Wharton Chapters 11 and 17

Chapter 11

Chapter 11, titled Appropriating the Gains from Innovation, starts off with three pretty good common sense type rules on achieving profitability through innovation. First the technology must work. Second the the technology must create value. And third appropriating the gains from number two. Another way of thinking about that might be capturing as much of the margin that result from the first two rules as possible, because if you don't someone else surely will. Those gains could go to rivals or even your partners. But wouldn't you rather those gains go to you as much as possible?

The author suggests that there is an over emphasis on patent law and intellectual property when trying to secure these gains. They say that this over emphasis distorts analysis in three ways. First this emphasis leads the impression that patents are the dominant way to capture gains. This is not the case in all instances and patents are more important in some industries than in others. Second the emphasis on patents leads to misallocations of resources. Money may be spent on costly legal defenses that could be used someplace else. The third distortion from over emphasis on patents is that this way of thinking leads companies to choose the wrong projects because people think if they don't get a patent it is not worth doing.

Patents are only one of four mechanisms of appropriating gains. The other three are secrecy, control of complementary assets and lead time. Patents are an important means of securing gains. They come in four types - machines, products of manufacture, compositions of matter and processes. To be patentable an invention must be useful, novel and non-obvious. Since 1995 patents last 20 years. Patents have some limitations as well. They are costly to defend and rivals can invent around them. They can also have limited usefulness in some industries.

The next mechanism for securing gains is secrecy. Secrecy is a form of protection that a company can provide to itself without aid from the government and it works best where government protections are the weakest. Once your product goes to market it is very hard to keep your innovations secrete but if you make it that far you should have the benefit of lead time. Companies can make their products harder to reverse engineer. The author also suggests that it is easier to keep secretes about processes than it is about products. Too much secrecy can hinder research and development as well.

Complementary assets are the third mechanism for securing gains. This notion was covered to some extent in chapter 8 and includes things like distribution channels, services, customer/supplier relationships and complementary products. The ability to capture gains through complementary assets is open to anyone that has those assets whether or not they are the innovator. If you don't have the assets and you are the innovator it can be hard to capture the gains. The book uses a post WW II IBM as an example of how complementary assets can be used to secure gains and shows that assets can be used across a wide range of innovations.

Lead time is the last mechanism for securing gains. According to s survey in the book lead time is the most effective way of securing gains but your mileage may vary from industry to industry. Lead time can give you the much talked about 'first mover advantage'. Lead time can give significant advantages to first movers and sometimes prevent competitor from entering the market. Also the more durable a product the more important lead time can be. If switching costs are high lead time is important.

The author then moves on to talk about using these four mechanisms with emerging technology. The book suggests identifying uncertainties like changes to IP laws or dependence on key personnel or how much lead time you actually may have. The book then goes on to suggest asking yourself the following questions: Who are your competitors? Where are the headwaters of the new knowledge that flows in this field? How fast are the rapids? What are the prospects for strong patents?

Chapter 17

Chapter 17 is titles The Design of New Organizational Forms and argues that in the world of emerging technologies new organizational forms are required to succeed. The example of brokerage houses and the change they went through in the 1990's is given. Full service brokerages that were used to charging high fees found themselves being undercut by discount houses. The full service houses found themselves at a disadvantage and needed to change the way in which they were organized in order to compete. There are two capabilities that new organizational forms should focus on. The first is and effective balance between exploration (new things) and exploitation (current things). The second capability is the recombination of existing competencies or finding new ways to do what you already know how to do.

There are six elements to organizational forms. They are; organizational goals, strategies, authority relations, technologies, markets and processes. It can be hard to determine when changing these six elements stops being variations on the old form and become a new type of organization. There are six new organizational forms discussed in this chapter. They are; the virtual organization, the network organization, the spinout, the ambidextrous organization, the front-back organization and the sense and respond organization.

The virtual organization is one in which employees, suppliers and customers are dispersed geographically but united by technology. This new organization is the allowed by technologies like broadband connectivity and video conferencing. The Internet allows new ways to connect with customers no matter where they are. There are challenges with this form though like lack of oversight because workers are not in the same building.

There are two types o network organizations, external and internal. The external form can be thought of as outsourcing to the extreme where one central organization creates ties to outside entities that have the skills and services they need. Ties are created by partnerships and joint ventures. The internal form or network organization is similar to the external but happens all inside one firm. Ties between strategic business units, micro enterprises and autonomous work teams make up this organization.

Spinout Organizations result when a company establishes a new entity that goes out on it's own. The parent company can retain some control but eventually the new company must sink or swim on it's own. These are often used with risky technologies to insulate the parent from potential harm.

The ambidextrous organization can be thought of as a partner for the original company. This is used when there is concern that innovation is being stifled in the original company.

The front-back organization is organized around customers in the front with everything else behind to serve the front. This gives gives customers fast, responsive and customized solutions according to the book.

The last form of organization is the sense and respond type. This form is focused on identifying ever changing customer needs. These are highly adaptable firms that plan from the bottom up and have few long range plans.

I would have to say that my company does not fit into any of these new models. Even though we have been focused on an innovation initiative for over a year now our organizational model has not changed to try and support this initiative. Our relative lack of success in this area could have something to do with organizational model.

Wharton Chapter 10

Scenario Planning for Disruptive technologies is the title for chapter 10 and again we are trying to prognosticate what the future will bring. Some of the questions chapter 10 will attempt to help us answer are: How will a given technology develop? Will customers accept it? What if regulators or competitors change the environment?If you don't invest in the technology, will you be left behind? The scenario planning described in chapter 10 these questions and more by giving us a framework to reveal and organize underlying complexities.

The book asks 'What future should you prepare for?' but then goes on to say that this is not the right question. What you should be asking is 'what set of multiple futures might be likely and how can you best prepare for all of them? Understanding technology is not enough, as examples in the book demonstrate. It is easy to miss weak signals or to understand how seemingly unrelated changes to the environment can cause big changes. Throughout the chapter the authors use the example of printed newspapers and the challenge they face with the onset of the Internet.

Scenario planning (SP from here on) is designed to help companies address the uncertainty that the newspaper companies face because of the Internet. Scenario planning address three challenges inherent in emerging technologies; first is uncertainty. SP is designed to deal with uncertainties and these should be distinguished from risks that can be quantified using probabilities. Next is the challenge of complexity. SP focuses on how different forces influence each other over time. The last challenge is paradigm shift. SP challenges the prevailing mindset and core assumptions by amplifying weak signals that would be missed under normal circumstances.

The book outlines 10 steps in the SP process. Those 10 steps are:
1. Define the issues – in terms of time frame, scope and decision variables that you wish to understand better. Make your scope broad and review the past for instances of volatility and to get a better idea of time frame and scope.
2. Identify major stakeholders and actors – those who would have interest in or could be affected by the issues or those who can influence matters. Internal and external.
3. Identify and study main forces – those within the scope in step 1. Cover social, technological, economic, environmental and political forces. Gather relevant information that may change or shape the future. New issues may emerge. Use internal and external sources.
4. Indentify trends – those that will affect the main forces. The example given is the aging population in the US.
5. Identify key uncertainties – These are the forces whose outcome can not be known with any degree of certainty. Examples given are election outcomes, patents or the impact of the Internet on society.
6. Select the 2 most important key uncertainties – load these into a 2 by 2 matrix. Each cell will be a scenario. Add suitable outcomes from other key uncertainties to get the master scenario. Add trends and predetermined elements.
7. Asses consistency and plausibility of the initial scenarios – Are the main future trends all mutually consistent with each other? Can the outcome for the various key uncertainties all co-exist? Are the presumed actions of stakeholders compatible with their interests?
8. Asses revised scenarios in terms of how the key stakeholders might behave. Role play and share with outsiders if needed.
9. Reexamine the internal consistencies of the scenarios – to asses if the more complex interactions should be formalized via a quantitative model. Use influence diagrams or techniques from system dynamic modeling.
10. Reassess uncertainty ranges of the main variables – express how each variable looks under different scenarios.

I am not going to go into the examples given in the book. Instead I am going to move on to some SP traps to avoid. First is failing to gain management support early on. Without their support and willingness to participate SP is worthless. Next is lack of diverse inputs. Outside inputs should be sought or even put outsiders on the team. This will give a broad range of ideas. The third SP trap to avoid is failure to stimulate new strategic options. Sometimes the alternatives might not be attractive or even feasible to those not involved in SP. This is one reason why management support is needed. The last trap is not tracking scenarios via signposts. I think of this as, is the scenario actually planning out.

This chapter was hard to get my head around. I can see the theoretical advantages of scenario planning but it all still seems very much like guesswork to me. The main advantage seems to be actually taking some of the guessing out of the decision making process. However the future, no matter how hard you try, is always going to be unknown to a certain degree. I think you should taking a step back now and again to see if your scenarios are playing out like you thought would be good and should be done often. I just don’t know how much stock I would put in this. Is it working out for the newspapers?

Wharton Chapters 8 and 9

Chapter 8
Chapter 8 is a short but useful chapter entitled Commercializing Emerging Technologies Through Complimentary Assets. The Mergenthaler Linotype (M-L from here on) company is used as an example throughout the chapter. The M-L company was a dominant player in the typeset industry for over 100 years. What is extraordinary is that they were able to stay dominant through 3 waves of radical technology change. As discussed in earlier chapters, incumbent companies can be at a disadvantage to newcomers when emerging technologies come into play. But incumbents do have other advantages sometimes. If used properly these other advantages can still allow incumbents to succeed when commercializing an emerging technology even if their technology was not first or is not the best.

According to chapter 8 emerging technologies (ET from here on) can change more than required technological skill sets, ET can change relevant complementary assets, relevant competitors and relevant customers. Proper management of these other 3 areas can help incumbents to overcome any deficiencies they may have when it comes to the new ET.

As stated in the book companies must poses complimentary assets to benefit from an innovation. These resources can include distribution chains, service skills, relationships with customers and suppliers and complementary products. Sometimes these complimentary assets provide a barrier to entry as in the case of M-L's type faces. Other times, when there is a technology shift, the relevant complimentary assets don't change much which gives an advantage to incumbents. When evaluating a change in complimentary assets a company should ask itself the following questions; What complimentary assets are currently valuable to the firm? Which assets will retain their value in the new technological regime? What new complimentary assets are required? What proprietary architectural standards can the firm control? With what complimentary product does the firm’s product now interface? What complimentary product areas should the firm enter?

Changes caused by ET impact not only the companies that produce them; they also impact the consumers that purchase them. New technologies can create new markets that have new needs. Incumbents ignore these new areas at times because they seem to have nothing to do with the current customer base. Serving the needs of a new customer segment can be tricky. Often times the customer doesn't even know what they want or need. Incumbents that help to smooth this transition will be in a more advantageous position. When evaluating a change in customers a company should ask itself the following questions; what new customer segments emerge with the new technology? How do the needs of those customers differ from traditional customers? How does the new technology affect the capabilities of existing customers? Is there a way to ease the transition for existing customers and keep them tied in?

The changes caused by ET can reshape the competitive landscape. New firms may enter the market and existing firm's may decide that an ET is a good entry point into the market. These new entrants mean that incumbents need to not only keep an eye on the old competitors but the new ones as well. One way to learn about new competitors is through trade shows and industry meetings. When evaluating changes to competition due to an ET a company should ask itself; What new competitors from different industries are likely to enter the market? How do their capabilities differ from those of traditional competitors? How do their incentives differ from those of traditional competitors?

The book then goes on to look at the changes that took place in the recent transition from traditional photography to digital imaging. Not only was the technology changing but that was causing changes to complimentary assets, customer and the competition. There were significant changes to complimentary assets in the form of new distribution channels (computer stores), film manufacturing had less value, and new complimentary products like software were needed. There were also significant changes in relevant customers who were Internet users with new needs like electronic transmission and storage, software for editing and compatibility with computers and printers. Lastly there were significant changes to the competitive landscape with strong competition from non traditional companies that made electronic, computers and new entrants as well.

There are 3 hurdles of ET according to the book. The first is should a firm invest in developing a new technology? The second hurdle is the organizational challenge of actually developing or acquiring the new technology. The third hurdle is commercializing the new technology. The first 2 hurdles can be hard for incumbent firms to overcome and can actually place them at a technological disadvantage. However carefully and cleverly commercializing a new technology can help to overcome any technological disadvantages and allow the incumbent firm to thrive.

Chapter 9
I see a theme running through most of the chapters in this book. That theme is, when dealing with ET you will have to operate in an environment in which you have limited information. Chapter 9 is called Disciplined Imagination: Strategy Making in Uncertain Environments. We are switching gears into the making strategy section of the book. The authors argue that in today's fast paced and changing business environment the old methods of strategy making are no longer effective. Weekend retreats and elaborate planning methods no longer work.

Strategy making is an art, according to the authors, and I would tend to agree with them. Producing a business strategy is a lot like making an educated guess since you can’t know exactly what the environment will be like, what your full capabilities are, or what the future will bring. The only way to know for sure if a strategy will work is to put it to the test. Strategy making can be thought of as a set of mental experiments whereby many strategies are created and one is chosen to be implemented. You can increase your chances of formulating a successful strategy by using disciplined imagination. Disciplined imagination ‘deliberate diversity’ in formulation of the problem, the generation of alternatives and the variety of rules used to evaluate the alternatives.

The twin pillars of strategy are discipline and imagination. Over the years the dominant form strategy making has swung between the two extremes if discipline on one side and imagination on the other. According to chapter 9 both schools of thought have merit but the limitations inherent in both suggest that they should be used together for high quality strategy making.

Discipline is the consistent application of rules to evaluate a set of alternatives. The ‘rational actor’ model says that all alternatives must be known in advance and then the actor collects information, develops alternatives and selects that one that maximizes value. Discipline is exemplified by consistency, may or may not require formal planning and should work in stable or chaotic environments. The discipline school of thought led to the strategic planning movement and made many improvements including helping to identify avoidable errors and achieving broader consensus. However a strictly discipline approach can be slow and unwieldy in fast paced and swiftly changing environments.

Imagination is associated with the concepts of synthesis, vision, foresight, creativity and intuition. Strategy making exhibits imagination when there is ‘deliberate diversity’ in the definition of problems and in the manner that alternatives are generated and selected. Alternatives should be varied and distinct rather than variations on a theme. Problems statements should be diverse as well. There should also be diversity in the number of rules used to select alternatives. If the same alternative scores highly under different sets of evaluation criteria then the possibility of that alternative being the best one is increase. I liked the idea of imagining a future for the company and working back to the present from there. At the far end of the imagination camp there are those that suggest using a hierarchy of imagination as opposed the more traditional hierarchy of experience.

Discipline and imagination have their limitations as well. Discipline rarely generates original insight or creative alternatives. Imagination can lead to chaos, losing touch with reality and under valuing the past. Too much imagination can actually dilute creativity and slow the strategy making process.

The limitations of discipline include:

• Analysis rather than synthesis – rut of automatic thinking
• Selection at the expense of generation – Where do options come from?
• Extrapolation from the past – Not useful with ET, there may not be a past
• Overconfidence in the power of analysis – information often limited or outdated

The limitations of imagination include:

• Chaos – too many people involved, who makes the decision?
• Losing touch with reality – distracted from present activities
• Undervaluing the past – no foundation for learning and repeat past mistakes
• Diluting individual creativity – group think, Anderson Androids?
• Slowing the process – more people can mean more time

Discipline and imagination are both useful in strategy making but they also both have limitations. The use of disciplined imagination is a way to capitalize on the strengths of both while limiting their weaknesses. Strategy making can be compared to the artistic process of creation. Even in art some rules are followed like staying in rhythm during a jazz improvisation. Disciplined imagination combines the process of generating diverse options with another for evaluating them consistently.

• Generate imaginative options – problem statements should be diverse allowing many alternatives but keeping the number manageable, alternatives need to distinct not variations on a theme
• Evaluate the options consistently – use discipline by consistently applying rules to select alternatives, the more and varied rules an alternative survives the more plausible it is

Wharton Chapter 7

Chapter 7 is titled Technology Strategy in Lumpy Market Landscapes. Another possible name could be where are our research and development dollars going to give us the most bang for our buck. This chapter gives some guidelines on how to determine just that. To figure this out you need to understand a couple of different constraints and how they interact with one another. The first constraint is technology barriers. Another way of saying this might be what are we prevented from doing by the current limits of our technology. The second constraint is the different product attributes that customers find attractive. How these 2 sets of constraints interact can tell you where you should invest your money in order to improve your product so you can move into new market segments.

The chapter goes on to describe how segmented markets are 'lumpy'. Different product attributes attract different groups of prospective customers. These groups can be thought of as submarkets. Examples given in the book for laptop computers are portability which attracts executives and ruggedness which attracts service technicians. It is possible that there could be a lumpy segment that is attracted to a combination of attributes as in the example of sales people who are attracted to both portability and ruggedness though not the same extreme. All of this assumes price remains constant.

The next thing you need to consider is the current limits of your technology. Given price constraints (you can spend an infinite amount of money to make your product) there are upper limits to what you can build. Using the example of laptops again, you can only make it so light given current components or you can only make your battery last so long given size and technology limits. If you plot both the lumpy market segments and the current limits to your technology on the same graph you can see what markets you are competing in now and what markets you could be competing in if you invested in certain technologies. For instance, right now you may make the most rugged laptop available but it is heavier than what most executives want to carry around. If you invest in component technology, making your laptop lighter, you will be able to compete in a market segment that you had previously been locked out of. If you move the correct constraint you may be able to open up multiple markets at once.

Companies can identify market lumps you need to understand three sets of conditions. First what attributes differentiate one offering from the next. Second, how attributes appeal to different markets. And third, how technology barriers influence interaction between segments. Customer research and internal analysis can give insights into all three of these areas. You should also consider what your competitors are doing as well.

Wharton Chapter 6

Chapter 6 is entitled 'Assessing Future Markets for New Technologies. Another possible title could be 'Telling Your New Product's Future' or 'Teal Leaves and Emerging Technologies'. After all that is what you are trying to do, see into the future for a product that may not quite exist yet for a market that does not exist yet because the customer doesn't know about them yet. As chapter 6 tells us though it is not as bad s it may seem at first.

There are three approaches explained to us in the book. First is diffusion and adoption. You can think of this a how fast the new technology will be adopted, if at all. Second is exploration and learning. You can think of this as learning lessons from presenting successive versions of your product and using the knowledge to improve the next version. And third is triangulation for insights. You can think of this as using imperfect market research to converge on a more likely conclusion. As the books says, these are useful assessments of future markets for emerging technologies when uncertainties are intolerably high.

Production adoption rates are related to; perceived advantages of the new product, the perceived risk associated with adoption, the barriers to adoption and opportunities to learn about and try the new product. The perceived advantages are the main driver among the four. Stimulants to more rapid diffusion according the the book are; innovation, price and education/access. The rate of adoption will follow a normal distribution with early adopters and laggards 2 standard deviations from the mean and early and late majorities one standard deviation from the mean. Different strategies are needed for the 5 different segments, innovators, early adopters, early majority, late majority and laggards.

Exploration of markets, as described by the book, involves asking the following questions; What are we trying to learn about? What decisions have to be made? And what alternatives should be considered? These questions should be used to prevent poor decisions, not to justify decisions that have already been made. Once these questions have been asked then data needs to looked at to try and see patterns. This knowledge, once gained, should be retained within the organization.

Triangulation of insights is using some less than perfect market analysis tools to try and gain some insight into the developing market. More than one of these tools should be used to see if a convergence point can be reached. Using multiple methods takes some of the risk out of using these less than prefect methods. Some methods include learning from lead users, learning about latent needs but problem identification story telling and observation.

Wharton Chapter 5

Chapter 5 is entitled Emerging Technologies and Public Policy: Lessons from the Internet. This chapter is about how public policy can not only influence emerging technologies but even create them. Throughout the chapter the government's relationship to the Internet over the years is used as an example of how public policy can change or create an industry.

The government's role in developing emerging technologies happens through many different venues. As we learned in the book they provide an institutional infrastructure by way of patent laws and public education. They provide a research infrastructure by supporting various research projects financially. Military research has played a large role in developing certain technologies. Governments can set standards. They can also set barriers to entry through tariffs and subsidies. Lastly they can regulate any industry.

The early years of the Internet are interesting. The first packet switched network was paid for by the Defense Department during the Vietnam war. This is a perfect example of a technology that switched domains from it's original purpose (secure communications in a nuclear war) to something entirely unforeseen at the time (the commercial behemoth we have today). Eventually the network grew, standards were established and a community grew. During this time the government, first through the DoD and later through the NSF, funded and controlled the Internet. From this we learn lesson one; the government can play a powerful role in shaping the development of a new technology.

Eventually it was decided that the government should back away from the control of the Internet and that private firms should take over it's development. This policy change coupled with the development of a new method of using the Internet (World Wide Web) and the penetration of PC's into a large section of households helped lead to massive growth. This commercialization of the Internet had detractors, namely those who benefited from the status quo. That is lesson two. We also learned that during this time of transition from public to private control everyone involved will complain. That is lesson three.

During this time of unprecedented growth new social challenges emerged. How is all of this new information going to effect the culture? Easy access to pornography and hate sites worried many people. These concerns needed to be weighed against constitutional freedoms. This leads to lesson four, public concern about the affect of new technologies on social mores may lead to demands for political solutions that can have unintended consequences. Disruptive technologies, like the Internet, can have an impact on how governments and companies conduct business and they will seek legal protections from those disruptions. This is lesson five.

The Internet is still developing and changing today. The book lists four public policy concerns that will shape how the Internet develops. Those concerns are; universal service or is the service available and affordable to everyone? Quality of service or is the service efficiently provided at a reasonable quality? Monopoly power or is the provider earning excess profits from abuse of a monopoly market position? Access to distribution or is the distribution system available to all providers? Lesson six tells us that a new technology that is highly valued may lead to political demands for universal service. This could lead to a monopoly protected by the government. Lesson seven says that dominant firms can make the mistake of treating customers poorly which can lead to more regulation. This could be a result of the monopolies from lesson six. Lesson eight says that if a new technology threatens to lead to a single firm being dominant the government may intervene to control this monopoly. This could be to protect it or to break it apart. Lesson nine tells us that if the technology leads to a firm's dominance in a bottleneck market there will be a political demand for a limit to the dominant firm's vertical integration. I think we are seeing this currently in the 'Net Neutrality' debates. Finally lesson ten tells us that regulations meant to promote competition or objectives for an emerging technology can have unintended or even opposite effects.

This was a very pithy chapter for me right now. The industry I work in (student loans) was devastated by an announcement in the Presidents budget last week. Namely that it is the President's objective to make all student loans through the direct loan program and to end the private but federally guaranteed system that has been in place for 40 years. While my industry is certainly not emerging any longer it does show the massive impact that government can have on an industry.

Wharton Chaters 3 and 4

I thought how the authors compared the biological and technological in chapter 3, Technology Speciation, was interesting. The theme of a shift in the domain of an already existing application that yields an emerging technology runs throughout the chapter. The example of wireless technology and the Internet are given. The authors then go on to discuss other biological comparisons such as resource abundance, selection criteria and creative destruction. This is followed by some thoughts on technological convergence with the example of the CAT scan being given. The book then returns to the shifting application domain's with a discussion on patterns for technology evolution. The chapter ends with a discussion on how all of this can (and should) impact a company's strategic thinking. Of particular interest to me was the first bullet point, focus on the intersection of markets and applications. More on this later.

Chapter 4 is entitled Identification and Assessment of Emerging Technologies. I don't think that the importance of this process should be underestimated, as the AquaPharm example given throughout the chapter goes on to show. The assessment process is iterative and has 4 main parts; scoping, searching, evaluating and committing. Scoping gives you a target. It is the goal you are trying to achieve or the niche you are trying to fill and you must recognize what you are capable of and set goals accordingly. If scoping is the what then searching is the how. How are you going to find new technologies to meet your goals? Examples are given on looking within the firm and and reading trade literature. We learn to look for strong and weak signals and that knowledge information capture is important. The evaluation process is the next part of the assessment process. We learn that risk profiling and assessing the financial and organization impacts are important. The last part of the assessment process is committing. We learn that there are 4 strategic profiles you can take when committing; watch and wait, position and learn, sense and follow, and believe and lead. They are listed in order of least committed to most committed. As we learn at the end of the chapter, AquaPharm did not fare well.

I think that chapter three's theme of shifting domain applications for already existing technologies is an important one. The evolution of wireless technology and the Internet are given in the book but while I was reading that I thought of another example of a product that found a market by shifting it's application domain. During World War II Japan controlled a great deal of the world's rubber producing capacity. There was a big push early in the war to find a synthetic substitute (back then rubber came from trees) for rubber. During the search for a synthetic rubber someone (who seems up for debate) mixed boric acid and silicone and came up with a substance that was gooey and bouncy and had a few other novel properties but it would not work as a substitute for rubber. No one could think of a good use for this new product even though samples were sent to scientists all over the world. Eventually, after many years, a sample found it's way to a toy store owner who thought it could sell as a toy and Silly Putty was born.

I forgot to add my link last night:
http://en.wikipedia.org/wiki/Silly_putty

Wharton Chapter 2

Chapter 2 is entitled Avoiding the Pitfalls of Emerging Technologies. I can think of no better way to start studying emerging technologies then by first learning what not to do. That seems pretty straight forward right? A good, common sense approach. Only it turns out that it may not be a easy as it would first seem.

Day and Schoemaker start out chapter 2 by outlining four traps that can put incumbent companies at a disadvantage when competing against newer companies in emerging technology markets. Those four traps are; delayed participation, sticking with the familiar, reluctance to fully commit and finally lack of persistence. Chapter 2 then continues by offering four solutions to help incumbents in emerging technology markets. Those four solutions are; widening peripheral vision, creating a learning culture, staying flexible in strategic ways and providing organizational autonomy.

The first trap discussed the trap of delayed participation. This is when a company takes a watch and wait posture instead of entering the emerging market. Emerging market are by nature highly uncertain. It is therefore an understandable, though possibly incorrect, reaction to take a cautious approach. Another reason companies may fall into the delayed participation trap include a lack of understanding how the new technology will fit into the old business model. Companies may also not understand how the new market will develop and may wait to move until it is too late.

The second trap is sticking with the familiar. The Encyclopedia Britannica example cited in the book is a great example. The company lost 50 percent of it's revenue over a 5 year period because it chose to stick with something it understood (printed books) at the cost of ignoring what it did not fully understand (CD-ROM). It can be hard to know when it is time to move into a new area. Often there are no standards and if the wrong choice is made and a loosing technology is backed then your company could be left behind while other grab market share.

The third trap is the reluctance to fully commit. This is when a company recognizes that a new area is developing but does not devote enough resources to truly take advantage of it. This can be because they want to try and limit their risk exposure or because they are afraid to damage already existing products. Companies could also receive pressure from partners if they feel threatened. It can also be hard to justify emerging technologies when profits are far off and return on investment is low.

The fourth trap is lack of persistence. This can be thought of as giving up on a new technology too soon. When divisions and companies need to meet quarterly numbers it is easy to trim new and often less profitable areas. Often the people that truly understand the new technology are too far down the organizational chart to make influential decisions. In tough economic times, like we are experiencing now, it can be hard to think past the next few months and make objective long term decisions.

Chapter 2 then goes on to describe four solutions to help incumbent companies compete in emerging technologies. The first of these solutions is widening peripheral vision. This means being able to see and understand what is happening in a wider sense. What new companies are making progress? What new technologies are being perfected and what new ways can they be used? What trends are taking shape? You can begin to answer these questions by deciding which technologies are strategically significant. Then you need to figure out how well the new technology stacks up against competing technologies. After that you can move on to market adoption and size.

The next solution is creating a learning culture. This is more of an organizational/internal approach and can be accomplished encouraging organizational learning capacity as opposed to individual learning capacity. Organizational learning capacity can be demonstrated by encouraging openness to divers viewpoints, a willingness to challenge deep-seated assumptions and mental models, continuous experimentation and mastering deep dialog and conversation.

The third solutions outlined in chapter 2 is staying flexible in strategic ways. This means being nimble and keeping your options open. As the book says you are only committed if a decision is not reversible. The example of Microsoft in the late 1980's shows how keeping options open can lead to success. Microsoft was involved in the Apple, IBM, Windows and Unix worlds all at the same time. This left them able to move when the market dictated and gave them influence in many areas.

The fourth solution is providing organizational autonomy. This is the concept of giving the new technology it own nursery, away from the parent company, in which to develop on it's own. This can be as little as a new division or office or as much as a spin-off with it's own stock (and source of capital) board of directors. New spin-offs are free from the established mindsets of the parent corporation and can still provide a benefit to the parent company. If successful, in the long term the parent could even reacquire the spin-off.

Overall I thought this chapter was pretty interesting and had some good information. I can see much of what was discussed in my own company. I work for a technology subsidiary of a much larger corporation. My company was initially the IT department of the parent company. It was spun-off into a new privately held (though funded by the parent) company. The made it on their own for a few years before the parent decided to buy them back. Now we are being folded back into the parent at least in some respects. All of this happened in less than 10 years.

First post

This is the frist post for my MBA 554 blog.