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Product Strategy II

Product Strategy II. T-109.410 Technology Management 28.10.2004 Eino Kivisaari Researcher, M.Sc. Technology Management & ICT Business .

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Product Strategy II

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  1. Product Strategy II T-109.410 Technology Management 28.10.2004 Eino Kivisaari Researcher, M.Sc. Technology Management & ICT Business

  2. ”We are tied to innovations by others to make our innovation valuable. If we do an innovation in the processor, and Microsoft or independent software parties don’t do a corresponding innovation, our innovation will be worthless. So, it really is a desperate situation for us.” David B. Johnson, Intel Architecture Lab

  3. Product Platform Strategy • Platform is an architecture of the common (modular) elements implemented across a range of end-user products • One element in the platform usually represents the defining technology, which • Dictates Life Cycle, Capabilities &Limitations • What if platform elements are provided by different companies?

  4. Product 1C Product 1 Product 2 Product 3 Product 1B Product 5 Product 1A Platforms, Segments, Products Unique product elements and common channel elements of product line Segment A Segment B Segment C Element A Common Platform Elements Element B Element C (McGrath 2001)

  5. Platforms Strategy Benefits • Enables Rapid & Consistent Product Development • Encourages a Long-term View on Product Strategy • Operational Efficiencies • Manufacturing Costs • Design Costs • Makes Marketing and Support Easier Are these valid also when elements are provided by different (competing & collaborating) companies?

  6. Annabelle Gawer and Michael A. CusumanoPlatform Leadership • How Intel, Microsoft and Cisco Drive Industry Innovation • Harvard Business School Press 2002 • Available at HUT library • Pääkirjasto, 1 nide tilattu 22/10/2004 • (Tietotekniikan kirjasto, työhuoneet, ei lainata) • Tuotantotalous, TPS, rajoitettu lainaus, 1 kpl • Amazon et al ~30 €

  7. Platform Leadership • Core Products vs. Complements • Cars / Tires • Computers / Software etc... • Modularity of Complex Products • More modularity in developed industries • This is the direction where mankind is going: specialization • Balance of Power? • Who conducts the orchestra?

  8. Platformed High-Tech World • Increasing interdependency of products and services • Ability to innovate by more actors than ever …lead to issues such as: • Maintenance of the integrity of the platform • Platform evolution • Market leadership in platform environments

  9. Four Levers of Platform Leadership • Scope of the firm • In-house or outside? • Happy medium? • Product Technology • Decisions by platform leaders • Degree of modularity / openness • Relationships with external complementors • Collaborative vs. competitive • Internal Organization • Organizational Structure • Coping with internal & external conflicts (Gawer & Cusumano 2002)

  10. Case: Intel • Basic problem: People don’t buy processors, but PCs • Multibillion-dollar investments in processor design… …How to make sure that demand for the processors stays & grows?

  11. Case Intel — History • In 1979 IBM decided to develop a new PC to compete with Apple • Intel 8088 Processor • Microsoft DOS (Disk Operating System) Soon after, PC-Compatibles emerged • No exclusive contracts were made • IBM allowed this, which speeded up production, commerialization and adoption of PCs worldwide • PC-AT in 1984  demand exploded for IBM PC-AT and clones

  12. PC Industry Evolution • Decline in vertical integration • IBM, DEC, Univac, Wang started to lose leadership • Specialists started to take over • Microsoft, Intel, Motorola…

  13. Case Intel • Intel’s big entry thanks to IBM, but… • PC-AT architecture started to feel like a tight shirt • Intel’s processors developed at a fast pace • Biggest problem: ISA data bus (Industry Standard Architecure) • Very slow internal data bus for graphics, storage etc.

  14. The Rush Hour of Buses:ISA / MCA / EISA / VESA / PCI… • In 1980, MCA bus by IBM (MicroChannel Architecture) • Compaq: EISA (Extended ISA) • No real performance improvements, industry stayed with ISA for years

  15. Lack of Platform Leadership • Intel was disturbed by the lack of leadership • No one was able to advance the overall platform • Unclarity of mandate – how shoulddo it? • Standards Committees (a VESA graphics bus was actually developed) • Old Leaders • …or Intel? • The PC platform was not moving fast enough for Intel

  16. Intel Architecture Lab (IAL) • Created in 1991 • ”Architects for the open computer industry” • 550 engineers in 2001 (none works on designing new microprocessors) Intel Architecture Lab Mission: To grow the overall market

  17. PCI Initiative • The PCI bus, IAL’s first project in 1991 • Transformation of the internal architecture of the PC • Goals: Speed, Modularity, Openness, Space for growth • Advancing the whole PC industry

  18. Intel takes lead with PCI • A big conceptual step for Intel • from providing processors… …to architecting the whole platform • Indecision within Intel • Big investment… • Mandate was unclear, a too presumptuous move? • Success factors • PCI was free and open to everyone • IBM’s failure with MCA, an attempt towards verticality • Winning over other firms, rallying collaborators • Thinking ahead – avoiding lock-in to certain processor generations

  19. PCI Chipsets • Chip sets had to be redesigned with every new processor  expensive & slow for OEMs • To convince everybody, Intel put its own skin in the game • Mass production of PCI chipsets • Big players went along because they wanted to take advantage of latest Intel chips quickly • Intel starts making motherboards • Big OEMs’ problem: How to differentiate?

  20. ”To a large extent, PCI set the tone for other initiatives… Intel realized thourgh this experience that, when we set out to do so, we can move the industry in some useful direction.” Dave Carson, Intel Architecture Lab

  21. USB • USB initiative began in mid-1990’s • Serial connectors for peripherals had become a serious bottleneck • Intel had the vision and the technology, and this time also the courage from the start • Goal: making the best out of PC computers …and growing the demand for Intel processors, of course…

  22. Intel’s USB Strategy • To avoid confusion in the market • Add-on cards • Ethernet-connectivity • Parallel port • Different kinds of software • Intel wanted a better way to hook to a PC • Hardware specification for USB • Software specification • Operating system support • Open interface, everybody competing, let the best innovation win

  23. Building Momentum & Speed • Consortiums • ”Rabbits” (USB: Logitech, Microsoft) • SIG (Special Interest Group) • 3-7 members • 5 for PCI: Intel, DEC, Compaq, IBM, NCR • 7 for USB: Intel, DEC, Compaq, Microsoft, IBM, Nortel, and NEC • Only a few participants  fast decisions

  24. Intel IPR Strategy • PCI, AGP, USB: No fees whatsoever • IEEE & ITU Standards IPR: ”Reasonable and Non-discriminatory Terms” • However, Intel required that anyone who used their IP had to make their related IP open as well

  25. Intel ”PlugFests” • Compliancy Workshops • 100-200 companies attended • Vendors could test interoperability of their products • Helped in creating good PR for the platform • Goodwill Agreement: participants should not use information gathered in PlugFests against their competitors

  26. Enabling Tools • Software Development Kits (SDK) • Device Development Kits (DDK) • Software Libraries etc. Benefits: • Faster product development • Helped in creating momentum • Lowered entry barriers for complementors • Fostered innovation • Made the overall cake bigger for everyone

  27. ”We think one of our core compentencies is that we are a trusted partner for almost everybody in the industry. We can talk to the graphics group’s competitors openly about their products and about our specification, and they trust that we honor that. But you can’t just mandate trust. You have to earn it.” Craig Kinnie, Director, Intel Architecture Lab

  28. Conflicts, Roles, Policy • Intel played on many fields at the same time • Intel’s roles: • Industry enabler (expanding the whole pie) • Neutral-broker (IAL promotes ”public interest”) • Profit-seeking (eg. processor manufacturing) • competition with complementor that IAL is supporting • Many roles  Separate internal groups • a powerful strategy, when conflicting agendas exist • internal & external debate (can be fruitful)

  29. Alternative Strategies • Microsoft • Make Your Own Complements • Cisco • Aquire and Assimilate Complements and Substitutes

  30. Case Microsoft • The Operating System – just like the microprocessor – has no value on its own • Value is created by complementary applications • Difference from Intel’s Strategy:From early on, Microsoft started making its own complements: Word, Excel, Office etc. • Extension of OS, bundled software • File management, networking, screen savers, calendars, email, Internet browser (Microsoft vs. Netscape 1998)

  31. Case Microsoft • Founded in 1975 • First products: Programming languages • Aggressive expansion into software products • Open but not open APIs • Enabling tools, SDKs, collaboration with vendors • Conflicts during the years: Netscape, Intel, Apple, RealNetworks, IBM, Compaq…

  32. Case Cisco Strategy: Aquire & Assimilate Complements and Substitutes • Internet Router Company • Defining Technology:IOS (Internetworking Operating System)

  33. Case Cisco • Huge growth in annual sales • 1991: $70 million • 1994: $1 billion • 2001: $22 billion • This was not done alone: • Internet browsers by Netscape & Microsoft • High-powered servers by Sun • All applications developed for the Internet

  34. Case Cisco • A platform leader with 80% market share in core router products • Technology was based on open industry standards, distinction came from enabling interoperable networking between routers and a wide variety of other types of networking and communications technologies

  35. Case Cisco • Cisco faced more competitors • 3Com, Lucent, Nortel, Siemens, Fujitsu • In early 2000 Cisco started losing sales to Juniper Networks • Competitors started being strong in niche markets with advanced products

  36. Case Cisco • Cisco strategy: • Providing complete solutions, a one-stop-shop for networking • Structured aquisition of pieces needed for the puzzle • Driving industry standards  overall growth • Form alliances and partnerships

  37. Cisco Product Debuts 1986 Routers • Dial-in access servers • LAN Switches • WAN Swithces • Hubs, Firewalls, Caching engines • Cable boxes, cable head-ends • DSL Head-ends • Internet Phones • Home modems • Wireless LANs IOS + all these products = one-stop-shop

  38. Platform Leader Wannabes • Palm: Handheld Computing • Fighting a giant (Microsoft / PocketPC) • NTT DoCoMo: Wireless Content • Internationalizing a successful local platform • Linux: Open Source Software • Relying exclusively on external development and open standards

  39. The Essence of Platform Leadership • Platform thinking forces managers to consider entire industry • Platform leaders must maintain incentives for third parties to produce complements …and help them do so • A strategy of interdependence • A vision of a business ecosystem • Platform leadership does not happen by accident

  40. Next week, Thursday 4.11. R&D Management / Sakari Luukkainen in lecture hall T5 See you at the seminar courses! 

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