Victorious Secret present:

EBIN504: Workshop 4

Dominant Designs and

Beyond

1. Dominant Design

2. From New Technology to Mass Market

1. Dominant Design

What is a dominant design?

What forces lead some designs to become the standard for a category of product?

What are the difficulties associated with the process?

What uncertainties do manufacturers face?

How are consumers affected while the standard is emerging?

How do firms compete once a dominant design is established?

How do dominant designs shift through time?

What factors might disrupt the status quo in an established sector?

How might this affect established firms?

1.1 What is Dominant Design?

“A dominant design in a product class is, by definition, the one that wins the allegiance of the market place, the one that competitors and innovators must adhere to if they hope to command significant market following. The dominant design usually takes the form of a new product (or set of features) synthesised from individual technological innovations introduced independently in prior product variants.” (Utterback, 1996)

Image 1: The Dominant Design is not determined from a technical standpoint, but by society.

+ simple

LUCK

Dominant designs emerge after the ‘ferment’ phase that follows a major innovation.

It can occur at the level of an entire product (Henderson and Clark 1990), or at the component level (Abernathy and Utterback, 1978).

It represents a moment of relative stability before change begins again, at first incrementally (Anderson and Tushman, 1990), and later through major or radical revision which, after another period of ferment, results in a new dominant design.

Several mechanisms may lead to the emergence of a dominant design. It constitutes the best compromise

for addressing a predominant share of market demand and as such is widely imitated across the sector (Christensen et al 1998)

As a consequence of economies of scale that favor standardization (Klepper 1997)

As a consequence of network effects

TIME

Era of Ferment• Design Competition• Substitution

Era of Incremental Change• Elaboration of

Dominant Design

Technological Discontinuity #1

Technological Discontinuity #2

Dominant Design #1

Dominant designs have been documented in diverse product categories, including VCRs, nuclear reactors, automatically controlled machine tools, and watches (Utterback 1994).

Technical systems below „line of visibility“ converge to “cheapest” design

Dominant Design is also the 8th stage in the technology life-cycle.

The next few videos showcase the technology life-cycle in more detail and we found them quite interesting.

Stage Video URL

1. Origin of Idea http://www.youtube.com/watch?v=YAH4OkFKnoE&feature=relmfu

2. Proposal of Concept http://www.youtube.com/watch?v=zf34TZYRhRA&feature=relmfu

3. Verification of Concept http://www.youtube.com/watch?v=DT09EiG6Ihs&feature=relmfu

4. Laboratory Demonstration http://www.youtube.com/watch?v=I_TvwobmzAk&feature=relmfu

5. Field Trials http://www.youtube.com/watch?v=VI90HtLF9MI&feature=relmfu

6. Commercial/Operational Intro http://www.youtube.com/watch?v=7aKw7bxkI14&feature=relmfu

7. Era of Ferment http://www.youtube.com/watch?v=ulHewPH5YDE&feature=relmfu

8. Dominant Design http://www.youtube.com/watch?v=MkBUMwQX-V4&feature=relmfu

9. Era of Incremental Improvement http://www.youtube.com/watch?v=bc4w6LR_xsA&feature=plcp

10. Substitution http://www.youtube.com/watch?v=TWi7knlR0G8&feature=plcp

1.2 What forces lead some designs to become the standard for a category of product?

1.3 What are the difficulties associated with the process?

At rare and irregular intervals in every industry, innovations appear that "command a decisive cost or quality advantage and that strike not at the margins of the profits and the outputs of the existing firms, but at their foundations and their very lives" (Schumpeter,1942)

“Extraordinary innovations overthrow the paradigm” (Kuhn, 1962).

• Once a design becomes an industry standard, it is difficult to dislodge.

• Until an industry converges on a standard, no design achieves much cumulative production volume.

• Dominant design leads to crowding out of firms

Dominant Design creates safety and allows big investments without big risks.

(Nelson and Winter, 1982) – maintain that designers of a technology have at every given point in time beliefs about what is technically feasible or worth trying

further performance improvements may be either blocked or will yield diminishing returns (=>need fundamentally different design approaches) (Dosi, 1982)

focus on a specific course of design can make people blind to other options

pressure on firms to receive adequate returns on their investment managers and designers pursue pathways that promise to bring about

marketable applications

1.4 What uncertainties do manufacturers face? CONFUSION abounds in basic concepts and fundamental ideas LITTLE CLARITY on technological change and its impact on

organisational outcomes (Nelson, 1995)

The emergence of any DD foretells a period of chaotic change (market

and organizational) as it completely changes the playing field

Prior to emergence of DD After standard emerges

• Battle between variants • further technological progress is driven by inherent technological and economic forces

• Driven by social and political forces • a more consolidated community of practitioners (Hounshell, 1995)

1.5 How are consumers affected while the standard is emerging?

The early phase of dominant design is a learning process, as a result, designers or producers will focus on how to deliver new technology to consumers until they understand what core features the technology have and how to use it (Markides & Geroski, 2004). Markides and Geroski also considered that the learning process is consistent with the learning curve, which implies that consumers’ cognition about the new product or services will be mature as time goes by.

Consumer perception is a crucial principle that can link new technology and consumer more effectively. When a new product or service forms a trend, most of consumers will debate about what new product or services should or could do, and also will compare with their own expectation.

As for innovators and early adopters, they are enthusiastic to share their own ideas and experiences with other potential consumers, which will speed up the learning process.

Meanwhile, the sets of standard can reduce consumers’ uncertainty related to the dominant designs, so that the majority of consumers will consider them as products that they should purchase (Raji,Gary & Arvind, 2006).

Eventually, consumers already gain, to some extent, knowledge, purchasing as well as user experiences, which enables producers to lock in consumers and reduce competition from potential competitors and other alternative products or services (Markides & Geroski, 2004).

Learning Curve

Interestingly, most successful firms are colonizers, they accurately find “inherent possibilities” in the new technology, the consumer perception and enter the industry at the right time (Markides & Geroski, 2004).

Besides, Tushman and Anderson (1986) considered that when a new product category forms, important for a firm is the rate of product variation, which aid in its competition for dominance.

The competition of same design changes from rival design to rival variants.

In order to differentiate the core products form same platform, firms tend to seek market segments that they extend the product family and more limit the variety of products and the scope of market than the early phrase of dominant design (Markides & Geroski, 2004). Products have more distinguishable features and functions with other similar products, which, based on same price, consumers are much easier to compare and decide their preference of a product (Markides & Geroski, 2004).

! But Markides and Geroski also pointed out that sometimes an emerging dominant design, depending its strength, shift from a niche market to a mass market, which makes it more attractive to new and potential consumers.

1.6 How do firms compete once a dominant design is established?

“First-mover advantages are almost permanent competitive advantages that early movers can realize and use to protect themselves against the competitive threats of later-moving, imitative entrants.” (Markides & Geroski, 2004, p54)

At the beginning, leading firms in the market go down the learning curves swiftly, they seek scale economies to reduce product cost and create large cost strength to defend their leading position. Meanwhile, these pioneers over the learning process brand their products and services and build up relationships with consumers. The reputation leads these firms to win more competition. (Markides & Geroski, 2004).

When the firms enter into original variants of the products, the dominant designs will emerge after a series of experimentation and investments from companies.

At first, it might produce competition then the product innovation shifts to improving the production process for the

dominant design. The results causes the increasing of process innovation, but the products

innovation decrease. After that, it becomes harder that participating in other new variants of the

products and the exit of process innovation also decline. Finally, the process leads to a shakeout.

1.7. How do dominant designs shift through time?

1.8. What factors might disrupt the status quo in an established sector?

The new innovation is the main reason to speed up changes in the currently situation towards many companies, such as new skill, new product or process innovation. However, the strong organizations embrace challenges and ultimately thrive. A dominate design is standardization with a dramatic breakthrough that would threaten the status quo for companies. When dominate design happens, it will trigger the companies change to deal with this opportunity or threaten.

The emergence of a dominate design is a vital step to create a new market and it also bring out the consolidation into the market. These leading companies will survive, while the rest of companies might be eliminated (Constantinos and Paul,2005).

EXAMPLEFlash Memory Industry; there are various type of flash memory cards and only suitable for different 3C product. However, if a sort of flash memory technology will be invested and it smaller and cheaper than existed ones, it might replace other flash memory cards and become standardization soon.

1.9. How might this affect established firms?

The firm with dominant design will become main trend in the market; even if it is a new company, because more and more customers tend to buy products from it. People always have a myth that the company which produced the product they want to buy firstly is the best one, so they might choose this brand certainly. According to this, dominant design will form centralized market share highly.

On the other hand, dominant design causes other companies which still use old-fashioned technologies fail, the appearance of dominant design declined the number of company in this industry, and the rest of firm not only usually attend this area earlier, but also has quite large size. In addition to the appearance of a dominant design, it is impossible to consolidate markets. Dominant design could give the standard in the special area; it means most of companies need to change their dimension to fit for the standard..

EXAMPLEFlash Memory Industry; Flash memory is a good alternative storage device and it can be used in a wide range of portable electronic devices such as digital cameras and mp3 players. Several companies produce various types of memory cards all with different dimensions and the different products are not interchangeable. As we can see from finger1, in 2007, there is no any market share in SmartMedia(SM) card because this product is out of date in many aspects such as access-speed, weight and size.Follow by the development in SD Card which created in 2000, it has got booming in flash memory market recently so that there is a trend that many 3C Manufacturer will produce product which follow by this standardization in order to be compatible with others.

EXAMPLE (continued)

2. From New Technology to Mass Market:

Why does the technically most efficient product not always emerge as the market standard?

Give some examples of when this has happened – begin with those given in the chapter are there others you are aware of?

What do you see as the key reasons why the VHS dominated the VCR market? Are there any parallel battles going on currently –give examples you are familiar with.

What impact do consumers have on the emergence of dominant design?

How do companies link core products and complementary products/services and why is this important? Give some examples explaining how they have affected the competitive performance of companies.

2.1 Why does the technically most efficient product not always emerge as the market standard?

Sometimes it is a satisfying design in terms of technical possibilities that is propelled by the accommodation of commercial interests between suppliers, users, and competitors (Anderson et al 1990; Basalla 1988), for example IBM and Intel’s decision to share know-how for blade servers may be an attempt to hasten the emergence of a dominant design, or VHS being cheaper to make led to more companies adopting it, despite Betamax’s superior design.

The chart shows things that need to happen in order for a dominant design to emerge (in this example, with regards to genetically modified foods).

Just like innovation isn’t just about inventions, dominant designs are not always about superior features.

It is interesting to note that some of the stages involved the public relations and marketing of the product. As well as researching what the end user values and what they will be willing to adopt. People didn’t want to retrain how to type, which is one reason why the Dvorak keyboard failed, despite its superior design.

2.2 Give some examples of when this has happened – begin with those given in the chapter are there others you are aware of?

Example ImageThe Colour Fax – Faxes are still widely used today thanks to the fact that many documents still require a signature. The colour fax machine however never really took off, despite being superior to it’s black and white counterpart. The first one was available in 1946, the main problem was that a lot of people already had a black and white one, so it was a non-starter. Even if a consumer bought one, it would only work if whoever they sent or received faxes from also had one.

Videophones – Although they are popular now thanks to smart phones and the internet, when they were introduced into the commercial market back in the 1950’s they were a flop. At the time, a lot of companies thought it would become the dominant design and create a revolution in face to face interaction. However even when the phones became affordable, they found that the users rarely looked into the camera. Nobody wanted to worry about how they looked each time the phone rang.

The Segway - The product was very clever and it functioned fairly well, the company had a lot of funding and the amount of mass media coverage was astounding, so what went wrong? It’s expectations (partly due to the media coverage) were blown way out of proportion, a piece of technology that people thought would rival in significance the internet or the PC. It was a clever piece of technology, but not a solution. How do you park it? Charge it? Do you drive it on the pavement or road? The infrastructure available did not support the product. There was no compelling target market, as there wasn’t any real need for it. It was an invention rather than an innovation, the inventors patented the product and kept it in the dark so much that they were surprised at the public calling it “dorky”.

2.3 What do you see as the key reasons why the VHS dominated the VCR market? Are there any parallel battles going on currently? –give examples you are familiar with.

Sony's Betamax video standard was first commercialized in 1975, followed a year later by second mover JVC with their VHS. Amazingly it took around 10 years of battling before VHS stood as the winner.

Interestingly VHS’s dominance is not attributed to technology as Betamax had arguably the technical superiority of the two, but rather to a combination of other factors

Firstly, Sony's owner, Akio Morita, stated that they had difficulty and disputes with regards to the licencing of the product, which slowed the growth of Betamax and allowed VHS to gain a foothold in the market.

VHS machines, were much cheaper to manufacture and so would look a lot more lucrative for companies deciding which format to back. From the consumers perspective the most immediate difference at the time was the difference in recording length. Typical Betmax tapes would record for around 60 minutes, not enough to record an entire movie. VHS however could record up to 3-hours, perfect for movies or a television series. Sony later offered solutions but it was too little, too late.

Some people argue that pornography was also a deciding factor. Sony did not allow this kind of content on their Betamax whilst it was readily available on VHS (Argawel et al, 2002)

http://www.youtube.com/watch?v=FYQt0xi9PRM

Recommended YouTube Video:Betamax vs VHS emergence of dominant design

A new fight is on the horizon between the west coast tech giants Apple and Amazon, regarding e-publishing between Apple’s iBooks and Amazon’s Kindle. It could be said that the real battle that is taking place is their underlying formats: EPUB 3 and KF8.

Amazon, on the other hand, has gone solo with their KF8 (Kindle Format 8). It replaces .azw, essentially the .mobi format with added DRM. Amazon’s KF8 is much more versatile than EPUB. Currently it is only available on the Kindle Fire, but Amazon has plans to port it back to their e-ink Kindles and to the Windows version of their e-reader.Apple is the underdog in this fight with their iBooks sales dwarfed by Amazons e-books, but all that could change with the release of Apples new hardware this week.

EPUB has surfaced as the unofficial but widely accepted open format among publishers. Apple cleverly chose EPUB as it’s format for iBooks, and the format is used in countless other e-readers and devices (e.g. Nook).

2.4 What impact do consumers have on the emergence of dominant design?

Dominant designs are the innovations of thought and imagination to modify the design of the product or service which may or may not succeed in market. There is a great impact on consumers on emergence of Dominant design, as the name itself point towards positive improvement to be dominating. The Dominant design not only shows an improvement in its physical design but also the technology behind its use is modernized. Viz. the black/white television set in early 50s – 60s were very bulky and the picture quality was bad are compare to the slim and sleek LED television with High definition picture quality

This creative change in design and technology provoke consumers to buy product.

Further, not only the dominant design play important role but technology also the technological change in product where consumer is experiencing new features, easy to use, compactness and its competency which had a greater impact on the consumer buying behaviour towards new product and adapt its design.

Commenting on the other product dominant designs like QWERTY keyboard, petrol, Pen, Bulb, Telephone etc. are great designs of its kind which have changed the lifestyle of the consumer drastically.

2.5 How do companies link core products and complementary products/services and why is this important? Give some examples explaining how they have affected the competitive performance of companies.

Core Product Complementary ProductThe product which is underlying consumer benefit(s) offered by some of the actual and augmented components combined together. There are desires and want we expect from the product we purchase

Example:- What are benefits of the Perfume? I guess Women don’t need the spesicif color of perfume or the shape of the bottle of perfume but the smell of the perfume is much more important which make them feel more attractive and confident.

The product which is closely related to the core product, people are encouraged to buy the complementary product with the core product. Complementary goods are the opposite of substitutes: Demand for a good will fall if the price of a substitute is reduced

Some of the complementary and core goods: Car and Petrol, Fan and Electricity, Pen and Ink, Fish and chips.

There is a direct as well as an indirect link between core and complementary products. Most companies sell both types of products, but some of them do not sell the complementary products.

EXAMPLE: Kellogg’s do not sell their complementary product i.e. milk,

Car companies do not sell petrol where as “Camel” sell pen and ink under same brand.

It’s not always that the company sells its complementary than its core product, it do affect the competitive market.

The rise in price of Oil and Petrol affects the Automobile industries.

The demand of the core product declines due to rise in prices of complementary product.

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