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2. Innovation 1
2. Innovation
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the essence of free market economics• 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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Joseph Alois Schumpeter: Capitalism, socialism and
democracy 1942eigen samenvatting
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oops...
technology strategy for managers and entrepreneurs, Scott Shane 2009
Some thoughts• Innovation are only relevant if they add value
• Why innovate as a company?• To differentiate
• New! Improved!• More value for customer -> higher price + better market position• Create new market; first mover advantage• See Apple’s gross margin: 42% >< Dell: 21%
• To catch up• Neutralize the above
• To reduce costs• Colruyt and IT, RF-ID, electric cars...• = make more money
• And sometimes...• To invent an industry
• Copiers, transistors, photography...
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2.1. some typologies of innovation
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Some typologies of innovation
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• Technology innovations vs. Business innovations
• The kind of people behind the innovation
• Redefining the engineerings specs vs. improving on existing models
• Redefining the value chain vs. addressing the same target group
• The impact of the innovation on the competenties of the current suppliers
2.1.1 Technology innovation vs. business innovation
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Technology innovation...
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Business innovation• Innovation in the way the business is conducted
• Innovation in manufacturing methods and processes• Henri Ford and mass production
• Innovation in distribution channels• Dell• Tupperware
• Innovation in revenue/business models• Free newspapers• Internet
• ...
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The Model T• The Model T set 1908 as the
historic year that the automobile became popular.
• It is generally regarded as the first affordable automobile, the car that opened travel to the common middle-class American
• The Ford Model T was named the world's most influential car of the 20th century in an international poll.
• By 1914 Ford produced more cars than all other automakers combined.
• By 1918, 50 percent of all cars in the world were Fords.
• More than 15 million Model Ts were manufactured, reaching a rate of 10,000 cars a day in 1925.
• Model T production was finally surpassed by the Volkswagen Beetle
•
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Ford Model T• The standard Model T cost
• $850 in 1909 (equivalent to $20,709 today), competing cars cost $2,000–$3,000 ($48,726–$73,089 today)
• $440 in 1915 ($9,521 today).• $290 1920’s ($3,289 today)
• In 1914, an assembly line worker could buy a Model T with four months' pay.
• Sales • 69,762 in 1911• 170,211 in 1912• 202,667 in 1913• 308,162 in 1914• 501,462 in 1915.
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Business innovation: the assembly line• The Model T was the first automobile
mass produced on assembly lines with completely interchangeable parts.
• Before the 20th century, most manufactured products were made individually by hand. A single craftsman or team of craftsmen would create each part of a product and assemble them into the final product, making cut-and-try changes in the parts until they fit and could work together
• The assembly line concept was introduced after a visit by an employee to a slaughterhouse and viewing what was referred to as the "disassembly line". The efficiency of one person removing the same piece over and over caught his attention.
• In 1910 Ford's cars came off the line in three-minute intervals, reducing production time by a factor of eight (requiring 12.5 hours before, 93 minutes afterwards), while using less manpower.
• The knowledge and skills needed by a factory worker were reduced to 84 areas.
• 1913 Experimenting with mounting body on Model T chassis. Ford tested various
assembly methods to optimize the procedures before permanently installing the equipment. The actual assembly line
used an overhead crane to mount the body.
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Ford and the Whole Product• Ford created a massive publicity
machine in Detroit to ensure every newspaper carried stories and ads about the new product.
• Ford's network of local dealers made the car ubiquitous in virtually every city in North America. As independent dealers, the franchises grew rich and publicised not just the Ford but the very concept of automobiling
• Local motor clubs sprang up to help new drivers and to explore the countryside.
• The car was very simple to drive, and easy and cheap to repair.
• Gasstations, roads...
• By the 1920s, a majority of American drivers had learned to drive on the Model T
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Welfare capitalism à la manière de Ford• Ford astonished the world in 1914 by offering a $5 per day wage ($110 in
current dollar terms), which more than doubled the wage of most of his workers.
• The move proved extremely profitable; instead of constant turnover of employees, the best mechanics in Detroit flocked to Ford, bringing their human capital and expertise, raising productivity, and lowering training costs.
• It also set a new, reduced workweek in 1922 a six 8-hour days, giving a 48-hour week. The program started with Saturdays as workdays and sometime later it was changed to a day off.
• Ford's policy also proved that paying people more would enable Ford workers to afford the cars they were producing and be good for the economy.
• The ‘profit-sharing’ was offered to employees who conducted their lives in a manner of which Ford's "Social Department" approved. They frowned on heavy drinking, gambling, and parents that don’t financially support their child. The Social Department used 50 investigators, plus support staff, to maintain employee standards; a large percentage of workers were able to qualify for this "profit-sharing."
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Business innovation at Ford• The assembly line
• Other organisation of work• Substantial productivity increase• But can be copied...
• Low-cost, high volume business model• Opens the car to middle class America
• High salary policy • Hire the best and keep them• Push labour prices up so people can afford cars
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Business innovation: Dell • Michael Saul Dell (born February 23, 1965) is an
American business magnate and the founder and chief executive officer of Dell Inc. He is one of the richest people in the world, with a net worth of US$14 billion in 2010.
• While a student at the University of Texas at Austin in 1984, Michael Dell founded the company with capital of $1000. Operating from Michael Dell's off-campus dormitory room at Dobie Center, the startup aimed to sell IBM PC-compatible computers built from stock components.
• The company advertised the systems in national computer magazines for sale directly to consumers, and custom assembled each ordered unit according to a selection of options. This offered buyers prices lower than those of retail brands.
• In 1992, Fortune magazine included Dell Computer Corporation in its list of the world's 500 largest companies. Michael Dell became the youngest CEO of a Fortune 500 company.
• In 1996, Dell began selling computers via its web site.
• Dell had 13.6% of the global PC market in the third quarter of 2008, and is second in global computer sales, behind Hewlett-Packard.
•
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Value chain innovation
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Order Manufacturer Shipment
Manufacturer Distributor Retailer Enduser
Enduser
Et alors?
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Order Manufacturer Shipment
Manufacturer Distributor Retailer Enduser
Enduser
Stock
Cash in
Dell business model innovation • Build to order, ship direct
• Instead of manufacturer -> distributor -> retailer -> customer
• Existing PC suppliers Compaq, IBM,Olivetti... Were tied to their channel and could (initially) not follow Dells example
• Advantages of Dell business model• No stock @ manufacturer,
distributor, retailer -> cost reduction • Online custom configiration• No outdated inventory• (Generally): cash in before
production begins• Ride on Internet adoption wave
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Last 10 years...
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Business innovation at Tupperware • Tupperware pioneered the direct
marketing strategy made famous by the Tupperware party.
• A Tupperware party is run by a Tupperware consultant for a host who invites friends and neighbors into his or her home to see the product line.
• Tupperware hosts are rewarded with free products based on the level of sales made at their party. Parties also take place in workplaces, schools, and other community groups.
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Value chain innovation in IC’s
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2.1.2 The kind of people behind the innovation
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Who initiates the innovation?• Industry veterans
• ‘The product starter’ (Prof Clarysse)• Innovation/ venture started by an individual or a small team with roots in the
industry• Their business focus is a product, often a creative use of existing technologies to
design new ways of solving a business problem. • ‘Let’s port this software from a minicomputer to a Macintosh’
• They often leave the company they work for because they could not develop their ideas inside this organization.
• Often they become competitors of their previous employer. • As the cycle to get to a product is often quite short and market contacts have been
established, they rarely need large amounts of capital to start.• Example: Artwork Systems
• Researchers• Technology starter• Innovation generated in scientific + research context• Results often in patents • Often in initial phase, requiring significant developments.
• Extensive funding is a must• Researchers often lack industry expertise• And should find partners• See Optrima
• The egg-of-columbus• Great idea, but no IP position, no network, no credentials...• Often quite difficult to successfully go to market• Only if network effects are strong can an early lead result in a long term position
of strength, example eBay
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2.1.3 changing the engineering specs:radical innovation vs. incremental innovation
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• Radical innovation
• redefining the engineering specs
• Based on a different set of engineering principles
• May open up whole new markets and potential applications
• May create great difficulties for incumbent firms
• Can be basis for successful entry by insurgent
• It may take while...
• Incremental innovation
• Improvements
• Introduces relatively minor changes
• Often happens once standards has been established
• Typically drives rapid performance improvement
• Exploits the potential of the established design
• Typically reinforces position of incumbent
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The mother of all incremental innovations: Moore’s Law
Incremental innovation• Powershot G5 Features (2003):
• 5-megapixel CCD• Still images up to 2592 x 1944
pixels• ISO 50 - 400• 1.8-inch 270° Vari-Angle color LCD
viewfinder/monitor• Movie mode with sound: 320x240
and 160x120 up to 180 sec.
• Powershot G10 Features (2008):• 14.7-megapixel CCD• Image sizes up to 4416x 3312
pixels• ISO 50 - 1600• 3.0-inch 270° Vari-Angle color LCD
viewfinder/monitor• Movie clips 640 x 480 @ 30fps,
Maximum clip length 1 hour
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2.1.4 changing the value chain: sustaining innovation vs. disruptive innovation
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Clayton Christensen ‘the innovator’s dilemma’
• Sustaining innovations• those innovations that respond to the needs of the present (sophisticated)
customers of the company• Examples in harddisk industry: all innovations leading to higher storage capacity,
more reliability, higher speed, lower cost• All sustaining (radical or incremental) innovations were introduced by the market
leaders, even if they required investments, write-off of existing expertise… • Sustaining innovations almost never dislocates a market leader
• Disruptive innovations• those innovation that (initially) did not respond to the requirements of
existing customers, but ‘redefined’ the product and (thus) often initially address unserved customers
• Example in harddisk industry: smaller disks• These innovations are almost always ignored by the markt leader
• Who ‘do the right thing’: listen to their customers• It happens that these disruptive technologies mature and conquer the
mainstream market...
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The history of radio’s...
The customer base of the disruptor New customers
– Teenagers and (portable) transistor radio’s– PC’s and 5,25 inch harddisks– Excavation of trenches in city areas
Overserved customers– Technologies may evolve too fast for the average customer– ‘Don’t need that extra storage’– Low-end customers are first to be open for new technology
The companies that want to adapt the technology to their market often fail, the ones that search a market for a given technology often succeed
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Disruptive innovation in harddisks • In this market: disruption = different
(smaller) size • 8” -> 5.25” -> 3,5” -> 2,5” -> 1,8”
• Existing manufacturers listened to their existing customers
• Who wanted faster, more and more reliable storage for less money
• New manufacturers of smaller harddisks found new customers
• -> Mini, PC industry, game consoles...
• Smaller form factor gradually reaches performance that is satisfactory for users of larger form factor
• Through volumes, economies of scale, incremental innovation...
• Generally at lower cost
• These customers make the switch to the new frorm factor and the old format dies off
• Every disruptive innovation in the hard disk market has dislocated the then-market leader
• Is a typical challenge of high tech companies: being pushed to high-end niches
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Disruption in computers: from IBM mainframe...• IBM 7094
• 1960• The full works: computer room,
tilted floor, airco; operators• Switches• 150 kilobyte core memory• About as fast a PC in late
1980’s• Set of disks, tape • Rented for about $ 30.000 per
month• Purchase price $ 1,6 million
• The process• Submit a desk of cards to an
operator through a window• Batch processing• Receive a listing of computer
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IBM in the 60’s• IBM
• The technostructure (Galbraith): large, highly organized, vertically integrated
• The Organization Man; The IBM Way• 1963: $1,2 billion, 1965 $3 billion, 1970 $7,5 billion• 70% market share: IBM and the seven dwarfs • Socially responsible company: colored,
handicapped employees, benefits..• Offered computer at up to 60% discount if
universities offer course in computing
• 7 reserach labs• Solid state electronics• Tape and disk storage (Silicon Valley)• Programming languages• Logic circuits• Fundamentals of solid state physics and
mathematics
• Resdearch gave IBM advantage over its competitors
• Huge customer base to recoup investements• High barriers of entry in industry• Take off...
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Disruption: the microprocessor• A set of integrated circuits that
incorporate the basic architecture of a general purpose stored-program computer
• 1971: Intel 4004• set of 4 chips
• 1974: Intel 8080
• More memory, fewer support chips• Price: $ 360• Compatibility with previous chips
• Substantially less performant than mainframes
• Hobbyists pick up the concept and start building their own computers
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...to the first personal computer• Altair 8800
• Company MITS• Edward Robert: designer• Small model-rocket hobby shop in
Alburquerque...
• Sold as kit for < $400• + option fully assembled & tested for $495 (1
year delivery delays...) • Around Intel 8080
• Cost $75 each
• Designed and promoted as a capable minicomputer
• Properties of Altair (and following PC’s)• Size• Micro-processor based• Prize• Capabilities• Open Bus architecture
• Plug-in devices possible
• The first users were hobbyists, and the first uses were games
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Microsoft• After reading the January 1, 1975
issue of Popular Electronics, Bill Gates called the creators of MITS, offering to demonstrate an implementation of the BASIC programming language for the system.
• Gates had neither an interpreter nor an Altair system, in the eight weeks before the demo he and Allen developed it. The interpreter worked and MITS agreed to distribute Altair BASIC.
• Gates left Harvard University, moved to Albuquerque, New Mexico where MITS was located, and founded Microsoft there.
• Price: $ 60 to $150 for ‘extended version’, sold with memory board. More expensive for other Intel 8080 systems
• Competitors existed, ‘but none was as good and Gate’s and Allen’s, and it was not long before word of that got around’
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"to get a workstation running our software onto every desk and
eventually in every home”
Apple II • Outstanding design:
• fewer chips, higher performance• Ecellent color graphics• Attractively designed• Open bus• Not based on Intel 8080• 5 1/4 inch floppy drive• -> engineering and design• More expensive than competition
(Tandy TRS-80, Commodore PET)
• Ships with Microsoft BASIC in ROM• ‘a payment in August 1977 from
Apple to Microsoft is said to have rescued Microsoft from insolvency at a critical moment of its history’
• One of most popular extensions: Board with CP/M from Microsoft
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The IBM PC• 1950: Small group of IBM
executives identify importance and urgency
• IMB allowed off-campus skunkworks in Florida
• Team @ iBM in charge of developing PC decide to go outside of IBM and comply to standards for nearly all components
• Intel 8080• ASCII• Open bus• Published BIOS specifications• Made no efforts to enforce patents
it held on several aspects of PC design
• Option of color monitor• $4.000 to $5.000
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Still... 1984-1995
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• Microsoft
• Intel
• Dell
• Novell
• Dow Jones/ Nasdaq
• Apple
• IBM
Disruptive innovations• Disruptive innovation...
• Address different customers• Add different value• Use different value chain
• Radical innovations can be disruptive• Digitial photography• Microprocessor, PC
• Radical innovations can be sustaining...• All innovations that inceased performance and reliability and decreased cost
of HD• All innovations that increased performance and reliability and decreased cost
of computers
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2.1.6 The kind of innovation from the perspective of the current suppliers:
competence enhancing innovation vs. competence destroying innovation
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Innovation and core competencies
– Michael Tushman, Harvard Business School
there are two types of radical innovations from the perspective of an incubent firm– competence enhancing innovation
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 innovation
when it undermines the usefulness of the firms’ existing knowledge, skills, abilities, structure, design, production processes, plants, equipment..
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competence enhancing/destroying innovation
Eastman kodak agfa dow jones canon
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Why incumbents often miss the boat of radical and disruptive innovations
• Managers do not see the technology as a threat or opportunity• ‘What is this toy?’
• No incentive to introduce new technology• ‘We’re doing just fine’
• Can improve the performance of their technology• Disruptive technology often spurs technological development in leading technology
• They face organizational obstacles to change their core technology• New products will cannibalize existing sales• They have investments in existing technology• The department in charge of established technology claims resources
• New business incompatible with their business model• Channels
• You could not at the same time sell via channels (as IBM, Compaq) and via the internet (Dell): dealer channel (100% of current sales) would revolt
• Sales model• If you’re selling high-end / high margin solutions on mini-computers through costly direct sales
forces you can’t switch to selling low cost PC’s hardware and software
• Market leaders have hard time do redirect resources away from their current customers
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2.2 some perspectives on innovation
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When the ‘new’ doesn’t make it there...• The most important
innovations increase productivity by orders of magnitude
• Steam, electricity, radio, IT…
• And thus reduce the need for manpower
• Primary -> secondary -> tertiary sector
• In a cumulative process
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Increasing productivity by orders of magnitude
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Pervasive innovations• Some innovations diffuse into nearly every corner of
the economy (and the world)• In this way the printing press absorbed...
• steel• steam• electricity• information technology• internet
• and may be all but destroyed by iPad and digital paper...
• The degree of pervasiveness of a technology defines its true societal impact and therefore business potential
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Technology trajectories...• Technologies follow a trajectory of gradual improvement, up to a
point where it really complies to user needs
• This can result in a massive wave of adoption: Palm, iPhone, GSM, railways, electricity...
• -> when is a technology ready for adoption?
Context • A technology very often depends on complementary assets
• Complementary technologies• Complementary infrastructure
• Examples • Car and oil, roads• Integrated circuits and telecom, storage, displays• Digital camera’s and IT
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The importance of an innovation depends on it’s (and your) place in the value chain...
• The impact of LED vs OLED in LCD TVs
• LED: incremental from perpective of FPD manufacturer, radical for component suppliers
• OLED redefines the product flat panel display
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When technologies compete...
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Technologies compete...
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3. Industry life cycles
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the industry life cycle a framework to understand the dynamics of growth (and decline)
of:– industries
Analog and digital photography commercial sailing ships information technology GSM fitness centers
– companies enfocus, sportopolis agfa, polaroid
– regions wallonia silicon valley
the industry life cycle
performance
Time/effort
Ferment
Takeoff
Maturity
Disruption
MIT Sloan School of Management Technology Strategy Course 2005 Rebecca Henderson
(adoption)
The industry life cycle
Disruption/Era of Ferment
“Dominant design” emerges
Maturity
IncrementalInnovation
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què sera, sera
3.2 dimensions of industry life cycles
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key punctuations in the lifecycle
Tech
nica
lE
ffici
ency
R&D EffortFERMENT
TAKE-OFF
MATURITY
Selection
Retention
Variation
Time
Performance
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the nature of technical work changes
will it work? exploration, fun, creativity key
performance
Time
Ferment
Takeoff
Maturity
(adoption)
Can we make 100,000? And service them?
We need to be responsive & flexible but controlled
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the marketing challenge evolves
performance
Time
Ferment
Takeoff
Maturity
(adoption)
do we have reference customers?
who needs this?
do we have the channels to cope with early majority customers?
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the nature of competition evolves
performance
Time
Ferment
Takeoff
Maturity
(adoption)
fighting for domination
many entrants working together to build a
market
consolidation Economies of scale typically
important Lots of complementary assets:
brand, distribution etc
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the ways in which a firm captures value also evolve dramatically
performance
Time
Ferment
Takeoff
Maturity
(adoption)
we can sell it, make it, ship it, service it, most of the time
speed, ip, differentiation, breaking the industry performane envelope
we may no be leading edge but you’d rather buy from us because...
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the organizational challenge changes dramatically
performance
Time
Ferment
Takeoff
Maturity
(adoption)
grow the organisation
entrepreneurial energy
coordination and control
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the product/process transition
performance
Time
Ferment
Takeoff
Maturity
(adoption)
In the beginning: Innovation focuses around product
concepts, is led by small firms, and is largely exploratory
Competition is on features: profits are made through differentiation.
Once a dominant design emerges: Innovation focuses around process,
delivery, service Most firms are forced out: the large
firms that remain are increasingly structured, hierarchical.Profits fall as opportunities for differentiation fade.
entrepreneurial opportunities over the lifecycle
Ferment
Takeoff
Maturity
Opportunities
New technologies & new markets to be explored
Lower cost solution to the dominant design – compete on production, distribution, or enabling technology
Few opportunities, but “disruption” is possibleEntrants with complementary assets
-Explore new markets-Establish legitimacy-Build an industry association-Survive
-Ensure yours is the DD-Protect DD or share with others-Build customer base w/ appropriate $$$ in manu/distr.
-Find ways to disrupt current industry-Establish a successful niche-Dominate one component of current architecture
Actions
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not necessarily smooth growth
performance
Time
performance growth often is irregular
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do all good things come to and end?technological exhaustion
performance
Time
(adoption) performance may be
ultimately constrained by physical limits:
– sailing ships and the power of wind
– copper wire and transmission capability
– semiconductors and the speed of the electron
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the rate at which new technologies diffuse can vary widely
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a summary by MIT
Life cycles...
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• Embedded in each other• Electricity • Electronics • Integrated circuits• Computers• Operating systems• Software• Plug-ins
•
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ILC dimensions technology s-curves
entrants and shake-outs
dominant design
customer typology
Technology S-curve
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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
• Often S-curved
• LInked to learning curves
• Companies sometimes bet on technology trajectory• Gmail and storage/network bandwidth
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vectors in time
Entrants and shake-out
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entrants and shake-out• fermentation & take-off phase;
fluid phase:• many entrants• competition between entrants is
initially secondary• what counts is adoption of new
technology, rather than competition
• take-off• shake-out• buy or be bought
• New wave of entrants possible during maturity
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Dominant Design
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dominant design A series of (de-facto) standards is
being set in an industry during the initial phases of the industry life-cycle Often during take-off Often is prerequisite for take-off Markets (PCs) or governments (GSM)
can drive the standard setting
Dominant Designs in technology, business model...
Examples: Gasoline & diesel cars Distribution channel for cars IBM PC -> MSDOS -> Windows
Customer typology
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The (start of) the S-curve of adoption
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customer profiles
The adopter profiles Innovators: the technology enthusiasts
– Interested in technology an sich– Nerds– Read technology magazines back to back
Easy to reach– Sometimes work at technology watch dept, and budget to buy one
of each
Early adopters: the visionaries– Interested in using state-of-the-art technology to gain substantial
business advantage– Often senior managers with budget authority– Least price sensitive customers, sometimes willing to invest– Aware of issues with, disadvantages of new technology, willing to
cope with them– Love to be in spotlight as reference customer– Examples: CISCO and extranet, Colruyt and in-store IT systems
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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
Early majority: the pragmatist– Risk is a word with a negative connotation– Want incremental innovation– By proven product from market leader– Based on accepted standards– Through known channel– They don’t go to technology fairs, they go to industry fares– They want partners that are knowledgeable about their industry– When they have chosen they remain faithful
Late majority– Don’t like technology, are afraid of change and complain about the weather
– Laggards – Will only change when the old thing isn’t available anymore
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Crossing the chasm Focus all efforts on a single niche, where your product solves the
greatest problem– Example document management: submission of files of pharmaceutical
companies– Size is not so important: market leadership is what counts
Build the whole product, set up an appropriate distribution channel, conquer this niche
Jump to the next niche– Bowling pins
– Not the sole option, not necessarily succesful– Mass adoption of non-specialised technology can supplant your technology
– See Mobitex vs. GSM
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Other comments on customer typology
my definition of ‘take-off’: – ’when not wanting to be the first is replaced by not wanting to be the last’
Mission critical customers
Sometimes the niche-per-niche strategy fails– Especially when large scale product enters market
PC and Wang, GSM and Mobitex
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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
Bubbles
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The telecom bubble
• 7/2001-7/2002: More than $1 trillion in value has evaporated from the telecommunications industry.
• A wave of liquidations, reorganizations and bankruptcy filings has engulfed both small upstarts and the “financially unassailable” titans.
• Telecom companies developed business models for expansion premised on one industry-adopted myth: Internet and broadband applications would fuel an unforeseeable demand for network capacity to support the increasing flow of data traffic.
• Telecom evangelists believed that data traffic would double every 100 days, and that it would continue to do so for the foreseeable future.
• Buzz surrounding “killer applications.” A demand for exponential data growth rested on the assumption that e-mail would be trailed by new killer broadband applications that would only accelerate Internet adoption and thus increase traffic on the network.
• Venture capitalists invested billions of dollars in new technologies and applications that never passed the Alpha phase of development.
•
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Gartners hype cycle• A hype cycle in Gartner's interpretation
comprises five phases:
• "Technology Trigger" — The first phase of a hype cycle is the "technology trigger" or breakthrough, product launch or other event that generates significant press and interest.
• "Peak of Inflated Expectations" — In the next phase, a frenzy of publicity typically generates over-enthusiasm and unrealistic expectations. There may be some successful applications of a technology, but there are typically more failures.
• "Trough of Disillusionment" — Technologies enter the "trough of disillusionment" because they fail to meet expectations and quickly become unfashionable. Consequently, the press usually abandons the topic and the technology.
• "Slope of Enlightenment" — Although the press may have stopped covering the technology, some businesses continue through the "slope of enlightenment" and experiment to understand the benefits and practical application of the technology.
• "Plateau of Productivity" — A technology reaches the "plateau of productivity" as the benefits of it become widely demonstrated and accepted. The technology becomes increasingly stable and evolves in second and third generations. The final height of the plateau varies according to whether the technology is broadly applicable or benefits only a niche market.
• (wikipedia 19/3/2011)
•
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Identifying a peak of inflated expectations
• ...and the subsequent fall...
• It is very hard to judge what is real and what is a bubble• Spectacular growth of an industry/market IS possible
• See Integrated Circuits, GSM...• Companies involved in this market CAN deliver on a high valuation
• Some considerations• Is the market potential real? Will it develop that rapidly?• Will the individual company really make money on the adoption wave?• Is press and public opinion going in overdrive?
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3.1 My Industry Life Cycle model
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pre
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pre
prehistory ferment take-off expansion maturity, fluid phases decline
Overall comments• We live in a fuzzy world
• No committee officially defines the beginning or end of an ILC phase• What is important is to see the flow
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Prehistory All advances happen in a context
Most innovations are the result of underlying scientific advances
-> An innovation/ILC is always linked to ‘what went before’
Many innovations are a chance event, but the location never is chance Development almost always happens where preceding development happened
"In the field of observation, chance favors the prepared mind." Louis Pasteur
‘the fertile ground’
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Ferment • Gradually the conditions for a major innovation coagulate
• Technology• Complementary technologies, infrastructure, legal context• Awareness of importance
• Frantic activity• Inventors, entrepreneurs, investors• Mostly technologically savvy people• Often activity clusters in certain areas
• Nu rules, no references, no standards
• Competitors have a common cause: create buzz, promote acceptance
• The key challenge: validation• Does is work?• Can you manufacture it?• Is there a market?• Is there a viable business model?
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Take-off• Start of rapid growth of market
• Take-off often starts when • The technology is sufficiently
mature• Surrounding/supporting
technologies and infrastructures are available and widely adopted
• Powerful forces support the adoption• There is (tacit) agreement on
dominant designs
• Tipping point • Potentially sudden massive adoption
• Cars, fax, GSM• ‘Epidemics’
• Lots of media interest• Free press coverage for players
• Industry leaders emerge
• Fights for domination
• Industry clusters emerge
• Still lots of entrants (including incumbents from neighbouring industries)
• Lots of Venture Capital
• Lots of incremental, process, complementary innovations
• Industrial aspects increase in importance
• Value chains emerge
• Is it a bubble?
• Keyword: execution• Key challenge for entrepreneurs:
growing the company• Economies of scale, network effects
Expansion • A period of spectacular and sustained growth is possible
• GSM, PC, Google, automotive, pharma…• Some innovations permeate into every corner of modern life -> enormous ‘collateral growth
opportunities’ • Vertical players, applying technology to specific markets, problems...
• Most markets have largest growth after media attention has diminished
• Economies of scale play a major role: revenue generated from initial advantage is used to overwhelm competition, cut prices, give away new products
• Standard Oil, Microsoft...
• Expansion is difficult moment for newcomers in core industry• Economies of scale/network effects• Fast incremental innovation• Fast company growth • Industry consolidation
• But many possibilities for ‘peripheral’ activities: segments, vertical markets, services, distribution...
• Pervasiveness of technology defines number of ‘segments’
• Market Segmentation -> product differentiation becomes more important
• Geographical extension: new markets open
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Maturity Innovation trajectory comes to an
end Little more to add/improve...
Additional features for spreadsheet?
Innovation shifts to integration of new technologies Example: IT, LEDs, GPS in automotive
Adoption cycle come to an end Close to 100% penetration Can remain large market due to
replacement, geographical expansion
Other dynamics of profitability growth take over economies of scale, synergies mergers and acquisitions
External shocks New technologies Price of materials, components Geo-economic changes
Rise of...
Politics, State interests
Market Entry may become easier again Often driven by complementary assets
Using customer base, brand name, complementary technologies, nationality...
See Google and Apple enter in GSM market; Chinese car manufacturing
Technology of incumbent much easier to copy
Not any more a moving target Restarting design from scratch to match
(and top) current offer Redefine offer
Major challenge: combining size and flexibility
Even giants can stumble Complacency Disruption
Waves of innovation• 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
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Decline And then something happens which makes the technology irrelevant…
A new industry life cycle arises, often after a long gestation period Often a series of elements coagulate to create a major impact Often the decline is al of a sudden evident to all
Todays decline of the PC (and thus Microsoft?)
These changes generally happen far above your head, you cannot impact them Many companies are dependant on the success of a certain technology (or region); if
the technoogy (/region) declines, so do they Photography / newspaper shops Supermarkets (regional)
Surfing on the right wave, and getting off in time, is a major success factor in technology entrepreneurship
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