Marc Goldchstein

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Marc Goldchstein

• INDUSTRY AND PROJECT DYNAMICS

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why bother...

• I want a conceptual underpinning (denkkader) of
  my course
• the traditional underpinning of economics is
  stuck in newtonian, planetary times
• equilibrium
• evolutionary economics is no more than a metaphor
• so my course today is purely phenomenon-driven,
  without conceptual underpinning
• I am convinced (modern) systems thinking may
  provide at least some conceptual underpinning
• hoped for end result
• course systems thinking for business
• to which I refer in courses

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what I look for...

• a model (or series of concepts) that formally
  explains the different dynamics I describe in the
  folllowing slides
• that can be used to analyse situations

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• INDUSTRY DYNAMICS

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• industry life cycles
• some dimensions of ILCs
• innovation
• incumbents, entrants and shake-outs
• dominant design and network effects
• customer typology

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industry dynamics

• industry life cycles

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creative destruction

• Joseph Alois Schumpeter, Capitalism, Socialism
  and Democracy 1942
• capitalism is an evolutionary process capitalism
  never can be stationary.
• the fundamental impulse comes from the new
  consumers' goods, the new methods of production
  or transportation, the new markets, the new forms
  of industrial organization that capitalist
  enterprise creates.
• these incessantly revolutionize the economic
  structure from within, incessantly destroying the
  old one, incessantly creating a new one.
• creative destruction is the essential fact about
  capitalism. it is what capitalism consists in and
  what every capitalist concern has got to live in

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• every act of creation is first an act of
  destruction
• Pablo Picasso

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creative destruction
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the victims of creative destruction
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the life cycle
Maturity
technological performance
market adoption
Disruption
Takeoff
Ferment
Time/effort
MIT Sloan School of Management Technology
Strategy Course 2005 Rebecca Henderson
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the industry life cycle

• a framework to understand the dynamics of growth
  of
• industries and markets
• digital photography
• commercial sailing ships
• information technology
• gsm
• fitness centers
• companies
• enfocus, sportopolis
• agfa, polaroid
• regions
• wallonia
• silicon valley

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a key framework the industry life cycle
technology strategy for managers and
entrepreneurs, Scott Shane 2009
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què sera, sera
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oops...
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era of ferment

• a possible disruptive innovation has occurred
• often new playing field
• no one is sure how the new product
• can be packaged or sold
• who will value it
• how it can be produced/distributed
• whether there is money in supplying it
• industry is up for grabs
• lots of entrants, venture capital
• there is enormous uncertainty in many dimensions
• doing something of dramatic value, compared to
  what is already available to customers is the
  sine qua non (moore)
• main challenge validation!

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the fluid phase

• abernathy-utterback model , harvard business
  school, mit sloan school of management
• technology evolves through periods of incremental
  innovation, interrupted by periods of radical
  innovations
• a radical innovation leads to a fluid phase,
  where many firms enter and compete on the basis
  of different product designs
• eventually firms converge to a dominant design
  which results in a specific phase. competition
  shifts to production efficiency and economies of
  scale
• before a dominant design emerges learning curves
  are weak, and it is easy to enter. after a
  dominant design emerges learning curves become
  more pronounced
• later a new radical innovation may occur

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the fluid phase in gsm
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take-off

• rapid growth of market
• dominant design emerges
• the way we do things around here
• key technical components, architecture
• elements of the business system how shall we
  structure the value chain?
• hard to define ex ante
• market clears out
• fight for domination
• very difficult to enter market
• execution growing the company become key
  challenge
• succesful paradigms broadly applied, made more
  repliable, replicable

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maturity

• innovation diminishes
• economies of scale, synergies
• mergers and acquisitions
• less investments, large market potentially high
  profitability
• followed by disruption?

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industry dynamics

• innovation

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technology s curve

• graphical representation of the development of a
  new technology
• compares some measure of performance with some
  measure of effort

technology strategy for managers and
entrepreneurs, Scott Shane 2009
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maturity in pharma
managing innovation and entrepreneurship, Fiona
Murray, MIT Sloan School of Management spring 2008
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radical and incremental innovations
Maturity

• incremental innovation, process innovation

Takeoff

• radical innovation, product innovation, based on
  different engineering and scientific principles

Ferment
Time
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innovation

• incremental innovation
• introduces relatively minor changes
• happens once dominant design has been established
• typically drives rapid performance improvement
• exploits the potential of the established design
• typically reinforces position of incumbent

• radical innovation
• based on a different set of engineering
  principles
• may open up whole new markets and potential
  applications
• often creates great difficulties for incumbent
  firms
• can be basis for successful entry by insurgent
• (can this be modelized?)

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the limitations of LCD?

• light emitting
• energy consuming
• rigid

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e-ink the material

• ink on (potentially flexible) substrate
• magnetized in black or white
• only energy consumption when changing images
• but
• no color
• long image switching time (no video)

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disruptive for who?
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for comparison philips aptura

• Philips demonstrates lighting technology for LCD
  TV picture improvement at SID
• Aptura lighting technology that dramatically
  improves motion sharpness and contrast on LCD
  televisions. The motion sharpness is achieved by
  adding additional light and intelligence to the
  backlight module, a key component of a LCD TV.
• increase the light output of the backlight module
  by more than 300 percent
• cancels out the Sample and Hold effect
  characteristic of LCD technology. Using Deep
  Dynamic Dimming (D-3) technology, which reduces
  the grey details in dark scenes and poor black
  levels, creates the improved darkness contrast.
• Dimming to scene brightness and stretching the
  video for better detail, creates an astonishing
  contrast in night scenes.
• improved viewing angle in dark scenes an LCD TV
  with Aptura lighting technology can be watched
  from almost every corner of the living room.

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not on the radar...
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vectors in time
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steve jobs on vectors in time

• inside steves brain, leander kahney
• founder and present ceo of apple
• you cant really predict exactly what will
  happen, but you can feel the direction that were
  going
• jobs looks for vectors in time
• what technologies are coming on the market and
  which ones are ending their run
• you decide which horses you want to ride at any
  point in time
• you cant be too far ahead, but you have to be
  far enough ahead, because it takes time to
  implement. so you have to intercept a moving train

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innovation trajectory

• At any time, there are typically a range of
  competing technologies that are candidates for
  each application
• Each of these technologies can be characterized
  in terms of its key parameters
• Each technology typically has a performance
  envelope, which defines the trade-offs inherent
  in the technology
• Over time, technologies follow an innovation
  trajectory, a vector or function that describes
  how they have evolved and may evolve, either over
  time or in response to effort invested in their
  development
• rate of change
• direction

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innovation trajectories...

• technologies improve
• technologies merge

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breaking the performance envelope
speed, power, memory
as pdas improve they may come to challenge pcs
PCs
PDAs
low weight
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process innovation

• business innovation vs. product innovation
• henri ford and mass production
• dell business model
• direct sales to end-users over the internet
• no channels
• no rebates
• no inventory
• made-to-order
• no inventory

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the importance of imitation!

• imitation is happening infinitely more than
  innovation
• timing when to imitate
• when not to imitate when to innovate
• build your uniqueness very consciously!
• the ability to imitate build on existing
  competencies

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pervasive innovations

• some innovations diffuse into nearly every corner
  of the economy (and the world)
• the printing press absorbs...
• steel
• steam
• electricity
• information technology
• internet
• and will be all but destroyed by digital paper...

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industry dynamics

• corporate compentencies, incumbents, entrants and
  shake-out

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entrants and shake-out

• fermentation phase/ fluid phase
• many entrants
• competition between entrants is initially
  secondary
• take-off
• shake-out
• buy or be bought
• not always the case that new technology is
  introduced by newcomer
• competentce-enhancing innovation

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innovation and corporate competencies

• michael tushman, harvard business school
• there are two types of radical innovations from
  the perspective of an incubent firm
• competence enhancing
• makes use of the firms existing knowledge,
  skills, abilities, structure, design, production
  processes, plants, equipment...
• (makes use of the firms existing business model)
• competence destroying
• when it undermines the usefulness of these things

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competence enhancing/destroying innovation
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disruptive for who?
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an opportunity for who?
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why incumbents often miss the boat

• managers do not see the technology as a threat or
  opportunity
• they have investments in existing technology
• they can improve the performance of their
  technologies
• no incentive to introduce new technology
• stupid agents?

• new products will cannibalize existing sales
• they face organizational obstacles to change
  their core technology
• new business incompatible with their business
  model
• the innovators dilemma
• market leaders have hard time do redirect
  resources from its customers requests

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xerox parc

• palo alto research center a flagship research
  division of the xerox corporation,
• xerox was one of the leading technology companies
  in the world
• its founder, carlson received in 1942 a patent
  for photo-copier technology.
• xerox decided to pioneer the field of personal
  computing and build a research center
• xerox parc was the incubator of many elements of
  modern computing
• the mouse (invented at the stanford research
  institute)
• computer generated color graphics
• the wysiwyg text editor
• postscript
• ethernet
• smalltalk programming language.
• laser printer

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the invention of the mouse

• Douglas c. Engelbart, of the Stanford research
  institute, demonstrates his system of keyboard,
  keypad, mouse, and windows
• he demonstrates use of a word processor, a
  hypertext system, and remote collaborative work
  with colleagues in 1968
• http//sloan.stanford.edu/mousesite/1968demo.html

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the xerox alto

• conceptualized in 1972
• a real time machine that interacted with a mouse
  and windows.
• contained ethernet, smalltalk, wysiwyg, a
  graphical user interface.
• created roughly three years prior to the ibm pc,
  xerox could have easily entered the computer
  market with the alto, but chose not to.
• the first successful commercial gui product was
  the apple macintosh

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adobe

• in 1978 chuck genschke hired john warnock at
  parc. both
• are mathematicians
• had their education paid by the department of
  defense,
• are happily married to their first wife and have
  three sons.
• have an interest in publishing and graphic arts.
• wanted to change the world.
• we were prototypical scientist in that we wanted
  to have an impact
• genschke set warnock to investigate device
  independent graphic systems.
• contained both raster graphics and bitmapped
  fonts,
• while parc was ecstatic, xerox headquarters was
  much less so.
• technology is like fish, if you dont cook it,
  it spoils.

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industry dynamics

• dominant designs
• network effects and standards

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dominant design

• Dominant Design is a Technology Management
  concept identifying key technological designs
  that become a de-facto standard in their market
  place.
• When a new technology emerges (e.g. computer GUI
  operating systems) - often firms will introduce a
  number of alternative designs (e.g. Microsoft -
  Windows, Apple Inc. - Mac OS and IBM - OS2) .
• Updated designs will be released incorporating
  incremental improvements - at some point an
  architecture that becomes accepted as the
  industry standard may emerge (e.g. Microsoft
  Windows).
• Dominant designs may not be better than other
  designs in the market place, however they will
  incorporate a minimum required set of key
  features .
• The oft cited example of the QWERTY keyboard,
  specifically designed to overcome limitations on
  the mechanical typewriter but now almost
  universally preferred over more logical keyboard
  designs.

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jobs on xerox

• jobs got demo of xerox alto in 1979
• in exchange of shares in Apple Computer
• i thought it was the best thing ive ever seen
  in my life
• within 10 minutes it was obvious to me that all
  computers would work like this some day
• can systems thinking explain the self-evidence of
  the graphical user interface?
• despite dozens of demonstrations xerox executives
  didnt see the potential
• basically they were copier heads and they had no
  clue about a computer or what it could do
• so they just grabbed defeat from the greatest
  victory in the computer industry. they could have
  owned the entire computer industry

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dominant design microsoft

• pc industry in units sold per year

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network effects
value to consumer
Actual (or anticipated) size of the installed base
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network effects

• Metcalfe's Law
• the value of a network goes up as the square of
  the number of users
• 10 users gt 100 100 users gt 10.000

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network effects

• types of network effects
• direct (or demand) network effects
• generated through a direct physical effect of the
  number of purchasers on the utility of the good
• phones, fax machines, SMS, e-mail, ...
• indirect (or supply) network effects
• one user's adoption has no direct effect on the
  utility of other users, but has lagged effects,
  generally on supply of complementary products
• 'hardware/software' systems more Macs sold gt
  more software gt utility of hardware ?

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lock-in, switching costs

• switch from
• Ford to GM relatively painless
• Windows to Linux very costly change software,
  learning
• costs
• the total cost of installing an Enterprise
  Resource Planning (ERP) system such as SAP was
  eleven times greater than the purchase price of
  the software due to the cost of infrastructure
  upgrades, consultants, retraining programs, and
  the like
• These switching costs are endemic in high
  technology industries and can be so large that
  switching suppliers is virtually unthinkable, a
  situation known as lock-in

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why standards are relevant

• often driving force in industry life cycle
• GSM
• PDF
• position yourself in ecosystem
• be aware of choices

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some standards battles

• electric power
• roads
• color television
• air travel
• video cassettes
• cellphones(1)
• personal computers
• 56k modems
• cellphones(2)
• documents

• dc (edison) vs ac (westinghouse)
• width, side of the road, signage
• mechanical (cbs) vs electronic (rca)
• door on front left, jetways/airbridges, taxi ways
• betamax(sony) vs vhs (matsushita)
• several co-existing standards
• windows vs mac os
• k56flex (rockwell/lucent) vs x2 (us
  robotics/3com) vs v.90
• tdma (ericsson/att) vs cdma (qualcomm) vs GSM
  (eu) vs phs
• pdf (adobe) vs reader/ (microsoft)

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key assets in standards battles

• prior adoption
• installed based from previous era
• technological innovation
• deliver superior performance
• timing, being first-to-market
• get there early, establish momentum, learn
• intellectual property rights
• strength in complements
• influence overall system level performance
• reputation
• credibility, players expectations are that you
  will winso you are more likely to

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industry dynamics

• customer typology

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customer profiles
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customer s curve

• innovators
• need every new product
• besta testers
• need for customisation, mission critical
• not price sensitive
• early adopters
• appreciate value of novelty
• base buying decision on intuition and technical
  elements
• early majority
• practicality references,
• need for service, training, support...
• crossing the chasm
• late majority
• not confortable with new products
• laggards
• avoid new products

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mission-critical users

• for whom the technology is of major strategic
  importance
• colruyt and radio frequency identification
  (rf-id)
• vtb/touring wegenhulp and wireless data
  communications
• willing to invest
• high roi
• strategic importance (de laagste prijs)
• capabilities to absorb new technology

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crossing the chasm

• different customers
• visionairies
• think and spend big
• pragmatists
• prudent
• my definition of take-off
• when not wanting to be the first is replaced by
  not wanting to be the last
• customers have different needs
• see part on entrepreneurial marketing
• the chasm arises when the early market is
  saturated and the mainstream market is not ready
  to adopt. there is no-one to sell to

• crossing the chasm, marketing and selling
  technology products to mainstream customers
• geoffrey moore 1991

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complexity for the customer

• (behavioral) change for customer
• novelty of offering for customer
• dis-benefits to customer
• cost price, return on investment, total cost of
  ownership

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factors that infuence diffusion

• development of complementary assets and
  complimentary products
• network effects
• Word of mouth
• Process improvements
• Supply constraints
• Development of new uses for the same product
• General shift in the needs of the population
  (lifestyle effects)
• Progressive development of skills
• Pricing strategies

managing innovation and entrepreneurship, Fiona
Murray, MIT Sloan School of Management spring 2008
69
five product-based factors that govern the rate
of diffusion

• Everett Rogers
• Relative advantage
• the degree to which a product is better than the
  product that it replaces
• Compatibility
• the degree to which a product is consistent with
  the users context, in particular their values
  and experiences
• Complexity
• the degree to which a product is difficult to
  understand and use
• Trialability
• the degree to which a product may be experimented
  with on a limited basis
• Observability
• the degree to which product usage and impact are
  visible to others

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customer switching costs

• Users needs are diverse, and they change over
  time, and in response to technological innovation
• But its not easy to get them to adopt novel
  products that embody innovative technologies
• Most customers most of the time are loath to
  change their behavior
• requires investment of time and effort
• involves uncertainty and can induce anxiety
• And are (necessarily) unfamiliar with novel
  products
• Novel products almost always involve trade-offs
• They evaluate products based on perceived value,
  relative to products they already use to do a
  job, and are overly sensitive to dis-benefits
  -loss aversion
• At the same time, businesses (full of
  technologists) tend to underestimate the
  switching costs, and overestimate the potential
  benefits

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eager sellers and stony buyers
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high payoff
gsm
google
internet
personal computer
fitness centers
document management in 1987...
low payoff
impact on customer processes vs. payoff for
customer general examples
low behavioural change
high behavioural change
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a summary by MIT
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business challenges
Maturity

• execution
• ability to manage growth
• excellence in marketing, finance, alliances...

Takeoff

• validation
• of customer needs and benefits
• of business model
• of team

Ferment
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part 2

• NO COMPANY IS AN ISLAND

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no company is an island

• some concepts
• value chains
• business ecosystems
• uniqueness and complementary assets
• modularity
• clusters

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no company is an island...

• value chains

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EPD the material
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EPD the component
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EPD the device
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value chains...
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value chain

• many elements are needed, many steps are taken
  before an end user need is fulfilled
• your invention is only small part of the whole
  picture
• do you see the total picture?

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the value chain choices of e-ink
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are we done?
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marketing power
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content
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sony
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(No Transcript)
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the value network
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iTunes-Model Value Network

• Intermediary plays central role
• Integrates two markets 1) readers, 2) content
  providers
• BUT ALSO device suppliance and service provision
• Content on single platform and on only one type
  of device
• Disaggregation of content

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no company is an island...

• uniqueness and complementary assetssustainability

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unique and complementary assets

• uniqueness
• what makes your company/project unique
• technology/ patent
• business processes
• colruyt and low costs
• nokia product design manufacturing, marketing,
  
• silicon valley and business startups
• how sustainable is your uniqueness? how long will
  the advantage last?
• how much room for innovation is there?
• will others be able to catch up easily?

• complementary assets
• what other assets are needed in order to have a
  complete offer to the market?
• do you possess them? are they readily available?
• are there competitors that do own them? how
  easily can they counter your uniqueness?
• (assets expertise, production capacity,
  manpower, funding...)
• uniqueness, complementary assets are
  company/project dependant

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emi and the cat scanner
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the emi case

• uniqueness
• relevant
• nobel prize-level knowledge of cat scanners
• patents
• first mover advantage
• irrelevant
• brand name
• knowledge of movie and recording industry

• complementary assets
• experience in manufacturing medical products
• legal aspects
• sales and marketing channels
• GE 300 persons
• service and support system
• GE 1200 persons
• in depth understanding of hospital market
• investment decision making, key players,...

• -gt threat of entry
• general electric, siemens, philips... incubents
  in medical equipment market
• posess complementary assets
• virtually unlimited resources

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things that play

• technology
• patents, IP, knowhow...
• nanobodies
• nokia 3 key chips
• organization, business processes
• low cost operations, product design,
  manufacturing, marketing, innovation, hiring...
• marketing
• brand name
• installed base
• channels, sales force
• vertical market expertise
• standards
• funding
• cash flow, capital...

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Uniqueness Complementary Assets vary over the
Life Cycle
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who will profit?
managing innovation and entrepreneurship, Fiona
Murray, MIT Sloan School of Management spring 2008
99

• the story of Adobe

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Adobe

• in 1978 Chuck Genschke hired John Warnock at
  parc. both
• are mathematicians
• had their education paid by the department of
  defense,
• are happily married to their first wife and have
  three sons.
• have an interest in publishing and graphic arts.
• wanted to change the world.
• we were prototypical scientist in that we wanted
  to have an impact
• Genschke set Warnock to investigate device
  independent graphic systems.
• contained all page components images, texts,
  layout elements...

• while PARC was ecstatic, Xerox headquarters was
  much less so.
• technology is like fish, if you dont cook it,
  it spoils.

101
postscript

• communication between pc and printers was vastly
  simplified and standardized.
• the language could describe both text and
  graphics on one page.
• it could be hooked up to the new laser printers.
  it was device independent
• the same file could be printed on different
  devices with different resolution.

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Start-up

• In 1982 they left PARC and founded Adobe Systems.
  
• They got in touch with venture capitalist William
  Hambrecht.
• Initial plans open a series of print shops
• Evolved to developing complete systems of high
  powered workstations and printers for large
  corporations, for in-house printing.
• A prototype of Postscript for a Laser printer was
  running in 1983.
• Digital Equipment Corporation wanted to license
  Postscript, but Adobe declined, wanting to build
  complete systems themselves.

103
Apple

• Warnock and Genschke invited Jobs over for a
  visit.
• Apple was working with printer-engine
  manufacturer Canon on a low-cost laser printer.
• High-quality printing was the Trojan horse
  through which Apple could enter the office
  market.
• But what Jobs didnt have was a way to tie the
  laser printer and the Macintosh together.
• I was simply blown away by what I saw.

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the perfect business model

• Jobs proposed that Adobe license its technology
  to Apple for the 300-dpi laser printer.
• I dont need the computer. I dont need the
  printer. I need the software.
• If someone keeps saying, You have a business
  here, and its not the business youre doing,
  then its time to change your business,
• I convinced them to drop plans to be a hardware
  company and be a software company instead.
• Business
• Jobs offered an advance of 1.5 million against
  PostScript royalties.
• Jobs offered 5 million for the untested company.
  
• He invested 2.5 million for a 20 percent stake.
  When Apple cashed out six years later its stake
  was worth more than 87 milllion
• Adobe received 5 of the list price or 350usd per
  sold printer

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business models compared
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complementary assets
hardware
architectural expertise
core technology postscript
organisation
marketing brand name

• uniqueness

complementary assets
107
elements of entrepreneurial strategic thinking

• appropriating value

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IBM PC?
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appropriating value

• it is not enough to create value through an
  innovation one must capture the value!
• two major questions
• how well do you control the ideas behind the
  innovation?
• do incumbents control assets that you need to
  create value from you innovation?

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controlling the invention
managing innovation and entrepreneurship, Fiona
Murray, MIT Sloan School of Management spring 2008
111
some elements on controlling assets

• apple and secrecy
• adobe and standards

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who will profit?
managing innovation and entrepreneurship, Fiona
Murray, MIT Sloan School of Management spring 2008
113
how to succeed
managing innovation and entrepreneurship, Fiona
Murray, MIT Sloan School of Management spring 2008
114
MIT commercialisation strategy survey
managing innovation and entrepreneurship, Fiona
Murray, MIT Sloan School of Management spring 2008
115

• the attackers advantage
• no control over invention, no complementary
  assets
• If there is weak IP protection, and there are
  relatively few or widespread CAs, then this is
  basically a level playing field for competition.
  
• the entrepreneur has is to be fast there are
  few other ways of protecting your innovation.
• Entrepreneurs can often win this by stealth,
  i.e. starting in small markets where the
  incumbent is not paying attention and then moving
  into the larger markets, once performance is
  developed.

• the Idea Factory
• control over invention incumbents control
  complementary assets (CA)
• entrepreneurs do not need to build CAs, instead,
  with IP they have the bargaining power to engage
  in partnerships for CAs.
• The determinants of the return on innovation will
  be bargaining power
• need high quality technology that you can signal
  its quality with results
• if there are more incumbents with the assets, you
  can create a bidding war and so you can raise the
  price.
• if you have the cash you can build the CAs and
  then gain more of the pie, but this is difficult
  to raise the cash to do you might want to try
  and do this gradually

managing innovation and entrepreneurship, Fiona
Murray, MIT Sloan School of Management spring 2008
116
some other lists

• controlling key resources
• patent, organisation...
• reputation, brand name...
• architectural control
• economies of scale
• moving up the learning curve
• first mover advantage

technology strategy for managers and
entrepreneurs, Scott Shane 2009
117
no company is an island... technology
strategy coursemassachusetts institute of
technologymichael a m davies 2 may 2007

• modularity vs. the whole widget

118
two different sorts of knowledge component or
modular architectural or integrative

• component knowledge
• knowledge about each of the core design concepts
• how they are implemented in a particular
  component within a product
• specialized and focused, can be mastered by an
  individual or a small team
• constant focus once dominant design established

• architectural knowledge
• knowledge about ways in which components link
  together into coherent whole and are
  interdependent
• tends to become embedded as tacit knowledge
• communication channels, information filters and
  problem-solving strategies

119
modularity -gt decoupling

• modularity in the design of complex engineering
  systems, carlissy. baldwin and kim b. clark, hbs
  working paper, january 2004
• when a product or process is modularized, the
  elements of its design are split up and assigned
  to modules according to a formal architecture or
  plan.
• from an engineering perspective, a
  modularization generally has three purposes
• to make complexity manageable
• to enable parallel work
• to accommodate future uncertainty

120
product architecture
121
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not modular...
123
apple and standards

• apple strategy maintain tight control over
  hardware, software and the services they access
• first mac only opened with special screwdriver,
  no expansion slots
• was unsuccessful strategy for last 30 years
• modularity and scale intel / windows / pc
  manufacturers / ecosystem of add-ons
• stability and ease of use vs. economies of scale
• this integral control has become a major asset in
  recnt times ipod, iphone
• not only architectural control
• also design, manufacturing expertise

124
the whole widget

• it is the right approach for present day the
  digital entertainment age
• jobs wants to make complex devices like computers
  and smartphones into truly mass-product products
• for that he needs to control all aspects of the
  customer experience
• example ipod
• designing and manufacturing devices operating
  systems, application software, internet
  application marketing, brand name...
• apple is the only company that controls the
  whole widget hardware, software, developer
  relations, marketing. it turns out that this is
  apple greatest strategic advantage
• the return of vertical integration
• the whole product
• end-to-end solution
• the whole widget

125
no company is an island...

• business ecosystems

126
business ecosystem thinking

• the traditional way to think about competition is
  in terms of offers and markets
• the problem is that this ignores the context the
  environment- within which the business lies
• and it ignores the need for co-evolution
• you need to understand the economic systems
  evolving around you and find ways to contribute
• i.e. start with the understanding of the big
  picture

127
the mobile telephony ecosystem
128
heidel berg
closed systems
digital print
kodak
agfa
scitex
computer to plate computer to film
barco graphics
creo
PDF
tiff-it
postscript
workflow systems, components ripping, trapping,
imposition
native file formats
post script
artwork systems
markzware
quality control
enfocus pitstop
en focus OEM
en focus OEM
enfocus tailor
prepress editing
datacom
vio
format conversion
adobe acrobat
adobe postscript
post script clones
page layout
quark xpress
adobe pagemaker
image creation and editing
adobe photoshop, adobe illustrator
commercial printing magazines, newpspapers,
leaflets, digital printing
packaging
the prepress software ecosystem in 1999
129
digital print
closed systems
growth of pdf is showstarter
computer to plate computer to film
workflow systems, components ripping, trapping,
imposition
PDF
tiff-it
postscript
native file formats
post script
will markzware go pdf? will it use its patent?
markzware
quality control
enfocus pitstop
en focus OEM
en focus OEM
will there be important pdf clones?
enfocus tailor
prepress editing
datacom
vio
will online preflighting take off? which business
model should enfocus use?
format conversion
adobe acrobat
adobe postscript
adobe friend and/or foe?
page layout
adobe pagemaker
should enfocus drop postscript products?
enlarge OEM business
image creation and editing
adobe photoshop, adobe illustrator
commercial printing magazines, newpspapers,
leaflets, digital printing
packaging
the prepress software ecosystem in 1999
130
heidel berg
digital print
PDF
closed systems and native files
Open Document
computer to plate computer to film
agfa
esko artwork
barco graphics
gradual
workflow systems, components ripping, trapping,
imposition
tiff-it
native file formats
artwork systems
online systems
adobe acrobat
mark zware
quality control
quark xpress
callas OEM in adobe acrobat
enfocus
callas
enfocus pitstop
prepress editing
enfocus certified pdf workflow
datacom
format conversion
adobe creative suite
page layout
image creation and editing
commercial printing magazines, newpspapers,
leaflets, digital printing
packaging
the prepress software ecosystem in 2005
the prepress software ecosystem in 2008
131
no company is an island...

• clusters

132
the mother of all high tech clusters silicon
valley

133
industry life cylces
134
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venture capital

• venture capital investment is estimated at 7.1
  billion in 2004.
• Silicon Valleys share of national venture
  capital investment has continued to grow every
  year since 1995 rising from 14 that year to 35
  by 2004.
• sectors
• software companies accounted for the largest
  share 27.
• the share of funding to semiconductor firms is
  15.
• biotechnology and medical device firms accounted
  for 18.

136
per capita income

• according to the united states census bureau, of
  the 280 defined metropolitan areas, the San
  Francisco Bay Area has the highest median
  household income in the nation with 62,024 (40
  above national average).

137
Antwerp petrochemical cluster

• the port of Antwerp is the largest and most
  diversified petrochemical centre in Europe.
• seven of the ten largest chemical companies in
  the world have one or more production sites
  within the Antwerp petrochemical cluster.
• Nowhere in the world are more chemical substances
  produced than in the Antwerp port area.
• Belgium represents only 2.7 of the total EU
  population and 3.2 of the European GDP. However,
  the Belgian chemical industry in 2006 covers more
  than 8 of the total European turnover in this
  sector and accounts for nearly 17 of European
  exports of chemical products.

138
some other examples

• hollywood
• a narrow belt in the u.s. northeast and the
  eastern part of the midwest dominated u.s.
  manufacturing up until the mid fifties
• 64 percent share of manufacturing employment
• sialkot's stainless steel cluster in pakistan,
  together with tuttlingen in germany dominate the
  world surgical instrument market.
• diamond trade clusters in antwerp
• porter (1998) lists some 30 clusters in the us
• the auto cluster in detroit, insurance in
  hartford, and aircraft equipment and design in
  seattle, hollywood,...
• 30 export oriented clusters in portugal
• ranging from ornamental stones in evora to
  horticulture in faro

139
determinants of clustering

• world class scientific knowledge
• strong industrial base
• access to capital
• entrepreneurial spirit/role models
• infrastructure
• facilitating organisations
• government support
• roots

140
characteristics

• the existence of a large pool of individuals with
  specialized skills
• reduced search and hiring costs
• requisite quality skill set is easily available
• individuals with skills are attracted to the
  cluster
• existence of firms providing specialized inputs
• high levels of technological spillovers and
  innovation
• due to proximity since information flows are
  easier locally than over distances.
• factors that lead to innovation in clusters.
• existence of sophisticated buyers
• access to specialized suppliers gives high levels
  of flexibility and are able to implement
  innovations more rapidly
• high levels of competition and peer pressure
  within the cluster act as an important stimulus
  for innovation.

141
characteristics

• trust and the related concept of social capital
• deals in valuable diamonds are sealed by a
  handshake on the diamond exchange
• when trust breaks down, unwritten rules must be
  codified and third parties brought in to resolve
  differences.
• under certain conditions clusters slow
  technological innovation
• resource diseconomies
• insular competitive practices
• lock-in in ageing technology

142
end part 1
143

• ELEMENTS OF ENTREPRENEURIAL
• STRATEGIC THINKING

144
what you should do...

• seeing the big picture...
• assessing the technology
• assessing the industry
• canvassing the business ecosystem
• assessing the business project
• uniqueness and complementary assets,
  sustainability
• appropriating value
• business models
• project complexity
• assessing the business portfolio

145
elements of entrepreneurial strategic thinking

• assessing technological innovations performance
  envelopes

146
performance envelopes

• objectives
• canvas key performance criteria of a given
  technology/product/market
• what criteria are determining in the purchase
  decision of your customers?
• if applicable define per market segment
• how does your product rate?
• how does your competition rate?
• the key challenges
• identifying the relevant criteria, segments
• assessing correctly how you and your competitors
  score
• its forces you to consider things from the
  perspective of your customer!

147
the palm example

• palm gridpad
• too big and heavy
• too expensive
• for use inside specialized markets
• no pc connectivity
• apple newton
• heavy and cumbersome
• mediocre handwriting recognition

148
palm pilot

• market segment
• clearly defined target group mobile
  professionals
• criteria
• simplicity
• small size
• reasonable price
• attractive design
• connectivity
• reliable input through easily learned character
  set

149

• palm pilot improvements
• simplicity
• size
• connectivity
• handwriting input

handeld device performance envelope 1996
150
the palm business case lessons

• redefining the performance envelope
• often it is in the definition of the criteria
  that a strike of genius makes the difference!
• example of palm computer
• simplicity replacing pocket calendar
• replacing criterion character recognition by
  input through handwriting
• three criticial success factors
• understanding the customer pain
• understanding deeply an area of technology and
  what it can and cannot deliver today, and
  tomorrow
• find ways to harness the technology to resolve
  these problems

151
canvassing the performance envelope

• define who is your customer
• list known or suspected market segments customer
  groups with specific needs
• list criteria known or suspected to weigh in the
  customer decision
• sources
• expertise , informal information
• hunches, convictions
• market surveys, customer surveys
• a strike of genius in the definition of the
  criteria can make the difference!
• calibrate each criterion
• what is the show stopper level?
• optionally define the relative importance of
  each criterion

152
performance envelope e-ink
153
elements of entrepreneurial strategic thinking

• assessing industries
• is it an interesting industry?

154
Porters 5 industry forces
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elements of entrepreneurial strategic thinking

• business models

157
business model simplified

• what do you need to do in order to run your
  business?
• series of processes
• financially
• how much money do you need start it up
• how much money is tied up in the process
• how much money do you generate

158
keys to economic viability

• revenue is adequate in relation to capital
  investments required and margins
• customer acquisition and retention costs and time
  need to attract customers are viable
• margins are adequate to cover fixed costs
• operating cash cycle characteristics are
  favorable
• how much cash must be tied up in working capital
  (inventory...) and fow how long
• how quick customers will pay
• how slowly suppliers and employees must be paid

159
webvan

• Webvan was an online "credit and delivery"
  grocery business that went bankrupt in 2001. It
  delivered products to customers' homes within a
  30-minute window of their choosing.
• At its peak, it offered service in ten U.S.
  markets San Francisco Bay Area, Dallas, San
  Diego, Los Angeles, Chicago, Seattle, Portland,
  Atlanta, Sacramento, and Orange County. The
  company had originally hoped to expand to 26
  cities
• none of Webvan's senior executives (or major
  investors) had any management experience in the
  supermarket industry, including its CEO George
  Shaheen who had resigned as head of Andersen
  Consulting (now Accenture), a management
  consulting firm, to join the venture.

160

• Webvan tried to embrace a total customer
  satisfaction model involving a 30 minute window
  delivery without considering that many working
  customers would like their groceries delivered at
  home at night.
• Webvan placed a 1 billion (USD) order with
  engineering company Bechtel to build its
  warehouses, bought a fleet of delivery trucks,
  purchased 30 Sun Microsystems Enterprise 4500
  servers, dozens of Compaq ProLiant computers and
  several Cisco Systems 7513 and 7507 routers, as
  well as more than 80 21-inch ViewSonic color
  monitors and at least 115 Herman Miller Aeron
  chairs (at over 800 each).
• orders were smaller than the minimal order size
  to be profitable, so money was lost per order
• its business model was profit proof

161
ebay vs webvan

• webvan
• huge up-front investments
• minimal threshold to run business distribution
  centers, logistics...
• huge operational costs
• requires major change in daily habits of
  customers requires at least time, probably
  marketing efforts to win them over
• cost model of webvan is on at least one points
  worse than traditonal distribution order picking
  by customer
• distribution is very low margin business
• other distributors have huge buying power,
  receive lower prices
• business model requires minimal sales value per
  transaction
• very high risk
• up-front investment

• ebay
• very low investments
• very low operational costs
• little marketing expenses
• high margins
• low risks

162
elements of entrepreneurial strategic thinking

• project complexity

163
complexity for the customer

• (behavioral) change for customer
• novelty of offering for customer
• dis-benefits to customer
• cost price, return on investment, total cost of
  ownership

164
complexity for the company

• marketing/sales capability challenge
• new skills?
• new markets, new channels, different type of
  customers?
• technology reach
• radical?
• impact on processes within company
• entirely new process?
• needed complementary assets
• significant, new?
• business model
• entirely new?
• team members experience in domains
• been there, done that?

165
canvassing project complexity

• identify key elements of strategy
• products, marketing, operations, ...
• assess complexity
• for organisation
• for market
• for each complex project
• argue why it is of importance for the
  organisation to invest in project
• compare to alternative scenarios
• describe resources allocated to tackle project

166
e-ink project complexity

• licensing
• core technology
• legal aspects
• materials
• manufacturing
• support
• screens
• micro-electronics
• devices
• manufacturing
• marketing
• content

• display market
• electricity
• radio communications

167
Xerox PARC

• Palo Alto research center, a flagship research
  division of the Xerox corporation,
• Xerox was one of the leading technology companies
  in the world
• its founder, Carlson received in 1942 a patent
  for photo-copier technology.
• Xerox decided to pioneer the field of personal
  computing and build a research center
• Xerox PARC was the incubator of many elements of
  modern computing
• the mouse (invented at the Stanford research
  institute)
• computer generated color graphics
• the WYSIWYG text editor
• postscript
• ethernet
• smalltalk programming language.
• laser printer

168
the Xerox alto

• conceptualized in 1972
• a real time machine that interacted with a mouse
  and windows.
• contained ethernet, smalltalk, wysiwyg, a
  graphical user interface.
• created roughly three years prior to the IBM PC,
  Xerox could have easily entered the computer
  market with the alto, but chose not to.

169
(on a sidenote pixar)

• Initially, Pixar was a high-end computer hardware
  company that sold to government agencies, the
  medical community and Disney Studios.
• The Image Computer never sold well. In a bid to
  drive sales of the system, Pixar who had long
  been creating short demonstration animations
  premiered his creations at SIGGRAPH, the computer
  graphics industry's largest convention, to great
  fanfare.
• As poor sales of Pixar's computers threatened to
  put the company out of business, Lasseter's
  animation department began producing
  computer-animated commercials for outside
  companies.
• In 1991, after substantial layoffs in the
  company's computer department, Pixar made a 26
  million deal with Disney to produce three
  computer-animated feature films, the first of
  which was Toy Story.
• wikipedia

170
Seybold

• Jonathan Seybold realized there was need for an
  authority, a platform for impartial information
  about electronic publishing.
• He set up the Seybold organization, which
  organized the Seybold Conferences and published
  the Seybold magazine.
• In summer 1984 Jonathan Seybold was invited to
  Apple
• Jobs When that first page came out of the
  LaserWriter, I was blown away. No one had seen
  anything like this before. I held this page up
  in my hand and said, Who will not want that? I
  knew then that this was going to have a profound
  impact.
• Seybold said to Jobs, Youve just turned
  publishing on its head. This is the watershed
  event.
• When I turned to John Warnock, he had this look
  on his face. He was just so happy. It was a magic
  moment.

171
Postscript, the dominant design

• Adobe allowed to license technology to other
  manufacturers.
• Adobe made Postscript public
• Opposite of the existing file formats, whose
  intellectual property was jealously protected.
• any vendor could develop a Postscript
  interpreter.
• at least 40 companies tried to clone Postscript.
• Adobe licensed its technology to a wide range of
  printer vendors.
• IBM, HP (57 meetings in seven years) and major