Ansoff’s two-by-two product/market matrix characterizes a firm’s alternative strategies for growth. It characterizes four types of strategies: 1) ones that focus on existing products and markets for market penetration; 2) ones that address new markets with existing products for market development and extensions; 3) ones that introduce new products into existing markets through product development; and 4) ones that introduces new products into new markets. Business risk depends on whether products or markets are extensions of existing business experience and related capabilities, or require new capabilities in order to enter new businesses. In Ansoff’s matrix, radical paradigm shifts would fall into high-risk new product-market domains in which new capabilities are required. Paradigm shifts, such as the introduction of the internal combustion engine, also require the development of a proper application, such as the platform for automobiles, before an effective product-market strategy can be developed. The larger motor vehicle industry development, the continued development of the paradigm, also requires new infrastructures such as road, gas stations, and dealer networks to maintain vehicles.
Hartmann and Myers attempted to capture technological change by substituting technology for products as shown in Figure 1. Today’s high technology intensive world is constantly searching to find ways to commercialize emerging technologies, which may represent paradigm shifts. Hartmann and Myers characterize risks as increasing as strategies move from evolutionary to radical. Existing product-market arenas experience only evolutionary risks. The introduction of new technologies into existing markets is characterized as discontinuous, often representing new components which substitute for existing technologies. The introduction of existing technologies into new markets is a way to leverage existing business strategies and capabilities for market or geographic expansion. New operational strategies may also introduce new technologies in order to increase productivity or quality with little change in product utility. In contrast, existing technologies or operational capabilities can also be moved across industries to cause competitive destabilization. But when new technologies and new markets collide, radical change results, which is unpredictable, holds great opportunity, but is very risky. That is why consultants often refer to this radical quadrant as the “Suicide Cell”. The ultimate question for corporations that face radical innovations is “How do you make money?” The uncertainties involved in radical innovations cause managers to resist moving away from their roots and their existing capabilities and experience.
Figure 1: Increasing Risk of Radical Innovation
Source: George C. Hartmann and Mark B. Myers, ‘‘Technical Risk, Product Specifications, and Market Risk’’, in Managing Technical Risk: Understanding Private Sector Decision Making on Early State, Technology-based Projects. NIST GCR 00-787, April 2000, p. 73.
With radical paradigms, all knowledge and required capabilities are essentially new. To stress this point, Buskirk and Popper added an additional technology category to Ansoff’s matrix as shown in Figure 2. Technology adds a new dimension to business which is not the same as new products since it requires new knowledge and experience. It is new technology that often drives paradigm shifts, which then generate new product-market opportunities and related business challenges. While addressing customer needs is central to business and competitive success, paradigm shifts are fraught with risks associated with the actual development of new products based on new technologies.
Figure 2: Expanded Ansoff Matrix
Source: B. Buskirk and E. Popper, “Growth Strategies for High Tech Firms”, The Graziadio Business Report, Pepperdine University 1998 accessed at http://gbr.pepperdine.edu/981/marketing.html on December 15, 2005.
If new technology-based products become accepted by the marketplace, they can revolutionize the social and business landscape. Consider the impact of the heart pace-maker, the microwave oven, the video tape recorder, hybrid grains, or fax machines, Today, we see growing integration of technologies to develop greater product functionality, such as the integration of fax machines, scanners, copiers and printers into a single platform. The rapid integration of games, music, digital cameras, email and text messaging, global positioning, and personal digital assistants into a single cell phone platform challenges existing managers to constantly update their products and organizational capabilities. As with cell phones, the platform that is first to market and most flexible allows a range of product combinations to be introduced to address a wide range of market segments. Related competition results in winners who commit the needed resources and to develop products that are most accepted by consumers. At the same time, we are seeing new technologies diffuse rapidly across global markets. When we add the global communication and the sales platform of eBay to the equation, we see paradigm shifts being communicated and offered instantly to the global marketplace.
As shown in Figure 3, there are varying level of development that occurs with paradigm shifts. The first attempt to make a new technology useable often results in a primitive component designed for use in a special application. It typically takes continued innovation to make a new paradigm practical enough to generate a market with serious customers. In the automobile industry, Benz’s internal combustion engine was demonstrated as a propulsion device for a stage coach. More than a decade later, Ford’s Model T platform, operating system and infrastructure created a mass market for motor cars. The first pacemaker had limited hospital application since it was powered by large batteries which required a patient to pull a cart when walking. Today’s pace-makers are imbedded in the patient’s chest -- are highly miniaturized, utilize batteries with long lives, and provide instant shock treatment during heart attacks. In the same vein, video tape recorders were large and bulky machines initially intended for use TV stations to record news from distant time zones, so it could be presented in prime time. The miniaturization of video cassettes and players resulted in the development of portable camcorders and, with the development of the charge couple device (CCD), miniaturized palm-sized recorders. The first inexpensive radios were large and were tethered to electric sockets or large batteries. Early recorded music used real-to-real tape players which were large and heavy. Sony used new transistor technology to build its pocket-sized radio, and then miniaturized cassette tapes for use in its Walkman. Compact disks later replaced tapes for further miniaturization and ease of use. Once new paradigms lead to mass markets, the continued introduction of new technologies leads to continued product-market innovations based on new platforms which provide the show-piece for the resulting new components. These new technologies are paradigm shifts which require firms to develop or acquire new capabilities. When paradigm shifts provide substitutes for existing product, established and well known market needs reduce the risks of introducing new paradigms. Portable music used cassettes tapes, which migrated into CDs, and now digital storage devices. While Sony’s Walkmans dominated cassettes and CDs, Apples digital download and storage device, the iPod, has won with the latest transformation in technology and infrastructure. While the basic functionality remains, ease of use provided by new supporting infrastructures and related operational capabilities have resulted from paradigm shifts.
Figure 3: Components and Architecture Drive Paradigm Shifts
Paradigm
shifts deal with discovery, invention, and the incubation and development of
new ideas. Paradigm shifts begin with the development of some new and easy-to-use
components. It was the charged coupled
device (CCD) that allowed the initial miniaturization of video cameras. However, CCDs required the development of a
new video camera architecture or platform before they had commercial value. Sony’s digital video camera provided the
ultimate platform for early CCD cameras. CCDs are now used in digital cameras
and cell phone cameras in combination with miniaturized circuits and lenses. Video cameras still use cassette tapes for
digital recording, but other forms of digital storage will eventually replace
the existing tape-based architecture.
In addition to easy-to-use component that perform a critical function, a new platform design must be selected that is flexible enough to incorporate future product enhancements. Thus, design flexibility becomes an essential capability for competitive advantage in the business development stage. For example, the Systeme Panhard architecture developed in France provided the ultimate motor vehicle platform, using a radiator in front of the engine, a transmission with rear wheel drive, and brakes. Thus, it can be noticed that incremental innovations are essential for the success of the
Once the proper architecture is developed for a new paradigm, new product-market strategies can be effectively developed to target different markets, depending on customer needs for cost and functionality. Ford’s low-priced “farmer’s car” used Rene Panhard’s platform design for his Model T, and further applied standardization and a conveyor production system to win the market. The Model T was in the market for five years before Ford perfected his operations strategy to maximize economies of scale through standardization and minimize the total cost and time of production.
Paradigm shifts can occur at any time and confound existing business models and strategies. The automobile and aerospace industries face paradigm shifts from advancing power systems, nanotechnologies-based materials, and advanced electronic systems. GPS-based systems obsolete traditional radar systems for navigation and landing. The paradigm for next generation vehicles continues to be in a state of turmoil. While the internal combustion engine and the Panhard’s platform continue to dominant motor vehicle architecture, the diesel engine has surpassed the gasoline engines as the primary power source for European cars. In the US, hybrid and fuel cell power systems are challenging the supremacy of the internal combustion engine.
As paradigms develop, management must determine which problems or customer needs to address, and develop business and operations strategies to meet changing market needs. Lynch and Kordis suggest that switching from old to new technologies requires proper timing. If a firm is too early, or too late, the organization suffers either the ‘lag’ in market development or the absence of offerings. But entry into new paradigm business challenge firms financially until revenues from the new offerings exceed the cost of development and new market entry. Yet, first movers with new paradigms can obtain windfall profits, as experienced by Sony with its pocket-sized Walkman and hand-sized PalmCorder, or by Apple with its digital iPod music player and iTunes music download system. Apple’s music download architecture and business strategy raised its market value to over $60 billion in December 2005, surpassing that of 3M, Boeing, Texas Instrument, Honda Motor Company, DaimlerChrysler, and Canon. Apple’s business model provided a proprietary iTunes infrastructure to provide easy-to-download music for its iPod music player. The combination of iPod and iTune provided the perfect platform for today’s new digital music download paradigm. New industries like automobiles, lighting, telephones, radios, television, and personal music systems all required the right business models to be developed before successful business strategies could be introduced. Firms with proprietary technologies and architectures that introduce the most effective business model and strategy win the day.