNOVATION-BASED STRATEGIES AS B-L STRATEGIES? –SUCH AND SUCH FIRMS AT SUCH AND SUCH MOMENTS IN THE INDUSTRY LIFE CYCLE??? –ARE THERE FIRMS THAT FIT THE PART?