let's be the hope

─ 芯之觀點  ─

「天地遐呢大,草根未來底叨位?」

歷史的轉捩點,時而取決於

一個人、一句話、一個思維

世界上有兩種事物富有力量
一是劍,二是思想

而思想比劍更有力

在每雙眼眸、每道皺紋裡看見詩篇

敬!每個「再辛苦也笑給老天看」的靈魂 

"There are but two powers in the world, the sword and the mind. In the long run the sword is always beaten by the mind" (La plume est plus forte que l'epee) -Edward Bulwer-Lytton

感謝蒞站,上百篇文章陸續更新中

文 / 沈芯菱


1. Introduction


In the global market, enterprises are facing fierce competition, rapid changes in technology, as well as shorten the life cycle of the product, as the result, the new product development (NPD) has become an important issue for enterprises.


In the development of new products, enterprises should consider various factors, including technology, competitors, customers, costs, resources and other factors. (Thomas,1993) Each company is committed to the development of successful products, but there are still many examples of failures. No one deliberately designed a bad product, most of the designers believe that they do their best to design the ideal product which should be welcomed by the market, but ultimately failed. Many designers think that one of the reasons for the failure is that the final product has a huge gap with the original ideal design.


From the ideal design to the products, there are many procedures, there are numerous reasons will lead to the gap. There are some processes that help to reduce the gap between design and finished products, but others are the opposite. In this paper, we will try to construct a design to the product model, find out the factors between the process, and study the influence of the factors on the design to the product is positive, negative or neutral. This paper has the following objectives:

  • Construct the new product development model and find out the influencing factors.

  • Analysis of the influencing factors in phase stage are positive factors, negative factors (gaps) or neutral factors.

  • After analyzing the attributes of influencing factors, we can consider how to increase the positive factors and reduce the negative factors, in order to increase the success probability of the products.


2. Literature Review

Review and integration of the important research of NPD in order to construct the NPD four processes of this research: concept development, screening and business analysis, prototype development and testing, and product commercialization. Then discuss the factors that may be covered in the four stage (see Figure 2).

2.1 The new product development process

The new product development process is divided into many stages, there is an evaluation mechanism to determine whether the new product should continue or terminate at each phase. There are numerous NPD studies, Cooper (1986) divided NPD into thirteen phase s, and Song (1988) merged it into six phase s. Ulrich et al. (1995) considered the gate-stage into five phases. The following is the summary:

Based on the above summary, we found that the various theories have some point of views in common, this study further integration into four phases: concept development, screening and business analysis, prototype development and testing, product commercialization. (see table 2)

In a marketing context, the ideal point model (Joel Huber, 1976) provides an appealing geometric metaphor which can be used for defining new products, repositioning old products, and determining 'benefit" segments who desire similar attributes in a product. Based on the above discussion, this study suggests that design thinking, user ideal point, and technical assessment should be included in concept development phase.


2.1 Screening and business analysis

After concept development, the designers are then screened, in this phase, Cooper and Kleinschmidt (1986) thought it requested detailed market study/market research, Business/financial analysis. And Song (1988) argued that it includes business and market opportunity analysis. Kuczmarski (1992) pointed out that it combines business analysis and screening. Ulrich et al. (1995) thought it is the phase of system-level design and detail design


Hauser and Clausing (1988) argued that House of Quality(HOQ) which is one of the matrices of an iterative process called Quality Function Deployment (QFD), in order to construct the basis of meeting the customer's needs with the combination of the customer needs and technical requirements. Temponi et al. (1999) developed a heuristic inference scheme to reason about the implicit relationships between requirements. (see Figure3) Bottani and Rizzi (2006) pointed that there are eight steps comprise HOQ operations:


1.Defining customer requirements

2.Formulating relative importance of CRs

3.Comparing competitors

4.Establishing DPs

5.Creating the relationship matrix between CRs and DPs

6.Creating a correlation among DPs

7.Calculating the absolute importance of DPs

8.Prioritizing DPs by absolute importance.

Based on the above discussion, this study suggests that the house of quality, business and market analysis, and screening should be included in screening and business analysis phase.


2.1 Prototype development and testing

When the Designer completes screening and business analysis, then the idea is implemented as a product prototype. Cooper and Kleinschmidt (1986) thought it need to go through product development, in-house product testing, customer tests of product, test market/trial sell, trial production, and pre-commercialization business analysis. And Song (1988) argued that it includes technical development and product testing. Kuczmarski (1992) pointed out that it combines prototype development, plant scale-up and market testing. Ulrich et al. (1995) thought it is the phase of testing and refinement system-level design and detail design.

From the concept to the product, it is necessary to consider the reality, which may not be considered in the design stage, such as compatibility, technical ability, user preferences, etc. Matutes and Regibeau (1988) pointed out that firms must decide whether to make their components compatible with those of their competitors, and the symmetric perfect Nash equilibrium of this game is shown to involve full compatibility.

Based on the above discussion, this study suggests that compatibility, technical ability, and product testing should be included in prototype development and testing phase.


2.2 Product Commercialization

After the completion of prototype development and testing, the product enters the phase of production and commercialization. Cooper and Kleinschmidt (1986) thought it need to go through production start-up and market launch. And Song (1988) argued that it is the phase of product commercialization. Kuczmarski (1992) pointed out that it combines commercialization and post-launch checkup. Ulrich et al. (1995) thought it is the production ramp-up phase.

When the product enters a mass production phase, it must be considered “make or buy” decision (Walker & Weber, 1984) Chesbrough and Teece, D. J. (2002) argued that it depends on the core competition, if the capabilities is existing outside and the innovation type is autonomous, then it can go virtual, and the opposite situation is to bring in house or ally. Spekman et al., (1994) provided a perspective on partnerships into supply chain management, which means success is no longer measured by a single transaction; competition is evaluated as a network of co‐operating companies competing with other firms along the entire supply chain. Whether outsourcing, self-made or cooperation, enterprises are facing a problem, is when to protecting the core competence, the specification limit expression. Especially in the case of layers of outsourcing, may make the ‘knowledge gap’ between the manufacturer and designer. (Molcho et al., 2008)

Based on the above discussion, this study suggests that resources (Budget/Time/People), knowledge gap, and commercialization should be included in product Commercialization phase.


3. Research methodology

3.1 The Research model

According to the above discussion, I conclude the following research model (see figure 4). In phase one, the designers will consider design thinking, user ideal point, and technical assessment to complete the design concept. And then they do screen the design concept, business and market analysis and the house of quality analysis to have the screening strategy in phase two. In phase three, they will evaluate compatibility, technical ability, and product testing to get the prototype. In the final, they will consider the resource, knowledge gap, and commercialization in phase four.

Figure 4: The research model

3.2 The Research Methodology

For better identifying the factors, this study was used the content validity method and list all potential factors which may existed in the stages, and use R-test to find out those factors are independent to others. According to those independent factors, I design a PZB-like questionnaire survey and reference the approach of Parasuraman, Zeithaml & Berry (1985) to four groups of people involved in the product design procedures (Designers, Engineers in manufacturing department, Suppliers/Vendors, Users, and 100 for each). Gathering the data could have much more understanding on factors which impact to the product design quality, and do the reliability and validity to make sure the study is effective and reliable (see figure 5).

References:

Brown, T. (2008). Design thinking. Harvard business review, 86(6), 84.

Cooper, R.G., Kleinschmidt, E.J., 1986. An investigation into the new product process: Steps,deficiencies, and impact. J. Prod. Innov. Manage. 3, 71-85

Humphreys, P., McIvor, R., & Huang, G. (2002). An expert system for evaluating the make or buy decision. Computers & Industrial Engineering, 42(2), 567-585.

Joel Huber (1976) ,"Ideal Point Models of Preference", in NA - Advances in Consumer Research Volume 03, eds. Beverlee B. Anderson, Cincinnati, OH : Association for Consumer Research, Pages: 138-142.

Lynn, M. R. (1986). Determination and quantification of content validity. Nursing research, 35(6), 382-386.

Matutes, C., & Regibeau, P. (1988). " Mix and match": product compatibility without network externalities. The RAND Journal of Economics, 221-234.

Molcho, G., Zipori, Y., Schneor, R., Rosen, O., Goldstein, D., & Shpitalni, M. (2008). Computer aided manufacturability analysis: Closing the knowledge gap between the designer and the manufacturer. CIRP Annals-Manufacturing Technology, 57(1), 153-158.

Parasuraman, A., Zeithaml, V. A., & Berry, L. L. (1985). A conceptual model of service quality and its implications for future research. the Journal of Marketing, 41-50.

Song, X. M., & Montoya‐Weiss, M. M. (1998). Critical development activities for really new versus incremental products. Journal of product innovation management, 15(2), 124-135.

Spekman, R. E., Kamauff Jr, J. W., & Myhr, N. (1998). An empirical investigation into supply chain management: a perspective on partnerships. Supply Chain Management: An International Journal, 3(2), 53-67.

Thomas, R. J. (1993). New product development: Managing and forecasting for strategic success. University of Texas Press.

Walker, G., & Weber, D. (1984). A transaction cost approach to make-or-buy decisions. Administrative science quarterly, 373-391.



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文 / 沈芯菱


1. Introduction

National Applied Research Laboratories (NAR Labs) in 2015 released “Analysis of Taiwan's Competitiveness in Science and Technology”. The results indicate that in recent years, Taiwan's top three areas in patents with most investment and influential, including the technical impact indicators are electrical machinery, apparatus energy (6,480 cases), semiconductors (6,300 cases) and machine tools (709 cases).

Figure 1 : Relative Impact of Taiwan's Patents in Various Technology Fields Source : NAR Labs


The fields of electrical machinery and apparatus energy is the highest number of patents and the relative influence. The electrical machinery and apparatus energy include many industries, but according to the Chi research, the hot spot patent method, which was tools to predict the next generation of technology.


It was found that in the 2008 and 2009’s hot patents worldwide, the third highest field is UPC324754 "Electricity: Measurement and test / probe". The total number of patents and influence of the patent field: UPC324754 are both increasing while compare the period of 2005-2009 with 2000-2004 by the RTA index in Taiwan.


Measuring, testing and probing electricity is one of the important components of the smart grid. Therefore, the smart grid is an important trend in the world, and there are lots of patents in Taiwan.


The definition of "smart grid" by IEEE refers to the use of digital technology to upgrade the transmission and distribution network, in order to achieve the most optimal operation, and increase the energy market flexibility, then induce a number of the new markets which related to the smart grid.


Smart Grid deployment is imperative, not only in the United States but also around the globe. However, the smart grid is a revolutionary cause of the new communications and control capabilities, energy, generation model and adhere to cross jurisdiction regulatory structure.


There are six categories be classified in Taiwan Smart Grid Industry: AMI Infrastructure System, Distribution Feeder Automation System, Smart Home and Building System, Micro Grid System, Smart Transmission System and Energy Storage System.


In globalization and increasing hyper competition, companies requiring disruptive innovation and jumping to a new S-curve even more critical in nearly every industry. Matthyssens et al. (2006) stresses the importance of value innovation to create and sustain competitive advantage and to rejuvenate the organization.


In this paper, we will discuss the relationship among the R&D investments in the enterprise, patent innovation, and enterprise value in the rapidly changing environment of the smart energy industry, the relationship, whereby research to help companies understand the value of the patent lies. This paper has the following objectives:


The influence of enterprise R & D investment on Patent Innovation.

The influence of patent innovation on enterprise value.

The impact of R&D investment on enterprise value through patent innovation.


In the past studies, they were more concerning in the relation between patent and company performance, more emphasis in the patent numbers and accounting of enterprise performance of the semiconductor industry. This study is focus on the smart grid industry and has joined with the discussion of patent quality, and is different from the enterprise value.

2. Literature Review

2.1 Relationship between R & D investment and enterprise value:


Cohen and Levinthal (1990) defined absorption capacity as a firm's ability to recognize the value of new information, assimilate it, and apply it to commercial ends. The absorptive capacity is cumulative, while the companies invest more in R&D, it’s easier to accumulate it in the next one.


Griliches (1981) found a significant relationship is found between the market value of the firm and its intangible capital. Artz, K. W., et al. (2010) suggested that patenting and product innovation have different effects depending on the performance metric examined. Sohn, D. W(2010) showed R&D investment is the most significant factor affecting patenting.

Hagedoorm and Cloodt (2003) pointed that the performance of the organization patent can reflect the capability of R & D, and it can also affect the performance of the enterprise. R & D expenditures can be used to analysis enterprise value and non- comparison and subjective characteristics (David and Lev, 2002), as mentioned above, much of the literature reviews support investment in research and development to the enterprise operating performance have positive effects, and that the amount plays an important role.

Hypothesis 1 (H-1): R&D investment is positively associated with enterprise value.



2.2 The relationship between patent innovation and enterprise value:

The resource-based view (RBV) is the basis for a company to lie in the application of valuable tangible or intangible resources to improve the competitive advantage. ( Wernerfelt, 1984)


Peteraf (1993) analyzed that the essence of parsimonious model of resources and firm performance is superior resources, ex post limits to competition, imperfect resource mobility, and ex ante limits to competition.

R&D investment can improve productivity and create company value (Hirschey, 1982; Hirschey and Weygandt, 1985; Chauvin and Hirschey, 1993; Lev and Sougiannis, 1996; Hall, 1999).


Griliches and Mairesse (1984) analyzed that in high-technology industries, R&D investment have value relevance. Lev and Sougiannis (1996), and Hall (1999) show that R&D activities is positively associated with current equity value and future company value. Bloom, N., et al. (2002) showed that patents have an economically and statistically significant impact on firm-level productivity and market value.


Technological capabilities and Market-interface capabilities is the critical component of the core competence. Therefore, core competence is divided into technology core competence, marketing core competence (ET al.1995 Gallon). Patel and Pavitt (1977) argued that technology is one of the sources of the main advantage of the manufacturers, the patent citation can measure inimitable (Markman et al., 2004), and the quality of patent on behalf of, and with company profits have positive correlation (Hall et al., 2001).

Hypothesis 2 (H-2): Patents are positively associated with enterprise value.


2.3 The relationship between R & D investment and enterprise value through patent innovation:


Bound, J. et al.(1984) found that much larger output of patents per R&D dollar for the small firms, with a decreasing propensity to patent with size of R&D programs throughout the sample. Pakes(1985) showed that the total value of patent rights and the relationship between changes in it and changes in the quantity of patents. Scherer (1965) analyzed that the patent approval number and corporate performance in sales growth has a positive relationship


A successful business needs to respond to the changes in the environment, to take a different approach (Miller, 1988). Spital & Bickford (1992) study found that the rapid change of technology environment. Successful business investment in R & D funds ratio is usually higher than the average, and in a dynamic environment, the ability of technological innovation is the key to success.Hall et al. (2002) provided R&D intensity is related to patent measures, and the innovation of new product introduction is related to the operating performance. Schoenecker and Swanson(2002) found limited evidence that aspects of firm technological capability quality are related to firm performance.

Hypothesis 3 (H-3): The relationship between R&D and enterprise value is related to the influence of patent.

Method

3.1 Data Collection and Sampling

3.1.1 Data Sampling:The Standard Industrial Classification (SIC) is a system for classifying industries by a four-digit code, it is used by government agencies to classify industry areas. However, there is not yet a category exclusively for smart grid and companies that engage in smart grid spread across many categories.

In order to adopt more accurate sample, the sampling of this study will use listed companies of Taiwan Smart Grid Industry Association (TSGIA), which was officially established in 2010 for the purpose of facilitating the development of the smart grid industry in Taiwan.


In addition, TSGIA is also the officially recognized organization of standardization. TSGIA has 40 publicly traded companies as group member, which are from smart grid industry sectors in Taiwan, including system, component, material, and chemical suppliers, as well as government or private research institutions, consultancies and etc.


3.1.2 Data Collection:

3.1.2.1 Patents data source:The data comes from United States Patent and Trademark Office (USPTO) online patent database. Search Sample companies’ number of patents, patent citations from 2010 to 2015 year.


3.1.2.2 Enterprise value data source:The firms’ public financial reports from the Taiwan Economic Journal (TEJ) database, including R&D costs, technology introduction, the total assets, the number of employees, staff productivity.


3.2Variable index model:

3.2.1 R&D model: The R&D investment is usually measured by the current R&D expenses. Much of the literature is used to reduce the current operating income, and to eliminate the heteroscedasticity ,called R & D density, defined as follows (Sougiannis ,1994 ; Lev and Sougiannis,1996 ; Huang and Liu, 2005 ):

R&D intensity = R & D expenses / Net current revenue


3.2.2 Patent innovation index:

3.2.2.1 The index model of Patent quantity:Number of Patent (PN) is the granted numbers on the patent owner in a particular period of time, in the patent classification project. Arundel & Kabla (1998) and Cloodt & argued (2003) that the number of patents can be used as a measure of the number of R & D output in high-tech industry. CHI Research (ipIQ) first proposed the method of the quality and quantity of the patent, and the evaluation index is described as follows:


Number of patent approval = The United States Patent Office approved patent number from 2010 to 2015.

〖PN〗_(j,k)^i=∑_k▒〖PN〗_(j,k)^i

i: The patent owner.

j: The technical field.

k: A specific time.

〖PN〗_(j,k)^i: The approved patent number of the company in the technical field and specific time.


3.2.2.2 The index model of Patent Quality:Hall et al. (2001) argued that the patent quality can be found through the number of patent citations. Many studies have also found that patent citations have a positive impact on financial performance. (Ernst, 1995; Hagedoorn and Cloodt, 2003; Markman et al,2004)


Thus, the number of patent citations are as a measure of the quality of R&D output in this paper. Cites per patent (CPP) is the number of patents cited by other companies to assess the quality of the patent in the past five years. The higher the number of references, the more advanced technology, and more influence on the industrial technology and the future development.


CPPy ( Cites Per Patent ) = The number of times for a company which patents (during y-1 and y-6) was cited in year y / The number of patents (during y-1 and y-6) for a company in year y


3.3 The index model of Enterprise value:Many studies adopt the accounting evaluation model of corporate earnings, but may underestimate the value of the enterprise。Griliches(1981) suggested that the value of the enterprise is formed by the construction of tangible and intangible assets. Ohlson (1995) deduced the stock evaluation model based on the accounting information by dividend discount method(DDM), net surplus and linear Information Dynamics Model (LIM). Ohlson model has different results for different life cycle enterprises, so this study is a Ohlson model to consider the life cycle of the enterprise.


Pit=βi0+β1D1+β2D2+β3bvt+β4Xait+β5D1bvit+β6D2bvit+β7D1Xait+β8D2 Xait

i : Individual companies

P t : market price in phase t

X t : Abnormal earnings per share

Xat : Abnormal earnings per share phase t

Growth stage: D1=1 and D2=0

Maturity stage: D1=0 and D2=1

Decline stage: D1=0 and D2=0


The expected result

According to the literature review, the three assumptions should be established, then can strengthen the original literature, but also for the future researchers. There are a number of assumptions that may not be established. In the other situation, if not all the hypotheses are established, then it will need for further investigation in company strategy, research efficiency, government policies, competitors, trade barriers, time-lag effect between R&D investment, patent, and other factors.


Condition 1:

Hypothesis 1: R&D investment is positively associated with enterprise value. (True)

Hypothesis 2: Patents are positively associated with enterprise value. (True)

Hypothesis 3: The relationship between R&D and enterprise value is related to the influence of patent. (True)


Condition 2:

Hypothesis 1: R&D investment is positively associated with enterprise value. (False)

Hypothesis 2: Patents are positively associated with enterprise value. (True)

Hypothesis 3: The relationship between R&D and enterprise value is related to the influence of patent. (True)

Conclusion is not consistent with the literature review.Need for further investigation in company strategy, research efficiency, time-lag effect between R&D investment and patent, and etc.


Condition 3:

Hypothesis 1: R&D investment is positively associated with enterprise value. (True)

Hypothesis 2: Patents are positively associated with enterprise value. (False)

Hypothesis 3: The relationship between R&D and enterprise value is related to the influence of patent. (True)


Conclusion is not consistent with the literature review. Need for further investigation in government policies, competitors, trade barriers and etc.


Most patent and performance of previous studies in Taiwan, focusing on the semiconductor industry and enterprise performance, this study aimed at the emerging smart grid industry enterprise value. Furthermore, because governments are in effect of solar energy and smart grid industry. Therefore, there are many variables will affect the results, it is worth further observation and discussion.

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已更新:2019年11月17日

文 / 沈芯菱

Prahalad and Hamel (1990) explained that core competencies lead to the development of core products which further can be used to build many products for end users. However, we found that even if the company has a core competence, engaged in the most good things, but also may lead to failure. For example, HP first invented the tablet, but lost to ipad. Sony is the first invented Walkman, but lost to ipod. Why innovators failed, but competitors catch up from behind? The key is not only technological innovation, design innovation, but also the business model to be innovative.


The most important is that the firms must have different business models and strategies in different stages. Everett Rogers(1962) argued ‘the technology adoption life cycle’ which describes the adoption of a new product or innovation. Geoffrey Moore(1991) proposed amendments to the theory that there is a ‘ chasm’ between the first two adopter groups (innovators/early adopters), and the early majority (see figure 1).


Further, Moore(2000) divides the technology adoption cycle life into four stages, and suggests strategies that are required at different stages. While the firms know the importance of different stages, the problem is how to reinvent the business model. Johnson and Christensen (2008) offered four elements to build a successful business model. In order to explain these theories, the following example is Netflix how to beat the Blockbuster.

The Category Maturity Life Cycle of Netflix


While Netflix was founded in 1997, Blockbuster which founded in 1985 dominated the video rental market and had grown to a commanding 40% share of the market, but surprisingly, Blockbuster issued a bankruptcy warning in 2010. What happened in the past ten years? I apply the Moore theory to explain the strategies of Netflix (see figure 1).

Early Market 1997

Moore(2000) believes that with the ‘Discontinuous innovation’ to grasp the advantages of first-mover, to find the 'future' market positioning in early market stage. In 1997, Pepsi has a wide range of physical stores, in contrast, Netflix launched the ‘Video-by-Mail’ service, but consumers don't have the patience to wait so Netflix don't operate well at that time.

Think of it this way: Blockbuster had more than 5,000 video rental stores in U.S, and about ten minutes by car to arrive. Consumers need to pay the freight and wait for several days in Netflix, moreover, Blockbuster had more new films. Faced with these weaknesses, how Netflix apply the strategies to break through the dilemma?


Bowling Alley 1998

At this stage, Moore (2000) suggested the companies adopt the ‘Application innovation’ to create a niche market. In 1998, Netflix took four strategies: ‘all you can eat’ model, no late fees, fast and free delivery, and video recommendation engine with big data and data mining.

Netflix is cheaper, more convenient, and more understanding the consumers’ needs. It was conceivable that Blockbuster’s expensive late fees and ‘pay as you rent’ model failed. Netflix mad a market and created a value chain where there were no market and no value chain before, and developed “killer app” to expand niche to niche (Moore,2000).


Tornado 2007

As customers increase, companies usually takes the strategy of ‘product innovation’ , emphasizes the sales and service to develop the market, and focuses on defeating the competitors in the tornado stage (Moore,2000). Netflix launched video on demand service via the Internet called ‘Watch Instantly’ on December, 2007.

The cheapest plan, only $7.99 per month, customers can see hundreds of thousands of videos. After Netflix launched this service not long, Blockbuster shares fell sharply, and collapsed in 2010 (see figure 2).

Main Street 2013

When the market boundaries have been set, the company began through accessories, supplies, customer service, and differentiated products to profit (Moore,2000).


In 2013, Netflix began work on producing its own original content – House of Cards which received four nominations for both the 65th Primetime Emmy Awards and 65th Primetime Creative Arts Emmy Awards. Is different from the traditional model to play a weekly episode, Netflix once provided a quarter of the thirteen sets of content. This is because after the big data analysis, Netflix know the audience's hobby, so get the majority of praise. Not only did the drama earned a huge amount of product placement advertising, but also attracts more people to subscribe to Netflix.


Just as Netflix’s Slogan “Watch anywhere. Cancel anytime.” , in addition to using PC to see Netflix, Netflix actively cooperate with the hardware manufacturers, so the audience can watch Netflix movies and TV shows online or stream right to the smart TV, game console, PC, Mac, mobile, tablet and more. Netflix CEO Reed Hastings predicted that in the next 10 to 20 years, all of television will be on the Internet.


The Next of Netflix

The more important contribution to the theory of Moore(2005), is to extend the product life cycle. After entering the main street stage, companies should continue to adopt strategies to extend the profits (See the figure 3).


Netflix is not easy to be imitated, because it constantly update the business model and innovation, I think Netflix is currently in ‘growth market ‘ to ‘mature market’ which include the ‘customer intimacy zone’ and ‘operational excellence zone’. In these zones, companies need apply process,experiential, line extension, enhancement, marketing, value engineering, integration, and value migration innovation (Moore,2005).


Now, Netflix faces competition from Amazon's and Apple. Netflix plans to launch 30 original programs under way for 2016, and it’s not only the series, but also the documentary and stand- up comedy to attract more subscribers. Meanwhile, Netflix focus on expansion in international markets. It is worth looking forward to the future development.

How Netflix cross the chasem?

Through the above analysis, we can find two key why Netflix crossing the chasm, from visionaries to pragmatists:


1. D-day strategy: Moore(1991) argued that companies must focus on resource development niche market. Netflix early on the development of different target markets with Blockbuster. Blockbuster’s customers are mostly want to pass the time and watch the new films, but the choice of Netflix as the first niche market for movie lovers.

Therefore, Netflix established a complete database of movies and lunched ‘all you can eat’ service, so that customers can make an appointment to see all the films at a cheaper price through internet, but also to solve the problem of Netflix inventory.


2. Whole Product: Moore(1991) suggested companies should creat whole prodects by thinking through the customer's problems and solutions in their entirety. This includes the core product including additional software, hardware, systems integration, installation and debugging, training and support, standards and procedures, etc. Moore talks about Theodore Levitt’s model(1983) including the generic, expected, augmented and potential products.


Blockbuster only have generic products (rich video database) and the expected product (a number of rental stores), but less augmented and potential products, in contrast, Netflix has a better whole product (see figure 4), and that is why Netflixt is successful.

The Business Model of Blockbuster and Netflix

Many people believe that Netflix's success was the internet application, but I think the key is not technology, but Netflix has completely different strategies and value network with Blockbuster.


The following is an analysis(see figuree 5 ) of the differences between these two business models by Johnson and Christensen's theory (2008):


1. Customer value proposition: The target customers of Blockbuster were mostly impulse consumers, eargering to see the latest movie in the fastest time. Netfliex’s customer is more rational.


2. Profit formula: The rental fees and late fees were the main profit source of Blockbuster. The profit of Netflix is most from monthly fee and the increase of new users will not increase the cost. But Blockbuster need to increase the cost(people,equipment,etc) to expand the stores.


3. Key resources: Blockbuster expanded a large number of chain stores to increase the convenience of customers and to achieve market size effect. The founder of Netflix is an engineer, so they focus on the technology to develop the video recommendation engine and streaming videos with big data and data mining to grasp customer needs.


4. Key processes: In 2006, Blockbuster had more than 5,000 stores and was less than 10 minute of drive from a blockbuster store. The strategy of intensive stores was to increase the customers’ convenience, but also increase the operating costs. On the contrary, Netflix offered an online videos rental service with no physical store location, and change the cost of physical stores to invest in network technology.


Many technological developments and strategies have been discussed in this semester, however, it is necessary to carry out through the organization. Therefore, it is necessary for companies to have a proper organizational learning. Most of the organizational learning from absorption capacity, as Cohen and Levinthal (1990) defined absorption capacity as a firm's ability to recognize the value of new information, assimilate it, and apply it to commercial ends. The absorptive capacity is cumulative, while the companies invest more in R&D, it’s easier to accumulate it in the next one.

4.After crossing the chasem

Moore (2000) defined ‘the fault line’ as a dangerous, unstable seam in the

economy where the Internet and other powerful innovations meet and create market-

shattering tremors. The first step is to understand the customer value proposition

(Christensen,2008), in other words, it is to ask the right questions and to solve the

problem, and apart from doing the right thing to do, but also to do the right thing. Just

as Facebook founder and CEO Mark Zuckerberg mentioned that entrepreneurs should

think of solving problems instead of founding a startup.

In addition to the Moore (2000) mentioned in different stages with different

strategies to extend the product life cycle, in my view, there is a very important trick ,

is to increase the switching costs. Because humans are creatures of habit and routine,

and maybe that is why the early majority and the late majority making up about 68%

of the population (Rogers,1962).


Blockbuster had lower switching costs, and even more, customers dislike the late

fees. Netflix which kept customers wanting to enjoy their service has higher switching

costs, and as a consequence, the competitors are not easy to exceed Netflix. As the key

to success of apple is not just technology, but the whole platform system, increasing the

switching costs. Crossing the chasm is very difficult, but after the chasm, companies

have more things to do, though no one can control it, we must learn how to deal with it.

Reference:

Johnson, M. W., Christensen, C. M., & Kagermann, H. (2008). Reinventing your

business model. Harvard business review, 86(12), 57-68.

Levitt, T. (1983). The marketing imagination. New York: Free Press.

Moore, G. A. (1991). Crossing the chasm: Marketing and selling technology products

to mainstream customers. New York, N.Y.: HarperBusiness.

Moore, G. A. (2000). Living on the fault line: Managing for shareholder value in the

age of the internet. New York: Harper Business.

Prahalad, C. K., & Hamel, G. (2003). The core competence of the corporation.

International Library of Critical Writings in Economics, 163, 210-222.

Rogers, Everett M. (1962). Diffusion of Innovations, Glencoe: Free Press.


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