Marketing of High-Technology Products and Innovations Chapter 7: Product Development and Management Issues in High-Tech Markets

Marketing of High-Technology Products and

Innovations

Chapter 7: Product Development and

Management Issues in High-Tech Markets

© Mohr, Sengupta, Slater

2005

Chapter Overview

Technology development “What to sell” Product modularity, platforms, and

derivatives New product development teams “Stopping” rules in new product projects Developing services Intellectual property


2005

Technology Maps Define a stream of new products

(breakthrough + incremental) company plans to develop over time.

Used for: Commitment to new product

development Allocation of resources

A flexible blueprint that must be updated regularly


2005

Technology Map

1 Technology Identification

4On-going Management - Modularity- Platforms and derivatives- Teams- Killing projects- Developing services

- Intellectual property issues

2Decide on needed technologyadditions - Internal development (Make) - External acquisition (Buy) - Partner to co-develop

3Decide on "What to Sell"strategy - License vs. fullcommercialization


2005

1. Technology Identification

Inventory of firm’s valuable know-how that may be sources of revenue generation Products Processes

Such as superior manufacturing skills Management practices

Such as knowledge managementValuate the corporate intellectual assets& technology forecasting


2005

e.g., Technology map of mobile standard evolution

3G2.5G2G

cdmaOneIS-95A

cdmaOneIS-95A

GSMGSM

IS-95BIS-95B

PHSPHS

CDMA2000 1x IS-95C

CDMA2000 1x IS-95C

GPRSGPRS

HSCSDHSCSD

EDGEEDGE

WCDMAWCDMA

CDMA2000 1x EV DO

CDMA2000 1x EV DO

PDC-PPDC-P

PDCPDC

Less important evolutionary routeKey evolutionary route

CDMA2000 1x EV DV

CDMA2000 1x EV DV


2005

e.g., Technology map of telecom services

high

high

low

low

Rich

ness

Fixed linePSTN 1G

2G

3G

ADSL Cable modem

WLAN

VOIP

VO IP DIY

Wi -Max

Mobility

Information

Mobile commerce


2005

Identify technology landscape

Scanning the important technology entities

Matter Energy InformationMobility/Input

e.g., mega magnets enhance the absorbability of tiny molecule

e.g., mega magnets accelerate the friction-less transmission

e.g., mega magnets trace micro magnetic particle sensitively

transformation

e.g., mega magnets enhance plastic deformation

e.g., mega magnets promote the efficiency of micro-motor

e.g., mega magnets facilitate the change of electricity/ microwave into voice

Storage/ output

e.g., mega magnets facilitate the refrigeration

e.g., mega magnets possess energy durably

e.g., mega magnets support MO disk for large volume of data


2005

2. Decide on needed additions

What technologies does firm need to round out its offering? “Make vs. buy” decision

Internal development External acquisition

Partnering


2005

Adding New Technology: Focus on Development Risk

Internal Development New development

close to existing skills Confidentiality reasons “NIH” (not invented

here): Good technology can be developed only internally.

External Acquisition Someone else has

already developed Save time and effort Let others take risks first Keep up with competitors Use existing brand

name/marketing resources

Unfamiliar & untrustworthyLeverage & co-option


2005

3. Commercialization Decision: “What to sell?”Focus on Marketing Risk

Continuum of options, based on the additional expenditures customers must incur beyond the cost of the purchase to derive the intended benefits of the technology Know-how only “Proof of concept” Components to OEM Final products to end-user End-to-end solution, service bureaue.g.,

DoCoMo’s i-mode service

e.g., Nike design

e.g., Cannon’s laser printer engine

e.g., Acer travel mate

e.g., Philips’ LCD technology


2005

Appropriate conditions for technology licensing

Network externalities: more value as more customers use a product

Quicken standardization of technological evolution discourages other’s substitute technologies

Firm lacks marketing skills for end-product

Major customers want a second source


2005

Lean Towards Selling Know-How When:

Technology lacks fit with corporate mission Lack of financial resources to exploit technology Tight window of opportunity and lack of speed Market smaller than expected/business unlikely

to be profitable When range of technologies in market is

diverse When allowing firms access to technology is

most appropriate (next slide)


2005

Lean Toward Selling End-Product When:

Firm’s components are incompatible with general industry standards. What if firm competes at end-product with

incompatible product? Hard to get third-party developers

Demanding high coordination capability and industry

leadership. e.g., NTT DoCoMo on i-mode service


2005

Sell at Multiple Points on the “What to Sell” continuum when

Offering technology to competitors may encourage industry standardization

Firm may have skills in some segments but not others

Major buyers require second source Limited exploitation by a single opportunity Diversify the product lines

To maximize rate of return on technology investment


2005

A Caveat: International Markets

Sales of manufacturing technology and know-how may result in setting up a new low-cost competitor


2005

4. On-going product management

Modularity Platforms and derivatives Teams “Killing” projects Developing services Protecting intellectual property


2005

Modularity Building a complex product from

smaller subsystems that can be designed independently, yet function together as a whole


2005

Determine Product Architecture

The arrangement of functional elements into physical chunks which become the building blocks for the product or family of products.

Product

module

module

module

module

module

module

module

module


2005

Trailer Example:Modular Architecture

box

hitch

fairing

bed

springs

wheels

protect cargofrom weather

connect to vehicle

minimizeair drag

supportcargo loads

suspendtrailer structure

transfer loadsto road

functionscomponents


2005

Trailer Example:Integral Architecture

upper half

lower half

nose piece

cargo hangingstraps

spring slotcovers

wheels

protect cargofrom weather

connect to vehicle

minimizeair drag

supportcargo loads

suspendtrailer structure

transfer loadsto road

functionscomponents


2005

Which architecture of nail clippers is preferred?


2005

Modular Product Architectures

Chunks implement one or a few functions entirely.

Interactions between chunks are well defined. Modular architecture has advantages in simplicity

and reusability for a product family or platform. Three types of modular architectures

Slot-modular Bus-modular Sectional-modular

Swiss Army Knife


2005

Product Platforms and Derivatives

Product platform is a common architecture based on a single design and underlying technology

Derivative products are versions intended to fill performance gaps between platform products

Proliferation of product lines


2005

Platform Strategy is Attractive in High-Tech Markets

Unit-one cost structures Allows for rapid development of

market share/revenues Speed and flexibility in going after

niches: “gap filling”

The product strategy of bowling alley


2005

Platform Architecture of the Sony Walkman


2005

Product Platforms and Derivatives

Family 1

Family 2

Family 3

Per

form

ance

Time Ref. Figure 7-4 Intel’s product platform and product family


2005

The product family of Intel’s CPU

i86 platform 8086, 8088 80286 80386SX, 80386DX 80486SX, 80486DX, 80486DX2

Pentium platform Pentium Pro, Pentium MMX, Pentium II Pentium III, Celeron, Timna, Xeon

Pentium IV platform (Willamette, Itanium, Centrino)

deriv

ativ

es

differentiations

Pla

tform

genera

tions


2005

The Product Family for HP’s Ink Jet Printers

DeskJet 500 platform DeskJet 500C, Deskwriter 500C(color) DeskJet 550C, Deskwriter 550C(dual pen) DeskJet 300, 340(portable) DeskJet 560C, 520C, Deskwriter 560C, 520C

(lower price) DeskJet 600 platform

Deskwriter 540C, 600C, 660C(better quality) DeskJet 800 platform

DeskJet 850C, 855C(enterprise use)


2005

New Platform Strategy Design for high-end of the market

Incorporate as many features as needed for this segment

Willingness-to-pay helps recover high fixed costs

Subtraction of features is lower incremental cost than addition

Consistent with both lead user and chasm concepts

Keep sustainable to be the industry leader


2005

Six Modular Operators (lessons from IBM System 360/370)Operator Definition Example

Splitting Separating systems into components which interact across defined interfaces

Interchangeable drives, keyboards, mice, monitors, and printers

Substituting Switching between components which perform the same function

Replacing a dot matrix printer with a laser jet printer

Excluding Removing a module to reduce the functions the system can perform

Removing a CD-ROM player

Augmenting Adding a module to increase the functions of a system

Attaching a back-up storage device

Inverting Making an imbedded function into a stand alone module

Having a network printer rather than dedicated printers

Porting Moving a module from one system to another

Using a Mac printer on a PC network by adding a translator


2005

New Product Development Teams Comprised of individuals from

different functional areas such as R&D, engineering, manufacturing, purchasing and marketing


2005

Performance of NPD Teams

Information integration

Monitoring by senior management

Quality orientation

Product innovativeness

Product quality

Team identity

Encouragement for risk-taking

Customer influence

+

+

+

- +

+

+ +

+


2005

Rewarding NPD Teams Reward team as a whole

Share reward equally among team members

Share reward based on position or status

Reward individual team members Process-based Outcome-based

For complex product development process

For uncertain development outcome

Hybrid rewarding mechanism

Seniority compensation


2005

When to “Kill” New Products? Escalation of commitment

Product champions and technology enthusiasts are perennial optimists

Personal stake in project Biases in interpreting information

Recall information that confirms beliefs Ignore information that disconfirms beliefs Re-interpret neutral information as positive,

and even negative information as positive!


2005

More information is not the answer!

Foster internal culture that encourages open questioning

Attend to negative feedback Re-examine, review, and redefine the problem Search the alternative course of action A team of “exit-champion” for pulling the plug

Remove project from core of the firm Prepare key stakeholders for impending changes

“De-couple” withdrawal decision from prior investments Different manager making the “killing” decision

Rely on benchmarks established at outset Prepare “out of play” information closely tied to those with a

vested interest in the project


2005

Developing Services: Intersection of Technology & Service

“High -Tech”

“Low- Tech”

Product Service

1 2

3 4 IntangibilityInseparability

The corporate produces

which complements with necessary


2005

Cell 1: Augment Product with Service

Generate service revenue after product purchase

Training, repair, maintenance contract Does company have sufficient trained service

personnel? Can company develop proficiency in service

without losing core competence in product innovation?The vendor of service value layer embraces much more users’ added on value, and

sticks to the end users. Therefore, the service complements may slow down the influence of the vendor of installed base to them.


2005

Cell 2: High-Tech Service Contract research, IT consulting, service

provider Can technical service personnel communicate

with customers in user-friendly ways? Can service reliability of underlying

technology be maintained? Does company make continuous investments

in upgrades? Does company invest adequately in training

service personnel?


2005

Cell 3: Low-Tech Product Use technology

Improve customer service Make supply chain more efficient

The issue of corporate adoption of technologies to facilitate the operation efficiency

The business transformation of purchasing corporate


2005

Cell 4: Low-tech Service Substitute automation for labor in

improving customer service or supply chain efficiency

The issue of customer facing and adoption of self-service technologies, e.g., ATMs

The designing of user-friendly interface


2005

External customer-facing technology solutions

Are customers comfortable using the technology?

Have they been adequately trained? Does technology add value or make

customers resentful? Do customers miss human interaction? Do customers have access to technology? What else must the company offer to make

value compelling to customer?


2005

Internal technology solutions Are employees willing to embrace

technology? Have they been adequately

trained? Have business processes been

redesigned (re-engineering) to realize the potential of technology?


2005

Intellectual Property “ Original works that are creations of

the mind” which the originator has the right to earn an economic return from

How to protect it? Patents Copyrights Trademarks Trade Secrets


2005

Patents Confer owner the right to exclude others from

making, using, or selling product or process for specific time period In U.S., 20 years from date of filing

Three criteria invention must meet to be patentable: Useful: perform some function that benefits

humanity Novel: no prior evidence of invention exists Nonobvious: no suggestion of invention exists,

even when multiple writings are combined


2005

Two Types of Patent Applications in U.S.

Provisional: $160, 1 year time frame to “hold” Allows inventor to do further research Establishes a “priority date” of invention

Utility: $750 for examiner to render a decision Granted or denied; applicant can appeal

or re-file (another $750)


2005

Disadvantages in Using Patents

Patents are public information Eighteen months from time of filing in

the US Competitors may “invent around” patent

Patent owner must enforce rights Keep watch that competitors and others

are not “infringing” the patent Costly!


2005

New Issues with Patent Protection

Can now patent “business methods” Effective July 1998 Implications:

Patents on E-commerce business models/methods

Patents on medical treatment methods


2005

Tension in Granting Intellectual Property Rights

Foster creativity and “common good” Give inventors incentives (exclusive rights

to revenue from their inventions) Inhibit creativity and consumer welfare

Slow spread of valuable commercial innovations

Lack of competition and access


2005

Steps in Granting Patents Hire patent agent

Provide thorough, accurate understanding of invention

Assess state of prior art: Is the idea truly novel? Patentable?

Draft the claims to define the boundaries of the invention (scope of patent)

Draft drawings and application in easy-to-understand terms (licensable)


2005

Trouble Spots in Patent Protection Inventor has previously disclosed idea

prior to filing application At a conference, with investors, etc. Fatal in foreign protection US grants one year “grace period” from

disclosure Even with a patent, inventor cannot

practice invention if it infringes on patent rights of others (overlap on scope of patenting)


2005

International Filing Under Patent Cooperation Treaty (PCT)

File within 1 year of national application to claim priority back to original filing date

PCT enables filing one application in home language which is acknowledged as a filing in all member countries that the applicant designates

PCT application published 18 months after priority date

At applicant’s option, PCT examiner will issue international “search” report and/or preliminary judgment of patentability


2005

International Filing Under PCT

PCT application enters designated countries and goes before examiners in each

Translation is required, with fees Rights must be enforced in each

country


2005

Patenting Costs

U.S. PATENT COSTS FOREIGN PATENT COSTS

Application preparation $8,000-16,000

Searching/patentability $2,000-4,000 PCT filing fee $2,000-3,000

PTO fees for “late” responses $110-1970

Entry into national countries

$2,000-6,500

Issue fee $1300 Examination in country

$1,500-8,000

TOTAL $12,000-25,000 PER COUNTRY FEE

$3,500-14,500


2005

Copyrights Protect tangible form or manner in which idea

is expressed, not the idea itself. Example: software code

Grants inventor right to reproduce and distribute copyrighted works

Term is: Life of author + 50 years -or- Shorter of 75 years from publication or 100 years

from creation of work Easy to obtain ©

Register with US Copyright office in case lawsuit is filed


2005

Trademarks Names, symbols, devices to

distinguish/ identify goods Protects firm against unscrupulous

competitors who try to deceive/mislead customers


2005

Trade Secrets Any concrete information that:

Has commercial value useful to company

Secret generally unknown

Not easily ascertainable Developed at some expense

Provides competitive advantage


2005

Trade Secrets (Cont.) Financial, business, scientific, technical,

information including patterns, plans, compilations, formulas, designs, methods, programs, etc.

To be granted “trade secret” protection, firm must take reasonable steps to protect information


2005

Premises on the notion of confidential relationships

Nondisclosure Agreements (NDAs) Signer will not disclose information

Noncompete Agreements Signer will not establish/join a

competitor’s firm within a given time frame/territory

Invention assignment clauses All rights of employees’ inventions are

granted to the firm/employer


2005

Patents or Trade Secret Protection?

Patents When: Product will have

long market life Protection can/will

be enforced Corporate policy (the

business of technology creator and licensor)

Product can be reverse-engineered

Trade Secrets When: Secret not eligible for

patent protection Product life cycle is short Patent would be hard to

enforce Secret is not detectable in

the product (via reverse engineering for example)


2005

Effective Proprietary Information Programs

Focus on employees Morale

Look to senior managers’ behavior Stand behind security programs

Share information on a need-to-know basis only

Have minimal use of information for power/ politics


2005

Effective Proprietary Information Programs

Have a stated policy that is enforced via monitoring

Acknowledge communication based on geographical/professional/friendship ties

Use caution in sharing information in partnering relationships (including nondisclosures)

Have awareness of competitive intelligence tactics of other firms


2005

Economic Espionage Act (1996)

Stealing trade secrets is a U.S. federal criminal offense

Maximum punishment for U.S. citizens stealing for U.S. companies is 15 years in prison or a fine of $250,000

Maximum punishment for an agent of a foreign government or company is 25 years in prison or a fine of $250,000


2005

Managing Intellectual Property

An asset base that deserves strategic focus Licensing unfitted patents as a revenue

source Patent inventions that fit business

strategy Repackaging patents Donating unneeded patents to nonprofit

organizations for a tax write-off

Documents

Marketing of High-Technology Products and Innovations Chapter 7: Product Development and Management Issues in High-Tech Markets