BA530 Class 5 Competitive Advantage

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BA530 Class 5Competitive Advantage The Sims

• John A. Hengeveld

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Agenda for Today

• Dana Farber
• Grant 10-12
• Winning Through Innovation 1,2,37
• The Sims online case

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The Industry Life Cycle
Industry Sales
Introduction Growth
Maturity Decline
Time

• Drivers of industry evolution
• demand growth
• creation and diffusion of knowledge

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Product and Process Innovation Over Time
Product Innovation
Process Innovation
Rate of innovation
Time
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Standardization of Product Features in Autos
FEATURE INTRODUCTION GENERAL
ADOPTION Speedometer 1901 by
Oldsmobile Circa 1915 Automatic transmission
1st installed 1904 Introduced by Packard as an
option, 1938. Standard on
Cadillacs early 1950s Electric
headlamps GM introduces, 1908 Standard
equipment by 1916 All-steel body GM adoptes
1912 Standard by early 1920s All-steel enclosed
body Dodge, 1923 Becomes standard late
1920s Radio Optional extra 1923 Standard
equipment, 1946 Four-wheel drive Appeared
1924 Only limited availability by 1994 Hydraulic
brakes Introduced 1924 Became standard
1939 Shatterproof glass 1st used
1927 Standard features in Fords 1938 Power
steering Introduced 1952 Standard equipment
by 1969 Antilock brakes Introduced
1972 Standard on GM cars in 1991 Air bags GM
introduces, 1974 By 1994 most new cars
equipped with air bags
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How Typical is the Life Cycle Pattern?

• Technology-intensive industries (e.g.
  pharmaceuticals, semiconductors, computers) may
  retain features of emerging industries.
• Other industries (especially those providing
  basic necessities, e.g. food processing,
  construction, apparel) reach maturity, but not
  decline.
• Industries may experience life cycle
  regeneration.
• Sales
  Sales
• 1900 50 60 90
  1930 50 60 90
• MOTORCYCLES
  TVs
• Life cycle model can help us to anticipate
  industry evolutionbut dangerous to assume any
  common, pre-determined pattern of industy
  development.

Color
Portable
BW
HDTV ?
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Evolution of Industry Structure over the Life
Cycle

• INTRODUCTION GROWTH
  MATURITY DECLINE
• DEMAND Affluent buyers Increasing Mass market
  Knowledgeable,
• penetration replacement customers,
  resi-
• demand dual segments
• TECHNOLOGY Rapid product Product and
  Incremental Well-diffused
• innovation process innovation innovation
  technology
• PRODUCTS Wide variety,
  Standardization Commoditiz-
  Continued rapid design change ation
  commoditization
• MANUFACT- Short-runs, skill Capacity
  shortage, Deskilling Overcapacity
• URING intensive
  mass-production
• TRADE -----Production
  shifts from advanced to developing countries-----
• COMPETITION Technology- Entry exit
  Shakeout Price wars,
• consolidation exit
• KSFs Product innovation
  Process techno- Cost efficiency
  Overhead red- logy. Design for
  uction, ration- alization,
  low

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The Driving Forces of Industry Evolution
BASIC CONDITIONS INDUSTRY STRUCTURE
COMPETITION
Customers become more knowledgeable
experienced
Customers become more price conscious
Quest for new sources of differentiation
Products become more standardized
Diffusion of technology
Price competition intensifies
Production shifts to low-wage countries
Production becomes less RD skill-intensive
Excess capacity increases
Bargaining power of distributors increases
Demand growth slows as market saturation
approaches
Distribution channels consolidate
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Strategy and Performance at across the Industry
Life Cycle
Note The figure shows standardized means for
each variable for businesses at each stage of the
life cycle.
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Preparing for the Future The Role of Scenario
Analysis in Adapting to Industry Change

• Stages in undertaking multiple Scenario Analysis
• Identify major forces driving industry change
• Predict possible impacts of each force on the
  industry environment
• Identify interactions between different external
  forces
• Among range of outcomes, identify 2-4 most
  likely/ most interesting scenarios
  configurations of changeforces and outcomes
• Consider implications of each scenario for the
  company
• Identify key signposts pointing toward the
  emergence of each scenario
• Prepare contingency plan

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Grant Chapter 11
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Alternative Strategies for Exploiting Innovation
Outsourcing certain functions
Strategic Alliance
Joint Venture
Internal Commercialization
Licensing
Biggest risks benefits. Allows complete control
Limits investment, but dependence on suppliers
partners
Benefits of flexibility risks of informal
structure
Shares investment risk. Risk of partner
conflict culture clash
Small risk, but limited returns also (unless
patent position very strong
Risk Return
Allows outside resources capabilities To be
accessed
Few
Permits pooling of the resources/capabilities of
more than one firm
Substantial resource requirements
CompetingResources
Konica licensing its digital camera to HP
Pixars movies (e.g. Toy Story) marketed
distributed by Disney.
Apple and Sharp build the Newton PDA
Microsoft and NBC formed MSNBC
TIs development of Digital Signal Processing
Chips
Examples
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The Comparative Success of Leaders and Followers
PRODUCT INNOVATOR FOLLOWER WINNER Jet
Airliners De Havilland (Comet) Boeing
(707) Follower Float glass Pilkington Corning
Leader X-Ray Scanner EMI General
Electric Follower Office P.C. Xerox IBM Foll
ower VCRs Ampex/Sony Matsushita Follower Diet
Cola R.C. Cola Coca Cola Follower Instant
Cameras Polaroid Kodak Leader Pocket
Calculator Bowmar Texas Instruments Follower Mi
crowave Oven Raytheon Samsung Follower Plain
Paper Copiers Xerox Canon Not clear Fiber
Optic Cable Corning many companies Leader Vide
o Games Players Atari Nintendo/Sega/Sony Followe
rs Disposable Diapers Proctor
Gamble Kimberly-Clark Leader Web
browser Netscape Microsoft Follower PDA Psion
, Apple Palm Follower MP3 music
players Diamond Multimedia Sony
(others) Followers
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The Strategic Management of Technology-To Lead
or to Follow

• Key considerations
• Is innovation appropriable and protectable
  against imitation?
• If so, advantages in
  leadership.
• The role of complementary resources
• Followers may be able to avoid investing in
  complementary resources due to
  better- established industry
  infrastructure
• Firms possessing complementary resources
  have the luxury of waiting
• Is owning/ controlling industry standard critical
  to competitive advantage?
• if so, advantage in being a leader.

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Figure 11.2. Alternative Strategies for
Exploiting Innovation
Alternative Strategies for Exploiting Innovation
Outsourcing certain functions
Strategic Alliance
Joint Venture
Internal Commercialization
Licensing
Biggest investment requirement and corresponding
risks. Benefits of control
V. small investment risk, but small returns also
limited (unless patent position very strong) Some
legal risks
Limits capital investment, but may create
dependence on supplies/partners
Benefits of flexibility, risks of informal
structure
Shares investment and risk. Risk of partner
disagreement and culture clash
Risk Return
Permits accessing of outside resources and
capabilities
Substantial requirements in terms of finance,
production capability, marketing capability,
distribution, etc.
Few
Permits pooling of the resources and capabilities
of more than one firm
CompetingResources
Konica licensing its digital camera to Hewlett
Packard
Pixars computer animated movies (e.g. Toy
Story) marketed and distributed by Disney Co.
Apple and Sharp build the Newton PDA
Microsoft and NBC formed MSNBC
TI divestment of its Digital Signal Processing
Chips
Examples
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The Strategic Management of Technology-To Lead
or to Follow

• Key considerations
• Is innovation appropriable and protectable
  against imitation?
• If so, advantages in
  leadership.
• The role of complementary resources
• Followers may be able to avoid investing in
  complementary resources due to
  better- established industry
  infrastructure
• Firms possessing complementary resources
  have the luxury of waiting
• Is owning/ controlling industry standard critical
  to competitive advantage?
• if so, advantage in being a leader.

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Uncertainty Risk Management in Tech-based
Industries
Selection process for standards and dominant
designs emerge is complex and diifficult to
predict, e.g. future of 3G
Technological uncertainty
Sources of uncertainty
Customer acceptance and adoption rates of
innovations notoriously difficult to predict,
e.g. PC, Xerox copier, Walkman
Market uncertainty

• Cooperating with lead users
• early identification of customer requirements
• assistance in new product development

Strategies for managing risk
Limiting risk exposure avoid major capital
commitments (e.g. lease dont
buy) outsource alliances to access other firms
resources capabilities keep debt low
Flexibilility keep options open use speed of
response to adapt quickly to new
information learn from mistakes
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The Emergence of Standards

• Emergence of a dominant design paradigm
• Model T in autos
• IBM 360 in mainframes
• Douglas DC3 in passenger aircraft
• Emergence of technical standards
• Emerge in industries where there are network
  extremities
• Entrenchment of the dominant designs and
  technical standards
• Learning effects incremental improvement of the
  dominant design
• Switching costs
• Need for coordinated action by multiple players

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Sources of Network Externalities

• User linkages, e.g.
• Telephone systemsonly value of telephone is
  connection to other users
• Video game consolessame platform allows users to
  exchange games and play interactively
• On-line auctionvalue of auction depends on
  number of buyers and sellers participating
• Also, social identificationlistening to same
  music, watching same TV shows, wearing same
  clothes in order to conform
• Availability of complementary products, e.g.
• Most PC applications software written for
  Windows, not Mac.
• In economy autos, easier to get parts and repair
  for a Ford Focus than for a Maruti or Proton
• Economizing on switching costs, e.g.
• In suites of office software, users of Microsoft
  Office more likely to avoid switching costs that
  users of Lotus SmartSuite when they move jobs

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Companies that Own Technical Standards

• COMPANY PRODUCT CATEGORY STANDARD
• Microsoft PC operating systems Windows
• Intel PC microprocessors 86 series
• Matsushita Videocassette recorders VHS system
• Iomega High capacity PC disk drives Zip drives
• Intuit Software for on-line financial
• transactions Quicken
• AMR Computerized airline
• reservations system Sabre
• Rockwell/ 3Com 56K modems V90
• Qualcomm Digital wireless telecom signals CDMA
• Adobe Systems Common file format for creating
• and viewing documents Acrobat

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Competing for StandardsValue Appropriation vs.
Market Acceptance
Maximize value appropriation
Maximize market acceptance
Betamax
VHS
LOOSE
TIGHT
Mac
IBM-PC
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The Conditions for CreativityOperating and
Innovating Organizations
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Strategy Implementation Invention to Innovation

• While invention depends upon creativity,
  successful innovation requires integrating new
  knowledge with multiple business functions.
• Need to link RD departments with other functions
  (the problem of Xeroxs PARC)
• The role of cross-functional new product
  development teams as vehicles for integration
• The role of product champions--in achieving
  integration and counteracting organizational
  inertia.

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Congruence Model
Strategy
Informal Organization -Characterize theWay
things Really get done
EnvironmentHistory
Formal OutputsBalanced ScoreCardFinancial Growt
h Profitability CUSTOMER Internal Learning and
Growth
Critical Tasks -The few key tasks whose success
is essential to implementation of strategy
Formal Organization Resources Financial
Systems Organizational Structure Policies
People Capabilities Management
Training Technical Skills Functional SkillsLong
term development needs
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Congruence ModelTushman and OReilly
Strategy
CULTURE CultureWay things Really get done
Formal Organization STRUCTURE PROCESSES METRICS

Critical Tasks -The few key tasks whose success
is essential to implementation of strategy
People/SKILLS Management Training Technical
Skills Functional SkillsLong term development
needs
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Key to Congruence Analysis

• Assess the degree of alignment of each link
• Organizations where these items are congruent
  (represent the same shape and size, although
  projected into different axis) have a far
  superior chance of successful implementation to
  strategy
• The agenda for change is fixing the links.

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Ambidextrous Organizationsfrom WTI, figure 7.6

• Inc
• Culture PromotingContinuous Improvement
• Incremental Change
• Eliminate Variability
• Reward Volume Cost

• Arch
• Culture PromotingLinkage Across Units
• Adding and LinkingSubsystems
• Reward Integration

• Disc
• Culture PromotingBreakthroughs
• Many Small Failures
• Learn by Doing
• Reward Experimentationand Innovation

• Executive Team
• Provide Clear, Simple Vision
• Balance Multiple Architectures
• Makes Bets on Shifting Innovation
• Manage Ambidextrously
• Today/Tomorrow
• Large/Small Incremental/Discontinuous

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Types of Innovation andInnovation Streams
New
Inexpensive Mechanical Watch Smaller,
ThinnerMechanicalWatches
Swatch ContinuousAim gunfire
First Watch Quartz Watch
Markets
Existing
Incremental Small Extensionsof
Existing Technology
Architectural ReconfiguresExistingTechnology
Discontinuous New operating principles inCore
Subsystems/or DiscontinuousProcess innovation
TO, Winning Through Innovation, figure 7.3
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Organizational CyclesThe success syndrome
SUCCESS
FIT
Inertia StructuralCultural
Size and Age
Successin StableMarkets
Failurein MarketShifts
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The SIMS Case

• What accounts for The Sims being the best selling
  PC game? Why has enthusiasm lasted so long?
• What marketing plan should the Sims pursue?
• EA is the worlds largest game publisher. It
  supports a wide variety of games across many
  platforms. Is such a diversified strategy risky?
  What are the long term consequences?
• Does it make sense for such a large investment in
  EA.com?
• Who poses the greatest competitive threat to EA?
  What do we expect from this market over time?

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Marketing Analysis (The 5Cs)
CreatingValue
MarketSegmentation
Target MarketSelection
Product/ServicePositioning
Marketing Mix (The 4Ps)
CapturingValue
Product Service
Place/Channel
Promotion
Pricing
SustainingValue
CustomerAcquisition
CustomerRetention