Changing Product-Market Paradigms

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.