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MANAGEMENT OF HIGH

TECHNOLOGY PRODUCTS
CHAPTER 7
Product Development and Management
Issues in High-Tech Markets
Introduction

• Product development process in high-tech environment relies


on many of same concepts used in traditional environments
• Different ways of categorizing products (Chapter 1)
• Notion of product life cycle (Chapter 2) – Technology Life-cycle
• Adoption and diffusion of innovations

• This chapter shall delve deeper into other product development


and management tools specific to High-Tech environment
• Monitoring technology trends: use these to guide tech development
• How to develop technology?
• How far to develop technology before sending it to market?
Questions to be answered

• How should a firm conceptualize its product architecture including


its approach towards modularity, platforms and derivatives?

• How should a firm use cross-functional teams in its new product


development process?

• When or how should a firm halt investments and development in a


new product whose success looks questionable?

• What are the unique issues involved in the development of


technology related services?

• How should intellectual property right be controlled?


Technology development: Digital Revolution

• Worldwide transition from analog to digital technology

• Companies that lost touch with trends are facing painful


restructuring
• Motorola
• Kodak
• Nokia

• An important tool used to monitor technology trends and


systematically manage company’s resources is Technology
Map
Technology Development: Technology Map

• Help a company anticipate technology trends

• 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


Technology Development: Technology Map
1 Technology Identification

4 Ongoing Management 2 Decide on Needed Technology Additions


- Platforms and derivatives - Internal development (Make)
- Killing projects - External acquisition (Buy)
- Development Services - Partner to co-develop
- Intellectual property issues

3 Decide on "What to Sell" Strategy


- License vs. full
commercialization
Technology Map

1. Technology Identification

• Take inventory of firm’s most valuable know-how


• Products
• Processes
• Example: superior manufacturing skills
• Management practices
• Example: knowledge management
Technology Map

2. Decide on Technology Additions

• What emerging technology trends will affect business?


• Areas of weakness in the firm’s technology portfolio?
• Additional technologies necessary to continue to compete effectively?

• “Make vs. buy” decision: development risk


• Internal development
• External acquisition
• Partnering
Technology Map

2. Decide on Technology Additions

Adding New Technology: Focus on Development Risk

Internal Development External Acquisition


• Someone else has already
• Close to existing skills
developed technology
• Keep technology confidential • Saves time and effort
• “NIH” (not invented here): Good • Let others take risks first
technology can be developed • Keep up with competitors who
only internally have new technology
• Firm has existing brand
name/marketing resources for new
product
Technology Map

3.Decide on “What to Sell” Strategy

• What emerging technology trends will affect business?


• Areas of weakness in the firm’s technology portfolio?
• Additional technologies necessary to continue to compete effectively?

• “Make vs. buy” decision: development risk


• Internal development
• External acquisition
• Partnering
“What to sell” decision

• Continuum of options
• Additional expenditures customers must incur to derive the intended
benefits of the technology

• Sell or license Know-how only


• Sell “Proof of concept”
• Sell commercial grade components to OEM
• Sell Final products to end-user
• Sell a complete End-to-end solution, service bureau
“What to sell” decision

What decision makes sense?


Know- “Proof of Full Complete
For these conditions How Concept”
Components
Product Solution
Technology doesn’t fit the corporate
mission

Firm has insufficient financial funds Sell Sell Sell


Diverse range of technologies in a
market
Market characterized by demand
side increasing returns
License

Offer
Components incompatible with
industry standards
Complete
Solution
Offering technology to competitors Commer-
may encourage industry cialize
standardization License
Skills in only some market
and...
segments
“What to sell” decision

• Technology transfer considerations

• From small companies/inventors  larger companies with


resources/expertise

• Federally funded knowledge  private sector

• Profit sharing
• Realistic/accurate value
• Intellectual property rights
Technology Map

4. Ongoing Management

• Actively manage technology asset base


• Modularity
• Product derivatives
• Product platforms
• Intellectual property management
Product architecture - Modularity

• Modularity: building a complex product from smaller


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

• Partition information

• Visible: design rules, how the subsystems should work together

• Hidden: how to design each subsystem independently


Product Architecture - Modularity

• Requires architect company to have deep product knowledge


for advance specification of subsystems

• Reduces uncertainty in product design


• Results in product standardization
• Low barriers to entry
• Incremental (vs. breakthrough) innovations
Product architecture - Derivatives

• Derivative Products: Include different models, brands, or


versions of the platform product

• Intended to fill performance gaps between platform products

Microprocessors, Cars
Product Architecture - Platforms

• Product Platform: common architecture based on a single


design

• “Next-generation” products: new product platforms


• Require significant investments
• Have enhanced performance benefits

Micro processors, Cars etc.


Platforms and Derivatives

Why use a platform and derivative strategy?

• Unit-one cost
• The cost of producing the first unit is very high relative to reproduction

• “Gaps” in the marketplace


• Holes in customer migration from old to new technology
Platforms and Derivatives

Family 3
Performance

Family 2

Family 1

Time
Platforms and Derivatives
Family 4: Intel
Core 2 Extreme

Conroe XE
2.93 GHz
Family 3: Intel Core 2 Kentsfield XE
2.67 GHz
July ’06)

Duo (November ’06)


Wolfdale
2.66 GHz
Performance

Conroe January ’08)


Allendale
1.6 GHz 1.86 GHz
(January ’07) (August ’06)

Family 2: Pentium D
840
3.2 GHz
830 (May ’05)
820 3.0 GHz
2.8 GHz (May ’05)
(May ’05)
Family 1: Itanium 2

Montecito
1.4 GHz
Madison
(July ’06)
1.3 GHz
McKinley
1 GHz (July ’03)
(July ’02)

Time
Making decisions about Platforms and Derivatives

• New Platform Strategy Customizing Complex Products

• Meets customers needs better


• Design for high end of the market
• Earns customer loyalty and profits for
vendor
• Incorporate as many features as
needed for this segment
• In high-tech, vendors assume more
control over customization because
• Willingness-to-pay helps recover customers don’t want to invest in
high fixed costs knowledge that can become obsolete
quickly

• Subtraction of features is lower


• Vendors assume less control over
incremental cost than addition
customization
• Products are standardized and
• Consistent with both lead user modular
and chasm concepts • Customers have high product
knowledge
“Killing” new products

Escalation of commitment
• Product champions/technology enthusiasts are perennial
optimists

• Personal stake in project

• Biases in interpreting information


• Recall info that confirms beliefs
• Ignore info that disconfirms beliefs
• Re-interpret neutral info as positive, and even negative info as
positive!
When? – More Information is not the answer

• Foster internal culture that encourages open questioning

• Remove project from core of the firm

• Managers with no prior beliefs make the decision

• Rely on benchmarks established at outset


When to “Kill” new products?
Possible Biases Leading to Escalation of Commitment

Bias Manifestation Advice


Managers seek out information Replace incumbent with new
that supports their argument, manager; hold managers
Confirmation discount information that does accountable
not

Justify project continuation Set up contingencies to pull


Sunk-cost because there has already been the plug when budgets are
fallacy significant investment exhausted; use zero-based
budgeting.

Tendency to adjust estimates Use independent evaluators


Anchoring and insufficiently from an initial value
adjustment
Developing Services: Part of Product Strategy

The “services-dominant logic of marketing”

• Customer purchases are motivated by the provision of value

• The product is the vehicle that creates value

• Emphasizes the importance of know-how and relationships


Developing Services: Technology & Services
Unique Characteristics of Services

• Intangibility: product cannot be touched nor examined prior to


purchase decision
• Marketer’s goal: reduce the perceived risk (demonstrations, free trials,
warranties, guarantees)

• Inseparability: production cannot be separated from


consumption
• Production can not occur in advance of demand
• Potential for quality inconsistencies
• Solutions:
• flexibility or scalability
• Pricing incentives in low-demand periods
• Personnel training
Intellectual Property: High Tech industry perspective

• Theft: assets can be stored on a disk, shared over the internet


• Annually, $11-12 billion in worldwide software industry losses (SIIA)

• Double-edged sword: companies must be both open and


restrictive in information sharing

• Balance: incentive to innovate and society’s right to benefit


from innovation
Intellectual Property

• Original works, “Creations of the mind”

• Owner has the right to earn economic return from it

• Protection fosters creativity by providing an incentive to


investors to undertake the risks of innovation

• How to protect it?


• Patents
• Copyrights
• Trademarks
• Trade Secrets
Intellectual Property - Patents

Invention should fulfill following criteria as pre-requisite for


Patent

• 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
Intellectual Property: Patents

• Confer owner the rights to exclude others from making, using,


or selling product/ process

• In US, 20 years from date of filing

• “Patent Trolls”: buy and hold patents, and never commercialize


• Hope to file lawsuits for “infringement”
Intellectual Property: Patents

Disadvantages:

• Patents are public information


• Eighteen months from time of filing in the US
• Competitors may “invent around” patent

• Patent owner must enforce rights

• Costly!
Intellectual Property: Patents

Two Types of Patent Applications in U.S.

• Provisional:
• $160, 1 year time frame to “hold”, 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)
Intellectual Property: Patents

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” Entry into national
$110-1970 $2,000-6,500
responses countries
Examination in
Issue fee $1300 $1,500-8,000
country
PER COUNTRY
TOTAL $12,000-25,000 $3,500-14,500
FEE
Intellectual Property: 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
Intellectual Property: Copyrights

• Term

• 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


Intellectual Property: Trademarks

• Names, symbols, devices to distinguish/ identify goods

• Protects firm against unscrupulous competitors who try to


deceive/mislead customers
Intellectual Property: 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


Intellectual Property: Trade Secrets

• Financial, business, scientific, technical, information including


patterns, plans, compilations, formulas, designs, methods,
programs,...

• To be granted “trade secret” protection, firm must take


reasonable steps to protect information
Intellectual Property: Trade Secret

• 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


• Grant firm rights to employees’ inventions
Patents or Trade Secret Protection?

• Patents When: • Trade Secrets When:

• Product will have long market


life • Secret not eligible for patent
protection
• Product can be reverse-
engineered • Product life cycle is short

• Protection can/will be • Patent would be hard to enforce


enforced
• Secret is not detectable in the
• Corporate policy product (via reverse engineering
for example)
Intellectual Property - Comparison

Type Protection Requirements Length


Gives owner the right to Apply for it:
Patent exclude others from making, utility, novelty, 20 years
using, selling the invention nonobviousness
Protects the form or manner
Originality,
in which an idea is expressed, At least 75
Copyright tangible form,
grants exclusive rights to years
creative effort
reproduce/distribute.
Ownership arises
Protects identifying words,
Trademark when used in Indefinitely
names, symbols, or device
trade
Concrete information: useful Precise
in company’s business, description, As long as
Trade
generally unknown, not easily developed at an it is kept
Secret
ascertainable, provides a expense to secret!
competitive advantage owner, protected
Managing Intellectual Property for High-Tech
Companies
• Competitive advantage stems from intellectual assets

• Patents can be tapped as revenue source

• Costs can be reduced- cut maintenance fees on unneeded


patents

• Patents can be repackaged to be more attractive to investors


Managing Intellectual Property for High-Tech
Companies
• Patents can help a firm:
• Manage its product line
• Establish R&D priorities
• Respond to shifts in the marketplace
• Acquisition or partnering opportunities

• Intellectual property rights are an asset base that deserves


strategic focus

• Patent inventions decisions should fit business strategy


THANK YOU
Question?