Session 2 Turning Technologies into Profitable Products and Services Steven P. Nichols Class Topic Assignment Intro. to Managing Prod. Dev. & 1 9-Sep-06 Production Readings + Class Prep. 2 23-Sep-06 Capturing Value + Function Analysis Readings + Class Prep. 3 7-Oct-06 Functional Analysis Class Discussion Readings + Class Prep. (Continuing Invention) Function Analysis (Team) 4 14-Oct-06 Prod. and Venture Design (1:30 pm) Readings + Class Prep. 5 28-Oct-06 Product Portfolio and Capacity Readings + Class Prep. 6 11-Nov-06 Global I2P Morning Session Readings + Class Prep. 7 11-Nov-06 Global I2P Afternoon Session Readings + Class Prep. 8 2-Dec-06 Mass Customization + Prof Resp Readings + Class Prep. I2P Analysis (Individual) Project Presentations + Strategic Use 9 16-Dec-06 of IP + Review & Discussion Readings + Class Prep. Final Presentation (Team) Oral/Written 2 Agenda • Wrap-up from Last Class – Unbundling the Corporation – Architecture: Openness and Proprietariness – TiVo/Iridium • Introduction to Product Development Infrastructure • Designing the Business Model – Product vs Service Business Model – Growth Through Services • Function Analysis Takeaways from the Last Class • Building an enduring company requires careful design of the business operating system. Focus • Understanding the economics, and putting together processes, policies, and people that Fit well. • Focusing on the core business without getting distracted. • Remaining Flexible to changes in the environment Fit Flexibility 4 Takeaways from the Last Class • How does one build a sustainable economic advantage Focus • What are your product’s distinguishing characteristics? • Do customers care about those characteristics? Fit Flexibility 5 Product Objectives? • Separate the customer from her money in a way that the customer would rather have your products and service than their money • That is: Value Added to Customer 6 Challenges • Can you design your competitor out of the market? • Can you sustain that advantage? – Continue to improve match of customer needs and product features – Intellectual Property protection – Lock-In (Installed Base/Service/Contracts) • Cf – Competitive behavior – Anticompetitive behavior 7 Challenges • Can you provide these products and services in a way that add value to – Your customers? – Your venture? – Your investors? – Your self? • Can you transition from a technology and business idea to a successful product and successful venture? 8 From Technology to Markets • Need to transition from acting as a “tech scout” to execution of products and profits – “We’re a classic MBA case study in how not to introduce a product. First we created a marvelous technological achievement. Then we asked how to make money on it.” – Iridium CEO John A Richardson, August 1999 9 A Business Model • Business Model – The concept and delivery of the offering and the configuration of resources and value chain activities which results in differential value to customers and superior returns to investors. • A more useful definition: – What do you sell? – Who do you sell to? – Where do you sell? – When do you sell? – Why do you make money? 10 5 Forces of Tech Commercialization What What do you sell: Product, Service, IP, Experience Why? When Who Why do you –When do you make money? Who do you sell to? Who sell? (Early do you partner with? innings, later in the cycle etc.), disruption etc. Where –Where do you sell/make? (Which segments, which countries?) 11 Speed is Critical in the Product Cycle • Cycle time advantage (even if small) is critical because it compounds over multiple cycles. Frequent cycles reinforce the advantage. Generation Technological Improvements Fast-Cycle 6 Competitor 5 4 Slow-Cycle 3 Competitor 4 2 3 1a 2 1a Time 0 0 The Technology Adoption-Diffusion Cycle (Moore, et al) Bowling Alley Main street gatekeepers 5% 13 Cracks in the Adoption Cycle (Moore) No useful application Confidence Willingness No pain to learn Tech enthusiasts Pragmatists Conservatives Skeptics 14 Visionaries The Approach • Build a series of niches based on solving a pain • Cover as many applications as possible • Go for critical mass to propel you across the chasm • Generate a tornado on the other side 15 Types of IP • Patent • Trade secret • Copyright • Trademark 16 Selecting Your Strategy Big Co. A Vs. Big Co. B 17 Selecting Your Strategy Big Co. Vs. Small Co #1 18 Selecting Your Strategy Big Co. Vs. Small Co #2 19 TiVo A Time of Strategic Inflection Case Discussion 20 TiVo Case Discussion and Critique What/Who is TiVo? • What does TiVo offer? What is the company? What is the Product – Technology? – Target Customers? – Options? – Value Proposition? • What business is TiVo in? 22 TiVo Options/Business model Option: Pro Con Become a Entertainment services company Premium Setup box manufacturer Licensor of TiVo technology Commodity setup box manufacturer 23 Other options Takeaways from Tivo • TiVo shows the difficulty in penetrating an established market. • Strength and Threats from Existing Architecture • Could a Product Line Strategy have worked? – In this case, the market can be segmented into creative users, passive users, sports fans, and busy users. – Sports fans and passive users (couch potatoes) prefer the pause live program function. Busy users prefer the season pass (recording) function. – Creative users like the network programming function. – Different products may be offered to cater to these different segments. • Is the technology a full product or a feature? 24 Factors Influencing the Success of Adoption • Advantage – Are compelling advantages offered by the product in question? • Compatibility – Is the product consistent with the lifestyle, environment of customer? • (Example: Molecular Imprints printing field) • Complexity – Is product easy to understand and use? • Observability – Are the results/benefits of adopting product observable, describable to others? • Riskiness – Are there foreseeable negative economic, social or physical consequences? • Divisibility – Can the product be adopted on a gradual or limited basis? Source: Everett Rogers, The Diffusion of Innovations, Free Press, 1983. 25 Takeaways from Tivo • Product-Service Definition and Positioning – A collection of functions does not maketh a compelling product. – Bundling features may raise the product cost and does not appeal to any one segment. It also makes the product hard to describe. • Another Example: Hospital “Clean Hands” detector – There is also a positioning problem – TiVo is not a perfect substitute for VCR’s, cannot play video-cassettes. – Is licensing the functionality to cable and satellite companies a better approach? • Understanding the Diffusion of Innovations and rate of Customer Adoption? • How strong is the “first to market” advantage(?) 26 TiVo Updates A new TiVo option grabs photos and music from folders on a PC for enjoyment on the TV Software Anoints the PC as an Alternative to TiVo By J.D. BIERSDORFER NY Times People who adore the idea of TiVo but can't afford it may want to weigh the option of recording television shows on the hard drive of a personal computer. Personal Video Station 3 is the latest version of a software program from SnapStream Media that bestows TiVo-like powers on the humble PC. Personal Video Station works with a TV tuner card that is installed in the computer. Once the PC is connected to the television, the software can be programmed in much the same way that a VCR is. New features in the latest version include subscription-free local program listings that you can use to record shows with the press of a button, and the ability to watch shows in full-screen mode on the monitor. Personal Video Station 3, which is to be released today, has a suggested price of $99.99 but will be offered for $49.99 for a limited time at www.snapstream.com. Compatible TV tuner cards are available at the site. 27 Unbundling the Corporation: Key Role of Interaction Costs “All else being equal, a company will organize in whatever way minimizes overall interaction costs” -Costs of interacting with outside parties is the main reason firms do activities. -Does a decline in a firm’s interaction costs means a reduction in firm scope? 28 One Company Three Businesses Different economies drive three different businesses within a company. Innovation Customer Infrastructure Relationship Economics Speed Scope Scale Culture Competition Conflicts arise between three different businesses, and compromises have to be made. “Scope, speed, and scale cannot be optimized simultaneously.” RBOC Example 29 Critiquing Unbundling Interaction costs may have been reduced but have not completely disappeared! • Dual advantages provide a powerful barrier to entry. • Decisions about scope are contingent on the venture’s current position and capabilities. 30 Types of Architecture • Open architecture: Rules to interface with system openly published. – Closed architecture: Rules to interface with the system are a secret. • Examples: Cf: Microsoft/Linux • Proprietary architecture: Intellectual property for the architecture owned by a firm. – Examples: • Non-proprietary architecture: Intellectual property is public property. – Examples: • Can a proprietary architecture be open? 31 Open, proprietary architectures • Why open proprietary architectures may be valuable? – Openness contributes to market share – why? – Proprietary control imposes order and raises the stakes. – Why is the proprietary approach derided? – What about Linux? – What is the appropriate role of standards and regulation? 32 Linux Challenge (From Information Week) • As vendors scramble to port business applications to Linux, the lack of a standard set of features for the open-source operating system is causing headaches and user uncertainty. – There are at least 15 English-language distributions of the operating system for the Intel platform--and none of them are exactly alike. – Though they are similar, since they each start with some version of the same freely available source-code base, the differences are such that there is no guarantee that your commercial Linux application will run on all of them. – Vendors porting commercial applications to Linux are finding that the subtle (and sometimes not-so-subtle) differences in Linux distributions can cause problems for customers and developers. 33 Source: Information Week (Jan 24, 2000) Winning Architecture Strategy: Balance in Openness • Opening the architecture just the right amount is the key to competitive success. IBM Vs. Apple in the Personal Computer Industry – IBM opened the PC architecture too much without maintaining any proprietary control. Intel and Microsoft gained. – Apple tied its OS to hardware too closely, preventing the mass adoption that the IBM PC enjoyed. • Opening the right amount combined with an effort to keep the system moving forward can be a powerful approach. The Rise and Fall of Iridium • Additional Observations? 35 Capturing Value Through a Product Line • A product line not only helps meet the differing needs of different customers (“horizontal differentiation”), but also helps in capturing value from customers with different willingness to pay. • The Value Capture Problem: – How do you charge each customer according to their ability and willingness to pay? – Product line can help segment a mass market 36 Versioning or Quality-Based Discrimination • Offer multiple products and price them accordingly for self-selection. Many Ways to version based on: – Convenience – Comprehensiveness – Speed – Data Processing – User Interface – Customer Support • Goldilock Pricing: Why 3 versions may be preferable to two? – “Extremeness Aversion” 37 Enspire Learning Case Discussion Who is Bjorn Billhardt? MBA Student Feedback • “This is the first online module that I have enjoyed.” • “Usually you have to click all over the place.” • “The information was very clear and strongly helped reinforce my knowledge of the material.” – HBS Case 9-802-001 39 Different Segments of the E- Learning Market • What is the relative attractiveness of the different segments of the e-learning market? – What are the segments? • Why does Enspire prefer to be in the content creation/production segment? 40 Product or Service? • Which business model should Enspire adopt? • Which customer should Enspire first target (beach head)? • What development approach (Hire content experts)? Specialize in Customized learning tools? Others? 41 Challenge in Hiring • “Production staff would have to be more interested in understanding the customer and designing content that worked well for students than in the details of programming software, creating graphics, or producing animations.” • See case p. 9 42 Decision • How should Enspire proceed? 43 Enspire Case Takeaways • Enspire discussion shows the trade-offs between the product and service business models. – Products are scalable, but not sustainable. – Services are sustainable, but not scalable. • What do you see as the product-service decision in other industries? • Is delivery as a service an option for some of your technologies? • Are services a viable option for product companies? 44 Enspire 2004 Presentation Bjorn Billhardt (See Blackboard any time after noon today) Growth Through Services A Discussion Relationship with Bundling? • What points do Hagel and Singer make in “Unbundling the Corporation”? • Do you Agree? • Does “Unbundling” have anything to do with “Creating Growth with Services” (Sawhne and Krishnan)? 47 Repeated Observation • “What the customer buys and considers value is never a product.” • “It is always what a products does for him.” » Peter Druker (cite in “Creating Growth with Services”) 48 Basis of Temporal and Spatial Linkage • Firm has established a market and a relationship with the customer. • Firm has specialized knowledge of customer needs and experiences. • Firm has subject matter expertise related to customer needs. • Can the Firm expand the relationship and interaction for mutual profitability? 49 Business Units Architecture (Mature Business => Steady • State) Customer Needs Marketing Design Input Sales Product & Distribution Science/Engineering Customer Money Sales Final Product Manufacturing Manufacturing Specifications 50 Speed is Critical in the Product Cycle • Cycle time advantage (even if small) is critical because it compounds over multiple cycles. Frequent cycles reinforce the advantage. Generation Technological Improvements Fast-Cycle 6 Competitor 5 4 Slow-Cycle 3 Competitor 4 2 3 1a 2 1a Time 0 0 Risks of Services • Key challenges with service expansion – New business model – Lack of familiarity – Lower margins (at least for some services) – Capability risk – Avoiding customer free-riding • Growth without “adjacency moves” causes undue risk. • Think of growth through linkages 52 Growth Through Adjacencies • Linkages are one-step moves from the core business – Overlapping capabilities in terms of customer, product – Aim is to minimize risk, maximize profit • Types of linkages for an installed base – Temporal linkage – Spatial linkage – Process linkage – Pattern linkage 53 Creating Growth • Define Temporal Expansion • Define Spatial Expansion 54 Creating Growth • Define Temporal Expansion – Growth from services that add new activities to a primary activity chain • Define Spatial Expansion – Growth from services tha add new activities to an adjacent chain 55 Temporal Linkages and Customer activity chain Description • Understand the complete chain of activities around a discrete customer set Customer Activities • Identify breaks or gaps in the activity chain to highlight areas for potential expansion Gaps in and a potential activities complementary market. The diagram depicts all of the activities that surround a specific need. Growth avenues can be found by mapping the activities, identifying those that are not performed, and filling those needs through new offerings 56 Boeing’s temporal expansion Operate Finance Planes Repair Planes Planes 85% of all commercial aircraft flying today are Boeing aircraft, yet Boeing owns less than 5% of the $60 billion commercial aircraft services Buy business. Boeing plans to increase its $3.2 billion Planes commercial aircraft services business to equal its $30 billion product business in 5-10 years. Maintain Planes Modify Planes Upgrade Planes 57 Temporal linkages: Diagnostic questions • How do customers become aware of the need for your products? • How do customers find your products? • How do customers evaluate and select your products? • How do customers order and purchase your products? • How are your products installed and maintained? • How are your products and services paid for (financed)? 58 Temporal linkages: Diagnostic questions (Continued) • How are your products stored? • Where are your products used, and what processes are they part of? • How are your products customized and configured for customers? • What help do customers need to use your products effectively? • How do you handle returns and exchanges? • How are your products repaired or serviced? • How are your products disposed of? 59 Exploiting spatial linkages Description Adjacent Current • Identify adjacent segments by looking market market for customer sets that have needs that are similar to currently served customers, and can be served with capabilities, offerings, and channels that are not very different from the core business. • Identify adjacent needs for current The diagram depicts two markets, each customer segments that can be served with a related set of customer needs, by redeploying, disaggregating, scaling and a common branching-off point up, and scaling down existing offerings. 60 Example: Intuit and the SOHO market (Small Office/Home Office) • Intuit originally designed Quicken to serve consumers; however, as it discovered small businesses were utilizing its products for accounting purposes, Quicken moved to fill that need in the adjacent market Description of Background: - Intuit’s original product was Quicken, a personal financial management software for consumers. Quicken Quicken.com - Small business owners began using Quicken for accounting Internet Gateway purposes. - In response to customer inquiries about how to use Quicken for Home various business purposes (i.e. payroll and bill pay), Intuit launched SOHO QuickBooks in 1992 for small business owners. Web Web - Using QuickBooks, small business owners can not only perform the simple check register tasks that were included in the original Quicken product, but can also create custom invoices, enter sales, perform payroll, and manage inventory in QuickBooks SOHO Home Desktop Client- Analysis: server - By meeting a customer need and leveraging its name brand, Intuit Quickbooks, Online Quickpay Banking, owned approximately 80% of the small business financial software Bill Payment business by 1999. Home - In 1999, QuickBooks Pro was ranked 5th as the top selling business software and QuickBooks 6th Desktop Quicken 61 Source: Nexis, company search Example: GM and new service platforms Home Home sales relocation Satellite Home Home Data Mortgage Services Auto (GMAC) financing New Vehicle Satellite vehicle service TV Home sales insurance Home monitoring Used vehicle Automotive Auto sales Services insurance Travel services Vehicle Satellite repair Roadside assistance Emergency radio Parts, services service accessories Telematics Services Vehicle (OnStar) Cellular monitoring Voice/data services services Personal Concierge 62 services Exploiting process linkages Description New and broader • Broaden the way you define the core market business, thereby expanding your scope of activities and increasing the potential market size. Existing • Take over part of your customers’ market operating processes, by taking advantage of the fact that you perform these activities better than customers can perform them. • This strategy allows firms to become more deeply embedded in their The first ring of activities within the diagram customers’ operating processes, and depicts a set of activities around a narrowly therefore increases customer loyalty. defined market. As the company broadens itself to provide a broader array of products and services, the size of its market opportunity becomes larger. 63 Example: Logistics services at UPS Transportation Supply chain network management management Assembly Service & Testing parts logistics management Package Warehouse delivery design & business Logistics management technology management Customer Reverse Care Logistics logistics management service management business 64 Pattern Linkages • Can you generate insight from the data produced by the customer’s use of the product? – Progressive’s Autograph application – Is there an opportunity for Microsoft? 65 Mitigating Risks in Service Expansion • Try incremental expansion. • Keep either customer or product familiar. • Partner with providers that offer service capability. 66 Key Takeaways • Do not ignore business model when commercializing technology • Consider the service business model, internet makes it more scalable. • “Servicize to learn, Productize to earn” • Use linkages to expand into services for product companies. 67 Consider Laser Interaction with Material 68 SLS Process? 69 Function Analysis • Purpose of Function Analysis • Team Presentations in Session 3 • Function Diagram plus description • You should have user names and passwords 70 Executing on Product Development How to be consistent and predictable in launching products while gaining speed and flexibility? Companies face different challenges in this area! What are some examples of challenges? 71 Challenges Major Corporations Face • What are some challenges the mightiest of firms face? – Do they lack resources? – Do they lack know-how? – What are their issues and problems? • Examples of situations and steps taken: 72 Issues Facing Small Growing Firms • When a company is small, it has some unique advantages in product development. – – • As it grows, it faces several new challenges. – – • Some companies are unaware of their problems. Others over-react. Solutions require fine judgment. Cookie-cutter solutions from consulting firms do not help! 73 Consistency and Predictability • What do consistency, predictability mean? – – • Why are these important as a firm grows? – What makes achieving consistency & predictability difficult? Is it because the destination is new? Why is developing new products not trivial? – 74 Consistency is Not Easy Either! Who is the Sam John better shot? Who would you hire as body- guard?;-) 75 Classifying and Managing Risk Technical Risk Market Risk Inability to meet product Inability to sell the product specifications despite meeting specifications! 76 Speed May Increase Project Risk • Why attempts to speed increases risk? – GE Compressor Example • A structured approach such as a phase review process can help ensure risk management while implementing acceleration methods. 77 Speed Without Increased Risk • Efforts to speed-up, if not managed carefully, can lead to less than thorough development and higher risk. • A structured approach such as a phase review process can help ensure risk management while implementing acceleration methods. Idea Phase Phase Phase Phase Gate Gate Gate Launch Gate 4 Gate 1 1 2 2 3 3 0 Initial Decision on Post- Launch Post-Launch Screen Business Case Development Readiness Business Review Review Analysis 78 Compare 1. 3. 5. 7. 9. Imagine Incubate Demonstrate Promote Sustain the dual contextually adoption 8. 2. to define 4. 6. commercialization (techno-market) Mobilize in Mobilize Mobilize Mobilize insight products complimentary Interest resource market consti- and for and tuents assets for endorse- Demo processes delivery ment Commercializ- ability Idea Phase Phase Phase Phase Gate Gate Gate Launch Gate 3 4 Gate 1 1 2 2 3 0 Initial Decision on Post- Launch Post-Launch Screen Business Case Development Readiness Business 79 Review Review Analysis Rationale for the Phased Approach • What do the phases do? – • Why reviews? – – • What are the origins of this approach? • What are good and bad practices in product development project management? 80 Project Management at Dell Computer Corp. Learning Objectives Framework to understand project management maturity Developing products in fast-moving environments: Tension between structure and flexibility Dell Case (Continued) • The Dell case shows stages of project management maturity at a growing firm • Managing technology and customer preference uncertainty is a key challenge in managing projects. – Deferring the decision through over-design or parallel path helps the team keep its options open. – Organizational implications of deferring decision making. – Overcoming Established Mindsets • What Dell Did? • Key Insight: Managing the balance between structure and flexibility in projects. 82 Takeaways: Managing Project Uncertainty Idea Phase Phase Phase Phase Gate Gate Gate Launch Gate 4 Gate 1 1 2 2 3 3 0 Initial Decision on Post- Launch Pre-Launch Screen Business Case Development Readiness Business Review Review Analysis • As time progresses, the stakes go up. Project risks must be reduced before the stakes become too high. • Incremental approach to increasing the stakes • Buying a series of looks at the project outcome. 83 Benefits from a Phased Project • Reviews serve to make management intervention effective and avoids escalation of commitment. • Many reviews make it difficult for weaker ideas to reach the market. Also, many “mini-launches”. • Early reviews reduce the probability of late appearance of bugs/quality problems. • Cross-functional team presentation at reviews promotes shared understanding of the process • Venture capital approach to investment. 84 Negatives: Reviews can slow down the program Can get bureaucratic and sequential. 85 Speed Can Be Critical in Commercialization • Cycle time advantage (even if small) is critical because it compounds over multiple cycles. Frequent cycles reinforce the advantage. Generation Technological Improvements Fast-Cycle 6 Competitor 5 4 Slow-Cycle 3 Competitor 4 2 3 1a 2 1a Time 0 0 A More Concurrent Phased Process TIME (months) KEY ACTIVITY 0 3 6 9 12 15 18 Profile - Project scope - Schedule - Cost/res ourc es Planning - Bus iness plan - Senior management review Impleme ntation - Design - Build - Tes t - Manufacturing qualification Qualification - Prototype test s - Launch readiness - Manufact uring ramp-up - Marketing communication Launch - Sales/s ervice training - Manufacturing readiness - First shipment Acceptance - Early market surveillance 87 Phase Rev ie ws Critical Path and Critical Chain Management • Most projects have a particular set of activities whose completion dictates the schedule; – These activities are said to be in the critical path – Determines points of leverage for managerial attention. • Approach to critical path management: – Break down the project into activities; obtain time estimates and precedence relationships. – Determine slacks and the critical path – Perform sensitivity analysis 88 Example: Product Launch at 3M Activity Label Duration Predecessors Service A 8 - Training Technical B 10 - Documentati on Field C 6 A Readiness Assessment Field Tests D 3 A Drop Ship E 5 B, D 6 8 C A 3 D 5 10 E 89 B Earliest start schedule on a Gantt chart A B C D E 0 2 4 6 8 10 12 14 16 Time (weeks) 90 Prototyping and Technology Commercialization Prototyping to Mitigate Risk • Prototypes bridge design and production, and serve several purposes: • • The 4F’s of Prototypes: Form, Fit, Function, Fabrication • A number of different options exist for prototypes: – Analytical Vs. Physical Prototypes – Focused Vs. Comprehensive prototype • Flexibility, Cost, and Effectiveness are issues in deciding what kind of prototypes to develop. Cost-Representativeness Tradeoff Conventional Prototyping Rapid Prototyping Representativeness 93 Prototypes as Project Milestones • Prototypes help synchronize work of multiple participants. Milestones are very important for projects. (Build consensus, demonstrate progress, motivate) Issues in Managing Prototyping • Number of prototypes: How many prototypes to do? – Can too many prototypes be harmful? – Typically, Alpha, Beta and Pre-production • Timing of prototypes: When and how to schedule prototypes? – prototyping early or later? Planning Prototypes in a Project/Venture 1. List the types of uncertainties facing the project 2. Define the Purpose of the Prototypes (reduction of xxx uncertainty) 3. Establish the level of approximation/representativeness 4. Decide the number and timing of prototypes based on the risks and resources available.
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