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 31. Quantity (Q)Price (P)qpDiffusion starts in segments that are willing to pay more forproducts and services than are other segmentsDemandCurveSupply CurveTypical movement ofsupply curve over time Typicalmovementof demandcurve overtime 32. Costs fall as Volumes Increase Economies of scale Equipment costs can be amortized over larger volumes Learning Firms devise methods of reducing costs in delivering(manufacturing, distributing, etc.) the product Increases in R&D spending lead to better productsand processes All of these things are part of an interactionbetween demand and supply 33. But some Technologies experience moreimprovements than others Integrated circuits (ICs) Hard disk and optical disk drives And the systems that are composed of thesetechnologies Computers Routers Servers Mobile Phones Televisions, radios, MP3 players Synthesizers and sequencers of DNA 34. What are the Relevant Trends for YourTechnology? What are the relevant dimensions of performance? Is the technology experiencing improvements inthese dimensions or in cost? Do these trends suggest that the new technology (ora component in the new system) will become economically feasible in the near future for some set ofusers? economically feasible for a larger number of users in thenear future? 35. Luminosity per watt (lm/W) of lights anddisplaysOrganicTransistors 36. Thermal, Propulsive, Overall Efficiencies of Jet EnginesHV: high voltageEfficiencies of Engines1) Power densities2) Powered distances3) Jet engines 37. Figure 2. Declining Feature Size0.0010.010.11101001960 1965 1970 1975 1980 1985 1990 1995 2000YearMicrometers(Microns)Gate OxideThicknessJunction DepthFeature lengthSource: (ONeil, 2003) 38. ArealRecordingDensity ofHard DiskPlatter 39. Components and Systems (1) Some components have a large impact onperformance of a system When such components are experiencing rapidimprovements in cost and/or performance, they can have a large impact on performance and cost ofsystems, even before system is implemented can lead to changes in relative importance of cost andperformance and between various dimensions ofperformance Can lead to discontinuities in systems 40. Components and Systems (2) Improvements in engines impacted on Locomotives, Ships Automobiles, Aircraft Improvements in ICs impacted on computers, servers, routers, telecommunication systemsand the Internet radios, televisions, recording devices, and otherconsumer electronics mobile phones and other handheld devices controls for many mechanical products Improvements in ICs led to many discontinuitiesin systems 41. Improvements in Computations per Kilo-Watt Hour (Koomey et al, 2011) 42. Speeds/Bandwidth for Wireline TelecommunicationSource: Koh H and Magee C, 20016, A function approach for studying technological progress: application toInformation technology, Technological Forecasting & Social Change 73: 1061-1983. 43. Source: The Progress in Wireless Data Transport and its Role in the Evolving Internet, Mario Amaya and Chris Magee(bitspersecond/Hz) 44. Components and Systems (3) Improvements in ICs (and related components) arestill driving the emergence of new electronicsystems such as new forms of Computers (e.g., tablet computers) networks of RFID tags, smart dust, and other sensors Cloud/utility computing Autonomous vehicles Internet content (e.g., mashups, 3D content, videoconferencing) human-computer interface (touch, gesture, neural) Mobile phone systems (e.g., 4G, 5G, cognitive radio) Holographic display systems 45. Components and Systems (4) Similar things are happening in bio-electronics,MEMS, membranes, nanoparticles DNA sequencers and synthesizers point-care diagnostic devices Other forms of sensors and sensor-based systems 46. 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 47. The Role of Chasm (s) in Diffusion of Products Differences between Geoffrey Moore and others Most literatures emphasize changes in customer requirementsand willingness to pay But Moore emphasizes that there is not a continuousprogression across segments (in many cases) Even if a product initially succeeds with some customers, itmust often by redesigned and repackaged for other customers Basic questions What are different segments in market? How are needs in each segment different? How do products need to be redesigned and repackaged inorder to cross chasm (s) that exist between different segments? 48. Geoffrey Moores Chasm (s)Managing the transitions between different types of adoptersand in particular the transition from early adopters to earlymajority are critical 49. Differences Between Visionaries (earlyadopters) and Pragmatists (early majority)The Visionaries Value Newness intechnologies Prefer radical changes Do not expect much fromexisting support Do not expect producers totake full responsibility ofimplementation failureThe Pragmatists Value peerrecommendations Prefer minimum change Demands for establishedstandards and support Prefer not to deal withunproven products 50. What are the implications of these differencesbetween visionaries and pragmatists? For product offerings? For product support? For standards? For where we meet potential customers? For how we make sales? 51. What are the implications of these differences?For Visionaries Pragmatistsproduct offerings? Dont needcompletesolutionNeed morecompletesolutionproduct support? Expect little Expect a lotstandards? Expect to setthemExpect them toexistwhere we meetpotential customers?TechnologyconferencesIndustry-specificconferences 52. Why Did Pragmatists Prefer the Products in theMiddle Column (in the mid-1990s)Product Pragmatists Visionaries?Microprocessor Intel AMDOS Windows UNIX/LinuxDatabase Software Oracle SybaseEngineering Software SAP QADGroupware Lotus Notes NovellPrinters HP LexmarkWorkstations Sun Silicon Graphics 53. Products that Crossed or Did not Cross ChasmProduct/TechnologyDid notCrossCrossedPersonal DigitalAssistants (PDAs)AppleNewtonPalm PilotSoftware as aServiceUpShot andSalesNetSalesforce.comMP3 Player Manyproductsi-PodSmart Phones Nokia, RIMBlackberryi-PhoneBut how did palm pilot not cross chasm? 54. Outline Technological discontinuities vs. dominant designs Evolution of demand, supply, markets, products Evolution in markets and products What drives improvements in performance and cost? 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 55. Many businesses provide products or servicesthat reside in the Long Tail%ofsalesX= product; they are ranked by salesSource: Anderson, 2006 56. Examples Emergence of large department and grocery stores Cable TV in 1990s Internet sites Books Videos Music News 57. Drivers of Long Tail Better logistics Better information systems Better transportation systems Emergence of and improvements to Internet Broadband Faster servers More memory Larger storage capacity in computers and digital videorecorders 58. Example of Another New Segment Wealthy older people In many rich countries, people over 65 represent anincreasingly large percentage of populations These people have lots of money, time, andunfortunately, deficient capabilities Cognitive Sensory Physical Designing your products and services for them is amajor challenge http://www.youtube.com/watch?v=eo2MlU32lRI&list=UUVa6r3FhSZE3SwcWqIV7mag&index=1&feature=plcp 59. 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 60. Scope of Activities Many strategic issues involved with defining anorganizations scope of activities; these are coveredin Week 6 But one issue is whether independent suppliers ofmodules exist and thus whether there is verticaldisintegration These slides summarize emergence of verticaldisintegration and how this emergence impacts onscope of activities 61. Vertical (Dis)integration (1) Represents the extent to which work is shared amongdifferent organizations Changes in vertical (dis)integration come fromtechnological (standards), institutional (newregulations), and social changes (covered in Week 6) In particular, reductions in transaction cost canreduce costs of having work done by multiple agents importance of integrative capabilities and thus facilitate the emergence of vertical disintegration(and entrepreneurial opportunities) 62. Vertical (Dis)integration (2) Many changes in vertical (dis)integration over last 100years Emergence of vertical integration in late 19th century,described by Arthur Chandler (Harvard) in manybooks Automobiles Chemicals Steel Other Materials and assembled products Vertical integration peaked in mid-20th century sincethen move towards vertical disintegration 63. Extreme Example of Vertical Integration: Fords Rouge River PlantContained river docks, electricity plant, iron ore processing, parts production,assembly plant, and interior railroad trackIn 1947 it contained 90 miles of railroad tracks, 27 miles of conveyors, 53,000machine tools and 75,000 employees 64. Large Changes in late 20th Century (1) River Rouge Plant represented the most extremeexample of a move towards vertical integration andscale that had started in the late 19th century Vertical disintegration subsequently emerged inautomobile and other industries Computers/Information Technology (IT) Electronic Systems and Semiconductors (Integrated Circuits) Broadcasting Mortgage Banking Movie and Music Production and Distribution Mobile Phones and Systems These changes impacted on business models for firms andthus created opportunities 65. Large Changes in late 20th Century (2) River Rouge Plant represented the most extremeexample of a move towards vertical integration andscale that had started in the late 19th century Vertical disintegration subsequently emerged inautomobile and other industries To what extent will it continue to emerge or will thependulum swing back the other way in the future? How industry specific is this issue? How life cycle dependent is this issue? Is verticaldisintegration more common right after atechnological discontinuity occurs and then verticaldisintegration slowly emerges? 66. Source: Christensen & Raynor, 2003Vertical DisintegrationVertical Disintegration in Microprocessor-Based Computers 67. Semiconductor Sector Separation between Electronic Systems Semiconductors Within Semiconductor Sector, separation between Design Manufacturing Equipment suppliers Material suppliers 68. Broadcasting Sector Separation between hardware (receivers) andprogramming (content) Hardware Production of receivers Sale of receivers (retail) Programming Delivery of programs (broadcasting) Distribution of programs to broadcasters (initially viatelephone lines) Production of programs (very disintegrated) Financing of programs 69. Program Production For television (broadcast, cable, satellite), movietheaters, DVDs For each of them, vertical disintegration hasemerged between Film companies (distributors) Property/Film location Lighting Recording Film editing Film processing Market research Representatives of artists 70. Apple Reintroduced Vertical Integration intoSoftware (Music) and Hardware (Players)MusicCompaniesMusicCompaniesConsumersConsumersOld Value ChainNew Value ChainDesign, MakeMusic Players& ComponentsRetailRetailRetailComponentsDesignandRetailApplePlayers MusicArtistsComposers 71. Mobile Phones Separation between Mobile phone manufacturers Service providers Retailers of phones and/or services What will happen with content? Independent content providers will most likely emerge But who will control their access to customers? Service providers Phone manufacturers Other firms such as Google 72. 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 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 73. Firm infrastructure activitiesHuman resource managementResearch, development and designPurchasing,inventoryholding,materialshandlingManufac-turingOutboundlogisticsMarket-ing &SalesDealersupportandcustomerserviceSupportactivitiesPrimaryactivitiesPurchasingVendorrelationsInboundlogisticsInventoryholdingMaterialshandlingRawmaterialsCapacityLocationPartsproductionAssemblyPricesAdvertisingPromotionSales forcePackagingBrandSalesChannelsInventoryWarehousingTransportWarrantySpeedCaptive/independentValue chain for a firmIssues 74. Value Chains for Individual Firms Exist withinLarger Value ChainsSupplier Firm ChannelBuyerValue Value Value ValueChains Chain Chains Chains 75. The Degree to which One Firm does all these activities isCalled Scope of Activities or Vertical Integration (theopposite is vertical disintegration)Some people use the term industry architecture to describethe level of vertical integrationSupplier Firm ChannelBuyerValue Value Value ValueChains Chain Chains Chains 76. Value Configuration Not all industries can be easily analyzed in terms of valuechains Other forms of value configuration Value shops Value networks Concepts of scope of activities and vertical integrationand disintegration can be applied to value shops and valuenetworks 77. Value Shops The primary activity is finding out what the customer wants andhow to fulfill it Examples Health care Travel agencies Real estate companies Financial institutions Education Technology, in particular the Internet is changing the way valueshops can be managed 78. Problem Finding Collect patient history Patient examination Diagnostic tests Maintain patient dataProblem Solving Generate treatment plans Evaluate treatment plansControl/Evaluation Monitor patient history Maintain patient dataExecution TreatmentChoice Choice oftreatment planValue Shop of a General Practitioner (Health Care) 79. Value Networks Firms operate as brokers between buyers and sellers Network effects (Week 6) play a larger role in valuenetworks than in value chains or value shops Examples of value networks Before the Internet: banks, stock brokers, real estateagents, newspaper classified ads, video games Change to value network or increased importance of valuenetwork by the Internet: employment sites, E-Bay, real-estatesites, Amazon.com Many successful Internet sites are value networks 80. FilmCompanies(563, 709, 1473)The Television Programming and Movie Industry is a ValueNetwork (Number of Firms in Parentheses for 1966, 1974, and 1981)ArtistsRepresentatives(242, 359, 344)FilmProcessing(43, 76, 55)Recording/Sound(20, 33, 187)Lighting(2, 16, 23)Editing(4, 31, 113)PropertiesFirms(66, 33, 184)RentalStudios(13, 24, 67)MarketResearch(3, 5, 24)Total1966: 9561974: 12811981: 24701999: 9500Source: Storper and Christopherson, 1987 (for 1999 figure: Scott, 2002) 81. ConsumersDevelopersTools andMiddlewareProvidersConsole MakerPublishersContentProvidersThe Video Game Industry is also a Value NetworkGamesConsoles& GamesRoyaltiesContentFinancingGamesGames 82. Scope of Activities Firms operating in value shops or value networksmust also think about their scope of activities Vertical disintegration has emerged in many of valueshops and value networks at a global level (Internet isa big facilitator). Examples: U.S. hospitals outsource medical decisions to Indian doctorsby using the Internet Universities outsource courses to contract professors thatteach in class or over the Internet This vertical disintegration increases the number ofchoices for firms with respect to scope of activities 83. For Your Group Projects I recommend that you draw these diagrams foryour technology so that you understand the Different activities Who carries out these activities Who are customers, who are collaborators and who aresuppliers What do these customers, collaborators, and supplierswant? Different ways that these activities can be reorganized 84. 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 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 85. 1900 1910 1920 1930 1940 1950 1960300200100Shakeout in the Number ofFirms in the U.S. AutoIndustry Driven byEconomies of Scale in R&D(Klepper & Simons, 1997)Numberof firms 86. Implications of and Reasons for Shakeouts Number of firms is measure of opportunities; if number offirms is growing, new opportunities are emerging Shakeouts in number of firms suggests there is a narrowwindow of entry for firms Firms should probably enter before a shakeout occurs Reasons for shakeouts Many reasons but economies of scale is probably mostimportant: economies of scale in manufacturing, sales,distribution, purchasing, R&D (research and development) Some industries exhibit economies of scale more than do otherindustries Note: for those who believe in dominant designs, I can give youan article showing that dominant designs do not explainshakeouts 87. Scale often Increases over an Industrys Life Economies of scale favor largest firms Largest firms can expand scale more quickly than smaller firms This leads to lower costs, higher sales, and thus opportunitiesfor greater scale Thus scale is one method of strategic control (one part ofbiz model); one way to ensure above average profits This is one reason why firms with largest share often have the highest profits GEs Jack Welch (was most famous CEO of all time) requiredGEs businesses to be #1 or #2 in market 88. Economies of Scale in R&D R&D is a fixed cost in many industries Firms must spend a certain amount on R&D just to introducegood products and participate in industry Largest firms can spend more on R&D and thusintroduce more products and obtain higher shares Positive feedback between R&D, new products, and share Initially successful firms can spend more on R&D, whichlead to better products, higher profits, more money for R&D But it is not just a matter of producing more products! you must sell products with a good value proposition to theright customers and with the right method of value capture! and the products must require similar R&D 89. Many Examples of Economies of Scale in R&D andthus a Shakeout in the Number of Firms Examples Automobiles, typewriters, television receivers, TV Picturetubes Hard disks, mobile phones, video recorders/players, nuclearpower equipment suppliers, commercial aircraft Implications Most firms end up losing money and exiting industries Even if you are making money, if you are small, it may bebetter to try and be acquired Another option is to find a niche (i.e., submarket) thatrequires different R&D 90. Shakeouts Do Not Always Occur (1) Steven Kleppers (1997) study found that a shakeout onlyoccurred in 27 of 46 industries Klepper Received Global Award for EntrepreneurshipResearch in 2011 (100,000 Euro prize) Economies of scale did not emerge when different market segments require different types of R&D these differences reduce the returns to scale from R&D in e.g.,lasers and business jets vertical disintegration emerges and enables new entry by firmsfrom other industries or entrepreneurial startups 91. Shakeouts Do Not Always Occur (2) Kleppers (1997) analysis of vertical disintegrationfocused on equipment suppliers for manufacturing plants process specialists/independent suppliers of manufacturingequipment for zippers, petrochemicals, and diapers Reduced the scale of R&D needed for final productmanufacturers and thus enabled the entry of newmanufacturers This module will look at many forms of verticaldisintegration and How they impact on business model How they enabled new entry, i.e., created entrepreneurialopportunities 92. Shakeouts Do Not Always Occur (3)Sector # of firms Sub-markets Vert. Disintegrat.IT >100,000 ApplicationsEnd UsersIn every type ofcomputerICs/Semi >1000 in U.S. ElectronicproductsSystems & ICDesign & foundryBroad-casting/program-ming>10,000 radio>1000 TV>10,000programming(U.S.)Differentlocations andgenres forprogrammingBetweenmanufacturersbroadcasters, andprogram producersInternet uncountable uncountable Many 93. Conclusions (1) We can characterize the evolution of industries/technologiesin terms of Technological discontinuities Markets and products Performance, price and costs Vertical (dis)integration Number of firms and thus numbers of opportunities 94. Conclusions (2) The evolution of an industry/technology impacts on the Type of products/value proposition that a firm should consideroffering Segments that a firm should consider targeting Scope of activities that a firm should pursue Method of value capture Method of strategic control Subsequent Sessions will talk about these things in moredetail 95. For Your Presentation Think about the changes that are occurring your industry orwith your technology Then think about the impact these changes are having on thebusiness model Dont just describe a firms business model Understand how change creates the need for a new businessmodel, because these changes represent opportunities In any case, you must justify your decisions