Technology Strategy Midterm Review from NYU Tandon School of Engineering

NYU Tandon School of Engineering

Department of Technology Management

TECHNOLOGY STRATEGY Midterm Review Professor Latif Bentahar

Midterm Review Content

The Midterm exam content will largely focus on the slides included in this presentation

Theory of Disruption

"Well-managed companies often fail because the very management practices that have allowed them to become industry leaders also make it extremely difficult for them to develop the disruptive technologies that ultimately steal away their markets." p.265

Why Good Companies Fail

• "Good management"

. The Dilemma: The logical, competent decisions of management that are critical to the success of their companies are also the reasons why they lose their positions of leadership.

Reasons Good Management Can Lead to Failure

1. Difference between sustaining and disruptive technologies
2. The pace of technological progress often outstrips the needs of the market.
3. Customers and financial structures of successful companies heavily influence the types of investments that appear attractive.

The Innovator's Dilemma Explained

. Generally, An established company in an existing industry, listening to its customer base feels compelled to make products that will appeal to its high end customers · It faces the following (Innovator's) Dilemma: . Should it invest its resources to · make new products that its best customers can use and that would improve the company's revenues and profit margins" or . invest its money to create "worse" products that new customers in lower end market segment can use, and that would bring less profit and revenues. · Sustaining technologies - meet the needs of today's high paying customers · Disruptive technologies - meet the needs of tomorrow's low paying customers

Principles That Aren't Always True

• Focus investments on most attractive returns
• Listening to the customer successful innovation
• Big markets lead to bigger businesses
• Outsource low value activities

. Focus on core competency · Ignore sunk and fixed costs

Disruptive Technologies: Leadership Failure and Growth

Incumbents nearly always win Pace of Technological Progress Performance Sustaining innovations Performance that customers can utilize or absorb Disruptive technologies Entrants nearly always win Time Copyright Clayton M. Christensen and Jason Hwang

Innovation Sources Overview

Innovation can arise from many different sources and the linkages between them. Firms Individuals Universities Private Nonprofits Government- Funded Research Access the text alternative for these images

Creativity Definition

Creativity: The ability to produce work that is useful and novel. · Individual creativity is a function of: · Intellectual abilities (for example, ability to articulate ideas). · Knowledge (for example, understand field, but not wed to paradigms). · Personality (for example, confidence in own capabilities). · Motivation (for example, rely on intrinsic motivation). · Environment (for example, support and rewards for creative ideas).

Innovation in Collaborative Networks

Technology Clusters

Technology Clusters are regional clusters of firms that have a connection to a common technology. · May work with the same suppliers, customers, or complements. · Agglomeration Economies: · Proximity facilitates knowledge exchange. · Cluster of firms can attract other firms to area. · Supplier and distributor markets grow to service the cluster. · Cluster of firms may make local labor pool more valuable by giving them experience. · Cluster can lead to infrastructure improvements (for example, better roads, utilities, schools, etc.). · Agglomeration downsides: · Increased competition, knowledge leakage, congestion and pollution.

Technology S-Curves

S-Curves in Technological Improvement

Both the rate of a technology's improvement, and its rate of diffusion to the market typically follow an s-shaped curve. S-curves in Technological Improvement. Limit of Technology Performance Effort Technology improves slowly at first because it is poorly understood. Then accelerates as understanding increases. Then tapers off as approaches limits. Access the text alternative for these images

S-Curves in Technology Diffusion

S-Curves 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. · Technology diffusion tends to take far longer than information diffusion. · Technology may require acquiring complex knowledge or experience. . Technology may require complementary resources to make it valuable (for example, cameras not valuable without film).

Research Brief: Diffusion of Innovation and Adopter Categories

Diffusion of Innovation and Adopter Categories. · Everett M. Rogers created a typology of adopters: . Innovators are the first 2.5% of individuals to adopt an innovation. They are adventurous, comfortable with a high degree of complexity and uncertainty, and typically have access to substantial financial resources. · Early Adopters are the next 13.5% to adopt the innovation. They are well integrated into their social system, and have great potential for opinion leadership. Other potential adopters look to early adopters for information and advice, thus early adopters make excellent "missionaries" for new products or processes. · Early Majority are the next 34%. They adopt innovations slightly before the average member of a social system. They are typically not opinion leaders, but they interact frequently with their peers. · Late Majority are the next 34%. They approach innovation with a skeptical air, and may not adopt the innovation until they feel pressure from their peers. They may have scarce resources. · Laggards are the last 16%. They base their decisions primarily on past experience and possess almost no opinion leadership. They are highly skeptical of innovations and innovators, and must feel certain that a new innovation will not fail prior to adopting it.

Question 1: Technological Foundations of Netflix

High-Level Summary

Software, Software, Software, ... Netflix is a SOFTWARE company · Internet (TCP/IP) Networks . Content switching · Rich media streaming · Qos · H.264 format · Video coding: DCT (Discrete Cosine Transform) based Advanced Video Coding (AVC) · Databases · Web browsers

Industry Note: Netflix and Amazon Coopetition

· Netflix - Amazon Coopetition . Amazon AWS enables Netflix to quickly deploy thousands of servers and terabytes of storage within minutes. . Users can stream Netflix shows and movies from anywhere in the world, including on the web, on tablets, or on mobile devices such as iPhones.

Question 2: Netflix Strategy Process

The "Long Tail" Phenomenon

· The "long tail" phenomenon: . 80 percent of offerings in a category are not big hits. . 80 percent of sales in a given product category come from blockbusters in the "short head" of the distribution curve, which represents only 20 percent of the offerings in a category. . Pareto principle: (80-20 rule), which says that roughly 80 percent of effects come from 20 percent of the causes. · Physical world of brick-and-mortar retail stores limited product selections on display (example: Blockbuster video rental stores), . brick-and-mortar: significant costs to carry broader inventory to meet wide variety of demands/needs.

Anatomy of the Long Tail

ANATOMY OF THE LONG TAIL RHAPSODY AMAZON.COM NETFLIX TOTAL INVENTORY: 735,000 songs .... TOTAL INVENTORY: 2.3 million books .. TOTAL INVENTORY: 25,000 DVDs ..... typical Wal-Mart typical Barnes & Noble The *: 130.000 kork» typical Blockbuster phong: 3.900 DVDs THE NEW GROWTH MARKET: OBSCURE PRODUCTS YOU CAN'T GET ANYWHERE BUT ONLINE TOTAL SALES TOTAL SALES TOTAL SALES 2,000 Songs available at both Wal-Mart and Rhapsody 1,000 - Songs available only on Rhapsody 0 39,000 200,000 500,000 100,000 Titles ranked by popularity Sources: Erik Brynjoltsson and Jeffrey Ho, MIT, and Michael Smith, Carnegie Mellon; Barnes & Noble; Netflix; RealNetworks Source: Wired Magazinez Average number of plays per month on Rhapsody $ Why the Future of Business Is Selling Less of More CHRIS ANDERSON 22% ... 57% 20% product not available in offline retail stores Online services carry far more inventory than traditional retailers. Rhapsody, for example, offers 19 times as many songs as Wal-Mart's stock of 39,000 tunes. The appetite for Rhapsody's more obscure tunes (charted below in yellow) makes up the so-called Long Tail. Meanwhile, even as consumers flock to mainstream books, music, and films (right), there is real demand for niche fare found only online. Tăng čudlos Chước họ Cương thứmiss) [ettnuit 6,100 The Long Tail

Question 3: Netflix Disruption

· Leverage network effects in its growth · Entered the streaming market with already established customer base in the DVD rental business . Acquired additional streaming content thus increasing the value of its subscription service to customers and in turn signing up more users. . Increased ability to afford more and higher quality content, which further increased the value of the subscription

Why Dominant Designs Are Selected

A technology with a large installed base attracts developers of complementary goods; a technology with a wide range of complementary goods attracts users, increasing the installed base. A self-reinforcing cycle ensues: Size of Installed Base The availability of complementary goods attracts users, increasing the installed base. A large installed base attracts producers of complementary goods. Availability of Complementary Goods Access the text alternative for these images

First-Mover Advantages and Disadvantages

Being a first mover can confer the advantages of: . Brand loyalty and technological leadership. . Preemption of scarce assets. · Exploiting buyer switching costs. · Reaping increasing returns advantages. However, first movers often bear disadvantages also: · High research and development expenses. · Undeveloped supply and distribution channels. · Immature enabling technologies and complements. . Uncertainty of customer requirements.