Principles to technology to Innovation Technology and Strategy

Generic strategy
BASIC APPLIED NEW PRODUCT DEVELOPMENT ON MARKET
Overall cost Overall differentiation Focus-segment cost Focus-segment
leadership leadership differentiation
Technological policies
Product technological change Product development to reduce Product development to Product development to Product design to meet
product cost by lowering enhance product quality, design only enough exactly the needs of the
materials content, features, deliverability, or performance for the particular business
facilitating ease of switching costs segment's needs segment application
manufacture, simplifying
logistical requirements,
etc.
Universities & Research Institutes
Some large Corporations Companies (both small & large)
Governments & Private investors Venture Corporate Sales Revenue
Process technological change Learning curve process Process development to Process development to tune Process development to tune
Research Councils Capital R&D (ROI) improvement support high tolerances, production and delivery the production and
Process development to greater quality control, system to segment delivery system to
enhance economies of more reliable scheduling, needs in order to lower segment need in order to
scale faster response time to cost improve performance
A process that begins with basic scientific discoveries and ends with commercial products that are adopted by a wide orders, and other
dimensions that improve
range of customers the ability to perform
Gestation time = the time it takes for a firm to convert a patent to a commercial product.
The average gestation time for technologies is 14.5 years display monitors, 14.3 years for desktop printers, 9.7 years Source: Book: Strategic Management of Technology and Innovation by Burgelman, Christensen and Wheelwright, 2009 McGrawHill
desktop memory, and 22.7 years for data transfer technologies (Sood and Tellis, 2005)
Product; Technologies; and Principles
Technology and Strategy
Automotive system= Product (?)
• Technology and competitive strategy:
Subsystems= Body, Engine,
• Technology influencing Business Strategy:
Suspension, Electronics, Drivetrain
• Porter’s “generic strategies” concept is a widely used framework for classifying competitive
Component= strategies.
Transmission, Clutch, Driveshaft, • The generic strategies are:
Wheel bearing • Industrywide differentiation
• Focused differentiation
Technology = Composite material,
• Industrywide cost leadership
Laser technology, CIM, Surface
technology • Focused cost leadership
Principle = (light amplification by • Technology influencing Value chain
stimulated emission of radiation),
light is emitted through a process Other uses of Laser Technology:
optical disk drives, laser printers, and barcode scanners; fiber-optic and free- • Technology and Corporate Strategy
of optical amplification based on
the stimulated emission of space optical communication; laser surgery and skin treatments; cutting and welding
electromagnetic radiation. materials; military and law enforcement devices for marking targets and measuring
range and speed; and laser lighting displays in entertainment.
Technology and scientific principles (Sood and Tellis, 2005)
• Technology Mapping technology
• Systematic application of scientific principles/ knowledge to achieve a specific objective-{productions of goods, provision of services, or development of and business profiles
new product, process, or service}.
within large firms
Technology Principle
Display monitor
Cathode ray tube (CRT) Form an image when electrons, fired from the electron gun, converge to strike a screen
coated with phosphors of different colors Looks like a related
diversification or unrelated
Liquid crystal display (LCD) Create an image by passing light through molecular structures of liquid crystals
diversification ??
Plasma display panel Generate images by passing a high voltage through a low-pressure electrically neutral highly
ionized atmosphere using the polarizing properties of light
Organic light emitting diode Generates light by combining positive and negative excitons (holes emitted by anodes
(OLED) and electrons emitted by cathodes) in a polymer dye through the principle of electroluminescence
A technology strategy =
Computer Printers the approach that a firm
Dot-matrix Create an image by striking pins against an ink ribbon to print closely spaced dots that form takes to obtaining and using
the desired image technology to achieve a new
competitive advantage, or
Inkjet Form images by spraying ionized ink at a sheet of paper through micro-nozzles
Laser Form an image on a photosensitive surface using electrostatic charges, then transfer the to defend an existing
image on to a paper using toners, and then heat the paper to make the image permanent technology-oriented
Thermal Form images on paper by heating ink through sublimation or phase change processes competitive advantage
 Step 1: Analysis of rent generating potential Technology and Strategy
Business Unit Level Audit Corporate Level Audit
• At this level, the audit investigates
• Five important categories of variables that
whether and how the innovative
influence:
capabilities of the corporation are
larger than the sum of those at the
• Resources available for innovative activity individual business units. Five key
• Capacity to understand competitors’ categories are:
strategies and industry evolution with • Resource availability and allocation
respect to innovation • Capacity to understand multi-industry
• Capacity to understand technological competitive strategies and evolution
developments relevant to the business unit • Capacity to understand technological
• Structural and cultural context of the business developments
unit affecting internal entrepreneurial • Corporate structural and cultural context
behavior
• Corporate strategic management
• Strategic management capacity to deal with capability
Source: Arthur D Little “The Strategic Management of internal entrepreneurial initiatives
Technology,” European Management Forum, 1981
Step 1: Technology needs assessment and types
• Technology audit: Process of clarifying the key technologies on which an organization depends Step 3: Making the choice
• Base technologies (yesterday’s source of CA)
• Common place/ commodity (hygiene resources) in the industry;
Technology importance
• everyone must have them to be able to operate= ability to assemble PCB in the electronics industry (is a function of the actual/ Bet Draw
High
(positioned ambiguously;
potential value it brings to (full commitment)
Two options: Invest/ Withdraw)
some class of products for
• Key technologies (today’s source of CA)
the customer/ user)
• have proved effective,
• provide a strategic advantage (cost/ performance/ quality) because not everyone (proprietary/ Cash in Fold
(Examine carefully)
patented) uses them= digital electronics design skills or high speed processor chips (disengage/ redeploy resources)
Low
• Pacing technologies (tomorrow’s probable source of CA) High Low
• while not currently being deployed in the industry, have the proven potential of displacing one of the Relative technology position
key or even base technologies= fuzzy logic software, neural networks, parallel processing systems (expressed wrt competitors is a function of patent/ trade
Harris, Shaw, and Somers (The Strategic
Management of Technology, 1981)
secrets/ know-how position; learning curve effects;
• Emerging technologies talent availability)
• are still under development and thus are unproved
Step 2:
Evaluation of firm’s technology position and its technology competence profile
Technology and Strategy
Technologies Weighting Assessment of Assessment of Relative technology position
Technology and Product-Market Strategy factor own business competitor
C1 C2 C3 Strong Medium Weak
• A firm’s strategy is manifested in the products and services it brings to market.
Key technologies 3-5
• Harris, Shaw, and Somers (The Strategic Management of Technology, 1981) suggest: CAD/ CAM 5 4 4 2
• Step 1: Identify and classify technologies in terms of their importance for competitive advantage FMS 4 3 3 4
• Step 2: Assess the firm’s position relative to its competitors
Pacing 2-4
• Step 3: Make the strategic choice technologies
Laser technologies 5 4 5 5
Composite 3 4 3 3
material
Base technologies 1-2
Cast steel surface 4 3 3 3
Ball bearing 3 5 4 5
Over all rating
 Technology and Strategy: Value chain implications Cumulative cash flow during innovation projects (source: Twiss, 1992)
Source: M.E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance, New York: Free Press
1985
Partial Check List: Corporate Level Audit
Source: Burgelman, Christensen and The technology S-curve for Intel’s semiconductors
Wheelwright (2009)
• Tend to be
incremental, building
on prior developments,
and taking place within
an existing paradigm
• Usually done by
established firms
having:
• existing technical,
market, and
organizational
capabilities
• an existing
customer base
• access to internal
cash flow to invest
Text Book P. 23
Partial Check List: Business Unit Level Audit The Technology S-curve
Source: Burgelman, Christensen and • A predictable pattern followed by a technological evolution/ innovation, from its inception and development to market
Wheelwright (2009) saturation and replacement.
• across technologies and markets !!!
Probability of a paradigm shift increases as
technology approaches natural limits
Reasons:
Emergence of • maturation is an innate feature of each
dominant tech;
standard • as market ages, the focus of innovation
(product
shifts from product to process;
characteristics/
consumer • when there is less incentive for incumbents
preferences to innovate ‘coz of fears of obsolescence or
cannibalization;
• rate of improvement in performance of a
given technology declines because of limits
• technology is not well known and may of scale (i.e., things become either
not attract the attention; impossibly large or small) or system
• certain bottlenecks must be overcome complexity (i.e., things become too complex
before new technological platform can to work flawlessly).
be translated into meaningful
improvements in product performance
 Using Technology S-Curves as a Management Tool The Abernathy-Utterback Model: The Three Phases
• Incumbents can predict when to invest in a radical new technology
• Limitations:
• the inability to identify when to switch technologies
• the failure to incorporate all of the factors that matter to the decision to
switch
• the need for entrants to focus on niche markets before tackling the
mainstream of the market (‘coz of inferior performance)
Source: Book: Strategic Management of
Technology and Innovation by
Burgelman, Christensen and
Wheelwright, 2009 McGrawHill
Dimensions of Technological Competition The Abernathy-Utterback Model: Product and Process Innovation
• Traditional View (of how S curve comes about across technologies and markets !!!): One indicator could be the proportion of Product v/s Process related expenses in
overall R&D Budget Limitations:
• Christensen (1999) notes four generic dimensions of inter-technological competition: functionality,
reliability, convenience, and cost. • Holds best in assembled
manufacturing in which consumers
have homogenous consumer tastes
• Product functionality: primary attribute on which consumers choose products in that category. • Holds less well in non-assembled
manufacturing, and manufactured
products based on non-assembled
components
• Products begin to compete on consistent performance, or higher reliability (consistency under non
ideal conditions), after subsequent innovations increase functionality beyond a certain point. • Does not hold in services
• After product functionality and reliability requirements are satisfied, firms become more willing to
customize product designs to meet customers' specific requirements, such as convenience.
New firms perform best in the fluid phase: During the specific phase:
• They are better than established firms at • a shakeout typically occurs, with approximately
• Product becomes a commodity, and progress occurs through price reductions after the product innovation. WHY? (slide 05); half of the firms exiting the industry;
technology has progressed up the S curve sufficiently on functionality, reliability, and convenience. NECESSARILY?;
• those firms least able to fit their operations to the
• they are worse at efficient production dominant design tend to exit
based on scale economies (less
bothering due to small market)
Established and successor technologies The Abernathy-Utterback Model
• Who shifts the curve:
• Technology evolves through periods of incremental innovation, interrupted by periods of radical
• Usually new entrants ‘coz innovation
incumbents:
• have no incentive to
• The development of a radical innovation leads to a fluid phase, during which time many firms enter
introduce new tech; and compete on the basis of different product designs
• have sunk costs;
• Fluid phase dominated by product innovation
• fear cannibalization of
existing sales; • Product innovation: when technological innovation involves the creation of new goods and services
sold to customers
• fail to see the new tech
as a threat;
• try to improve the • Eventually, the firms in the industry converge on a dominant design, which results in the specific
phase, during which time only incremental innovation occurs
performance of their old
tech; • Specific phase dominated by process innovation
• face organizational • Process innovation: when technological innovation involves problem solving that improves the
method of creating or delivering a product or service
obstacles to changing
their core technologies
• After a while, the cycle repeats itself
Text Book P. 24 Learnings from EB case?
 Sood and Tellis (2005): Conclusion The Bass Model
• no evidence of a single S-shaped curve of performance improvement. • A quantitative tool for forecasting the diffusion of new technology products that
many companies use
• Tech evolve through an irregular step function with long periods of growth in performance • Based on the size of the market, the rate of adoption by innovators and imitators,
interspersed with performance jumps. and the proportion of adopters in the previous time period
• New technologies may enter above or below the performance of existing technologies.
• The performance a pair of competing technologies rarely have a single crossing.
• Previous improvement in performance of the same technology, improvement or crossing by a
rival technology, and especially crossing by a rival firm tend to signal immediate improvement in
performance.
• The rate of technological change and the number of new technologies increase over time. For E.g. Text Book P. 59
• Can be modified to include a variety of factors that affect the diffusion of new
• New technologies come as much from new entrants as from large incumbents. technology products
• Most accurate at predicting the diffusion of consumer durables
• Each new technology introduces a sequence of random, seemingly unpredictable
secondary dimensions as a new basis of competition.
Sood and Tellis (2005): Dimensions of Technological Competition Unifying framework for models predicting technology evolution
• Contrary to the traditional view (of sequence of dimensions of competition):
Exponential curve representing the Moore’s and Kryder’s Law
• suggest a sequence of random, unpredictable secondary dimensions in each of the four
categories
• Each platform technology offered a completely new secondary dimension of competition while
competing on the primary dimension. For example:
• Four successive technologies in monitors: CRT, LCD, plasma, and OLED.
• The CRT monitor was initially introduced on the basis of resolution. Each subsequent technology was inferior
in resolution at the time of introduction but introduced a new important secondary dimension: resolution,
compactness, screen size, and efficacy. Step functions representing the
Gupta, Tobit II, and SAW models
• Categories: Secondary dimensions of competition Sigmoid curve representing the
Logistic, Bass and Gompertz
• 1. Desktop memory: Areal density, reliability, and cost
Law
• 2. Display monitors: Resolution, compactness, screen size, and efficacy
• 3. Desktop printers: Resolution, graphics, speed, and continuous color rendition
• 4. Data transfer: Transfer speed, bandwidth, and connectivity/mobility
Not a S curve: Sood and Tellis (2005)
Unifying framework for models predicting technology evolution
Metrics of Primary Dimension in each Source: Predicting the Path of
Product Category
Technological Innovation:
Smooth Discontinuous
Category Primary
Dimension
Metric SAW vs. Moore, Bass, Gompertz, (Continuous) (Irregular)
and Kryder:
Desktop Storage Bytes per
Sood, James, Tellis
memory Capacity square inch
And Zhu (MS, 2012)
Display Screen Pixels per
monitors resolution square inch
Symmetric Logistics, Bass, Not applicable
Desktop Print Dots per
printers resolution square inch Gompertz
Data Speed of data Megabits
transfer transmission per second (S Shaped)
Asymmetric Moore, Kryder SAW, Tobit II, Gupta,
(Exponential Shaped) Diff Reg
(Irregular step sizes
with irregular wait
times)
 Technical Standards: Why do they come about
• Increasing returns to adoption
Diffusion of technological innovations • When a technology becomes more valuable the more it is adopted.
• An innovation will spread quickly if it • The more they are used, the more they are understood and thus improved
• Has a great advantage over its predecessor • Revenues generated can be used to further develop and refine the technology
• Is compatible with existing systems, procedures, infrastructures, and ways of • Three primary sources of increasing returns to adoption are:
thinking • The Learning Curve;
• Network Externalities;
• Has less rather than greater complexity • Signaling effects
• Can be tried and tested easily without significant cost or commitment • The Learning Curve (depends upon Prior Learning and Absorptive Capacity):
• As a technology is used, producers learn to make it more efficient and effective;
• Can be observed and copied easily
• This pattern has been found to be consistent across a wide range of products and services including
automobiles, ships, semiconductors, drugs and even heart surgery techniques
Technical Standards Source: Schilling, M. (1999). Winning the standards race:: Building installed base and the
availability of complementary goods. European Management Journal, 17(3), 265-274.
• This standard, or ‘dominant design,’ may be embodied in
Technology dissemination pattern and adopter categories • a product design,
• the system architecture of a family of products, or
• the process by which products or services are provided.
• A standard
• may be a dominant design in a core product
• constrains possible configurations in the end products
• E.g., internal combustion engine: defining characteristic of automobiles since the 1908 Ford’s Model T.
• A standard
• may also be a process protocol (little impact on product configuration),
• ensures that producers adhere to some designated practices. E.g., ISO 9000 quality certification.
• Standards may be overturned when a successive generation of technology makes the design obsolete
• Standards shape the technological progress in an area — enabling and constraining what designs are likely to
emerge in the future.
• Technology trajectories — the path a technology takes in the course of its evolution — are often characterized by
‘path dependency’
Overview Technical Standards
Bass Model Limitations
• Industries experience strong pressure to • A dominant design is ‘a single architecture that
select a single (or few) dominant establishes dominance in a product class.’
• Cannot estimate diffusion in the first year of a product’s life
design(s). • Specifications that ensure that different
components are compatible
• Accuracy of predictions depends on the accuracy of assessments of size of the • Bulbs (House v/s Automobiles);
potential market • Standards wars are especially bitter—
and especially crucial to business
• Voltages (DC v/s AC);
success—in markets with strong
• Assumes that the diffusion of a technology product depends only demand-side network effects that cause consumers
factors to play high value on compatibility • Qwerty (keyboards);
• Steel (v/s Al) bodied cars;
• Accuracy is much lower when competing technologies are being introduced • There are multiple determinants shaping
which technology rises to the position of • internal combustion engines v/s hydrogen fuel
the dominant design. cell v/s electric battery
• Further away in time from the initial adoption point the accuracy declines
• Firm strategies is one of those. • Permit independent companies to produce
different components for the same product
• Computers and components
 Technical Standards: Why do they come about Why winning is important: Standards Battles
• Signaling effect • Companies often battle to control technical standards because (if there are proprietary standards and
strong IP regime):
• Even in absence of network externalities and learning curve effects, the size of the installed
base may influence a technology’s likelihood of adoption as a dominant standard. • Lowers BP of Buyers:
• Products that conform to the technical standard can be sold at a premium therefore create a
• For many products, the actual mechanics of the product are nearly impossible for consumers to higher profit margin
observe and evaluate. • although best avoided in early stages (that may require premium pricing or even negative
pricing
• The size of the installed base (or even the perceived size of the installed base) may serve as a
signal of the quality or value of attributes/ systems are difficult to measure. • Lowers BP of Suppliers:
• Suppliers will have to adhere to the company’s technology, giving leverage over them, and
• The installed base may signal that other consumers have already evaluated the performance of allowing to capture a large portion of industry profits
the product and judged it favorably.
• Lowers Competitive rivalry:
• The installed base of a technology may also send a strong signal to producers of complementary • Competitors will have to adopt the technology if it is the industry standard (why??), which puts
goods. them at a competitive disadvantage
Technical Standards: Why do they come about Technical Standards and Customer Adoption
??? ??? • Technical standards influence customer adoption because:
• Customers don’t want to adopt products that might be abandoned
• DIVX v/s DVD
• Customers desire compatibility, particularly for systemic products (composed of
components):
• Computers and printers
• Makes products more functional (ease of use/ interoperable)
• Apps for phones/ tablets
• Facilitates creation of complementary products
• DVD players and Movies
Technical Standards: Why do they come about Technical Standards: How do they come about
• Technical standards may develop because:
• Network or Positive Consumption Externalities
• Of chance occurrence
• the benefit from using a good increases with the number of other users of the same good. • Steel (v/s Al) bodied cars ‘coz of inexpensive
• common in industries that are physically networked
• e.g., railroads, telecommunications… • One technology is superior to another
• also arise when compatibility or complementary goods are important • Nylon and polyester emerged as dominant designs in synthetic fiber ‘coz they have the
• e.g., videotapes for VCRs, film for cameras, apps for smart phones… chemical composition to produce long fibers
• A technology with a large installed base attracts developers of complementary goods; • Governments mandate them
• EU imposed GSM wireless telephony standard to ensure people across EU had compatible
• A technology with a wide range of complementary goods attracts users, increasing the installed phones
base.
• Industry trade associations or standards-setting bodies establish them
• A self-reinforcing cycle ensues • DVD forum
• E.g.:
• Microsoft’s dominance of the OS market and GUI market is due to the early adoption of • Companies take strategic action
their product • WINTEL v/s APPLE; Apple had to budge
• led to a large installed base and the development of complementary products.
• This further increased the installed base and reinforced the cycle. • Network effects
• When a technology (QWERTY, 1880) achieves a large installed base and the cost to change is
too high, industries sometimes converge on technically inferior standards
 How to Win a Standards Battle: Accelerating the ‘Virtuous Cycle’ What If You Lose?
• When the market is likely to select a single dominant standard, and
• size of the installed base drives consumer choice and the production of complementary goods:
• If a standards battle is lost (depending upon Prod Life Cycle, Market Potential and Market
• use marketing, distribution and pricing strategies to promote rapidly deployment of technology, Life Cycle, Technological prowess of the company, appropriability regime):
• even if this means forfeiting returns in the short run.
• Companies can exit the market
• First, firms can diffuse its technology through licensing arrangements and open systems.
• Protecting the technology with appropriability mechanisms (patents, keeping the technology secret,
• Conform to the standard and compete on another dimension
etc.) will slow the diffusion, and
• increase the risk of having the technology locked out altogether.
• Focus on a niche and meet its needs without conforming to the standard
• Second, firms can use inter-organizational linkages with distributors, complementary goods producers,
or customers of its technology to
• quickly establish an installed base or increase the availability of complementary goods.
• Third, firms may also increase the size of the installed base through aggressive promotion and
penetration pricing.
• Firms may be able to influence consumers’ perception of the existing installed base and
• thus increase the likelihood that consumers choose that technology and subsequently increase the
actual installed base.
How to Win a Standards Battle
• To win a standard battle, depends on your ownership of seven key assets: Defending a Technology Standard
• control over an installed base of users:
• Defend against the efforts of other firms by keeping customer switching costs high:
• Make the product backward compatible (evolutionary strategy)
• Manage customer and competitor expectations;
• intellectual property rights; • Make the products more functional, by adding features, or by making peripheral
• To block entry of new compatible technology; components available
• ability to innovate;
• Requires ability to innovate and cannibalize ones tech/ products
• first-mover advantages (pre-empt);
• Set up long-term supply of complementary products or services
• Build an early lead;
• Move aggressively; • Make future generations of the product backward compatible
• Manage customer and competitor expectations;
• manufacturing capabilities;
• Low costs, higher quality/ reliability/ speed;
• Make the products or services incompatible with the alternatives offered by
• strength in complements competitors
• Gain the support of producers of complementary products
• Have a complementary “killer application” making one technology much more attractive than another;
• brand name and reputation.
• Both your tech and your rival's Standards Battles/ Wars: Types • If your tech offers How to Win a Standards Battle: Accelerating the ‘Virtuous Cycle’
tech are compatible with the backward compatibility &
Diffusion versus Protection of Proprietary Technology under Conditions of Strong Network Externalities
older, established technology, your rival's does not;
Table 1, Page 269 from Schilling, Melissa (1999). Winning the standards race:: Building installed base and the availability of complementary goods. European Management Journal, 17(3), 265-274.
but incompatible with each • Is a contest between the
other; backward compatibility of
• Competition between DVD Evolution and the superior
performance of Revolution;
and Divx (both of which will
play CDs) • E.g. Nintendo v/s Atari’s
Super VCS
Definitions:
• Evolution = new tech is
backward compatible; Advantages to Being a Well-established Firm in Introducing a New Technology
• relies on superior Table 2, Page 272 from Schilling, Melissa (1999). Winning the standards race:: Building installed base and the availability of complementary goods. European Management Journal, 17(3), 265-274.
performance with low
switching costs;
• If neither technology is
• Revolution = new tech is backward compatible;
backward incompatible; • The contest between
• offers such compelling Nintendo 64 and the Sony
performance that consumers
Playstation,
are willing to incur switching
costs • AC versus DC in
electrical systems,
Ref: The art of standards war
 Dimensions of innovation (as a process)
Schumpeter’s distinction between ”Invention” and ”innovation” • Dimensions pertaining to innovation as a process should answer the question ‘how’.
• Driver, source, locus, view, and level dimensions deal with this question
• An invention is an idea, a sketch or model for a new or improved device, product,
process or system. • Driver
• It has not yet entered to economic system, and most inventions never do so. • an internal driver of the innovation process can be available knowledge and resources,
• external driver would be a market opportunity or imposed regulations.
• Source
• An innovation is accomplished only with the first commercial transaction involving the
• an internal source is ideation, whereas
new product, process, system or device.
• an external source is adoption of innovation invented elsewhere.
• It is part of the economic system.
• Locus
• defines the extent of an innovation process: firm only (closed process) or network (open
process).
• View
• considers how the innovation process starts and develops;
• whether it is top-down or bottom-up.
• Level
• delineates the split between individual, group, and firm processes.
Dimensions of
organizational
Types of Open Systems innovation
(what all does it
• Proprietary – help providers by reducing competition, giving them control encompass?)
over the development of the technology, and providing a strong incentive
to support the system
Is it missing
• Non-proprietary – have the advantage of being more attractive to customers; something ??
they are neutral, don’t require royalty payments, and are easier for
customers to use
Source: Crossan, M. M., & Apaydin,
M. (2010). A multi‐dimensional
framework of organizational
innovation: A systematic review of the
literature. Journal of management
studies, 47(6), 1154-1191.
Technical Standards and Competition Between Systems
What is innovation?
• Technical standards often lead to competition between systems of companies, rather than
between individual organizations • Schumpeter argued that innovation comes • Innovation is a broad term with multiple
about through new combinations made by an meanings;
• Must decide to support one standard or all standards entrepreneur, resulting in • draws on theories from a variety of disciplines and
has been studied using a wide range of research
• Open standard: a standard for which specifications are known by other companies • a new product, methodologies.
• Open systems are valuable because they: • Innovation is:
• Facilitate the availability of complementary products that create a positive feedback effect • a new process, • production or adoption, assimilation, and
• Encourage other companies to adopt your technology exploitation of a value-added novelty in
• Permit the rapid creation of a large installed base • opening of new market, economic and social spheres;
• renewal and enlargement of products,
• Open standard’s disadvantages
services, and markets;
• The loss of control over the technology, which could lead to a loss in sales • new way of organizing the business
• development of new methods of production;
• That licensees might change your technology in a way that makes it unnecessary for them and
to pay you royalties • new sources of supply • establishment of new management systems.
• An open standard demonstrates to competitors how the technology works, making it • It is both a process and an outcome.
easier for them to imitate it
• innovation as a process will always precede
• Just one of the many views !!! innovation as an outcome
• Closed standard: a system for which those specifications are not known by other companies
 Dimensions of innovation (as an outcome) Measuring commercialization capabilities
• Type
• technical innovations • Successful tech companies exhibit 4 distinguishing characteristics:
• include products, processes, and technologies used to produce products or render services directly • Less Time to market (faster to market)
related to the basic work activity of an organization. • Assuming that the market grows 20% a year, that prices drop 12% a year, and that PLC is
• administrative innovations 5 years, launching a laser printer six months behind schedule can reduce the cumulative
• indirectly related to the basic work activity and more directly related to its managerial aspects such as profits by one third (30%) as compared to the development cost overrun by 30% leads to
organizational structure, administrative processes, and human resources. profit decline of 2.3%
• More range of markets targeted:
• Nature (tacit or explicit) can be applied to both ‘how’ and ‘what’. • Honda when invested heavily to develop multivalve cylinder heads with self adjusting
• While innovation as a product is largely explicit, valves
• innovation in a service or process may remain unarticulated. • applied this tech to motorcycles, cars, lawns mowers, and power generation equipment
• More number of products offered to cater to finer segmentations
• Innovation as a process and innovation as an outcome are not equally important. • market leader in hand held calculators Casio introduced 2.5 times as many products as
follower Sharp
• The role of innovation as an outcome is both necessary and sufficient for a successful exploitation of an • Incorporating greater breadth of technologies in products
idea, whereas that of innovation as a process is only necessary but not sufficient. • Early age copier relied on technology to coordinate the light source, toner system with a
• This is why innovation as an outcome is usually the key dependent variable in empirical studies related to moving piece of paper v/s modern age copier
innovation.
Dimensions of innovation (as an outcome) (WHY?) Innovation: Commercializing technologies (Nevens, Summe, and Uttal, HBR, 1990)
• Form
• there are three: product or service innovation, process innovation, and business model innovation.
• Leading companies:
• Product/service innovation
• commercialize 2/3 times more the number of new products and processes as do their
• ‘the novelty and meaningfulness of new products introduced to the market in a timely fashion’
competitors of comparable size
• Process innovation • Incorporate 2/3 times as many technologies in their products
• ‘introduction of new production methods, new management approaches, and new technology that can • Bring their products to market in less than half the time
be used to improve production and management processes’. • Compete in twice as many geographic markets
• is an internal phenomenon so the referent is essentially the firm itself.
• Business model innovation • Commercialization imperative:
• ‘how a company creates, sells, and delivers value to its customers’, whether it be new to the firm, • Increasing proliferation of new technologies and
customer, or industry. • the speed with which they render previous technology obsolete
• mechanical typewriter 25yrs; electromechanical models 15 yrs; micro processor
controlled models 7 yrs; second generation machine 5yrs
• Technology is increasing expensive
• Market has more fragmentation (segmentation and niche possibilities)
• (Xerox v/s canon in photocopier market, mid 1970s)
Dimensions of innovation (as an outcome) Determinants
of
• Dimensions pertaining to innovation as an outcome should answer the questions ‘what’ or ‘what kind’.
organizational
• Referent, form, magnitude, type, and nature dimensions deal with these questions. innovation
(systematic
• Referent (is linked to several of the other dimensions)
not
• establishes the benchmark which defines the newness (to whom !); exhaustive)
• it can be new to
• the firm, the market it serves, or the industry.
• Magnitude
• indicates the degree of newness with respect to an appropriate referent.
• there can be incremental and radical innovation (‘revolutionary’, ‘disruptive’, ‘discontinuous’, or
‘breakthrough’)
• Incremental innovation represents a variation in existing routines and practices;
• Radical innovation induces fundamental changes and a clear departure from existing practices in the
organization,
Source: Crossan, M. M., & Apaydin, M. (2010). A
multi‐dimensional framework of organizational
innovation: A systematic review of the literature.
Journal of management studies, 47(6), 1154-1191.
 Typologies Typologies: Successive technologies and innovation (Chandy and Tellis, JoM, 2000)
• Technology push or market pull: A market break through
• Technology push results when investment in
existing technology yields
• it is the new knowledge created by technologists or scientists that pushes the innovation process.
improved customer benefits
• Market pull:
• it is the pull of users in the market that is responsible for innovation. A radical product innovation
is a new product that
• ‘Lead users’ are of particular importance.
incorporates a substantially
different core technology and
provides substantially higher
• Product or process innovation: customer benefits relative to
• Product I previous products in the
• ____________________________. industry
• Process I
• _____________________________.
A technological breakthrough
is the product developed out
• New developing industries favor ______________ innovation
of upcoming technology. May
• Maturing industries favor ________________ innovation not necessarily yield superior
• Small new entrants have greatest opportunities in ____________ stage of an industry customer benefits
• Large incumbent firms have advantage in ________________ stage of an industry
• What is a product innovation for one organization might be a process innovation for another
Various Innovation Typologies Typologies
• Typologies:
• technologies (push) or markets (pull),
• product or process innovations,
• Business-model innovation:
• Closed or open innovation’, • A business model describes how an organisation manages incomes and costs through structural
arrangement of activities.
• business model innovation,
• Business model innovation involves re-organising all elements of a business- resources,
products, and processes- into new combinations. Flipkart ???
• technological breakthrough, market breakthrough, and radical innovation
• (based on work of Chandy and Tellis, JoM, 2000 on evolution among successive
technologies);
• incremental, architectural, modular, and radical innovation
• (based on Henderson and Clark’s work on module and architectural combination);
• sustaining or disruptive.
• (based on Christensen’s model of value networks and disruptive innovation);
Key factors to consider in technology/ innovation decisions Typologies
Consideration Descriptions Examples
Anticipated market Assess external demand for Cell phones, MP3, PDAs, OLED TVs
receptiveness technology (short/ long run)
Technology feasibility Evaluate technical barriers to Deep sea oil explorations, physical
progress size of PC microprocessors
Economic viability Examine cost considerations, and Solar fusion, fuel cells for
forecast profitability automobiles, missile defence systems
Anticipated competency Determine whether competencies IT in hospitals, digital technology in
development are sufficient cameras
Organizational suitability Assess fit with the culture and Steel companies focussing on
managerial systems creating app for mobiles/ tablets
 Henderson and Clark’s Taxonomy of Innovations
Source: Henderson, R. M., & Clark, K. B. (1990). Architectural
Why incumbent firms fail in the face of Architectural Innovation: Henderson and Clark
innovation: The reconfiguration of existing product • Component/ Module = a physically distinct portion of the product that
technologies and the failure of established firms. embodies a core design concept and performs a well-defined function.
Administrative science quarterly, 9-30.
• In a fan, motor is a component of the design that delivers power to turn the
fan
A B 1. Sourcing of information: Often lack the right external linkages to gather
Architectural knowledge = information about a new technology architecture emerging in an industry
knowledge about the ways
C
in which the components
are integrated and linked 2. Identifying/ valuing information : Often lack the capacity to recognize the value
together into a coherent D of information about architectural innovation that is presented to them
whole.
3. Using information : Often have difficulty making use of information because
adopting an architectural innovation typically requires a company to restructure
Competence-Enhancing and Competence-Destroying Innovation
Henderson and Clark’s Taxonomy of Innovations
• Radical versus Incremental Innovation
• The radicalness
• is the degree to which it is new and different from previously existing products and
Source: Tushman, M. L., & Anderson,
P. (1986). Technological discontinuities processes.
and organizational environments.
Administrative science quarterly, 439-
465.
• Incremental innovations
• involve only a minor change from (or adjustment to) existing practices.
• refines and extends an established design.
• improvement occurs in individual components, but the underlying core design concepts,
and the links between them, remain the same.
• The radicalness of an innovation is relative;
• It may change over time or with respect to different observers.
Competence-Enhancing and Competence-Destroying Innovation
Henderson and Clark’s Taxonomy of Innovations
• Radical new technology does not always undermine the capabilities of incumbent firms
• Modular/ Component versus architectural innovation
• It is competence-enhancing • Modular innovation
• if it makes use of existing knowledge, skills, abilities, structure, design, production processes and plant and • innovation that changes only the core design concepts of a technology
equipment • changes the components from which the innovation is created, but not the linkages between
• Since its uses existing capabilities and structure firms invest in it those components
• It is competence-destroying
• if it undermines existing skills, structures, etc. • Architectural innovation
• Since it works counter to existing capabilities, investments and processes, even though some times • changes the linkages between the components, but leaves the components themselves
incumbent may invent it, but are reluctant to invest in it. intact
• often triggered by a change in a component- size or some other parameter of its design-that
• Whether an innovation is competence enhancing or competence destroying depends on the perspective of a creates new interactions and new linkages with other components
particular firm.
• changes the overall design of the system or the way components interact.
 Typical characteristics of disruptive innovations
Why do good companies fail?
• Worse product performance at least in the near term
• The Dilemma: The logical decisions of management that are critical to the success of their
companies are also the reasons why they lose their positions of leadership.
• Other attractive features that a few fringe (often new) customers value
• Arises from not being able to anticipate and deal with
• Simpler and cheaper.
• Difference between sustaining and disruptive technologies
• The pace of technological progress often outstrips the needs of the current market.
• Architectural: New functionality achieved through a clever arrangement of ‘off-the shelf’ components or
• Customers and financial structures of successful companies heavily influence the types of technologies.
investments that appear attractive.
• Promise lower margins
• Why do incumbent firms often fail?
• Companies listen to (and focus on) their most lucrative customers
• First commercialized in emerging insignificant markets
• Emerging markets are too small (and risky) to pursue
• Forecasts of emerging markets are generally wrong
• A firm’s existing capabilities shape its approach • Generally not wanted by leading firms’ most profitable customers (hence listening exclusively to one’s
best customers may not always be good)
• Progress may allow technology to ‘leap’ from one market to another
Christensen’s Thesis The Impact of Sustaining and Disruptive Technological Change
Disruptive
Sustaining
• What do good companies do well? • Technologically straightforward solutions offered by entrant firms
• Improve performance of established
products • consisting of off-the-shelf components put together in a product architecture that
was simpler that prior approaches.
• Listen responsively to their customers • Meet demands of mainstream
customers in major markets • underperform than established products in mainstream markets and so could
rarely be initially employed there.
• Offered by established firms
• Invest aggressively in the technology, products, and manufacturing capabilities that satisfied • Have new features that fringe / new customers value: valued only in emerging
their customers’ future needs markets remote from and unimportant to the mainstream.
• Seek higher margins
Product Performance

• Target larger markets rather than smaller ones

Performance demanded
at the high end of the market
• In a nut shell Market Oriented Performance demanded
at the low end of the market
Disruptive
Technological
Innovation
Time
Christensen’s Thesis
• “Well-managed companies often fail because the very management practices that have allowed them to
Performance demanded: old v/s new technology
become industry leaders also make it extremely difficult for them to develop the disruptive technologies that
ultimately steal away their markets.” p.265
• Goodyear and Firestone entered the radial-tire market quite late.

Performance / price
• Xerox let Canon create the small copier market.
• IBM dominated the mainframe market but missed by years the emergence of minicomputers, which
were technologically much simpler than mainframes. What would you like to do??
• Digital Equipment dominated the minicomputer market with innovations like its VAX architecture Why??
but missed the personal-computer market almost completely.
Time
 What can the managers do?
Performance demanded v/s sustaining and disruptive technology
• Embedded projects to develop and commercialize disruptive technologies within an organization whose customers
needed them
• Projects in organizations small enough to get excited about small opportunities and wins
Performance / price

• Planned to fail early and inexpensively in the search for the markets for a disruptive technology
• Utilized the organization’s resources, but maintained independent values and processes
• Found or developed new markets that valued the attributes of the disruptive products, rather than search for a
technological breakthrough
Time
What can the managers do?
• Building on the ideas of sustaining and disruptive innovation and
• The value network: Diffusion of technological innovations
• New products are needed for new markets that have different set of CSFs
• An innovation will spread quickly if it
• Has a great advantage over its predecessor
• Is compatible with existing systems, procedures, infrastructures, and ways of
thinking
• Has less rather than greater complexity
• Can be tried and tested easily without significant cost or commitment
• Can be observed and copied easily
Diffusion of Innovation and Adopter Categories
Market Need v. Technology Improvement conundrum Everett M. Rogers created a typology of adopters:
• Innovators are the first 2.5% of individuals to adopt an innovation.
• They are adventurous, comfortable with a high degree of complexity
• Rational managers can rarely build a cogent case for entering small, poorly defined low-end markets that offer and uncertainty, and typically have access to substantial financial
only lower profitability. resources.
• Early Adopters are the next 13.5% to adopt the innovation.
• In good companies, resources and energy coalesce most readily behind proposals to attack upmarket into • They are well integrated into their social system, and have great
higher-performance products that can earn higher margins. potential for opinion leadership.
• Other potential adopters look to early adopters for information and
advice, thus early adopters make excellent "missionaries" for new
products or processes.
• Unable to envision: Technologies can progress faster than demand
• Early Majority are the next 34%.
• They adopt innovations slightly before the average member of a
• End up giving customers more than they need or are willing to pay social system.
• They are typically not opinion leaders, but they interact frequently
with their peers.
• Which allows room for underperforming disruptive technologies • Late Majority are the next 34%.
• They approach innovation with a skeptical air, and may not adopt the
innovation until they feel pressure from their peers.
• They may have scarce resources.
• Laggards are the last 16%.
• They base their decisions primarily on past experience and possess
almost no opinion leadership.
• They are highly skeptical of innovations and innovators, and must
feel certain that a new innovation will not fail prior to adopting it.
 What can the managers do? Learning Launch: Key Stages
https://ideas.darden.virginia.edu/2016/06/the-learning-launch-how-to-grow-your-business-with-the-scientific-method/
• Determine whether a technology is technologically disruptive or sustaining: internal disagreements Stage 1: Immerse yourself in the data, looking for patterns and possibilities.
between technical managers and marketing and financial manager • Look at what you know about customers, industry value chain, internal capabilities and resources.
Stage 2: Generate a new business idea.
• Define the strategic significance of the technology: Plot performance with time for existing and • Based on inputs from Stage 1, generate a hypothesis specifying
potential disruptive technology; check the slopes and potential intersections; • the value proposition to a particular customer, the execution strategy, and likely competitor reaction.
Stage 3: Articulate the assumptions on which the new business idea’s success is based.
• Locate the initial market for the disruptive technology: Experiment rapidly, iteratively, and
inexpensively: • Articulate the critical assumptions that the hypothesis rests on relative to customers, capabilities and competitors.
• Separate out the unknowns that matter — the critical assumptions — from the ones that don’t.
• Embed projects to develop and commercialize disruptive technologies within an organization. Stage 4: Design and conduct a learning launch to test assumptions.
• Plan and execute a series of small moves that will allow you to gather data to test whether or not these
• Projects in organizations small enough to get excited about small opportunities and wins assumptions turn out to be true
• Getting a prototype in the market with prospective customers as quickly as possible is critical.
• Plan to fail early and inexpensively in the search for the markets for a disruptive technology Stage 5: Revise or kill the idea based on your findings.
• Based on the outcome, either continue to pursue the new initiative, refining and improving it, or
• Utilize the organization’s resources, but maintain independent values and processes
• kill it if results suggest that it is unlikely to succeed.
• A relevant tool: Designing learning launches… Stage 6: Scale the business idea when appropriate.
• After enough research through the learning launch about the viability of the idea;
• Place the responsibility for building disruptive technology business in an independent • move to staging a roll-out of the idea.
organization
What can the managers do? Learning Launch
https://ideas.darden.virginia.edu/2016/06/the-learning-launch-how-to-grow-your-business-with-the-scientific-method/
• Building on the ideas of sustaining and disruptive innovation and
• Starts with hypothesis-generating by asking a what-if question (creative part),
• The value network:
• identify a new possibility to act on
• New products are needed for new markets that have different set of CSFs
• may be an educated guess
• Then to test the hypothesis, specify the boundary conditions.
• In other words, ask:
• under what conditions would that hypothesis hold true? or
• what would need to be true in order for the idea to be a good one?
• Identify the assumptions underlying your hypothesis, and
• then find the appropriate data with which to test them (analytic part).
• If assumptions do not turn out to be true, and hypothesis is disproved,
• Then take the new data and go back and use it to restate the hypothesis better.
• And then you test that new and improved hypothesis.
• It is an iterative process that you cycle through continuously, learning something new each time that allows
you to develop a better hypothesis for the next pass.
The Impact of Sustaining and Disruptive Technological Change Learning Launch
https://ideas.darden.virginia.edu/2016/06/the-learning-launch-how-to-grow-your-business-with-the-scientific-method/
Disruptive
Sustaining
• Technologically straightforward solutions offered by entrant firms
• Improve performance of established
products • consisting of off-the-shelf components put together in a product architecture that • A carefully designed experiment or prototype
was simpler that prior approaches. • to test the key underlying value-generating assumptions of a new initiative.
• Meet demands of mainstream
customers in major markets • underperform than established products in mainstream markets and so could • a learning experiment conducted quickly and inexpensively to gather data
rarely be initially employed there.
• Offered by established firms
• Have new features that fringe / new customers value: valued only in emerging • Context: Where do learning launches fit strategically?
markets remote from and unimportant to the mainstream.
• Companies should
• undertake a portfolio of growth initiatives that are
• designed to produce new sources of revenue,
Product Performance

• that can be scaled across a large geographical area or customer base.

Performance demanded • The purpose of growth initiatives is to create new S Curves of income to replace existing S Curves as they
at the high end of the market
mature.
Performance demanded
at the low end of the market • Learning launches are a methodology for testing ideas to determine which qualify as business
Disruptive opportunities.
Technological
Innovation
Time
 Typical characteristics of disruptive innovations
Technology dissemination pattern and Customer adopter categories • Worse product performance at least in the near term • New attractive features valued by fringe customers
Achieve adoption by mainstream customers • unattractive for mainstream customers (at the time of • Simpler and cheaper.
• Different parts of the market adopt new technology at introduction) ‘coz of inferior performance on desired attributes • First commercialized in emerging insignificant markets
different rates (Crossing the Chasm, Geoffrey • Promise lower margins
• Generally not wanted by leading firms’ most profitable
Moore) customers (asymmetric motivation for providers of technology) • Developments over time raise the new product’s attributes to
• Innovators (tech enthusiasts) and Early adopters acceptable levels;
• Architectural: New functionality achieved through a clever
(visionary) are quick to see benefits of new tech. arrangement of ‘off-the shelf’ components or technologies. • attracting more of the mainstream market
• The early majority, “ are content to see how other • introduces a new set of features, performance, and price • Canon’s introduction of slower but inexpensive tabletop
people are doing but before they buy in themselves”. attributes wrt existing products photocopiers in the late 1970s relative to Xerox’s high-speed big
copiers.
• Moore refers to the gap between the needs of the
early adopters and the needs of the majority as a • In a nut shell:
chasm. • Does the product target either over-served customers (by offering lower prices for lower performance) or create a new
• “ Crossing the chasm must be the primary focus 1. The Chasm is wider for some technologies. Its width depends upon
the switching costs. market (by targeting unserved customers who could not use or afford earlier)?
of any long term high tech marketing plan”
• The key is in “making the transition from an early 2. For low switching costs, small improvement in value
• Does it create asymmetric motivation?
proposition is enough
market dominated by a few visionary customers to a
3. For high switching costs, collaboration with complementors
mainstream market dominated by a large block of • How does current product perform vis-à-vis existing products? Can the performance improvement keep pace with
may be necessary.
customers who are predominantly pragmatists in customers expectations while retaining the low cost structures?
4. The best way to cross the chasm is to seek to dominate a niche.
orientation”. 5. Narrow focus allows the innovator to provide excellent support,
• The product offering must evolve to meet the develop targeted marketing messages, and promote word-of-mouth • Does it create new value networks, including sales channels?
differing needs of those market segments. marketing.
• Does it disrupt all incumbents or can an existing player exploit the opportunity?
Technology Innovation process
Burgelman et al 2008 Shane, 2004
Burgelman, Shane, 2004
Christensen, & Activities (observing, tinkering, Innovation is the
Wheelwright (2008) experimenting, developing, & process of using
commercialization) leading to knowledge to
Theoretical and practical Application of 1. new, marketable products and solve a problem
knowledge, skills and tools, services and/or
artifacts that can be materials, 2. new production and delivery
used to: processes Low-end:
systems focus on
1. develop products and and New markets:
compete with lower tiers of
services, and techniques to non- main
2. their production and human activity consumption; markets;
Technological Innovation
delivery systems. simpler, more
Burgelman et al 2008 Shane, 2004 user friendly,
motivate
can be embodied in incumbents
Can be technology-based or Technological Innovation can be used by to leave the
people, materials, facilitated by technology is the use of knowledge less market
cognitive and sophisticated
Successful technological to apply tools, materials, customers
physical processes, (minimills,
innovation = one that which processes and techniques (PC, transistor discount
plant, equipment and returns the original investment to come up with new radio, desk stores,
tools plus some additional returns solutions to problems copiers). Korean auto-
makers)
The Abernathy and Utterback Model: In a nut shell
Some definitions
• Applicable for assembled manufacturing in which consumers have homogenous
consumer tastes…
Invention Discovery
We invent what did not exist earlier We discover what existed before, though to us unknown
• Incumbents have trouble transitioning to new radical technologies (True/ False)
• Tushman’s work
• Incumbent firms successfully transition from one tech to another when the tech is not
Basic research Applied research radical (True/ False)
Activities involved in generating new knowledge Geared to solving real life problems through technology • Henderson and Clarke’s work
Undertaken by scientists Undertaken by technologists
 Sidedness in Networks Networks and Platforms * = Subsidy Side
• _______________ networks: Transaction partners alternate roles, e.g., emailers send & receive, traders buy & sell
• _______________ networks: Users are permanent members of one distinct group (side) which transacts with a second group, Networked Market Platform providers Side 1 Side 2
e.g.,
Cases of Proprietary Platforms
• Job seekers + recruiters; Card holders + merchants
PC operating systems Windows, Macintosh Consumers Application developers*
• _______________ networks: have three distinct groups with members of each group exhibiting a preference regarding the
number of users in both the other groups Online recruitment Monster, Naukri Job seekers* Employers
• YouTube: Content consumers, third-party content providers, and advertisers Web search Google, Yahoo Searchers* Advertisers
Network Effects Video games PlayStation, Xbox Players* Developers
• Properties Shopping malls Treasure Island, Indore Shoppers* Retailers
• WTP tends to increase as “S”-shaped (logistic) function of network growth
Cases of Shared Platforms
• Network effects are _______________________ economies of scale, i.e., they impact revenues Linux application servers IBM, Hewlett-Packard, Dell Enterprises Application developers
• are not _____________________ scale economies (unit margins improves through fixed-cost leverage) Wi-Fi equipment Linksys, Cisco, Dell Laptop users Access points
DVD Sony, Toshiba, Samsung Consumers Studios
• May be positive (large base is appealing/ non appealing) or negative (large base is appealing/ non appealing)
Universal Product Code NCR, Symbol Technologies Product suppliers Retailers
• Network externalities have two varieties:
• __________________ network effects: externalities that come from the direct interaction of users
• __________________ network effects: externalities that develop when the presence of complementary goods
increases a product’s value
• ____________ = A system of Networks Network Effects: Strength
interconnected nodes
• Strength as a function of size:
• _______________ = people
(alumni network), firms (network of • Metcalfe's law: the value of a network is proportional to the square of the number of devices in it
affiliated cos), places (network of • Inspired by Robert Metcalfe, designer of Ethernet protocol
destinations served), or things
(computers on a LAN)) • Based on properties of Mesh Network= each node may be linked to N-1 others
• Thus, total no. of possible one-way links = N * (N-1) ≈ N^2, as N approaches large:
• Network users (_____________)
access a common platform that • WTP tends to increase as “S”-shaped (logistic) function of network growth
facilitates their interactions
• More reasonable ‘coz:
• Budgetary and attention constraints hamper the growth rate of WTP
• ____________ = subset of
components and rules employed • Late adopters are not as valuable to others (the users) as early adopters
by users in most of their
transactions
• Components + Architecture • Strength as a function of:
• Rules • Novelty from repeated transactions (DVDs)
• Users mobility require geographic coverage (ATMs, Wi-Fi, refueling)
• Why do nodes rely on a platform?
What does it do?
• Idiosyncratic needs and offers (home buying, executive recruiting)
• (The three functions !!!)
Learning for the theory of disruption (low end or new market)
(play the odds and avoid head-on competition with better resource incumbents)… Network Effects: Side (same v/s cross); Influence (Positive vs/ Negative)
• A ________________ effect for each side:
• Small competitors at the periphery of business very likely should be ignored-unless they are on
disruptive trajectory • (?? favorable/ unfavorable) preference regarding
number of other users on own side
• Misleading to use disruption to refer to a product or service at one fixed point: it is a process about • Video Game: swapping among peers
evolution of the product/ service over time • Video Game: Developers A and B
• Disruptors tends to focus on getting the business model, rather than merely the product just right: Value
Network • A ______________ effect in each direction:
• (?? favorable/ unfavorable) preference regarding
• When disruptors succeed, their movement from fringe to mainstream erodes first the incumbents’ number of users on other side
market share and then their profitability
• YouTube: Content consumers and third-party
• This can take time and incumbents get quite creative in the defense of their established franchise
content providers
• A two sided network has ___________ • YouTube: Third-party content providers and
• Complete substitution, if at all, may take decades, because the incremental profit from staying with the
sided effects Advertisers
old model for one more year trumps proposals to write off these assets in one stroke.
• YouTube: Content consumers and Advertisers
• Incumbent companies do need to respond to disruption if it’s occurring but should not overreact by
dismantling a still profitable business.
• Each effect can be ??positive/ negative
• Not every disruptive path leads to triumph, and not every triumphant newcomer follows a disruptive
path.
 Platform Types: categories depending upon Sponsors and Providers
1. Platform Control
• Platform Sponsors and Providers One Provider Many Providers
• Platform typology based on sponsors and providers:
One
Proprietary, Licensed, JVs, and Shared Sponsor
• Decision rules: choosing amongst one of the above
• Challenges and priorities for Network Mobilization
Many
Sponsors
• Platform typology based on Platform function:
Connectivity, Variety, Price-setting, and Matching
• Challenges and priorities for Network Mobilization
Platform mediated network: Need for Study Network and Platform: A step back
• Distinctive management challenges (not mutually exclusive) • Networked market Networked market = Instant messaging
1. Platform Control: Proprietary v/s Shared Platform (depends upon WTA comprises of multiple
networks NETWORK = Whatsapp Hike Mobile SMS
dynamics)
• Network comprises of Sponsors ?? ?? ??
• Sponsors
2. Business model • Platform component Platform component ?? ?? ??
1. Pricing suppliers suppliers
2. How many sides on board • Providers Providers ?? ?? ??
• Platform
3. Design • Components Platform Components ?? ?? ??
4. Governance • Architectures
• Rules Architectures ?? ?? ??
• Users
3. WTA dynamics
• Every platform-mediated Rules ?? ?? ??
network has one and only
4. Threat of Envelopment one platform at its core
Users ?? ?? ??
• Every platform serves one
and only network
• In most contexts we use the terms “networks” and “platform” interchangeably
Platform Platform Roles: Sponsors and Providers
• Providers
• In the context of _______________________:
• mediate users’ interactions
• P = subset of components used in common across multiple offerings in a product family (e.g., car platform that shares • users’ primary point of contact with
chassis, drive train, and engine across models) platform
• In the context of a ____________________: (remember eBay’s example) • Sole provider: XBOX,
• building blocks (products, technologies or services), • Multiple provider: DVD forum
• a foundation upon which an array of firms (business ecosystem) comes together to develop complementary offerings • Sponsors
• should perform a critical function of the overall system/ solve a crucial technological issue of an industry, • do not deal directly with users;
• should be easy to connect to, ‘‘build upon’’ and provide space for new and unplanned usage. • hold property rights that determine:
• Who may change platform tech ?? Provider:
• Who may participate as a platform Single/
• Platform encompasses the common components and rules employed by network users in most of their interactions
provider or network user Multiple
• _____________________: • Single sponsorship:
• Include hardware, software, and services required by users • eBay, ?? Sponsor:
• _____________________: • Skype’s VOIP, Single/
• That specifies how the components fit together • Apple’s iOS Multiple
• _____________________: Include • Multiple sponsorship:
• IEEE’s WLAN network technology • Platforms may be sponsored or unsponsored (may not have an obvious
• Standards: ensure compatibility between components sponsor: internet; internal combustion engine powered transportation)
standards (802.11g)
• Protocols: that govern the information exchange (e.g., authentication procedure)
• Android • In case of internet the responsibility of improving underlying core technologies
• Policies: constraining the behavior of network users (e.g., copyrighted material may be shared) lies with several SSOs, Internet Engineering Task Force, and the WWW
• Each role may be filled by one firm or many Consortium. Governments hold the right to decide who will be the providers in
• Contracts: specifying the terms of exchange and the rights and responsibilities of network participants
• sometimes, a single company fills both roles the respective countries
 BM CHALLENGE NO. 1: How Many Sides to Bring on Board?
Challenges and priorities during Network Mobilization • More sides lead to potentially larger cross-side network effects (as with Windows), larger scale and potentially
diversified sources of revenues (as with LinkedIn).
• Restrict Membership
• Two reasons for staying with fewer sides.
• Profit from Intellectual Property (IP) rights • may not be economically viable for one (or several) sides to exist independently.
• Profit from Implementation • attracting many sides increases the risk of creating too much complexity and conflicts of interest among the multiple
sides and the MSP
• MSPs find it easier to solve the initial chicken-and-egg problem by starting with fewer sides and at least partially
vertically integrating into some of the “missing” sides
WTA in case of Proprietary Platform
• Users: worry about hold-up by Monopolist
• For Providers the key challenge:
2. Business Model Challenges
• (finding the right formula) to create value for users
• Providers worry about losing 100% of their investment if they are not the winner
• WTA at the platform level = WTA at the individual provider level only for proprietary platforms;
No. 1: How Many Sides to Bring on Board?
• WTA for a proprietary platform implies a monopoly for a single firm.
No. 2: Multisided Platform Design
Competing on a Shared Platform
No. 3: Multisided Platform Pricing Structures
• Key challenge: to recruit peer providers and (finding the right formula) to capture value for peer providers
• Shared platforms, by definition, always have multiple providers.
No. 4: Multisided Platform Governance Rules
• WTA for a shared platform means that all users rely on a single platform, as with fax or the WWW, but may procure
platform goods and services from different providers; no rival platforms exist.
• Pulled together by positive impact on platform adoption and each firm’s survival odds
• Pulled apart by reduction in appropriability of platform rent (Hold up)
Platform: Decision Rules Platform Types: based on Functions
• Choose proprietary WTA Potential?
• Multi homing costs; Transaction partner identity is generally: Priorities for Network Mobilization:
approach if your firm has an
edge: • Network effects; known Ex Ante known Ex Post ??
• Demand for differentiated features
• Strong patents One Sided
• Controlling other key Yes No
resources (High for at least one user side/
Strong positive at least for the ones with high
multi- homing costs/
Weak)
• When many evenly matched
firms (can simultaneously Does the Network
launch a new platform): Mobilization
requires big
investments that Yes
• Winner-take-all market (High/
are subject to Free
encourages shared Required/
approach Rider Issues? Yes)
Two Sided
• (to avoid total loss) • Centralized
infrastructure
• Free-rider problems
encourage proprietary • User subsidy
approach
• Large upfront No
• (to be able to
recover subsidies R&D costs in
provided to capture weaker IP
the user) regimes
 BM CHALLENGE NO. 4: Multisided Platform Governance Rules
Winner-Take-All Implications
• Sharing and racing are “bet-the-company” decisions, so organizational design is crucial
• MSPs use non price governance rules to regulate
• access to the MSP: Who is allowed to join?
• interactions on the MSP: What are the various sides allowed to do? • WTA ⇒ monopoly power ⇒ government intervention
• Choice of tighter governance rules reflects favor of quality (iOS v/s Android) over quantity. • Networked market is more likely to be served by a single platform when:
• Benefits of higher quality have to be weighed against the costs of implementing tighter governance rules. • The platform is a natural monopoly
• Key question: What are the “market failures” that would prevent the ecosystem from functioning properly and • Multi-homing costs are high
that we cannot eliminate through pricing?
• Three potential sources of market failures: • Network effects are positive and strong
• insufficient information and transparency in the market
• the risk that too much competition within one side of an MSP: • Demand for differentiated features is weak
• without strict governance, users might not take actions that would have +VE spillover for MSP and other users.
BM CHALLENGE NO. 3: Multisided Platform Pricing Structures
• Most useful pricing • The determinants of pricing: 3. Winner-Take-All Dynamics
principles: • Ability to capture cross-side network effects (can subsidy side
• Charge higher price to the transact with rival platforms);
side that: • User sensitivity to price;
• is less price sensitive. • User sensitivity to Quality (charge premium from the suppliers) • Conditions for existence
• Output costs;
• stands to benefit more • Same-side network effects; • Platform Structure
from the presence of the • User’s (marquee) brand value.
other side or sides, if • Platform Structure Dynamics: Homing v/s Switching costs
there is no priced
transaction between the
sides
• can extract more value
from the other side, if
there is a priced
transaction between two
sides
BM CHALLENGE NO. 2: Multisided Platform Design Dynamic framework • Challenges of being a MSP:
• MSPs can encompass a tremendous variety of functionalities and features that reduce for designing and • Chicken and Egg
• Search costs expanding MSP • MSP partners do not
like being held up:
Value appropriation
• Transaction costs •Complexity of running
a MSP biz: too many
moving parts
• Product development costs
• If the cost of building and implementing is less than the value created for the multiple sides served,
include them. • Success as MSP requires
(on at least one side):
• Indirect network
• To deal with issues that involve features putting the interests of different sides including that of the MSP at odds: effect: quantity and
quality
• MSPs must be ready to make sacrifices of direct short-term revenue in order to not alienate the participants
• Hi switching costs
whose utility is decreased by the design features in question.
• High multi-homing
costs
 4. Envelopment
• Platforms frequently have overlapping user bases. Bonardi, J. P., & Durand, R. (2003). Managing network effects in high-tech markets. The Academy of
• Leveraging these shared relationships can make it easy and attractive for one platform provider to swallow the network of Management Executive, 17(4), 40-52.
another.
• The real damage comes when your new rival offers your platform’s functionality as part of a multiplatform bundle.
• Such bundling hurts the stand-alone platform provider when its money side perceives that a rival’s bundle delivers more
functionality at a lower total price. (Re) Positioning a core product as platform
• Networked markets—especially those in which technology is evolving rapidly—are rich with envelopment opportunities that
can blur market boundaries.
• This blurring is called “convergence.” A three phase framework by Bonardi and Durand (2003):
• For example, mobile phones now incorporate the functionality of music and video players, PCs, and even credit cards. • to evaluate whether the existing technology presents some
untapped potential in terms of network effects;
• Likewise, eBay—having acquired PayPal and the voice-over-Internet protocol (VoIP) start-up Skype, as well as equity in
Craigslist—is on a collision course with Google, which also offers a payment service (Google Checkout), VoIP (Google Talk), • analyze how to reposition the core product;
and a listing service (Google Base).
• accompanying measures to manage this repositioning efficiently.
• What to do:
• Change business models
• Find a bigger brother
• Sue
Platform Structure Dynamics: Homing v/s Switching costs Strategy for Increasing Returns Strategy for Network Mobilization
• Usually they move together, e.g., satellite radio (both high), express package delivery (both low)
• Sometimes, switching cost is high but multi-homing cost is low • In increasing returns industries, you need • Pricing
• eBook readers: costly to switch because you must replace entire library, but not very costly to multi-home to: • Permanent: should one side be subsidized?
• Email account: costly to switch because you must notify all your contacts, but not very costly to multi-home • Exploit seven key assets • Penetration: should platform providers race to
• Establish large-scale operations acquire network users?
Homing Costs/ investments incurred by user due to platform affiliation • Build your installed base quickly
• Create customer lock-in • Participation
Upfront • Search and negotiation • Exclusivity: should platform providers seek
• Be a first mover
• Account setup, e.g., software configuration exclusive relationships with some users?
• Initial hardware (cards) & software (drivers) investment; system integration (compatibility) • Integration: should platform providers become
• Training network users to avoid chicken & egg problem?
Ongoing • Membership (monthly/ pa) and transaction fees (per call) • Permanent Subsidies
• Maintenance costs; customer service hassles
• Tenure- or volume-based benefits (frequent flier miles) • Accelerated Growth Strategies
Exit • Account termination hassles and costs (changing email address, moving funds b/w accounts) • Exclusivity
• Contract severance penalties
• Salvage value of hardware, software • Vertical Integration (being one’s own complement)
Switching costs Barriers to Network User Adoption
• Out-of-pocket expenses and inconveniences incurred by network users (or by platform providers on
their behalf) when users switch from one platform to another • Business stealing risk: too many rivals on your side • The Penguin Problem
• Unlike other risks, does not involve provider/user trust
• Network effects may deter or encourage switching, depending on the relative sizes of rival platforms.
• Holdup risk: dominant platform extracts too much value • In new markets, uncertainty is high; individuals
(e.g., Microsoft OS for cable set-top box or mobile phones) have different expectations about long-term
Issue: When predicting Focus on • Stranding risk: demand
• user backs wrong side in WTA battle;
whether a new multi-homing costs • If user base is fragmented, users cannot
• platform fails to invest;
networked market will be communicate expectations or coordinate
served by a single • no backward compatibility
platform
behavior. Network may stall, even with strong
• Integration risk:
network effects!
• platform provider integrates into network user role (e.g.,
Microsoft with Office & Halo)
whether to race to switching costs • No-one moves unless everyone moves, so no-
acquire network users • Favoritism risk:
one moves, like penguins afraid to be first to
• to attract users, extract rent, or serve self interest, dive for food
• platform provider skews terms in one side’s favor
whether an established both multi homing • Relationship risk:
platform is vulnerable to costs and • In 2-sided net, who controls access to users on other
displacement by a new switching costs side? (e.g., Xbox vs. EA)
platform
 One sided platforms, Platform Types: based on Functions
MSPs, and resellers Transaction partner identity is generally:
known Ex Ante known Ex Post
• Apple’s App Store is a MSP: consumers One Sided P2P Connectivity Price Setting
purchase contracts are with app developers, (fax; Fedex) (Security exchanges and auctions)
who control pricing and design of their products
• providing P2P transfer of information, goods, • Helps users find transaction partners; AND
passenger • help reveal prices at which users are willing
• Usually have one-sided structures, to exchange
• Apple’s iTunes is a reseller: consumers buy/ rent • usually users alternate between the roles of sender • More buyers ⇒ more sellers ⇒ reduced
music and movies from Apple, which has full and receivers price volatility ⇒ more buyers ⇒ etc
control over pricing and bears full responsibility • More points connected ⇒ more valuable network ⇒
more points ⇒ so on…
of the product sold
• Amazon web services sold to web developers One-sided
Two Sided promulgating Variety Matching
who build their web products and services on (Novelty for video games/ movies; location for (online- recruitment sites, dating services,
platform ATMs/ Wi-Fi acces points) real-estate brokerage firms)
top of AWS
• Invariably serves multi-sided networks • Invariably serves two-sided networks;
• Intel CPU is ? • Apple’s iOS is ? • Elicit offers from supply-side users that vary along • help reveal idiosyncratic requirements and
• Electronic ink technology supplied by E-Ink is a heterogeneous dimensions valued by demand-side offers
key component (platform) on which Amazon • MS Windows is ? • MS Xbox is ? users • More buyers ⇒ more sellers ⇒ improved
Kindle and Sony Reader devices are built • Supply side offerings are often complement to odds of suitable transaction ⇒ more buyers
• IBM Watson is ? • Sony’ PS is ? platform goods possessed by demand side users ⇒ etc.
• Google Android ? • More complements ⇒ more demand-side users ⇒
more complements ⇒ etc
Network Effects: Strength Network and Platform: A step back
• Networked market Networked market = Instant messaging
• Network effects are demand-side economies of scale, i.e., they impact revenues comprises of multiple
networks NETWORK = Whatsapp Hike Mobile SMS
• Through user adoption and WTP
• are not supply-side scale economies • Network comprises of Sponsors ?? ?? ??
• Emanate from economies of scale or learning effect • Sponsors
• Platform component Platform component ?? ?? ??
suppliers suppliers
• May be positive (large base is appealing) or negative (large base is non appealing) • Providers Providers ?? ?? ??
• Platform
• Components Platform Components ?? ?? ??
• Architectures
• Rules Architectures ?? ?? ??
• Users
• Every platform-mediated Rules ?? ?? ??
network has one and only
one platform at its core
Users ?? ?? ??
• Every platform serves one
and only network
• In most contexts we use the terms “networks” and “platform” interchangeably
Network Effects: Strength Platform Roles: Sponsors and Providers
• Providers
• mediate users’ interactions
• Strength as a function of size:
• users’ primary point of contact with
• Metcalfe's law: the value of a network is proportional to the square of the number of devices in it platform
• Inspired by Robert Metcalfe, designer of Ethernet protocol • Sole provider: XBOX,
• Multiple provider: DVD forum
• Based on properties of Mesh Network= each node may be linked to N-1 others
• Sponsors
• Thus, total no. of possible one-way links = N * (N-1) ≈ N^2, as N approaches large:
• do not deal directly with users;
• hold property rights that determine:
• WTP tends to increase as “S”-shaped (logistic) function of network growth • Who may change platform tech ?? Provider:
• More reasonable ‘coz: • Who may participate as a platform Single/
provider or network user Multiple
• Budgetary and attention constraints hamper the growth rate of WTP
• Single sponsorship:
• Late adopters are not as valuable to others (the users) as early adopters • eBay, ?? Sponsor:
• Skype’s VOIP, Single/
• Strength as a function of: • Apple’s iOS Multiple
• Novelty from repeated transactions (DVDs) • Multiple sponsorship:
• IEEE’s WLAN network technology • Platforms may be sponsored or unsponsored (may not have an obvious
standards (802.11g) sponsor: internet; internal combustion engine powered transportation)
• Users mobility require geographic coverage (ATMs, Wi-Fi, refueling)
• Android • In case of internet the responsibility of improving underlying core technologies
lies with several SSOs, Internet Engineering Task Force, and the WWW
• Idiosyncratic needs and offers (home buying, executive recruiting) • Each role may be filled by one firm or many Consortium. Governments hold the right to decide who will be the providers in
• sometimes, a single company fills both roles the respective countries
 3. Platform Control: Decision Rules Dynamic framework for designing and expanding MSP
1. Choose proprietary: WTA Potential?
if your firm has an edge: • Multi homing costs (upfront + ongoing); 1. Identifying New MSP Opportunities
1. Strong patents • Network effects;
When many evenly matched firms • Demand for differentiated features 1. Identify existing sides, needs, value propositions and strength of network effects (direct/ indirect; +ve/ -ve)
2. Controlling other key (can simultaneously launch a new
strategic resources/ platform) Yes No 2. Find new customer groups, needs, desired value propositions (can we reduce their costs- search,
• High for at least one user side
relationships (7) • Strong positive at least for the ones with high transaction, product development; increase revenues)
multi- homing costs
• Weak
2. When many evenly matched 3. Assess these customer groups for strength of network effects (direct/ indirect; +ve/ -ve)
Proprietary Favored Proprietary Favored
firms can simultaneously Does the Network
launch a new platform: Mobilization Customer Customer
• Proprietary examples: • Proprietary examples: Sale of 3rd party Matchmaking
1. WTA market requires big Yes • PayPal, • Video games, S/W 3rd party Segment 1 feature Segment 2
encourages shared investments that Customers SMEs Tally
resellers
approach are subject to Free • High
• Shared examples: • Coexistence e.g.: Professionals
• Required
• (to avoid total loss) Rider Issues? • Yes • WWW • Credit cards CRM S/W
• Centralized
2. Free-rider problems
infrastructure
encourage proprietary Shared Favored Coexistence Common
approach
You
You
• User subsidy (Tally)
• (to be able to • Shared examples: • Coexistence examples: (Salesforce.com)
recover subsidies • DVD, • Mobile phone OS (iOS
• Large upfront No
provided to capture /Android);
R&D costs in
the user) Open the door to the 3rd party Connect same product’s users or different product users (CRISIL or CIBIL or
weaker IP
CRED: credit score/ id protection to consumers and credit reports and
regimes
verification service to lenders…)
Network and Platform: A step back Dynamic framework for designing and expanding MSP
• Networked market Networked market = Instant messaging • Challenges of being an MSP:
comprises of multiple • Chicken and Egg
networks NETWORK = Whatsapp Hike Mobile SMS problem
Sponsors ?? ?? ?? • MSP constituents do
• Network comprises of
not like being held up:
• Sponsors Value appropriation
• Platform component Platform component ?? ?? ?? • Complexity of running a
suppliers suppliers MSP biz: too many
• Providers moving parts/ decisions
Providers ?? ?? ??
• Platform
• Components Platform Components ?? ?? ??
• Architectures • Success as MSP requires
• Rules Architectures ?? ?? ?? (on at least one side):
• Users • High multi-homing
costs
• Every platform-mediated Rules ?? ?? ?? •Hi switching costs
network has one and only •Indirect network effect:
one platform at its core quantity and quality
Users ?? ?? ??
• Every platform serves one
and only network
• In most contexts we see the terms “networks” and “platform” used interchangeably
Predicting Platform Structure BM CHALLENGE NO. 4: Multisided Platform Governance Rules
Determinant Conditions Conditions Conditions Conditions
Multi-Homing High on both sides High on only one side High for A; • If quantity only crowds out quality to limited extent, MSPs may do away with costly governance rules or
Cost Low for B
outsource their enforcement to the users (Ratings).
Strength of At least one side uniformly Side with high multi homing High for B X have weaker
Network exhibits strong preference cost exhibits strong preference for partner
Effect for partner variety preference for partner variety
• Key question: What are the “market failures” that would prevent the ecosystem from functioning
variety
properly (or lead to its collapse) and that we cannot eliminate through pricing?
Demand for Neither side exhibits a Neither side exhibits a High for A Some users (X) on both
Inimitable strong preference for strong preference for sides have strong
Features differentiated platform differentiated platform preference for
• Three potential sources of market failures that warrant active governance:
functionality functionality differentiated
Or if the preferences is Or if the preferences is functionality, so they 1. insufficient information and transparency in the market wrt the quality of the goods/ services:
strong, the desired strong, the desired mono-home
functionality can be functionality can be offered • may lead to a “lemons market failure”: 1983 Videogames market crash (How likely is this today)
offered selectively selectively
PLATFROM WTA WTA Mono- Homing Mixed Mode
2. the risk that too much competition within one side of an MSP:
STRUCTURE on side A and Multi
homing on side B • reduces the incentive to invest in developing high-quality products or services.
Example DVD PDF Online subscription Two WIFI LAN standards
music 802.11(a) and 802.11(g) 3. without strict governance, users might not take actions that would have +VE spillover for MSP
Assumptions: 1) cross side network effects are positive on both sides;
2) same side network effects are neutral or positive;
and other users.
3) network users can not influence the platform structure
 Choice of Platform v/s Partner on a Platform v/s Product:
Is the market ready for Transformation?
Parameters Market is ready for transformation Market is not ready for
transformation
High proportion of value Intangible assets/ Information Physical assets
is derived from: (news, video) (mining, construction)
Output is: Precise, fine grained, modular, Highly complex (airplanes)
discreet (tweet, ride, stay, retail)
Regulation is: Weak Strong
Fault tolerance is: High Low
(tweet, videos, aps) (Pace makers, nuclear energy)
Capacity utilization is: Low (high spare capacity: Uber, High (low spare capacity: Surgeons,
Airbnb, Loans) Perishables)
Choice of Platform v/s Partner on a Platform v/s Product
Yes
Yes
Yes No
No
Yes
No
No
Dynamic framework for designing and expanding MSP Once Again: Difference b/w Pipeline and Platform businesses?
Pipeline biz Parameters Platform biz
1. Identifying New MSP Opportunities
Distinct buyers, sellers, substitutes, Market Forces Overlap ( Amazon competes with Woodland by selling its shoes
1. Identify existing sides, needs, value propositions and strength of network effects (direct/ indirect; +ve/ -ve) entrants, and rivals through Cloudtail on its marketplace where Woodland sells the
same shoes as a supply side user
2. Find new customer groups, needs, desired value propositions (can we reduce their costs- search,
transaction, product development; increase revenues) Fixed Boundaries Fluidic/ flexible
Core competencies and structural Focus (success Enabling and facilitating more interactions
3. Assess these customer groups for strength of network effects (direct/ indirect; +ve/ -ve) forces through)
Own inimitable resources Strategic Assets Core technology + Community as assets (userbase)
2. Analysing risks and benefits of expansions 3. Onboarding: Mobilizing the network
Match: We will study six broad set of strategic choices; Each Supply side Scale Demand side
1. Design (Functionality, Complexity, and Costs) one has its multiple variants. Economies at
2. Governance (Tight v/s Loose; Broad v/s Specific) work (primarily)
3. Pricing Challenges Cost leadership or differentiation Strategic Engagement= Affiliation, transaction, stay, promote; Positive
Approach spillovers; Open architecture; Just governance
vis-à-vis By firm / closed Innovation By firm and ecosystem
Usual business risks (primarily)
1. Resource control Shifts 1. Resource orchestration
vis-à-vis 2. Internal optimization 2. External interaction
Strength v/s weaknesses; Competencies; Resources 3. Customer value 3. Ecosystem value
constraints/ requirements