©2010 pearson education, inc. publishing as prentice hall marketing of high-technology products and...

©2010 Pearson Education, Inc. publishing as Prentice Hall

Chapter 8:

Technology and Product Management


What opportunities does digital convergence pose?

How does NIH relate to myopia?

When is it beneficial to customize a product?

What are the advantages of a product platform?

What controversies are associated with patents?

© Mohr, Sengupta, Slater 2009


“Digital Revolution”

◦Worldwide transition from analog to digital

technology

◦Companies that lost touch with trends are

facing painful restructuring Kodak


Digital Convergence

1. Networking previously stand-alone devices

2. Hybrid products (camera phones)

3. Companies are crossing traditional industry

boundaries (Apple)

◦ Fits well with consumers’ lifestyles◦ Global standards


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


Consider emerging

technology trends

Decide on "What to Sell" Strategy - License vs. full commercialization

3

Decide on Needed Technology Additions - Internal development (Make) - External acquisition (Buy) - Partner to co-develop

2Ongoing Management - Platforms and derivatives - Killing projects - Intellectual property issues

4

Technology Identification1


Take inventory of firm’s most valuable know-how ◦Products ◦Processes Example: superior manufacturing skills

◦Management practices Example: knowledge management

1. Technology Identification


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

2. Decide on Technology Additions


2. Decide on Technology Additions (cont)

Adding New Technology: Focus on Development Risk Internal Development

◦ Close to existing skills◦ Keep technology

confidential◦ “NIH” (not invented

here): Good technology can be developed only internally

External Acquisition◦ Someone else has

already developed technology

◦ Saves time and effort◦ Let others take risks

first◦ Keep up with

competitors who have new technology

◦ Firm has existing brand name/marketing resources for new product


Critical issue: marketing risk

Continuum of options

(Explored in detail in later slides)

3. Decide on “What to Sell” Strategy


Continuum of options◦Additional expenditures customers must incur

to derive the intended benefits of the technology

Know-how only“Proof of concept”Components to OEMFinal products to end-userEnd-to-end solution, service bureau


What decision makes sense?

For these conditions Know-How

“Proof of Concept”

Components

Full Product

Complete Solution

Technology doesn’t fit the corporate mission

Sell Sell SellFirm has insufficient financial funds

Diverse range of technologies in a market

Market characterized by demand side increasing returns License

Components incompatible with industry standards

Commer-cialize

Offer Complete Solution

Offering technology to competitors may encourage industry standardization LicenseSkills in only some market segments

and...

See figure 8-2 for more details


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


Actively manage technology asset base◦ Modularity◦ Product derivatives◦ Product platforms◦ Intellectual property management

(Also explored in detail in later slides)

4. Ongoing Management


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


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 Platform: common architecture based on a single design

“Next-generation” products: new product platforms◦ Require significant investments◦ Have enhanced performance benefits

Example: Each generation of Intel’s microprocessor chips


Derivative Products: Include different models, brands, or versions of the platform product

Intended to fill performance gaps between platform products

Example: Slower/faster chip versions, introduced within months of the new chip


Why use a platform and derivative strategy?

1. Unit-one cost The cost of producing the first unit is very high

relative to reproduction

2. “Gaps” in the marketplace Holes in customer migration from old to new

technology(see next slide)


Family 1

Family 2

Family 3

Per

form

ance

Time


Per

form

ance

Time

Family 1: Itanium 2

Family 3: Intel Core 2 Duo

Family 2: Pentium D

Family 4: Intel Core 2 Extreme

McKinley 1 GHz

(July ’02) Madison 1.3 GHz

(July ’03) Montecito 1.4 GHz

(July ’06)

820 2.8 GHz

(May ’05) 830

3.0 GHz (May ’05)

840 3.2 GHz

(May ’05)

Allendale 1.6 GHz

(January ’07) Conroe

1.86 GHz (August ’06)

Wolfdale 2.66 GHz January ’08)

Conroe XE 2.93 GHz July ’06) Kentsfield XE

2.67 GHz (November ’06)

Yorkfield XE 3 GHz(Nov ’07)Example:

Intel


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


Customizing Complex Products◦ Meets customers needs better

◦ Earns customer loyalty and profits for vendor

In high-tech, vendors assume more control over

customization because customers don’t want to invest in

knowledge that can become obsolete quickly

Vendors assume less control over customization

◦ Products are standardized and modular

◦ Customers have high product knowledge


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!


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


Possible Biases Leading to Escalation of Commitment

Bias Manifestation Advice

Confirmation

Managers seek out information that supports their argument, discount information that does not

Replace incumbent with new manager; hold managers accountable

Sunk-cost fallacy

Justify project continuation because there has already been significant investment

Set up contingencies to pull the plug when budgets are exhausted; use zero-based budgeting.

Anchoring and

adjustment

Tendency to adjust estimates insufficiently from an initial value

Use independent evaluators


Generally unclear scope of responsibilities

Launch window: product managers take over from product development team◦ Help manage trade shows◦ Determine messaging for PR◦ Develop brochures◦ Organize tech support, customer service

In small organizations, job can be daunting:product managers = marketing personnel


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


Product

“High-Tech”

“Low-Tech”

Service 1 2

3 4


Augment product with service

Generate service revenue after product purchase

Training, repair, maintenance contract

Does company have sufficient trained service personnel?

Can company balance service proficiency and core competency in product innovation?

Developing Services


Includes: contract research firms, IT consulting, service providers

How can we leverage customized developments?◦ Create a platform for standardization of services

Is the communication of technical service personnel user-friendly for customers?

Can service reliability of underlying technology be maintained?

Does company make continuous/adequate investments in upgrades and training resources?

Developing Services


Use technology ◦ Improve customer service

Self-service technologies◦ Make supply chain more efficient◦ To stay abreast of cutting-edge business practice

Examples:1.Self-scanning devices that allow customers to check

out themselves2.Use of the internet to track orders

Developing Services


Automate labor-intensive operations

Examples:1. Forensic DNA testing2. ATM’s and online banking

Developing 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


1. Protection is vital: know-how forms basis of competitive advantage

2. Strategic alliances: formed with potential competitors- what happens if alliance fails?

3. Globalization: outsourcing trends require underlying trade secrets to be shared

◦ Legal standards/ cultural values vary

4. Employee mobility: doctrine of inevitable disclosure


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


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

Three criteria invention must meet:

1. Useful: perform some function that benefits humanity

2. Novel: no prior evidence of invention exists

3. Nonobvious: no suggestion of invention exists, even when multiple writings are combined


Intellectual Property: Patents (cont.)

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”


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!



Two Types of Patent Applications in U.S.1. Provisional:

◦ $160, 1 year time frame to “hold”, do further research

◦ Establishes a “priority date” of invention

2. 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” 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


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 (cont.)

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 in case lawsuit is filed


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


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 Secrets (cont.)


Intellectual Property: Trade Secrets (cont.)

Premised 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◦ Grant firm rights to employees’ inventions


Patents or Trade Secret Protection?

Patents When:

◦ Product will have long market life

◦ Product can be reverse-engineered

◦ Protection can/will be enforced

◦ Corporate policy

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)


Type Protection Requirements Length

Patent Gives owner the right to exclude others from making, using, selling the invention

Apply for it: utility, novelty, nonobviousness

20 years

Copyright

Protects the form or manner in which an idea is expressed, grants exclusive rights to reproduce/distribute.

Originality, tangible form, creative effort

At least 75 years

Trademark

Protects identifying words, names, symbols, or device

Ownership arises when used in trade

Indefinitely

Trade Secret

Concrete information: useful in company’s business, generally unknown, not easily ascertainable, provides a competitive advantage

Precise description, developed at an expense to owner, protected

As long as it is kept secret!

For details, see Tables 8-2 and 8-3


Business Methods (July 1998) ◦ Patents on E-commerce business models/methods

and medical treatment methods

Natural Occurring Phenomena◦ Patents on “technological breakthroughs”: genes,

prime numbers, lab animals, therapeutic applications

Digital Right Management (DRM)◦ Patents on digital music, books, films, etc.◦ Tension between entertainment and technology

companies.

Intellectual Property: Areas of Contention


Managing Intellectual Propertyfor High Tech Companies

Competitive advantage stems from intellectual assets (not physical assets)

Management of intellectual property is vital:

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 Propertyfor 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


Opening Vignette: Apple iPod

Technology Expert: Memjet; Sun Microsystems

Technology Solution: Godisa SolarAid

End-of-Book Case: TiVo, ESRI, Boeing/Airbus


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©2010 pearson education, inc. publishing as prentice hall marketing of high-technology products and...

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