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So, how do we get our hands around the competitive life cycle?
Well, let me propose the following tool for our tool kit here.
This is simply another way of representing the S curve that we have talked about
previously here. So you see here a circle.
Beginning at the very top, we have the emergence of a new technology or business
model. It goes through this emergent phase.
We have this annealing process where we get some coalescing around what the
product should look like, in general. That leads to a growth phase.
And then, the growth phase basically transitions and ends as we have the
shakeout competitively, that leads us into a mature phase.
And then, the process begins again with a new disruption.
So, we can think about each of these phases, and each of these transitions, as
well as the overall speed of the competitive life cycle over time.
So just to give you an example of how you can use this as a visual tool.
Here, we see Apple in 2011. First off, we had the iPad.
The iPad is a recent introduction here. The iPad coming about in arguably the
emergent phase right now. We're not quite coalesced around what the
dominant design might be for tablet computing, no we're getting there fairly
quickly here. Next, we'll be going to the iPhone.
Iphone obviously predates it by a few years.
We think about the broader smartphone market here.
We now have some coalescing around what that dominant design is as embedded in the
iPhone and similar offerings from Android and the like, and we're clearly in a
growth phase for that market. Contrast that with the iPod, which I've
talked about a number of occasions, the iPod were already, already were through
the shake up period, a number of entrances that have entered the marked have now exit
it. We're in a more mature phase of
competition in that, in that space. And then finally, you think about a
product like the Macintosh, the personal computer, been around for many, many
decades now, obviously a mature phase. And interestingly to note, you know, are
we going to reach a disruption in that market soon.
If not already with the iPad and table computing that's going to disrupt the
competitive ordering in that marketplace as well.
So, some questions you want to answer in the course of doing a competitive life
cycle analysis are questions around both timing and severity.
So, the timing questions. How long is a mature phase likely to last?
Is this an industry in which there are literally decades before a large
disruption comes along? We talked about the automobile industry.
Hundred years of the internal combustion engine, now perhaps going through a
disruption with electrical and other types of hybrid technologies.
How about the emergent phase here? When a new technology comes along, or a
new business model comes along, how long before we start to coalesce about what the
design would be? In some industries, this is maybe a matter
of months, or a year or so. In other industries, this could play out
over a much longer period of time. Similarly, the growth phase.
Is growth going to be quick? Is adoption going to be very, very
quicker? It's interesting to note that when you
look at consumer electronics, compare the, I just go back to the radio, the
television, the color TV, to the VCR, to the DVD player.
Those time scales have actually been shrinking over time.
So, in some cases, that shakeout, that growth phase, would take a place over
seven, eight years, maybe even longer. Now those seem to be getting shorter.
And that gets to our overall characterization of an industry.
Is this a slowly evolving industry in which these dynamics play out, once again,
over, over years, maybe decades, or is this what some people refer to as a
hyper-dynamic industry where these cycles run very, very quickly and you have
constantly dealing with disruptions within your marketplace?
The second thing to think about is the severity of each of these transitions.
When a disruption occurs, is it most likely to be radical in the way we've
talked about in that it redefines the capabilities that you have?
Or is it more to be incremental, building off your existing capabilities and
technology? Is there going to likely be one dominant
design that dominates the industry, or is the industry likely to entertain multiple
designs that might have slightly different characteristics, but the market will
support both of them? Is this an industry, for example, where
there's a standards battle? Where there'll be one dominant standard
that plays out. When we look at high definition video now,
there was two competing standards. One, blue-ray from Sony, and another, HD
DVD by Toshiba and some others. At the end of the day, the Sony blue-ray
standard won out suggesting that there, there was a dominant design, a single
dominant design, that was going to win out.
Finally, we want to ask, what's competition going to look like after the
shakeout period? Is this a winner take all market, like the
Sony case here with Blu-ray? Or is this a case where we can have
multiple firms competing and still doing well within an industry?
Or ultimately, is this a contested market, like our airline industry we talked before
where it's going to be very hard for players to do, to do well?
We talked before about network externalities and I used the case of
Facebook here where the value of Facebook goes up as others adopt it.
Those types of network externalities often lead to such winner take all markets here.
Where you'd have a single firm dominate the industry because they get those
network externalities working in their favor.
Finally, the last thing we want to think about with severity.
Overall, to what extent is there a first mover bench?
How important is it for you to be on the leading edge of the technology in
businesses as you go through the competitive lifecycle?
Another way of asking this is this broad question, how important is innovation and
adaptation to our markets, to our industry?
And secondary, if it is important, first, do we have an innovative capability
ourselves? And second, can we appropriate value from
this innovation either if we innovate or others innovate?
So, let me just take a few minutes to talk about each of these.
It's beyond the scope of this lecture here to dive into how to create an innovative
culture, an innovative strategy for your firm.
Let me just simply say that, to have an innovative capability often centers
around, first off all, your organizational design in which you create incentives and
mechanisms, to encourage integration of knowledge within the organization.
Second, you need to think about the ways in which the firm brings in knowledge
external to the firm. There's always internal development.
R&d and the like that firms engage in to be innovative and generate those new
technologies. But increasingly, we live in what we call
an open innovation world where firms are working with other partners.
Maybe they're forming an alliance, maybe they're investing in new ventures through
a corporate venture capital program. Perhaps they're using mergers and
acquisitions and licensing as a way to bring technology into the industry.
So, once again, we can talk more at a later date about ways in which you can
create an innovative capacity. Second, and equally if maybe not even more
important is not only the ability to create innovation, but the degree to which
you can actually appropriate the value from that innovation.
So, if you look at our little pie chart here, imagine a new invention comes out, a
new innovation comes to market and it creates value.
Well, arguably it creates value for the inventor, but it also creates value for
customers, hopefully. So when Apple comes out with the iPhone,
that creates value to you and I when we adopt it in terms of our value.
But, there's others who benefit as well. There's of course suppliers, who are
supplying that industry who may benefit and capture some of that value.
And then finally, of course, there's competitors.
There's imitators who come in and copy what we do, and therefore can gain some
benefit here. So the question of appropriation is, to
what degree do we get a larger slice of the pie versus a smaller slice?
And history is littered with companies that were innovative, came out with
pioneering new products, and at the end of the day, their slice of the pie was
incredibly small. I've already mentioned Netscape in the in
the browser market. And we can think of others as well.
Emi and CAT scanners is kind of a classic example.
Emi came out, pioneered CAT scanner technology, but it was Genereal Electric
who really captured a lot of the value from that innovation because they brought
other types of capabilities into the marketplace at the end of the day.
So, what drives value appropriation? Well, two things you want to think about.
First, the strength of intellectual property protection, we talked about this
in a number of context before. This can be both the legal system, we have
patents, copyrights and the like on our invention or our innovation.
But it also might deal with the nature of technology and the market as well.
So, let me talk about it's where IP protection can be strong.
Once again, legal protections, patent, copyrights and trademarks.
Now, just having those in and of themselves does not necessarily mean that
IP protection is strong, it also has to be what we call enforceable.
Many start ups have found themselves in a situation where they might have a patent
for a technology, but don't have the resources to actually defend that patent
in a court of law. Therefore, even though they have that
intellectual property, it's not really a strong protection at the end of the day.
In other instances, there are just simply industries where you might be able to get
a patent, but it's notoriously difficult to defend that patent in a court of law.
Software comes to mind as one that is more difficult than it is in let's say the case
of micro-processors or biotechnology in the like.
Second thing to think about, are there substantial first mover advantages?
We've talked before about learning curves, is there a way to create customer loyalty
or branding? All of those can protect your IP to the
extent that you get in early and then you get an advantage from that early entry.
This first mover advantage again. I've mentioned network externalities
already today. This notion is standardization to the
degree that there are these types of processes in place.
Being the innovator can obviously reap in tremendous, tremendous gains from being
early to market. Interestingly, there are some situations
where being fast market, diffusing fast market, can be a way in which you can in
essence capture the value of your innovation.
It may very well be that others can copy you very easily, but if you could enter
the market quickly, capture value and there's a potentially a large lucrative
market early on. Even if others can eventually imitate you,
you can still do very well, at least in the short run.
And then finally, are there other ways to slow imitation?
Maybe it's trades secrets, maybe the technology is technologically or socially
complex in a way that this imitation is going to be slow.
And this is what we've talked about last time in terms of sustained competitive
advantage again. But remember, this is only one piece of
the puzzle. We have to think about intellectual
property protection, but we also have to think about this idea of complementary
assets. These are the other things necessary to
bringing an innovation to market. We can think about manufacturing,
distribution, sales and marketing. All of these are all important to be able
to capitalize on a new innovative product or service.
So when are complementary assets critical? Well, of course, one of the questions is,
how important is the complementary asset to be able to add value to the customer?
But second, how tightly held is that complementary asset?
Let's say, I come up with a brilliant new idea for some consumer electronics device.
Do I have an ability to manufacture that? Could I potentially outsource that?
But there are lots of potential manufacturers of this product that gives
me an advantage. In the same way we've talked about
bargaining power of buyers and suppliers in the past.
However, if there's one specialized manufacturer in the world that I need to
use to be able to bring my innovation to market, well that gives them substantial
bargaining power in our relationship. And they might capture more of the value
from our innovation than, than I do. There are some ways in which companies can
leverage complementarities or complementary assets across multiple
platforms. The most obvious is high technology.
We often see hardware and software, and you need both to make a product viable
and, and desirable. When we think about the Apple iPod.
Clearly, one of the value propositions there was the development of Apple iTunes
as well. And the existence and the complementarity
between iPod and iTunes makes it a barrier to entry for others to try to enter into
that market at this point. And so, once again, it's beyond the scope
of this lecture. But we can speak in greater detail about
platform technologies and leveraging these complementarities as a way to capture
value from innovation. So, let me end with some broader points
here. Of course, industries evolve through life
cycles. These are, in someways, predictable,
they're observable and remarkably consistent across industries.
Of course, they differ in degrees and determines how long they last and the
like. But once again, the overall patterns are
relatively persistent. Industries are periodically disrupted by
new innovations and business models that alter the competitive existing order,
competitive order. This is an interesting fact that we see
once again in industry after industry. It relates back to my first corollary of
the fundamental principle here. That over time, economic profits tend to
dissipate as competitive circumstances change.
Third, competitive success is often determined by how you navigate these
channels. It goes without saying, if you just think
about static, static positioning here, you will not be doing a good job in strategic
analysis. You need to think about these competitive
dynamics, how the industry is likely to evolve, and try to forsee where valuable
positions are likely to be. Finally, to the extent that innovation is
critical to your industry, understand that it requires both a capacity to innovate
but also the ability to appropriate value from those innovations as well.
It's those joint together that's going to allow a firm to be successful in
navigating these hyper dynamic markets. Let me end there for today, and thank you
very much.