Management of Technology
(OM476)
Design Dominance and Timing of Entry
February 8, 2006
S. Fisher
Agenda
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How does existence of a dominant design
affect innovation?
Who benefits from dominant designs?
What is the optimal timing of entry into a
market?
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The role of first movers
Review: Technology Cycles
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Selection of a dominant design results in a period
of incremental change, until the next technological
discontinuity.
Group Exercise
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Think of a technology for which there is a
dominant design
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Something other than Microsoft, please
What is the impact of this dominant design
for:
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The dominant provider
Providers of complementary goods
Consumers
The industry as a whole
Battle for Dominant Design: VHS vs. Beta
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1974 – Sony meets with JVC and Matsushita to
discuss plans and design standards for home video
1975 – Sony releases Betamax
1976 – JVC rejects Sony’s ideas, releases VHS
(using some of Sony’s technology)
Division into 2 camps
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Betamax: Sony Toshiba, Sanyo Electric, NEC, Aiwa, and
Pioneer
VHS: Matsushita, Hitachi, Mitsubishi Electric, Sharp, and
Akai Electric
VHS ultimately became the dominant standard –
simpler, longer recording times, better marketing
Key question…
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How does this innovation add value? What is
the utility to the buyer? Dimensions include:
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Productivity
Simplicity
Convenience
Risk
Fun and Image
Environmental friendliness
Remember Performance Indicator!
Network Externalities
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Also known as positive consumption
externalities
The benefit (or value) of using a technology
increases as the number of people using it
(installed base) increases
Examples?
Are there instances when the opposite effect
occurs?
RFID (radio frequency identification)
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Technology used to track materials and
products through the supply chain
Essentially, more sophisticated version of the
bar code
Active vs. passive tags
RFID, continued
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Wal-Mart, US Department of Defense are
requiring suppliers to use RFID
Pros and cons of dominant design in this
situation?
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Tags
Readers
Software
Compatibility and RFID
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Alien’s ALR-9800 reader, designed primarily
for EPC Class I Gen 2 compatibility, has
cleared a major obstacle -- its compliance
with Microsoft’s RFID technology.
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August 20, 2005 from
http://www.rfidgazette.org/2005/08/microsoft_and_a.html
“Our latest solution suite combines modular
flexibility and user-specified capabilities with
ease of integration with IBM, SAP WM and
other technologies,”
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May 4, 2005 from
http://www.catalystinternational.com/content/About_Us/pressreleases/lat
est/CatalystComplete%209.2%20Release.pdf
Components of Value
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Technological utility
Installed base
Complements availability
Greater value --- higher probability of
adoption and design dominance
Timing of Entry
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Categories similar to Rogers’ categories for
diffusion
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First movers
Early followers
Late entrants
First mover advantages? Disadvantages?
Early follower advantages
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Learn from what the first movers have done
Adopt new and more efficient processes
Often have higher ROI in the long term, even
without a significant sales advantage
Source: Boulding and Christen (2001 October). First-mover disadvantage.
Harvard Business Review.
Factors Driving Optimal Timing of Entry
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Certainty of customer preferences
Degree of innovation (level of improvement)
Enabling technologies and complementary
goods
Threat of competitive entry
Ability to withstand early losses
Reputational value
Switching costs
When to enter first
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Likely advantage depends on rates of
technological change and market growth
Short-Lived
Durable
Calm Waters
-Both slow
Unlikely
Very likely
Market Leads
-Market rapid
-Tech slow
Very likely
Likely
Very Unlikely
Unlikely
Likely
Very unlikely
Technology Leads
-Market slow
-Tech rapid
Rough Waters
-Both rapid
Source: Suarez, F. and Lanzolla, G. (April 2005). The half-truth of first-mover advantage. Harvard Business Review.
Next class
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Monday – no class (Feb. break)
Wednesday, Feb 15 – Prepare Apple
Computer case (2002 and 2005)
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Team 3 presenting
Team 7 asking questions (and exec summary)
All other teams preparing exec. summary