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Technology Management and Strategy

Technology Management and Strategy. Standards Battles / Timing of Entry. Standards Battles. How and Why Dominant Designs Appear. 01. 01_ Standards Battles. 1. Definition of dominant design.

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Technology Management and Strategy

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  1. Technology Management and Strategy Standards Battles / Timing of Entry

  2. Standards Battles How and Why Dominant Designs Appear 01

  3. 01_ Standards Battles 1. Definition of dominant design • A single product or process architecture that dominates a product category, usually 50% or more of the market Design Competition (Standards Battles) Design Dominance B Market Share Market Share B C A C A Kinds of Designs Kinds of Designs

  4. 01_ Standards Battles 2. Why this concept is important • A great number of cases show that a “certain design” dominates the market at a “certain time” under “certain conditions” What happens when a dominant design appears? Typewriters Automobiles # of firms Need for research for this phenomenon …… Dominant Design’s advent Electronic Calculators Televisions

  5. 01_ Standards Battles 3. Why dominant designs are selected • 3.1 Learning Effects • The more a technology is used, the more it is developed and the more effective and efficient it becomes Self-reinforcing Mechanism(1) “Learning effects” Technology is adopted Cost per unit Good Cycle Cumulative output Reinvest and refine the technology Sales revenues Performance on each unit Cumulative output

  6. 01_ Standards Battles 3. Why dominant designs are selected • 3.2 Network Externalities • With network externalities, the benefit from using a good increases with the number of other users of the same good Self-reinforcing Mechanism(2) Size of Installed Base Availability of Complementary Goods Users Producers

  7. 01_ Standards Battles 4. Multiple Dimensions of Value • 4.1 A Technology’s Stand-Alone Value • When a new technology is offered to customers, this new technology itself is valuable to customers Birth of Airplane Birth of Cell Phone Era of Home Telephone Era of Automobiles We cannot call outside house. We cannot fly. Era of Cell Phone Era of Airplanes We can call anywhere! We can fly!

  8. 01_ Standards Battles 4. Multiple Dimensions of Value • 4.2 Network Externality Value • The size of installed base and the availability of complementary goods add values to a technological innovation Additional Value from other than Technology itself We can just fly. We can just call anywhere. Network Externality Effect We can call anywhere to anybody! We can fly anywhere!

  9. 01_ Standards Battles 4. Multiple Dimensions of Value • 4.2 Network Externality Value(cont.) • Thanks to superior network externality value, VHS could beat Beta Beta format • High-resolution • Technical excellence VHS wins!!! value Superior Technology’s Stand-alone value Network Externality value Technology Stand-alone value VHS format Technology Stand-alone value • Cheaper to manufacture • Many users of VHS machines Beta VHS Network externality value

  10. 01_ Standards Battles 5. Real Case(iPod) • 5.1 iPod’s Dominance over the World • There’ s no doubt that iPod is actually the ‘king’ of the MP3 market MP3 Market Share(2007) Reference: www.bloomberg.com March 13, 2007

  11. 01_ Standards Battles 5. Real Case(iPod) • 5.1 iPod’s Dominance over the World(cont.) • Increasing rate of iPod’s sales revenue is astonishing Number of iPod Purchased Quarterly from 2002 to 2007 Reference: www.roughlydrafted.com March 16, 2007

  12. 01_ Standards Battles 5. Real Case(iPod) • 5.2 Why is iPod so successful  Brilliant Feature • iPod’s brilliant feature (which is a technology’s stand-alone value) has made powerful impressions to customers Various MP3P Designs iPod Product lines iPod Nano iPod Shuffle iPod Classic

  13. 01_ Standards Battles 5. Real Case(iPod) • 5.2 Why is iPod so successful  User Experience • iPod’s user experience management could make customers happy and stay with iPod. Nike + iPod sport kit iTunes

  14. 01_ Standards Battles 5. Real Case(iPod) • 5.2 Why is iPod so successful  User Experience Fun with iPod!!

  15. 01_ Standards Battles 5. Real Case(iPod) • 5.2 Why is iPod so successful  Perfect Mate ‘iTunes’ • User friendly interface and stable supply of songs of iTunes bind users strongly. This guarantees big advantages from network externalities. Self-reinforcing Mechanism in iPod case A lot of users of iPod iTunes iTunes Availability of almost every song in the world Users Music Suppliers

  16. 01_ Standards Battles 5. Real Case(iPod) • 5.3 Conclusion • The combination of Brilliant feature, user experience management and iTunes make the astonishing success Through user experience management, strong installed base is formed Maximizing Network externality value Growth of iPod Existing installed base and stable music supply through iTunes maximize network externality value Brilliant feature stimulates the first move User experience Management Stand-Alone value Time

  17. Timing of Entry When is the Proper Timing to Enter the Industry 02

  18. Contents 02_ Timing of Entry 1. Definition of Timing of Entry • In technological innovation aspect, the timing of entry isa decision making for a firm to consider when it starts to spend money on R&D to produce certain products or service. R&D Selling High-end Market Mass Entry Launching Low-end Time

  19. Contents 02_ Timing of Entry 2. Terminology • First-mover is the first to sell in a new product or service category. Early followers are early to the market but not first. • Late entrants enter the market when or after the product or service • begins to penetrate the mass market High-end First-mover Market Mass Early followers Late entrants Low-end Time

  20. Contents 02_ Timing of Entry 3. First-mover Advantages • Being a first mover may confer the advantages. Brand Loyalty and Technological Leadership • A long-lasting reputation as a leader in that technology domain • Yielding sustained monopoly rents • Sustaining the firm’s image, brand loyalty, and market share • Shaping customer expectations about the technology’s characteristics Preemption of Scarce Assets • The initial cost of the good • The cost of complements purchased for the good • Efforts and time becoming familiar with its operation The characteristics of advantages Extraordinariness Exclusiveness Exploiting Buyers Switching Costs • Key locations • Government permits • Access to distribution channels • Relationships with suppliers

  21. Contents 02_ Timing of Entry 4. First-mover Disadvantages • Being a first-mover may also have the disadvantages,while later entrants get the advantages. • Research and Development Expenses The characteristics of disadvantages • Undeveloped Supply and Distribution Channels Expensiveness Easiness of transference Evasiveness • Immature Enabling Technologies and Complements • Uncertainty of Customer Requirements • Late Entrants Advantages • Ascertain how the product was created and how to focus its development efforts • Observe the market’s response to particular features of the technology • Utilize the developed enabling technologies and complements • Access to the exploited supply and distribution channels

  22. Contents 02_ Timing of Entry 5. Factors Influencing Optimal Timing of Entry • How does a firm decide whether to attempt to pioneer a technology category or to wait while others do so? It depends on several factors.   Customers’ certain preferences   Much improvement  The more checks are on the list, the better earlier timing of entry is.  Mature enabling technologies   Available complementary goods   The threat of competitive entry Go for it!   Increasing returns industry   Endurance against early losses   Enough resources  Reputation 

  23. Contents 02_ Timing of Entry 6. First-mover Vs. Early Follower 100 80 60 40 20 0 (%) • P&G’s Pampers crushed J&J’s Chux. • P&G realized customers’ certain preferences. Customers wanted soft yet strong and moistureproof disposable diapers with low price. P&G J&J • With development of better nonwovens, • softer top sheets made of rayon • started transforming the baby diaper. K-C Others • It offered in two sizes, medium and • large. In 1966, it launched a new C-fold • design. and by 1969 started a third size. • P&G devised a high-speed, block-long • assembly line that brought the price • down from 10¢ to 5½¢ TIME. Product: The Great Diaper Battle. Jan, 24, 1969 http://www.time.com/time/magazine/article/0,9171,900601,00.html 1967 1968 1969 1970 1971 1972 1973 Disposable Diaper Net http://www.disposablediaper.net/content.asp?2 Stealing Share http://www.stealingshare.com/content/1147639142265.htm The disposable diaper industry in 1974 http://www.slideshare.net/smehro/disposable-diaper-case

  24. Contents 02_ Timing of Entry 7. Strategies to Improve Timing Options • Timing of entry is a matter of choice for a firm,but can it dive into the market when the tide is high? At the best timing of entry, firms capable of producing the products or service can reap the benefit from the market. Factors defining a firm’s capability • Closer fit with customer requirements • Fast-cycle development processes • Fast development deployment processes Methods to improve the capability • Strategic alliance • Cross-functional new product development teams • Parallel development processes

  25. 02_ Timing of Entry 8. Real Case(IDIS) 8.1 Who is ‘IDIS’? • Korea venture ‘IDIS’ is the world leader in Digital Security industry Profile Annual Sales Trend • Korea R&D oriented venture • cf. R&D HR ratio: 40% (90people) • World Leader in Digital Security • Market share(07’): 15% in the world • 35% in Korea • Major product: DVR • (Digital Video Record) • Established in 1997 • “02’, 04’ Forbes 200 Companies • : best under a billion“ CSGR 30.1% Source: Company Analysis report for ‘IDIS’ published by Dong-bu Research center (2008.07)

  26. 02_ Timing of Entry 8. Real Case(IDIS) 8.2 What is DVR? Definition (from Wiki) a device that records video in a digital format to a disk drive or other memory medium within a device Source: J.P. Freeman,2006 US & Worldwide Video Surveillance Market

  27. 02_ Timing of Entry 8. Real Case(IDIS) 8.3 DVR Market Trend • As market size is bigger and bigger, the need for DVR is changed Market Size Paradigm shift for DVR (US$ in millions) Need of surveillance DVR Market size CSGR 21.0% Need of Data Management Source: J.P. Freeman,2006 US & Worldwide Video Surveillance Market

  28. 02_ Timing of Entry 8. Real Case(IDIS) 8.4 IDIS’s Timing of Entry • DVR industry was emerged from 1998. SO IDIS is the first mover at DVR industry DVR Industry Life Cycle & IDIS’ Activities 97 Established IDIS & RnD Center Present DVR industry position 98 Developed frontier Security Sol. 99 Relationship with Samsung 00 Relationship with S1, PALCOM 01 02 Relationship with ADEMCO DVR full-lineup Completion 1998~2000 2001~ Exclusive Provider of PC-Based DVR at New York Subway System 04 07 Intelligence Award Entering

  29. 02_ Timing of Entry 8. Real Case(IDIS) 8.5 IDIS’s First-Mover Advantages & Disadvantage Advantages • Brand Loyalty & Technology leadership • First DVR solution developer • Cumulated Know-how, Deep Trust • Strong Relationship with BIG Client • Domestic: S1, Samsung techwin, Comtech • Foreign: Honeywell, SIEMENS, ADT, PACOM etc Disadvantages • Research and Development Expense • R&D Expense rate: 8~9% of Total profit • R&D HR: 40% of Total employee • Undeveloped Supply and Distribution Channels • Building Relationship with Hitron-systems (Outsourcing) • Uncertainty of Customer Requirements • NOT Science-push, JUST Customer-driven Development

  30. 02_ Timing of Entry 8. Real Case(IDIS) 8.6 IDIS’s Factors Influencing Timing of Entry • Due to turning point of CCTV from VCR to DVR in 2000, IDIS started to develop the DVR solution and they succeeded in being First-mover Analog VCR First DVR solution Development Model : IDR 1016 DVR Source: JP Freeman Report, 2003 Why in 2000? 2000 Sydney Olympic Advertising Chance to Foreign Buyer Turning point of CCTV From VCR to DVR

  31. 02_ Timing of Entry 8. Real Case(IDIS) 8.7 Conclusion • IDIS’s Key success factor is the Timing of Entering to DVR industry. Such a great timing makes IDIS more powerful than other entrants Recommendation on Timing of Entry Based on IDIS case When you decide timing of entry Analyze Market Trend Identify Factors defining a firm’s capability Decide Firm’s Targeting Market Position Find and Execute Methods to improve the capability

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