Crossing the Chasm

Crossing the Chasm: “Operationalizing factors that influence the transition of disruptive innovation to the mainstream market�

"There is a tide in the affairs of men Which taken at the flood, leads on to fortune; Omitted, all the voyage of their life Is bound in shallows and in miseries."

William Shakespeare, Julius Caesar, Act IV, Scene 3: Within the tent of Brutus

Master Thesis

student nr.: 290676

study: Management of Innovation

e-mail: rdekramer@gmail.com

university: RSM Erasmus University

phone: +316 11276263

location: Rotterdam, the Netherlands

Coach: Ir. Maarten Dirks

author: Ing. Remco Jan de Kramer

Co-reader: Dr. Elko Klijn

MASTER THESIS

CROSSING THE CHASM

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CROSSING THE CHASM Abstract

Purpose of the study – Geoffrey A. Moore’s crossing the chasm theory (2002) needs to be empirically validated and in order to become fully accepted by academics and optimally used as a strategy tool by practitioners. Well-researched theory benefits us because it brings predictability to the events occurring around us allowing to generate strategies to accomplish desired results. Theory only brings predictability when it is shown whether and why the same causal mechanism might result in different outcomes, depending on different categories or circumstances. The unit of analysis is the high-technology organization in the process of commercializing disruptive / discontinuous innovation. The analysis period is either retrospective to the period in which the chasm was crossed, or prospective.

Design/methodology/approach – This descriptive study will generate a conceptual model describing internal and external factors that influence if the organization crosses the chasm separating the early adopters from the early majority on the technology adoption lifecycle. A qualitative content analysis (theoretical validation) consisting of a multitude of scientific studies and theories will reveal support, complement, and increase understanding of the factors. To be able to empirically validate the conceptual model, the factors will be operationalized into question sets, which will enable testing on a multiple case-study basis.

Research findings – It can be concluded that proof was found in the theoretical validation for the conceptual model through linking claims of various scholars to Moore’s chasm theory. The empirical research proved that the model is generalizable to various contexts as most findings were in analogy with the conceptual model. In some areas the model did not perform in accordance with expectations. This could be attributed to the context dependency of the model. Possible opportunities for future research, to increase the explanatory power, could be an extension to multiple versions of the model optimized for different organizational and market environments.

Research limitations/implications – The research will contribute to the credibility of the chasm theory. This is relevant to the scientific community since the result of this study could form the groundwork to scientifically prove the chasm theory. A limitation of the study is the rudimentary basis on which the conceptual model was empirically validated.

Practical implications – The research contributes to practitioners in a way that the model can function as a tool to systematically and holistically analyse the organization. The analysis could form the foundation for company management or consultants to implement or advise upon changes in strategy. These changes would favourably influence an organizations transition from operating in the early- to the mainstream market hence; crossing the chasm.

Originality/value – In contrast to similar studies this research will constitute a holistic approach analysing the chasm phenomenon from an external and an internal perspective including all major areas of the cooperation that undergo significant change. This approach increases both usefulness and applicability of the model. By contributing to the credibility of the chasm theory and providing a strategy analysis tool, strategies to cross the chasm can be further developed, thereby potentially decreasing the innovation failure rates of innovations.

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0 Acknowledgments This thesis is the final piece to conclude my MSc. in Innovation Management (Business Administration) at RSM Erasmus University. The time spent writing this thesis has been very instructive and enjoyable. There several persons who have supported and encouraged the writing of this thesis to which I would like express my gratitude. First there is the support from the RSM Erasmus University from Ir. Maarten Dirks and Dr. Elko Klijn who respectively were my thesis coach and co-reader. With their support I was able set the right research methodology and stay on course. The enthusiasm and motivation of Maarten Dirks stimulated me on several occasions.

During the process of writing this thesis several persons provided valuable feedback that contributed to my thesis. Most prominently I would like to thank, Dr. Alexander Osterwalder, Drs. Bas van Oosterhout and Drs. Patrick van der Pijl. In addition I would like to thank Ing. Job ten Bosch and BA Simone Dolk for revising multiple versions of this thesis. To validate my research results several companies have provided me with their time and resources, namely; NOW-Mobile B.V. (Exclusive Benelux Palm distributor) and Senz Umbrellas B.V. This master thesis provides an in-depth analyses of a phenomenon to which I have become greatly intrigued and inspired ever since I conducted an internship for a high-technology company based in California’s Silicon Valley in 2003 (formerly Cyra Technologies Inc. now acquired by Leica Geosystems A.G.). In my opinion this project has greatly contributed to my ability to devise and implementing strategies for high-technology companies and manage them in the near future.

Finally I would like to thank my parents for their support to obtaining my MSc. degree by providing me with an environment, which enabled and stimulated me to do so.

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Table of Contents 0 Acknowledgments.............................................................................................................5 1 Introduction .......................................................................................................................9 1.1 Problem Statement.........................................................................................................10 1.2 Research Objective ........................................................................................................11 1.3 Relevance to Practitioners and Academics....................................................................13 1.4 Research Framework .....................................................................................................13 1.5 Research Issue ..............................................................................................................15 1.6 Research Design............................................................................................................15 1.7 Outline of the Study........................................................................................................17 2 Literature Review ............................................................................................................18 2.1 Technology Adoption Life Cycle.....................................................................................18 2.2 Disruptive Innovation......................................................................................................22 2.3 Dominant Design............................................................................................................25 2.4 Technology- to Customer Centered Approach...............................................................26 2.5 Disruptive Technology S-Curve......................................................................................28 2.6 Sales Take-off ................................................................................................................30 3 Conceptual Model ...........................................................................................................32 3.1 Aggregated Conceptual Model.......................................................................................33 3.2 External Factors .............................................................................................................33 3.3 Pre-Chasm Business Model...........................................................................................34 3.4 Post-Chasm Business Model .........................................................................................34 4 Theoretical Validation .....................................................................................................35 4.1 Market Domination Strategy...........................................................................................35 4.1.1 Customer Segments....................................................................................................35 4.1.2 Customer Relationships ..............................................................................................37 4.1.3 Communication & Distribution Channels.....................................................................39 4.2 Value Proposition ...........................................................................................................41 4.3 Organizational Building Blocks.......................................................................................44 4.3.1 Partner Network ..........................................................................................................44 4.3.2 Activity Configuration...................................................................................................46 4.3.3 Core Capabilities .........................................................................................................48 4.4 Success Metrics in Crossing the Chasm........................................................................51 4.5 External Factors .............................................................................................................54 4.5.1 Market Circumstances.................................................................................................54 4.5.2 Dominant Design.........................................................................................................55 4.5.3 Critical Mass................................................................................................................55 4.5.4 Competition .................................................................................................................56 4.6 Evaluation of the Theoretical Validation .........................................................................57 5 Empirical Validation ........................................................................................................58 5.1 Palm Inc. (PalmPilot)......................................................................................................58 5.1.1 Market Domination Strategy........................................................................................59 5.1.2 Value Proposition ........................................................................................................60 5.1.3 Organizational Building Blocks....................................................................................61 5.1.1 Success in Crossing the Chasm .................................................................................63 5.1.2 External Forces ...........................................................................................................63 5.2 Senz Umbrellas B.V. ......................................................................................................65 5.2.1 Market Domination Strategy........................................................................................66 5.2.2 Value Proposition ........................................................................................................67 5.2.3 Organizational Building Blocks....................................................................................68 5.2.4 Success in Crossing the Chasm .................................................................................70 5.2.5 External Forces ...........................................................................................................70 5.3 Apple Inc. (iPod).............................................................................................................73 5.3.1 Market Domination Strategy........................................................................................74 5.3.2 Value Proposition ........................................................................................................75

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5.3.3 Organizational Building Blocks....................................................................................77 5.3.4 Success in Crossing the Chasm .................................................................................79 5.3.5 External Forces ...........................................................................................................79 5.4 Evaluation of the Empirical Validation ............................................................................81 5.4.1 Palm Inc. (PalmPilot)...................................................................................................81 5.4.2 Senz Umbrellas B.V. ...................................................................................................83 5.4.3 Apple Inc. (iPod)..........................................................................................................85 5.4.4 Cross Case Study Analysis .........................................................................................88 6 Conclusions and Limitations .........................................................................................89 6.1 Major Research Findings ...............................................................................................89 6.2 Limitations of the Research............................................................................................90 7 Recommendations and Future Research .....................................................................92 8 List of references ............................................................................................................93 8.1 Books .............................................................................................................................93 8.2 Articles............................................................................................................................93 8.3 Various ...........................................................................................................................96 8.4 Validation Case 1: Palm Inc. (PalmPilot)........................................................................96 8.5 Validation Case 2: Senz Umbrella’s B.V. .......................................................................96 8.6 Validation Case 3: Apple Inc. (iPod)...............................................................................97 Appendix A: Generic Business Model.................................................................................98 Appendix B: Measurement Instrument................................................................................99 List of Figures Figure 1 Companies transition from the early- (A) to the mainstream market (B) ...................12 Figure 2 Graphical representation of the research framework ................................................14 Figure 3 Linking major streams of literature ............................................................................19 Figure 4 Performances of established and invading products (Utterback 1996, p. 160) .........29 Figure 5 Conceptual model at the aggregated level: business model changes and external factors and influencing crossing the Chasm.....................................................................33 nd Figure 6 Conceptual model at the 2 level: External factors influencing crossing the Chasm33 nd Figure 7 Conceptual Model at the 2 level: Pre-Chasm business model ...............................34 nd Figure 8 Conceptual Model at the 2 level: Post-Chasm business model..............................34 Figure 9 The whole product concept adapted from T. Levit (1986) & G.A. Moore (2002).......41 Figure 10 Nomura research inst., Ltd. .....................................................................................58 Figure 11 The PalmPilot connected organizer (1998) .............................................................58 Figure 12 Senz Original Umbrella ...........................................................................................65 Figure 13 Apple iPod 4G released mid 2004...........................................................................73 Figure 14 Apple iPod sales, source: www.systemshootouts.com ...........................................73 Figure 15 Different high-technology contexts in which Moore’s chasm theory yields explanatory power ............................................................................................................92 List of Tables Table 1 Segments of innovation adopters Slater & Mohr (2006), Adapted from original work of Rogers (1962), Diffusion of Innovations, re-print 2003 P. 282 – 296 extended by Moore (1991) ...............................................................................................................................20 Table 2 Pre- & post chasm value changes ..............................................................................37 Table 3 Conclusion validation case 1 Palm Inc. (PalmPilot) ...................................................82 Table 4 Conclusion validation case 2 Senz Umbrellas B.V. ....................................................85 Table 5 Conclusion validation case 3 Apple Inc. (iPod) ..........................................................87

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1 Introduction The commercialization of disruptive technology is successful when the firm leaves the early market (consisting early adopters of innovation) and establishes a strong foothold in the mainstream market (early and late majority of adopters of innovation) where its technology becomes the dominant design. The technology adoption life cycle conceptualizes this notion by describing the market penetration of any new technology product in terms of a progression in the types of consumers it attracts throughout its useful life. (Rogers, 1976) As the technology adoption lifecycle indicates; 68% of the potential consumers reside in the mainstream market, thus entering this market opens up the largest revenue potential for the firm. The critical point in this process is characterized and widely recognized in the high-tech industry by Moore (2002) as crossing the chasm. Moore has adjusted the technology adoption life cycle for disruptive or discontinuous innovations. In order to enter the mainstream market firms must cross the chasm between early adopters and early majority.

The main reason the chasm exists is the widely differing expectations and psychological profiles of the two consumer groups and the resulting different value proposition that needs to be offered by the firm. For example; the early majority seeks to acquire a productivity improvement for existing operations, the early adopter category seeks to acquire a change agent, to get an edge over its competition. The former wants revolution the latter evolution.

This will be more thouroughly explained in the literature review.

As Moore indicates many high-technology firms do not understand the transition process an organisation has to go through or fail to recognise the chasm. As a consequence the organization does not adjust the value proposition and does not make internal firm changes that facilitate the transition. As a result of which the organization does not cross the chasm, and thus fails to commercialize the disruptive innovation successfully. However, the factors that influence the transition are not only internal to the firm, several external factors exist that exert an indirect influence on how the organization should be designed and behave itself.

Academics and practitioners have long been concerned with how to market new products more effectively. One reason for this interest is the high failure rate of new products, estimated at 92% of the approximately 6.000 new products introduced each year (Rogers, 1976) Nowadays correctly managing the chasm is even more important, since the speed by which new technology are entering the market has increased, especially in fast cycle industries where the life cycle of a product may be less than two years. (Williams, 1992) Every new technologies is aimed at the early adopter category, winning over this category is a prerequisite to winning over mainstream market. However as new technologies emerge more rapidly there is less time to win over this category, allowing less room for error in this process.

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1.1 Problem Statement Geoffrey A. Moore’s crossing the chasm theory (2002) needs to be empirically validated and in order to become fully accepted by academics and optimally used as a strategy tool by practitioners. The theory was first developed in 1991, in a similarly named book; the book became widely read en quoted in the business community (Iskold, 2007). The hightechnology industry and venture capital firms accepted the theory because it is was recognizable for many technologies and organizations. The theory explained the phenomenon organisations and industries were struggling with.

Few scientific articles can be found on this specific theory in university libraries like the Erasmus Web of Science and conflicting views of the theory exist among scholars. (Literature Review § 2.1) Therefore I assumed that the theory is still under development and has to be proven scientifically, after which it will increasingly emerge in scholarly articles. Although the theory itself is yet not believed to be scientifically proven by the author of this thesis. The chasm theory does draw on a strong foundation, namely various well-established and researched theories on the development and diffusion of innovations explored further in the literature review.

Before describing how Moore’s theory can be improved we will first analyze more extensively what constitutes well-researched theory from a meta-perspective. In essence theories are contingent statements of what actions causes what results and why (Adapted from The American Heritage® Dictionary of the English Language, Fourth Edition). Well-researched theory benefits academics and practitioners because it brings predictability to the events occurring around us allowing us to generate strategies to accomplish desired results. Theory only brings predictability when it is shown whether and why the same causal mechanism might result in different outcomes, depending on different categories or circumstances.

Failure to do this will lead to a one-size-fits-all solution, without the regard for the possibility that there might be some circumstances in which strategy based on the theory is not the optimal course of action. This way of theory building is also known as the contingency approach (its importance for high-technology is emphasized by Gardner et. al. (2000)), which suggests that there is no universal set of strategies, which is optimal for all firms, and thus different strategies should be designed for different environmental contexts.

Theory-building scholars mostly struggle to define the right and relevant categorization of circumstances. Early studies almost always sort researchers observations into categories defined by the attributes of the phenomena them selves. Their assertions about the actions or events that lead to the results at this point are statements about correlation between attributes and results, not about causality. This is the best they can to in early theory-building cycles.

(Christensen, 2003, p. 14) Moore’s chasm theory explains the strategy for crossing the chasm

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from the early to the mainstream market. Moore describes attributes (mentioned as factors that constitute organizational changes in this research) facilitating the transition and he offers strategies at how to implement them in the organizational setting. The foundation for the fundamental causal mechanism (which attributes or factors lead to crossing the chasm) behind the phenomena needs to be further developed. When scientific testing indicates the same causal mechanism creating a different outcome from what is expected the theory can be further refined. Since this prompts the researcher to define what it was about the circumstance in which the anomaly occurred that caused the identical mechanism to result in a different outcome. It is in this area where Moore’s theory can to be further developed and this research aims to contribute.

To enable scientific empirical testing, to further develop the causal mechanism, the factors that influence crossing the chasm need to be further developed by operationalization and theoretical validation. The operationalization will be accomplished through analysing and categorizing factors (attributes) and making them measurable. This process of factor mapping will result in a conceptual model, which can from the groundwork to enable scientific testing of the theory. Proper scientific testing should be based on empirical and measurable evidence, subject to the specific scientific principles of reasoning. Testing will become possible because the factors will not merely be described, but also made measurable into qualitative question sets. Therefore the theory can be proven through empirical research, by testing the identified and operationalized factors in this thesis multiple cases in different circumstances with representative samples, for the high-technology industry. While this research also constitutes empirical testing it will do so on a rudimentary basis given the time constraints.

Moore (2002, p.183) indicates that he treats the chasm as a market development problem and that his dominant focus is on marketing strategies and tactics to cross the chasm. Moore mentions the impact of the chasm extends beyond the marketing organization to every other organizational discipline he briefly touches on this concept at the final chapter of the book Crossing the Chasm. This research will constitute an holistic approach to include all major areas of the high-technology cooperation that undergo critical change in order to cross the chasm e.g.; R&D, HRM, sales support, distribution and the value proposition. The unit of analysis for this research and organizations that will be analyzed based on this research is the organization in the process of commercializing disruptive technology.

1.2 Research Objective The goal of this research is to generate a conceptual model, that can be used in future research to scientifically validate the chasm theory and which in addition can be used as a strategy tool by practitioners (management consultants and senior management in the business community). An organizational analysis based on the conceptual model will provide information to guide strategy decisions regarding organizational design depending on where

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the organization resides in the technology adoption lifecycle (TALC). Possible locations when analysing the organisation: The “pre-Chasm” phase, where the model provides information on how to preventively redesign the organization to reduce problems associated with the chasm.

Inside the chasm phase to analyze the cause of lagging sales and re-design the organization accordingly, based on the sources of the problem. The “post-Chasm” phase to gain understanding of the transition the organization went through, which will among other things facilitate

organizational

learning.

However

primarily the goal of the post-chasm analysis is to provide a benchmark to indicate what needs to change within the organization. In order to generate the model changes will be mapped that occur within the organization and exert an external influence on the organization during a chasm

crossing.

The

period

has

been

graphically displayed in figure 1.

Figure 1 Companies transition from the early(A) to the mainstream market (B)

The chasm theory has its roots in the high-technology sector, while the theory can probably be generalized to other sectors, it is in this sector where its implications are most profound.

(Danneels, 2002, Slater & Mohr, 2006, Moore, 1991, 2002) The model generated in this thesis to prove the chasm theory will be focused on the high-technology sector, it is also in this industry where the empirical data to validate the model will be gathered. In order to collect data from the right source, apply and test the model to the relevant sectors, it is important that the concept of high-technology is properly defined. According to The American Heritage® Dictionary of the English Language (Fourth Edition) technology is the application of science knowledge especially in industry and businesses. The high-technology sector is defined by the Organization for Economic Co-operation and Development (OECD) as a sector having a high R&D-intensity. Where R&D intensity constitutes the percentage of R&D expenditures in relation to total sales volume. The exact definition of “high intensity” can differ, since it is relative according to the technology demands generated by the average demand of direct customers. In general the sector, produces advanced technology and the companies within the sector are heavily dependent on recent laboratory discoveries for conducting business.

Examples of sectors that would classify under the definition of high-technology according to OECD are; pharmaceuticals, semiconductors, aircraft & spacecraft, medical-, precision- & optimal instruments, radio-, television- & communication equipment and Office, computing machinery. Attributes of high-technology products are defined by Gardner et. al. (2000) as a product being; in an earlier stage in TLC, more turbulent, less standardized, more differentiated, less years on the market, containing higher growth rates, shorter product life cycles, higher customer involvement, R&D intensive, requiring a substantial shift in behavior to adopt.

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The term factor in the context of this research is any internal organizational discipline / function or force external to the organization that positively or negatively influences the transition defined here as crossing the chasm. The factors in this research originate in the fields of organizational theory, -design, marketing, technology acceptance, network theory etc. The factors will mainly originate from G.A. Moore’s crossing the chasm theory supplemented by factors that can be identifies from adjacent theories.

1.3 Relevance to Practitioners and Academics This master thesis research makes theoretical and practical contributions to the scientific and business community (aimed at management consultants and senior management further on related to as practitioners). The research will contribute to the credibility of the chasm theory relevant to the scientific community since the result of this study could, form the groundwork to scientifically prove the chasm theory. Given the limited time resources, it is possible to rudimentarily validate the theory. Contributions to the business community reside in the application of the conceptual model as a tool to systematically as well as holistically analyze the organization as a basis for strategy formulation. In order to successfully develop and commercialize disruptive innovations, not only does the firm need to conceptualize and develop the innovation in the first place; it must also be successful in reaching more than niche markets consisting of innovators and early adopters. In other words the company must overcome both Christensen’s “innovators dilemma” as well as “cross the chasm”. Based on the conceptual model to “cross the Chasm” changes in company strategy can be implemented by managers, or advised upon by consultants, to improve the chances of successfully commercialization disruptive innovation by both incumbents as new entrants.

1.4 Research Framework The objective of this research is to generate a conceptual model based on G.A. Moore’s theory of crossing the chasm. The research object or unit of analysis for this research (and organizations that will be analyzed based on this research) is the organization in the process of commercializing disruptive innovation. The factors that will be identified exert influence, either facilitating or inhibiting an organization to cross the chasm. Given the large number and multi-disciplinary nature of the internal factors they will be categorized through the perspective of the business model framework. The business model framework systematically describes the value an organization offers to various customers and portrays capabilities & partners required for creating, marketing, and delivering this value and relationship capital with the goal of generating profitable and sustainable revenue streams. The business model framework is adapted from Alexander Osterwalder (2008) to increase the explanatory power of the conceptual model for the purpose of this thesis .

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This study is descriptive in nature. Descriptive research involves identifying the characteristics of an observed phenomenon, the research examines a situation as it is. It does not involve changing or modifying the situation under investigation, nor does it detect cause–effect relationships (Baarda et al, 2005). The cause and effect relationships’ can to be the subject of future research since this type of exploratory research is needed to further prove the chasm theory. For this research it will imply that an overview of factors will be generated, accompanied by a description of why the factors exert influence on the organization. In order to validate the chasm theory though empirical research and in order for the conceptual model to serve as a strategy tool the factors will operationalized by a measurement instrument. The research will be theory-oriented the analysis will be based on the extrapolation and application of existing theoretical concepts in order to explain what happens that constitutes as the chasm phenomena.

Five phases in the research will be undertaken in order to accomplish the research goal. In practice the research process will be cyclically iterative especially during the generation and validation phases of the conceptual model. The phases are connected, passed through backwards and forwards, and switching between the phases occurs regularly. (Baarda, et al, 1995) The phases are described in the representation of the research framework in figure 1. core theoretical concepts (literature review) Technology adoption life cycle Disruptive innovation

research perspective (factor mapping) Pre-chasm internal factors Moore (2002)

Tech.- to customer centered approach Disruptive technology s-curve

research object (conceptual model) External and internal factors influencing "crossing the chasm"

Dominant design theory

research testing (validation)

Post-chasm Internal factors Moore (2002)

Theoretical validation Draw validation conclusions

research objective

Modify theory & implications

conceptual model of factors influencing "crossing the chasm"

E

F

Empirical validation

Sales take-off

A

B

C

D

Figure 2 Graphical representation of the research framework

(A) Based on an analysis of core theoretical concepts in the literature review more insight is provided into the phenomenon of crossing the chasm. (B) Internal and external factors that influences whether a company crosses the chasm are mapped. To explain what happens during the pre- & post chasm phases a comparison is made between the two. (C) The factors will be categorised and operationalized into a conceptual model. (D) The model will be validated theoretically and empirically (E) Conclusions from the validation process will be formed. (F) Taking these recommendations into account the final conceptual model will be generated.

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1.5 Research Issue Main Research Question What is a useful and applicable operationalization of factors that influence the transition of disruptive innovation from the early market to the mainstream market?

Sub‐research Questions 1. What are factors internal to the firm influencing the transition of disruptive innovation to the mainstream market?

2. What are factors external to the firm influencing the transition of disruptive innovation to the mainstream market?

3. What explains the influence of the identified factor in the transition of the disruptive innovation to the mainstream market?

4. How can the factors be operationalized to make them measurable?

1.6 Research Design The first part of the research namely exploring theoretical concepts to construct the conceptual model is accomplished by means of a literature study, though desk research of innovation literature. Qualitative methods in general are well suited to the study of dynamic processes and theoretical validation (Pettigrew, 1992), therefore a thorough qualitative content analysis of a multitude of scientific studies and theories will reveal support or complement factors internal and external to the organization influencing successful commercialization of disruptive innovations as defined by G.A. Moore’s chasm theory. The advantage of a literature survey though desk research is the reliability and the efficiency, given the large body of existing research for the research objective and research issue (Verschuren and Doorewaard, 2005). Looking at existing research from different perspectives and gaining an overview based on existing research will enable an in-depth study of the subject matter. The conceptual model, which is distilled from the chasm theory of G.A. Moore and supplemented by the explored theoretical concepts, will be validated in part by theoretical validation. The theoretical validation aims to find theoretical proof for the factor in other theories and increase understanding by describing the influence of factor on crossing the Chasm. To ensure construct validity for the theoretical validation it is ensured that the theories used to prove and expand the factors fit together and are comparable. To be able to validate the conceptual model the factors constructing the conceptual model will be operationalized into question sets. This enables the model to be empirically tested on a multiple case-study basis as a last validation measure the model will be judged by industry experts for usability and applicability. A case study is an empirical inquiry that investigates a contemporary phenomenon within its real-life context; it is especially suited when the boundaries between phenomenon and context are not clearly evident. (Yin, 2003, p. 13). The case-study method is a well-suited type of inquiry for this research since factors that exert influence on the phenomenon (the Chasm) are often intertwined and affected by the context (company, industry, market) in which the phenomena occurs. The Chasm theory has to be proven within

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the context where it occurs. The case study method offers the possibility to gain an overall picture of the research object and it is far more flexible in comparison with for example a survey or an experiment (Verschuren & Doorewaard, 1999). The case study inquiry copes well with the technically distinctive situation in which there will be many more variables of interest than data points. Many events will be occurring at the companies researched in the case study analysis not significantly applicable to crossing the chasm. The reason a case study copes well with redundant date is because a result relies on multiple sources of evidence, with data needing to converge in a triangulating fashion, and as another result benefits from the prior development of theoretical propositions to guide data collection and analysis. (Yin, 2003, p. 14). In other words the case study as a research strategy comprises an all encompassing method – covering the logic of design, data collection techniques and specific approaches to data analysis. (Yin, 2003, p. 14). The triangulating data analysis will be dependent on the companies willingness and possibility to provide the researcher with the possibility to conduct multiple interviews. The influence on the phenomena will be explained by the conceptual model for three specific innovations within different companies. The extent through which the model succeeds in accomplishing this will determine the credibility of the conceptual model. Recommendations to improve the conceptual model can result from this analysis. Each case-study will be selected so that it will predicts similar results (a literal replication) or predict contrasting results but for predicable reasons (a theoretical replication).

A multiple case study analysis is conducted because the evidence generated is often considered more compelling, and the overall study is therefore regarded as being more robust (Herriott & Firestone, 1983). Although an increased breadth of the case study through a largescale approach (multitude of 3 case studies) will enable better generalization of the results and thus validation of the conceptual model. The approach is not feasible within the time constraints of the research and it does impose its own limitations. Confining the case study analysis to 3 case studies and opt for a small-scale approach, will yield knowledge that can be generalized to a lesser extend, but will enable the researcher to achieve depth, elaboration, complexity and a sound foundation with a minimum of uncertainties (Verschuren and Doorewaard, 2005). To provide the best and most reliable information however a casestudy analysis of a longitudinal character, in which a companies process is tracked throughout its journey on the technology adoption lifecycle would best fit the research objective. The results from a longitudinal study would not be influenced by the cause of the temporal order of events applicable to studying the chasm phenomena; the transition can take a long time to occur and is most clearly apparent in hindsight. However a longitudinal case study is not possible within the time constraints of this master thesis project. A short time horizon of the case studies conducted is best fit with the time constraints of the master thesis project. Fixed repetition logic will be maintained for all case studies. The case-study analysis will analyze the company in all areas of the conceptual model, the case will be structured accordingly. The importance of the development of a clear and well-structured theoretical framework becomes clear to enable clear replication procedures. The framework needs to state the conditions

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under which the phenomenon is likely to be found (a literal replication) as well as the conditions when it is not likely to be found. The theoretical framework (which is transformed into a conceptual model at the end of the thesis) later becomes the vehicle for generalizing to new cases. If some cases do generate results as predicted, it is likely modification must be made to the theory. The case-study method relies on analytical generalization, where the set of results is generalized to a broader theory. (Yin, 2003 p. 53) To ensure high external validity a repetition logic needs to occur. Replicating initial findings in a second and thrid case, where the theory has specified that the same results should occur, will test the conceptual model. The model will still be tested when explanations can be given why the expected result did not occur because of the different environmental context of the case. In order to ensure construct validity of the factors from which the conceptual model is built, conclusions will be based on converging lines of inquiry also known as triangulation. Any finding or conclusion in a case study is likely to be much more convincing and accurate if it is based on several different sources of information, following a corroboratory mode (Patton, 1987). Critical for construct validity is relating the specific types of factors to be studied to the original phenomena and demonstrate that the selected operational measures of these factors to indeed reflect the specific types of change that have been selected. The multiple case studies will be conducted through the same research procedure. Contributing to the reliability of the case study since the operation of the study can now be repeated, generating the same results for the same case. The results from the multiple case study analysis will be analyzed on a cross-case synthesis basis. The multiple case studies will be treated as individual research studies, the extend to which a cross-case common pattern can be identified will increase the credibility of the model and the chasm theory.

1.7 Outline of the Study Chapter 1 introduces the subject of the research area namely the Chasm theory and why there is a need to conduct the study. The methodological framework is further explained in this chapter by describing the research objective, relevance, issue and design. The literature review (chapter 2) explores theoretical concepts to increase understanding of the chasm phenomena. Based on the work by G.A. Moore the conceptual model is proposed in chapter 3. Following a cyclically iterative process the model is validated and improved theoretically (chapter 4) and empirically (chapter 5). During the theoretical validation chapter 4 the conceptual model is further explained and operationalized by question sets. A discussion of research findings (chapter 6) and recommendations (chapter 7) for future research concludes the study.

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2 Literature Review In this chapter of the research, we will explore existing streams of literature linked to explaining the phenomenon defined as crossing the chasm to increase understanding of the process of commercializing disruptive innovation. In order to accomplish this the existing streams of literature will be linked to each other, by the common denominator in all theories; the implications of the transitional phase from the early market to the mainstream market on the organization and the operating environment. After describing the theory and linkage between the different theories, the theory-analysis will be concluded by discussing the relevance of the theory for the research. Namely how can the theory be extrapolated or used to select additional theoretical concepts that identity factors influencing whether or not a technology or company “crosses the Chasm”. This is the central theme of the third chapter where the factors from the theory and other theoretical frameworks will be analyzed for the conceptual model. The outcome of this chapter will serve as the groundwork on which the factor analysis used to generate the conceptual model will be based. The chapter is structured according to the overview of major streams of literature showed in figure 1.

2.1 Technology Adoption Life Cycle Moore’s crossing the chasm theory is based on the technology adoption life cycle model originally developed by J.M. Bohlen and G.M. Beal in 1957. E.M. Rogers broadened the use of this model in his book Diffusion of Innovations in 1962 (first edition). The technology adoption life cycle model (figure 3, section 2.1) describes the adoption or acceptance of a new product or innovation (vertical axe), according to the demographic and psychological characteristics of defined adopter groups (horizontal axe). The adoption of an innovation over time typically follows a bell shaped curve and approaches a normal distribution. If the cumulative innovation is plotted, the result is an S-shaped curve. Paragraph 2.5 will explore the theory of S-shaped curves further when applied to the development of disruptive innovation. Moore demonstrates that there are multiple cracks in the curve, between each adopter group, representing a disassociation between each group. The disassociation represents the difficulty any group will have in accepting a new product if it is marketed the same way as it was to the group on its immediate left (Moore, 2003, p. 15). The largest crack, so large it can be considered a chasm, is situated between the early adopters and the early majority. Although the two groups are adjacent on the adoption life cycle, they are very different in terms of underlying values (table 1). The technology adoption life cycle is therefore a critical tool for determining e.g.; marketing, pricing and product management strategies for high-technology products. However as Moore states; the proper strategy fundamentally changes as a company targets a different adopter group.

18

19 Theory: A disruptive technology gets its commercial start in emerging value networks before invading established networks. The technology can invade if it professes to a point where it can satisfy the level of performance demanded in an other value network. The theory analyses the TLC from a technical performance perspective related to conventional technologies.

Theory: Integration of Moore's and Christensen's theories. Defines "the chasm" as a transition point where a technology satisfies basic needs and becomes a consumer commodity instead of high-technology. The theory analyses the TLC from a human-centred product development approach by focusing on the needs of the consumer.

2.5

Theory: A disruptive innovation is a innovation that eventually overturns the existing dominant technology paradigm in the market. Success depends on the ability to “reach” the mainstream market and become the dominant design. The theory provides insight how and where the technology in the TLC develops before it reaches the mainstream market.

Title: Disruptive Innovation Main author: Christensen (1997)

Title: Disruptive Technology S-Curve Main Author: Christensen (1997)

!

2.2

Title: Technology- to Customer Centered Approach Main Author: Norman (1998)

2.4

Theory: The ALC is a means for classifying the market and its reaction to a high-tech product. Moore redefined Rogers (1962) innovation diffusion theory, by introducing gaps between user adoption categories the major gap being "the Chasm". The theory analyses the TLC from a marketing perspective.

Title: Adoption Life Cycle (ALC) Main author: Moore (1991)

2.1

Theory: New products do not grow into maturity at a steady rate. The sales pattern is marked by a long introduction period when sales linger at low levels.

Followed by a period of rapid growth. The theory analyses the TLC from various external perspectives; influence of competition, price, innovative opportunity.

Title: Sales Take-off Main Authors: Shermesh & Tellis (2002) Agarwal (2002)

2.6

Theory: Describes the occurrence of a DD as the key technological design that become a de-facto standard in the market place. Before the occurrence of a DD product innovation is the emphasis, after that process innovation is as reductions in cost become the main concern. The theory analyses the TLC from a research and development perspective.

Title: Dominant Design (DD) Main author: Utterback (1996)

2.3

MASTER THESIS CROSSING THE CHASM

Figure 3 Linking major streams of literature

MASTER THESIS

CROSSING THE CHASM

The changes are of a magnitude that has a reverse effect on the previous adopter group. This implies that significant marketing expenditure and risk ultimately hinge on a choice about where the product is in the technology adoption life cycle. (Moore, 2005) Descriptive Label Early Market Innovators Technology Enthusiasts Segment

Early Adopters

Visionaries

Mainstream Market Early Pragmatists Majority Late Majority

Conservatives

Laggards

Skeptics

Characteristics Appreciate innovation for its own sake.

Motivated by the idea of being a change agent in their reference group.

Interested in new ideas, which lead them out of narrow circles of peers.

Willing to tolerate glitches and problems that may accompany new technology.

Are willing to develop makeshift solutions to such problems.

Look to adopt and use innovation to achieve revolutionary improvement in their business processes.

Attracted by high-risk, high-reward projects.

Envision great gains from adopting innovation, therefore less price-sensitive.

May demand personalized solutions and quick-response times coupled with highly qualified sales support.

Looking for evolutionary changes to gain productivity enhancements.

Averse to disruptive change; want proven applications, reliable service, results.

Seek to reduce risk in the adoption of innovation.

Risk averse and technology shy; very price sensitive.

Need completely preassembled, bulletproof solutions.

Adopt innovation to stay even.

Often rely on a single, trusted adviser to help them make sense of technology.

Want to maintain the status quo.

Tend not to believe that innovation can enhance productivity therefore they resist new technology purchases.

Buy if they believe other alternatives are worse, cost justification is paramount.

Table 1 Segments of innovation adopters Slater & Mohr (2006), Adapted from original work of Rogers (1962), Diffusion of Innovations, re-print 2003 P. 282 – 296 extended by Moore (1991)

Interestingly Rogers (2003, P. 282) disagrees with Moore that a discontinuity exists between the innovators and early adopters versus the early majority, late majority and laggards.

According to Rogers no past research shows support for the claim of a chasm or discontinuities between adjacent adopter categories, despite the differences between them.

Although Rogers is one of the founders of diffusion theories, several scholars (Modis, 1998, Meade and Rabello, 2003, Norman, 1999) are in agreement with Moore regarding the existence of a chasm and have conducted scientific research to support Moore’s claim. In addition to the scholarly discussion regarding the existence of a chasm, there is another reason to contributing to the plausibility of the chasm theory. Namely the widespread acceptance in the business community (Iskold, 2007). It is the goal of this research to further strengthen the theory by enabling further scientific research through generating a conceptual model that maps the factors, based on which an organization or technology crosses the chasm. Meade and Rabello (2003) have developed a tool for companies to quantitatively determine a products position in the technology adoption life cycle. Rather then solely subjectively as done so by Moore. The complex and fundamentally non-linear nature of the market makes it difficult not only to forecast, but also to objectively determine what the current circumstances are. (Meade and Rabello, 2003) However the most reliable means to apply the tool is to look back at some point in the future, subjective assessment will always be necessary to determine whether the company should change its future strategy.

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MASTER THESIS

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Strong support for the “Chasm theory” was found by Modis (1998) through multiple S-curve analysis of a large variety of products. Modis confirmed that strategy changes are of such a great magnitude that the product frequently falls into a chasm marked by a decrease in sales and a loss of market share. Steps in the S-curve, and the corresponding advances in the technology adoption life cycle are punctuated by periods of chaos and a fractal nature. The largest period of chaos, due to the significant strategy changes and period of uncertainty can be found in the Chasm. Goldengerg, et. al. (2002) contributed to the empirical validation of the Chasm theory based on patterns in revenue developments. They as well as Moore (2002) found a lull in sales (conceptualised as a “saddle”) after initial sales-take-off that stymied the steady adoption and diffusion process. In addition to these word-of-mouth effects in crossmarket communication was identified as the critical factor in determining the size and duration of the “saddle”. It is in the Chasm that many companies fail. However once the Chasm is crossed a sharp and persistent increase in sales continues, characterised by Moore as the “hypergrowth” phase. It is in the sharp change in sales and market share where parallels can be drawn to various theories shown in figure 1.

The importance of assessing the conditions or context when applying the chasm and TALC strategies is illustrated by the fact that a product does not necessarily have to proceed though each phase of the life cycle. For products where the intensity of the influence of the innovators on the majority decreases as penetration increases, can benefit by a strategy, which skips the early market and the chasm and targets the mainstream market directly.

(Mahajan & Muller, 1998) In general the before mentioned authors find support for Moore’s theory in their empirical models, the exceptions can be explained though different environments to which the Chasm theory is applied.

The segmentation of the customer base by Rogers and Moore is highly simplified. The market consists of billions of consumers with a wide variety of interests, skills, lifestyles, socioeconomic-, educational levels and more variables upon which they can be distinguished.

In addition the consumer can play multiple roles within society each role having different levels of technological needs e.g. student or worker, employee or manager, parent or child.

Therefore in reality a multitude of adopter categories will exist and an individual can be in different adopter categories depending on the role he or she fulfils at the same time. However the simplification captures the essence of the diffusion of innovation phenomenon well. The boundaries between categories are salient because fundamentally different management techniques are needed to succeed in the different categories defined by that boundary. If the same strategy would lead to the same outcome in two categories, then the distinction between those circumstances is not meaningful; this however is not the case. Because the categorization captures the diffusion phenomenon well its use has become widespread by academics and practitioners worldwide.

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MASTER THESIS

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2.2 Disruptive Innovation Specificity in defining what is meant by innovation is critical for establishing a valid conceptual del. As can be found in academic literature innovation exits in many different forms. Research in recent years suggests that structural characteristics of organizations (e.g. centralization, size, level) vary with the type of innovation being adopted (e.g. incremental, radical, disruptive innovations, product or process) (Daft, 2004, p. 400). The propensity for a firm to adopt innovation is not constant across all innovations. The various characteristics of an organization interact together with the various dimensions an innovation possesses to determine the probability of an innovation adoption. (Cooper, 1998) The thesis will determine what (internal) organizational characteristics interplay with disruptive innovation. First we will further define the concept and characteristics of disruptive innovation.

Moore argues (Dealing with Darwin, 2005 p. 64, 74 and 76) disruptive innovation correlates with the early market phase of the technology-adoption life cycle. This is further confirmed by Slater and Mohr (2006). Moore relates to Christensen theory to explain the theory of disruptive innovation in further detail. Disruptive innovation is explained by Moore as “the type of innovation that creates new market categories based on discontinuous technology change or business model” Disruptive innovation is further explained by defining attributes as possessing superior price/performance advantages compared to the current in-market technologies and, the fundamental incompatibility with current market standards.

There are inconsistencies, with implications for this research, in the definition of disruptive innovation between Moore and Christensen. The inconsistencies are believed to be caused

by Christensen not specifying common criteria to classify different types of technologies and therefore it is not clear whether a given innovation is considered disruptive. (Chesbrough, 2001, Danneels, 2004, Utterback and Acee, 2005) Having a clear definition of disruptive technology and its related terminology will allow better factor mapping for this research. The factors can be more accurately assessed regarding their influence exerted on crossing the chasm, because the context in which they exert influence is better understood.

Christensen defines disruptive innovation as a technological innovation, product, or service (based on new technological underpinnings) that eventually overturns the existing dominant technology paradigm in the market (Christensen, 2000). Even though disruptive innovations will initially underperform established technologies in the mainstream market, they have other features that few fringe and generally new customers’ value. In addition disruptive innovations have a much steeper price / performance increases and thus will eventually displace the established

technologies

and

frequently

the

companies

that

commercialize

these

technologies. A typical competitive reaction of the established companies is to retreat to the higher end of the market becoming ever more complex and expensive, overshooting market

22

MASTER THESIS

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requirements. As this process continues consumers willingness to pay for improvements decreases. Creating an opportunity for a disruptive innovation to “attack from below” and occupy the lower end of the market previously served by the established technology.

(Christensen, 1997) According to Utterback and Acee (2005) Christensen applies a restrictive definition of disruptive innovation by only emphasising the “attack from below” thereby ignoring other discontinuous patterns of change, which may be of equal or greater importance. They continue to emphasize that disruptive innovation is also a powerful means for enlarging and broadening markets and providing new functionality. A view that can be seen confirmed by W.C. Kim and R. Mauborgne as blue ocean strategies where disruptive innovation is aimed at non-consumption, classified as new-market disruptive innovations. Utterback and Acee (2005) further expand the theory by presenting another trajectory in which a disruptive innovation can diffuse. This trajectory occurs when a higher performing and higher priced innovation is introduced into the most demanding established market segments and later moves “downward” towards the mass market as the price / performance ratio increases and the technology becomes accessible to the mainstream market. This is characterised as the “attack from above”.

Disruptive innovation creates a technological discontinuity, rendering the competences in the conventional innovation obsolete. Parallels are apparent here to the competence –enhancing and competence destroying technological shifts drawn by Tushman and Anderson (1986) However this view is partly contested by Christensen, as he notes that many of the incumbents he studied had no difficulty surviving competence-destroying technological shifts, as long as the competence-destroying technologies addressed the needs of the incumbents mainstream markets. The situation is refined for disruptive innovations that introduce new architectures. Christensen found that very few incumbents were able to successfully introduce new architectures. This can be explained by the article of Henderson and Clark, (1990) who state that knowledge of architectural innovations of established firms tends to become embedded in the structure and information processing procedures, and therefore are especially hard to change and recognize.

Since this thesis will refer to all of the different diffusion trajectories, an integrated definition is needed that encompasses all of the trajectories. Danneels (2004) defines disruptive innovation by using the common denominator in all trajectories namely customer needs.

Danneels (2004) uses customer needs as the common denominator because needs drive customers to seek certain benefits in the products they use and form the basis of customer choice between competitive offerings. Benefits sought by customers determine which product attributes (e.g. price / performance) they value, and different customer groups (e.g. difference between adoption categories in the TALC) may value different attributes. Therefore according

23

MASTER THESIS

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to Danneels (2004) the core-definition of a disruptive innovation is an innovation that changes the basis of competition by changing the performance metrics along which firms compete.

This definition will be used when referred to disruptive innovation further on in this thesis.

To increase further clarity disruptive innovation as defined by Danneels (2004) will be positioned in the framework for defining innovation as outlined by Henderson and Clark (1990). Disruptive innovation is considered to be a type of radical or architectural innovation.

According to Henderson & Clark (1990) a radical innovation establishes a new dominant design and, hence a new set of core design concepts embodied in components that are linked together in a new architecture. Slater and Mohr (2006) distinguish disruptive innovations based on their radicalness, or new products based on a new set or core design concepts (technology) relative to what already exists in the industry. Their literature research shows that not all radical innovations are necessarily disruptive. Only the type of radical innovation that creates new-to-the world products (as defined by Markides, 2006) is considers to be disruptive. For example a innovation that creates a 5-times performance increase for a sustaining innovation (based on a conventional technology) is considered radical but not necessarily disruptive. (Leifer, et. al., 2000) As Christensen indicated this radical innovation to sustain the conventional technology could even result as the response to a disruptive thread.

Similarly not all disruptive innovations are radical either (Slater & Mohr, 2006) but can also be of architectural nature sharing all the characteristics of disruptive innovation described by Christensen (2004, p 281).

A common problem on the supply side when commercializing disruptive innovation both for established and relatively new companies focussing on crossing the chasm is not addressing the needs of main customers. This has significant implications for the decision maker since their skills and positions of influence are also threatened. (Christensen & Overdorf, 2000) What becomes apparent is that the technology is not the key to a successful transition to the mainstream market. Human factors determining organizational competences play a significant role as well. And according to Utterback (1993) market conditions are an equally important force; hence the decision to include external factors.

The link between disruptive innovation and Moore’s crossing the Chasm theory becomes apparent in the shared viewpoint that disruptive innovations (regardless of the development trajectory) initially only satisfy one or multiple niche market(s), which value dimensions of performance on which the disruptive technology does excel. Over time, as research and development matures, the performance supplies by the disruptive technology improves to the point where it also can satisfy the requirements of the mainstream market. (Danneels, 2004, Christensen et. al. 1998, Adner 2002, Utterback 1993) Therefore a widely shared conclusion (Rogers, 1995, Moore, 1991, 2002, Danneels, 2004, Slater & Mohr, 2006) is; the extend to which a disruptive innovation will become an innovatory success depends on its ability to

24

MASTER THESIS

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“reach” the mainstream market, demonstrate clear advantage over existing solutions and become the dominant design in other words; the disruptive technology needs to cross the chasm.

2.3 Dominant Design Abernathy and Utterback have introduced the concept of dominant product design in 1987, and suggested its occurrence may alter the character of innovation in a firm and in an industry. A dominant design takes the form of a product-class synthesized from individual technological innovations introduced independently in prior product variants, that wins allegiance of the marketplace. A dominant design had the effect of enforcing or encouraging standardization so that production or other complementary economies can be sought. It also causes a shift in effective competition to take place on the basis of cost and scale instead of product performance. (Utterback, 1996, p. 2 and 24) Extending the dominant design concept, Utterback (1996) identified changes in the rate of innovation for separate cycles of product and process innovation. He conceptualized this into a model (figure 1 – 2.4) were process and product innovation correlate over time, intersecting at the point where dominant design occurs. He links to the Technology Adoption Life Cycle and introduces three phases (fluid, transitional and specific) to describe the process. Product innovation is the driving factor in the early phases of a new technology, when the technology is sold to innovators and early adopters. Process innovation exists, as the two are interdependent, but it is not the center of interest. In the fluid phase, where product innovation is key, a firm develops its initial new product technology and application(s) for the technology.

As demand and production grow and as new applications are found for the innovation, many new firms enter the market with variations of the technology or product (Schumpeter, 1939).

The increase in market acceptance and occurrence of dominant design signals an important shift in evolution of the technology / industry, since the basis of completion now becomes cost, scale and integration shifting away from product design and features (Utterback 1996, p.

32 and 96). The transitional phase started by the occurrence of the dominant design is characterized by a reduction in uncertainty, as well as the need for flexibility in technology design. Firms begin to focus on their manufacturing capabilities to enable volume production of their innovative products to accommodate the sharp increase in demand from the mainstream market. Product and process innovations become more tightly linked, and materials and equipment become more specialized. As the market matures in the specific phase products become highly defined and differences with competition small. Since this specific phase lies beyond the scope of this thesis it will not be described in further detail.

Anderson and Tushman (1990) find further proof for the dominant design concept, they describe a technological cycle in which a technological discontinuity is followed by an era of ferment (intense technical variation and selection) accumulating in a single dominant design.

25

MASTER THESIS

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This is followed by a period of incremental progress, which may in turn be broken by another technological discontinuity. As explained in §2.2 disruptive innovation originates from a technological discontinuity, Anderson and Tushman describe a technological discontinuity as an innovation that (has the potential to) dramatically advances an industries price / performance frontier.

A dominant design embodies the requirements of many classes of users of a particular product, even though it may not meet the needs of a particular class to quite the same extent, as would a customized design. (Utterback, 1996, p. 25)

Because it embodies the

requirements of many classes of users the product is fit to be sold in the entire mainstream market. The product can distinguish itself from competition through differentiation by slightly altering the performance or availability of product features, while using the same core technology.

Three schools of thought can be distinguished from the before mentioned scholars, regarding the occurrence of the dominant design; as a result of change events i.e., where their appearance cannot be predicted merely recognized. From a deterministic viewpoint i.e., something inherent in the technology determines the outcome. The third viewpoint suggests that social and organizational factors work together to determine the dominant design. None of the former three schools of thought is completely right or wrong. However in this thesis it is disputed that the occurrence of the dominant design is purely the function of a change event.

Successfully crossing the Chasm depends highly on the occurrence of a dominant design (Moore, 1995, p. 27, Utterback, 1996, p. 226) It is argued that the transition can be influenced by implementing the factors analyzed in this thesis. The significance and difficulty of the crossing the chasm is confirmed by Utterback (1996, p. 30) as he mentions both the complexity and major source of failure for companies unable to change organizational structures and practices in tandem with the evolution of technology they are commercializing.

2.4 Technology‐ to Customer Centered Approach Norman (1998, p. 251) finds that high-technologynology must transition from technologycentered marketplace to a consumer centered-market place, trough passing a transition point where technology satisfies basic needs. When the technology reaches this point consumers no longer seek the best technology; they seek the most convenient one, the one with the most satisfactory user experience, the lowest cost and the highest reliability. Brand name and reputation become unique selling points, profit margins drop, but the sales volumes rise the entire business structure changes. As a result the company itself must change if it is to survive or facilitate the transition. Norman links to Moore by indicating the transition point corresponds to the location of the chasm in Moore’s theory. As long as the technology’s performance, reliability, and cost fall below customer needs, the market place is dominated by early adopters: those who need the technology because of a specific set of requirements and

26

MASTER THESIS

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will thus pay a relatively high price to use it. The vast majority are late adopters (late adopters correspond to Moore’s mainstream and Rogers early and late majority). They hold off until the technology has proven itself, and then they insist on user experience, convenience and lowest cost (highest value) (Norman, p. 35) These changes in customer preferences form a major source of the problems high-technologynology companies face when attempting to cross the chasm since they require a change in strategies in how to deal with the customer.

Like Moore, Norman (based on a yet underdeveloped theory of Davidow (1986, p. 27) stresses the importance of the whole product concept transitioning to a customer-centered company positioned to “cross the Chasm”. The whole product concept is a holistic approach to product definition and development (McKenna, 1991). Thus the whole product concept holistically links technical features of the product with the market & user considerations needed for a successful development (Cruz, 2002). The difference between early market and the mainstream is that the former are willing to take responsibility for piecing together the whole product (in return for a competitive advantage) whereas the latter is not (Moore 1991).

The whole product concept can also be seen as a systems approach (total solution vs. product) where the company looks beyond the specifics of a product (the physical device is only one piece of the entire puzzle) to understand how it is used in the full context of a complete activity. E.g. after-sales-service, manuals, smooth integration in companies processes, training, operating software, required supporting activities. Chapter three will detail this more in-depth.

Norman (1998, p. 40) also stresses the importance to move to a human-centered product development where there is a complementary balance between marketing, user experience and technology. Early in the products life the balance is not important since early adopters and innovators care most about the technology. This changes dramatically during the mature phase of a product when it has crossed the chasm being marketed and sold to practical and conservative members of the market; the mainstream. The increased emphasis on user experience poses another challenge for companies. Often the very first product is simple, but crude. As the product undergoes the stages of development, its performance improves however so does its complexity. Now that the technology / product matures the device has to become easier to use, although usually the complexity inside the product is ever increasing (Norman, 1998, p. 172). This is possible because the R&D department learns to simplify the mechanisms, improving accuracy and precision so that numerous compensatory controls are no longer required, and automating many of the operations.

Norman (1998, p. 246) links to Christensen’s theory to explain why companies are resistant to change and why asking the existing customers what they want is a recipe for failure in commercializing disruptive innovation. Norman emphasizes the need to talk to noncustomers. As the potential sales reside in this group, attending the needs of this group is

27

MASTER THESIS

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paramount to crossing the chasm. Utterback’s life cycle model posits an eventual exhaustion of innovation possibilities in time with the traditional assumptions of technology S-curves, which will be the subject of discussion in the next paragraph.

2.5 Disruptive Technology S‐Curve The basic technology S-curve also known as the Technology Life Cycle provides useful insights at an aggregate industry level, however the application of the framework is ambiguous, and an attempt to resolve the ambiguity is made in this paragraph to describe the application of the framework to disruptive technology in further detail. Thereby enhancing the usefulness of the theory for this thesis and addressing the limitations when it is used to explain the phenomena of crossing the chasm. According to Christensen (2002, P.44) the basic technology S-curve forms the centerpiece of thinking about technology strategy. It suggests that the magnitude of a product’s performance improvement in a given time period or due to a given amount of engineering effort is likely to differ as technologies mature. In the early stages of a technology, the rate of progress in performance will be relatively slow. As the technology becomes better understood, controlled, diffused (Rogers, 1976, Moore 2002 p.

89), and with the appearance of a dominant design (Utterback, 1996, p. 158) the rate of technological improvement will accelerate. But in mature stages, the technology will asymptotically approach a natural or physical limit such that ever greater periods of time or inputs of engineering effort will be required to achieve improvements.

The process of technological substitution caused by disruptive innovation is more complex than the process summarized by the standard S-curve theory in the previous subparagraph.

The standard S-curve theory ignores the critical process of market innovation and focuses only on technological dimensions (Christensen, 1992a) In other words the vertical axis for a disruptive innovation must mention different attributes of performance relevant for different markets or applications operating in different value networks. Because a disruptive technology gets its start in an emerging value network, and develops according to a unique trajectory, before invading established networks, an adjusted S-curve framework is needed to describe it. (See figure 1 – quadrant 2.6) If and when disruptive technologies progress to the point that they can satisfy the level and nature of performance demanded in another value network, the disruptive technology can then invade it. (Christensen, 2002, p. 46) It is here in this refinement of the S-curve theory where the link to the chasm theory becomes apparent.

The market potential increases significantly when the technology becomes fit for commercialization in other (broader) markets and new adopter categories. The point where the chasm is bridged occurs in the middle section of the S-curve, shortly after the establishment of the Utterback’s dominant design. First however the performance needs to have reached a satisfactory level for the mainstream market before it becomes accessible.

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The disruptive technology S-curve needs to be adjusted for another strong phenomena that occurs systematically. In many cases disruptive innovations do come not from industry

leaders

(incumbents)

but

from

industry outsiders. The industry outsiders elicit

a

typical

response

from

industry

incumbents namely a burst in improving the established technology, (Utterback 1996, p.

160) which is still possible because there are

Figure 4 Performances of established and invading products (Utterback 1996, p. 160)

many different components and system

technology levers to pull in the last pursuit of performance improvement. (Christensen, 1992b) Moore (2005, p. 61) confirms this view by listing the possible types of innovation (line extention-, enhancement-, marketing- and experiential innovation) to extend the life of a conventional technology in what he theoretically calls the indefinitely elastic middle period.

The typical response is elicited because incumbents have large investments (people, equipment, plant, materials and knowledge) all heavily linked to the current technology, in addition management authority is constructed around the original technology. Combined with this the resource allocation mechanism is focused on the old technology; it takes visionary leadership and a positive attitude to risk taking to shift resources away from areas where the company currently enjoys success. Christensen and Foster estimate that leadership changes hands in the market seven out of ten cases when disruptive innovation causes discontinuities.

Industry outsiders enjoy a more favorable position because they are not encumbered by the investments in old technology and have no successful infrastructure to defend.

Research by Adner (2004) complements the demand-based perspective of the Technology Life Cycle, analyzing the relationship between consumers’ valuation of performance improvements and technology development over the Technology Life Cycle. He argues for a focus on consumer value thus, suggests demand maturity to be included as an additional metric in the Technology Life Cycle. This is illustrated by the following pattern: A consumer has some performance threshold (function of expectation, tastes, task requirements and existing substitutes (Adner, 2004)) below which a technology is irrelevant at any positive price. As technology performance improves beyond the threshold, the value that the consumer derives from it, and hence his willingness to pay increases. While the willingness to pay increases with increasing performance it does so at a decelerating rate due to the effect of decreasing marginal utility from the performance improvement beyond the threshold requirement. (Adner, 2004) The demand could mature sooner than the technology putting a constraint on the technological developments. Here Adner links to the disruptive innovation theory, more specifically the “attack from below” (Christensen, 2002) Adner links again to the disruptive innovation theory namely by describing another possibility when the technology

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MASTER THESIS

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curve flattens first and an increase in willingness to pay is constrained by the slower rate of performance improvements. Here disruptive technologies can be characterized in the form of “the attack from above” (Utterback and Acee, 2005) were more advanced technologies become a substitute because they move down the cost curve.

The willingness to pay for performance decreases as the technology crosses the Chasm. This is the case either for the “attack from below” or for “the attack from above”. In addition an overpriced technology due to an overshot performance increase could inhibit a technology to cross the chasm.

2.6 Sales Take‐off New products do not grow into maturity at a steady rate. The sales pattern is marked by a long introduction period when sales linger at low levels. Followed by a period of rapid growth.

The infliction point preceding the rapid growth period, after a phase of chaos and resulting sales decline found by Modis (1998), is conceptualized by Tellis & Shermesh (2002) as the moment of take-off.

The take-off theory has its roots physics where it is defined as the concept of critical mass (an atomic reaction ‘goes critical’ when a chain of nuclear reaction becomes self-sustaining) however many examples can be found in everyday life. The concept of critical mass is fundamental to understanding a wide rage of human behavior because an individual’s actions often depend on a perception of how many other individuals are behaving in a particular way (Rogers, 2003, P. 349) Critical mass occurs at the point where a certain amount of individuals or organizations for a technology application have adopted an innovation so that the innovation’s further rate of adoption becomes self-sustaining and enters a rapid growth phase.

The concept of critical mass in the diffusion process has important implication for business marketing a new product. (Rogers, 2003, P. 351) Marketing diffusion scholars (to be mentioned further on) have identified a new dependent variable for analysis, the amount of time required to reach critical mass for a new product called time-to-take-off. The scholars have also identified various influencing independent variables. For example an individual is more likely to adopt an innovation if more of the others individuals in their personal network adopted previously (Valente, 1996). Take-off is partly driven by culture and wealth, product class, product vintage and prior takeoffs as a result large differences between countries exist (Chandrasekaran and Tellis, 2007, Tellis et. al., 2003). As new companies enter, actual and perceived product quality improves (and prices possibly drop), leading to shorter time-to-takeoff (Agarwal and Bayus, 2002). Bayus et. al. (1997) has further refined the study and found that a rapid price declines may further delay sales takeoff in industries by dampening new firm

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entry. Instead, rapid sales takeoffs in new markets come from encouraging greater innovative activity and the entry of large firms.

Earlier adopters of non-interactive innovations have a sequential interdependence effect on later adopters. As more and more individuals in a system adopt the non-interactive innovation, the innovation is perceived increasingly beneficial to future adopters. (Marcus, 1990). But in the case of interactive innovations, not only do earlier adopters influence later adopters, but later adopters also influence earlier adopters in a process of reciprocal interdependence (Marcus, 1990). For instance with each additional adopter in a social networking site, the social network becomes slightly more valuable. The most important conclusion being that the future adopter is encouraged to adopt, as he looks for what other actors in the system have done to guide his own decision. This process of social influence is one of the drivers of the technology acceptance theory.

However the technology acceptance theory is broader since it explores the determinants of what causes people to accept or reject information technology in general. Davis (1983) originally developed the theory as an information systems model. Due to the similarities in the user adoption process the technology acceptance model can be generalized to other hightechnologynology sectors. Among many variables that could influence adoption of new technology, two determinants are fundamentally important. Perceived usefulness, which is defined as "the degree to which a person believes that using a particular system would enhance his or her job performance". (Davis, 1993) The other determinant is perceived easeof-use which is defined as "the degree to which a person believes that using a particular system would be free from effort" (Davis, 1993). The model was extended to incorporate additional theoretical constructs spanning social influence processes and cognitive instrumental processes. (Venkatesh & Davis, 2000) The take-off and technology acceptance theories are relevant for this research because, they further explains the transition of disruptive innovation to the mainstream market by explaining the phenomena of rapid sales growth (rapid increase in user acceptance) and the various variables that influences the occurrence of the transition.

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3 Conceptual Model The conceptual model is presented in this chapter. Two levels can be distinguished from which the model is built-up. At the highest (aggregated) level (see figure 2) three internal factors can be distinguished that most predominantly influence whether a company crosses the Chasm. However since a Chasm crossing is dependent on events outside or within limited company control the model takes into account external factors.

In-depth analysis of the internal aggregated factors reveal that a large number of internal multi-disciplinary changes occur when a company crosses the chasm or is in the process of doing so. To a large extend these are described by Moore’s chasm theory. Changes from the Chasm theory were mapped and extended by the information in the literature review, and other scholarly articles and management books supporting the statements made in the chasm theory.

The second level of the model maps the changes occurring in the internal factors. To structure the mapping process of the internal factors have been categorized through the perspective of the business model framework. The business model framework describes the value an organization offers to various customers and portrays capabilities & partners required for creating, marketing, and delivering this value and relationship capital with the goal of generating profitable and sustainable revenue streams. The business model framework is adapted to increase the explanatory power for the purpose of this thesis from A. Osterwalder (2008). An overview of a generic business model is given in appendix A. In order to provide a clear overview of the business model changes that constitute the internal factors a pre-chasm business model (figure 3) and a post-chasm business model (figure 4) have been drafted. The pre- and post chasm time periods for which these business models are applicable are confined to the last phase of servicing to early adopters and early phase of serving the early majority. This is graphically explained in figure 1. It is therefore critical to determine before applying the conceptual model what the current location of the company is on the technology adoption life cycle and what the time period is in which the chasm crossing occurred, since this is the time-period, which is subject to analysis. In order to determine the location researchers could determine if a sales-take off moment has occurred (Modis, 1998, Tellis & Shermesh, 2002). The researcher could also try to determine to match the profile of adopter categories to innovation adopters during the time period under research (Moore, 2002, p. 36-41 Wieffels, 2005, p. 98) or quantatively determine the position by product market share against rate of change relate to infliction points between adopter categories (Maede and Rabello, 2003).

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3.1 Aggregated Conceptual Model

Figure 5 Conceptual model at the aggregated level: business model changes and external factors and influencing crossing the Chasm

3.2 External Factors

Figure 6 Conceptual model at the 2

nd

level: External factors influencing crossing the Chasm

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3.3 Pre‐Chasm Business Model

Figure 7 Conceptual Model at the 2

nd

level: Pre-Chasm business model

3.4 Post‐Chasm Business Model

Figure 8 Conceptual Model at the 2

nd

level: Post-Chasm business model

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4 Theoretical Validation The conceptual model (§3) was distilled from the work of G.A. Moore (2002, 2005b) who formulated the Chasm theory and from P. Wieffels (2005). Conclusions from Moore and Wieffels that constituted the Chasm theory were validated in order to determine if proof could be found in similar scientific research. Where possible the theory was expanded where the empirical validation provided more insight into the Chasm theory, and thus would increase the explanatory power and usefulness of the conceptual model. The validation process and the creation of the model were conducted as a cyclical-iterative process (§1.6 Research design), the model was improved multiple times during the validation process.

In addition the empirical validation an attempt was made to operationalize the conceptual model by devising a measurement instrument. The instrument consists of questions based on which the factors that influence an organization crossing the chasm can be analyzed. The target group for which the questions are formulated are academic researchers (to further validate the theory) or consultants / senior management (to analyze an organization), a proficiently in the discussed innovation theories is required to adequately work with the measurement instrument.

4.1 Market Domination Strategy Executing the correct market domination strategy to reach new customers is critical for success since projected revue streams will originate from them. Organizations successful in crossing the chasm understand their customers and change strategies to differ between them (Moore, 2002 p. 41-42). As the company will focus on the mainstream market to cross the chasm a different strategy is needed. Distilled from the work of G.A. Moore the strategy to reach customer differs between the pre- and post-chasm phases. The most significant changes occur in the area’s of marketing strategy, approach to the customer relationship to influence the decision making process, and to the channels through which the customer is reached.

4.1.1

Customer Segments

A clear description and understanding of a company’s customers is an integral part of the company’s business model. Organizations need to strive to propose an adequate value proposition that caters to needs of their customer segments, differentiate in how to reach the customers and they should aware of which relationships to build (Osterwalder, 2008, p. 10).

The source for internal company changes occurring during the Chasm can be traced back to the focus on different customer groups. The impact of the focus on different customer segments as part of the market domination strategy for the value proposition and organizational building blocks are significant and will become clear throughout the theoretical validation.

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From ad hoc to niche based segmentation strategy According to Moore (2002, p. 64) most high technology companies fail to cross the chasm because, confronted with the immensity of the market size represented by a mainstream market, they may lose their focus, chasing every opportunity that presents itself, but finding themselves unable to deliver a saleable value proposition to the early majority. In the early market the company markets its value proposition on an ad hoc basis due to the underdeveloped technology and yet unclear benefits and target market. However in order to increase the likelihood of crossing the chasm a company must become the market leader for various reasons. Besides resource advantages (§4.3.3.) the probability a customer enters into a transaction with a market leader is higher (Wieffels, 2005, p. 50, Popovic, 2005). In order to increase feasibility the market must be segmented into segments, which can be dominated (Davidow, 1986 p. 14), in terms of relative market share (Davidow, 1986, p. 138-140, Moore 2002, p. 64, 58). This is confirmed by Adner & Zemsky (2001) who found that the likelihood of disruption is influenced by the relative size of the different market segments. The increased likelihood of success can also be explained due to focusing resources, which enable changes required in the company’s value proposition and organizational building blocks. As described in §4.1 adjusting the value proposition to meet mainstream demands and specific niche customer segment demands is critical for crossing the chasm (Wieffels, 2005, p. 20, Christensen & Roseboom, 1995, Anthony, 2008, p. 147). To prioritize niche customer market segments the company must target the niche market(s) having the most compelling reason to acquire the value proposition or highest relative advantage to obtain. Depending on which type of disruptive / discontinuous innovation the company is commercializing (§ 4.5.1) a niche market can be selected that is either ahead of market needs (Moore, 2002, p. 41) underserved by the current technological paradigm (Wieffels, 2005, p. 46), overshot by the current technological paradigm due to excess functionality (Anthony, 2008, p. 147) or where non-consumers become within reach due to the innovation (Chan & Mauborgne, 2005).

The market domination strategy implies targeting a manageable number of niche customer segments, once the company becomes the dominant player within these segments. New adjacent niche markets must be targeted to build towards becoming the dominant player for the product category. (Moore 2005b, p. 65) The under mentioned scholars validate this strategy. The company must to select a small of niche markets to cross the chasm (Davidow, 1986, p 62) which can be scaled up (Markides, 2006 p. 24, Albernathy & Clark, 1984) either in volume or adjacent through an adaptation of core capabilities to new markets, new product applications (Utterback, 1993 p. 32, 44). Through these adaptations the company can expand its potential market since it can operate in new value networks (Christensen & Roseboom, 1995, Christensen, 2002, p. 46). Based on the notion that new products are created by linking competences relating to technologies and new customers, one reason for expanding to adjacent segments is that it is relatively inexpensive to cross over (drawing on existing

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competences and value proposition) into the other market segment, the individual segment will size-up as the industry matures (Davidow, 1986, p. 19, Danneels 2002). Robberts (1991) conducted a study among 26 high-technologynology companies in which higher firm performance was proven for firms who sold products targeted at a focused set of customer needs, sold to gradually broadening groups of end-users.

Measurement instrument: From ad hoc to niche based segmentation strategy 1.

Is the company focusing on serving a small-number of niche customer segments?

2.

Is the company focusing on becoming the market leader within the niche customer segment?

3.

Will the company target adjacent niche customer segments leveraging competences to further build the market?

4.1.2

Customer Relationships

Entertaining the right type of relationship with each customer segment is crucial to satisfying customer’s expectations (Osterwalder, 2008, p. 16). In order to cross the chasm the company must focus on a different customer base and / or type of buyer in an organization. The changed customer base vales different attributes in the value proposition, the type and content of this relationship must reflect those values.

From appealing to visionary values to appealing to pragmatist values

Early adopter values: Pragmatist values: As part of the market domination strategy the company needs to target niche

customer

segments

in

the

mainstream market. These segments value fundamentally different attributes

Fastest product Elegant architecture Product price Unique functionality Technology potential State of the art technology

Largest installed base Most third party supporters De facto standard Proven technology Long-term relationship Quality of support & service Cost of ownership Return on investment Reference customers Analyst reports Table 2 Pre- & post chasm value changes

in the value proposition. Besides the implications of this for the proposition

and

the

value

organizational

building blocks communication and customer relationships must change to shape, reflect & reinforce the values of the niche customer segments in the early majority of pragmatist orientation (Moore, 2002, p. 131, Wieffels, 2005, p. 37). The underlying reason for pragmatist values are that the early majority seeks to reduce the adoption risk of an innovation (Rogers, 2003, p. 284) and the changed discussion making process within their organization (more in the subsequent paragraph). This is in contrast with developing the early market and selling to early adopters where values communicated by developing strong technology advantage and product credibility. The relationship with early majority customers should focus on demonstrating validity of the value proposition and the company. For example by communicating the technology has the largest installed base, most third party supporters, de facto market standard, (Moore, 2002, p. 131) reliable technology (Moore, 2002, p. 28). The

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company should focus on building a reputation that stands for quality of service and support (Moore, 2002, p. 44, 98). Building a relationship that reflects these values will enable to overcome customer’s inertia to adopting a new technology (Wieffels, 2005, p 64, Slater & Olson, 2000, Norman, 1999, p. 40). In addition to the early majority being more price sensitive (§4.1) they are also interested in using Total Cost of Ownership (total cost of operation) as a holistic basis for determining the economic value of an investment for example in a financial benefit calculation like the Return on Investment. To communicate validity Moore (2002, p.

21, 55) mentions the use of references as one of the most important methods to accomplish this. However the problem is that during the transition period into the early majority segment there is a lack of customer base that can be referenced to. Early adopters are of no use as a reference to the early majority due to the large value discrepancies. A distinctive attribute of the minority of innovating or early adopter companies that is that they compare themselves with, compete with, and try to differ from other innovating companies, whereas the majority of companies compare themselves with, and conform to, a broader group of companies that constitute the mainstream market (Massini, et. al., 2005). Thus a situation is created where it is difficult to generate sales without being able to demonstrate credibility / validity through references and it is difficult to have credibility without sales. A special approach to generating the first reference able sales could be required. As the volume and amounts of the niche customer segments expand, more suitable references will become available which can be used in the sales strategy. Therefore creating the possibility to generate early references is critical to start sales in the early market.

Measurement instrument: From appealing to visionary values to appealing to pragmatist values 4.

Are the customer relationship and marketing communications reflecting the pragmatist values outlined in table 2?

5.

Does the company use pragmatist reference in the early majority niche segments?

From focusing on the technical community to focusing on the end‐user community & enlisting support of the economic buyer The innovation-decision process takes place when an individual or decision-making unit engages in activities that lead to a choice to adopt or reject an innovation. The decisionmaking unit often tends to be more formalized in pragmatist organizations (Rogers, 2003, p.

179). To an extend where the end-user community and economic buyer (Moore, 2005b, p. 46, Wieffels, 2005, p. 111, Massini, 2005) represented in the innovation-decision process exert the dominant role. Compared to the early adopters the technical community exerts the dominant role in their decision making process (Moore 2005b, p. 46).

Measurement instrument: From appealing to visionary values to appealing to pragmatist values 6.

Does the sales force focus on maintaining relationships with the end-user community & enlist support of the economic buyer in their customers decision-making unit?

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MASTER THESIS 4.1.3

CROSSING THE CHASM

Communication & Distribution Channels

A company reaches its customers through various communication and distribution channels.

They represent the interface between a company, its value propositions and its customers (Osterwalder, 2008, p. 16). To cross the Chasm and in the mainstream market the company uses different communication-, distribution-channels, and a different sales strategy to reach potential customers.

From executing a product‐centric to a market‐centric sales strategy To accomplish the goal of becoming the dominant player in several adjacent niche market segments the sales organization must take a market-centric sales strategy (Moore, 2002, p.

133, Davidow, 1986, p. 74-75). According to Moore the pre-chasm area market development is emergent and its sales strategy product-centric. The market-centric sales strategy requires the organization to specialize and educate the sales force around the niche customer market (Davidow, 2003, p 78). In order approach the customer with the pragmatist values discussed in §4.1.2 the sales type needs to be of consultative nature based on understanding of the customers needs, depending on the product to what extend (Wieffels, 2005, p. 270). A consultative sale typically provides detailed instruction or advice on which solution best meets customer needs. In addition the market-centric sales strategy requires the sales force to develop a market in which the company becomes the dominant player. This in contrast with the product-centric sales strategy of the early market where product sales are maximized regardless of the target market in order to further develop the product and validate the technology. In order to accomplish the behavioral change required by implementing the market-centric sales strategy Moore (2002, p.200) and Wieffels (2007, article 2) recommend implementing bonus programs to stimulate the development of market instead of sales. A recommendation endorsed by Slater and Olson (2000) who showed the positive relationship between selling strategy outcome-based control systems like an incentive-oriented compensation system and market development. In §4.4 corporate level success metric are suggested.

Measurement instrument: From executing a product-centric to a market-centric sales strategy 7.

Does the sales organization specialize to serve the niche market segments?

8.

Does the sales organization focus on developing a market, instead of maximizing overall sales?

9.

Does the incentive structure stimulate the implementation of a market-centric sales strategy?

From relying on word‐of‐mouth to communicating along industry lines and through professional (branch) organizations Early adopters are highly integrated between different in social systems and therefore the adopter category consists of generally well-connected individuals (Rogers, 2003, p. 283). The word-of-mouth mechanism serves as an important diffusion mechanism in this market.

Communication channels to which can be utilized for word-of-mouth marketing can encompass, business press, case-studies, product demos, seminars & trade shows, product

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MASTER THESIS

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based advertising (Wieffels, 2005, p.234). In contrast the early majority is also well-connected but within their own social system, reducing the effectiveness of word-of-mouth. Therefore marketing communication activities should be directed to industry lines, professional organizations, reference customers, analyst reports when selling to niche customer segments of the early majority (Moore, 2002, p. 67, Wieffels, 2005, p.234). In addition these channels are more effective in validating the company and its value proposition since they are endorsed by the relevant references. Marketing through professional organizations and industry lines are of paramount importance in B2B business models since pragmatists communicate along these channels (Davidow, 1986, p. 32). These channels should therefore be intensified to build the user-base needed to cross the chasm (Slater & Olson, 2001, Davidow, 1986, xvii) by allowing awareness and reputation to accumulate within niche customer segments (Moore, 2002, p. 43). When marketing to the early majority communications should reflect the values in table 2 and be of application centric nature (Wieffels, 2005, p. 247, Norman, 1999, p. 200).

Measurement instrument: From relying on word-of-mouth to communicating along industry lines and through professional organizations 10. Is the company marketing through industry-lines and professional (branch) organizations?

11. Are the companies marketing communications reflecting pragmatist values?

From distribution through direct sales to distribution through volume/value added resellers The optimal channel depends on the kind of value proposition, for example complex ITsystems like CRM or ecommerce systems will be sold by value-added resellers. These company are not merely reselling but also adding a significant amount of value to the product.

This value can come from services such as integrating, customizing, consulting, training and implementation. The value can also be added by developing a specific application for the product designed for the customer's needs, of the specific target market. Value propositions which will be sold in high volumes and which do not require services put other demands on the distribution channel and will be sold by volume resellers to reach maximum market exposure. For any value proposition it is favorable to secure a channel into the mainstream market with which the pragmatist customer is familiar (Moore, 2002, p 158). This will regularly require changing the distribution channel to accommodate higher sales volumes as companies operating in the early market more likely to employ direct sales (Davidow, 1986, p.

71, Roberts, 1991). Although nowadays given the current low cost of maintaining direct sales through web based systems and the possibility to outsource distribution process maintaining direct sales in addition to volume vales channels or value added sales channels would seem possible depending on the product.

Measurement instrument: From distribution through direct sales to distribution through volume / value added resellers 12. Is the company changing distribution to accommodate relatively higher sales volumes?

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4.2 Value Proposition The target customer is willing to pay for value it obtains from the companies offer. The value can be described as a value proposition for each customer segment portrays a specific bundle of products and services attuned to this segment. (Osterwalder, 2008, p. 12) Distilled from the work of G.A. Moore the value proposition differs between the pre- and post-chasm phases. The most significant changes occur in the encompassment of the value proposition offered the value-setting strategy through which this value proposition is offered and the way the innovation needs to be perceived by the customer.

From offering an enabling technology to a whole product value proposition The basis for the whole product concept was first described in the article marketing myopia (Levit, 1960) and expanded in T. Levitt’s book marketing myopia. In essence it claims that to be successful companies need to focus on customers need, instead of selling products.

Not doing so results in gap between the marketing promises made to the customer (the value proposition) and the ability of the shipped product to fulfill that promise. In early phase

Figure 9 The whole product concept adapted from T. Levit (1986) & G.A. Moore (2002)

on the TALC the company develops and markets the core product based on the new

technology to innovators and early adopters. In order to cross the chasm the value proposition needs to constitute a ‘whole product’ representing the complete set of products and services required to fulfilling the customer's need. (Moore, 2002, p. 104). The whole product concept (see figure 5) relates to the technology adoption life cycle in a way that the outer circles of the whole product increase in importance as one moves from left to right on the technology adoption life cycle (Moore, 2005a, p. 106). The generic product (basic product based on the disruptive innovation) plays a relatively important role in marketing the product to the early market. The importance of the generic product is reduced because the value proposition needs to constitute a whole product when the product is marketed to the early majority. To successfully cross the chasm the whole product is key because; the difference between early market and the mainstream is that the former are willing to take responsibility for piecing together the whole product (in return for a competitive advantage) whereas the latter is not (Moore, 2002, p. 67-68, 124, Popovic, 2005, Davidow, 1986, p. 30). Several scholars affirm the importance of the whole product to early market success, and refine the definition further. The whole product concept holistically links technical features of the product with the market considerations needed for a successful development (Cruz, 2002), therefore

41

MASTER THESIS

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the concept is a holistic approach to product definition and development (McKenna, 1991).

When selling a product to the early majority a systems approaches is required that goes beyond the specifics of the product to understand how it is to be used in the full context of a complete activity (Norman, 1999, p. 186). The generic product is augmented by system integration services with existing mainstream systems (Utterback 1996, p. 32, 96) and service-ability of the product and establishment of a training, service & support infrastructure (Davidow, 1986, p. 53, 56). In order to cross the chasm the whole product needs to become standardised, optimized for the niche customer segments (Moore, 2005a p. 83, Wieffels, 2005 p. 166) standards can increase efficiency within the technological life cycle (Tassey, 2000) allowing cost reductions and increase volume operations. In addition standardized value propositions enhance interoperability within the product ecosystem (Adner, 2006) and reduce adoption uncertainty (Tassey, 2000). The implications of standardization objectives for the firms organizational building blocks are outlined in §4.3.

Measurement instrument: From constituting an enabling technology to a whole product value proposition 13. Are basic set-up services; Installation, instructions, debugging training offered?

14. Are system integration services offered with existing mainstream systems?

15. Is product support offered and organized by a service infrastructure?

16. Are additional hard- and software extending functionality required to fulfilling customer needs?

17. Is functionality increased by ancillary products and customer specific system enhancements?

18. Is the ‘whole product’ optimized and standardized for the served niche customer segments?

Solution optimized for technology acceptance According to Moore (2002, p. 32), and Rogers (282-286) the early majority seeks to obtain different benefits from adopting the innovation (table 1) therefore according to Moore this adopter group is more likely to adopt a value proposition that scores higher on various usefulness and usability variables. Causal relationships between system design features, perceived usefulness, perceived ease-of-use, attitude towards adopting, and actual usage behavior have been showed by Davis (1991). Davis has developed a valid measuring scale for predicting user acceptance. The questions for the technology acceptance part of the measurement instrument have largely been based upon this scale. The technology acceptance theory has also been endorsed by Anthony (2008, p. 8) in his book Innovator's Guide to Growth: Putting Disruptive Innovation to Work.

The early majority who are of pragmatist orientation seek to obtain productivity improvements for existing business processes from adopting the innovation (Rogers XX, Moore, XX). Early adopters seek to obtain a competitive edge, in contrast to the early majority they envision gains from adopting the innovation themselves. As a consequence the perceived usefulness has to be made apparent in order to increase adoption possibility of the companies value proposition. If the customer perceives the innovation to enhances effectiveness (Venkatesh &

42

MASTER THESIS

CROSSING THE CHASM

Davis, 2000), makes job easier (Davis, 1980, Venkatesh & Davis, 2000, Norman, 1998, p.

35), increases personal (Davis, 1980) or organizational productivity (Venkatesh & Davis, 2000) adoption possibility by mainstream customers is increased.

An innovation that scores high on convenience / ease-of-use leads to higher likelihood of achieving technology acceptance by the early majority (Norman, 1998, p. 251). For early majority customers the innovation needs to integrate in existing processes. The innovation is seen as tool to improve to those processes. (Rogers 2003, Moore, 2002). In order to increase ease-of-use Moore (2002, p. 80) recommends developing a product that limits functionality to what is needed for the application in the niche customer segment. This is affirmed by Norman (1998, p. 35) who recommends an increased focus on user experience for the product application in order to gain mainstream adoption. Ease-of-use is defined by; the innovation being easy to learn (Davis, 1980, Wieffels 2005, p 223), flexible, easy to work with (Davis, 1980, Norman, 1998, p. 251) and the customer finding it easy to get the system to do what he/she wants to (Venkatesh & Davis, 2000). As adoption is facilitated the innovation will diffuse more rapidly within the niche customer segment.

Measurement instrument: Solution optimized for technology acceptance 19. Does the end-customer believe innovation enhances effectiveness of existing business processes?

20. Does the end-customer believe the innovation enhances productivity?

21. Does the end-customer believe by adopting the innovation the job is made easier?

22. Does the end-customer find it easy to get the system to do what he/she wants to?

23. Does the end-customer find the innovation to be easy to learn?

24. Does the end customer find the innovation to be flexible and easy to work with?

From a price skimming strategy to a price penetration strategy Pricing strategy during the pre- and post chasm phase differs according to Moore as price sensitivity increases (Moore, 2002, p. 43, 98). In the pre-chasm phase the pricing strategy is likely to be value based. In the early majority the company should implement a price penetration strategy in order to maximize market share (Moore, 2005b, p. 23) The value based pricing will depend on the relative advantage offered if the conventional technology is continued to be used (Anthony, 2008, p. 135) and the value implicit in the competitive advantage gained by the early adopter (Davidow, 1986, p. 105). An indirect advantage of the value based pricing strategy (which is more likely to result in higher prices charged for the value proposition) is that is will help to build the product category (Davidow, 1986, p.115).

High pricing increases industry attractiveness and therefore increases entry of competition in the early market (Bayus, et. al., 1997), which is shown to have a favorable effect on the occurrence on time-to-sales-takeoff. Research (Buyes et. al., 1997, Adner & Zemsky, 2001, Agarwal & Bayus 2002) identifies new firm entry or price declines as key factors that relating to the timing of sales takeoff in new markets. Moore (2005b, p. 83-84) and Wieffels (2005, p.

156) see the ability of a company to continue to hit lower strategic price points (price

43

MASTER THESIS

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elasticity) as crucial to crossing the chasm and expanding to adjacent customer segments.

This is also confirmed by Gardner et. al (1999) who proved price skimming strategies are more likely to be used for high technology products. This statement is confirmed by research from both Adner & Zemsky (2001) and Christensen (2004, p. xvi) who found that the market boundary (i.e. whether the new technology enters a new segment) depends on the priceperformance ratio of the new product and the established product. Segment based likelihood of disruption is influenced by degree to which firms can price discriminate across segments and the increase price / performance ratio (though for example decreasing price levels).

Measurement instrument: From a price skimming strategy to a price penetration strategy 25. Can the company price discriminate across target customer segments?

26. Is the company able to hit lower strategic price points to further increase market boundaries?

27. Is the company’s following price penetration strategy to increase relative market share?

4.3 Organizational Building Blocks The impact from the market domination strategy and post-chasm value proposition reflects upon in the organizational building bocks. It is here where the company ability resides to become successful in crossing the chasm. Distilled from the work of G.A. Moore changes between pre- and post-chasm phases were mapped. The most significant changes occur in the areas of partnership agreement types, the company’s core capabilities and the way the company is organized.

4.3.1

Partner Network

A company works with partners to leverage its business model more effectively. Partners are involved, for example, to complement the value proposition, to bring in specialist competencies or to help deliver to clients. This includes the question of what a company wants to do by itself and what it wants to do with partners. (Osterwalder, 2008, p. 16) Distilled from the work of G.A. Moore the most significant types of partnerships are in the area’s of: validating the technology and the company, levering the value proposition by combining it with the value proposition of partners, increasing the propositions value by facilitating the creation of an ecosystem. Literature on alliance networks contends that alliances enable firms to gain access to resources, particularly when time is of the essence. (Teece, 1992) From strategic alliances to validate technoloy to strategic alliances to from an ecosystem Both Moore (2002, p. 119), Kotabe & Swan (1995) Baum et. al. (2000) and Anthony et. al.

(2008, p. 149 & 234) contend that strategic alliances can be used by companies operating in the early market to overcome; the liability of newness and smallness arguments (Eisenhardt et al, 1990), uncertainty of the quality of the organization’s products or services (Hannan and Freeman, 1984) and a lack of social approval, stability and sufficient resources (Boeker, 1989). Using alliances to avoid these hurdles to adopting the new technology will ease the

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MASTER THESIS

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validation of the technology in the market, therefore speeding early market success and allowing the technology and market to be developed. In post-chasm alliances the technology is validated in the market therefore the strategic alliances shifts to creating a more compelling value proposition for a wide variety of customers. The establishment of a technological standard could also be influenced by alliances to form coalitions thereby enforcing the technology as a standard. (Schilling, 2008) The value of the whole product for the mainstream is increased and time-to-adoption decreased by the development of an ecosystem around the technology / product. (Wiefels, 2005, p. 138-139, Norman,1999, p.118) Ecosystems are collaborative arrangements through which companies combine their individual offerings into a coherent, customer-facing solution (Adner, 2006) they could therefore effectively complement the value proposition to the broad mainstream market form the whole product and increase the potential of the technology to be perceived as a standard, needed to cross the Chasm.

Moreover the lack of complementary goods can be a source of technological lockout, since they directly influence the size of the installed base. (Schilling, 1998) Measurement instrument: From strategic alliances to validate technology to strategic alliances to from an ecosystem 28. Does the combination of alliances facilitate the creation of an ecosystem thereby increasing the value of the whole product?

29. Is the formation of an ecosystem stimulated to accelerate the customer’s perception of a standard?

From tactical alliances to speed product development to tactical alliances creating whole product infrastructures and dominating niche markets In the early market alliances are often formed to speed product development if the company does own the resources required in order to develop and manufacture early versions of the products. G.A. Moore recognises the value of alliances to cross the chasm and in the postchasm business model as he and other scholars & industry experts (Davidow 1986, Christensen 2002, Kotabe & Swan, 1995) specifically recommend forming tactical alliances to accelerate the formation of a whole product infrastructure for a niche customer segment in the post-chasm business model. In addition, alliances with customers can help to legitimate a new market niche. By co-operating with an important potential customer or a competitor, a firm may be able to signal that the market niche will become established. Further, because winning paths are often not clear at the outset, an alliance may give a boost to the local firm's approach to the market by tying other firms and their resources to that approach. (Eisenhart and Schoonhoven, 1996) Alliances with customers can thus serve to establish a presence a niche market, and in the adjacent niche markets. Establishing early presence through a partnership enable the company to use this partnership as a reference and leverage this to further expand into the nice market (as pragmatists are highly receptive to references in their decision making process, Rogers, 2003 p. 283) to become the dominant player in the niche market. Another type of post-chasm alliance of temporary and tactical nature is to partner to

45

MASTER THESIS

CROSSING THE CHASM

obtain access to distribution channels to serve niche customer segments. (Davidow, 1986, p.

77-81) If dependent on high-volume sales customer relationships could also be maintained by value added resellers. (Moore, 2002, p. 43) Measurement instrument: From tactical alliances to speed product development to tactical alliances creating whole product infrastructures and dominating niche markets 30. Are tactical alliances utilized to accelerate the creation of the whole product?

31. Are tactical customer partnerships leveraged for their referencing potential?

32. Are tactical alliances applied to form coalitions enforcing technology standards? (If applicable) 33. Are distribution alliances providing access to new and adjacent niche customer segments?

34. Do Value Added Resellers maintain effective customer relationships with the niche customer segments in high volume markets?

4.3.2

Activity Configuration

The main purpose of a company is the creation of value that customers are willing to pay for.

This value is the outcome of a configuration of inside and outside activities and processes needed to ‘run’ the business model. (Osterwalder, 2008, p. 17) To define the value creation process in a business model Osterwalder refers to the value chain framework from Porter et al., 1985. Most basic business activities in the value chain stay the same in the pre- and post chasm period, According to G.A. Moore there are changes in the way the business activities are controlled and configured.

From a emergent strategy process to deliberate strategic planning Proficiency in strategic planning and organizational design is found to have a positive effect on profitability of discontinuous innovations (Song & Montoya-Weiss, 1998). These are required abilities because where innovators in the early market follow an emergent strategy (Anthony, 2008, p. 172) organizational design is the ability of the company to strategically change key areas of the organization to facilitate a chasm crossing. (Moore, 2002, p. 7) The role of business strategy-type is found to have a potential moderate effect on the market orientation-performance relationship. (Matsuno & Mentzer, 2000) Blending the insights from business & market strategy with those from innovation management may further illuminate why some firms succeed with disruptive innovations and others do not. Namely firm strategy during the chasm crossing explains a major part of success in commercializing technological innovations with respect to (1) the customer groups the firm targets; and (2) its approach to being market oriented (Slater & Mohr, 2006). In the terms of the conceptual model the niche customer segments and the market domination strategy. Firm performance is further influenced by how well the organization’s structural characteristics (e.g. formalization, centralization, and specialization) and strategic behavioral emphases (i.e., customer, competitor, innovation, and cost control) complement the generic Miles and Snow (1978) ‘prospector’ business strategy (Olson et al., 2005). The prospector business strategy fits most

46

MASTER THESIS

CROSSING THE CHASM

with the market domination and bowling-ally (Moore, 2002, p. 33) strategy because firms with prospector strategies can serve varied markets, devote themselves to coping with change and innovation, keep developing products and markets. They are innovators and they push competitors to react to change. It takes visionary leadership (willing to stear the company to a strategic direction) to shift resources away from current early market cusomers, to new niche customer segments in order to develop new markets. (Christensen 1992b, Utterback 1996 p.

30) Proficiency in this area is required in order to excecute the market domination strategy.

To cross the chasm the relationship with the customer changes as a result from the changed value proposition, which is demanded. From giving the customer a competitive edge with a new technology to offering a solution to gain productivity enhancements. Effectively changing the customer relationship and value proposition requires changing the companies value proposition from product leadership to customer intimacy based (Moore 2005a, p.63, Wieffels, 2005 p.167). See §3.2.2 customer relationships for more information. In order to establish value discipline change company management needs to build new core-capabilities and implement processes (Moore, 2005a p.63, Moore 2005b, p.176, 225).

Measurement instrument: From a emergent strategy process to deliberate strategic planning 35. To what extend is the company proficient in changing its business model affecting all orgaizational disciplines to cross the Chasm?

36. Do organisational structural characteristics and strategic behavioural emphasis complement the ‘prospector’ strategy?

37. Does the strategy to cross the chasm have toplevel and organization wide support?

38. Is the company feeing resources, necessary in order to develop niche customer segments?

39. Does company management build core-capabilities and implement processes to change the value discipline to customer intimacy?

R&D handing over the leadership role to marketing In order to cross the chasm leadership must originate from marketing (Moore, 2002, p. 6) where in the early market R&D leads in the post-chasm era marketing becomes of key importance in the strategy formulation and implementation process (Davidow, 1986, p. 32).

R&D leads in the early market because the essence of most high-technologynology companies is predicated on developing new product and exploiting new businesses. Thus there are no well-worn paths or best practices to follow. One may not be able to find a prior group that did things almost right and left behind a business plan to be improved upon (Davidow, 1986). Therefore gathering market research data on breakthrough products can be difficult (Leonard-Barton, et al. 1993). In addition customers do not understand the new technology. As a result it can be difficult for them to articulate performance criteria for the product (Abernathy and Utterback, 1978). Therefore innovation is driven from R&D and as a result R&D is likely to give direction to marketing in seeking commercial applications for technological advances. R&D is the prime mover behind marketing efforts, and specific

47

MASTER THESIS

CROSSING THE CHASM

commercial applications or targets are considered only after the innovation is developed (Shanklin and Ryans 1984). In order for the two disciplines to synergize they must become tightly linked and integrated (Mohr, 2000). A market-oriented company enhances its effectiveness of its R&D activities, since it serves as an enabler for the user-centric design approach (see §4.3.3), which contributes, to crossing the chasm. Companies with a ‘prospector’ strategy are more likely to achieve superior performance when they utilize a focused and aggressive marketing strategy in targeting niche customer segments (Slater & Olson, 2001, Slater & Mohr, 2006, Matsuno & Mentzer, 2000). This is comparable to the market domination strategy factor therefore a ‘prospector’ marketing strategy best fits the strategy to cross the Chasm.

Measurement instrument: R&D handing over the leadership role to marketing 40. Is the company market-oriented, and is marketing taking a leaderhip role in setting strategy?

41. Is there tight integration between marketing and R&D activities?

42. Does the firm apply the prospector strategy to its market domination strategy?

4.3.3

Core Capabilities

At the basis of every business model there is a set of key resources a company needs to make its business model function. (Osterwalder, 2008, p. 16) The requirements on several key resources change after crossing the Chasm to support the different value proposition, and their corresponding customer segments, channels and relationships. Distilled from the work of G.A. Moore the most significant core capabilities can be identified in four areas; R&D, business expertise and Human Resource Management (HRM).

From technology centric R&D to user & application centric R&D The skills that make a company successful in the early stages of the TALC are just the opposite of what is needed to cross the Chasm. In order for the technology to reach maturity the entire nature of the product changes and the R&D process to create the product changes accordingly. In early market stages customers want more technology and better performance.

After the Chasm when the technology has evolved to a point where it satisfies basic user needs, customers want convenience, reliability, extension and refinement to existing products. (Moore, 2002, Utterback, 1996, p. 25, Davidow, 1986, p. 137) For R&D this implies focusing on user experience (attractive-, sophisticated design and ease of use). A turnaround in work processes is required because in order to cross the Chasm it all needs to start with the user and end with engineering. In other words the company needs to transform from being technology-driven to being customer-driven. (Norman, 1999, p. 35). Application innovations are required to optimize the value proposition for the application used by the customer segments. (Moore, 2005b) R&D must make sure the demands discovered by marketing that are imposed by the specific ‘niche’ customer segments on the value proposition are met. In order to accomplish this R&D needs to be tightly linked with marketing

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MASTER THESIS

CROSSING THE CHASM

in order to ensure commercial success. (Shanklin & Ryans, 2001) For pre-chasm companies the main R&D focus is on improving technology, post chasm companies balance R&D priorities evenly around Technology, Marketing and User experience. The market domination strategy implies a relatively quick follow-up of adjacent market segments being served. G.A. Moore defines this as the bowling-ally strategy. In order to make this strategy feasible R&D must be able to delink technology from existing applications and realign or apply them to deliver optimized solutions for new applications. (Danneels, 2002, p. 15) During this process, which repeats itself multiple times until the company becomes an established standard in the mainstream market new R&D capabilities should be formed enabling the company to move to adjacent niches that are further related.

Measurement instrument: From technology centric to user & application centric R&D 43. Does R&D reduce technology development efforts after basic customer needs are satisfied?

44. Does optimizing overall user experience play a central role in the design process?

45. Does the R&D department focus on application innovations?

46. Is there a balance between technology, marketing and user experience in R&D priorities?

47. Is the R&D department proficient in delinking technology from existing applications and re-aligning them to new applications to serve adjacent niche customer segments?

From product‐centric to process‐centric R&D focus In the early stages customers want more technology and better performance, after the Chasm customers want reliability and low cost (Moore, 2002, p. 32). Furthermore demand could increase rapidly if the company is successful in crossing the Chasm. These developments need to lead R&D priorities away from product design and features to process innovations.

(Utterback 1996, p. 32 and 96). Process innovation can fulfill the demands for quality, lowcost and scale since it entitles the implementation of a new or significantly improved production or delivery method. Examples could include changes in techniques, equipment and/or software. This shift can only occur however when performance of the innovation can fulfill the demand of the majority of the mainstream market (Anderson & Tushman, 1990).

Failure to shift R&D focus to process innovation will result in sub-optimization through overengineering by delivering technical performance beyond the customer requirements.

(Markides, 2006) Once the chasm is crossed the dominant design emerged, now innovation should focus be characterized by an era of incremental change during which the dominant design is elaborated (Utterback, 2006, p. 117).

Measurement instrument: From product-centric to process-centric R&D focus 48. To what extend are the rapid product / technology improvement reduced?

49. Does R&D focus upon improving production methods?

From technology to business expertise in Human Resources

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MASTER THESIS

CROSSING THE CHASM

To cross the chasm by selling to niche customer segments that are pragmatic in orientation business expertise is required. In the pre-chasm area the technology would sell based on benefits to technology enthusiasts, which would enable they to obtain an (competitive) advantage. In the post-chasm area a solution is sold to a problem, which needs to be adopted by a pragmatic person or DMU. This implies new way of conducting sales, distribution and customer relationships (e.g. sales support) requiring different competences namely business expertise throughout the company but predominantly in the sales force. The sales force and sales support (service) organization needs to be educated to obtain a deep understanding of customer needs, and context in with the solution is adopted. (Davidow, 1986, p. 38) It is the domain of the HRM department to strategically safeguard the level of required business expertise each time the company plans to address. A strategy to quickly increase business expertise could be to recruit well-connected people with business expertise from the target niche market. (Moore 2002, p.98, Moore 2005b, p. 226)

Measurement instrument: From technology to business expertise in HR 50. Does HRM safeguard the required business expertise level to serve the niche customer segment?

51. Is the company specializing the sales force and sales support organization around the application of the niche customer segment it is serving?

From a culture of pioneers to becoming settlers A company’s response to its environment is largely dictated by its culture, it is therefore critical to manage the cultural context of the organization to achieve strategic change and an adaptive organization (Johnson, 1992). In the pre-chasm era the company’s culture is characterized by pioneers who desire to operate on the technological edge, innovate and interact with visionary customers to obtain competitive advantage for both. This culture is essential for the technology and early market to develop. Not being able to create this culture is even the lead cause for the failure of incumbents to create and commercialize disruptive innovation. (Christensen, 1997, p. 34) In the post-chasm era a fundamentally different culture (settlers) is required in order to ensure success in crossing the chasm. (Markides, 2006) Success is now based upon creating infrastructure standards, standardization, procedures and integration with installed solutions as required by the pragmatist customer. These demands do not receive priority by pioneers; therefore pioneers can become a barrier to crossing the chasm. If sales to visionaries are continued customized implementations of the whole product consume resources from the R&D department, moreover the market domination strategy is poorly executed. (Moore 2002, p. 194) Changes in the organizational structure are indicated by Christensen, (1997) and King & Tucci, (2002) as one way to change a company’s culture. For example from the entrepreneurial organic firm to the centralized hierarchical mechanistic firm with defined tasks, procedures and vertical reporting structures (Utterback, 1996, p. 91). Teece (1994) confirms Moors view and the need to change organizational structure because different organizational arrangements are suited to

50

MASTER THESIS

CROSSING THE CHASM

different types of competitive environments and differing types of innovation. Both the environment and type of innovation change in upon crossing the Chasm. Moore (2002, p.98) and Davidow (1986, p. 40-41) suggest a more radical approach since that would fit with the speeding the time to cross the Chasm namely outplacement and recruitment policy to hire employees with a pragmatist profile.

Measurement instrument: From a culture of pioneers to becoming settlers 52. Are engineering targets changed from operating on technological forefront to customer usability?

53. Is the organizational culture facilitating the focus on creating infrastructure standards, standardization, procedures and integration with installed solutions?

54. Is the organizational structure facilitating cultural change to becoming a mature organization?

55. Is personnel of pragmatist orientation recruited and assigned to critical business functions (sales, marketing R&D, C-level management)?

4.4 Success Metrics in Crossing the Chasm A company is successful in crossing the chasm when it becomes the dominant player within several adjacent niche markets of predominantly pragmatist in orientation. (Moore, 2002, p.

18) In order to obtain further commercial success the company needs to continually sustain the increase in revenue growth after the chasm thereby sustaining overall market leadership.

Since this phase lies beyond the chasm on the TALC (conceptualized by G.A. Moore as the hypergrowth phase) it is outside the scope of this research. As pointed out in §2.1 the concept of the Chasm is scientifically proven by analysis of sales trajectories (Meade and Rabello, 2003, Modis, 1998) and the phase can be quantitatively assessed by plotting cumulative adoption in relation to the overall amount of potential adopters in the market. However the complex and non-linear nature of the market makes it difficult to forecast and determine the environmental context, therefore subjective assessment of the company’s progress and the environmental context need to compensate for errors in quantitative assessments due to the assumptions that need to be made (Meade and Rabello, 2003, Wieffels 2005, p. 98). Several of the company’s targets and business model components change to cross the chasm.

Therefore in order for a company to measure this success it needs to evaluate (benchmark) its operations on different business metrics then in the pre-chasm phase (Moore 2002, p. 164, Anthony, et. al., 2008, p. xiv).

Sales: From maximizing design wins to time‐to‐segment dominance In order to validate the companies new technology in the early market in general customized versions of the companies early value propositions are sold to customers willing to utilize an under developed technology, in order to obtain a competitive / performance edge. Davidow (1986 p. 135) explains this as design wins, where the product needs to be integrated in the customers system (e.g. semiconductor chips). Moore explains the design-wins as customized solutions for specific customers of the whole product. This customization was both a vehicle

51

MASTER THESIS

CROSSING THE CHASM

for winning sales and developing technology in the early market. The market domination strategy implies focusing on becoming the market share leader for niche customer segments and moving to adjacent segments within the shortest possible time. See §4.1.1 for more information. Continuing the strategy of offering highly customized value propositions works contra-productive to crossing the chasm, since resources need to be allocated to offering standardized value propositions for entire the niche market segments. When a company becomes the dominant player in a niche segment it is perceived to be the market leader for the category of products. (Moore 2002, p. 69, Wieffels, 2005, p.47).

Measurement instrument: From maximizing design wins to time-to-segment dominance 56. Does the company implement sales targets to obtain time-to-segment dominance?

Strategy: From reaching technological maturity to category market share targets The company operating in the early market focused mainly on converting the potential of new technology into a sellable but incomplete value proposition (Davidow, 1986, p. 25). But in order to cross the chasm and for the company to achieve market leadership targets in adjacent niche markets the value proposition must consist of a whole product (§4.1) (Moore, 2002, p. 67-68, 2005, p. 83). Market leadership is important because it reduces uncertainty that is associated with the adoption of the new technology (Davidow, 1986, p. 34) decreases the cost of business by 20-30% every time business experience (production) doubles, thus allowing the company to hit lower strategic price points giving it the potential to expand market boundaries (Adner & Zemsky, 2001). The possibility to use references during the sales and marketing process is enhanced. Overall being the market share leader sustains the momentum of the companies growth. A distinction in setting this target must be to focus on the total addressable market and not the total available market. (Wieffels, 2005, p. 20) The market domination strategy does not imply aiming for monopoly strategy. Research has shown that competition exerts a positive influence to both the company and the product category crossing the chasm (see §4.5.3 for explanation of this influence). Therefore market share targets must both be relevant to the addressable market and to the competition.

Measurement instrument: From reaching tech. maturity to category market share targets 57. Does obtaining dominant category market share replace the technological development goals as strategic priorities?

Finance: From contolling cash‐burn‐rate to obtaining quick but small revenues Capital management for start-up companies consists of controlling the cash-burn-rate

because of the finance structure, which partly consists of venture capital or incumbent investments (Markides, 2006) and incidental sales to technology enthusiasts in the early market (Churchil & Mullins 2001). However the Chasm is period in which very little growth (Moore, 2002, p. 188) or even a drop in sales (Goldenberg, et. al. ,2002, Modis 1998) occurs.

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MASTER THESIS

CROSSING THE CHASM

Given the relatively small size (see §4.2.1) of the niche markets compared to the overall mainstream market and business development expenditures that must be amortized profit potential during this period is low. However the companies target during the chasm period is to get the value proposition adopted by pragmatist customers and thus the establishment of an installed user-base in the mainstream market. This target in the chasm period can be seen as midway-point to reach the full profit potential of the mainstream market (Wiefels, 2005, p.

8). The market domination strategy cannot be executed if the company’s financers do not exert patience and accept the uncertain nature of the chasm period. (Moore, 2002, p. 190) However as the company establishes a presence in niche customer segments relatively small revenues will start to flow to the company, compared to the large revenues promised by being a dominant player in the mainstream market. (Christensen, 2004, p. 62) Therefore performance should be evaluated by company management and financers based on these conditions.

Measurement instrument: From controlling cash-burn-rate to obtaining quick but small revenues 58. Is company management aware that crossing the Chasm can imply a period of stagnating growth?

59. Does the company’s performance evaluated on obtaining quick but relatively small revenues?

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MASTER THESIS

CROSSING THE CHASM

4.5 External Factors As the previous paragraphs describing the business model changes have shown companies can exert influence on whether they cross the chasm. There are however also forces outside or within very limited companies control that exert influence on both the company and shape the way the industry matures. This is also confirmed by Anderson and Tushman (2008) who argue that the closing of an industry standard is an inherently political and organizational phenomenon constrained by technical possibilities and by Utterback (1996, p. 196) who argues that the passage of an industry from ferment to order is not an engineering issue as much as sociological one. While multiple external factors are in play during this process, four factors that are believed to most significantly influence mainstream adoption of disruptive innovation are analyzed.

4.5.1

Market Circumstances

A company’s success depends on its ability to become the market share leader within a short period of time. However in order to accomplish this, the companies depends on customer ability and willingness to invest in new technology. The investment ability can be greatly influenced by the investment climate, the economy and macro-economic developments, having the potential to disturb the sales development for example by delaying or flattening the sales take-off moment. When the S-curve of the technology passed its point of inflection, new technology developing at a more productive rate may in the future intersect with the current technology (Christensen, 1992a, Anthony, 2008, p. 237). At any point the disruptive technology can be overturned by another technology influencing technological development.

The company should launch efforts to acquire or develop the new technology in time to switch to it when its performance surpasses capabilities. Disruptive innovation can commercialize in several ways since discontinuous patterns of change occur in multiple forms. Each putting emphasis on different business model components; •

The attack from below; Displacement of conventional technology because the disruptive technology moves up-market through increasing price / performance ratio.

•

The attack from above; Disruptive technology is introduced in the most demanding market and moves downward by becoming more accessible through price / performance decreases thereby displacing the conventional technology.

•

New-market disruption; Disruptive technology enlarges and broadens markets by providing new functionality.

Measurement instrument: Assessing the influence of market circumstances

60. Does market demand, exert influence on mass mainstream adoption?

61. Can the disruptive innovation be overturned before reaching mass mainstream adoption?

62. Is the way discontinuous change occurs influencing the configuration of the business model?

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MASTER THESIS 4.5.2

CROSSING THE CHASM

Dominant Design

The emergence of an established design methodology is an indicator of industry maturity and puts conditions in place that facilitate wide-spread adoption. (Moore, 2002, 21, 57) According to Utterback (1996, p. 2, 24) the occurrence of a dominant design is critical for crossing the Chasm. This emergence of a dominant design is not predetermined, but is the result of the interplay between technical and market choices in and outside the companies control at any particular time. The result of market choices are best explained by the great variety in technological trajectories in the beginning of an industry which are gradually replaced by fewer technological trajectories as firms exit the industry or shift their focus to the more profitable/better trajectory (Srinivasan et al, 2006). The influence of technical choices results in closing the gap between product capabilities and user requirements for the mainstream market thus creating an overall satisfactory value proposition (Utterback, 1996, p. 29). The occurrence of dominant design is reciprocally independent with standardization. Therefore through enforcing standardization in product design (Moore 2005a, p. 60) and encouraging many suppliers of compatible peripheral equipment to invest to thereby facilitating the creation of a market ecosystem (Utterback, 1996, p. 28, Adner 2006, Anthony et al, 2008, p.

236) the company can influence whether its technology becomes the established design methodology. A market ecosystem (e.g. though licensing-, distribution agreements, complementary products) increases the perceived installed base and therefore the technology is more likely to be perceived as a standard (Moore, 2002, p. 43, 2005, p. 31, Schilling, 2008, Wade 2005).

Measurement instrument: Assessing the influence of the occurrence of dominant design 63. Is the value proposition offering an overall satisfactory solution for the mainstream market?

64. Are technological trajectories converging within the product category?

65. Is the technology design standardized?

66. Are measures taken for the technology to be perceived as the standard design methodology by the niche customer segments (e.g. licensing-, distribution agreements, complementary products)?

4.5.3

Critical Mass

Referencing is always an important part of the sales process, however it is even more important when selling to customers of a pragmatist orientation. Because references function to reduce risk in the adoption of new technology for this adopter category. According to Moore the ability to generate references influences whether a company crosses the chasm and sees markets as being self-referencing (Moore, 2002, p 28, 67). This importance is confirmed by the finding that, early on, the addition of each new community member accelerates the rate at which second sources join a community (Wade, 1995). This creates a problem to execute the market domination strategy, given the non-existence of usable references due to the new niche customer segment the company is entering. Therefore in order to accomplish early success by attaining the first group of customers to attract second

55

MASTER THESIS

CROSSING THE CHASM

sources may be critical and thus require high priority in order for the market to become selfreferencing. The potential of a market to become self-referencing can be explained to applying the TALC to critical mass theory (Rogers, 2003, p.351, Marcus 1990). Reaching critical mass in niche customer segments influences the earlier incurrence of dominant design. Obtaining critical mass is more critical when network externalities are applicable for products that depend for their functionality on a network (e.g. telecommunications, social networking services) which can be explained by Metcalfe's law which states that the value of a telecommunications network is proportional to the square of the number of users of the system (Odlyzko & Tilly, 2005).

Measurement instrument: Assessing the influence of obtaining critical mass 67. Is critical adopter mass developing in order to facilitate the establishment of the dominant design?

68. Are high priorities given to establishing the first references in the niche customer segment?

69. Is adoption accumulating in order for the market to become self-referencable?

4.5.4 Companies

Competition commercializing

disruptive

innovations

compete

both

against

the

old

technological paradigm and against competitors within the same product category. While the typical response of the competitors in the old technological paradigm is to avoid competition by moving up-market the competitive influence is exerted by the process converting users of the old- to the new technological-paradigm (see § 2.2). Direct competition on the other hand within the same product category and new technological-paradigm can exert a favorable influence on crossing the Chasm. Pragmatist customers favor multiple players in the product category because it reduces price, risk and offers affirmation they purchase from the market leader (Moore, 2002, p.43). This is assumption is confirmed in a study where the likelihood of disruption (overturning the old technological paradigm) is influenced by the increased intensity of competition within niche customer segments (Adner & Zemsky, 2001). In addition as new firms enter, actual and perceived product quality improves (Agarwal & Bayus, 2002) and even greater innovative activity is encouraged (Bayus et al, 1997) which leads to a takeoff in sales and thus to a chasm crossing. As more competitors enter the category the basis of competition changes (Moore, 2002, p. 128) from product performance to cost, scale and integration (Utterback, 1996, p. 2, 24) Whilst competitive pressures require a company to do this it has a favorable effect on a company crossing the chasm.

Measurement instrument: Assessing the influence of competition 70. Does increased competitive intensity result in perceived reduction of uncertainty and cost?

71. Does increased competitive intensity result in a perceived increase in product quality and higher innovative activity?

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MASTER THESIS

CROSSING THE CHASM

4.6 Evaluation of the Theoretical Validation Given the practical orientation and poor scientific substantiation the chasm theory was subject to theoretical validation. Proof for Moore’s theory was found by connecting Moore’s claims to other scientific research. During this process attention was paid to ensuring construct validity through the continual assessment of the comparability of the operationalisation between theories. With a few exceptions, addressed further on, proof was found for most of the factors in the Chasm theory.

In respect to the overall theory; it was found to be predominantly focused on the front-side of the organization and being marketing oriented. Moore does not address the organizational building blocks extensively despite the fact that are tightly linked with the market domination strategy and the value proposition. Neither does Moore describe the interconnectness and reciprocal interdependence between factors that influence a chasm crossing. The linkages between the factors are described by the connecting lines between the factors in the conceptual model both at the aggregated and the 2

nd

level. The factor mapping process

resulted in a high amount of factors, all of which were expected to exert significant influence.

However in order to make a useful conceptual model which could be easily understood the model needed a clear hierarchical structure. This was provided to categorize the factors according to the business model framework devised by A. Osterwalder (2008). In order to determine what changed internal to the organization in order for a factor to exert positive influence on crossing the chasm a pre-chasm and post-chasm conceptual model was constructed. This process was largely drafted based on the empirical validation, since the validation concluded Moore did not describe pre- and post-chasm situations extensively.

Limited support in the theoretical validation was found for several factors. Case study validation could provide data on basis of which the factors can be proven. Limited support was found for pragmatist and visionary values (part of factor customer relationships). The values in table 2 were based on assumptions generalized from the adopter profiles made by Rogers (2003) and Moore (2002). However no scientific literature can be found that statistically validated the values for these adopter categories, nevertheless the factor is included because it is credible. Regarding the factor business metrics Moore claims that the Chasm is a period of no growth, despite proof for this conclusion was partly given by (Golgengerg, et al, 2002) who conceptualized the Chasm as a ‘saddle’ in sales. The ‘saddle’ period can also take a very short time not impacting net results of a company; this should be taken into account during the empirical validation. No support could be found for Moore’s claim to focus on the end-user community and economic buyer in order to cross the chasm.

However since it is consistent with appealing to the different innovation adopter categories, the decision was made to leave this factor in the conceptual model.

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5 Empirical Validation The conceptual model outlined in chapter 3 will be subject to empirical validation on a multiple case study basis. Conclusions regarding model performance for each individual case will be drawn in § 5.4, and a cross case synthesis analysis for all three cases will be given in § 5.4.4.

Worldwide PDA market in millions of units

5.1 Palm Inc. (PalmPilot)

0

time period of this validation case. In addition the exclusive Palm distributor for the Benelux was interviewed.

2002

Palm and Handsprings management during the

2001

5

2000

Hamburg, all case studies extensively interviewed

1999

10

1995

Graduate School of Business and University of

1998

15

1997

conducted by Harvard Business School, Stanford

1996

Data from this case is gathered from case studies

Figure 10 Nomura research inst., Ltd.

The PDA (personal digital assistant) is a digital device that has a one-handed design, can function independently and perform multiple functions (schedule, address book, calculator, wireless communications). The development of the PDA can be traced back to 1975; the PDA underwent many changes from the technology’s invention to its acceptance as a mainstream product. The company Palm Inc. was largely responsible for making the PDA an accepted 1

product by the mainstream market. In a 1997 Palm Pilot survey users were considered predominantly early adopters being sophisticated or expert computer users, having a highincome, male, fulfilling management (28%) and R&D positions (11%). These positions obtain the most significant advantage from productivity enhancements. The other 61% of the market was considered highly fragmented. In 1999 Palm achieved nearly 73% of US market and over 68% worldwide for handheld 2

products. Making Palm the market leader in the PDA category.

Based on this information we define the Chasm period between 1997 and 1999, the conceptual model will be applied to study the changes in this period. A crucial development occurred when Palm’s senior management left the company in July 1999 to form handspring, its competitive product was called the Visor. The implications of this event will be discussed throughout the case analysis. Palm Initial Public Offering (IPO) was in 2000. In June 2003 Handspring was acquired by Palm.

1 2

HBR Case: Palm Computing: The pilot organizer, December 15, 1998 http://www.palm.com/us/company/corporate/timeline.html

58

Figure 11 The PalmPilot connected organizer (1998)

MASTER THESIS 5.1.1

CROSSING THE CHASM

Market Domination Strategy

Customer Segments The pilot’s success made Palm the market share leader in the fragmented and struggling marketplace. (1) In 1997 Palm had done little market segmenting; the company’s management was questioning what segments to target in order to enter the broader mainstream market. Market analysis indicated Palm’s products were still purchased primarily by early adopters. At this stage it was time for the company implement a niche based marketing strategy in order to accelerate adoption. Since corporate accounts in the mainstream market, benefitted the most from mobile computing and consisted of a major share of this market. Palm chose to focus on corporate accounts.

In order to establish a foothold in this market Palm focused on several corporate niches. (3) Such as bar code scanning, inventory tracking or the medical equipment market. To scale up to adjacent niches to reach the potential of the broader corporate market new functionality such as internet access, e-mail and remote downloading became important to the whole product. In response Palm released the Palm IIIx, Palm V, Palm VII to focus on the mobile computing demands of the corporate workplace and enterprise applications. In addition these product were more easily expandable to meet specialized application needs, and were able to store large amounts of data from powerful enterprise systems such as Oracle, Remedy and SAP R/3. (2) After the release of these products in February 1998 and May 1999 sales tookoff and palm became the market leader with roughly 70% market share of the worldwide PDA market.

Customer Relationships (4) Palm’s communications during that time changed to communication based on pragmatist values. An example is the return on investment calculations that accompanied the offers palm made to prospective customers and became available on their web site. Palm also focused on total cost of ownership by including the supporting hardware for the palm. After the successful initial release of the Pilot, Palm communicated as the dominant player it had the most 3

rd

party developers (40.000), and largest installed base. Its platform was at that time

the standard OS (although it would be heavily challenged by Microsoft CE later on). The rapid increase in volume / value added resellers in the form of IT services cooperation’s (like partnerships with IBM) ensured a high service-level for corporate customers. (5) Palm released several case studies during that time in order to function as references.

(6) Purchasing decisions within corporations are made by decision-making units built up from multiple individuals from multi-disciplinary backgrounds fulfilling different roles. Among with end-users and economic buyers. By deciding to focus on the corporate niche markets Palm had to focus on these buyer groups. The strategy to focus on the economic buyer and end-

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user community was actively employed by the Palm often the markets were served together with ICT system integrators.

Communication & Distribution Channel (10) To implement the niche-based strategy and serve corporate niches Palm formed a strategic partnership with the company Symbol. Symbol provided access to specific vertical marketing and distribution channels required serving niches such as bar code scanning, inventorying tracking and order processing for courier services or restaurants.

(7) The Benelux sales force was not organized according to customer segments due to its small size, the US sales organization however was. The assumption can be made, given the focus on niche markets, the US sales force increased their proficiency in business expertise for the target customer and focused on developing the niche markets. (8,9) No data is available to make an analysis regarding the implementation (such as business metrics, hires from the target market) of this process for the US market. (12) No data available.

5.1.2

Value Proposition

Before 1996 the PDA market was in its infancy, many products (Apple Newton and Palm Zoomer) failed in the market due to limited performance, non-realistic performance ambitions and poor integration. (Bayus et.al. 1997) (18) This started to change when the PalmPilot was introduced in 1996, based on a deep understanding of user-needs what users wanted in an information management and communications product and where the product competed against the conventional technology being paper date and address books. And not as the Apple Newton and Palm Zoomer had attempted as a PC substitute.

As predicted by the conceptual model the creation of a whole product for this category influenced the Palm Pilot to cross the chasm. First the core product could be made of excellent quality given the realistic substitute competition. (13) The performance and set-up of the expected product could be optimized due to the focus on a limited set of functionality.

Where earlier versions tried to accomplish a little of everything, the PalmPilot focused on doing things the PC could not due to its unique form-factor the “shirt-pocket size”. (14) As an industry first, the product provided seamless PC connectivity with the touch of the one hotsync button allowing users to backup and synchronize making the product integrate with existing systems. (15) Palm’s new focus on user friendliness was reflected in the support services the company offered. (17) The whole product was competed by Palm’s successful attempt to create an ecosystem though the encouragement of third party developers and embedding hard- and software upgradability in the device. (16) Palm offered additional hard and software to extend the devices functionality for example; cradles, mobile communications extension, cases, input devices etc. Due to the unique value proposition Palm was offering the PalmPilot was now the first true portable information management solution (in accordance

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with the systems approach) with superior usability and practicality. (27) The target price-point of the Palm organizer was set and obtained at $300. The sales price was based upon a price penetration strategy, bringing the Pilot within the buying range of the mainstream consumer. It was significantly lower then the competition namely $1.000,- for the apple Newton and $700,for the Zoomer. (25) Palm was able to price-discriminate across segments with the release of a differentiated product offering however these differentiated products were released after the 1997 – 1999 period and (26) sustained the mainstream adoption ($99,- handheld). A high-end model was also maintained.

The PalmPilot was optimized for to perform well on the technology acceptance attributes operationalized in §4.2 Namely; (23) easy-to-learn (one-touch synchronization, simple interface, limited functionality), (24) easy-to-use (flexibility due to hard- and software upgrades, ease of data entry due to the graffiti handwriting technology) and (19) high perceived usefulness & (20) productivity (due to the good productivity performance against substitute pen and paper based technology. Previous versions of PDA’s manufactured by Palm, Apple, Casio, Sharp, AT&T lacked performance on these attributes partly due to technological immaturity which was further increased due to their high technological ambitions. No information is available to answer question 21 & 22.

5.1.3

Organizational Building Blocks

Partner Network Palm relied heavily on a partner network to make its value proposition "cross the chasm”.

Before crossing chasm during the design phase of the Palm Pilot, Palm employed tactical partnerships to extent its capabilities. Predominantly in industrial-, mechanical design and manufacturing. Palm did not give up control of the design process and ownership of intellectual property. (28, 29) Palm facilitated the creation of an ecosystem around its products. The Pilot was designed so that third party developers could (30) expand its functionality, both in terms of software and hardware. For example through partnerships with Dataviz (integration with Microsoft Office, and other software manufacturers) (32) By releasing free software development kits and stimulating developers to join the developers network, Palm encouraged developers to write specialized software for the Palm OS. Thereby increasing the overall value of the mobile computing solution and installed base. This also positively influenced the consumer’s perception of a standard. (34) Palm looked for a tactical partnership to extend its capabilities in bringing the pilot to the market. Palm agreed to be acquired by US Robotics, the acquisition provided product and distribution synergies.

However specific distribution channels, capabilities, whole product requirements are often required in serving mainstream market niches to “cross the chasm”. (30) The short strategic partnership with Symbol provided Palm with the required capabilities, (33) distribution channels and accelerated the whole product infrastructure, for example the bar code scanner addition and software to process data.

(See § 4.1.2 for more information). (34) Palm

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employed alliances with volume resellers / value added resellers like IBM in order to expand the corporate niche further. (32) There was disagreement between US Robotics and the Palm board to license its operating system; eventually the decision was made to license the OS. Activity Configuration (35) Palm’s visionary leadership realized radical business model changes, compared to other competitors in the product category proved instrumental to the company’s chasm crossing.

(37) Palm’s leadership strongly supported or initiated the product design based on user needs, tight integration with marketing and the sole focus on the (38) niche marketing strategy. However during this phase leadership developments severely limited the company’s sales momentum. The Palm series was a success but the company did not move fast enough to sustain success. This was influenced by key management personnel at Palm (now a 3Com subsidiary) leaving the company to form Handspring. After Palm’s senior management left to form and lead Handspring no major PDA product developments have been conducted by Palm only incremental improvements to the existing product line. The primary reason for Palm to acquire Handspring in September 2003 was Palm’s deteriorating technological position, most specifically apparent in the Smartphone market. Palm leveraged various co-specialized assets like its brand and market channels to gain adoption in adjacent niches.

(39) Palm created products that pushed performance boundaries in the pre-chasm phase consistent with product leadership value discipline. (An example is the technically overperforming Zoomer) However partly contributing to the chasm crossing is that Palm started to transition to the customer intimacy value discipline. (40, 41) The company did so by thoroughly researching (through marketing efforts) and delivering what specific customer needs, delivering a simplified but all encompassing solution. Making sure not to over deliver on unneeded performance attributes. Palm maintained this tight linkage between marketing and R&D as it gained further mainstream adoption by reaching corporate requirements to expand the whole product infrastructure. More factors determine the company’s value discipline and the proper execution throughout the organization.

Core capabilities (43) In contrast to early product-centric developed PDA’s like the Zoomer and the Apple Newton, there were only a few standard applications in the Palm OS running on the Palm Pilot. Each of these applications had (48) only essential functionality as Palm’s customer surveys pointed out most people only used a small percentage of the features in an application. Still, combined use of these applications created a powerful tool supporting complex tasks carried out most often. (44) All software development focused on optimizing few applications, resulting in high performance and usability. (46, 52) This deliberate usercentered development paradigm (positively influenced by the tight marketing and R&D linkage) resulted in a smooth and intuitive handling. Palm did not just design a user interface; the whole architecture was designed to fit the user-requirements. (45) The R&D department

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focused on application innovations to better serve niche markets in the corporate segments, like inventory and order picking, corporate communications. Additional niche customers specific hardware and software applications were developed to cater their unique needs. (47) These some of these specific software developments (like communications software) were later applied for other niche markets. (49) No information is available regarding the shift of the R&D department to focus on process innovation however given the price reductions the assumptions can be made advances in process innovation were made to reduce cost. No data is available to answer questions (50 to 55) 5.1.1

Success in Crossing the Chasm

A company is successful in crossing the Chasm if it becomes the dominant player in the mainstream market. In order to do this the technology needs to become an accepted standard in the mainstream market we see the worldwide PDA category sales take-off in 1998. (57) Palm is not the only player in the market but the company obtained 70% market share in 1999, it became the dominant player within its category and the company aimed to do so. (56, 58, 59) Success within the Chasm is defined by business metrics such as time-to-segment dominance, and utilized follow up potential of the niche markets. Palm targets multiple adjacent segments preceding the adoption of the mainstream corporate market. It was not possible to go more in-depth into the inner workings of the company and analyze the business metrics the company uses during 1997 – 2000.

5.1.2

External Forces

Market Circumstances The specific sales development during the period where Palm crossed the chasm and the phase of rapid growth that followed it was heavily influenced by market circumstances. (60) Mid-2000, the “bubble” of high valuations for technology companies burst. Dramatic hightechnology downturn temporarily limited the demand for PDA’s. Industry experts and market research companies predicted in 1997 that the PDA would soon become as commonplace as the mobile phone. (61) Palm failed to proliferate in the next technological wave, namely smart phones overturning the PDA category. For example the first half of 2006, shipments of PDA’s and smartphone’s grew to 42.1 million units, 34.7 million of those were Smartphone’s, with the remainder PDA’s. This new ‘technological wave’ already to influence the PDA market in 1998 because the growth in smartphone’s originated for a large part from the PDA market, decreasing its market share with an increasing rate. The economic downturn and new ‘technological wave’ influenced the sales development of Palm. (62) Palm created an entirely new product category it therefore this case falls under the new-market disruption category.

Critical Mass & Dominant Design (63) In 1997 Palm’s handheld solution offered an overall satisfactory solution for the mainstream market this set the fundamental criteria for palm to establish itself as the dominant design. (64) Palm’s dominant design of the OS was short lived because the entry of

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Microsoft into the market with Windows CE in 1997 was anticipated to fundamentally change the competitive landscape, Windows CE was considered to have the potential to become the new standard. CE could port many complex applications available on the PC and make it available on the handheld; its open architecture was attractive to third party developers. At the time of the Chasm crossing Windows CE was still under developed and had a small installed base. (66) The Palm OS was the most used OS at the time and started to be licensed to other PDA manufacturers like Acer, HandEra, Handspring, Nokia, and Sony. While the Palm OS did not become the dominant design that lasted for a relatively long period of time, (65, 67) it did obtain enough adoption to be perceived as the standard handheld solution, also contributing to the ecosystem around the product. (68) Not enough information is available (69) The adopter mass was referring to existing and potential palm users as the device became an icon to indicate social status. No quantitative data is available.

Competition (70, 71) Among the Palm OS based handhelds, Handspring was Palm’s fiercest competitor.

Handspring posed a high threat to Palm, as the products were inherently similar with as a result low switching costs. Handspring targeted the low-end PDA market palm continued to target the high-end PDA market. Other competitors between, 1997 - 2000 were Psion’s ‘fold out’ palmtop computer and early Windows CE based handhelds and to a limited extend manufacturers like Sony who licensed Palm OS. The industry itself was also dynamically changing and overlapping with other electronic devices, as other electronic devices add PDA functions to their own for example Smartphone’s. However during the phase where Palm crossed the chasm Smartphone’s were not a significant force in the market. Overall the competition intensified R&D, sales and marketing efforts of the existing companies in the market during that period. Palm was the first company that correctly managed the changed basis of competition (cost, scale and integration) to serve pragmatist values. Palm was also the first company that competed against the right conventional technological paradigm (pen and paper based organizing). Competition is excepted to have reduced uncertainty because the disruptive technology was new to the market. (Bayus, et. al, 1997).

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5.2 Senz Umbrellas B.V. All data in this case analysis is gathered from interviews with Philip Hess (founder and commercial director) and Gerwin Hoogendoorn (founder and Lead engineer). In addition news articles have been used as information sources.

Umbrellas claims to have created "the first gamechanging innovation in umbrella design". Due to the aerodynamic shape the umbrella slices through the

Figure 12 Senz Original Umbrella

wind (up to wind force 10) without inverting and the need for the user to take care of correct positioning like conventional circular-shaped umbrellas. The innovation is potentially disruptive. Conventional umbrella manufacturers do not posses R&D competences, material designs and manufacturing capabilities to offer a similar value proposition. Product design requires skills in aerodynamics and the manufacturing process is specialized due the asymmetrical design of the canvas and specially designed baleens and hinges making the product perform in high wind conditions.

Patent protection prevents other manufacturers to reverse engineer the product. The product diffusion trajectory resembles the “attack from above”. The innovation is higher performing (in windy conditions and in terms of field-of-view) and higher priced (€50,- compared to €15,- for conventional umbrellas). The innovation is introduced into the most demanding established market segments (fashion-, design stores, golfers, gadget lovers). The innovation could later move “downward” towards the mass market as the price / performance ratio increases (reaching lower strategic price points) then the innovation will become accessible to the mainstream market where it can be established as the new standard for umbrella design. The innovation adopter is required to change usage behaviour when the Senz umbrella is used.

Compared to conventional umbrellas is no need take care of correct positioning, due to the aerodynamic design the umbrella will move itself in the most favorable wind position. This requires a more lose and flexible product operation. Senz is relatively R&D intensive compared to conventional manufacturers, therefore falls under the high-technology category.

Currently the company employs four engineers out of 11 employees to work on product development. Competitive umbrella retailers outsource the entire R&D activities to umbrella manufacturers predominantly located in low-cost manufacturing countries. Retailers selling high-quality umbrellas follow a similar strategy. Due to confidentiality and emergent nature of the marketing strategy, is only possible to provide best estimates of the products location on the technology adoption life cycle. However the information is conclusive enough to make assumptions for the correct analysis perspective. Senz developed its first prototype in September 2005; in October 2006 the first batch of 10.000 units was sold, for 2008 Senz sales are estimated to be in the range of 200.000 - 300.000 units. The sales potential of Senz

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Umbrella’s are estimated to reach 20 million annually in 10 years time. Annual global Umbrella sales are estimated to be around 1,1 billion units, however the majority of which are low-quality umbrella’s, which lay outside the addressable market for Senz. The precision of this data is not important, it allows concluding the company has not reached the take-off moment in sales, and is in the pre-chasm phase. This is consistent with the profile of current customers, conforming to the early adopter profile. Current customers buy on the basis of design, emotion, features; they are typically technology minded or people who want to stand out. Therefore Senz will be analyzed using the pre-chasm business model; conclusions will be made based on its advancement towards the post-chasm business model. The overall performance of the conceptual model will be evaluated in §5.4.

5.2.1

Market Domination Strategy

Cusomer Segments (1) Senz’s niche customer segmentation strategy is beginning to take shape it is regarded as highly important by the management team. Currently the company’s product sells in the following niche customer segments markets; golf-equipment, gadget enthusiasts, design stores, company gifts, fashion stores. However the company is not explicitly focusing on conducting a niche based customer segmentation strategy in which the company focuses market development activities to these segments. No marketing plan is yet devised which maps and selects niche markets current strategy is emergent. For example; Senz was approached by Dyson for their product to be utilized as a company gift. (2) The overall market leadership goal is to build a global brand and become the largest worldwide umbrella supplier in 10 years; this goal is not yet incorporated into the niche market strategy. (3) The generic product design, can be leveraged in each niche customer segment, expansion to adjacent niche markets, building on similar competences is possible. Future niche markets Senz could focus on niche markets reaching pragmatist consumers to cross the chasm namely; lead users in harsh weather conditions, free umbrella service provider (corporations).

Customer Relationships (4) Senz markets the umbrella with early market values based on product performance, features, state-of-the-art design, and uniqueness. This is consistent with their focus on early adopters. In order to appeal to the early majority promoted values would have to include; new standard in umbrella design, product quality, and total cost of ownership due to the longer life rd

span of the product. Other values in table 2 are not applicable since 3 parties or the need for servicing does not influence product performance. (5) Senz does not extensively utilize references in their sales process; however since the adoption risk is low due to the small level of investment required in the product. Therefore references could be of limited use for this type of low-adoption risk products. (6) Since the product is sold in the consumer market there is no DMU, the roles with the DMU are represented in the same consumer and different roles (end-user, economic buyer, technical community) are addressed by focusing on different values. Neither is the sales process required to be of consultative nature.

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Comunication & Distribution channels (7) Due to the current small size the sales organization (0,2 FTE, with vacancies outstanding) is not specialized in order to optimize serving niche market segments. Senz does plan to geographically segment the sales department; if the department increases further in size segmentation according to segments targeted is seen as a possibility. Several distribution channels to which niche segments are reached are specialized (design and fashion channels). Senz also utilizes direct sales through its ecommerce system, however this consists of 1-2% of total sales. (12) Despite the fact the company begins to focus on niche markets, Senz also has distribution agreements with volume resellers (for example; Bijenkorf in the Netherlands, and Totes in the United States of America). The volume resellers focuses mainly on mainstream customers. Apparently this is in contradiction with the conceptual model, which implies that the use of volume or value-added resellers is a post-chasm strategy. According to the companies employees the distribution channel is not performing well because the product is promoted as a conventional umbrella and receives little awareness since the brand is not established. (8, 9) Senz does not yet proactively focus its sales targets to developing niche customer segments; the company does however maintain a strict geographical focus in its market development. (10) Senz marketing communications reflect early market values and heavily rely on word-of-mouth, no media campaigns have yet been launched since the company currently receives a high amount media attention3. The conceptual model predicts this. However since the effect of word-of-mouth is greatly reduced (§4.1.3) between adopter categories, (11) Senz could have to rebuild its word-of-mouth marketing in the mainstream market for example by launching a media campaign focusing on media that reaches early majority customers to start the referencing process.

5.2.2

Value Proposition

(13, 14, 15, 16, 17) The conceptual model fails to explain the Senz umbrella through the whole product value proposition (see figure 5). This does not seem to be applicable because the umbrella is a stand-alone product, not working in an integrated system or process nor does it require extensive training and support in order to function. (18) The product is optimized for several niche customer segments due to its adjustments in size, further customization is not likely to be necessary since the generic design of the product is the optimal solution for various markets. Due to the user-centric design process and the stand alone nature the umbrella is already optimized for technology acceptance in the pre-chasm phase. The innovation enhances (19) effectiveness (because of increased reliability), (20) productivity (better field of view), (21) ease-of-use ("because of its shape, it is going to point into the wind -- depending on your walking speed and the wind speed, the umbrella will want to change its orientation to make it easier to deflect the wind”) (22, 23) easy to learn (onehanded lose operation), (24) easy to work with (increased eye safety). However empirical 3

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data is unavailable to prove these statements, no customer surveys have yet been conducted the conclusions were based on the observations of a small group of users.

Currently Senz charges a high price for the umbrella (€50,-) when compared to the average price of a conventional high-quality umbrella (€15,-). This strategy fits the pre-chasm price skimming strategy described in the conceptual model. (27) In the mainstream market the large price difference is not likely to be justified on the basis of product features. If the product is to compete directly with conventional umbrellas the price difference will have to be reduced in order to compete in the same product category. (25) Senz is already discriminating between customer segments by offering versions in different sizes at different price points, this is possible because users demand different product attributes, the strategy can be further expanded if necessary. (26) The company is currently not following a price penetration strategy in the early market it depends on organizational building blocks whether this will become a viable strategy in the future. Given the difference in price level this strategy could influence if the Senz umbrella crosses the Chasm.

5.2.3

Organizational Building Blocks

Partner network The Senz umbrella functions independent device and performance is not influenced by third party products. Therefore several questions in the measurement instrument (28, 29, 32 and 34) and the alliance changes in the conceptual model are not applicable. Currently tactical alliances to speed product development are maintained with the Technical University Delft.

Since the whole product concept is not applicable (§5.2.2) (33) alliances are only expected to influence crossing the chasm are in the area of distribution channels to mainstream customers. Distribution alliances can open up market segments effective in reaching mainstream customers for example through volume resellers. In addition volume resellers predominantly reach mainstream customers, therefore these alliances can also function to generate references to the early majority (31) in order to start the referencing process (§5.2.5). In addition by early partnering with volume resellers Senz was able to learn from these partners how the conventional umbrella market worked. Production is outsourced to a Chinese manufacturing partner; the logistics process is outsourced as well. Other alliances are not explicit yet, ideas for implicit alliances with the fashion industry exist for brand building purposes and R&D spill-over’s.

Activity configuration (35) Senz is in the process of changing various key organizational disciplines as the company matures. Marketing strategies are being crafted, the organization is being formalized and the sales organization is being set-up. The reasons behind these organizational changes are to stimulate a pro-active approach to market development and to implement structures and procedures, which can accommodate growth. (38) Due to limited resources the company currently rejects demands from non-priority markets (selected on a geographical basis) in

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order to maintain pro-activeness in strategy execution. (39) The transition to the value discipline “customer intimacy” is not applicable since it is likely Senz will focus on maintaining relations with volume resellers (not with end-customers) in the mainstream market. (40) The company is in a phase where R&D is handing over the leadership role in the strategy formulation process to marketing. Marketing is currently crafting business development and brand-building strategies to obtain the goal of becoming the dominant umbrella manufacturer.

(41) There is already a tight integration between marketing and R&D as Senz employs a usercentric design, this is not predicted by the conceptual model however marketing takes lead in market development activities. (37, 42, 38) Due to the rudimentary nature no conclusions can be drawn as to which type of marketing strategy will be executed.

Core capabilities nd (43) Senz invested heavily in R&D up until the release of the 2 batch of the Senz original in February 2006 model. After the release of the 2

nd

batch the basic design was fixed and R&D

investments were reduces relative to the company’s overall resource allocation. This marked the point where the technology satisfied basis user needs. (45) Currently 2/3 of the R&D expenses are invested to differentiate the product offering (large parasols) and add incremental improvements. 1/3 Of the R&D expenditures are allocated to releasing radically new models in the future. Due to the generic nature of the product extensive redesign is not necessary when the product is sold to new markets. (44,45 and 46) Since the technology was developed from a user-experience perspective (created out of user-frustration using conventional technology4), Normans (1999, p. 33) balance between user-experience, marketing and technology found in mature customer-centered markets is already more naturally present for Senz compared to products designed from a technology / engineering perspective. However the marketing side is yet under-developed, recent personnel hires and increased focus in this area could lead to an even balance, facilitating a chasm crossing. (48, 49) Strategic price reductions could enable Senz to continually reach a larger group of mainstream customer segments (§5.2.2). In order to achieve this goal, cost reductions in the manufacturing process (in addition to procurement savings) can be realized by process innovations. However Senz does not focus on this area and does not see significant cost reductions in the near future resulting from process innovations in the near future. Realizing cost reductions would require a shift in R&D priorities to focus away product- to process innovation, this is currently not a priority.

(50) Because the sale of an umbrella is not of consultative nature (e.g. installing a complex IT-system is) and benefits of product attributes can be easily demonstrated, business expertise is not as important for sales to end-customers. (51) While the product is currently also sold to direct sales through the ecommerce system (1-2% of total sales), volume sales are expected to be increasingly channeled through volume resellers. As indicated by the 4

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conceptual model specializing the sales organization towards different type of resellers could influence sales channel performance. Until now Senz did not implement such specialization.

(53, 54) The company is at an entrepreneurial stage, the organizational structure is becoming explicit and formalized as business functions like, sales and marketing are added. (55) The new business functions will be fulfilled by experienced (7+ relevant work experience) hires from non-target markets but with retail experience. However the company deliberately does not intend to hire sales staff from the conventional umbrella market or chain stores, because the profile of these hires would not match company culture. The company expects that hires from the conventional umbrella market will not understand how to market an umbrella brand, as they are used to marketing umbrellas as low-cost commodities. Senz does not see relevance in utilizing their connections since they will not be applicable for the different niche customer segments targets. This could change if the product becomes a commodity, however this will not happen in the post-chasm phase. While this type of reasoning would fit he ‘pioneering’ stage the company is currently in, the conceptual model predicts experienced hires from the target market to exert a positive influence on crossing the chasm.

5.2.4

Success in Crossing the Chasm

(57) In the current pre-chasm phase market development is becoming a strategic priority as the company is in the process of devising market development and marketing plans. (56) The prime goal behind these plans is to increase scalability, (moving to adjacent market’s / market segments, using the existing plans as a blueprint). The company aims to become the overall market leader in the umbrella product category however due to the rudimentary nature of the business plans no specific information is available for more in-depth analysis. Given management team priorities it is likely the company will incorporate time-to-segment dominance targets in the marketing plans. (58) Moore indicated the chasm can be a period of no growth, however for Senz which operates on high volumes this need not become the case, as new niche and geographical markets are served sales can continue to climb without crossing the chasm and thus experiencing a take-off moment in sales (59) So far the company has received a single capital injection, which was used to manufacture the first batch of umbrellas, onwards the company could satisfy the need for capital by organic growth.

This is partly due to the relatively small capital requirements compared to companies developing complex systems. High-technology companies were R&D is more capital intensive will show a different development trajectory.

5.2.5

External Forces

Market Circumstances (61) The Senz umbrella’s technology is not expected to be overturned by another disruptive technology in the near future. The overall product category is not R&D intensive, has largely been outsourced to manufacturing countries investing less in R&D and radical changes to the product design have not occurred in the last 1.500 years. Current product design will be patent protected for the next 15 years. (60) The umbrella is currently sold in the premium

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price segment and because of the more expensive manufacturing method the product is expected to remain more expensive then conventional umbrellas. This makes the product more influence able by consumer spending then for example a type of disruptive innovation with a lower but improving price / performance ratio (characterized as the attack from below §4.5.1). (62) Disruptive innovations that develop in more demanding markets, setting high requirements for product performance, lowering price increases the addressable market.

Therefore for this type of innovation (The Senz umbrella falls in this category) a price penetration strategy will exert an important influence on crossing the chasm, as this is one of the main factors that increases the addressable market.

Dominant Design (64) The umbrella could potentially challenge to overturn the conventional dominant umbrella designs; Senz’s ambition is as such.5 There are currently a limited number of technologies (air vents in the umbrella) competing to accomplish similar product attributes however wind tunnel testing indicated performance is significantly lower. Currently product innovation is the driving factor correlating with the early phases of a new technology described in the conceptual model, when the technology is sold to innovators and early adopters. (63, 65) As the product design is currently fixed and performance satisfies basic user needs process innovation could become the center of interest to generate demand by price-reductions and enable manufacturing to grow or to find new applications are for the innovation. Dominant design could internally signal a shift for R&D to focus on process innovation. (66) As an external force dominant design exerts less influence for products that do not operate in an ecosystem and who do not become integrated in existing work processes.

Critical Mass (67) A mass of adopters is developing and the company recently receives a high amount of media attention.6 (68) However Senz expects the adopters to largely reside in the early market. In order for the early majority market to become self-reference able a certain volume of customers being pragmatist orientation will need to start the word-of-mouth process. (69) As the referencing process is not expected to occur between the early adopter and early majority category. Obtaining this volume could be established by directing marketing promotions to niche customer segments, no plans currently exist to accomplish this.

Obtaining critical mass for Senz is important from the perspective of obtaining a certain volume of word-of-mouth marketing to make the market self-reference able. It does not increase the value of the product since no network externalities exist.

Competition (71) Senz competes against umbrella manufacturers using conventional technology, and

wind proof umbrella’s using air vents, or umbrella’s, which do not break due to inversion. For

5 6

http://www.thestar.com/article/208434 http://www.senzumbrellas.com/en/news/#news000

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MASTER THESIS

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the companies manufacturing umbrellas based on conventional technology addressing the premium market segment the entrance of Senz could increase innovative activity and product quality. (70) The umbrella product category is already well established therefore the competition plays a limited role in reducing adoption uncertainty since the product concept is proven. The changed basis of competition for a windproof design (from product performance to cost, scale and integration) is not yet applicable since the company operates in the early market. Senz does not yet produce in high volumes and its design is not yet successfully challenged.

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5.3 Apple Inc. (iPod) Data for this validation case was gathered from case studies conducted by Harvard Business School and Kellog School of Business. In addition various case studies, based on qualitative and quantitative research have been used in the data collection process.

The iPod is a brand of portable media players designed

Apple’s stock price is closely linked to the success the

0

iPod digital music player. According to a Forrester research report the iPod accounted for around three quarters of the digital music player market in the USA and has helped Apple increase its third-quarter sales to increase by 75 per cent within a single year (Malester,

2008

50

2007

the start of 2000. (CNN Money, 2005); The rise in

2006

100

2001

was valued by the end of 2005 at twice as much as at

2005

150

2004

2004 – 2005 time period. The stock price of Apple, Inc

200

2003

23, 2001. The sales take-off moment occurred in the

2002

and marketed by Apple Inc. and launched on October

Figure 14 Apple iPod sales, source: www.systemshootouts.com

2005). In line with the technology adoption cycle at 2001-2002 Apple had obtained 0.62% of the potential market (compared to 2008 figures) at the end of 2005 Apple obtained 25% market share after crossing the chasm, currently in 2008 the market is expected to become largely saturated with expected slow down in sales as demand will largely become replacement based.

The first technological wave of portable music player’s was introduced by Sony, namely the Sony Walkman, in

Figure 13 Apple iPod 4G released mid 2004

1979. With this product Sony launched a whole new product category, and ultimately sold hundreds of millions of the devices (Shih, 2008). The next technological wave was based on a technology introduced by the Sony Corporation of Japan and Philips Consumer Electronics of the Netherlands. They came up with a standard format the Compact Disc (CD) Portable CD players became the norm for portable music, and CD players proliferated in automobiles, home audio systems and the personal computer (Shih, 2008) Based on the CD technology the music album had been the basic unit of sales for the music industry. However due to technological developments like the internet, filesharing this business model was challenged. This was changed by the third technological wave introduced by Apple who redefined the portable music market effectively creating an entirely new market segment with their portable music value proposition (§5.2.1) (Reppel, et

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al, 2006). The apple value proposition was based on a hard-disk based portable music player, which would synchronize with music collection on users computers. Songs could be added to music collections manually by converting CD’s or though the Apple online music store. This drastically different value proposition was based on different competences required to be successful in the second technological wave. The technological components in the portable music device were different as well as skills required to develop user interfaces. In addition the new distribution system was based on an entirely different business model and technological infrastructure. No longer would the major labels be able to sell an aggregated set of songs for $10–15 on CD’s through brick and mortar chain stores. Many times was Apple was credited by business analysts to change the rules of the game (Yoffie, et al, 2008).

5.3.1

Market Domination Strategy

Cusomer Segments (1, 3) The 2001 – 2003 period the iPod was marketed to the existing installed base of Apple Macintosh users, it quickly acquired a niche following. (Shih, 2008) Product was extremely fashionable and immediately became a must have for the trendy set (Hennessy, 2004) The first version of the iPod, was introduced in a difficult market environment at the end of 2001, it was neither the first digital music player, nor initially compatible with the majority of personal computers. The first iPod could only be used for a niche market namely Apple’s own Macintosh computers, a platform accounting for less than 4 per cent of US computer sales (Belk and Tumbat, 2005). During this period Apple referred to sales made in the corporate segment (for city-walks and museum guides, training purposes for various institutions7) and for various applications within the educational segment8. Initially, the iPod could sync only with Macs. Because of success in this niche market Apple introduced an iPod for Windows in August 2002. The value proposition was virtually the same only it functioned on a different platform. Requiring Apple to make minor changes to the iPods file structure and release ported synchronization software. By July 2003 58% of all iPod owners had purchased the windows version (Hennessy, 2004) (2) According to most estimates, the device commanded 70% or more of the U.S. market for portable music players (Yoffie, et al, 2008). Hence Apple became the dominant player in the portable music market by expanding its market boundaries through adding niches. This is illustrated by the company expanding its addressable market through differentiating its value proposition, discussed further in § 5.3.2.

Customer Relationships (4) Apple was able to extend the iPod market from the group of early adopters to the early majority “without diminishing the product’s cool factor”, consisting of attributes of a product that are considered to be of particular importance to the small but influential segment of innovators and early adopters (Reppel, et al, 2006). (5) Apples current installed base it often

7 8

Hospitals train staff with iPods - http://news.bbc.co.uk/1/hi/business/4859302.stm Applications in the educational segment - http://www.apple.com/au/education/ipod/lessons/

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distinguished by their “fierce loyalty to the brand” (Belk and Tumbat, 2005, p. 205 in (Reppel, et al, 2006) the installed base which consisted of both early adopters and pragmatists functioned as opinion leaders to the first niches in the mainstream market. (6) Since the iPod was primarily focused on the consumer market several values in table are not applicable neither is the focus on the end-customer and economic buyer.

Comunication & Distribution channels (7) The first editions of the iPod were sold to existing apple sales channels, however upon expanding the market sales channels were added such as retail channels for example; best buy, target, media market. (8, 9) No-data is available to base conclusions regarding the way the sales channels were structured and controlled. (10) At first Apple focused marketing communications on opinion leaders and brand enthusiasts, then during 2004 marketing communications focused through the use of media campaigns addressing the general mainstream market. (11) The promoted values during the 2004-2005 period were not based on features like storage-size, transfer speed, size which the company used to market models to early adopters. They were based on ease-of-use, relaxation, time-saving, reliability, connectivity and design (Reppel, et al, 2008) resembling the values in table 2. (12) As Apple was a established company that crossed the chasm, its channels could accommodate a certain level of volume sales. However as the company moved further on the technology adoption cycle and sustained the growth-phase after sales takeoff Apple distributed to nonapple volume chain stores. Both increasing the addressable market (which were out of reach for the apple sales channels) and accommodating volume sales.

5.3.2

Value Proposition

Instrumental to Apple’s iPod crossing the chasm was the formation of a whole product, as explained by the conceptual model. This was illustrated by the impact on sales-levels by the introduction of iTunes and the iTunes store. Before the advent of iTunes and the iTunes store, Apple sold an average of 113,000 iPods per quarter; by the quarter that ended December 2003, iPod sales had shot up to 733,000 units—and then continued to rise (Yofie, et al, 2008, Hennessy, 2004). (13) The basic product and necessary services in order to bring it to working condition were all covered. (14) Apple developed a software application to go with the iPod, namely iTunes it helped the user manage the songs on the iPod, and build things like playlists and otherwise categorize songs. This organizing capability was important because an iPod could hold thousands of songs. (Shih, 2008) iTunes provided the system integration services by providing the ability to synchronize existing music libraries contacts, calendars and photo's. The service infrastructure was largely covered by the (15) Apple and the authorized apple resellers. (16) One key element of the whole product was the iTunes Music Store, an online service that Apple launched in April 2003. For 99 cents per song, visitors could download music. Users could play a downloaded song on their computer, burn it onto their own CD to use it in music systems operating on conventional cd technology, or transfer it

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MASTER THESIS

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to an iPod (Yofie, et al, 2008). The whole product value was greatly enhanced by an (17) ecosystem of third party product that extended the basic product functionality, the iPod was the only portable music player with a diverse ecosystem of ancillary products available. The (18) Apple changed the whole product in order to serve more niches. For example in order to appeal to early adopters working with the windows operating system, Apple switched over to the far more popular Universal Serial Bus (USB), ported its iTunes software and adjusted its service infrastructure in order to serve the new market. (Shih, 2008) In addition Apple released the iPod Nano, which offered a lower storage capacity for a reduced price, thereby changing the generic product in the whole product in order to appeal to a new market segment.

The iPod system was optimized for technology acceptance; this was largely attributed to due to the user-centric design process and other core capabilities §5.3.3. Most end-user’s could clearly see the benefits over the conventional technology (19, 20) by being able to have any song they want to listen to at my fingertips at any particular moment (Bull, 2006). (21) The iPod was seen as giving an unprecedented level of emotional control over the customers (Bull, 2006). (22) In comparison to other (mp3 or aac based) portable music players, the iPod was seen as the most consumer friendly device in the industry (Hennessy, 2004) thus having the highest ease-of-use. (23) In addition the user found it also easy to learn how to work the iPod (Reppel. Et al, 2006). The simplicity is illustrated by examining competitive offerings for example from buymusic.com where the price and usage rules of each track differed (usage rules are, computer transfers, CD burns, portable music transfers) and synchronization process was different for each competitive portable music device (Hennessy, 2004). (24) The iPod was flexible to work with since the user could use the iPod in multiple situations (for example: In the living room, car, office by docking and connecting to existing sound devices) In addition the user could buy one or two songs from the iTunes Music Store (Buying CD’s obliged the user to buy an aggregated set of songs). However Apple limited the ability for the user to buy songs from competitive online music stores and use them on the iPod. During the Chasm period (25) the company was able to price discriminate across different customer segments by offering the high-end iPod Classic and the low-end iPod Nano. The company was able to lower its price points in order to increase market boundaries. When he first iPod was introduced the sales price lay between $450-550 in line with a price skimming strategy. Early 2004 the average sales price was $330 and end 2005 the average sales price was $210. Constituting a 36% drop in average sales price during the chasm period. (27) Initially the iPod was more expensive then competitive offerings as Apple implemented a price skimming strategy, however when it released the 2004 edition the sales price was dropped $120-220 below competitive offering in accordance with a price penetration strategy.

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MASTER THESIS 5.3.3

CROSSING THE CHASM

Organizational Building Blocks

Partner network (28) Accessory makers were encouraged to product products for the iPod Apple even proactively approached several major accessory makers. The iPod accessory 2007, consisted of 1,000-plus advertised items which generated more than $1 billion in sales (Yoffie, et al, 2008).

This is affirmed by Mello (2005); Apple triggered the creation of an accessories industry, such as protection cases and speaker systems, which it is estimated to be valued $300 million at the end of 2005. The creation of the accessory market is likely to have influenced the customer’s perception (29) of the iPod as the standard portable music player, however no data is available to confirm this.

(30) During the pre-chasm phase tactical alliances were utilized effectively in order to accelerate the creation of the whole product. The development cycle for the iPod was a short six months, the company accelerated the effort by using a reference platform design from PortalPlayer that utilized two microprocessor cores from Advanced RISC Machines (ARM) (Shih, 2008) In addition the diverse array of manufacturing partners for the iPod were contracted (Linden et al, 2007) and the ecosystem of 3rd parties created by partnering with the largest accessory makers (Linden et al, 2007). Several partnerships were established for use as a referencing potential for example (31) collaboration agreements with popular bands with a large appeal to the mainstream audience like car manufacturers9 and soft drink manufacturers. (32) The iPod was designed in a modular fashion leveraging existing technological standards therefore Apple did not need to establish a new overall technological standard. To enlarge the addressable market in order to reach the full potential of the mainstream (33) distribution agreements with non-apple resellers were set up. (34) Sales is not of highly consultative nature, however potential customers could approach sales representatives for questions about the devices basic workings.

Activity configuration Like many other high-technology companies, Apple is famous for its secrecy and any attempt to investigate the company’s capabilities is seriously constrained. This limitation was also encountered in research performed by Reppel, et al, (2006) Data regarding measurement instrument questions (35, 36, 37, 38, 39, 41) was unavailable. (40, 41) Apple already employs a right integration between marketing and R&D due to its user centric design approach. As indicated by Jonathan Ive (Apple’s SVP Industrial Design), it is the company’s ability to understand the way customers relate to its products that is of salient importance in an investigation of its success. The customer is clearly put as the central figure in the company’s product development efforts. (Reppel, et al, 2006) The change in pre- and post chasm factors suggested by the conceptual model is not supported in this validation case. The cause of

9

http://www.apple.com/pr/library/2006/nov/14ipod.html

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MASTER THESIS

CROSSING THE CHASM

which in this situation could be that the Apple already employs a user-centric design approach very early in its new product development process.

Core capabilities (43) Apple chose to reduce development efforts in some areas namely the addition of features after basic functionality satisfied user needs. However on several performance area’s Apple did not reduce development activities namely storage capacity, form factor (size), user interface. While Apple was the market leader the market was highly competitive basic performance was evaluated on these attributes. (44) From very early on in the design process Apple already implemented a minimalist industrial design that employed a click wheel interface. The acquired reference platform had rudimentary software running on it, but Apple quickly implemented a user friendly user interface that was driven by the click wheel. (Shih, 2008) This basic user interface remained the same throughout the products further development. The factor from the conceptual model; technology centric R&D (pre-chasm) to user & application centric R&D (post-chasm) is not supported for this question. (45) This integrated solution approach, iPod, iTunes software, and iTunes store, contrasted sharply with competitors who focused only on the hardware (Shiih, 2008). Based on the development of these product that complemented the whole product the statement that apple focused on application innovations can be conformed. (46) There is a balance between the three dimensions; marketing, technology, user-experience, this balance existed early in the design process. According to Jonathan Ivethe company follows an holistic approach in its product design that tries to “figure out the customer’s connection to the product” (Garrett, 2003, p. 56).

Ive’s statement refers to design not in a narrow visual sense, but in a broader way, which takes into account manifold aspects of product design. This, in turn can be related to the three different dimensions of design as identified by Norman (2005) (from Reppel, et al, 2006).

(47) Yes apple leverages existing industrial design, user interface, user knowledge, channels to bring this innovation to the market. (Moss Kanter, 2006) The differentiation in the lineup was all based on existing competes being re-linked to new applications in order to adjust the value proposition. (48, 49) As the Apple iPod was a modular innovation Apple relied heavily for cost improvements on its suppliers. As iPod components rode same volume curves of the exploding PC and handheld device industries, and costs declined at a steep rate. For example hard disks, showed a 60% annual cost/performance improvement (Shih, 2008). In addition apple focused on various cost savings in logistics. (50, 51) The generic value proposition was the same for all niche markets, all functionality was included to serve the different niche markets. Apple did structure its sales organization according to its target markets (consumers, corporations, educational institutions) however this structure was already established because apple already served these markets. (52) Apple did not aim to solely operate on the technological forefront. The company was changing successful iPod models with different variations, such as the “iPod mini” that was replaced in September 2005 with a much smaller model called the “iPod nano”. The conclusion is based on this strategy

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MASTER THESIS

CROSSING THE CHASM

because, the new model had a lower storage capacity than its predecessor, even though a higher storage capacity is again commonly considered to be a crucial attribute for newly introduced digital music player. (53, 54, 55) The conceptual model predicts an increasing maturity within the organization. For the case of the Apple iPod this factor was not supported since Apple was already an established player since 1976, despite the fact that Apple was a niche player in the overall personal computer market with a market share of around 3 to 4 percent in 2004, its revenues consisted of $8.28 billon in 2004. Therefore a high degree of formalization and structure needed to exist in the organization.

5.3.4

Success in Crossing the Chasm

(56, 57, 58, 59) Data not available 5.3.5

External Forces

Market circumstances (60) The iPod was introduced in difficult market circumstances at the end of 2001, in terms of the economic environment (Reppel, et al, 2006) this could have postponed the period where the iPod crossed the chasm. (61) As the portable music player market evolved, several things had become apparent. Traditional incumbents like Sony had been substantially replaced.

Apple had focused on a well-designed, integrated system approach and had succeeded in capturing leadership in the market. It had also used its design and marketing capabilities very effectively, building substantial differentiation and substitution barriers. However mobile phone handsets became more powerful, and included portable music player functionality. Therefore there were clear signs of competition from mobile handset makers, especially LG, Samsung, and Sony-Ericsson at the end of 2005. (Shih, 2008) Which had the potential to match the iPods functionality and therefore replace the iPod. (62) The iPod, iTunes and iTunes Music Store system had a major impact on business model of industry new distribution system and technological infrastructure. (Koster, 2004) Apple was proficient in switching to flash-based portable music technology away from its current hard disk design. The iPod system was a disruptive innovations that developed in more demanding already established market, setting high requirements for product performance, lowering price increases the addressable market are characterized as the “attack from above”. For this type of innovation a price penetration strategy will exert an important influence on crossing the chasm, as this is one of the main factors that increases the addressable market.

Dominant design (63) First flash-memory editions of portable music players released at the same time the iPod was launched could only hold up to 20-30 songs, apple hard-drive based iPods could hold up to 1.000 songs. Disadvantages of hard drives due to the larger form factor and decreased ruggedness compared to flash based iPods weighted relatively less in importance then the increased capacity. Regarding to the less performing product attributes the hard disk based iPods proved to perform well enough (Shih, 2008). (64) The iPod was a modular innovation

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building on multiple standards which converged; for example the standard music format converged on AAC (displacing Sony’s ATRAC, and Microsoft’s WMA) and Music Library Management Software converged on Apple iTunes (Displacing Windows Media Player and Musicmatch Juxbox) (65) The technology was standardized thereby creating lock-in for users using the proprietary iPod system. Central to the iTunes model was a set of standards that guarded both the music labels’ intellectual property and the proprietary technology inside the iPod. An Apple-exclusive digital rights management (DRM) system called FairPlay protected iTunes songs against piracy. FairPlay enabled music executives into supporting the initial iTunes venture. It also helped fuel iPod sales, since no competing MP3 player could play FairPlay-protected songs (Yoffie, et al, 2008). Observers called iTunes a “Trojan horse” that allowed iPod-specific standards to invade users’ music libraries and, in effect, to lock out other music players. The iPod, meanwhile, could play content recorded in most standard formats (Yoffie, et al, 2008). (66) Apple increased the likelihood the iPod would be perceived as the de-facto standard for portable music players by building on existing standards, rd

licensing the connector to 3 party developers thereby creating an ecosystem, and promoting early partnerships by allowing the partners to leverage iPod media attention Apple generated.

Critical mass (67) Research indicated people were increasingly saying in the 2004-2005 period they were getting an iPod when they really meant they were purchasing a digital music player.

(Hennessy, 2004) Apple deliberately (68, 69) targeted opinion leaders in both the early adopter category and in the mainstream market. They were an attractive target for marketing communication because of there referencing potential and thus Apple focused on these customer groups (Reppel, et al, 2006).

Competition rd (70) On 23 of October 2001 the first iPod was introduced it was not the first but it was among one of the first (Hennessy, 2004). SonicBlue and Rio Riot, Archois Jukebox Multimedia, offered similar functionalities during that time but were less attractive due to the small storage capacity and bulky design and more complicated user interface (Hennessy, 2004). The market was found to be highly competitive with the frequent release of new models and price cuts (Hennessy, 2004, Yoffie, et al, 2008), driving down price but also contributing to the affirmation of users Apple was the market leader while crossing the chasm. and contributing to. The competition resulted in a higher amount of innovative activity for the market category (71) However Apple was deliberating in its decision on which features to compete. This may be because they had a clear understanding of what product attributes customers would value. Competitors seem to focus on “out-featuring” the market leader (Reppel, et al, 2006).

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MASTER THESIS

CROSSING THE CHASM

5.4 Evaluation of the Empirical Validation This chapter evaluates and summarizes the performance of the conceptual model resulting from the empirical analysis. Each change within the model was tested on a case study basis whether it succeeded to explain why a company was successful in crossing the chasm or if it functioned well as an analysis tool for pre-chasm companies depending on the company’s position on the technology adoption life cycle. If the change predicted by the conceptual model could not be supported by the case study, further analysis was conducted to determine if circumstances caused this. In this case the conceptual model would still hold but should be nuanced to explain the causal mechanism. It will also be indicated when factors were supported but if the influence is found not to be significant.

5.4.1

Palm Inc. (PalmPilot)

Overall the conceptual model succeeded to explain the factors that influenced the Palm Pilot crossing the Chasm. There was partial support found for the factors and changes in 1 area, partial support was found in eight areas, not enough data was available for 6 areas, this was due to the fact that the analysis period lays 8-11 years ago and direct company management was unavailable for interviews. Support was found for the remainder of factors (see table 3).

The context in which the innovation operates could have influenced the performance of the conceptual model discussed further on. Palm is commercializing a high-technology innovation that is a new to the market disruption (disruptive trajectory). The Handheld solution enlarges and broadens markets by providing new functionality over conventional pen and paper based scheduling and other information management tasks. Complex-system requiring integration into existing systems in order to fully deliver potential performance. The performance is highly influenced by network externalities since the value of the network and value to the user will increase with the amount of users, developers, and service providers. Therefore it is crucial for an ecosystem to develop around the product. The value proposition can be commercialized to both business-to-business as to business-to-consumer networks.

Factor Customer segments Customer relationships

Comm. & distribution

Descriptive change From ad hoc to niche based segmentation strategy From appealing to visionary values to appealing to pragmatist values From focusing on the technical community to focusing on the end-user community & enlisting support of the economic buyer From executing a product-centric to a market-centric sales strategy

81

Support conclusion Supported Supported Data not available

Supported

MASTER THESIS channels

Value proposition

Partner network

Activity configuration

CROSSING THE CHASM

From relying on word-of-mouth to communicating along industry lines and through professional (branch) organizations Distribution: direct sales to VAR From offering an enabling technology to a whole product value proposition Solution optimized for technology acceptance From a price skimming strategy to a price penetration strategy From strategic alliances to validate tech. to strategic alliances to from an ecosystem From tactical alliances to speed product development to tactical alliances creating whole product infrastructures and dominating niche markets From a emergent strategy process to deliberate strategic planning R&D handing over the leadership role to marketing

Core capabilities

From technology centric R&D to user & application centric R&D From product-centric to processcentric R&D focus From technology to business expertise in human resources From a culture of pioneers to becoming settlers Success Strategy: From reaching technological metrics in maturity to category market share crossing targets the chasm Finance: From controlling cash-burnrate to obtaining quick but small revenues Sales: From maximizing design wins to time-to-segment dominance Market circumstances

Dominant design Critical mass Competition

Supported

Data not available Supported Supported Supported Supported

Supported

Supported Partly supported, occurred in the pre-chasm phase (not in the post chasm phase as described by the conceptual model) and influenced the palm pilot crossing the chasm.

Supported Supported, based on indirect assumptions Data not available Data not available Supported Data not available

Data not available Category was created as a result of this case to explain the current position of palm. As this case has shown crossing the chasm does not imply that an organization is able to sustain the rapid growth phase and market leadership.

Supported Supported, high influence of network externalities Supported, high influence to reduce price and uncertainty

Table 3 Conclusion validation case 1 Palm Inc. (PalmPilot)

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MASTER THESIS 5.4.2

CROSSING THE CHASM

Senz Umbrellas B.V.

There was no support found for the factors and changes three areas, partial support was found in eight areas, not enough data was available for 2 areas, support was found for the remainder of factors (see table 4). The main reason for the unsupported and partially supported conclusions is the context dependency of the causal mechanisms under research.

While applying the conceptual model trough the measuring instrument to the case it became clear the causal mechanisms functioned differently due to context dependency. The main areas that lead to a different context and explain why the model does not work in some areas: The Senz umbrella is a product, which is a product of stand-alone nature but can be sold in high volume product after crossing the chasm. The product functions self-contained therefore other products do not influence product performance and operation. According to the conceptual model whether the disruptive innovation crosses the chasm is influenced by ecosystem and interaction within existing systems. This is not applicable for stand-alone products. Critical mass is less important in the absence of network externalities. Companies commercializing high-technology complex-systems cross the chasm in a different way compared to high-technology devices, which are simpler and sold in high-volume. When the conceptual model was applied to Senz (which falls in the volume-operations category) several area’s appeared to be focused on complex-systems. The main differences are that the value proposition does not require integration with existing systems, the sales process is not of consultative nature and the adoption-risk due to the lower price point associated with volumeoperations. The disruptive trajectory can be characterized as the “attack from above” as the price-level decreases (with a relatively fixed technological performance) as the product advances on the technology adoption cycle.

The model does not distinguish between companies operating on business-to-business and business-to-consumer business models. The impact was indicated in the Senz case analysis since the absence of this distinction caused the model not to perform well in some areas due to the following differences. Contact with the customer is not relationship driven but product driven, buying decisions are emotionally driven DMU’s are absent; target market is larger and more complex to segment. The market category is already established and Senz will displace a conventional technology, therefore the influence of competition on uncertainty reduction is reduced. According to the conceptual model a balance between marketing, technology and user experience must be present to cross the chasm, however if a product is developed from a user-centric design perspective this balance is already more naturally present and the most significant changes are required to be made at the marketing level.

83

MASTER THESIS Factor Customer segments Customer relationships

Comm. & distribution channels

Value proposition

Partner network

Activity configuration

Descriptive change From ad hoc to niche based segmentation strategy From appealing to visionary values to appealing to pragmatist values From focusing on the technical community to focusing on the enduser community & enlisting support of the economic buyer From executing a product-centric to a market-centric sales strategy From relying on word-of-mouth to communicating along industry lines and through professional (branch) organizations Distribution: direct sales to volume or value added resellers From offering an enabling technology to a whole product value proposition Solution optimized for technology acceptance From a price skimming strategy to a price penetration strategy From strategic alliances to validate tech. to strategic alliances to from an ecosystem From tactical alliances to speed product development to tactical alliances creating whole product infrastructures and dominating niche markets From a emergent strategy process to deliberate strategic planning R&D handing over the leadership role to marketing

Core capabilities

Success metrics in crossing the chasm

From technology centric R&D to user & application centric R&D From product-centric to processcentric R&D focus From technology to business expertise in Human Resources From a culture of pioneers to becoming settlers Strategy: From reaching technological maturity to category market share targets Finance: From controlling cash-burnrate to obtaining quick but small revenues

CROSSING THE CHASM Support conclusion Supported Partly supported, several values are not applicable because of stand-alone nature and no need for servicing.

Unsupported, no DMU is present in a consumer market, roles are addressed through appealing to different values Data not available Supported

Partly supported, both are applied however channel performance is low.

Unsupported, due to stand-alone nature, no after sales services are required, generic product requires little adjustments in different niche customer segments Supported, however more naturally present due to user-centric design process Supported Unsupported, due to stand alone nature product does not function in an ecosystem Partly supported, whole product concept not supported, however support is found for product development and distribution alliances Partly supported, company currently in strategy formulation process. Transition to the value discipline “customer intimacy” is not applicable due to generic nature of the product and the B2C context.

Supported, already tight integration because of usercentric design perspective, marketing leads market development activities.

Partly supported, balance between user experience, technology already present, marketing now gains importance.

Supported Unsupported, sale is not of consultative nature Supported Data not available Partly Supported, Exerts more influence in complex systems setting higher capital requirements, company need not experience a saddle in sales but postponed sales growth.

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Sales: From maximizing design wins to time-to-segment dominance Market circumstances Dominant design Critical mass

Competition

Supported, terminology not applicable design-wins not relevant for stand alone products. Design wins should be changed in maximizing overall sales.

Supported Partly Supported, product does not function within an ecosystem therefore influence is of little significance Partly supported, important from the perspective of obtaining volume in of word-of-mouth marketing. Due to absence of no network externalities no influence on value of the network.

Partly supported, the product category is already established and there is low purchasing risk.

Table 4 Conclusion validation case 2 Senz Umbrellas B.V.

5.4.3

Apple Inc. (iPod)

Overall the conceptual model succeeded in explaining the factors that influenced the iPod crossing the Chasm. There was no support found for 4 factors and changes in 2 areas partial support was found, not enough data was available to draw conclusions regarding 5 factors, support was found for the remainder of factors (see table 3).

The context to which the innovation is applicable could have influenced the performance of the conceptual model discussed further on. The iPod is a high-technology product that integrates as a complex system, however the value proposition is highly scalable. The disruptive trajectory can be best described as the “attach from below” since the price / performance ratio increases as the innovation advances on the technology adoption life cycle.

Apple employs a user-centric design approach implemented early on in the design process, which has become rooted into the company’s core-capabilities. A user-centric design approach fundamentally differs from a technology centric design approach (§2.4). For companies employing the user-centric design approach in the earliest stages on the technology adoption cycle a balance in marketing, technology, user experience (Norman, 2005) required to cross the chasm is already more naturally present. This is different from what is claimed in the conceptual model; therefore this factor is not supported.

During this case analysis it became apparent that the conceptual model was formulated for companies that were recently founded around the time at which the innovation arose. While this is in line with Christensen’s (2002) finding that disruptive innovation not commonly successfully commercialized by industry incumbents. This case indicated the possibility of such a scenario. However since this scenario will be the exception to the rule, adjustment of the conceptual model is not deemed necessary. Explanation by way of note to the model could suffice. The iPod was designed modularly leveraging existing technology standards (for storage, file compression, display, data transfer technology, etc.) therefore Apple did not have to establish an overall new technological standard as the dominant design. Reducing the

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impact as predicted by the conceptual model of the external dominant design factor on crossing the chasm.

The conceptual model does not distinguish between companies operating on business-tobusiness and business-to-consumer business models. The absence of this distinction caused the model not to perform well for the factors. It does not take the influence of brands and emotionally driven buying decisions into account.

Factor Customer segments Customer relationships

Comm. & distribution channels

Value proposition

Partner network

Activity configuration

Core capabilities

Descriptive change From ad hoc to niche based segmentation strategy From appealing to visionary values to appealing to pragmatist values From focusing on the technical community to focusing on the end-user community & enlisting support of the economic buyer From executing a product-centric to a market-centric sales strategy From relying on word-of-mouth to communicating along industry lines and through professional (branch) organizations Distribution: direct sales to VAR From offering an enabling technology to a whole product value proposition Solution optimized for technology acceptance From a price skimming strategy to a price penetration strategy From strategic alliances to validate tech. to strategic alliances to from an ecosystem From tactical alliances to speed product development to tactical alliances creating whole product infrastructures and dominating niche markets From a emergent strategy process to deliberate strategic planning R&D handing over the leadership role to marketing From technology centric R&D to user & application centric R&D

From product-centric centric R&D focus

to

process-

86

Support conclusion Supported Supported Unsupported, no DMU is present in a consumer market, roles are addressed through appealing to different values Data not available Supported

Partly Supported, existing sales channels could handle volume capacity, after crossing the chasm additional volume channels were added Supported Supported Supported Supported

Supported

Data not available Not supported, due to the user-centric design approach early on employed implemented very early in the design process Not supported, due to the user-centric design approach early on employed implemented very early in the design process. However technological development did not solely focus on increasing performance.

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From technology to business expertise in human resources From a culture of pioneers to becoming settlers Success Strategy: From reaching technological metrics in maturity to category market share crossing targets the chasm Finance: From controlling cash-burnrate to obtaining quick but small revenues Sales: From maximizing design wins to time-to-segment dominance Market circumstances Dominant design Critical mass Competition

Supported, however already in place due to Apple’s operations in the personal computer market Not supported, apple was already an established cooperation Data not available Data not available

Data not available Supported Partly Supported, leveraging existing technological standards Supported Supported

Table 5 Conclusion validation case 3 Apple Inc. (iPod)

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CROSSING THE CHASM

Cross Case Study Analysis

The companies researched in all three validation cases were in the process of commercializing high-technology innovations. In contrast their disruptive trajectories by with the innovations advanced on the technology adoption life cycle deferred. The PalmPilot’s trajectory corresponds with the “new to the market” disruption trajectory, the Senz umbrella corresponds with the “attack from above” and the Apple iPod corresponds with the “attack from below” disruption trajectory. Retrospective analysis was conducted for the PalmPilot and the iPod as both innovations already crossed the chasm. The Senz umbrella was analyzed using a prospective analysis, as the company currently operates before the chasm on the technology adoption life cycle. The pre-chasm conceptual model was tested if it succeeded in explaining the strategic choices the company was confronted with and for the applicability of the factors constituting the conceptual model. The post-chasm model was tested if the factors succeeded in explaining why the transition process was successful. Cross case analysis revealed a common pattern indicating overall strong support for the factors niche customer segments, value proposition and partner network. Support was found for all external factors influencing a chasm crossing however the extend of their influence varied depending on the contexts described above. Data was not available to validate the success metrics on which the company operates during the period in which it crosses the chasm. The change in customer relationships was not supported or data was not available. Although the assumption that pragmatist and visionaries are reached through appealing to different values was supported, this factor is also integrated into other factors of the conceptual model. In general the factor core capabilities was supported with the exception of the change from technologycentric R&D to user-centric R&D, which was not supported for two cases. The reason why in both cases being that the company already employed a user-centric design approach.

Implemented at a very early stage during the design process, which also become rooted into the company’s core-capabilities. Because of this, a balance in Norman’s (2005) three legs of product development is already more naturally present therefore the change is not supported.

Support was found however for a user-centric design approach to positively influence a company crossing the chasm. For the factor communication and distribution channels partial support was found.

In the process of the empirical validation several operational drawbacks of the measurement instrument used to operationalize the conceptual model became apparent. A certain number of questions were found to be redundant and could be combined (19,20,21,22,24), information could not be obtained regarding the aggressiveness of the marketing strategy (42). The measurement instrument was predominantly focused on business-to-business contexts, while end users can also be consumers served directly or indirectly. The questions were mainly developed to guide the researcher in his/her analysis. The questions directed to the interviewees required further operationalisation of the concepts in order to obtain the right data.

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6 Conclusions and Limitations After discussing the main findings of this research, the implications these results have for academic researchers as well as practitioners will be presented. Finally, the main limitations of this research are discussed, which result in recommendations and opportunities for further research described in chapter 7.

6.1 Major Research Findings The purpose of the research was to contribute to validating G.A. Moore’s (2002) crossing the chasm theory. This would allow the theory to become further accepted and used by both practitioners and the scientific community. In order to validate Moore’s theory the research question; “What is a useful and applicable operationalization of factors that influence the transition of disruptive innovation from the early market to the mainstream market?” was answered through the generation and validation of a conceptual model.

Given the practical orientation and poor scientific substantiation of the chasm, and disagreement of Rogers (2003) with Moore’s theory the conceptual model (§3) was subject to theoretical validation. Proof for Moore’s chasm theory was found by connecting the claims of various scholars to Moore’s claims, thereby taking care of good construct validity ensuring comparability of the theories. During the cyclically iterative process that constituted the theoretical validation and generation of the conceptual model Moore’s theory was found to be predominantly focused on the front-side of the organization. Therefore the conceptual model was expanded to incorporate the impact on the internal organization in order to provide a holistic view. The theoretical validation further contributed in several other areas to the empirical validation. In order to be able to empirically validate Moore’s theory through multiple case study research, the conceptual model was operationalized into question sets (aggregated measurement instrument is given in appendix B) allowing the researcher to measuring the change in factors occurring during a chasm crossing. In order to determine factor changes a pre-chasm and post-chasm conceptual model was drafted. The pre-chasm model was largely based on the empirical validation since Moore’s theory did not contain extensive descriptions of pre- and post-chasm situations.

In retrospect to the second part of the research, it can be concluded that the empirical research has lead to several findings in analogy with the conceptual model. In general based on the cross case study analysis it can be concluded the cases could be explained by the conceptual model, proving applicability to multiple cases by analytical generalization.

However the empirical research has also revealed the performance of the conceptual model and corresponding measurement instrument to be highly context-dependent. In regard to the usefulness and quality of the measurement instrument (essential for good construct validity)

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the empirical validation indicated that in order to correctly apply the measurement instrument high familiarity and proficiency with the discussed innovation theories is required. It is also required that the researcher adjusts the formulation of the questions to the level of knowledge of the interviewee. Given these concerns the measurement performed well by providing a systemic and holistic analysis of the chasm phenomenon for the conducted case studies.

Occasionally, effective transition could happen by luck and unconscious skill. However effective planning, management and motivation are found to greatly increase the chances of a organization going to any transition (Mabey et.al, 1993, p.97). The usefulness of this research for practitioners becomes apparent in this area; the conceptual model has (rudimentary) proven there is a context-dependent but consistent pattern occurring of factors that influence a transition of a company that crosses the chasm from the early- to the mainstream market.

The chasm, a period of high-uncertainty and chaotic nature, (Modis, 2008) is now more predictable and tool was constructed for analyzing this period. There is increased understanding about the problem (literature review §2) and more clarity about the solution (conceptual model §3). This makes it possible for company management or consultants not only to plan and manage transitions in order to cross the chasm, but also to improve, though unfortunately not yet predict, results.

6.2 Limitations of the Research All research projects have their limits in terms of scope and time. This for in theoretical research potentially interesting research areas could be outside the scope of the research may be left unanswered. For empirical research it means a limitation to the number of case studies. In this paragraph, these limitations will be further discussed.

To validate the conceptual model it has been subject to empirical testing by using the previously developed theory as a template against which to compare the empirical results of the case study. Due to the limited time available, testing was conducted on a rudimentary basis for three cases. Although this allowed for an in-depth analysis within time constraints available for the master thesis project, it also limited the ability to strongly validate the factors constituting the model. More extensive case study analysis is required in order to provide a more sound analytic generalization. In addition, conducting more case studies could provide additional insight into the context dependency of the model. As the cases could be drawn from multiple situations the potential to further generalize the model could be tested.

While the three cases were conducted to validate the conceptual model they also contributed to rudimentary validating the chasm theory itself. The theoretical validation could be influenced by researcher bias. Less significant factors could be left out from the conceptual model unintentionally because they go unnoticed by the researcher during the case-study

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analysis and literature review process. Another potential limitation is the biased perspective on the research material reducing construct validity since theories and fragments of theories are studied through the perspective of the chasm theory (Verschuren and Doorewaard, 2005).

The research will be limited to operationalizing factors that solely exert an influence on the ability of the company to make a successful transition to the mainstream market. Factors that facilitate transitions to other user adoption categories will not be described. The Chasm phenomenon occurs most strongly and is most applicable for high-technology disruptive / discontinuous innovation (Moore, 2005a, p. 74). Although the conceptual model might be generalize able to other types of innovation to a limited extend, this was not the subject of the research and therefore the model cannot be applied as such.

This research is descriptive in nature since the factors and their characteristics that influence crossing the chasm are collected and described. The cause-and-effect relationship between the factors and outcome of crossing the chasm was not explicitly researched, but obtained from existing theoretical frameworks. Although this would have provided additional insight into the chasm phenomenon.

During the process of the empirical validation several operational drawbacks of the measurement instrument, used to operationalize the conceptual model, became apparent.

The measurement instrument is predominantly focused on business-to-business contexts, while end-users of disruptive innovations can also be consumers served directly or indirectly.

The questions are mainly developed to guide the researcher in his/her analysis. The questions directed to the interviewees require further operationalisation of the concepts during the interview in order to obtain the right data. The interviews will need to be conducted by researchers with high amount of familiarity regarding innovation theories described in this thesis. Therefore the suggested research design will be labor intensive, needs to be executed by persons with an innovation background and it will require a significant amount of time to obtain the data.

Although the technology adoption life cycle theory was first developed by E.M. Rogers in 1962, the most influential research appeared in the late 1990’s (Rogers, 1995, Norman, 1998, Utterback, 1996, Christensen, 1997, Moore, 2002). In this research, several innovation thesis are successfully linked to explain the chasm phenomena. However there still is a lack of descriptions, measurements and theories, which fully capture the dynamic aspect of the technology adoption life cycle. For example this becomes appearant for the measurement of the adopter categories to determine the correct location on the technology adoption life cycle and to incorporate varying results due to context dependency. Therefore sound researcher judgment in interpreting research results and case-study analysis is required.

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7 Recommendations and Future Research Recommendations for future research can be made in regards to improving the chasm theory and validation of the chasm theory in general. As proven by the empirical validation the chasm phenomena and the aggregated conceptual model are generalizeable to all hightechnology contexts in figure 6 however each context operates on a different business model.

As a consequence factors vary in importance and some changes are different depending on the context (described in the evaluation of the empirical validation §5.4) therefore the strategy to cross the chasm is different as well. For academics applying the same conceptual model to all contexts would result in decreased explanatory power and this performance of the model.

For practitioners applying the same conceptual model to all contexts could potentially result in devising the wrong strategies to cross the chasm inhibiting or delaying the company’s progress in the transition period. Therefore it is recommended the theory should be expanded by making distinctions between different contexts suggested in figure 6. Characteristics of business models based on volume operations context are; high volume sales, which typically offer low margins with a highly standardized value proposition, little interaction with the customer, the product can be of stand alone nature but its technically not complex.

Characteristics of business models based on complex systems are; medium to low volume sales, technically complex sometimes customized value propositions, consultative services and integration is important. Descriptions of the disruptive trajectories are given in paragraph 2.2. Implications for the conceptual model regarding disruptive trajectories are found by the empirical validation and but mainly originate in the organizational building blocks (R&D) and the value proposition (pricing strategy). While Moore makes the distinction in subsequent work between these two contexts in other innovation literature (2005a, p. 30) he does not apply the chasm theory (2002) to these context or the disruptive trajectories. Further testing should be conducted to strengthen the conceptual model and to probe its context boundaries within each suggested scenario. After the conceptual model is validated for multiple scenarios the chasm theory can be expanded contributing to the usefulness of the theory. In order to validate the chasm theory a large body of

case

conducted

studies and

will

need

analyzed

in

to

Volume operations

be

future

Complex systems

Disruptive trajectory: New market disruption

research. Acknowledging that a chasm crossing is an evolutionary process, it could possibly also prove interesting to

Disruptive trajectory: Attack from above Senz Umbrella

conduct case studies of longitudinal nature, providing additional insight in the

Palm Pilot

Disruptive trajectory: Attack from below

Apple iPod

changes occurring within each factor.

Figure 15 Different high-technology contexts in which Moore’s chasm theory yields explanatory power

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8 List of references 8.1 Books Anthony, S.D., Johnson, M.W., Sinfield, J.V. & Altman, E.J., 2008, Innovator's Guide to st Growth: Putting Disruptive Innovation to Work, 1 edition, New York: Harvard Business School Press Baarda, D.B. & Goede, M.P.M. & Teunissen, J., 1995, Basisboek kwalitatief onderzoek, Groningen: Wolters-Noordhoff st Chan, K.W. & Mauborgne R., 2005, Blue ocean strategy, 1 edition, Boston: Harvard Business School Press Christensen, C.M. & Raynor, M.E., 2003, The innovator's solution, New York: Harvard Business School Press Christensen, C.M., 1997, The innovator's dilemma, New York: Harvard Business School Press Christensen, C.M., et al, 2004, Seeing what's next, New York: Harvard Business School Press th Daft, L.D., 2004, Organization Theory and Design, 8 edition, Ohio: RR Donneley & Sons Company st Davidow, W.H., 1986, Marketing high technology, 1 edition, New York: The free press th Kotler, P., 1994, Marketing Management, 11 edition, Prentice Hall Leifer R., McDermott, C., O’Connor, G., Peters, L., Rice, M. & Veryzer R., 2000, Radical Innovation: How Mature Companies can Outsmart Upstarts, New York: Harvard Business School Press nd Levit, T., 1986, The marketing imagination, 2 edition, New York: The Free Press nd Mabey, C., Mabey, Mayon-White, B., 1993, Managing Change: Managing Change, 2 edition, Paper, United Kingdom: Sage Publications Modis, T., 1998, Conquering Uncertainty: Understanding Corporate Cycles and Positioning Your Company to Survive the Changing Environment, New York: McGraw-Hill Moore, G.A., 2002, Crossing the Chasm, Rev edition, New York: HarperCollins Publishers st Moore, G.A., 2005a, Dealing with Darwin, 1 edition, New York: Penguin group st Moore, G.A., 2005b, Inside the Tornado, 1 edition, New York: HarperCollins Publishers st Norman, D. A., 1999, The Invisible Computer, 1 edition, Cambridge: The MIT Press Osterwalder, A., 2008, How to Describe and Improve your Business Model to Compete Better, Draft version 0.8, Arvetica rd Penrose, E.T., 1995, The Theory of the Growth of the Firm, 3 edition Oxford University Press th Rogers, M.E., 2003, Diffusion of Innovations, 5 edition, New York: Free Press Schumpeter, J.A., 1939, Business Cycles: A Theoretical, Historical, and Statistical Analysis st of the Capitalist Process, 1 edition, New York: McGraw-Hill Book Company, Inc. Utterback, J.M., 1996, Mastering the Dynamics of Innovation, New York: Harvard Business School Press st Verschuren, P. & Doorewaard, H., 2005, Designing a research project, 1 print, Utrecht: Lemma Wiefels, P., 2005, The Chasm Companion: A Field Guide to Crossing the Chasm and Inside the Tornado, Revised edition, New York: Capstone / HarperCollins rd Yin, R.K., 2003, Case study research, 3 edition, California: Sage Publications

8.2 Articles Abernathy, W., and Utterback, J. 1978, Patterns of industrial innovation, Technology Review, June/July, P. 41-47 Adner, R. & Zemsky, 2001, Disruptive Technologies and the Emergence of Competition, INSEAD working paper Adner, R., 2002, When are Technologies Disruptive? A demand-based View of the Emergence of Competition, Strategic Management Journal, Vol. 23, No. 8, P. 667-688 Adner, R., 2004, A Demand-Based View of Technology Life Cycles, Insead, version 5.1

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Adner, R., 2006, Match Your Innovation Strategy to Your Innovation Ecosystem, Harvard Business Review, P. 98-107 Agarwal, R. & Bayus, B.L., 2002, The Market Evolution and Sales Takeoff of Product Innovations, Management Science, Vol. 48, No. 8, P. 1024-1041 Anderson, P. & Tushman, M.L., 1990, Technological Discontinuities and Dominant Designs: Cyclical Model of Technological Change, Administrative Science, Vol. 35, No. 4, P. 604 - 633 Bayus, B.L. & Wooseong, K. & Agarwal, R., 1997, Creating Growth in New Markets: A Simultaneous Model of Firm Entry and Price, Journal of product innovation management, Vol. 24, P. 139-155 Boeker, W., 1989 Strategic change: The effects of founding and history, Academy of Management Journal, 32, P. 489–515.

Bower, J.L. & Christensen, C.M., 1995, Disruptive technologies: catching the wave, Harvard Business Review, January-February Chandrasekaran, D. & Tellis, G.J., 2007, Global Takeoff of New Products: Culture, Wealth or Vanishing Differences? Marketing Science Institute, Global takeoff, P. 1-52 Christensen, C.M. & Overdorf, M., 2000, Meeting the challenge of disruptive change, Harvard Business Review, March-April, P. 66-76 Christensen, C.M., 1992a, Exploring the Limits of the Technology S-Curve. Part 1: Component Technologies, Vol. 1, No. 4, P. 334-357 Christensen, C.M., 1992b, Exploring the Limits of the Technology S-Curve. Part 2: Architectural Technologies, Vol. 1, No. 4, P. 358-366 Churchill, N.C. & Mullins, J.W., 2001, How fast can your company afford to grow?, Harvard Business Review, Vol. 31, No. 4, P. 135-143 Collins, D.J. & Montgomery, C.A., 1995, Competing on resources: Strategy in the 1990s, Harvard Business Review, July-August Cooper, J.R. 1998, A multidimensional approach to the adoption of innovation, Management Decision, Vol. 36, No. 8, P. 493-502 Danneels, E., 2004, Disruptive Technology Reconsidered: A critique and Research Agenda, The journal of product innovation management, Vol. 21, P. 246-258 Davis, D.F., 1983, Perceived Usefulness, Perceived Ease of Use, and User Acceptance of Information Technology, MIS Quarterly, Vol. 13, No. 3., P. 319-340 Davis, D.F., 1993, User acceptance of information technology: system characteristics, user perceptions & behavioral impacts, International Journal of Management, Vol. 38, P. 475-487 Designs, Journal of Marketing, Vol. 70, P. 1-17 Eisenhardt M. & Schoonhoven C.B., Strategy, environment and growth among U.S. semiconductor ventures, Administrative Science Quarterly, Vol. 35, P. 504–529 Eisenhardt, K.M. & Schoonhoven K., 1990, Organizational growth: Linking founding team, Eisenhardt, K.M. & Schoonhoven K., 1996, Resource-based View of Strategic Alliance Formation: Strategic and Social Effects in Entrepreneurial Firms, organizational science Vol. 7, No.2, March-April 1996 Frambach, R.T. & Schillewaert N., 2002, Organizational innovation adoption: A multi-level framework of determinants and opportunities for future research, Journal of Business Research, Vol. 55, P. 163 - 167 Gardner D.M., Johnson F., Lee M., Wilkinson I., 2000, A contingency approach to marketing high-technology products, European Journal of Marketing, Vol. 34, No 9/10, P. 1053-1077 Goldenberg, J., Libai, B., & Muller, E., 2002, Riding the Saddle: How Cross-market Communications Can Create a Major Slump in Sales, Journal of Marketing, Vol. 66, P. 1-16 Hannan, M.T. & Freeman J., 1984, Structural inertia and organizational change, American Sociological Review, 49, P. 149-164.

Henderson, R. & Clark, K., 1990, Architectural Innovation: The Reconfiguration of Existing Product Technologies and the Failure of Established Firms, Administrative Science Quarterly, Vol. 35, No. 1 Johnson, G., 1992, Managing Strategic Change Strategy, Culture and Action, Long Range Planning, Vol. 25, No. 1, P. 28-36 King, A.A. & Tucci, C.L., Incumbent entry into new market niches: The Role of Experience and Managerial Choice in the Creation of Dynamic Capabilities, Management Science, Vol. 48, No. 2. P. 171-186

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Leenders, M.A.A.M. & Wierenga, B., 2001, The effectiveness of different mechanisms for integrating marketing and R&D, The Journal of Product Innovation Management, 19, 305-317 Leonard-Barton, D. & Wilson E., & Doyle J., 1993, Commercializing technology: Understanding user needs, Business marketing strategy Levit, T., 1960, Marketing Myopia, Harvard Business Review, Reprint July 2004, P. 138-149 Mahajan, V. & Muller, E., 1998, When is it worthwhile targeting the Majority instead of the Innovators in new product launch? Journal of Marketing Research, Vol. 35, No. 4, P 488-496 Marcus, M.L., 1990, Toward a ‘critical mass’ theory of Interactive Media, Organizations and communication technology, P. 194-218 Markides, C., 2006, Disruptive Innovation: In Need of Better Theory, Journal of Product Innovation Management, Vol. 23, P. 19-25 Massini, S., Lewin, A.Y., Greve, H.R., 2005, Innovators and imitators: organizational reference groups & adoption of organizational routines, Research Policy, Vol. 34, P. 1550–1569 Matsuno, K. & Mentzer, J. T., 2000, The Effects of Strategy Type on the Market OrientationPerformance Relationship, Journal of Marketing, Vol. 64, P. 1-16 McKenna, R., 1991, Marketing is Everything. Harvard Business Review Meade, P.T., Rabelo, L., The tech. adoption life cycle attractor: Understanding the dynamics of high-technology markets, Technological Forecasting & Social Change, Vol. 71, P. 667 684 Odlyzko A. & Tilly B., 2005, A refutation of Metcalfe’s Law and a better estimate for the value of networks and network interconnections, Digital Tech. Center, University of Minnesota Olson, E.M., Slater, S.F., & Hult G.T.M., The Performance Implications of Fit Among Business Strategy, Marketing Organization Structure, and Strategic Behavior, Journal of Marketing, Vol. 69, P. 49 - 65 Popovic, D., 2005, Modelling the marketing of high-technology start-ups, Journal of Targeting, Measurement and Analysis for Marketing, Vol. 14, No. 3, P. 260-276 Roberts, E.B., Meyer, M.H., 1991, Product Strategy and Corporate Success, WP# 3239-91BPS, Massachusetts Institute of Technology Rogers, E. R., 1976, New Product adoption and Diffusion, The Journal of Consumer Research, Vol. 2, No. 4, P. 290-301 Schilling, M.A., 1998, Technological Lockout: An Integrative Model of the Economic and Strategic Factors Driving Technology Success and Failure, The Academy of Management Review, Vol. 23, No. 2, P. 267-284 Shanklin, W. & Ryans J. 1984, Organizing for high-technology marketing, Harvard Business Review 62, (November-December), P. 164-71 Slater, S.F. & Mohr, J.J., 2006, Successful Development and Commercialization of Technological Innovation: Insights Based on Strategy Type, Journal of Product Innovation Management, Vol. 23, P. 26-33 Slater, S.F. & Olson, E.M., Strategy Type and Performance; the Influence of Sales Force Management, Strategic Management Journal, Vol. 21, No. 8, P. 813-829 Srinivasan, R., Lilien, G. L. & Rangaswamy, A., 2006, The Emergence of Dominant Tassey, G., 2000, Standardization in technology-based markets, Research Policy, Vol. 29, P. 587-602 Teece, D.J., 1986, Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy, University of California, Berkeley Teece, D.J., 1992, Competition, cooperation, and innovation: Organizational arrangements for regimes of rapid technological progress, Journal of economic behaviour and organization.

Teece, D.J., 1994, Firm organization, industrial structure and technological innovation, Journal of Economic behavior & organization, Vol. 31, P. 193-224 Tellis, G.J. & Stremersch, S. & Yin, E., 2003, The International Takeoff of New Products: The Role of Economics, Culture, and Country Innovativeness, Marketing Science, Vol. 22, No. 2, P. 188-208 Utterback, J.M. & Acee, H.J., 2005, Disruptive technologies: an Expanded View, International Journal of Innovation Management, Vol. 9, No. 1, P. 1-17 Utterback, J.M., 1993, Radical Innovation, The International Center for Research on the Management of Technology, Sloan WP# 3617-93 Valente, T. W., 1996, Social network thresholds in the diffusion of innovations, Social networks, Vol. 18, P. 69-89

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Venkatesh, V. & Davis, D.F., 2000, A Theoretical Extension of the Technology Acceptance Model: Four Longitudinal Field Studies, Management Science, Vol. 46, No. 2, P. 186-204 Wade, J., 1995, Dynamics of organizational communities and technological brandwagons, strategic management journal, Vol. 16, P. 111-133 Wernerfelt, B., 1984, A resource-based view of the firm, Strategic Management Journal, Vol. 5, No. 2. (Apr. - Jun., 1984), P. 171-180.

Williams, J., 1992, How sustainable is your competitive advantage? California Management Review, Vol. 34, P. 29-51

8.3 Various Iskold, A., 2007, Rethinking ‘Crossing the Chasm’, [online], available from: [accessed http://www.readwriteweb.com/archives/rethinking_crossing_the_Chasm.php 10/05/08] Wieffels, P., 2007, Business Metrics: Better Mind What You Measure, [online], available from http://www.chasmgroup.com/publications/article_businessmetrics/print/ [accessed 20/08/08]

8.4 Validation Case 1: Palm Inc. (PalmPilot) Bayus, B.L., Jain, S., Rao, A.G., 1997, Too Little, Too Early: Introduction Timing and New Product Performance in the Personal Digital Assistant Industry, Journal of Marketing Research, Vol. 13, P. 50-63 BBC, 2004, History of the PDA, http://www.bbc.co.uk/dna/h2g2/A2284229 eTForecasts, 2004, Executive Summary, Worldwide PDA & Smartphone Forecast 19982008, http://www.etforecasts.com/products/ES_pdas2003.htm Harvard Business School, 1998, Case-Study: Palm Computing: The Pilot Organizer NCCW, 1998, History of PDA, http://www.nccw.net/mobile-internet/history-of-the-pda.html Nomura Research Institute, Ltd., 2003, Perspectives of the Market Scale and its Trend of the IT Market until 2008, http://www.nri.co.jp/english/news/2003/031120/031120-6.gif Palm Inc., 1998, 3Com, Symbol and Abaco Team to Deliver Mobile Connectivity to SAP™ R/3™ Solutions Via the Palm Computing® Platform, http://www.palm.com/us/company/pr/1998/symbol_abaco.html Palm Inc., 1999, 3Com Unveils the Palm V™ and Palm IIIx™ Connected Organizers, http://www.palm.com/us/company/pr/1999/palmvpalmiiix.html Palm Inc., 2000, Case studies of Palm Applications Palm Inc., 2007, About Palm Inc, Historical Timeline, Obtained from the corporate website; http://www.palm.com/us/company/corporate/timeline.html Stanford Graduate School of Business, 2004, Case-Study: Handspring and Palm, Inc: A corporate Drama in Five Acts University of Hamburg, 2004, Case-Study: The Making of the Palm Pilot: Reflections on a Minimal Information Appliance Interview: Ivo Philipsen, Owner NOW-Mobile, exclusive Palm agent Benelux Interview: Vincent Philipsen, Owner NOW-Mobile, exclusive Palm agent Benelux Interview: Jelmer Jonkman, Marketing NOW-Mobile, exclusive Palm agent Benelux

8.5 Validation Case 2: Senz Umbrella’s B.V. TheStar.com, 2007, Asymmetry and the next-gen umbrella, http://www.thestar.com/article/208434 Senz B.V., World Wide News Archive, http://www.senzumbrellas.com/en/news ABC News, 2008, Asymmetry and the next-gen umbrella http://abcnews.go.com/WNT/Story?id=2929322&page=3 Buzzaward, 2007, Senz Paraplu, http://www.buzzawards.nl/2007/?page=binnen Interview: Philip Hess, Owner & Commercial Director Senz Umbrella’s (interviewed 2 times) Interview: Gerwin Hoogendoorn, Owner & Chief Designer Senz Umbrella’s

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8.6 Validation Case 3: Apple Inc. (iPod) Bull, M., 2006, Iconic Designs: The Apple iPod, Third International Workshop on Mobile Music Technology University of Sussex, Brighton, UK, 2-3 March 2006.

Bull, M., 2006, Investigating the culture of mobile listening: from Walkman to iPod, from consuming Music Together: Social and Collaborative Aspects of Music Consumption Technologies, Chapter 7, P. 131 - 149 Hennessy, J., 2004, Case-Study: Apple Computer Inc.: Think Different, Think Online Music, Kellog School of Management iPod sales graph: http://www.systemshootouts.org/ipod_sales.html iPod selling prices: http://www.intomobile.com/wp-content/uploads/2008/06/ipod-sales.jpg Koster, A., 2007, Music Industry: Toward A New Business Model?, Journal of Business & Economics Research, Vol. 5, No. 11 Linden, G., Kraemer, K.L., Dedrick, J., 2007, Who captures value in a global innovation system: The case of apple’s iPod, The Personal Computing Industry Center Moss Kanter, R., 2006, Innovation: The Classic Traps, Harvard Business Review, Vol. November, P. 72-83 Reppel, A.E., Szmigin, I., Gruber, T., 2006, The iPod phenomenon: identifying a market leader’s secrets through qualitative marketing Research, Journal of Product & Brand Management, Vol. 15, No. 4, P. 239-249 Shih, W., 2008, Case-Study: MP3 Portable Audio Player Market, Harvard Business School Yoffie, D.B., Slind, M., 2008, Case-Study: Apple Inc., 2008, Harvard Business School

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Appendix A: Generic Business Model

98

Appendix B: Measurement Instrument

market domination strategy

pos

cat.

factor

Master Thesis factor change

no. Questions

Sales takeoff Cumulative adoption Adopter profiles

Can a sales take off moment be identified in the company's sales history?

Hoe does the cumulative innovation adoption relate to the TALC? TALC location What is the profile of innovation adopters on the technology adoption life cycle?

Is the innovation innovation discontinious? Render competences obsolete? Change type of innovation user behaviour?

1 Is the company focusing on serving a small-number of niche customer segments?

Is the company focusing on becoming the market leader within the niche customer From ad hoc to niche based segmentation 2 segment?

Customer segments strategy Will the company target adjacent niche customer segments leveraging competences 3 to further build the market?

Are the customer relationship and marketing communications reflecting the From appealing to visionary values to 4 pragmatist values outlined in table 2? appealing to pragmatist values 5 Does the company use pragmatist references in the early majority niche segments?

Customer relationships From focussing on the technical communicty Does the sales force focus on maintaining relationships with the end-user to focussing on the end-user community & 6 community & enlist support of the economic buyer in their customers decisionenlisting support of the economic buyer making unit?

7 Does the sales organization specialize to serve the niche market segments?

Does the sales organization focus on developing a market, instead of maximizing From executing a product-centric to a market- 8 overall sales? centric sales strategy Does the incentive structure stimulate the implementation of a market-centric sales 9 strategy?

Communication & Is the company marketing through industry-lines and professional (branch) 10 distribution channels From relying on word-of-mouth to organizations? communicating along industry lines and through professional (branch) organizations 11 Are the companies marketing communications reflecting pragmatist values?

Distribution: direct sales to VAR

12 13 14 15

From offering an enabling technology to a whole product value proposition

16 17

value proposition

Crossing the chasm

18 Value proposition

19 20 Solution optimized for technology acceptance 21 22

Is the company changing distribution to accommodate relatively higher sales volumes?

Are basic set-up services; Installation, instructions, debugging training offered?

Are system integration services offered with existing mainstream systems?

Is product support offered and organized by a service infrastructure?

Are additional hard- and software extending functionality required to fulfilling customer needs?

Is functionality increased by ancillary products and customer specific system enhancements?

Is the ‘whole product’ optimized and standardized for the served niche customer segments?

Does the end-customer believe innovation enhances effectiveness of existing business processes?

Does the end-customer believe the innovation enhances productivity?

Does the end-customer believe by adopting the innovation the job is made easier?

Does the end-customer find it easy to get the system to do what he/she wants to?

value proposit

Value proposition

Appendix B: Measurement Instrument Solution optimized for technology acceptance Master Thesis

organizational building blocks

Partner network

Activity configuration

Core capabilities

Crossing the chasm

23 Does the end-customer find the innovation to be easy to learn?

24 Does the end customer find the innovation to be flexible and easy to work with?

25 Can the company price discriminate across target customer segments?

Is the company able to hit lower strategic price points to further increase market From a price skimming strategy to a price 26 boundaries? penetration strategy Is the company’s following price penetration strategy to increase relative market 27 share?

Does the combination of alliances facilitate the creation of an ecosystem thereby From strategic alliances to validate 28 increasing the value of the whole product? technology to strategic alliances to from an Is the formation of an ecosystem stimulated to accelerate the customer’s perception ecosystem 29 of a standard?

30 Are tactical alliances utilized to accelerate the creation of the whole product?

31 Are tactical customer partnerships leveraged for their referencing potential?

From tactical alliances to speed product Are tactical alliances applied to form coalitions enforcing technology standards? (If 32 applicable) development to tactical alliances creating whole product infrastructures and dominating Are distribution alliances providing access to new and adjacent niche customer 33 segments? niche markets Do Value Added Resellers maintain effective customer relationships with the niche 34 customer segments in high volume markets?

To what extend is the company proficient in changing its business model affecting all 35 orgaizational disciplines to cross the Chasm?

Do organisational structural characteristics and strategic behavioural emphasis 36 complement the ‘prospector’ strategy?

From a emergent strategy process to 37 Does the strategy to cross the chasm have toplevel and organisation wide support? deliberate strategic planning Is the company feeing resources, necessary in order to develop niche customer 38 segments?

Does company management build core-capabilities and implement processes to 39 change the value discipline to customer intimacy?

Is the company market-oriented, and is marketing taking a leaderhip role in setting 40 strategy?

R&D handing over the leadership role to marketing 41 Is there tight integration between marketing and R&D activities?

42 Does the firm apply the prospector strategy to its market domination strategy?

Does R&D reduce technology development efforts after basic customer needs are 43 satisfied?

44 Does optimizing overall user experience play a central role in the design process?

45 Does the R&D department focus on application innovations?

From technology centric R&D to user & Is there a balance between technology, marketing and user experience in R&D application centric R&D 46 priorities?

Is the R&D department proficient in delinking technology from existing applications 47 and re-aligning them to new applications to serve adjacent niche customer segments?

From product-centric to process-centric R&D 48 To what extend are the rapid product / technology improvement reduced? focus 49 Does R&D focus upon improving production methods?

or Appendix B: Measurement Instrument

Core capabilities From technology to business expertise in Human Resources

Master Thesis

50 51 52

From a culture of pioneers to becoming settlers

53 54

metrics

55

Success metrics in crossing the chasm

Sales: From maximizing design wins to timeto-segment dominance Strategy: From reaching technological maturity to category market share targets Finance: From contolling cash-burn-rate to obtaining quick but small revenues

57 58 59 61 62

external factors

63 Dominant design

64 65 66 67

Critical mass

Does HRM safeguard the required business expertise level to serve the niche customer segment?

Is the company specializing the sales force and sales support organization around the application of the niche customer segment it is serving?

Are engineering targets changed from operating on technological forefront to customer usability?

Is the organizational culture facilitating the focus on creating infrastructure standards, standardization, procedures and integration with installed solutions?

Is the organizational structure facilitating cultural change to becoming a mature organization?

Is pragmatist personnel recruited and assigned to critical business functions (sales, marketing R&D, C-level management)?

56 Does the company implement sales targets to obtain time-to-segment dominance?

60 Market circumstances

Crossing the chasm

68 69 70

Competition 71

Does obtaining dominant category market share replace the technological development goals as strategic priorities?

Is company management aware that crossing the Chasm can imply a period of stagnating growth?

Is the company’s performance evaluated on obtaining quick but relatively small revenues?

Does market demand, exert influence on mass mainstream adoption?

Can the disruptive innovation be overturned before reaching mass mainstream adoption?

Is the way discontinuous change occurs influencing the configuration of the business model?

Is the value proposition offering an overall satisfactory solution for the mainstream market?

Are technological trajectories converging within the product category?

Is the technology design standardized?

Are measures taken for the technology to be perceived as the standard design methodology by the niche customer segments (e.g. licensing-, distribution agreements, complementary products)?

Is critical adopter mass developing in order to facilitate the establishment of the dominant design?

Are high priorities given to establishing the first references in the niche customer segment?

Is adoption accumulating in order for the market to become self-referencable?

Does increased competitive intensity result in perceived reduction of uncertainty and cost?

Does increased competitive intensity result in a perceived increase in product quality and higher innovative activity?