3 LifeCycles

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Published on January 4, 2008

Author: luie

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Slide1:  SPRU Masters - Spring 2003 managing innovation in complex products and systems Andy Davies Life cycles, firm strategies & industrial evolution Slide2:  Explanations of innovation and industrial evolution Product life cycle - industries evolve from birth to maturity (typical of mass production industries) Different pattern in CoPS Case study of mobile communications system Ericsson's strategies Overview Slide3:  (page xvii, James Utterback, 1994) Fluid Phase Transitional Specific Phase Phase Product innovation Process innovation Product life cycle (PLC) Rate of Major Innovation Dominant design Slide4:  'The fundamental architecture of the automobile was achieved by roughly 1925 - an enclosed steel body mounted on a chassis, powered by an internal combustion engine. And by the end of the 1930s, improvement in product characteristics had virtually ceased' Mowery and Rosenberg, p57, Paths of Innovation, 1998) 'The auto industry can be described as technologically stagnant in terms of its product. Cars are not fundamentally different from what they were in 1946' (White, p258, 1971) PLC example Slide5:  Periodic waves of radical innovation New firms invade the traditional industry Technical change is 'competence destroying' Industry shakeout Established firms develop the capabilities and learning to bridge discontinuities Discontinuities explain consumer goods: decline of US and EU rise of East Asian suppliers Technological discontinuities Slide6:  'This situation of limited product variety and innovation began to change during the 1970s…By the late 1970s, leading Japanese automobile firms such as Toyota and Honda had perfected new techniques for production organisation and product development that made possible the creation and manufacture of a broader variety of higher-quality products than were available from US producers' Mowery and Rosenberg, p57-8, Paths of Innovation, 1998) Example of a discontinuity Slide7:  Explains mass production industries Influenced how the West should respond to East Asian challenge (e.g. cars, PC) Critics of life-cycle models Problems with biological analogies: 'development of firms does not proceed according to the same 'grim' laws as living organisms' (Penrose, 1952) Inter-industry & sectoral differences in innovation (Pavitt, 1984) PLC - strengths & weaknesses Slide8:  PLC doesn't apply to CoPS: 'In other industries (e.g., military and commercial aircraft, large turbine generators), automated mass production is never achieved and most innovation is product-oriented' (Michael Porter, p194, Competitive Advantage: 1985) 'high volume, process intensive stages of the product life cycle may never occur…Thus competitive strategies are likely to centre upon the design and development 'stages' of the conventional product life cycle' (Miller and Hobday et al, 1995) PLC in CoPS? Slide9:  No dominant design in the conventional sense Long-term stability at the systems integrator level - despite technological discontinuities Technical change is not necessarily competence destroying Innovation in CoPS Slide10:  Mobile handsets (consumer goods) An assembly designed, mass produced & marketed in high-volume to the final consumer Mobile networks (CoPS) A system designed, implemented and configured for mobile operators Subsystems: radio base stations, base station controllers, switches, operationg systems, data bases Case of mobile communications Slide11:  Base station Base station Controller (BSC) Mobile switching centre (MSC) Mobile switching centre (MSC) Subscriber data base Roaming data base Base station Controller (BSC) Base station Base station Base station Base station Base station Mobile communications system Slide12:  Switching subsystem Base station controller Radio base station Mobile handset Operating subsystem Products Production Users/markets Mass produced High volume CoPS unit, small batch, large batch production of subsystems & components Project-based design & implementation of systems Consumer goods Mass marketing to final consumer Business-to-business Business users heavily involved in design and specifications Firms Ericsson Motorola Lucent T. Nortel NEC Siemens Nokia Alcatel Samsung Qualcomm Nokia Sony/Ericsson Motorola Samsung, etc. Slide13:  ‘European suppliers…must reach levels of efficiency in production achieved by Asian manufacturers of high-volume consumer goods. The associated dynamics of manufacturing design and marketing of products with short life-cycles must also be mastered’ (CEC, Green Paper, 1994) Established suppliers - market share (2001) Nokia (35%), Motorola (14%) and Ericsson (7.5%) New competition from East Asia Samsung (6.6%), Panasonic (4.6%), NEC (3.3%) Mobile handsets - PLC dynamics Slide14:  Generations of mobile systems Slide15:  1981-83 1992-5 2001 NMT GSM W-CDMA CDMA CDMA2000 AMPS D-AMPS 1G 2G 3G Significant technological evolution Limited technological evolution Technical standards Slide16:  New system generation phase Architectural phase Rate of Major Innovation Archictectural innovation R&D efforts Development of standards Component & systemic innovation Product design and manufacture Project development and implementation Life cycle dynamics Slide17:  Vertically-integrated telecoms manufacturer (fixed and mobile networks) Delivered world's first mobile system in 1981 World ranking in 2001 No. 1 supplier of mobile networks No. 3 supplier of mobile handsets Ericsson Slide18:  Strategic focus - 1970s & 1980s Traditional focus on fixed telephony (AXE digital switch) Mobile unit - small, autonomous, entrepreneurial, but marginal Early 1980s - Ericsson becomes a provider of complete integrated systems in mobile telephony 'whole package' of switches, base stations and cell plannning Environment Benefits from rapid adoption of NMT standard Small home market encourages expansion abroad (USA 1983) Quick to take advantage of liberalised markets (e.g. Vodafone UK 1983) Ericsson - 1G systems Slide19:  Mobile systems become strategic In 1994 Radio Communications over 50% of Ericsson's sales & 30% of the workforce In 1997 Radio Communications 70% of total sales Expanding capabilities Only supplier to cover all technical standards for 1G and 2G systems (e.g. AMPS, CDMA) Environment EU selects GSM standard - based on NMT features GSM creates large market for Ericsson’s products GSM system - de facto world standard (mid-1990s) Ericsson - 2G systems Slide20:  The world's leading supplier 1994 Slide21:  The strategic focus narrows further Pulls out of lower-value added manufacturing (handsets) Focuses on systems integration and services Capabilities Ericsson/Nokia support W-CDMA standard W-CDMA incorporates new interface - backwards compatible with core GSM infrastructure Environment Ericsson involved with NTT DoCoMo consortium to develop W-CDMA standard Experimental W-CDMA system in 1998; standard in Japan by 1999; Ist commercial introduction in Japan November 2001 Ericsson - 3G systems Slide22:  Large losses in handsets ($1.6bn loss in 2000) Mobile phones - over-engineered and poor design Handset division slow to recognise market trends 'They are a bunch of engineers who couldn't care less what the phone looks like' Financial Times Handset Division manufacture outsourced to Flextronics Design - alliance with Sony (20 April 2001) to provide consumer electronics expertise Ericsson's weakness - mass production Slide23:  Mobile networks - 70% sales (2000) highest R&D effort of system suppliers only supplier to cover all technical standards first supplier to introduce 1G, 2G & 3G strategic partnerships & acquisitions to fill gaps in capabilities (e.g. Qualcomm for CDMA) Strengths Systems integration, project managment and solutions (e.g. set up Ericsson Global Services) Ericsson's strength - CoPS Slide24:  Innovation in CoPS industries Doesn't follow product life cycle dynamics Stability at systems integrator level Core capabilities in systems integration and project management Other examples of long-term stability Railways (Alstom, Siemens and Bombardier) Commercial airliners (Boeing vs. Airbus) Fixed telecoms (traditional suppliers - Nortel, Siemens, Ericsson - co-exist with new IP-based entrants e.g. Cisco and Ciena) Conclusions

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