Marketing of High-Technology
Products and Innovations
Chapter 7:
Product Development and
Management Issues
in High-Tech Markets
Chapter Overview
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Technology development
“What to sell”
Product modularity, platforms, and derivatives
New product development teams
“Stopping” rules in new product projects
Developing services
Intellectual property
© Mohr, Sengupta, Slater 2005
Technology Maps
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Define a stream of new products
(breakthrough + incremental) company
plans to develop over time.
Used for:
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Commitment to new product
development
Allocation of resources
A flexible blueprint that must be
updated regularly
© Mohr, Sengupta, Slater 2005
Technology Map
1 Technology Identification
On-going Management
4 - Modularity
- Platforms and derivatives
- Teams
- Killing pro jects
- Developing services
- Intellectual property issues
Decide on needed technology
2 additions
- Internal deve lopment (Make)
- External acquisition (Buy)
- Partner to co-develop
Decide on "What to Sell"
3 strategy
- License vs. full
commercialization
© Mohr, Sengupta, Slater 2005
1. Technology Identification
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Inventory of firm’s valuable know-how that
may be sources of revenue generation
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Products
Processes
 Such as superior manufacturing skills
Management practices
 Such as knowledge management
Valuate the corporate intellectual assets
& technology forecasting
© Mohr, Sengupta, Slater 2005
e.g., Technology map of
mobile standard evolution
cdmaOne
IS-95A
IS-95B
CDMA2000 1x
IS-95C
GPRS
CDMA2000 1x
EV DO
CDMA2000
1x EV DV
EDGE
GSM
HSCSD
PDC
WCDMA
PDC-P
PHS
2G
2.5G
Key evolutionary route
3G
Less important evolutionary route
© Mohr, Sengupta, Slater 2005
e.g., Technology map of
telecom services
high
Wi -Max
VO IP
Richness
ADSL
Cable
modem
WLAN
VO IP
low
Fixed line
PSTN
low
DIY
Information
3G
2G
1G
Mobile
commerce
Mobility
© Mohr, Sengupta,
Slater 2005
high
Identify technology landscape

Scanning the important technology entities
Matter
Energy
Information
Mobility/Input e.g., mega
e.g., mega magnets e.g., mega magnets
accelerate the
trace micro magnetic
friction-less
particle sensitively
transmission
transformation e.g., mega
magnets enhance
plastic
deformation
e.g., mega magnets
promote the
efficiency of micromotor
Storage/
output
e.g., mega
magnets facilitate
the refrigeration
e.g., mega magnets e.g., mega magnets
possess energy
support MO disk for
durably
large volume of data
magnets enhance
the absorbability
of tiny molecule
© Mohr, Sengupta, Slater 2005
e.g., mega magnets
facilitate the change
of electricity/
microwave into voice
2. Decide on needed additions

What technologies does firm need to round
out its offering?
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“Make vs. buy” decision
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Internal development
External acquisition
Partnering
© Mohr, Sengupta, Slater 2005
Adding New Technology:
Focus on Development Risk

Internal Development
 New development close
to existing skills

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Confidentiality reasons
“NIH” (not invented
here): Good technology
can be developed only
internally.
Unfamiliar & untrustworthy

External Acquisition
 Someone else has already
developed
 Save time and effort
Let others take risks first
 Keep up with competitors
 Use existing brand
name/marketing
resources
Leverage & co-option

© Mohr, Sengupta, Slater 2005
3. Commercialization Decision:
“What to sell?”
Focus on Marketing Risk

Continuum of options, based on the additional
expenditures customers must incur beyond the cost
of the purchase to derive the intended benefits of
the technology
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e.g., Philips’ LCD technology
Know-how only
e.g., Nike design
“Proof of concept”
Components to OEM e.g., Cannon’s laser printer engine
Final products to end-user e.g., Acer travel mate
End-to-end solution, service bureau e.g., DoCoMo’s
i-mode service
© Mohr, Sengupta, Slater 2005
Appropriate conditions for
technology licensing
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Network externalities: more value as more
customers use a product
Quicken standardization of technological
evolution discourages other’s substitute
technologies
Firm lacks marketing skills for end-product
Major customers want a second source
© Mohr, Sengupta, Slater 2005
Lean Towards
Selling Know-How When:
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Technology lacks fit with corporate mission
Lack of financial resources to exploit technology
Tight window of opportunity and lack of speed
Market smaller than expected/business unlikely to
be profitable
When range of technologies in market is diverse
When allowing firms access to technology is most
appropriate (next slide)
© Mohr, Sengupta, Slater 2005
Lean Toward Selling EndProduct When:

Firm’s components are incompatible with
general industry standards.

What if firm competes at end-product with
incompatible product?

Hard to get third-party developers
Demanding high coordination
capability and industry leadership.
e.g., NTT DoCoMo on i-mode service
© Mohr, Sengupta, Slater 2005
Sell at Multiple Points on the
“What to Sell” continuum when
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Offering technology to competitors may
encourage industry standardization
Firm may have skills in some segments but
not others
Major buyers require second source

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Limited exploitation by a single opportunity
Diversify the product lines
To maximize rate of return on technology
investment
© Mohr, Sengupta, Slater 2005
A Caveat:
International Markets

Sales of manufacturing technology and
know-how may result in setting up a
new low-cost competitor
© Mohr, Sengupta, Slater 2005
4. On-going product management
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Modularity
Platforms and derivatives
Teams
“Killing” projects
Developing services
Protecting intellectual property
© Mohr, Sengupta, Slater 2005
Modularity

Building a complex product from smaller
subsystems that can be designed
independently, yet function together as
a whole
© Mohr, Sengupta, Slater 2005
Determine Product Architecture
The arrangement of functional elements into physical
chunks which become the building blocks for the
product or family of products.
module
module
module
module
Product
module
module
© Mohr, Sengupta, Slater 2005
module
module
Trailer Example:
Modular Architecture
box
hitch
protect cargo
from weather
connect to
vehicle
fairing
minimize
air drag
bed
support
cargo loads
springs
suspend
trailer structure
wheels
components
© Mohr, Sengupta, Slater 2005
transfer loads
to road
functions
Trailer Example:
Integral Architecture
upper half
lower half
nose piece
cargo hanging
straps
spring slot
covers
wheels
protect cargo
from weather
connect to
vehicle
minimize
air drag
support
cargo loads
suspend
trailer structure
transfer loads
to road
components
© Mohr, Sengupta, Slater 2005
functions
Which architecture of nail clippers
is preferred?
© Mohr, Sengupta, Slater 2005
Modular Product Architectures
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Chunks implement one or a few functions entirely.
Interactions between chunks are well defined.
Modular architecture has advantages in simplicity
and reusability for a product family or platform.
Three types of modular architectures
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Slot-modular
Bus-modular
Sectional-modular
© Mohr, Sengupta, Slater 2005
Swiss Army Knife
Product Platforms and
Derivatives
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Product platform is a common architecture
based on a single design and underlying
technology
Derivative products are versions intended
to fill performance gaps between platform
products
Proliferation of product lines
© Mohr, Sengupta, Slater 2005
Platform Strategy is
Attractive in High-Tech Markets
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Unit-one cost structures
Allows for rapid development of market
share/revenues
Speed and flexibility in going after niches:
“gap filling”
The product strategy of bowling alley
© Mohr, Sengupta, Slater 2005
Platform Architecture of
the Sony Walkman
© Mohr, Sengupta, Slater 2005
Product Platforms and Derivatives
Performance
Family 3
Family 2
Family 1
Ref. Figure 7-4 Intel’s product platform and product family
Time
© Mohr, Sengupta, Slater 2005
The product family of Intel’s
CPU
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i86 platform
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Pentium platform
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derivatives
Platform generations
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8086, 8088
80286
80386SX, 80386DX
80486SX, 80486DX, 80486DX2
differentiations
Pentium Pro, Pentium MMX, Pentium II
Pentium III, Celeron, Timna, Xeon
Pentium IV platform (Willamette, Itanium, Centrino)
© Mohr, Sengupta, Slater 2005
The Product Family for HP’s
Ink Jet Printers
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DeskJet 500 platform
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DeskJet 600 platform
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DeskJet 500C, Deskwriter 500C(color)
DeskJet 550C, Deskwriter 550C(dual pen)
DeskJet 300, 340(portable)
DeskJet 560C, 520C, Deskwriter 560C, 520C
(lower price)
Deskwriter 540C, 600C, 660C(better quality)
DeskJet 800 platform

DeskJet 850C, 855C(enterprise use)
© Mohr, Sengupta, Slater 2005
New Platform Strategy

Design for high-end of the market
Incorporate as many features as needed for
this segment
 Willingness-to-pay helps recover high fixed
costs
 Subtraction of features is lower incremental
cost than addition
 Consistent with both lead user and chasm
concepts
Keep sustainable to be the industry leader

© Mohr, Sengupta, Slater 2005
Six Modular Operators
(lessons from IBM System 360/370)
Operator
Definition
Splitting
Separating systems into
components which interact
across defined interfaces
Substituting
Switching between components
which perform the same function
Excluding
Removing a module to reduce
the functions the system can
perform
Adding a module to increase the
functions of a system
Making an imbedded function
into a stand alone module
Augmenting
Inverting
Porting
Moving a module from one
system to another
© Mohr, Sengupta, Slater 2005
Example
Interchangeable drives,
keyboards, mice, monitors,
and printers
Replacing a dot matrix
printer with a laser jet
printer
Removing a CD-ROM
player
Attaching a back-up
storage device
Having a network printer
rather than dedicated
printers
Using a Mac printer on a
PC network by adding a
translator
New Product Development
Teams

Comprised of individuals from different
functional areas such as R&D,
engineering, manufacturing, purchasing
and marketing
© Mohr, Sengupta, Slater 2005
Performance of NPD Teams
Information
integration
+
Product quality
Quality
orientation
+
+
+
Product
innovativeness
Team identity
+
Encouragement for
risk-taking
+ Customer
influence
+
Monitoring by
senior
management
© Mohr, Sengupta, Slater 2005
Rewarding NPD Teams
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Reward team as a whole
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Seniority
compensation
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Share reward equally among team
members
Share reward based on position or status
Reward individual team members
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Process-based
Outcome-based
For uncertain development outcome
For complex product
development process
Hybrid rewarding mechanism
© Mohr, Sengupta, Slater 2005
When to “Kill” New Products?
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Escalation of commitment
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Product champions and technology
enthusiasts are perennial optimists
Personal stake in project
Biases in interpreting information
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Recall information that confirms beliefs
Ignore information that disconfirms beliefs
Re-interpret neutral information as positive,
and even negative information as positive!
© Mohr, Sengupta, Slater 2005
More information is not the
answer!
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Foster internal culture that encourages open questioning
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Remove project from core of the firm
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Prepare key stakeholders for impending changes
“De-couple” withdrawal decision from prior investments
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Attend to negative feedback
Re-examine, review, and redefine the problem
Search the alternative course of action
A team of “exit-champion” for pulling the plug
Different manager making the “killing” decision
Rely on benchmarks established at outset

Prepare “out of play” information closely tied to those with a vested
interest in the project
© Mohr, Sengupta, Slater 2005
Developing Services:
Intersection of Technology & Service
“High-Tech”
The corporate
produces
2
1
which complements
with necessary
Service
Product
3
4
“Low
- Tech”
© Mohr, Sengupta, Slater 2005
Intangibility
Inseparability
Cell 1: Augment Product with
Service
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Generate service revenue after product purchase
Training, repair, maintenance contract
Does company have sufficient trained service
personnel?
Can company develop proficiency in service without
losing core competence in product innovation?
The vendor of service value layer embraces much more users’ added on value, and
sticks to the end users. Therefore, the service complements may slow down the
influence of the vendor of installed base to them.
© Mohr, Sengupta, Slater 2005
Cell 2: High-Tech Service
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Contract research, IT consulting, service provider
Can technical service personnel communicate with
customers in user-friendly ways?
Can service reliability of underlying technology be
maintained?
Does company make continuous investments in
upgrades?
Does company invest adequately in training service
personnel?
© Mohr, Sengupta, Slater 2005
Cell 3: Low-Tech Product

Use technology
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Improve customer service
Make supply chain more efficient
The issue of corporate adoption of technologies
to facilitate the operation efficiency
The business transformation of purchasing corporate
© Mohr, Sengupta, Slater 2005
Cell 4: Low-tech Service

Substitute automation for labor in
improving customer service or supply
chain efficiency
The issue of customer facing and adoption of
self-service technologies, e.g., ATMs
The designing of user-friendly interface
© Mohr, Sengupta, Slater 2005
External customer-facing
technology solutions
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Are customers comfortable using the technology?
Have they been adequately trained?
Does technology add value or make customers
resentful?
Do customers miss human interaction?
Do customers have access to technology?
What else must the company offer to make value
compelling to customer?
© Mohr, Sengupta, Slater 2005
Internal technology solutions
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Are employees willing to embrace
technology?
Have they been adequately trained?
Have business processes been
redesigned (re-engineering) to realize
the potential of technology?
© Mohr, Sengupta, Slater 2005
Intellectual Property


“Original works that are creations of the
mind” which the originator has the right to
earn an economic return from
How to protect it?
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Patents
Copyrights
Trademarks
Trade Secrets
© Mohr, Sengupta, Slater 2005
Patents

Confer owner the right to exclude others from
making, using, or selling product or process for
specific time period

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In U.S., 20 years from date of filing
Three criteria invention must meet to be
patentable:
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Useful: perform some function that benefits humanity
Novel: no prior evidence of invention exists
Nonobvious: no suggestion of invention exists, even
when multiple writings are combined
© Mohr, Sengupta, Slater 2005
Two Types of Patent
Applications in U.S.

Provisional:
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$160, 1 year time frame to “hold”
Allows inventor to do further research
Establishes a “priority date” of invention
Utility:
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$750 for examiner to render a decision
Granted or denied; applicant can appeal or refile (another $750)
© Mohr, Sengupta, Slater 2005
Disadvantages in Using Patents

Patents are public information
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Patent owner must enforce rights

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Eighteen months from time of filing in the US
Competitors may “invent around” patent
Keep watch that competitors and others are
not “infringing” the patent
Costly!
© Mohr, Sengupta, Slater 2005
New Issues with
Patent Protection

Can now patent “business methods”

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Effective July 1998
Implications:
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Patents on E-commerce business models/methods
Patents on medical treatment methods
© Mohr, Sengupta, Slater 2005
Tension in Granting
Intellectual Property Rights

Foster creativity and “common good”

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Give inventors incentives (exclusive rights to
revenue from their inventions)
Inhibit creativity and consumer welfare

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Slow spread of valuable commercial innovations
Lack of competition and access
© Mohr, Sengupta, Slater 2005
Steps in Granting Patents

Hire patent agent

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Assess state of prior art:

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
Provide thorough, accurate understanding of
invention
Is the idea truly novel? Patentable?
Draft the claims to define the boundaries of
the invention (scope of patent)
Draft drawings and application in easy-tounderstand terms (licensable)
© Mohr, Sengupta, Slater 2005
Trouble Spots in Patent Protection

Inventor has previously disclosed idea prior to
filing application
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At a conference, with investors, etc.
Fatal in foreign protection
US grants one year “grace period” from disclosure
Even with a patent, inventor cannot practice
invention if it infringes on patent rights of
others (overlap on scope of patenting)
© Mohr, Sengupta, Slater 2005
International Filing Under Patent
Cooperation Treaty (PCT)
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
File within 1 year of national application to claim
priority back to original filing date
PCT enables filing one application in home language
which is acknowledged as a filing in all member
countries that the applicant designates
PCT application published 18 months after priority
date
At applicant’s option, PCT examiner will issue
international “search” report and/or preliminary
judgment of patentability
© Mohr, Sengupta, Slater 2005
International Filing Under PCT
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
PCT application enters designated countries
and goes before examiners in each
Translation is required, with fees
Rights must be enforced in each country
© Mohr, Sengupta, Slater 2005
Patenting Costs
U.S. PATENT COSTS
Application preparation
$8,000-16,000
Searching/patentability
PTO fees for “late”
responses
Issue fee
TOTAL
FOREIGN PATENT COSTS
$2,000-4,000 PCT filing fee
Entry into national
$110-1970
countries
Examination in
$1300
country
$12,000-25,000
PER COUNTRY
FEE
© Mohr, Sengupta, Slater 2005
$2,000-3,000
$2,000-6,500
$1,500-8,000
$3,500-14,500
Copyrights

Protect tangible form or manner in which idea is
expressed, not the idea itself.



Grants inventor right to reproduce and distribute
copyrighted works
Term is:



Example: software code
Life of author + 50 years -orShorter of 75 years from publication or 100 years from
creation of work
Easy to obtain ©

Register with US Copyright office in case lawsuit is filed
© Mohr, Sengupta, Slater 2005
Trademarks


Names, symbols, devices to distinguish/
identify goods
Protects firm against unscrupulous
competitors who try to deceive/mislead
customers
© Mohr, Sengupta, Slater 2005
Trade Secrets

Any concrete information that:

Has commercial value


Secret


generally unknown
Not easily ascertainable


useful to company
Developed at some expense
Provides competitive advantage
© Mohr, Sengupta, Slater 2005
Trade Secrets (Cont.)


Financial, business, scientific, technical,
information including patterns, plans,
compilations, formulas, designs, methods,
programs, etc.
To be granted “trade secret” protection,
firm must take reasonable steps to
protect information
© Mohr, Sengupta, Slater 2005
Premises on the notion of
confidential relationships

Nondisclosure Agreements (NDAs)


Noncompete Agreements


Signer will not disclose information
Signer will not establish/join a competitor’s
firm within a given time frame/territory
Invention assignment clauses

All rights of employees’ inventions are
granted to the firm/employer
© Mohr, Sengupta, Slater 2005
Patents or Trade Secret
Protection?

Patents When:



Product will have long
market life
Protection can/will be
enforced
Corporate policy (the
business of technology
creator and licensor)


Product can be
reverse-engineered
Trade Secrets When:




Secret not eligible for patent
protection
Product life cycle is short
Patent would be hard to
enforce
Secret is not detectable in the
product (via reverse engineering
for example)
© Mohr, Sengupta, Slater 2005
Effective Proprietary Information
Programs

Focus on employees


Look to senior managers’ behavior



Morale
Stand behind security programs
Share information on a need-to-know basis
only
Have minimal use of information for power/
politics
© Mohr, Sengupta, Slater 2005
Effective Proprietary Information
Programs




Have a stated policy that is enforced via
monitoring
Acknowledge communication based on
geographical/professional/friendship ties
Use caution in sharing information in partnering
relationships (including nondisclosures)
Have awareness of competitive intelligence tactics
of other firms
© Mohr, Sengupta, Slater 2005
Economic Espionage Act (1996)



Stealing trade secrets is a U.S. federal criminal
offense
Maximum punishment for U.S. citizens stealing for
U.S. companies is 15 years in prison or a fine of
$250,000
Maximum punishment for an agent of a foreign
government or company is 25 years in prison or a
fine of $250,000
© Mohr, Sengupta, Slater 2005
Managing Intellectual Property

An asset base that deserves strategic
focus


Licensing unfitted patents as a revenue source
Patent inventions that fit business strategy


Repackaging patents
Donating unneeded patents to nonprofit
organizations for a tax write-off
© Mohr, Sengupta, Slater 2005