1. VCU Fastrack MBA gdhillon@vcu.edu IT Innovation Market Support System for Innovations GP Dhillon, PhD Associate Professor of IS School of Business, VCU

2. VCU Fastrack MBA gdhillon@vcu.edu Understanding where we are …. Developing systems to support the market - (a) service considerations Type of service contract Type of customer contact Complex or domain contingent Simple or limited domain Relationship based Transaction based Customized services ‘Patronizing the customer’ High production costs High transaction costs and risks of errors ‘Abandoning the customer Mass transactions Standardized services

3. VCU Fastrack MBA gdhillon@vcu.edu Understanding where we are …. Developing systems to support the market – (b) channel considerations Channel systems Type of channel Agency support systems ‘Too heavy organization’ Out of pocket costs Opportunity costs ‘Substandard network’ Market network Corporate mediator system Stand alone systems Service network Integrated systems centralized/decentralized Independent agent Direct access / self service Channel organization Field and back office personnel

4. VCU Fastrack MBA gdhillon@vcu.edu Understanding where we are …. Developing systems to support the market – (c) service-channel matrix Service Package Delivery Channel Customized Service Standard Service Mass Transaction Agency Support Systems Mediator Service Market Network Focus Low Cost ‘Consulting and Agencies’ ‘Electronic Markets’ ‘Exploiting the Customer’ Costs vary according to volume of transactions High fixed costs and risks, but low fees ‘Overwhelming the Customer’ Differentiation ‘Universal Service’

5. VCU Fastrack MBA gdhillon@vcu.edu Sustaining technologies  A sustaining technology is the one that nurtures improved product performance. This is usually achieved by improving performance along dimensions that have traditionally been valued by the customers. Service Package Delivery Channel Customized Service Standard Service Mass Transaction Agency Support Systems Mediator Service Market Network ‘Exploiting the Customer’ Costs vary according to volume of transactions High fixed costs and risks, but low fees ‘Overwhelming the Customer’ Differentiation Focus ‘Consulting and Agencies’ Low Cost ‘Electronic Markets’ ‘Universal Service’

6. VCU Fastrack MBA gdhillon@vcu.edu Disruptive technologies  A disruptive technology brings in a rather different value proposition. Disruptive technologies under perform established products in mainstream markets and has features that only a few customers value. The product or service emerging from a disruptive technology is usually cheaper, simpler, smaller and frequently easy to use. Service Package Delivery Channel Customized Service Standard Service Mass Transaction Agency Support Systems Mediator Service Market Network ‘Exploiting the Customer’ Costs vary according to volume of transactions High fixed costs and risks, but low fees ‘Overwhelming the Customer’ Differentiation Focus ‘Consulting and Agencies’ Low Cost ‘Electronic Markets’ ‘Universal Service’

7. VCU Fastrack MBA gdhillon@vcu.edu Disruptive Technology Examples Service Package Customized Service Standard Service Mass Transaction Delivery Channel Agency Support Systems Mediator Service Market Network ‘Exploiting the Customer’ Costs vary according to volume of transactions High fixed costs and risks, but low fees ‘Overwhelming the Customer’ Focus Low Cost ‘Electronic Markets’ ‘Consulting and Agencies’ ‘Universal Service’ The core of WorldDoc's technology is the revolutionary Personal Evaluation System (PES™) which answers patients' questions The emergence of online investment and trading may prove to be the technology that disrupts a major portion of (if not the entire) U.S. financial services industry. Full- service brokerage firms have realized enormous benefits from the increasing equity investments by American households and the long-running bull market. Discount brokerages, however, have made significant attacks on the market share of the full-service firms.

8. VCU Fastrack MBA gdhillon@vcu.edu Disruptive Technology Examples Service Package Customized Service Standard Service Mass Transaction Delivery Channel Agency Support Systems Mediator Service Market Network ‘Exploiting the Customer’ Costs vary according to volume of transactions High fixed costs and risks, but low fees ‘Overwhelming the Customer’ Focus Low Cost ‘Electronic Markets’ ‘Consulting and Agencies’ ‘Universal Service’ Although this is rare, but recent trends towards customer relationship management tend to move us in this direction. Good examples come from the airlines, especially the way they deal with high end customers.

9. VCU Fastrack MBA gdhillon@vcu.edu Disruptive Technology Examples Service Package Customized Service Standard Service Mass Transaction Delivery Channel Agency Support Systems Mediator Service Market Network ‘Exploiting the Customer’ Costs vary according to volume of transactions High fixed costs and risks, but low fees ‘Overwhelming the Customer’ Focus Low Cost ‘Electronic Markets’ ‘Consulting and Agencies’ ‘Universal Service’ Priceline.com – especially with respect to domestic airline travel ?

10. VCU Fastrack MBA gdhillon@vcu.edu Disruptive technologies cont/-  A disruptive technologies is one that results in a ‘bad’ product or service performance (e.g. advent of transistors relative to vacuum tubes; emergence of health maintenance organizations as opposed to conventional health insurers)  Such technologies are disruptive since they fall short of improving the performance of products and services along the lines that have historically been valued by most customers in majority of the markets.

11. VCU Fastrack MBA gdhillon@vcu.edu Conventional Technology S-Curve  Examples:  First Technology: incremental improvements to the original ferrite- head/oxide disk technology enabled manufacturers to grind the heads to smaller, more precise dimensions.  Second Technology: thin-film photolithography displaced ferrite-heads in most disk drives between 1979 and 1990.  Third Technology: magneto-resistive heads. Functionality and Cost Time

12. VCU Fastrack MBA gdhillon@vcu.edu Emerging Technologies and Markets

13. VCU Fastrack MBA gdhillon@vcu.edu Technological discontinuities: Jumping the S- Curve

14. VCU Fastrack MBA gdhillon@vcu.edu Impact of sustaining and disruptive technologies

15. VCU Fastrack MBA gdhillon@vcu.edu Disruptive technology S-Curve Application (Market) “B” Technology 2 Application (Market) “A” Technology 1 Technology 2 Performance as in application “A” Time or Engineering Effort Application (Market) “A” Technology 1 Technology 2 Performance as in application “A” Time or Engineering Effort

16. VCU Fastrack MBA gdhillon@vcu.edu Internet Commerce is a disruptive technology  Certain Internet based solutions are disruptive technologies within a given market (e.g. e-commerce solutions relating to selling books are disruptive technologies within the market of selling books).

17. VCU Fastrack MBA gdhillon@vcu.edu Managing disruptive technology principles  Companies that utilize disruptive technologies or have a product or a service that is disruptive, should remember that their success depends on both the customers and investors for resources.  Since small markets don't solve the growth needs of large companies, the launch and sustainability of a disruptive product or service needs to be positioned accordingly.  Since disruptive technology products and services are novel, it is hard to analyze their respective markets, which do not exist.  Ability to create a business model, product or a service does not necessarily mean that there is a demand for such a product or service, i.e. technology supply may not equal market demand.

18. VCU Fastrack MBA gdhillon@vcu.edu Companies depend on customers and investors for resources  If a company has invested more than necessary into a disruptive technology and the customers seem to like it, but it has a negative cash flow and has a bad debt load, there is a strong likelihood that the investors (or venture capitalists) would not be as enthusiastic as they would have been.  In the B2B arena nearly $800 million was invested into 77 e- exchanges in early 2000 and another $500 million in mid 2000 but the customers have not been too responsive.  E.g. Industrialvortex.com attempted to aggregate products from numerous suppliers, they faced stiff resistance since the suppliers felt that such an e-marketplace would give buyers an easy access to cheap suppliers

19. VCU Fastrack MBA gdhillon@vcu.edu Small markets don't solve the growth needs of large companies.  Companies that successfully leverage the disruptive technologies to their advantage, gain significant first mover advantages. However once these companies get entrenched in their specific market, then find it difficult to enter newer small markets, which could potentially be very profitable.  Amazon vs Barnesandnoble.com and Barnes & Noble

20. VCU Fastrack MBA gdhillon@vcu.edu Markets that don't exist can't be analyzed  Since research about future success can only be carried out for technological impacts that have already taken place, it is difficult, if not impossible, to analyze a market for disruptive technology. Such analysis can only be carried out for sustaining technologies.  It has been rather difficult for Amazon to adequately forecast demand for newer products. And on $676 million in sales for the fourth quarter (1999), Amazon had to write down $38 million on inventories, particularly for electronics and toys.

21. VCU Fastrack MBA gdhillon@vcu.edu Technology supply may not equal market demand  Since the pace of technological improvement usually far exceeds the performance improvement rate than mainstream customers can absorb, the companies whose technological features match customer demands today may overshoot mainstream market needs tomorrow.  Consider developing conventional photographic films. The first mover advantage clearly went to AOL and Kodak. The service was carefully positioned to address the needs of those who wanted to have the ability to share digital photographs with friends and family. Hence the emphasis was on functionality.  Then came Ememories (sluggish) and Ofoto (low reliability) who started offering free processing along with the ability to share digital photographs. Such advancement was clearly surpassing what the current market could absorb. The customer expectation hovered around functionality and reliability aspects.

22. VCU Fastrack MBA gdhillon@vcu.edu Competing in the age of disruptive technologies Product leadership Customer intimacy Operational excellence Product leadership Customer intimacy Operational excellence Product leadership Customer intimacy Operational excellence

23. VCU Fastrack MBA gdhillon@vcu.edu Old economy sources of sustainable advantage Product leadership Customer intimacy Operational excellence Internal resource allocation

24. VCU Fastrack MBA gdhillon@vcu.edu New economy sources of advantage Product leadership Customer intimacy Operational excellence Internal resource allocation

25. VCU Fastrack MBA gdhillon@vcu.edu Conclusion  In the end success will be defined by the ability of the respective firms to differentiate between sustaining and disruptive technologies and their ability to manage the resource allocation problem, competence in matching the market to the technology and systematically identify and position their capabilities.