Technology Management MS 325: Standard Battles and Design Dominance

Technology Management
MS 325
Standard Battles and Design Dominance

Technology Cycles and Dominant Design
Why dominant designs are selected
Value of Technology
Technology Cycles
• Technological change tends to be cyclical:
• Each new s-curve ushers in an initial period of turbulence,
followed by rapid improvement, then diminishing returns, and
ultimately is displaced by a new technological discontinuity.
• Utterback and Abernathy characterized the technology cycle
into two phases:
• The fluid phase (when there is considerable uncertainty about
the technology and its market; firms experiment with
different product designs in this phase)
• After a dominant design emerges (bringing a stable
architecture to the technology), the specific phase begins
(when firms focus on incremental improvements to the
design and manufacturing efficiency).
• For example, energy production by using fossil fuel etc.
Technology Cycles
• Anderson and Tushman also found that technological change
proceeded cyclically.
• Each discontinuity inaugurates a period of turbulence and
uncertainty (era of ferment) until a dominant design is
selected, ushering in an era of incremental change.
Technology Cycles
Anderson and Tushman found that:
• A dominant design always rose to command the majority of
market share unless the next discontinuity arrived too early.
• During the era of incremental change, firms often cease to invest

in learning about alternative designs and instead focus on
developing competencies related to the dominant design.
• This explains in part why incumbent firms may have difficulty

recognizing and reacting to a discontinuous technology.

Dominant Design:
A single product or process architecture that dominates a product
category—usually 50 percent or more of the market. A dominant
design is a “de facto standard,” meaning that while it may not be
officially enforced or acknowledged, it has become a standard for the
industry.
Increased Returns to Adoption:
• The more a technology is adopted, the more valuable it becomes.
• Complex technologies often exhibit increasing returns to adoption
in that the more they are used, the more they are improved.
• As a technology becomes more widely adopted, complementary
assets are often developed that are specialized to operate with the
technology.

Two of the primary sources of increasing returns are:
(a) learning effects and (b) network externalities.
a) Learning Effects:
• Ample empirical evidence shows that the more a technology is
used, the more it is developed and the more effective and efficient
it becomes.
• One example of learning effects is manifest in the impact of
cumulative production on cost and productivity—otherwise known
as the learning curve.
• Examples of pizza franchises and aircraft production.
Prior Learning and Absorptive Capacity:

A firm’s investment in prior learning can accelerate its rate of
future learning by building the firm’s absorptive capacity i.e., The
ability of an organization to recognize, assimilate, and utilize new
knowledge.

(b) Network or Positive Consumption Externalities:
• The benefit from using a good increases with the number of other
users of the same good.
For example: railroads, telecommunications.
• Network externalities can also arise in markets that do not have
physical networks. For example, a user’s benefit from using a good
may increase with the number of users of the same good when
compatibility is important. The number of users of a particular
technology is often referred to as its installed base.
For example: Windows operating systems and compatibility of files.
• Network externalities also arise when complementary goods are
important.

(c) Government Regulations:
• Sometimes the consumer welfare benefits of having a single
dominant design prompts government organizations to intervene,
imposing a standard.
For example: GSM 1400/1900 ; TV and Satellite Frequencies.
(d) The Result: Winner-Take-All Markets:
Natural Monopoly. e.g. Tesla
Introduction
Class Activity 1
Are dominant designs good for Consumers? Competitors?
Complementors? Suppliers?
Multiple dimensions of value

Technology Stand Alone Value -> Functions, Aesthetics , Ease of Use.
To overcome previously adopted technology , a new technology should
have dramatic improvements and compatibility with existing installed
base.
Buyer Utility Map:
It is important to consider six different utility levers, as well as six stages of
the buyer experience cycle, to understand a new technology’s utility to a
buyer.
The stages identified are purchase, delivery, use, supplements,
maintenance, and disposal.
The six utility levers considered are customer productivity, simplicity,
convenience, risk, fun and image, and environmental friendliness.
Creating a grid with stages and levers yields a 36-cell utility map. Each cell
provides an opportunity to offer a new value proposition to a customer.
Value of Technology
• Network Externality Value -> Size of Technology’s Installed Base
and Availability of Complementary goods.
For Example: NeXT personal computers. Sony and Philip’s super audio
CD players.
What Users Compare in New and Old Technology

(Actual , Perceived and Anticipated Values of Technology)
• Objective information;
actual benefits, installed
base and complementary
goods
• Subjective information:
perceived benefits, base and
complementary goods
• Expectations: anticipated
benefits, base and
complementary goods
• Use of Vaporware tactic
A Battle Emerging in Mobile Payments

1. What are some of the advantages and disadvantages of mobile
payment systems in (a) developed countries and (b) developing
countries?
2. What are the key factors that differentiate the different mobile
payment systems? Which factors do consumers care most about?
Which factors do merchants care most about?
3. Are there forces that are likely to encourage one of the mobile
payment systems to emerge as dominant? If so, what do you think
will determine which becomes dominant?
4. Is there anything the mobile payment systems could do to increase
the likelihood of them becoming dominant?
5. How do these different mobile systems increase or decrease the
power of a) banks, b) credit cards?

Technology Management MS 325: Standard Battles and Design Dominance

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Technology Management

Standard Battles and Design Dominance

Technology Cycles and Dominant Design

Why dominant designs are selected

• During the era of incremental change, firms often cease to invest

• This explains in part why incumbent firms may have difficulty

Why dominant designs are selected

Why dominant designs are selected

Why dominant designs are selected

Prior Learning and Absorptive Capacity:

Why dominant designs are selected

Why dominant designs are selected

Multiple dimensions of value

What Users Compare in New and Old Technology

A Battle Emerging in Mobile Payments

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