PLATFORM LEADERSHIP

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PLATFORM LEADERSHIP

• ANNABELLA GAWER, MICHAEL A. CUSUMANO
• EMGT 510 Innovation Management
• Spring-2003
• Instructor Prof. Charles Weber
• Reviewed by Halime Inceler Sarihan

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• About the Authors
• Annabelle Gawer is Assistant Professor of
  Strategy and Management at INSEAD. Gawer is
  engaged in research work on the why' and how'
  of innovation strategies for firms operating in
  industries such as computers and
  telecommunications. She is affiliated with MIT
  research centers like the Internet and Telecom
  Convergence Consortium (ITC), which studies the
  possible evolution of the industry of
  computer-enhanced human communications and the
  Center for Innovation in Product Development
  (CIPD), an engineering research center.
• Michael A Cusumano is Professor of Management at
  the MIT Sloan School, Chairman of the Board of
  the MIT Sloan Management Review, and co-author of
  the bestseller Microsoft Secrets. He specializes
  in competitive strategy and technology management
  in the computer software, automobile, and
  consumer electronics industries, and does much of
  his work on technology-based Japanese companies
  and comparisons with US firms.

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Presentation Outline

• General Introduction to Platform Leadership
• Platform Leadership and Lessons From INTEL
• Alternative Strategies for Platform Leadership
• Microsoft Cisco
• Platform-Leader Wannabes Palm NTT DoCoMo
• Linux (Open Source Platforms)
• Conclusions

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Question

• What do Digital Equipment Corp.'s Alpha
  microprocessor, Sony's Betamax, and Apple's
  Macintosh all have in common?

• They are failed "platform leaders.

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What is a platform leader?

• Platform leaders are firms that lead and
  drive innovation in their industry, by
  stimulating complementary innovations performed
  by other firms.

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Platform Leadership An Overview
Platform Leader
Complementors
Consumers
Complementors
Complementors
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Two Fundamental Phenomenain High-Tech

• The increasing interdependency of products and
  services
• The increasing ability to innovate by more
  actors in the high tech-world.
• Result is Interdependency and
  innovation

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First is maintenance of the integrity of the
platform-of how the piecesfit together Who
will be in charge of it?
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Second is the issue of platform evolutionWho
will take charge of it, and By which mechanisms?
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Third strategic question is how can company
achieve or preserve market leadership in
platform environments ?
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Critical Questions For Platform Leadership

• What innovations do you develop internally?
• And what do you encourage other firms to do,
  based on your platform?

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Platform Leadership and Complementary Innovation

• We are tied to innovation by others to make our
  innovation valuable. If we do an innovation in
  the processor, and Microsoft or independent
  software parties dont do a corresponding
  innovation, our innovation will be worthless. So,
  it really is a desperate situation for us
• David B. Johnson, Director of the Media and
  Interconnect
• Technology Lab, INTEL Architecture Lab.

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The Four-Lever Framework
Lever 1

• Lever 1 Scope of the firm
• Deals with what the firm does internally, and
  what it encourages others to do externally.
• Is it better to concentrate efforts to internally
  develop complementary products or alternatively
  to rely on the market to produce them?
• Can a balance be easily be achieved and what is
  the best approach?

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The Four-Lever Framework
Lever 2

• Lever 2 Design product technology strategically
  
• What degree of modularity is appropriate?
• Should product interfaces be open or closed?
• What information should leaders disclose to
  outside firms?

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The Four-Lever Framework
Lever 3

• Lever 3 Shape relationships with external
  complementors
• How can the company balance competition and
  collaboration with outside players?

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The Four-Lever Framework Level 4

• Lever 4 Optimize internal organizational
  structures
• What processes and systems will allow the company
  to manage internal and external conflicts of
  interest most effectively?

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Platform leadership The story of Intel

• Intels position and situation in the PC
  industry
• Intel is in the business of providing the
  engine for the PC. That engine is doubling in
  capacity every 18 to 24 months, according to
  Moores law.What Intel really want is to ensure
  that the rest of platform goes with it,
  everything around the microprocessor to be
  keeping pace and improving and scaling, so that
  the microprocessor can deliver its potential.
• The strength of growing
• Intel grows by growing the entire pie,
  growing by getting new applications, by finding
  new users for the PC. Vividly
• That use or application is important to me,
  and to do that well, I need to buy a new
  processor
• The key strategy issue
• How to encourage and direct the vast array
  of interrelated innovations that will make the PC
  system work better?

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Key Points
Platform leadership The story of Intel

• Intels problems ( in the early 1990)
• It was becoming increasingly difficult to
  grow demand for PCs.
• At least two root causes to this problem
• An increasingly obsolete PC architecture ISA
  bus was very slow, which prevented other
  components of PC to deliver their potential,
  especially microprocessor, which was the key
  product of Intel.
• The lack of industry leadership to advance the PC
  system (hardware and software)
• The bus struggle between IBM and Compaq delayed
  the progress of developing the PC platform

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Platform leadership The story of Intel (contd)

• To tackle the PC platform obsolescence problem
  and
• also to address the essential challenge of
  increasing
• the demand for PCs, Intel established its own
  Intel
• Architecture Lab (IAL) in 1991.(700 Employees,
  100 Million Annual Budget)

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Intels Rise to Platform Leader

• PCI bus was a vital event in Intels
  transformation into a platform leader
• In 1991, IALs first project By sponsoring a
  change in the bus structure (PCI-peripheral
  component inter-connector) and providing a chip
  set that implemented these architectural changes
  in an actual product, Intel achieved its great
  transformation---platform leader
• Process of this event was full of risks,
  indecisive, iterative and complex
• Three factors guaranteed the success
• The technology of PCI is beneficial to the
  majority of PC industry
• The coalition of IBM
• The strong back by chip set and motherboard
• Solving a common problem in a manner that will
  facilitate the realization of ones future plan
  is a key part to platform leadership

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Intels Rise to Platform Leader

• Driving systemic architectural innovation
• In the late 1990s, Intel sponsored several new
  initiatives, including AGP, FireWire, and USB.
  All these innovations benefited the PC
  performance, which manifested the progress of
  microprocessor, the key product of Intel
• USB has a broader meaning to PCs, and eventually
  to Intel
• The USB was a new interface linking a PC to
  external devices such as the keyboard, scanner,
  printer, and any new external device, which can
  stimulate new experience of PC, thus create new
  users of PC
• All innovations lead to a modular architecture
  with open interfaces, which make it possible for
  many companies to participate in the innovation
  process

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Intels Rise to Platform Leader

• Goal Architecture for the open computer industry
• In detail
• Success depends on cooperation among key industry
  players.
• Common understanding PC industry needs to create
  new uses and thus new users for the PC. (3D
  graphics..)
• Modular architectures with open interfaces
  between computers make it possible for many
  companies to participate in the innovation
  process. (USB, PCI)
• Launched its famous Intel Inside marketing
  campaign to gain some recognition of consumers
  and thus increase its own bargaining power in its
  ecosystem.

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Lessons from Intel's platform leadership
story

The platform leadership strategy of Intel
contained three major rules

• sponsoring innovations in PC architecture,
• stimulating external innovations on complements,
• and finally, coordinating industrial innovation.

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Intels Strategic Principles For Platform
Leadership (contd)

• Stimulating Innovation On Complementary Products
• Three main activities
• To facilitate complementary innovation, typically
  discloses private information about the design of
  its products as well as computers containing
  prototypes of Intels upcoming chips
• Send skilled engineers and savvy marketers to
  transfer technical expertise and share knowledge
  about the market
• Make equity investment in third parties

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Intels Strategic Principles For Platform
Leadership (contd)

• Sponsor interface standards
• These interfaces became the technological
  mechanism for channeling external innovation,
  ensuring platform integrity through compatibility
  of complementary products, and creating an
  industrial consensus on platform technological
  evolution
• A company can innovate in one layer and not worry
  about what is going on in other layers because we
  have interfaces on either side of them, thus
  break down the cost of innovation
• Enable small companies, innovative companies make
  smaller investments and yet potentially win a
  large market share in a segment they can own. The
  most important issue is, the more of these
  companies that participate, the broader
  innovation we get.

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Intels Strategic Principles For Platform
Leadership (contd)

• Building Momentum around Interfaces
• Establishing strategic interest groups and
  gradually building momentum
• In early phase, Intel initiated relationships
  with a small group of outside firms and brought
  them together in strategic interest groups (SIG)
• For PCI, there were five companies Intel, DEC,
  Compaq, IBM, and NCR
• For USB, there were seven companies Intel, DEC,
  Compaq, Microsoft, IBM, Northern Telecom, and NEC
  Technologies

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Intels Strategic Principles For Platform
Leadership (contd)

• Using Public Forums to Generate Momentum and
  Refine Standards
• The goal was to create momentum in the industry
  for whatever standard Intel was trying to
  promote.
• Open up the discussions to larger public
  gatherings, including Development Forums and
  Implementors Forums.
• Set up web sites that were used to the exchange
  of questions and answers about the standards
  Intel promoted.
• The same thing done by Cisco, IBM, Microsoft,
  Sun, Linux, ..All industrial leaders----to
  GENERATE MOMENTUM

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Intels Strategic Principles For Platform
Leadership (contd)

• Compliance workshops
• Another type of forum that Intel relied on to
  refine a new standard and help companies develop
  prototypes was compliance workshops, PlugFests
• The importance of compliance workshops
• Plug Fests are lifeblood in trying to
  create these standards

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Intels Strategic Principles For Platform
Leadership (contd)

• Creating and distributing enabling tools
• Intel usually distributed tools like SDKs and
  DDKs (device development kits) by its
  Implementors Forums and Developers Forums, and
  trained people to use them.
• The development and diffusion of these tools is
  costly. That has a similar economic logic like
  innovation on interfaces by facilitating and
  channeling complementary innovation, these
  enabling tools reinforce the architecture
  leadership of the sponsored company.

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Suggested Answer
How Intel Manages Conflicts of Interest?

• Maintain your vision at dual level What is good
  for the industry, and what is good for you
• Always work where these two overlap

Good for You
Good for Industry
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Questions

• What are the key differences between Intel,
• Microsoft and Ciscos platform leadership
  strategies?
• What are the common strategies for three of them?

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Alternative Strategies for Platform Leadership
Microsoft Cisco

• Microsoft is the platform leader in PC operating
  systems and related technologies.
• Cisco is the platform leader in Internet-based
  networking technology.
• Like Intel, Microsoft and Cisco have many similar
  strategies in building their platform leadership,
  such as proposing new interface standards or join
  with other firms and try to create standards.
• Unlike Intel, Microsoft and Cisco have the
  different strategy in their manipulation to the
  four levers of platform leadership.

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Intel vs. Microsoft .Vs. Cisco in Four Lever
Strategy
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Lessons From Platform Leaders

• From Intel, Microsoft and Cisco examples we know
  that there is no one formula for platform
  leadership to follow.
• Intel relied on the complementors for its
  microprocessor platform leadership, Microsoft
  relied on proprietary technology for its software
  platform, whereas Cisco relied much on
  acquisition and partnership on its networking
  technology platform leadership.
• But, it is true that every industry and
  technology has its own characteristics.

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Platform Leader Wannabes
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Conclusion Success Factors and Indicators in
Platform Leadership

• Successful Platform leaders can have a strong
  influence over their industries in terms of
  innovation
• Not all industries are suitable for a platform
  leadership strategy
• Encouraging complimentary innovation in order to
  advance the platform is a critical factor to
  success
• Developing links with companies who have deep
  industry knowledge is beneficial to make use of
  their market advantage rather than trying to
  develop a market base of your own

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Conclusion Success Factors (Contd)

• A successful platform will have a base which is
  hard for competitors to imitate.
• A modular architecture is desirable for a
  platform to be easily integrated with
  complementary products.
• Open architecture can be risky though as
  complementors can quickly become competitors when
  they have access to a companies technology
• Continuous improvement of architecture is the
  only way to keep ahead of competitors when the
  source code is open to all, this is why companies
  such as Microsoft guard their core code to avoid
  imitators.

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Conclusion Success Factors (Contd)

• Open architecture can be risky though as
  complementors can quickly become competitors when
  they have access to a companies technology
• Continuous improvement of architecture is the
  only way to keep ahead of competitors when the
  source code is open to all, this is why companies
  such as Microsoft guard their core code to avoid
  imitators.
• Internal organisation specific to platform
  leadership has to take into account external
  partners e.g. Intel set up specific teams to deal
  with partners
• Goal definition is important for a platform
  leader so as to define what each business unit
  should aim to achieve e.g to drive complementary
  innovation or to look at other market
  opportunities

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Conclusion Limitations of Platform Leadership
Strategy

• Complicated process is open to many conflicting
  factors.
• Generating interest in the platform by external
  partners can be a long and resource intensive
  process.
• Technological dependency can develop leaving the
  platform leader stuck with a certain back bone
  thus hampering the evolution of the platform.
• Fragile model dependant on third parties

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Final Thoughts

• In conclusion, we can say that the essence
  of platform leadership begins with a vision that
  extends well beyond the business operations of
  one firm or technical specifications of one
  product or one component.
• It is a vision that says the whole of the
  ecosystem can be greater than the sum of its
  parts, if firms work together and follow leader.
  The vision and decisions of platform leaders can
  affect not only the immediate competitive
  environment but also evolution of technologies
  and entire industries.

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PLATFORM LEADERSHIP

• ANNABELLA GAWER, MICHAEL A. CUSUMANO
• EMGT 510 Innovation Management
• Instructor Prof. Charles Weber
• Reviewed by Halime Inceler Sarihan