Platform Leadership

T-109.5410 Technology Management15.11.2005

Eino KivisaariResearcher, M.Sc.TML / SimLab / Technology Management

”We are tied to innovations by others to make our

innovation valuable. If we do an innovation in the

processor, and Microsoft or independent software

parties don’t do a corresponding innovation, our

innovation will be worthless. So, it really is a

desperate situation for us.”

David B. Johnson, Intel Architecture Lab

Product Platform Strategy

Platform is an architecture of the common elements implemented across a range of products

Defining technology = Key element(s) of the platform

Dictates life cycle, capabilities, limitations Is based on company’s core competence Difficult to copy by competitors The choice of defining technology is perhaps the most critical

strategic decision that a hi-tech company makes

What if platform elements are provided by different companies?

Platforms, Segments, Products

Product 1

Product 2

Product 3

Product 1A

Product 1B Product 1C

Element A

Element B

Element C

Segment A

Segment B

Segment C

Common PlatformElements

Unique product elements and common platform elements of a product lineProduct 5

(McGrath 2001)

Benefits of Platform Strategy

Enables rapid and consistent product development

Encourages a long-term view on product strategy

Operational efficiencies Reduced manufacturing costs Reduced design costs Easier Marketing and Support

Are these valid also when elements are provided by different (competing & collaborating) companies?

Annabelle Gawer and Michael A. Cusumano

Platform LeadershipHow Intel, Microsoft and Cisco Drive Industry Innovation Harvard Business School Press 2002

Available at HUT library

20-30 € in various webstores

Platform Leadership

Core Products vs. ComplementsCars / TiresComputers / Software etc...

Modularity of Complex ProductsMore modularity in developed industriesThis is the direction where mankind is going:

specialization Balance of Power?

Who conducts the orchestra?

Platformed High-Tech World

Increasing interdependency of products and services Ability to innovate by more actors than ever

Platform leaders must solve three problems:

Maintenance of the integrity of the platform With regard to future technological innovation and the

independent product strategies of other companies Platform evolution

How to permit platforms evolve technologically while maintaining compatibility with older components

Gaining and sustaining platform leadership

Four Levers of Platform Leadership

The authors analyzed a variety of organizations (Intel, Microsoft, Cisco, for example) and discovered four distinct but related levers of platform leadership

These four levers can help managers in both strategic formulation and implementation

Lever One: Scope

Deciding the scope of the company is the most important decision: Which complements to make in-house and what to leave to outsiders?

Companies that desire to become platform leaders need to determine how dependent they are on complements

Platform producers should avoid developing their own complements if they lack financial or technical capacity to compete in the relevant markets

However, as a rule of thumb, platform producers should have in-house capability, not only for complement production, but to serve as healthy competition for outsiders

Lever Two: Product Technology

Degrees of modularity and openness Product architecture can have a large impact on the

structure of an industry and the types of follow-on innovation

Product architecture determines who does what kind of innovation and how much investment in complementary products will occur outside the platform-leader organization

Leading companies guard their core technology but utilize tools such as modular architectures and disclosure of interfaces to ensure the supply of complementary products

Lever Three: External Relationships Collaborative vs. competitive

For long-term effectiveness, platform leaders must follow two goals simultaneously:

Search for consensus with complementors about technical standards and how they interface with products

Show the way by providing new complements (produced in-house), if this is seen to be necessary

Consensus needs to be forged by one company driving the process

Platform leaders should be industry enablers. They should help others innovate in better ways around the platform.

Platform leaders should not unnecessarily step out of their product boundaries into that of their complementors

Leaders can reduce external tensions with a humble approach and by acting on behalf of the entire industry

Level Four: Internal Organization

Coping with internal & external conflicts Platform producer must generate an internal organization

that enables it to manage complementor relationships with ease

Therein lies the challenge, as sometimes groups within a firm compete with complementors

It is crucial to communicate the multiple goals to the whole firm and generate a process that helps resolve conflicts

Separation of competing groups outsider companies become more willing to entrust personnel with information

Platform leaders can appear neutral if they establish different groups maintaining different roles

Case: Intel

Basic problem: People don’t buy processors, but PCs

Well... some people do…

Multibillion-dollar investments in processor design…

…How to make sure that demand for the processors stays & grows?

Case Intel — History In 1979 IBM decided to develop a new PC to

compete with Apple Intel 8088 Processor Microsoft DOS (Disk Operating System)

Soon after, PC-Compatibles emerged No exclusive contracts were made IBM allowed this, which speeded up production,

commerialization and adoption of PCs worldwide

PC-AT in 1984 demand exploded for IBM PC-AT and clones

PC Industry Evolution

Decline in vertical integration IBM, DEC, Univac, Wang started to lose

leadership

Specialists started to take overMicrosoft, Intel, Motorola…

Case Intel

Intel’s big entry thanks to IBM, but… PC-AT architecture started to feel like a

tight shirt Intel’s processors developed at a fast pace Biggest problem:

ISA data bus (Industry Standard Architecure)Very slow internal data bus for graphics,

storage etc.

The Rush Hour of Buses:ISA / MCA / EISA / VESA / PCI…

In 1980, MCA bus by IBM (MicroChannel Architecture)

Compaq: EISA (Extended ISA)

No real performance improvements, industry stayed with ISA for years

Lack of Platform Leadership

Intel was disturbed by the lack of leadership No one was able to advance the overall platform Unclarity of mandate – how should do it?

Standards Committees (a VESA graphics bus was actually developed)

Old Leaders …or Intel?

The PC platform was not moving fast enough for Intel

Intel Architecture Lab (IAL)

Created in 1991 ”Architects for the open computer industry” 550 engineers in 2001 (none of which

work on designing new microprocessors)

The mission of Intel Architecture Lab: To grow the overall market

PCI Initiative

The PCI bus, IAL’s first project in 1991 Transformation of the internal architecture

of the PC Goals: Speed, Modularity, Openness,

Space for growth Advancing the whole PC industryWhat could a PC become, if the best was

made out of it?

Intel takes lead with PCI

A big conceptual step for Intel from providing processors… …to architecting the whole platform

Indecision within Intel Big investment… Mandate was unclear, a too presumptuous move?

Success factors PCI was free and open to everyone IBM’s failure with MCA, an attempt towards verticality Winning over other firms, rallying collaborators Thinking ahead – avoiding lock-in to certain processor

generations

PCI Chipsets

Chip sets had to be redesigned with every new processor expensive & slow for OEMs

To convince everybody, Intel put its own skin in the game

Mass production of PCI chipsets Big players went along because they wanted to

take advantage of latest Intel chips quickly Intel starts making motherboards Big OEMs’ problem: How to differentiate?

”To a large extent, PCI set the tone for other initiatives… Intel realized through this experience that, when we set out to do so, we can move the industry

in some useful direction.”

Dave Carson, Intel Architecture Lab

USB

USB initiative began in mid-1990’s Serial connectors for peripherals had become a

serious bottleneck Intel had the vision and the technology, and this

time also the courage from the start Goal: making the best out of PC computers

…and growing the demand for Intel processors, of course…

Intel’s USB Strategy

To avoid confusion in the market Add-on cards Ethernet-connectivity Parallel port Different kinds of software

Intel wanted a better way to hook to a PC Hardware specification for USB Software specification Operating system support Open interface, everybody competing, let the best

innovation win

Building Momentum & Speed

Consortiums ”Rabbits” (USB: Logitech, Microsoft) SIG (Special Interest Group)

PCI, 5 members: Intel, DEC, Compaq, IBM, NCR USB, 7 members: Intel, DEC, Compaq, Microsoft,

IBM, Nortel, and NEC Only a few participants fast decisions

Intel IPR Strategy

PCI, AGP, USB: No fees whatsoever

However, Intel required that anyone who used their IP had to make their related IP open as well

Intel ”PlugFests”

Compliancy Workshops 100-200 companies attended Vendors could test interoperability of their

products (in a conference hotel somewhere in the US…)

Helped in creating good PR for the platform Goodwill Agreement: participants should not use

information gathered in PlugFests against their competitors

Enabling Tools

Software Development Kits (SDK) Device Development Kits (DDK) Software Libraries etc.Benefits:

Faster product developmentHelped in creating momentumLowered entry barriers for complementorsFostered innovationMade the overall cake bigger for everyone

”We think one of our core compentencies is that we are a trusted partner for almost everybody in the industry. We can talk to the graphics group’s

competitors openly about their products and about our specification, and they trust that we honor that. But you can’t just mandate trust.

You have to earn it.”

Craig Kinnie, Director, Intel Architecture Lab

Conflicts, Roles, Policy

Intel played on many fields at the same time

Intel’s roles: Industry enabler (expanding the whole pie) Neutral-broker (IAL promotes ”public interest”) Profit-seeking (eg. processor manufacturing)

competition with complementor that IAL is supporting

Many roles Separate internal groups a powerful strategy, when conflicting agendas exist internal & external debate (can be fruitful)

Alternative Strategies

CiscoAquire and Assimilate Complements and

Substitutes

Case Cisco

Strategy: Aquire & Assimilate Complements and Substitutes

Internet Router Company

Defining Technology:IOS (Internetworking Operating System)

Case Cisco Huge growth in annual sales

1991: $70 million1994: $1 billion2001: $22 billion

This was not done alone: Internet browsers by Netscape & MicrosoftHigh-performance servers by SunAll applications developed for the Internet

Case Cisco

A platform leader with 80% market share in core router products

Technology was based on open industry standards, distinction came from enabling interoperable networking between routers and a wide variety of other types of networking and communications technologies

Case Cisco

Cisco faced more competitors 3Com, Lucent, Nortel, Siemens, Fujitsu

In early 2000 Cisco started losing sales to Juniper NetworksCompetitors started being strong in niche

markets with advanced products

Case Cisco

Cisco strategyProviding complete solutions,

a one-stop-shop for networkingStructured aquisition of pieces needed

for the puzzleDriving industry standards overall growthForm alliances and partnerships

Cisco Product Debuts

1986 Routers1992 Dial-in access servers1993 LAN Switches1994 WAN Swithces1995 Hubs, Firewalls, Caching engines1996 Cable boxes, cable head-ends1997 DSL Head-ends1998 Internet Phones1999 Home modems2000 Wireless LANs

IOS + all these products = one-stop-shop

Platform Leader Wannabes

Palm: Handheld ComputingFighting a giant (Microsoft / PocketPC)

NTT DoCoMo: Wireless Content Internationalizing a successful domestic

platform (iMode) Linux: Open Source Software

Relying exclusively on external development and open standards

Summary Companies that possess keys to popular technology

cannot afford to live in a vacuum

Companies that fail to innovate or have others innovate will quickly find them themselves outmoded and obsolete

Platform thinking forces managers to consider entire industry

Platform leaders must maintain incentives for third parties to produce complements

…and help them do so

Platform leadership is a strategy of interdependence A vision of a business ecosystem

Platform leadership does not happen by accident

Post-Graduate Studies at HUT Courses, seminars, books, methodology... 70 op (45 ov) courses, plus a thesis T012Z = Telecommunications Management

post-gr. major (T124, Professor Riitta Smeds)

Working as Researcher Research projects, Teaching, Writing,

Conferences, Studying, Collaboration…

And then for something totally different…