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Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
Biz model 7   method of strategic control
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Biz model 7 method of strategic control

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These slides discuss "method of strategic control" for a firm's business model as part of a course on business models for hi-tech products.

These slides discuss "method of strategic control" for a firm's business model as part of a course on business models for hi-tech products.

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  • Drug companies published results in order to prevent a change in appropriability regime from development and commercialization to gene patenting
  • How do they do these things?
  • Transcript

    • 1. Method of Strategic Control A/Prof Jeffrey Funk Division of Engineering and Technology Management National University of Singapore Sources: (Teece, 1986; Trajtenberg, 1990; Pisano and Teece, 2007; Zuckerman, 2008)
    • 2. Business Model  Value proposition: what to offer and how to differentiate  Customer selection: whom to serve and not serve  Scope of activities: what activities to carry out and what relationships to have  Value capture: dominant sources of revenue  Strategic control: how to sustain profitability (e.g., how to control architecture and standards)
    • 3. Strategic Control  Methods to ensure profitability for a product/business  Some use the term “competitive advantage” (e.g., strategy class)  Both deal with factors that enable firms to survive and achieve above average profitability  Survival is one outcome of good strategic control  Ability to be profitable over long period of time (one measure is market capitalization) is stronger outcome  Some firms have higher profitability than others  Some industries have higher profitability than others
    • 4. http://www.moaf.org/publications-collections/financial-history-magazine/80/_res/id=File1/ 1896 http://listverse.com/2011/08/12/10-oldest-still-operating-companies
    • 5. Outline  Insufficient methods of strategic control  Intellectual Property and Appropriability ◦ Efforts to change appropriability ◦ Standards and appropriability  Complementary assets ◦ old emphasis: different functions ◦ new emphasis: industry architecture [includes level of vertical (dis)integration]  Example of innovation in which complementary assets/functions played critical role: EMI and the CAT Scanner  IBM in PCs and Services
    • 6. Insufficient Methods of Strategic Control  Having a better product/service ◦ A better product can be copied  Having a better product development process might be sufficient ◦ Japanese firms used their short product development times (and superior manufacturing systems) to create competitive advantage for many years. ◦ But then competition changed…..  Being a first entrant ◦ Many first entrants fail
    • 7. Better Product Development was Insufficient for Japanese Firms  Other firms copied Japan’s product development process (and manufacturing methods)  Low-cost and efficient manufacturing became available in China  Entrepreneurial startups focused on lucrative niches as vertical disintegration emerged ◦ Placing vertically integrated Japanese firms at a disadvantage  Japan only has advantages in some hi-tech industries now
    • 8. Being a First Entrant is not Sufficient  EMI lost to GE, Siemens, and Philips in CAT scanners  Bowmar lost to many in electronics calculators  Altair, IMS Associates, South West Technical, Apple, Radio Shack, and Commodore lost to IBM (now Lenovo), Dell, and HP in PCs  Xerox (PARC) and Apple invented graphical user interface, but Microsoft dominates market  Apple introduced first PDA (Newton) but Palm became dominant player  Nokia and Blackberry released first smart phones but others now dominant the market
    • 9. Being First Entrant is not Sufficient (2)  Netscape invented browser, but Microsoft dominates it  Early MP3 suppliers lost to Apple’s iPod  Merck was pioneer in cholesterol lowering drugs (Zocor) ◦ but Pfizer, a late entrant, secured a superior market position with Lipitor  Excite and Lycos were first real search engines, but they lost to Yahoo— ◦ and Yahoo lost to Google
    • 10. Why do First Movers Sometimes Fail? (1)  They had reasonably good business models along some elements ◦ Value proposition: what to offer and how to differentiate ◦ Customer selection: whom to serve and not serve ◦ Scope of activities: what activities and relationships to have, i.e., level of vertical integration ◦ Value capture: how to make money  But many were weak in strategic control (how to sustain profitability) and/or because other things changed
    • 11. Why do First Movers Sometimes Fail? (2)  Other firms may enter market unless first mover ◦ has strong natural protection against imitation and/or strong intellectual property protection ◦ controls complementary assets or industry architecture/standards ◦ has first mover advantages in scale or network effects  These new entrants may succeed ◦ if they have better complementary assets or control industry architecture ◦ If they can create scale or network effects in complementary assets
    • 12. Why do First Movers Sometimes Fail? (3)  Few innovations provide value on a stand-alone basis ◦ every innovation requires complementary “assets” such as service, manufacturing, product development, and distribution ◦ many innovations require complementary technologies such as components, equipment, materials, etc. ◦ network-based innovations, discussed previously, require standards and complementary products and services (Amazon, Facebook, Google, Apple) ◦ firms must think of entire value chain when innovating
    • 13. Outline  Insufficient methods of strategic control  Intellectual Property and Appropriability ◦ Efforts to change appropriability ◦ Standards and appropriability  Complementary assets ◦ old emphasis: different functions ◦ new emphasis: industry architecture [includes level of vertical (dis)integration]  Example of innovations in which complementary functions played critical role: EMI and the CAT Scanner  IBM in PCs and Services
    • 14. Appropriability  Dictionary’s definition of appropriate ◦ 1) suitable ◦ 2) to take or obtain possession (today’s focus)  Appropriability regime – a regime in which a firm is able to capture profits from an innovation ◦ Nature of technology: scarce resource, economies of scale, network effects, tacit vs. explicit knowledge, complexity ◦ Legal mechanisms of protection: patent (17 years in U.S.), copyright, trademark, trade secret ◦ Control of industry architecture or complementary assets  Protecting vs. appropriating benefits ◦ You can protect your technology without appropriating the benefits from it
    • 15. From Week 6: Another Look at Future of Music and other Media Microsoft’s OS MySpace Google YouTube Old newspaper Facebook IBM Linux Code Linux Kernel Wikipedia Blogging sites Open source S/W In-house Community-Driven Value Creation Value Capture Eco-system Company Source: Chesbrough and Appleyard, 2007
    • 16. Economies of Scale in R&D and other activities (From Week 2)  R&D is a fixed cost in many industries ◦ Firms must spend a certain amount on R&D just to participate in industry  Largest firms can spend more on R&D and thus introduce more products and obtain higher shares ◦ Positive feedback between R&D, new products, and share ◦ Initially successful firms can spend more on R&D, which lead to better products, higher profits, more money for R&D  Economies of scale in R&D causes a “shakeout” in the industry: smaller firms are acquired or exit the industry
    • 17. Examples of (Relatively) Strong/Tight Appropriability (1)  Software ◦ specific lines of codes and concepts can be protected by both patents and copyrights in the U.S. and Europe ◦ producers can also shield the source code from competitors and users ◦ Exceptions: inexpensive copies are available for many popular software programs (plus music, video games, and movies) outside rich countries  Books ◦ Steven King and J.K. Rowling do not need to own a printing press, publication house, or book distributor to make money, but copies are made
    • 18. Examples of (Relatively) Strong/Tight Appropriability (2)  Chemicals, drugs, and materials ◦ Strong patent protection ◦ Even without patents, difficult to re-engineer some products (e.g., Synthetic dyes, cellophane, carbon fiber)  For example Pfizer ◦ employs 330 attorneys for intellectual property protection ◦ won judgment of $56 million in 1983 involving doxycycline, an orally administered antibiotic ◦ won $53 million in 1989 involving blood oxygenators ◦ won recent dismissal of patent infringement lawsuit regarding COX-2 inhibitors and lawsuit alleging possible suicidal effects of antidepressant Zoloft®.
    • 19. Examples of (Relatively) Strong/Tight Appropriability (3)  Mobile phone services in Singapore?  Cable television in Singapore?  Internet services in Singapore?  Why do they (and from other countries) have strong appropriability?  How does this affect their behavior?  What might cause changes to this strong appropriability?
    • 20. Examples of Weak Appropriability  Mechanical technologies ◦ Patenting is difficult ◦ Solutions are observable allowing easy imitation  Music ◦ easy copying ◦ will video games, books, movies, and software programs go the same way?
    • 21. Need Strong Appropriability for “Open Innovation”  The term “Open Innovation” is sometimes used to describe the buying and selling of patents  Strong appropriability regimes ◦ enable such buying and selling ◦ enable firms to specialize in technological innovation and creation of patentable inventions  Examples ◦ Qualcomm, UTEK ◦ Rambus, Dolby
    • 22. Without Strong Appropriability…  Without patents, trade secrets, or other forms of IP protection, and without some degree of natural protection from imitation ◦ the innovator has nothing to license ◦ potential partners can freely imitate without paying license fees  Therefore, in weak appropriability regimes, ◦ imitation strategies will be viable ◦ at least until the generator of new technology is destroyed by free riding from the imitators and innovation slows
    • 23. Outline  Insufficient methods of strategic control  Intellectual Property and Appropriability ◦ Efforts to change appropriability regimes ◦ Standards and appropriability regimes  Complementary assets ◦ old emphasis: different functions ◦ new emphasis: industry architecture [includes level of vertical (dis)integration]  Example of innovations in which complementary functions played critical role: EMI and the CAT Scanner  IBM in PCs and Services
    • 24. First , What do Economists Think of patent protection?
    • 25. First , What do Economists Think?  What economists think. Protection of IP should balance: ◦ Benefits from spread of information ◦ Enable firms to recoup investments in R&D
    • 26. Firms can try to strengthen patent laws, other forms of IP  European and US firms strengthened IP protection in late 1980s to compete better against Japanese firms  E.g., European mobile phone firms did so in GSM  U.S. and European firms are always trying to do this with respect to China and India
    • 27. Firms may also try to Weaken Appropriability Regimes (1)  Genes ◦ Possibility that firms might take ownership of specific genes caused concern in governments, drug companies, and other organizations ◦ Why?
    • 28. Firms may also try to Weaken Appropriability Regimes (2)  Open Source ◦ make source code for computer programs available to everyone so that other developers can build upon on the code base ◦ reduces the profits for providers of basic software such as operating systems  IBM supports Linux in order to weaken Microsoft
    • 29. Outline  Insufficient methods of strategic control  Intellectual Property and Appropriability ◦ Efforts to change appropriability regimes ◦ Standards and appropriability regimes  Complementary assets ◦ old emphasis: different functions ◦ new emphasis: industry architecture [includes level of vertical (dis)integration]  Example of innovations in which complementary functions played critical role: EMI and the CAT Scanner  IBM in PCs and Services
    • 30. Standards and Appropriability  Control of standards enable firms to make above average profits  So competition between firms to make your technology the standard  Due to big impact of standards on competition, Most standard-setting bodies, i.e., committees, insist that technology providers be willing to ◦ license relevant IP before the standard-setting body will adopt a standard that requires the practice of technology ◦ license to all interested parties on reasonable and non-discriminatory terms
    • 31. Standards and Appropriability  But what ◦ should the royalty rates be? ◦ is reasonable and non-discriminatory?  Closed-door debates (and coalitions) in standard setting committees often revolve around these issues ◦ Mentioned in previous class
    • 32. Outline  Insufficient methods of strategic control  Intellectual Property and Appropriability ◦ Efforts to change appropriability ◦ Standards and appropriability  Complementary assets ◦ old emphasis: different functions ◦ new emphasis: industry architecture [includes level of vertical (dis)integration]  Example of innovations in which complementary functions played critical role: EMI and the CAT Scanner  IBM in PCs and Services
    • 33. Complementary Assets  What are complementary assets? ◦ any capabilities or assets needed to commercialize an innovation  manufacturing, marketing, sales, service, brand name, distribution  complementary products, any new technological capabilities that are needed to commercialize the innovation ◦ accurate description of value chain/network can help us understand these assets  In 1980s and 1990s focus (e.g., 1986 paper by David Teece) was on these kinds of complementary assets: ◦ Particularly manufacturing ◦ But also marketing, sales, service, maintenance, development
    • 34. Complementary Assets (2)  Japanese firms were the leaders in manufacturing and David Teece argued that Japanese firms would thus dominate all hi-tech industries  It didn’t happen………for a variety of reasons  But complementary assets are important as we have already seen in many examples (Apple) ◦ More examples shown below
    • 35. Outline  Insufficient methods of strategic control  Intellectual Property and Appropriability ◦ Efforts to change appropriability ◦ Standards and appropriability  Complementary assets ◦ old emphasis: different functions ◦ new emphasis: industry architecture [includes level of vertical (dis)integration]  Example of innovations in which complementary functions played critical role: EMI and the CAT Scanner  IBM in PCs and Services
    • 36. Industry Architecture  Industry architectures characterize nature and degree of specialization of firms and the interfaces between their products  In addition to levels of vertical (dis)integration, industry architecture also ◦ specifies interfaces ◦ who controls them  For a specific industry (for a final product), we can very roughly distinguish between ◦ modular industry architectures ◦ integral industry architectures
    • 37. Industry Architecture, Modular Design, and Profits to Component Suppliers (1)  Modular design often causes most profitable firms to be suppliers of key components. For example, in personal computers ◦ Microsoft and Intel are most profitable firms ◦ Much lower profits in disk drives, memory, displays  Why? ◦ Microsoft and to lesser extent Intel control interfaces between operating systems, microprocessors, etc. ◦ Other suppliers of components do not control these interfaces and thus there is excessive competition and low profits
    • 38. Industry Architecture, Modular Design, and Profits to Component Suppliers (2) As noted last, week most of the profits are flowing to modular components: exceptions are Apple, IBM, Samsung Rank Company Market Capitalization Type of Business 1 Apple $608 Billion Hardware 3 Google $395 Billion Search 4 Microsoft $395 Billion Software 21 Facebook $201 Billion Content 23 IBM $190 Billion Hardware 27 Oracle $180 Billion Software 33 Intel $171 Billion Integrated Circuits 40 Amazon $153 Billion Online Sales 51 Cisco $128 Billion Hardware 52 Qualcomm $126 Billion Integrated Circuits 68 TMSC $105 Billion Integrated Circuits 85 SAP $92 Billion Software
    • 39. Industry Architecture, Modular Design, and Profits to Component Suppliers (3)  In mobile phones, a bit mixed ◦ Profits are taken by Apple (hardware and software) and Apple (no hardware) ◦ Apple’s advantage is in user interface, touch screen ◦ Google’s advantages are in advertising, operating systems  Why? ◦ User interface and touch screens are key technologies in mobile phones ◦ Apple controls interfaces between user interface and other technologies ◦ Google profits from mobile advertising where it has network effect advantages
    • 40. Industry Architecture, Modular Design, and Profits to Component Suppliers (4)  Other component suppliers also have big profits ◦ Many materials such as chemicals, plastics, and elastomers do not involve interface standards. Similar story with drugs ◦ If the materials have a big impact on a system’s performance or stand-alone benefits (e.g., drugs), profits flow to suppliers with best materials or ones with lowest cost  Scale is a major issue ◦ Production cost is function of scale ◦ Output from R&D also depends on scale of R&D  Patent protection can raise profits
    • 41. Industry Architecture, Modular Design, and Profits to Component Suppliers (5)  Movies ◦ Motion picture studios are assemblers of various resources required to produce a movie  actors and actresses  director and other specialists  finance, technology, ◦ Movies make money, but movie studios often do not. Why?  rents flow to the bottleneck “modules,” or “complementary assets” that are in short supply such as star performers  How about Professors?
    • 42. Industry Architecture, Integral Design, and Profits to System Suppliers (1)  Integral architectures shift the locus of innovation and rent appropriation up to system level ◦ “owner” of architecture has power to set interface protocols and to decide which innovations are adopted and which ones are not innovators ◦ This bargaining power creates a source of above average profits for the system owner and below average profits for the component supplier
    • 43. Consider the Automobile Industry (1)  Cars are highly integral systems  E.g., BMW 325ix sedan consists of interdependent sub-systems ◦ chassis, body panels ◦ suspension system, power train ◦ interior, dashboard ◦ that are not “plug compatible” with those of for example, a Toyota Camry
    • 44. Consider the Automobile Industry (2)  Car companies tightly coordinate integration across development of these systems ◦ It is a major driver of high-quality development performance ◦ Tight integration limits opportunities for independent innovation to occur  Japanese firms are leaders in automobiles partly because of need for integral design  Japanese firms used to be leaders in other products when the products required integral design…..but as modular design emerged, their advantages disappeared……..
    • 45. Market Capitalization of All Automobile Suppliers http://www2.deloitte.com/content/dam/Deloitte/de/Documents/manufacturing/MFG-Delivering-Exceptional-Shareholder-Value.pdf
    • 46. Top Auto Parts Suppliers 2012  Robert Bosch  Denso  Continental AG  Magna International  Aisin Seiki  Johnson Controls  Faurecia  Hyundai Mobis  ZF Friedrichshafes AG  Yazaki Corp  Lear  Delphi  TRW  BASF  Baleo SA Source: http://www.autonews.com/ assets/PDF/CA89220617.PDF
    • 47. Systems Integration  Complex and high-value products involve system integration ◦ Boeing and Airbus in aircraft ◦ Alstom in trains and signaling systems ◦ Thales in flight simulators ◦ Ericsson in mobile communication systems ◦ Atkins in baggage handling systems  Although lots of vertical disintegration, the interdependencies between sub-systems require integral design and this enables systems integrators to be very profitable Source: Charting a Path Toward Integrated Solutions, Andrew Davies, Tim Brady and Michael Hobday, Sloan Management Review, Spring 2006
    • 48. Integral vs. Modular Design  When is integral design required and thus profits will flow to system suppliers/designers?  When does modular design work and thus profits will flow to component suppliers/designers?  This is one reason why these issues and vertical (dis)integration were covered in previous sessions
    • 49. Outline  Insufficient methods of strategic control  Intellectual property and appropriability ◦ Efforts to change appropriability ◦ Standards and appropriability  Complementary assets ◦ old emphasis: different functions ◦ new emphasis: industry architecture [includes level of vertical (dis)integration]  Example of innovations in which complementary functions played critical role: EMI and CAT Scanner  IBM in PCs and Services
    • 50. Context (1)  First commercially viable CAT (computer-aided tomography) scanner invented by Sir Godfrey Hounsfield at EMI Central Research Laboratories  EMI was large “conglomerate” in 1970s that did defense, health care, music  Hounsfield conceived idea in 1967, and was publicly announced in 1972. Allan McLeod Cormack of Tufts University in Massachusetts independently invented similar process  Both Hounsfield and Cormack shared 1979 Nobel Prize in Medicine Source: Capturing Value Through Technology Strategy, Presentation by Ezra Zuckerman, 2008
    • 51. Context (2): Key Complementary Assets  Success in medical equipment requires specialized sales, manufacturing, and maintenance departments  EMI (record and defense company) did not have these capabilities while Siemens, Phillips, and GE did  None of these assets were externally available in 1970s and service and sales are still not available  Why still not available?
    • 52. Implications for EMI  Should EMI commercialize alone or work with leaders?  If the CT cannot be imitated or replicated, EMI could do either. If it works with leaders, it would have a lot of leverage ◦ Could threaten to go to Siemens (and vice versa) ◦ If also large market potential known in advance, GE and Siemens would have to pay a great deal for license  But if it can be imitated or replicated, ◦ it will be very hard for EMI to go it alone ◦ And less negotiating leverage with GE and Siemens  Let’s focus on negotiation with GE or Siemens
    • 53. Capturing Value from Negotiation: Challenges for EMI  Can they convince GE or Siemens that they have rights to technology?  Can they write an effective license without giving away the innovation?  Can they convince GE or Siemens that the market will be big?  What percentage of profits should EMI give to GE or Siemens in the license? ◦ Give too much, no profits ◦ Give too little, and GE has no incentive to manufacture and sell product
    • 54. Negotiation scenario GE: Oh, you have a great innovation, huh? Let’s see it. EMI: Here it is. GE: Oh, one of those 3-D X-Ray thingies! We’ve been working on that for years! And we expect to have one out within 12 months. Nice try, record-company guys! But you should leave medical equipment to the big boys
    • 55. The Upshot  EMI had a great innovation, with temporary uniqueness, and no real ability to capture value through license  But they didn’t succeed in negotiations  Just went alone. But to capture value by themselves, would need to: ◦ Defend uniqueness as much as possible ◦ Build (differentiated) complementary assets to compete once uniqueness disappears  But they didn’t do either: ◦ Slow to respond to patent infringement ◦ Rather than building complementary assets, they just sold what they could
    • 56. As an Aside, Too Much Value- Creation… ?  Ironic: EMI’s strategy made sense if market turned out to be small  But massive demand increased likelihood of entry and increased the importance of complementary assets. ◦ Often hard to capture a bigger slice of big pies!  Should have switched to licensing once it became a big market, and once they saw so much entry. ◦ Big mistake was thinking they could go alone ◦ Could have built up business to a point where they had a viable product, and then sold it to GE
    • 57. Demand Grew Quickly  Cumulative orders (hospitals with 100+ beds): ◦ 1974: 35 ◦ 1975: 122 ◦ 1976: 450 ◦ 1977: 738 ◦ 1978: 953 ◦ 1979: 1113 ◦ 1980: 1183 (Source: Trajtenberg, 1990) Diffusion of CT Scanners by Hospital Size
    • 58. .. And then too little?  EMI was especially ill-prepared for shakeout.  Demand decelerates (4% growth from 376 ordered in U.S. in 1976 to 389 in 1977; and then plummets (-35% decline from to 251 in 1978). – Note: By 1977, half of all U.S. 100+ bed hospitals had already ordered a scanner.  Against large capacity, leads to intense price wars, product and service competition; $99,000 scanners in the market.  Shakeout: 12 companies drop out between 1976 and 1980, including Searle and Pfizer, and Technicare sells to Johnson & Johnson (good example of economies of scale in manufacturing, service, sales, and R&D)
    • 59. Outline  Insufficient methods of strategic control  Intellectual Property and Appropriability ◦ Efforts to change appropriability ◦ Standards and appropriability  Complementary assets ◦ old emphasis: different functions ◦ new emphasis: industry architecture [includes level of vertical (dis)integration]  Example of innovations in which complementary functions played critical role: EMI and the CAT Scanner  IBM in PCs and Services
    • 60. Why did IBM have less success than expected in PCs? (1)  A previous session focused on degree of openness ◦ IBM should have pursued more closed policy ◦ Apple should have pursued more open policy  This session (strategic control) tells a broader story ◦ IBM thought it controlled the:  critical complementary assets in functions (sales force, R&D)  IP/architecture (BIOS software and chip)
    • 61. Why did IBM have less success than expected in PCs? (2)  But ◦ emergence of computer retail outlets for consumers eliminated IBM’s advantages with sales force ◦ imitation of BIOS chip through reverse engineering eliminated IBM’s advantage in software, enabled firms to copy IBM, and led to emergence of IBM compatible clones ◦ Other open interfaces, i.e., modular design, enabled other firms to use same external modules and caused R&D to move from computer to components (microprocessor, hard disk drive, operating systems, and application software)
    • 62. Why was Lou Gerstner able to Make IBM a Leader Again in the Late 1990s?  IBM focused on a market segment in which integral design was needed (in corporate information systems) and IBM had strong complementary assets ◦ Computer and information services  Complementary assets ◦ Large installed base of hardware and software ◦ Large computer services business ◦ Better understanding of customer needs than any other firm  Lou Gerstner focused IBM on helping users integrate and upgrade systems  IBM is one of the few computer incumbents to succeed in the Internet
    • 63. Conclusions (1)  Innovators, i.e., first entrants, often fail  Examples of reasons. They ◦ don’t have sufficient protection of IP ◦ can’t build up sufficient scale in R&D, manufacturing, etc. ◦ don’t have as much access to the relevant complementary assets as do the incumbents/imitators ◦ Someone else controls the industry architecture  Firms must think of strategic control from the beginning ◦ they can’t wait until after they have introduced their product ◦ and must keep thinking of strategic control
    • 64. Conclusions (2)  Industry architectures are becoming more complex due to increasing complexity of systems and vertical disintegration ◦ This increases the opportunities to control an interface  Complementary assets are ◦ Becoming more available through vertical disintegration, which increases the opportunities for outsourcing ◦ But also increases the complexity of the choices  What are the important complementary assets?  Which ones are tightly or freely available?  This is one reason why I want you to identify all the collaborators and customers in the “value chain”
    • 65. For Your Presentations  In addition to other aspects of Biz Model, tell me about “Strategic control: how to sustain profitability” ◦ IP that is relevant to a specific innovation/technology ◦ complementary assets that are relevant to the specific innovation/technology ◦ Control of industry architecture and who this favors

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