BT 372B Chap 03

BT 372B: Discovery and Commercialization of Technical Business Opportunities

Yan Chen, Ph.D.Assistant Professor

Stevens Institute of Technology

Summary: Sources of Innovation

Innovation can arise from many different sources:

• Firms’ R&D

• Lead Users, Universities, Governments, Nonprofits

Theses different sources of innovation can be categorized into

• Internal sources & External sources

External and internal sources are complements:

• Internal R&D can help firms create new knowledge and build absorptive capacity

• Absorptive capacity can help firms recognize the value of external information, assimilate it, and utilize it

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Outline

Self-Introduction and Discussion

• Student introduction

• Student discussion

• Case selection

1. Chapter 3: Types and Patterns of Innovation

• Tata Nano

• Types of Innovation

• Technology S-Curves

• Technology Cycles

2. Article: Disruptive Technologies: Catching the Wave

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Student introduction

Name

Major

Year

Something else that you would like us to know about you

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Student discussion

Form groups of 1-4 students

Discuss and come up with some questions to ask the instructor. Questions should be course related. (5 mins)

Each group picks a spokesperson, and s/he will ask the instructor 1-3 questions.

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http://www.polleverywhere.com/app

http://www.polleverywhere.com/app/help

https://www.polleverywhere.com/multiple_choice_polls/AoxLfqHyshZMcMg?preview=true

Case Selection

Form teams of 1-4 students.

• You can move around and talk to your potential teammates.

• Once your team has formed, please vote on Poll Everywhere (bt372). Each team votes once, so I can count how many teams we have.

Discuss (for about 5 minutes)

• Which case would you like to present?

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Case Selection

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Case Selection

Go to: https://yanchen.youcanbook.me/

• And make your choice.

• First come first serve.

• You only need to choose the date you would like to present. The case for each week is predetermined.

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https://yanchen.youcanbook.me/



BT 372B: Discovery and Commercialization of Technical Business Opportunities

Yan Chen, Ph.D.Assistant Professor

Stevens Institute of Technology

Outline


• Tata Nano





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Outline


• Tata Nano





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Tata Nano: The World’s First Rs. 1 Lakh Car

Tata Nano is the world’s cheapest car (about $2200).

Tata Motors spent five years on developing the Nano.

It worked with a global network of 800 suppliers to the Nano.

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Because Tata Motors wants the Nano to be cheap, the Nano has

• a two-cylinder engine

• no power steering

• no electric windows

• no anti-lock brakes

• no airbags

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Designing the world’s cheapest car is not easy.

According to Girish Wagh (head of the Tata team):

• “the entire engine was redesigned thrice”

• “the entire body was redesigned twice”

• “and the floor plan of the car redesigned around ten times”

• “the wiper system designed more than 11 times”

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Tata made a big bet on the Nano.

It spent close to $400 million on developing the vehicle.

It also spent hundreds of millions on building a factory. The factory was capable of manufacturing 15,000 to 20,000 units a month.

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Tata made a big bet on the Nano.

It spent close to $400 million on developing the vehicle.

It also spent hundreds of millions on building a factory. The factory was capable of manufacturing 15,000 to 20,000 units a month.

But sales is now hovering around 2,500 units a month. Tata Motors only managed to sell 554 units of the Nano in December 2013.

So a lot of capacity is wasted, and a lot of Tata dealers are frustrated.

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Discussion Questions

1. Is the Tata Nano

• a product innovation or a process innovation?

• a radical innovation or an incremental innovation?

• a competence-enhancing innovation or competence-destroying innovation?

• a component innovation or an architectural innovation?

2. What factors do you think influence the rate at which consumers adopt the Tata Nano?

3. Do you think that the Tata Nano will be successful?

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https://www.polleverywhere.com/multiple_choice_polls/iRtgrutBZqkACzj?preview=true

Outline


• Tata Nano





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Types of Innovation

Several dimensions are used to categorize innovations.

• Product versus Process Innovation

• Radical versus Incremental Innovation

• Competence-Enhancing versus Competence-Destroying Innovation

• Architectural versus Component Innovation

These dimensions help clarify how different innovations offer different opportunities (and pose different demands) on producers, users, and regulators.

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Types of Innovation

Product versus Process Innovation

• Product innovations are innovations in the outputs of an organization

– e.g., new goods or services.

• Process innovations are innovations in the processes of an organization (i.e., the way an organization conducts its business)

– e.g., new techniques of producing or marketing goods or services.

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Types of Innovation

Radical versus Incremental Innovation

• The radicalness of an innovation is the degree to which it is new and different from previously existing products and processes.

• Incremental innovations may involve only a minor change from (or adjustment to) existing practices.

– iPhone 5s

• The most radical innovations would be new to the world and exceptionally different from existing products and processes.

– The original iPhone

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Types of Innovation

Competence-Enhancing versus Competence-Destroying Innovation

• Competence-enhancing innovations build on the firm’s existing knowledge base.

– e.g., Intel’s Pentium 4 built on the technology for Pentium III.

• Competence-destroying innovations make a firm’s existing knowledge base obsolete.

– e.g., digital watches versus mechanical watches

– e.g., digital photography versus traditional photography

– e.g., digital music versus CD

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Types of Innovation

Architectural versus Component Innovation

• A component innovation entails changes to one or more components of a product system without significantly affecting the overall design.

– e.g., adding gel-filled material to a bicycle seat

• An architectural innovation entails changes in the overall design of the system or the way components interact.

– e.g., transition from high-wheel bicycle to safety bicycle.

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Types of Innovation

Architectural versus Component Innovation

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In the 1960s, most washing machines were ‘twin tubs’, where the washer and the spinner were separate and placed alongside each other.

The automatic washing machine combines the washer and spinner in a single drum, allowing all the operations to be completed in a single cycle

Outline


• Tata Nano





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Technology S-Curves

The rate of a technology’s improvement typically follows an s-shaped curve.

S-Curves in Technological Improvement

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• At first, technology improves slowly because it is poorly understood.

• Then the rate of technology improvement accelerates as understanding increases.

• Then tapers off as it approaches limits.

Technology S-Curves


• Technologies do not always get to reach their limits; they may be displaced by new, discontinuous technologies.

• A discontinuous technology fulfills a existing market need by different means.

– e.g., switch from carbon copying, to photocopying, and to photos

– e.g., switch from vinyl records, to compact discs, and to digital music

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Technology S-Curves

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Technology S-Curves

Another Important S-Curve: S-Curve in Technology Diffusion

Technology diffusion: how different categories of people adopt a new technology at different times

• e.g. computers were first adopted by scientists and engineers and ultimately became a mass market product.

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Technology S-Curves

S-Curve in Technology Diffusion

• Adoption is initially slow because the technology is unfamiliar.

• It accelerates as technology becomes better understood.

• Eventually market is saturated and rate of new adoptions declines.

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Technology S-Curves

The two s-curves are related

• Learning leads to accelerated technological change

• Technological change leads to price drop

• Price drop accelerates diffusion

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Average Sales Prices of Consumer Electronics

$0

$200

$400

$600

$800

$1,000

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

VCR CD Player Cell Phone

Penetration of Consumer Electronics

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%

Per

cen

t o

f U

.S. H

ou

seh

old

s

VCR CD Player Cell Phone

Research Brief: More on S-Curve in Technology Diffusion

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Innovators (2.5%)

• Innovators may buy a new device just because it is new.

• They are interested in keeping up with technological advances.

• They often buy a new device, simply for the pleasure of exploring the new device’s properties.

• There are not very many innovators in a market, but winning them over is very important.


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Early Adopters (13.5%)

• They don’t buy a device just because it is new.

• Early adopters buy a new device because they believe that it can help them solve their problems.

• Early adopters don’t need to rely on well-established references in making decisions.

• They are extremely important to open up any high-tech market segment.


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Early Majority (34%)

• They are driven by a strong sense of practicality.

• They know that many of new devices end up as passing fads.

• They want to wait and see how other people react to new devices.

• They need well-established references before buying.

• Winning early majority is fundamental to profit and growth.


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Late Majority (34%)

• They wait until something has become an established standard.

• They tend to buy from large, well-established companies.

• Winning late majority is important to profit and growth.


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Laggards (16%)

• They simply don’t want to have anything to do with new technology.

• Forget about them. They are not worth pursuing on any basis.

Outline


• Tata Nano





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Technology Cycles

Technological change tends to be cyclical

• In the era of ferment (or the fluid phase)

– there is considerable uncertainty about the technology and its market

– firms experiment with different product designs

• Then, a dominant design emerges

• In the era of incremental change (or the specific phase)

– firms focus on incremental improvements to product design and production processes

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Technology Cycles

Characteristics of Technology Cycles:

• A dominant design always rises to command the majority of a market.

• The dominant design is never in the same form as the original design.

• The dominant design was also not on the leading edge of the technology. Instead, it bundles the features that would meet the needs of the majority of the market.

• During the era of incremental change,

– firms often stop exploring alternative designs

– they instead focus on exploiting the dominant design

– incumbent firms may therefore have difficulty in recognizing and reacting to disruptive technologies

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1. What is the S-curve in technological improvement? What are its major characteristics?

2. What is the S-curve in technology diffusion? What are its major characteristics?

3. What is a dominant design? What are the roles of dominant design in a technology cycle?

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Outline


• Tata Nano





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https://www.polleverywhere.com/multiple_choice_polls/nJ3QFGNGkk8Pmz1?preview=true

2013 Ranking: #1 2011 Ranking: #1

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Disruptive Technologies

Sustaining innovation

• It maintains a steady rate of product improvement along dimensions that are important to current customers.

Disruptive innovation

• It often sacrifices performance along dimensions that are important to current customers.

• It is generally not good enough to be used in mainstream markets.

• It often offers attributes that are not yet valued by current customers. And these new attributes can open up entirely new markets.

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Ａ n Example

Cellphones

• poor sound quality

• expensive

• But it offered portability

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Ａ n Example

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TR-55 transistor radio - 1955

The TR-55 was Sony's first transistor radio, and the first to be made in Japan. The use of transistors rather than vacuum tubes allowed the device to be much smaller than earlier radios, and allowed them to be the first truly portable radio from Japan.

Silvertone 4686 - 1937

It was a vacuum tube audio. It worked on the standard broadcast AM band and 3 short wave bands. This radio featured a magic eye tuning indicator and a really big speaker with a massive baffle.

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Laptops

Mainframe

Minicomputers

Smartphones

Desktops

Disruptive Technologies: Catching the Wave

Disruptive innovations transform complicated or costly products so radically that they make these products available to a new sets of consumers.

An Axiom:

If only the skilled and the rich have access to a product or a service, then there are opportunities for disruptive innovation.

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The Strategic Management of Disruptive Technologies

Should I stretch the technology, until it can be used in existing market segments with existing customers?

Should I find a new market segment in which the attributes of the disruptive technology are valued?

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https://www.polleverywhere.com/multiple_choice_polls/oWzXIQLnJ8afTfb?preview=true

Disruptive Technologies

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Per

form

ance

Time

Performance that customers

can utilize or absorb

Pace of

Technological

Progress

Sustaining innovations

Disruptive innovations

Incumbents nearly always win

Entrants nearly always win

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Steelmaking: Integrated Mills vs Mini Mills

7%Quality

of minimill-p

roduced steel

12%

18%

Ste

el

Qu

alit

y

19801975 1985 1990

Rebar

Angle iron; bars & rods

Structural Steel

Sheet steel

25–30%

Quality of in

tegrated mills

’ steel

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1. What is a performance trajectory?

2. What is disruptive technology? What is sustaining technology? How is disruptive technology different from sustaining technology?

3. Why are disruptive technologies initially used in new markets or new applications? How can disruptive technologies subsequently enter mainstream markets?

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Summary: Types and Patterns of Innovation

• Different dimensions have been used to distinguish types of innovation. Some of the most widely used dimensions include:

– Product versus process innovation

– Radical versus incremental innovation

– Competence-enhancing versus competence-destroying innovation

– Sustaining versus disruptive innovation

• A graph of technology performance over cumulative effort invested often exhibit a s-shape curve.

• Technological change often follows a cyclical pattern.

– First, a technological discontinuity causes a period of turbulence.

– A dominant design gradually emerges.

– Firms then turn their attention to operational efficiency and incremental improvements.

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Next Class

Chapter 4 Standards Battles and Design Dominance

• The factors that determine whether industries experience pressure to select a dominant design, and what drives which technologies to dominate others.

Please read:

• 1. Textbook Chapter 4 Standards Battles and Design Dominance

• 2. Eisenmann, T., G. Parker and M.W. Van Alstyne (2006), 'Strategies for two-sided markets', Harvard Business Review, 84 (10), 92–101.

And think about the preparation questions.

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Documents

BT 372B Chap 03