Biz model 2 what drives need for change

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These slides summarize the factors that drive a need for frequent changes in a business model. they are from a course on business models.

Transcript of Biz model 2 what drives need for change

  • 1. A/Prof Jeffrey FunkDivision of Engineering and TechnologyManagementNational University of Singapore

2. Learning Objectives How do industries evolve in terms of Technological discontinuities Markets and products Performance, price and costs Vertical (dis)integration Number of firms and thus numbers of opportunities Understanding industry evolution requires one tounderstand new terms Throughout the semester we will discuss how thesechanges impact on business models Customer selection, Value propositions, Scope ofactivities, Method of value capture, Method of strategiccontrol 3. Outline Technological discontinuities vs. dominant designs Evolution of demand, supply, markets, products Evolution in markets and products Trends in cost and performance for specific technologies Crossing the chasm Examples of new segments Evolution in levels of vertical (dis)integration How has it/they changed over time? How can we represent different levels of (dis)integration? Evolution in numbers of firms and thus numbers ofopportunities for firms 4. Cyclical Model of Technological ChangeTechnological DiscontinuityCompetitionbetweenAlternativeSystems orDesignsEmergence of dominantdesign/vertical (dis)integrationIncrementalChangeAdapted from (Anderson and Tushman, 1990; Tushman and Rosenkopf, 1992) 5. Technological Discontinuitiesvs. Dominant Designs Technological discontinuities (Henderson andClark, 1990) change the concepts that form basis of product/system or process linkages between major components inproduct/system, i.e., architecture A dominant design is single architecture that establishesdominance in a single product class (Tushman andRosenkopf, 1992) Subsequent products build from this dominant design We focus on discontinuities because many incumbentsfail when they emerge 6. Basically Two Types of Technological DiscontinuitiesReinforced OverturnedCore ConceptsUnchangedChangedLinkagesBetweenCoreConceptsandComponentsIncrementalInnovationModularInnovationArchitecturalInnovationRadicalInnovationSource: Henderson and Clark (1990) 7. Henderson and Clarks Innovation FrameworkApplied to Ceiling FansReinforced OverturnedCore ConceptsUnchangedChangedLinkagesBetweenCoreConceptsandComponentsImprovementsin Blade orMotor DesignCompletely newform of motorPortable Fans Air Conditioners 8. Steam-powered fire engineTechnological Discontinuities: What was change in concepts?OldTechnologyNewTechnology,i.e.,DiscontinuityEarly Benz (1894)Wright Brothers (1904)Gliders (19th Century) 9. Old Technology New Technologies, i.e., DiscontinuitiesAnalog film/photography Digital camerasAnalog low-definitiontelevisionDigital TV, High-definition TV, Internet TVPhonograph records Magnetic tape players, compact discs (CDs), MP3players,Printed Books E-booksKeyboard Interface forComputersTouch screen, voice recognition, gesture interface(Leap, Kinect), Google Glasses, neural interfaceWireless Telecom System 1st generation (analog), 2nd generation (digital), 3rdgeneration (multi-media), 4th generationCathode-ray tube display Liquid crystal displays (LCDs), Organic lightemitting diode displays (OLEDs)Other Examples of Technological DiscontinuitiesAnd many others were discussed last Thursday 10. Technological Discontinuitiesvs. Dominant Designs Technological discontinuities (Henderson and Clark,1990) change the concepts that form that basis of a product/system or process linkages between major components in the product/system,i.e., architecture A dominant design is a single architecture thatestablishes dominance in a single product class(Tushman and Rosenkopf, 1992) Subsequent products build from this dominant design 11. What physical or control aspects of DC-3 (1935) &Model T (1908) might constitute a dominant design? 12. Examples of Dominant Designs in Other Industries Nuclear Power Pressurized versus boiling waterreactors Cargo shipping standard size containers Mobile Phone Systems: air interface standards such asGSM or W-CDMA Internet: TCP/IP, HTML Video Recorders/Players helical scan, VHS, DVD Music Players Number of grooves for shellac or vinylrecords, size of magnetic tape, type of CDs Computers IBM System/360, IBM PC/Wintel 13. Outline Technological discontinuities vs. dominant designs Evolution of demand, supply, markets, products Evolution in markets and products Trends in cost and performance for specific technologies Crossing the chasm Example of new segments Evolution in levels of vertical disintegration and integration How has it/they changed over time? How can we represent different levels of (dis)integration? Evolution in numbers of firms and thus numbers ofopportunities for firms 14. TimeLevelof Diffusion(cumulativeor on yearlybasis)Typical Diffusion Pattern of New Products(e.g., technological discontinuity) 15. What are the first Products to diffuse? First value propositions? First designs? Markets to accept this diffusion? First customer segments? First customers within segments? First sales channels? 16. Quantity (Q)Price (P)qpWhat do Demand and Supply Curves Mean andwhat do they have to do with Diffusion?DemandSupply 17. What are some problems with last Slide? 18. Quantity (Q)Performance(P)qpIn terms of performance, What do Demand and SupplyCurves Mean and what do they have to do with Diffusion?SupplyDemand 19. Price, Performance, and Demand Price and/or performance determine the amount ofdemand and supply Price has to fall and performance has to rise beforemarket will grow The first users have either the highest willingness topay or the lowest demand for performance We will just focus on price to simplify things 20. Quantity (Q)Price (P)qpDiffusion starts in segments/users that are willing to pay morefor products and services than are other segments/usersDemandCurveSupply CurveTypical movement ofsupply curve over time Typicalmovementof demandcurve overtime 21. Market Segments and DiffusionDifferent market segments, i.e., users have a different willingness to pay and demand different levelsof performance make different tradeoffs between performance, features, price demand different types of features or dimensions ofperformance fundamentally want different products These segments emerge over time Often difficult to specify them before products begin to diffuse Some markets have more segments (i.e., sub-markets) thanother markets Understanding the differences and similarities betweensegments is critical for businesses 22. Choice of Customers What happens if you focus on customers that are not the firstcustomers for the new technology? 23. Outline Technological discontinuities vs. dominant designs Evolution of demand, supply, markets, products Evolution in markets and products Trends in cost and performance for specific technologies Crossing the chasm Example of new segments Evolution in levels of vertical disintegration and integration How has it/they changed over time? How can we represent different levels of (dis)integration? Evolution in numbers of firms and thus numbers ofopportunities for firms 24. Product Segments and Diffusion Different product designs Provide a different bundle of cost/price, performance, features Appeal to different types and numbers of users These product designs emerge over time Often difficult to specify them before products begin to diffuse Some technologies have a greater variety of successful productdesigns than do other technologies Perhaps because they have more market segments, i.e., submarkets Understanding the differences and similarities in performanceand cost for different product designs is critical for businesses 25. Dont Confuse Products and Markets Many studies will describe market segments in termsof product characteristics Understanding the product characteristics is good But you also want to know who the actual users (customers) are the differences between them (segments) what they need There is an interaction between evolution of usersand products 26. Customers: Example of Computers First customers in 1950s were large organizationsthat used customers for organizational recordkeeping (accounting, payroll) Scientific and engineering customers becameimportant in 1960s Later individuals emerged as important customersas personal computers and applications forthem such as word processing and games becamepossible The order of these customers was largelydetermined by a willingness to pay 27. Products: Example of Computers First products, i.e., computers in 1950s were large boxes (mainframe computers) that were placed in aspecial room operated in batch mode Mini-computers (from mid-1960s) were Smaller More available to users such as scientists and engineers Personal computers were Smaller Available to a broader number of people Did not operate in batch mode; had fast response time 28. Many types of Interactions Interaction between market and product Emergence of market segments impacts on howproducts are designed Emergence of different product designs impacts on howmarkets are segmented Every new product or service is a big experiment New products emerge and customers try them Products are redesigned to better meet needs Also an interaction between price and demand But what drives reductions in price, i.e., changes insupply curve? Is it just due to increases in demand? 29. What about Laptop Computers? What types of segments are there? What did tablet change? How did they represent a new segment? How could you have spotted this segment many yearsago? 30. Outline Technological discontinuities vs. dominant designs Evolution of demand, supply, markets, products Evolution in markets and products Trends in cost and performance for specific technologies Crossing the chasm Example of new segments Evolution in levels of vertical disintegration and integration How has it/they changed over time? How can we represent different levels of (dis)integration? Evolution in numbers of firms and thus numbers ofopportunities for firms 3