Biz model 2 what drives need for change

1,019 views

Published on

These slides summarize the factors that drive a need for frequent changes in a business model. they are from a course on business models.

Published in: Business, Technology
0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
1,019
On SlideShare
0
From Embeds
0
Number of Embeds
2
Actions
Shares
0
Downloads
33
Comments
0
Likes
1
Embeds 0
No embeds

No notes for slide
  • Very hard to say when incumbents fail, but hopefully you will develop some ideas about the problems incumbents face as the semester proceeds.
  • How about some other examples of change – what do we have page breaks in an e-book or adobe file
  • Talk about example of operating systems: who are customers?
  • Ask students about Dell and Apple. One way to increase the breadth of products that require the same R&D is to design products in a modular way
  • Biz model 2 what drives need for change

    1. 1. A/Prof Jeffrey Funk Division of Engineering and Technology Management National University of Singapore
    2. 2. Change is Constant – But more specifically, what types of changes occur?  Technologies  New technologies emerge  Some technologies experience rapid improvements in performance and cost and some don’t  Some technologies create new industries  Industries  New firms are started  Some succeed and some don’t  Some firms are vertically integrated and some aren’t  Some forms of vertical disintegration create new industries  Legal and Regulatory  Introduced, discontinued, Modified  Markets  New needs emerge, some end  Some needs cause new market segments to emerge
    3. 3. Outline  Technological discontinuities vs. dominant designs  Evolution of demand, supply, markets, products  Evolution in markets and products  Trends in cost and performance for specific technologies  Crossing the chasm  Examples of new segments  Evolution in levels of vertical (dis)integration  How has it/they changed over time?  How can we represent different levels of (dis)integration?  Evolution in numbers of firms and thus numbers of opportunities for firms  Where are “valuable” new firms being created now?
    4. 4. Cyclical Model of Technological Change Technological Discontinuity Competition between Alternative Systems or Designs Emergence of dominant design/vertical (dis)integration Incremental Change Adapted from (Anderson and Tushman, 1990; Tushman and Rosenkopf, 1992)
    5. 5. Technological Discontinuities vs. Dominant Designs  Technological discontinuities (Henderson and Clark, 1990) change the  concepts that form basis of product/system or process  linkages between major components in product/system, i.e., architecture  “A dominant design is single architecture that establishes dominance in a single product class” (Tushman and Rosenkopf, 1992)  Subsequent products build from this dominant design  We focus on discontinuities because many incumbents fail when they emerge
    6. 6. Basically Two Types of Technological Discontinuities Within Four Types of Innovations Reinforced Overturned Core Concepts Unchanged Changed LinkagesBetweenCore ConceptsandComponents Incremental Innovation Modular Innovation Architectural Innovation Radical Innovation Source: Henderson and Clark (1990)
    7. 7. Henderson and Clark’s Innovation Framework Applied to Ceiling Fans Reinforced Overturned Core Concepts Unchanged Changed LinkagesBetweenCore ConceptsandComponents Improvements in Blade or Motor Design Completely new form of motor Portable Fans Air Conditioners
    8. 8. Steam-powered fire engine Technological Discontinuities: What was change in concepts? Old Technology New Technology, i.e., Discontinuity Early Benz (1894) Wright Brothers (1904) Gliders (19th Century)
    9. 9. Old Technology New Technologies, i.e., Discontinuities Mobile Phones for voice and messaging Smart Phone, Internet compatible phone Physical book store Online book store Printed Books E-books Physical rentals of DVD movies Delivery of DVDs and Streaming of Movies Vinyl records and CDs Online music Analog film/cameras Digital cameras Palm Pilot MP3 players, smart phones, tablet computers Keyboard Interface for Computers Touch screen, voice recognition, gesture interface (Leap, Kinect), Google Glasses, neural interface Wireless Telecom System 1st generation (analog), 2G (digital), 3G (CDMA), 4G Cathode-ray tube display Liquid crystal displays (LCDs), Organic light emitting diode displays (OLEDs) Other Examples of Technological Discontinuities
    10. 10. Technological Discontinuities vs. Dominant Designs  Technological discontinuities (Henderson and Clark, 1990) change the  concepts that form that basis of a product/system or process  linkages between major components in the product/system, i.e., architecture  “A dominant design is a single architecture that establishes dominance in a single product class” (Tushman and Rosenkopf, 1992)  Subsequent products build from this dominant design
    11. 11. What physical or control aspects of DC-3 (1935) & Model T (1908) might constitute a dominant design?
    12. 12. Examples of Dominant Designs in Other Industries (or at least standards that impact on the system architecture)  Cargo shipping – standard size containers  Mobile Phone Systems  air interface standards such as GSM in 2G or W-CDMA in 3G  iOS and Android for operating system  Computers  IBM System/360, IBM PC/Wintel  More recently, Linux operating system  Internet  Google for ads  Facebook for social networking  Apache Hadoop: distributed computing and data storage
    13. 13. Key Points  Technological Discontinuities often cause incumbents (existing firms) to fail  Dominant designs demonstrate the evolution of designs within a single discontinuity  But it is an evolution and not the emergence of a single design  Most of your projects will focus on a discontinuity  But you should recognize that there is many possible designs for a specific discontinuity and certain designs will succeed more than other designs
    14. 14. Outline  Technological discontinuities vs. dominant designs  Evolution of demand, supply, markets, products  Evolution in markets and products  Trends in cost and performance for specific technologies  Crossing the chasm  Examples of new segments  Evolution in levels of vertical (dis)integration  How has it/they changed over time?  How can we represent different levels of (dis)integration?  Evolution in numbers of firms and thus numbers of opportunities for firms  Where are “valuable” new firms being created now?
    15. 15. Diffusion of New Products or Services
    16. 16. Rapid Changes in the Chinese Online Market http://www.wsj.com/articles /western-firms-caught-off- guard-as-chinese-shoppers- flock-to-web-1434274202
    17. 17. http://www.theatlantic.com/technology/archive/2012/04/the-100-year-march-of-technology-in-1-graph/255573/ Other Examples of Diffusion
    18. 18. For Each Category, What were the first…  Products/designs to diffuse?  First value propositions?  First designs?  Markets to accept this diffusion?  First customer segments?  First customers within segments?  First sales channels?
    19. 19. Quantity (Q) Price (P) q p What do Demand and Supply Curves Mean and what do they have to do with Diffusion? Demand Supply
    20. 20. What are some problems with last Slide?
    21. 21. Quantity (Q) Performance (P) q p In terms of Performance, What do Demand and Supply Curves Mean and what do they have to do with Diffusion? Supply Demand
    22. 22. Price, Performance, and Demand  Price and/or performance determine the amount of demand and supply  Price has to fall and performance has to rise before market will grow  The first users have either the highest willingness to pay or the lowest demand for performance  We will just focus on price to simplify things
    23. 23. Quantity (Q) Price (P) q p Diffusion starts in segments/users that are willing to pay more for products and services than are other segments/users Demand Curve Supply Curve Typical movement of supply curve over time Typical movement of demand curve over time
    24. 24. Demand and Supply Curves can Help Us Think About Market Segments and Diffusion Different market segments, i.e., users  have a different willingness to pay and demand different levels of performance  make different tradeoffs between performance, features, price  demand different types of features or dimensions of performance  fundamentally want different products  These segments emerge over time  Often difficult to specify them before products begin to diffuse  Some markets have more segments (i.e., sub-markets) than other markets  Understanding the differences and similarities between segments is critical for businesses
    25. 25. Choice of Customers  What happens if you focus on customers that are not the first customers for the new technology?  Who are the lead users? Who do we focus on in order to understand the future direction of the technology? The lead users for a new technology were often not the lead users for the old technology?
    26. 26. Outline  Technological discontinuities vs. dominant designs  Evolution of demand, supply, markets, products  Evolution in markets and products  Trends in cost and performance for specific technologies  Crossing the chasm  Examples of new segments  Evolution in levels of vertical (dis)integration  How has it/they changed over time?  How can we represent different levels of (dis)integration?  Evolution in numbers of firms and thus numbers of opportunities for firms  Where are “valuable” new firms being created now?
    27. 27. Demand and Supply Curves can Help Us Think About Product Segments and Diffusion  Different product designs  Provide a different bundle of cost/price, performance, features  Appeal to different types and numbers of users  These product designs emerge over time  Often difficult to specify them before products begin to diffuse  Some technologies have a greater variety of successful product designs than do other technologies  Perhaps because they have more market segments, i.e., submarkets  Understanding the differences and similarities in performance and cost for different product designs is critical for businesses  Dominant Designs are just one design in this product evolution
    28. 28. Don’t Confuse Products and Markets  Many studies will describe market segments in terms of product characteristics  Understanding the product characteristics is good  But you also want to know  who the actual users (customers) are  the differences between them (segments)  what they need  There is an interaction between evolution of users and products
    29. 29. Products: Example of Computers  First products, i.e., computers in 1950s were  large boxes (mainframe computers) that were placed in a special room  operated in batch mode  Mini-computers (from mid-1960s) were  Smaller, cheaper, and more documentation available  More available to users such as scientists and engineers  Personal computers were  Still smaller and cheaper  Available to a broader number of people  Did not operate in batch mode; had fast response time  Portable computers were even smaller and lighter
    30. 30. Customers/Markets: Example of Computers  First customers in 1950s were large organizations that used customers for organizational record keeping (accounting, payroll)  Scientific and engineering customers became important in 1960s  Later individuals emerged as important customers as “personal” “computers” and applications for them such as word processing and games became possible  The order of these customers was largely determined by a willingness to pay
    31. 31. Many types of Interactions  Interaction between market and product  Emergence of market segments impacts on how products are designed  Emergence of different product designs impacts on how markets are segmented  Every technological discontinuity is a big experiment  New products emerge and customers try them  Products are redesigned to better meet needs  Also an interaction between price and demand  But what drives reductions in price, i.e., changes in supply curve?  Is it just due to increases in demand?
    32. 32. What about Wearable Computing?  How are the products evolving?  Portability came with laptops, personal digital assistants, smart phones, tablet computers, smart watches, and now wearable computing  How are the markets evolving?  In the past, first users were business travelers, later other users  Since smart phones, a new type of user has been driving markets  What will happen in the future  What types of products/designs will appear?  Why types of markets/applications/customers will drive market for wearable computing?
    33. 33. What types of designs (i.e., products) will work best? What types of markets/customers will buy these products? For more info, see: http://www.slideshare.net/Funk98/ presentations
    34. 34. Outline  Technological discontinuities vs. dominant designs  Evolution of demand, supply, markets, products  Evolution in markets and products  Trends in cost and performance for specific technologies  Crossing the chasm  Examples of new segments  Evolution in levels of vertical (dis)integration  How has it/they changed over time?  How can we represent different levels of (dis)integration?  Evolution in numbers of firms and thus numbers of opportunities for firms  Where are “valuable” new firms being created now?
    35. 35. Quantity (Q) Price (P) q p What is Causing Supply Curve to Move over Time? Demand Curve Supply Curve Typical movement of supply curve over time Typical movement of demand curve over time
    36. 36. Costs fall as Volumes Increase  Before products are commercialized  Advances in science lead to new types of designs  Other improvements in designs (e.g., better materials or components) lead to better products  After products are commercialized  Economies of scale  Equipment costs can be amortized over larger volumes  Learning  Firms devise methods of reducing costs in delivering (manufacturing, distributing, etc.) the product  Increases in R&D spending lead to better products and processes  All of these things are part of an interaction between demand and supply
    37. 37. But some Technologies experience more improvements than others  Integrated circuits (ICs)  Hard disk and optical disk drives  And the systems that are composed of these technologies  Computers  Routers  Servers  Mobile Phones  Televisions, radios, MP3 players  Synthesizers and sequencers of DNA  This issue is covered in my MT5009 module (and summarized in paper published in California Management Review – on IVLE as CMR5503)
    38. 38. What are the Relevant Trends for Your Technology?  What are the relevant dimensions of performance?  Is the technology experiencing improvements in these dimensions or in cost?  Do these trends suggest that the new technology (or a component in the new system) will become  economically feasible in the near future for some set of users?  economically feasible for a larger number of users in the near future?  Does it suggest that the design of the technology will change in many ways and if so how? E.g., wearable computing
    39. 39. Figure 2. Declining Feature Size 0.001 0.01 0.1 1 10 100 1960 1965 1970 1975 1980 1985 1990 1995 2000 Year Micrometers(Microns) Gate Oxide Thickness Junction Depth Feature length Source: (O'Neil, 2003)
    40. 40. Areal Recording Density of Hard Disk Platter
    41. 41. Luminosity per watt (lm/W) of lights and displays Organic Transistors
    42. 42. Components and Systems (1)  Some components have a large impact on performance of a system  When such components are experiencing rapid improvements in cost and/or performance, they  can have a large impact on performance and cost of systems, even before system is implemented  can lead to changes in relative importance of cost and performance and between various dimensions of performance  Can lead to discontinuities in systems (e.g., wearable computing)
    43. 43. Components and Systems (2)  Improvements in engines impacted on  Locomotives, Ships  Automobiles, Aircraft  Improvements in ICs impacted on  computers, servers, routers, telecommunication systems and the Internet  radios, televisions, recording devices, and other consumer electronics  mobile phones, other handheld devices, wearable computing  controls for many mechanical products  Improvements in ICs led to many discontinuities in systems
    44. 44. Improvements in computations per second of computers Source, Koomey et al, 2011
    45. 45. Improvements in Computations per Kilo-Watt Hour (Koomey et al, 2011)
    46. 46. Speeds/Bandwidth for Wireline Telecommunication Source: Koh H and Magee C, 20016, A function approach for studying technological progress: application to Information technology, Technological Forecasting & Social Change 73: 1061-1983.
    47. 47. Components and Systems (3)  Improvements in ICs (and related components) are still driving the emergence of new electronic systems such as new forms of  Computers and mobile phones  New forms of mobile phone apps and content  Internet of Things, wearable computing  Cloud computing  Autonomous vehicles  human-computer interface (touch, gesture, neural)  Mobile phone systems (e.g., 4G, 5G, cognitive radio)  Holographic display systems
    48. 48. Outline  Technological discontinuities vs. dominant designs  Evolution of demand, supply, markets, products  Evolution in markets and products  Trends in cost and performance for specific technologies  Crossing the chasm (book by Geoffrey Moore, 1991)  Examples of new segments  Evolution in levels of vertical (dis)integration  How has it/they changed over time?  How can we represent different levels of (dis)integration?  Evolution in numbers of firms and thus numbers of opportunities for firms  Where are “valuable” new firms being created now?
    49. 49. The Role of Chasm (s) in Diffusion of Products  Differences between Geoffrey Moore and others  Most marketing classes emphasize changes in customer requirements and willingness to pay  But Moore emphasizes that there is not a continuous progression across segments (in many cases)  Even if a product initially succeeds with some customers, it must often by redesigned and repackaged for other customers  Basic questions  What are different segments in market?  How are needs in each segment different?  How do products need to be redesigned and repackaged in order to cross chasm (s) that exist between different segments?
    50. 50. Geoffrey Moore’s Chasm (s) Managing the transitions between different types of adopters and in particular the transition from early adopters to early majority are critical
    51. 51. Differences Between Visionaries (early adopters) and Pragmatists (early majority) The Visionaries  Value Newness in technologies  Prefer radical changes  Do not expect much from existing support  Do not expect producers to take full responsibility of implementation failure The Pragmatists  Value peer recommendations  Prefer minimum change  Demands for established standards and support  Prefer not to deal with unproven products
    52. 52. What are the implications of these differences between visionaries and pragmatists?  For product offerings?  For product support?  For standards?  For where we meet potential customers?  For how we make sales?
    53. 53. What are the implications of these differences? For Visionaries Pragmatists product offerings? Don’t need complete solution Need more complete solution product support? Expect little Expect a lot standards? Expect to set them Expect them to exist where we meet potential customers? Technology conferences/ exhibitions Industry-specific conferences/exhi bitions
    54. 54. Of the Products Liked by Visionaries in the mid-1990s, only one was adopted by Pragmatists, which one? Product Pragmatists Visionaries? Microprocessor Intel AMD OS Windows UNIX/Linux Database Software Oracle Sybase Engineering Software SAP QAD Groupware Lotus Notes Novell Printers HP Lexmark Workstations Sun Silicon Graphics
    55. 55. Failure to Cross Chasm  How did some of the manufacturers of these products fail to cross the chasm?  Laptop computers  Personal Digital Assistants  RIM Blackberry  Calculators  Digital cameras  MP3 Players  Hint: think about what these products could have become
    56. 56. Will these products cross the chasm? (all sold by members of Billion Dollar Startup Club)  Wearable computing  Jawbone  Fitbit  GoPro  Mobile apps  Airbnb  E-commerce: fashion, interior design  Peer-to peer lending  New social networking sites (other than Facebook)
    57. 57. Outline  Technological discontinuities vs. dominant designs  Evolution of demand, supply, markets, products  Evolution in markets and products  Trends in cost and performance for specific technologies  Crossing the chasm (book by Geoffrey Moore, 1991)  Examples of new segments  Evolution in levels of vertical (dis)integration  How has it/they changed over time?  How can we represent different levels of (dis)integration?  Evolution in numbers of firms and thus numbers of opportunities for firms  Where are “valuable” new firms being created now?
    58. 58. Many businesses provide products or services that reside in the “Long Tail” % of sales X= product; they are ranked by salesSource: Anderson, 2006, The Long Tail
    59. 59. Examples  Internet sites  Books  Videos  Music  News  Emergence of large department, grocery stores, supermarkets, and malls  Cable TV in 1990s  All of these changes bring new opportunities for firms
    60. 60. Drivers of Long Tail  Better logistics  Better information systems  Better transportation systems  Emergence of and improvements to Internet  Broadband  Faster servers  More memory  Larger storage capacity in computers and digital video recorders  What will happen next?
    61. 61. On the Other Hand……  While the Long Tail enables more niche products, the Internet has enabled creation of superstars and super products  Top 10% of one publisher’s books generate 64% of costs but 126% of profits  102 of the 8 million digital musical tracks generated almost 1/6 of the sales  Similar conclusions were reached with movies  Why the difference in conclusions between this book and the Long Tail? Source: (Blockbusters: Hit-making, Risk-taking, and the Big Business of Entertainment)
    62. 62. Example of Another New Segment  Wealthy older people  In many rich countries, people over 65 represent an increasingly large percentage of populations  These people have lots of money, time, and unfortunately, deficient capabilities  Sensory  Physical  Cognitive  Designing your products and services for them is a major challenge  http://www.youtube.com/watch?v=eo2MlU32lRI&list=UUVa 6r3FhSZE3SwcWqIV7mag&index=1&feature=plcp
    63. 63. Outline  Technological discontinuities vs. dominant designs  Evolution of demand, supply, markets, products  Evolution in markets and products  Trends in cost and performance for specific technologies  Crossing the chasm (book by Geoffrey Moore, 1991)  Examples of new segments  Evolution in levels of vertical (dis)integration  How has it/they changed over time?  How can we represent different levels of (dis)integration?  Evolution in numbers of firms and thus numbers of opportunities for firms  Where are “valuable” new firms being created now?
    64. 64. Scope of Activities  Many strategic issues involved with defining an organization’s scope of activities for a specific product; these are covered in Week 6  What does the supplier of the final product do? Design and manufacture of final product, components, software, manufacturing equipment, materials processing and mining?  How about retail?  But one issue is whether independent suppliers of “modules” exist and thus whether there is vertical disintegration  These slides summarize emergence of vertical disintegration and how this emergence impacts on scope of activities
    65. 65. Vertical (Dis)integration (1)  Represents the extent to which work on a specific product is shared among different organizations  How are vertical and horizontal integration different?  Changes in vertical (dis)integration come from technological (standards and economies of scale – covered in Week 5), institutional (new regulations), and social changes (covered in Week 6)  For example, reductions in transaction cost can reduce  costs of having work done by multiple firms  importance of integrative capabilities  and thus facilitate the emergence of vertical disintegration (and entrepreneurial opportunities)
    66. 66. Vertical (Dis)integration (2)  Many changes in vertical (dis)integration over last 100 years  Emergence of vertical integration in late 19th century, described by Arthur Chandler (Harvard) in many books  Telephone  Automobiles, Bicycles, and other assembled products  Chemicals  Steel and other Materials  Vertical integration peaked in mid-20th century – since then move towards vertical disintegration
    67. 67. Extreme Example of Vertical Integration: Ford’s Rouge River Plant Contained river docks, electricity plant, iron ore processing, parts production, assembly plant, and interior railroad track In 1947 it contained 90 miles of railroad tracks, 27 miles of conveyors, 53,000 machine tools and 75,000 employees
    68. 68. Large Changes in late 20th Century (1)  River Rouge Plant represented the most extreme example of a move towards vertical integration and scale that had started in the late 19th century  Vertical disintegration subsequently emerged in automobile and other industries  Computers/Information Technology (IT)  Electronic Systems and Semiconductors (Integrated Circuits)  Broadcasting  Mortgage Banking  Movie and Music Production and Distribution  Mobile Phones and Systems  These changes impacted on business models for firms and thus created opportunities
    69. 69. Large Changes in late 20th Century (2)  River Rouge Plant represented the most extreme example of a move towards vertical integration and scale that had started in the late 19th century  Vertical disintegration subsequently emerged in automobile and other industries  To what extent will it continue to emerge or will the pendulum swing back the other way in the future?  How industry specific is this issue?  How life cycle dependent is this issue? Is vertical disintegration more common right after a technological discontinuity occurs and then vertical disintegration slowly emerges?
    70. 70. Main Points of Following Slides  The following slides will show examples of vertical disintegration  Weeks 5 (standards) and 6 (scope of activities) will discuss some of these examples in more detail  Here I merely want to demonstrate the prevalence of changes in vertical (dis)integration  Mostly towards more vertical disintegration  Some moves back to vertical integration  Increasing vertical disintegration reduces barriers to entry and thus creates opportunities for new entrants including entrepreneurs  But most profitable firms are more vertically integrated than less profitable firms
    71. 71. Source: Christensen & Raynor, 2003 Vertical Disintegration Vertical Disintegration in Microprocessor-Based Computers
    72. 72. Semiconductor Sector  Separation between  Electronic Systems  Semiconductors  Within Semiconductor Sector, separation between  Design  Manufacturing  Equipment suppliers  Material suppliers
    73. 73. Broadcasting Sector  Separation between hardware (receivers) and programming (content)  Hardware  Production of receivers  Sale of receivers (retail)  Programming  Delivery of programs (broadcasting)  Distribution of programs to broadcasters (initially via telephone lines)  Production of programs (very disintegrated)  Financing of programs
    74. 74. Program Production  For television (broadcast, cable, satellite), movie theaters, DVDs  For each of them, vertical disintegration has emerged between  Film companies (distributors)  Property/Film location  Lighting  Recording  Film editing  Film processing  Market research  Representatives of artists
    75. 75. Mobile Phones  Separation between  Mobile phone manufacturers  Service providers  Retailers of phones and/or services  What will happen with content?  Independent content providers will most likely emerge  But who will control their access to customers?  Service providers  Phone manufacturers  Other firms such as Google
    76. 76. Apple Reintroduced Vertical Integration into Software (Music) and Hardware (Players) Music Companies Music Companies Consumers Consumers Old Value Chain New Value Chain Design, Make Music Players & Components Retail RetailRetail Components Design andRetail Apple Players Music Artists Composers
    77. 77. One Result of Vertical Disintegration in Electronic Products: Most Costs are Standard Components 1 Values as a percent of total and material costs 2 Excludes mechanical components, printed circuit boards, and passive components Type of Product Cost of Final Assembly Cost of Standard Components Smart Phones 4.2% 76%, 79% Tablet Computers 3.1% 81%, 84% eBook Readers 4.9% 88%, 88% Laptop Computers 2.9% Game Consoles 2.4% 64%, 70% MP3 Players 3.4% 74%, 75% Large Screen Televisions 2.4% 82%, 84% Internet TVs 5.7% 57%, 61% Google Glass 2.7% 62%, 64%
    78. 78. Types of Standard Components in Most Electronic Products Type of Product Memory Micro- Process or Display Camera Connect ivity & Sensors Battery Power Manage ment Smart Phones 15% 22% 22% 8.2% 7.9% 2.3% 3.8% Tablet Comp. 17% 6.6% 38% 2.9% 6.3% 7.3% 2.5% eBook Readers 10% 8.1% 42% .30% 8.3% 8.3% NA Game Consoles 38% 39% none none NA none 5.8% MP3 Players 53% 9% 6% none NA 4% 3.5% TV 7% 4.0% 76% none NA none 3.0% Internet TVs 16% 31% none none 10.5% none 3.5% Google Glass 17% 18% 3.8% 7.2% 14% 1.5% 4.5%
    79. 79. These Changes are Still Occurring  Firms create new electronic products from these standard components  Wearable computing  Internet of Things  Vertical disintegration continues to spread  Internet startups combine and recombine open-source software, cloud computing services, and social networking services to come up with new services  Many new services are application programming interfaces, mini-platforms that form the basis of another digital product  Very low barriers to entry! Source: http://www.economist.com/news/special-report/21593583-proliferating-digital-platforms-will-be-heart-tomorrows-economy-and-even
    80. 80. Outline  Technological discontinuities vs. dominant designs  Evolution of demand, supply, markets, products  Evolution in markets and products  Trends in cost and performance for specific technologies  Crossing the chasm (book by Geoffrey Moore, 1991)  Examples of new segments  Evolution in levels of vertical (dis)integration  How has it/they changed over time?  How can we represent different levels of (dis)integration?  Evolution in numbers of firms and thus numbers of opportunities for firms  Where are “valuable” new firms being created now?
    81. 81. Firm infrastructure activities Human resource management Research, development and design Purchasing, inventory holding, materials handling Manufac- turing Outbound logistics Market- ing & Sales Dealer support and customer service Support activities Primary activities Purchasing Vendor relations Inbound logistics Inventory holding Materials handling Raw materials Capacity Location Parts production Assembly Prices Advertising Promotion Sales force Packaging Brand Sales Channels Inventory Warehousing Transport Warranty Speed Captive/ independent Value chain for a firm Issues
    82. 82. Value Chains for Individual Firms Exist within Larger Value Chains Supplier Firm Channel Buyer Value Value Value Value Chains Chain Chains Chains
    83. 83. The Degree to which One Firm does all these activities is Called “Scope of Activities” or Vertical Integration (the opposite is vertical disintegration) Some people use the term industry architecture to describe the level of vertical integration Supplier Firm Channel Buyer Value Value Value Value Chains Chain Chains Chains
    84. 84. Value Configuration  Not all industries can be easily analyzed in terms of value chains  Other forms of value configuration  Value shops  Value networks  Concepts of “scope of activities” and vertical integration and disintegration can be applied to value shops and value networks
    85. 85. Value Shops  The primary activity is finding out what the customer wants and how to fulfill it  Examples  Health care  Travel agencies  Real estate companies  Financial institutions  Education  Technology, in particular the Internet is changing the way value shops can be managed
    86. 86. Problem Finding • Collect patient history • Patient examination • Diagnostic tests • Maintain patient data Problem Solving • Generate treatment plans • Evaluate treatment plans Control/Evaluation • Monitor patient history • Maintain patient data Execution • Treatment Choice • Choice of treatment plan Value Shop of a General Practitioner (Health Care)
    87. 87. Value Networks  Firms operate as brokers between buyers and sellers  Network effects (Week 6) play a larger role in value networks than in value chains or value shops  Examples of value networks  Before the Internet: banks, stock brokers, real estate agents, newspaper classified ads, video games  Change to value network or increased importance of value network by the Internet: employment sites, E-Bay, real-estate sites, Amazon.com  Many successful Internet sites are value networks
    88. 88. Film Companies (563, 709, 1473) The Television Programming and Movie Industry is a Value Network (Number of Firms in Parentheses for 1966, 1974, and 1981) Artists Representatives (242, 359, 344) Film Processing (43, 76, 55) Recording/ Sound (20, 33, 187) Lighting (2, 16, 23) Editing (4, 31, 113) Properties Firms (66, 33, 184) Rental Studios (13, 24, 67) Market Research (3, 5, 24) Total 1966: 956 1974: 1281 1981: 2470 1999: 9500 Source: Storper and Christopherson, 1987 (for 1999 figure: Scott, 2002)
    89. 89. Consumers Developers Tools and Middleware Providers Console Maker Publishers Content Providers The Video Game Industry is also a Value Network Games Consoles & Games Royalties Content Financing Games Games
    90. 90. Scope of Activities  Firms operating in value shops or value networks must also think about their scope of activities  Vertical disintegration has emerged in many of value shops and value networks at a global level (Internet is a big facilitator). Examples:  Health Care: U.S. hospitals outsource medical decisions to Indian doctors by using the Internet  Education: Universities outsource courses to contract professors that teach in class or over the Internet (massive open online courses)  This vertical disintegration increases the number of choices for firms with respect to scope of activities
    91. 91. For Your Group Projects  I recommend that you draw these diagrams for your technology so that you understand the  Different activities  Who carries out these activities  Who are customers, who are collaborators and who are suppliers  What do these customers, collaborators, and suppliers want?  Different ways that these activities can be reorganized
    92. 92. Outline  Technological discontinuities vs. dominant designs  Evolution of demand, supply, markets, products  Evolution in markets and products  Trends in cost and performance for specific technologies  Crossing the chasm (book by Geoffrey Moore, 1991)  Examples of new segments  Evolution in levels of vertical (dis)integration  How has it/they changed over time?  How can we represent different levels of (dis)integration?  Evolution in numbers of firms and thus numbers of opportunities for firms  Where are “valuable” new firms being created now?
    93. 93. Source: Klepper and Simons, Industry Shakeouts and Technological Change
    94. 94. Similar Results Across Multiple Countries Source: Kenneth Simons
    95. 95. Looking at just automobiles in U.S.
    96. 96. Implications of and Reasons for Shakeouts  Number of firms is measure of opportunities; if number of firms is growing, new opportunities are emerging  Shakeouts in number of firms suggests there is a narrow window of entry for firms  Firms should probably enter before a shakeout occurs  Reasons for shakeouts  Many reasons but economies of scale is probably most important: economies of scale in manufacturing, sales, distribution, purchasing, R&D (research and development)  These economies of scale emerge as similarities in the different designs emerge (dominant design?)  Some industries exhibit economies of scale more than do other industries
    97. 97. Scale often Increases over an Industry’s Life  Economies of scale favor largest firms  Largest firms can expand scale more quickly than smaller firms  This leads to lower costs, higher sales, and thus opportunities for greater scale  Thus scale is one method of strategic control (one part of biz model); one way to ensure above average profits  This is one reason why  firms with largest share often have the highest profits  GE’s Jack Welch (was most famous CEO in U.S. for many years) required GE’s businesses to be #1 or #2 in market
    98. 98. Economies of Scale in R&D  R&D is a fixed cost in many industries  Firms must spend a certain amount on R&D just to introduce good products and 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  But it is not just a matter of producing more products!  you must sell products with a good value proposition to the right customers and with the right method of value capture!  and the products must require similar R&D
    99. 99. Many Examples of Economies of Scale in R&D and thus a Shakeout in the Number of Firms  Examples  Automobiles, typewriters, television receivers, TV Picture tubes, Movies (think about sequels)  Hard disks, mobile phones, video recorders/players, nuclear power equipment suppliers, commercial aircraft  Implications  Most firms end up losing money and exiting industries  Even if you are making money, if you are small, it may be better to try and be acquired  Another option is to find a niche (i.e., submarket) that requires different forms of R&D, manufacturing, sales, etc.
    100. 100. Shakeouts Do Not Always Occur (1)  Steven Klepper’s (1997) study found that a shakeout only occurred in 27 of 46 industries  Klepper Received Global Award for Entrepreneurship Research in 2011 (100,000 Euro prize)  Economies of scale did not emerge when  different market segments require different types of R&D – these differences reduce the economies of scale from R&D in e.g., lasers and business jets  vertical disintegration emerges and enables new entry by firms from other industries or entrepreneurial startups  Interestingly, emergence of similarities in laser designs (tunable laser) has subsequently led to shakeout  Source: Klepper S and Thompson 2006. Submarkets and the Evolution of Market Structure, The RAND Journal of Economics 37(4): 861-886.
    101. 101. Shakeouts Do Not Always Occur (2)  Klepper’s (1997) analysis of vertical disintegration focused on equipment suppliers for manufacturing plants  process specialists/independent suppliers of manufacturing equipment for zippers, petrochemicals, and diapers  Reduced the scale of R&D needed for final product manufacturers and thus enabled the entry of new manufacturers  This module will look at many forms of vertical disintegration and  But vertical disintegration may have larger impact on electronics industries  Reduces the scale of R&D needed to introduce new products and thus enables entry of new suppliers of ICs, software, and final products
    102. 102. Shakeouts Do Not Always Occur (3) Sector # of firms Sub-markets Vert. Disintegrat. IT >100,000 Applications End Users In every type of computer ICs/Semi >1000 in U.S. Electronic products Systems & IC Design & foundry Broad- casting/ program- ming >10,000 radio >1000 TV >10,000 programming (U.S.) Different locations and genres for programming Between manufacturers broadcasters, and program producers Internet uncountable uncountable Many
    103. 103. Outline  Technological discontinuities vs. dominant designs  Evolution of demand, supply, markets, products  Evolution in markets and products  Trends in cost and performance for specific technologies  Crossing the chasm (book by Geoffrey Moore, 1991)  Examples of new segments  Evolution in levels of vertical (dis)integration  How has it/they changed over time?  How can we represent different levels of (dis)integration?  Evolution in numbers of firms and thus numbers of opportunities for firms  Where are “valuable” new firms being created now?
    104. 104.  Recent Startups  with valuations over $1 Billion  and are still private (no IPO yet)  sometimes called Unicorns  97 firms as of June 2015  With 19 other firms in list, that exited in recent years due to IPOs, acquisitions or decreasing value  High valuations mean investors believe these firms are offering something valuable, unique, and hard to copy  Some of them will  lead to creative destruction  have $100 Billion plus market capitalizations in the future, like the strongest hi-tech startups: Apple, Google, Amazon, and Microsoft The Data: The Billion Dollar Startup Club
    105. 105. The Top 27 Firms as of May, 2015 Company Latest Valuation Total Equity Funding Last Valuation Xiaomi $46.0 billion $1.4 billion December 2014 Uber $41.2 billion $4.6 billion December 2014 Palantir $15.0 billion $1.0 billion September 2014 Snapchat $15.0 billion $815 million March 2015 Flipkart $15.0 billion $3.0 billion April 2015 SpaceX $12.0 billion $1.1 billion January 2015 Pinterest $11.0 billion $1.3 billion February 2015 Airbnb $10.0 billion $800 million April 2014 Dropbox $10.0 billion $607 million January 2014 Lufax $9.6 billion $488 million March 2015 Theranos $9.0 billion $400 million June 2014 Didi Dache-Kuaidi Dache $8.8 billion $828 million April 2015 Spotify $8.4 billion $921 million May 2015 DJI $8.0 billion $105 million May 2015 Meituan $7.0 billion $1.1 billion January 2015 Square $6.0 billion $495 million August 2014 WeWork $5.0 billion $569 million December 2014 Zenefits $4.5 billion $584 million May 2015 Cloudera $4.1 billion $670 million March 2014 Dianping $4.0 billion $1.4 billion March 2015 Stripe $3.5 billion $190 million December 2014 Jawbone $3.3 billion $531 million February 2014
    106. 106. Billion Dollar Startup Club by Category Software, Big Data, Cloud Computing (33) e-commerce (25) Consumer internet (22) Financial services (11) Hardware: phones, wearable computing (10) Healthcare (5) Energy (3) Entertainment and Games (2) Aerospace and defense (1) Real Estate (1), Education (1) Note: this includes firms that exited for total of 114 firms
    107. 107. More Details on the Categories  Software (33)  Cloud computing, big data, online ads, security, database, integration platforms, many types of tools  e-commerce (25)  Mostly mobile sites including specialty sites for fashion, clothing, interior design  Consumer internet (22)  Taxi apps, social networking, food delivery, music, hotels, discount coupons  Financial services (11)  P2P lending, mobile payment, micro-financing  Hardware (10)  Phones, drones, wearable computing, rugged cameras, vision-based driver assistance, thermostats  Other (13)
    108. 108.  Cloud Computing: Dropbox, Pure Storage (also hardware), Nutanix, Jasper Technologies (IoT), AppDynamics, Box  Big Data: Palantir, InsideSales.com, Deem, New Relic  Open Source: Cloudera, Automatic, Hortonworks  Online Ads: InMobi, AppNexus, IronSource  Security: Tanium, Good Technology, Lookout  Database: MongoDB, MarkLogic  Integration Platforms: MuleSoft, SimpliVity  Tools (for individual and enterprise): Zenefits, DocuSign, Slack, Sprinklr, Actifo, Qualtrics, Shopify, Cloud Flare, Evernote More Details on Software Startups (Many reflect greater specialization/vertical disintegration - Four focused mostly on smart phones)
    109. 109.  Many focus on fashion: better web experience through improvements in Internet and access devices  Clothing, accessories: Fanatics, VANACL, Trendy Group, Gilt Groupe, Mogujie, JustFab, Fab, LaShou, Zalando  Furniture, interior design: Home24, Honest Co, Beibei, FarFetch, Wayfair  Other: Meituan, Warby Parker (eyeglasses)  Many from Asia: Internet growth enables opportunities  India: Flipkart, Snapdeal, Auiker (mobile classified)  China: Koudai, JD.com  Korea: Coupang,  SE Asia: Lazada Group  Others: Coupons.com, ContextLogic (optimizes adspace for ecommerce sites) More Details on Ecommerce Startups (15 of 25 depend primarily on smart phone sales)
    110. 110.  Taxi apps: Uber, Didi Dache-Kuaidi Dache, Ola Cabs, Lyft, Grabtaxi  Social Networking: Houzz (interior design), NextDoor (neighborhoods), Eventbrite (event management), Yello Mobile (mobile shopping), Lamabang (babies)  Food delivery/restaurants: Delivery Hero, NextDoor, Zomato  Music, photos, video: Spotify, Shazam, Pinterest, Snapchat  Other: Tango (video, voice calling), Rocket Internet (builds online startups), Airbnb (hotels), Dianpping (discount coupons) More Details on Consumer Internet Startups (18 of 22 depend highly on smart phones)
    111. 111.  P2P lending: Lufax, Prosper Marketplace, Social Finance, Funding Circle, Lending Club  Mobile payment: Stripe, One97 Communications, Adven  Micro-financing: Hanhua Financial  Other: Powa (solutions for online commerce), Credit Karma (credit info for consumers) More Details on Financial Services Startups (most depend highly on smart phones)
    112. 112.  Wearable computing: Jawbone, Magic Leap  Phones: Xiaomi  Drones: DJI  Rugged cameras: GoPro  Game hardware: Razer  Vision-based driver assistance: Mobileye  Audio products: Beats Electronics  Thermostats: Nest Labs  Enterprise storage: Infinidat More Details on Hardware Startups
    113. 113. Why so Many Internet-Related Startups?  Growing use of Internet, from desk-top, laptop, tablet, and smart phone (all over world)  Increasing speed and bandwidth and falling cost of Internet (including more free WiFi)  Increasing performance and falling cost of desk-top, laptop, tablet, and smart phones  Above three drive increases in Internet usage  Above four enable better content and services including greater diversity of content and services
    114. 114. Why so Many Internet-Related Startups? (2)  Part of this is driven by Moore’s Law  Also driven by cheaper and better displays, magnetic storage, lasers, photo-sensors, optical fiber  Most of these technologies are experiencing >30% annual improvements  These improvements drive  Increasing speed and bandwidth and falling cost of Internet (including more free WiFi)  Increasing performance and falling cost of desk-top, laptop, tablet, and smart phones
    115. 115. Conclusions (1)  We can characterize the evolution of industries/technologies in terms of  Technological discontinuities  Markets and products  Performance, price and costs  Vertical (dis)integration  Number of firms and thus numbers of opportunities
    116. 116. Conclusions (2)  The evolution of an industry/technology impacts on the  Type of products/value proposition that a firm should consider offering  Segments that a firm should consider targeting  Scope of activities that a firm should pursue  Method of value capture  Method of strategic control  Subsequent Sessions will talk about these things in more detail
    117. 117. For Your Presentation  Think about the changes that are occurring your industry or with your technology  Then think about the impact these changes are having on the business model  Don’t just describe a firm’s business model  Understand how change creates the need for a new business model, because these changes represent opportunities  In any case, you must justify your decisions

    ×