Technology Strategy, Systems, Solutions and Standards

Technology Strategy Systems, architecture, and business ecosystems, value creation and value capture High-tech businesses are built on systems, which co-evolve with business ecosystems • “…new products are rarely stand-alone items. Rather, they are components of broader systems or architectures”1 • “…co-evolution [is] a process in which interdependent species evolve in an endless reciprocal cycle, in which ‘changes in species A set the stage for natural selection of changes in species B’- and vice versa” • “The organization of firms and industries and the architecture of products are interrelated.” • “Indeed, harnessing the full potential of the technology necessarily involves cooperation amongst industry participants, many of whom might also be competitors.” High-tech businesses are built on systems, which involves business ecosystems • Products part of larger and more complex systems • • • • Performers Media companies Personal computing Browsers, ISPs • Apple • Products are comprised of multiple (sub-)systems • Cases, headphones, docks, cars • Software vendors • Component vendors (Business) Ecosystem 1. a a system formed by the interaction of a community of organisms with their environment 2. “[a system in which] companies co-evolve capabilities around a new innovation, they work cooperatively and competitively to support new products, satisfy customer needs, and eventually incorporate the next round of innovations” 3. “[a] loose network…of suppliers, distributors, …makers of related products or services, technology providers [that] affect, and are affected by, the creation and delivery of a company’s own offerings” Industries vs business ecosystems, business ecosystems vs biological ecosystems Industry • Stable structure and boundaries – SIC codes – mature • Same customers • Same suppliers • Similar scope of activities • Same business models • Horizontal competition amongst like competitors Business ecosystem Biological ecosystems • Innovation • Dynamic and evolving • Unclear and fuzzy boundaries • Very different scope of activities • High degrees of specialization • Participants depend on one another for their effectiveness and survival • Stable inputs(?) • Dynamic and evolving • Unclear and fuzzy boundaries • Very different scope of activities • High degrees of specialization • Participants depend on one another for their effectiveness and survival Ecosystems go through stages, co-evolving with technological innovation and demand opportunities Early ferment Demand Opportunity Lead users, early adopters - high payoff, low switching costs Business Ecosystem Birth Many entrants - diverse business models Technological Infrastructure Make it work innovate on performance, diverse integrative designs Dominant design emerges Incremental innovation Early mainstream usability, cost more important Mainstream customers soft factors, aesthetics Maturity Saturation, segmentation, customization Expansion Leadership Fierce Decisive Intensifying competition, battles for competition, consolidation leadership early around majors consolidation Figure out the optimal architecture, drive down costs, make it easy to use Eclipse or renewal Develop broad Broaden the offer, rationalize portfolio, build platforms, the portfolio, search for new build up options complementary assets Self-renewal Performance depends on competition both between ecosystems and within ecosystems Operators GSM CDMA Cellphone vendors Infrastructure vendors Ecosystem maps: Architectural; Business; and Chronological Architectural map Business map Chrono-logical map A B C Content Application How things work, roles Contributions of individual participants or business elements “You are here and there are your neighbors” Basic education about the STRUCTURE of the business, roles and niches, and who its competitors and complementors are Participants with relative share, at a Illustrate relative SCALE or strength of a point in time business, its competitors and Optionally, adjacent ecosystems complementors too Can demonstrate ecosystem invasion “Who’s doing well” Detailed ecosystem changes (or events) over time Activity compared with competitors Evolution trajectory “What’s going on” Show historical or potential DYNAMICS in the ecosystem Benchmark against competitors; show strategic intent Help plan for strategic goals A: players or roles on a plane with dimensions that illustrate contributions, locations and relationships A Architectural map Money flows down Logical hierarchy or Scope or Adjacent ecosystems We nearly always use hierarchy on vertical axis Horizontal axis – physical topology, showing what is next to what, is most common Role or players activity Relationships are usually implied by role Physical topology or “Wiring diagram” or Geography or Value chain This model sometimes helps the choice of dimension and direction for axes Technology flows up B: relative strength of players on horizontal axis, value capture on the vertical axis B Business map Unlike type A charts, type B differentiate strength of player in a given role Hierarchy or Value web or Other We nearly always use hierarchy on vertical axis, sometimes with nested detail Player Player Adjacent Ecosystem width shows share Share/strength and Ecosystem Horizontal axis always shows relative share We optionally show adjacent ecosystems too i 15.905 Technology Strategy User Government Large Enterprise Medium Enterprise Small Enterprise Home Application Customer Offer Service Provider Lu’s Offer Network Operator Lucent Technologies Professional Services nortel microsoft Huawei Technologies Application nokia Packet Next Gen Ethernet Sony ericsson sony Cisco systems alcatel motorola Circuit Legacy TDM Device Mobility Optical Access Enterprise Home CE PC Gateway Desktop Server Storage Satellite Coax Copper Metro Submarine Core CDMA GSM UMTS 3G 1/2 Broadband Smart Feature IPR Voice $ motorola motorola Mobile in 2001 Computing Virgin Mobile, the first MVNO, emerged & targeted youth segment M obile Users France Telecom Vodafone Group BT Vizzavi Genie Itineris KPN Oleada Others Zed Infospace Kyocera Samsung NEC M itsubishi Sanyo Sony Panasonic Philips Alcatel Ericsson Others Pocket PC Psion Palm M otorola Phone.com GEO M icrosoft View Sonic Tegic J2M E GemPlus Philips Pogo EZWAP Tegic Symbian Palm OS Schlumberger Symbian EPOC Palm OS M icrosoft Qualcomm Ericsson ARM Texas Instruments Intel M itsubishi Lucent M E Collaborated on TI’s Open Multimedia Application Processor Stinger to be integrated into TI’s GSM chipsets Orga G&D Zucotto Philips M ot orola Telefo nica i-TIM T-M otion Siemens 100,000 Palm OS Developers Nokia Design/ M anufacturing Operating Systems Telecom Italia M obile Deutsche Telecom +31,000 Developers Mviva Components Relatively little incursion to date from consumer electronics Virgin Network Operators/ Service Providers Applications Infospace, a 3rd party wireless portal, is working with Virgin Strong relationships with NTT DoCo Mo and Sonera Carphone Warehouse Symbian Mobile reaching full penetration mass marketing; beginning to give way to niche approaches Consumer Electronics Ericsson working with Microsoft on microbrowsers M otorola Sychip ADI Recently announced availability of a jointlydeveloped DSP with Intel Sychip has consolidated significant function in a chipset By 2002, transition underway Computing M obile Vodafone Group Infospace TM otion Enterprise apps Personal productivity KPN Oleada Others Zed .NET apps PacketVideo player Gaming apps Kyocera Samsung NEC Sanyo Others M icrosoft Linux Pocket PC Symbian Psion Sony M itsubishi Nokia Panasonic Philips M otorola EZWAP Pixo Variety of productivity and other applications embedded in the OS J2M E GemPlus View Sonic M icrosoft Openwave Symbian Components Telefo nica i-TIM Alcatel Pocket PC Developers Itineris Telecom Italia M obile Deutsche Telecom Philips Symbian Schlumberger Qualcomm Ericsson Zucotto Palm OS M icrosoft Orga G&D Sychip Intel M itsubishi ARM Motorola New wholesale 3G carriers emerge and bolster the MVNO/SSP market Linux Developers Symbian Developers Palm OS Developers Operating Systems M viva Bluetooth apps Nokia Palm Design/ M anufacturing Hand Applications Genie Location-based apps France Telecom BT Siemens Network Operators/ Service Providers Virgin Carphone Warehouse Vizzavi Nokia still dominant; loses some share but holds on stronger to vertical integration New, flexible vendors begin to develop custom solutions for NOs/SPs Consumer Electronics New wholesale insurgents Users Ericsson Early adopters begin to purchase 3G apps & services MVNOs become more significant as mobile data allows for more diverse offerings Texas Instruments Lucent M E A variety of Bluetooth enabled chipsets M otorola Chip manufacturers continue to embed greater functionality in silicon ADI By 2002, the OS battle has intensified as mobile data devices become more important By 2004 - major contests Computing Consumer Electronics M obile Oleada Linux Pocket PC Symbian M icrosoft Others Sony Others M icrosoft Symbian Philips M icrosoft J2M E Schlumberger Qualcomm Ericsson Zucotto Orga G&D Intel M itsubishi Sychip ARM M otorola Texas Instruments By 2004, consumer electronics players will significant incursions into mobile Pixo Variety of productivity and other applications embedded in the OS GemPlus View Sonic EZWAP Panasonic Kyocera Gaming apps Openwave Palm OS Components Samsung PacketVideo player NEC .NET apps Major content providers enter as MVNOs Zed M itsubishi Personal productivity Enterprise apps KPN Psion Nokia i-TIM Sanyo M otorola T-M otion Sony Bluetooth apps Infospace Telefo nica Panasonic Hand Palm Operating Systems Itineris Telecom Italia M obile Philips Location-based apps M viva Deutsche Telecom Alcatel Linux Developers Pocket PC Developers Palm OS Developers Genie Nokia Design/ M anufacturing By 2004, it is likely that a robust ecosystem will be forming around Linux Symbian Developers Vizzavi Applications France Telecom BT Siemens Vodafone Group Ericsson Network Operators/ Service Providers Virgin Carphone Warehouse Bertlesmann Users Lucent M E M otorola ADI As component vendors add functionality to chipsets, terminal vendors surrender value to them Europe+ Europe+ Consolidation continues as MNOs look to reduce costsData Demand Opportunity NAR Voice NAR JP+Kor ea JP + China + India Korea China + India Spending Units RoW RoW Consumer SME Advanced economies maintain share of value as share of units declines Enterprise Device Business share of spending rises Service providers Regional Operators Global Operators Network operators GSM WCDMA Entertainment WiMax still niche Browsing Others Proprietary Platform Nokia Samsun g Nokia ODMs (Jabil Circuit, BenQ) Samsung ODMs (Ability) Motorola LG Siemens S E Sanyo NEC Panason Kyocera ic ODMs/EMS share of production rises to 50% of all handsets by 2009 Other s ODMs HH ODMs Electronic Assemblies Mechanical BREW Battery Other VM CDMA 1xEV-DO GSM/GPRS/EDGE CDMA 1xRTT Not to Other WCDMA Nativ e Java downloadable Display Final assembly Application Techn(olog)ical RTE architectureAir interface Smart Handheld Device Windows Device Mobile devices production Java applications Components/ gain share Modules Linux Device marketing Retail and and design wholesale Messaging Symbian Device Platforms/ platforms Architects (software) CDMA Enterpris e Applications take market share (software) CDMA loses share; Korea flips to WCDMA Other Mobile and converged Infrastructure infrastructur Open source/Linux begins to e National Operators Value migrates from hardware to software; further HW component commoditization B Mobile Business Ecosystem Business scale – share of 2005 15.905 spending Technology (estimated) Europe+ North America North America JP + Korea China + India Strategy RoW China + India Share of spending RoW Share of units SME Europe+ JP + Korea Spending on mobile devices, voice and data services Data Demand Opportunity Voice Consumer Enterprise Device Vodafone NTT DoCoMo T-Mobile Orange TIM Telefonic a Service providers Global Operators O2 Regional Operators MTN, Orascom, TDC MTC, Millicom, AmericaTelia MovilSonera Telenor KPN Mobile Cingular Telstra, PT, Singtel Verizon Sprint/Nextel National Operators China Mobile China Unicom SK Telecom Share of revenue Other Network operators Ericsson Device production Mobile devices Alcatel Nortel O Motorol th a er Ericsson WCDMA Nokia Siemens O th Nortel er s Lucent CDMA Nortel Motorola Al O Eri Sams c th css ung at er on el s Nokia 31% Samsung 14% Nokia ODMs (Jabil Circuit, BenQ) Samsung ODMs (Ability) High, medium and low range devices OS Platform Highmedium range devices Medium, some low range devices High range devices Motorola 16% LG 8% Motorola ODMs (HTC, BenQ, Chi Mei) LG ODMs (Lite-on) Siemens 7% Siemens ODMs (Flextronic, Chi Mei) SE 6% Kyocera Panasonic NEC Others SE ODMs Other ODMs (Arima, (Dbtel, Quantra, Yuhuatel, CECW, Cellon) Flextronic) Display Mechanical Java downloadable BREW Smart PalmOne HPRIM Others Handheld Device Nokia HH ODMs (HTC) Battery Other VM Share of revenue Final assembly Electronic Assemblies Native C D M A 1 x E V D O Other CD MA 1xR TT GS W M/G C D PRS M A /ED GE Air interface High range devices, some medium Sanyo Application RTE High, medium and low range devices Share of revenue Application software Proprietary Platform Components/ Modules Techn(olog)ical architecture Siemens Others Retail and wholesale Nokia Windows Linux Platforms/Architects Device marketing GSM Symbian Infrastructure and application software Michael A M Davies 23 April 2007, Page 18 Share by # products downloaded Share of devices, weighted by the type of device B Mobile Business Ecosystem Business scale – share of 2010 15.905 spending Technology (estimated) Europe+ Europe+ North America North America JP+Korea JP + Korea China + India Strategy RoW China + India Share of spending RoW Share of units Data Demand Opportunity Consumer Voice SME Spending on mobile devices, content and service Enterprise Device Service providers Regional Operators Global Operators National Operators Share of revenue Application software Share of revenue Network operators Infrastructure and application software GSM NEC Sanyo Smart Handheld Device Mechanical BREW Battery Other VM Others Display Final assembly Java downloadable HH ODMs C CD D M M A A 1x E 1x V- RT D O T Native Michael A M Davies 23 April 2007, Page 19 Other Air interface OS Platform ODMs Electronic Assemblies Application RTE SE Kyocera Samsung ODMs (Ability) GS M/ W C GP D RS M /E A DG E Techn(olog)ical architecture Nokia ODMs (Jabil Circuit, BenQ) Siemens Panasonic Components/ Modules Samsung LG Linux Mobile devices Nokia Motorola Windows Device production Proprietary Platform Symbian Retail and wholesale CDMA Oth ers Platforms/Architects Device marketing WCDMA Share by # products downloaded Share of devices, weighted by the type of device So, business ecosystems involve related choices about niche and strategy • Leader or keystone/dominator role or niche versus secondary or follower role or niche (so-called niche) – leaders shape architecture - how components, and hence companies, fit together – leaders invest in platforms to improve overall system performance or economics of others – secondary or followers occupy niches defined by leaders or keystones • As a leader, key trade-off between creation and capture – how much to share, to grow overall ecosystem – how much to do oneself - scope of activities – bigger pie, smaller slice vs smaller pie, bigger slice (Business) Niche 1. a situation or activity specially suited to a person's interests, abilities, or nature 2. the position or function of an organism in a community of plants and animals 3. the status of an organism within its environment and community (affecting its survival as a species) Technology businesses, in ecosystems, must capture value, just as much as create value Challenge • Need complements, and hence complementors, to construct a complete offer • Most players have broad range of possible activities • In high-tech, many activities draw on similar underlying skills • Innovation is typically rapid, eroding leadership Capture • Complementary assets – unique manufacturing capacity – brand – channels • Knowledge assets – patents, copyright – trade secrets – tacit knowledge The resource-based view explains how a company’s resources drive its performance • “Companies are very different collections of physical and intangible assets and capabilities. No two companies are alike because no two companies have had the same set of experiences, acquired the same assets and skills, or built the same organizational cultures.” • Substitutability – not trumped by something different • Superiority – distinctive competence – better than competitors from customers’ perspective • Inimitability – hard to copy • Durability – does not depreciate quickly • Appropriability – bound to the business • Dynamic capabilities OK, so where does inimitability come from? • Physical uniqueness – real estate location, mineral rights – unique manufacturing assets(?) – location, location, location • Path dependency – because of what has happened in their accumulation – must be built up over time – brand name • Causal ambiguity – cannot disentangle what it is or how to re-create it – organizational capabilities For technology businesses, knowledge assets (intellectual property) are critical to value capture • Patents – disclosed information about novel and useful invention – legal monopoly for a fixed period of time • Copyright – exclusive rights to the execution of a design, such as an innovation • Trade secrets – protect covered secrets in perpetuity – misappropriation is theft • Trademarks – right to use a distinctive sign to identify offer • Tacit knowledge – can be basis for distinctive competence – difficult to articulate in a way that is meaningful and complete – slow and costly to transmit – ambiguous, needs face-toface communication, prone to errors of interpretation – often contextually dependent – may be causally ambiguous: “so complex that the firm itself, let alone its competitors, does not understand them” Summary • Systems and business ecosystems – architecture • Co-evolution • Co-opetition: cooperation and competition – vertical competition – diverse players • Value creation – cooperation • Value capture – complementary assets – knowledge assets – distinctive competence – tacit knowledge