Marketing of High-Technology Products and Innovations

Product Development and Management in High-Tech Firms

Chapter Overview

• Technology Maps

• “What to Sell”

• Product Platforms and Derivatives

• “Stopping” rules in new product projects

• Intellectual Property

Review of other Product Management Concepts

(covered earlier in the text)

• Classification for high-tech products– Incremental versus Breakthrough

(Chapter 1)

• Technology Life Cycles(Chapter 2)

• Adoption and Diffusion of Innovation (Chapter 6)

Technology Maps

• Define a stream of new products (breakthroughs + derivatives) company plans to develop over time.

• Used for: – Commitment to new product development– Allocation of resources

• A flexible blueprint that must be updated regularly

Technology Map: 4-Step Process

1

Technology Identification

4

On-going Management - Platforms and derivatives - Killing projects - Intellectual property issues

2

Decide on needed technology additions - Internal development (Make) - External acquisition (Buy) - Partner to co-develop

3

Decide on "What to Sell" strategy - License vs. full commercialization

1. Technology Identification

• Inventory of firm’s valuable know-how that may be sources of revenue generation– Products – Processes

• Such as superior manufacturing skills– Management practices

• Such as knowledge management

2. Decide on needed additions

• Where does firm need new skills/products to round out its offering? – “Make vs. buy” decision

• Internal development

• External acquisition

– Partnering

Adding New Technology: Focus on Development Risk

• Internal Development– New development close to

existing skills– Confidentiality reasons– “NIH” (not invented here):

Only good technology is developed internally.

• External Acquisition– Someone else has already

developed– Save time and effort– Let others take risks first– Keep up with competitors– Obtain technology for

existing brand name/marketing resources

3. Commercialization Decision: “What to sell?”

Focus on Marketing Risk

• Continuum of options, based on the additional expenditures customers must incur beyond the cost of the purchase to derive the intended benefits of the technology– Know-how only

– “Proof of concept”

– Components to OEM

– Final products to end-user

– Service bureau

Lean Towards Selling Know-How When:

• Technology lacks fit with corporate mission• Lack of financial resources to exploit technology• Tight window of opportunity and lack of speed• Market smaller than expected/business unlikely to be

profitable• When allowing firms access to technology is most

appropriate (next slide) • When range of technologies in market is diverse

Allow other firms access to technology (license) when:

• Network externalities: more value as more customers use a product– Tends to favor position close to know-how

• But, know-how hard to price, which pushes away from selling know-how.

– Seek standardization of technology via licensing, etc.

Lean Toward Selling End-Product When:

• Firm’s components are incompatible with general industry standards. – What if firm competes at end-product with

iconoclastic (radically new) product? • Hard to get third-party developers

Sell at Multiple Points on the “What to Sell” continuum when

• Offering technology to competitors may encourage industry standardization– License know-how or sell components on an OEM basis

• Firm may have skills in some segments but not others • Major buyers require second source• To maximize rate of return on technology investment

4. On-going product management

• Managing platforms and derivatives

• “Killing” products – Destructive Creation

• Protecting intellectual property

Product Platforms and Derivatives

• Develop a set of subsystems and interfaces around a common underlying technology “platform” – Common structure for development/production

of a stream of derivative products

– Single design and components shared across set of products, using same underlying technology

Platform Strategy is Attractive in High-Tech Markets

• Unit-one cost structures• Allows for rapid development of market

share/revenues• Speed and flexibility in going after niches

– “gap filling”

• Modularity for customers to “plug-and-play” different firm’s products. – Industry standards

Product Platforms and Derivatives

Family 1

Family 2

Family 3

Per

form

ance

Time

Defining appropriate platform

• Design for high-end of the market– Incorporate as many features as needed for this

segment– To recover high fixed costs – Makes it easier to sell lower priced versions at only

modest incremental cost (vs. vice versa)• Subtraction of features!

– Consistent with both lead user and chasm concepts

When to “Kill” New Products?

• Escalation of commitment– Product champions and technology enthusiasts

are perennial optimists – Personal stake in project – Biases in interpreting information

• Recall info that confirms beliefs• Ignore info that disconfirms beliefs• Re-interpret neutral info as positive, and even

negative info as positive!

More information is not the answer!

• Foster internal culture that fosters open questioning.

• Remove project from core of the firm• “De-couple” withdrawal decision from prior

investments– Different manager make the decision

• Rely on benchmarks established at outset

Protection of Intellectual Property

• “Original works that are creations of the mind” and to which the inventor has rights to protect.

• How to protect it? – Patents– Copyright– Trademark– Trade Secret

Patents

• Confer owner the right to exclude others from making, using, or selling product or process for specific time period – In U.S., 20 years from date of filing

• Three criteria applicant must meet: – Useful: performs some function that benefits humanity– Novel: no prior evidence of invention exists– Nonobvious: no suggestion of invention exists, even when

multiple writings are combined

Two Types of Patent Applications in U.S.

• Provisional: – $150, 1 year time frame to “hold”– Allows inventor to do further research – Establishes a “priority date” of invention

• Utility: – $790 for examiner to render a decision – Granted or denied; applicant can appeal or re-file

(another $790)

Disadvantages in Using Patents

• Patents are public information – From time of filing in countries outside US– From time of grant of patent within US– Competitors may “invent around”

• Patent owner must enforce rights

• Costly!

New Issues with Patent Protection

• Can now patent “business methods” – Effective July 1998– Implications:

• Patents on E-commerce business models/methods

• Patents on medical treatment methods

Tension in Granting Intellectual Property Rights

• Foster creativity and “common good”– Give inventors incentives (exclusive rights to

revenue from their inventions)

• Inhibit spread of creativity and consumer welfare – Slow spread of valuable commercial innovations– Lack of competition and access

Steps in Granting Patents

• Hire patent agent– Provide thorough, accurate understanding of

invention

• Assess state of prior art: – Is the idea truly novel?

• Draft the claims to define the boundaries of the invention

• Draft drawings and application in easy-to-understand terms

Trouble Spots in Patent Protection

• Inventor has previously disclosed idea prior to filing application – At a conference, with investors, etc. – Fatal in foreign protection– US grants one year “grace period” from

disclosure

• Conflict patent rights that infringe on others

Patent Process (Cont).

• File patent application ($790)

• If patent granted: – Pay “issue fee” ($1320)– Pay “maintenance” fees

• 3 ½ years: $1050

• 7 ½ years: $2100

• 11 ½ years: $3160

International Filing Under PCT

• File within 1 year of national application to claim priority back to original filing date

• PCT enables filing one application in home language• Determine individual countries • PCT application published 18 months after priority

date • At applicant’s option, examiner will issue “search”

report and/or preliminary judgment of patentability

International Filing Under PCT

• PCT application enters designated countries and goes before examiners in each

• Translation is required, with fees

• Rights must be enforced in each country

Patenting Costs

U.S. PATENT COSTS FOREIGN PATENT COSTS

Application preparation $8,000-15,000

Searching/patentability $1,000-2,000 PCT filing fee $4,000-5,000

Drafting application $3,000-8,000 Attorney’s time to prepare application

$300-$1200

Filing fees $790 Prosecution

Examination/prosecution Attorney’s time $1,000-2,000

Attorney’s time (per response) $1500-3000 Foreign associate’s time $600-$1,000

PTO fees for “late” responses $110-950 Entry into national countries $1700-5500

Issue fee $1320 Examination in country

TOTAL $18,000-25,000 Translation

Attorney’s time

Foreign associate’s time

TOTAL $80,000

Copyrights• Protect tangible form or manner in which idea is

expressed, not the idea itself. – Example: software code

• Grants inventor right to reproduce and distribute copyrighted works

• Term is: – Life of author + 50 years -or-– Shorter of 75 years from publication or 100 years from

creation of work

• Easy to obtain ©– Register with US Copyright office in case lawsuit is filed

Trademarks

• Names, symbols, devices to distinguish/ identify goods

• Protects firm against unscrupulous competitors who try to deceive/mislead customers

Trade Secrets

• Any concrete information that: – Has commercial value

• useful to company

– Secret• generally unknown

– Not easily ascertainable • Developed at some expense

– Provides competitive advantage

Trade Secrets (Cont.)

• Financial, business, scientific, technical, information including patterns, plans, compilations, formulas, designs, methods, programs, etc.

• To be granted “trade secret” protection, firm must take reasonable steps to protect information

Premised on the notion of confidential relationships

• Nondisclosure Agreements (NDAs)– Signer will not disclose information

• Noncompete Agreements– Signer will not establish/join a competitor’s firm

within a given time frame/territory

• Invention assignment clauses– Grant firm rights to employees’ inventions

Patents or Trade Secret Protection?

• Patents When: – Product will have long

market life

– Product can be reverse-engineered

– Protection can/will be enforced

– Corporate policy

• Trade Secrets When:– Secret not eligible for patent

protection

– Product life cycle is short

– Patent would be hard to enforce

– Secret is not detectable in the product

• (via reverse engineering for example)

Effective Proprietary Information Programs

• Focus on employees• Morale

• Look to senior managers’ behavior– Stand behind security programs

• Share information on a need-to-know basis only

Effective Proprietary Information Programs

• Have a stated policy that is enforced via monitoring• Use caution in sharing information in partnering

relationships (including nondisclosures)• Have awareness of competitive intelligence tactics of

other firms

Managing Intellectual Property

• An asset base that deserves strategic focus

• Patent inventions that fit business strategy