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Case Study Notes - CSI
Case Study Notes - CSI
Also many other manufacturers are bringing out their own MP3 players.
However, Apple can perform the following:
Improve features
Develop new products (e.g. Nano)
Reduce price
Improve distribution.
4. If Open Innovation has been so successful for Procter & Gamble and
others, why is Apple not adopting this model of innovation?
This case briefly touches upon the unusual level of secrecy that Apple seems to impose on its
suppliers. It is true Apple does seem to operate a much closed model of innovation- it always has.
What works for Apple may not necessarily work for others, but it would seem that Apple does not
need Open innovation at present. Even if others wish to pursue this approach.
5. Can Apple continue to be successful in the long term by adopting a BMW
strategy (BMW strategy is to target high-premium segments) for its iPod,
iPhone and iPad?
This refers to a premium price segment to which BMW successfully provides products. Can we
compare an iPod to a car? Will people willingly pay a premium for a product that does exactly the
same thing as another? Experience from the PC market shows us that people were not prepared
to pay a premium. The car market, on the other hand, shows that people are prepared to pay a
premium. So where does that leave MP3 players?
You can ask students to list products for which they are prepared to pay a premium and those they
are not. But in many categories the evidence suggests price is the key: VCRs, televisions,
camcorders, etc. The evidence shows Sony is struggling to compete with the low cost Koreans in
many of its electronics product categories.
6. What are the advantages and disadvantages of the Apple approach to
launching a new product at Apple users first and then the larger Microsoft
Windows users second?
The advantages of launching iTunes to the smaller but loyal Apple users segment is that they may
be more likely to gain acceptance among loyal devoted users. It may be regarded as a less risky
approach. However, by doing this Apple runs the risk of competitors seeing what is happening and
responding quickly by offering a similar product to the much larger Microsoft Windows users. The
difference in the size of the market is significant here: 90% Windows users versus 10% Apple
users.
7. Discuss whether Apples demands for secrecy from its suppliers may have
gone too far.
This builds on Question 4. This darker side of Apple Inc. often goes unnoticed. Some students
seem so brand loyal that they tune out negative publicity. This darker side is worth exploring. It is
briefly mentioned in the case but there are other stories including a desire to keep from the public
the true profit margins involved with the products. 500% + margins may start to erode public
goodwill if they knew how much profits were involved.
buy from Gore and indeed some firms do not. It is interesting that some big brands like Berghaus
have their own breathable membrane, which they use in some of their products and they also
continue to use Gore-Tex in other products. Clearly, buying the licence is a crucial part of the
business model for all concerned.
Social sciences cycle
As Gore is selling business to business, this part of the innovation cycle is limited for Gore, but
there would have to be educational effort to explain the product to the end customer. Gore would
probably work with its partners, Nike, Berghaus etc., to develop such literature and merchandise.
Entrepreneur
Sometimes this can be a single individual; in this case, it was the firm W.L. Gore. There may have been a
project team involved and there may have been an individual project champion.
7. What role have the wine buyers (end-users and others in the supply
chain) played in contributing to the fall in demand for cork as a closure?
It is the wine buyers supermarkets that have played a crucial role in the demise of corks.
Supermarkets did not want customers bringing back faulty bottles of wine. Their margins were so
small that they could not profit from large numbers of returns. Professional buyers/tasters also
preferred screw caps because if you are opening a large number of bottles a day it is simply easier
to open a screw cap.
8. Use CIM (Figure 1.9) to illustrate the innovation process in this case.
Natural sciences cycle
Many innovations are applications of existing technology, in such cases this part of the framework
may not be used. In the Gore-Tex case, the new science is the creation of PTFE but this was back
in the 1960s.
Integrated engineering cycle
As with so many innovations this is where most of the technical effort takes place. Gore has spent
the past 50 years applying PTFE to many different applications and they keep finding new uses for
the technology. The stretching of PTFE to create lots of tiny holes in it led to the breathable
membrane- maybe other firms would have seen this as a fault and thrown the technology away. It
is the curiosity in the R&D scientists which often leads to new product ideas.
Differentiated services cycle
During this phase, the technology is adapted to meet specific needs of customers. In this case
Gore simply provides the fabric in square meters to different manufacturers to incorporate into their
products. There is little adaptation of the technology. What is important are the negotiations on
licencing and using the Gore-Tex brand. Clearly, Nike, Berghaus and the others would want to use
the patented membrane, but once the twenty years of the patent expires they no longer have to
buy from Gore and indeed some firms do not. It is interesting that some big brands like Berghaus
have their own breathable membrane which they use in some of their products and they also
continue to use Gore-Tex in other products. Clearly, buying the licence is a crucial part of the
business model for all concerned.
Social sciences cycle
As Gore is selling business to business this part of the innovation cycle is limited for Gore but there
would have to be educational effort to explain the product to the end customer. Gore would
probably work with its partners, Nike, Berghaus, etc., to develop such literature and merchandise.
Entrepreneur
Sometimes this can be a single individual; in this case it was the firm W L Gore. There may have
been a project team involved and there may have been an individual project champion.
9. In terms of closures, what are the disadvantages that the cork industry
needs to address and what are the advantages that it could promote?
This is the challenge for the industry. Consumers clearly still enjoy cork and the theatre of using the
corkscrew, the pop, etc. However, the synthetic still provides this. Some wines seem to survive
longer with cork as a closure, so this is something that the industry can develop. It also needs to
improve the production quality. This is largely a marketing challenge, but it is one that calls for
creativity and innovation.
10.Will the cork industry have to concede defeat to the Zork?
At first glimpse, it would seem the Zork offers all the benefits of the cork and the screw cap. It
provides the theatre and can be resealed. This would seem to be a major challenge, but it is
expensive.
6. How has Pfizer helped create a market for Viagra and thereby contributed
to disease mongering?
This is clearly a serious allegation. The evidence from Australia would seem to suggest that Pfizer is guilty,
but that is for others to decide. What this case reveals is the whole aspect of disease mongering and the scale
and size of this issue. On one hand, we have health supplements such as vitamin pills where the producers
claim benefits that the medical professional is doubtful of. And on the other hand, we have more serious
drugs with genuine side effects that once again are being promoted as delivering benefits and the producers
make wild claims that may or may not be true. There is a fine line between sales and education. On the other
hand, one may argue the pharmaceutical industry is simply applying the marketing concepts from FMCG
markets to drugs.
required such as multimedia, digital camera, games, and so on. For these firms, to try to develop
expertise in these areas would be too expensive and too slow because of the rapid technological
changes that are occurring in the mobile phone market. Indeed, the mobile phone market is an
excellent example of the increasing complexity of technology and the increasing range of
technology found within products. This has led to a shortening of product life cycles within the
mobile phone market. Many users now change their handset after 18 months to 2 years.
Companies are also finding it increasingly difficult to sustain R&D capability over all areas of their
business as the complexity of these areas increases. Internal R&D is increasingly focused on core
competencies, while R&D in all other business activities is progressively covered by collaborations,
partnerships and strategic alliances.
4. Explain why Ericsson is maintaining a large R&D division focusing on
handsets when its joint venture with Sony is also conducting R&D and
product development of handsets.
Notwithstanding the joint venture with Sony, Ericsson intends to retain a large research and
development division focusing on handsets, which is vital to ensure its network business stays in
touch with consumer demands.
This is an interesting strategic issue. One could argue that it suggests a lack of confidence in the
JV and that Ericsson intends to eventually go it alone. However, it is not unreasonable for a firm
that provides the infrastructure for a product to also need to be informed about the product that is
handsets themselves.
5. Discuss why the mobile phone handset market seems to be more like the
fashion industry.
The rapid pace of technology change and the intensity of competition in the mobile phone handset
market have created a remarkably dynamic market. In addition, handset manufacturers are acutely
aware that once a person has bought a mobile phone handset they may be unwilling to buy
another, hence the industry has responded by ensuring there is a steady stream of updates and
new features which ensures the handset market behaves in a way similar to the fashion clothing
industry. Without this product obsolescence manufacturers would risk huge falls in revenue.
6. Many firms are outsourcing more and more of their activities and focusing
on core activities. What are the advantages for Sony Ericsson in bringing
manufacturing back under its control?
The main advantages are increased control of activities.
Sony Ericsson is planning to bring more of its mobile phone manufacturing plants under its own
control to smooth out supply-chain problems and help improve its market share. It is in talks to
raise its stake in Beijing Ericsson Putian Mobile Communication, a manufacturing facility outside
Beijing, and could consider other similar deals in the future. The company is keen to avoid a repeat
of 2002, when it failed to take full advantage of booming pre-Christmas demand for phones
because of component shortages, resulting in loss of market share. However, the decision to bring
more factories under direct control is a reversal of parent company Ericsson's earlier policy
followed in 2001 just before setting up the joint venture of outsourcing all its handset
manufacturing to companies such as Flextronics. About 30 per cent of Sony Ericsson phones are
produced in factories controlled by the company while 70 per cent of production is outsourced.
Sony-Ericsson is aiming for 50 per cent production in factories being controlled by the company.
7. What are the advantages and disadvantages of outsourcing?
The disadvantages of outsourcing are as follows:
Main negative
outcomes of
outsourcing
Dependence on the
supplier
Hidden costs
Loss of competencies
Main references
Alexander and Young (1996); Aubert et al. (1998)
Earl (1996); Alexander and Young (1996); Aubert et
al. (1998); Lacity and Hirschheim (1993);
Barthelemy (2001)
Bettis et al. (1992); Martisons (1993); Quinn and
Hilmer (1994); Khosrowpour et al (1995); Alexander
and Young (1996); Aubert et al. (1998); Doig et al.
(2001)
Earl (1996); Aubert et al. (1998); Kaplan (2002)
Android grew rapidly, supported by mobile operators without the iPhone, rising from 2 per cent to
10 per cent.
Finally, the network operators that subsidise and sell handsets have a vested interest in diversity. The
iPhone has been a sales success for those operators who dealt with Apple, but Apple has been able to drive a
hard bargain with network operators on subsidies and other terms. For that reason, network operators have
been supporting Android to regain bargaining power with Apple.
3. Which market should Munich Gases select? The consumer product market
or professional/business market?
This is the key decision. Both options are possible. One is less risky but the consumer market
carries the potential for greater rewards. The professional market may be easier to enter. Of course
it may be possible to enter both in the long-term.
4. Sketch out five different possible business models. Of these determine
which is the most profitable and which is most likely to succeed?
Creativity is required here. The business model should contain:
i. A graphical representation (usually in the form of a flow chart);
ii. A list of activities, on the part of both the business owner and potential customers;
iii. A likely sequence for those activities (which may later be altered in the light of customer
behaviour);
iv. A set of indicators or metrics for measuring the linkage between the activities.
There is a key question that needs to be addressed:
How will this business make money?
To answer this question it is necessary to address a series of additional questions such as:
Who is the target customer?
What customer problem or challenge does the business solve?
What value does it deliver?
How does it reach, acquire and keep customers?
How does it define and differentiate its offering?
How does it generate revenue?
What is the cost structure?
What is the profit margin?
5. How will the powerful toothpaste brand owners react?
If, a consumer market product is developed one of the big brands would surely want to be
associated with the product. If not they could fight the product with propaganda etc. Care is
required here, and it would be better to have one of the big FMCG brand management companies
on your side rather than try to fight them all.
6. Should Munich Gases secure an entry into the market with one of
Europes leading multiples (e.g. Lidl, Tesco, Carefour, Aldi)?
This could be an alternative way to enter the market. The retailers will provide direct access to
consumers. The product will be on the shelf and should generate sales.
Sometimes this can be a single individual; in this case, it was a combination of the Halfords product
development team and the external design agency.
every move of every potential customer, yielding rich information that can be acted upon. In
addition, category managers for eBay play a crucial role in the companys development. Unlike
others, say product managers in large firms, their roles involve listening, adapting and enabling. It
is their responsibility to develop tools that help users buy and sell more effectively.
5. eBay has long been a marketplace for used goods and collectibles. Today,
it is increasingly a place where major businesses come to auction their
wares. Why would a brand-name vendor set up shop on eBay?
In 2004, eBay began offering commercial sellers the concept of a shop on the site, where they
could direct consumers to view more of their merchandise. This has proved extremely popular for
the large sellers.
The move in 2004 to sell an increasing number of goods at fixed prices, rather than through
auction, was seen as controversial among some suppliers. So too has the strategy of attracting
large corporate sellers such as IBM, now the biggest supplier which has raised fears among
smaller, traditional clients. Such moves risk antagonising the power sellers, the army of
entrepreneurs that have formed the bedrock of eBays sellers and make their living by trading on
the site. They provide the liquidity that makes eBay the dominant online auctioneer. Many sellers
welcome the changes because of the new buyers they attract to the site. Others, however, believe
corporations will get special treatment from eBay and this will destroy its culture.
6. Many analysts have argued that by moving to fixed-price sales eBay is
risking alienating its traditional community of garage/car boot traders.
How can eBay stop becoming just another site for selling?
The answer surely lies in placing emphasis on its community of traders. This eBay community
includes more than a hundred million registered members from around the world. It is this
community that can make eBay different. It made eBay different, but recent strategic moves may
be moving eBay away from its community of users to a more corporate business model. Ensuring
the eBay community remains in control and has the power to change and influence trading will
help.
7. Given the growth opportunities available to eBay, which ones and in
which order should it develop?
VOIP, the online payment system (Paypal) and the eBay community should create new
experiences and encourage new developer solutions at the intersection of the three businesses.
How open the enlarged business is to the innovation in the developer community could well
determine its success. There is a shared opportunity for the company and independent developers.
eBay will undoubtedly find ways to achieve a return on the huge investment it has made in Skype,
but the rewards could be all the richer if it opens the platform to outside influences. It is worthy of
note that what was a weakness for eBay its technology has now become a strength.
9. Explain the very different market entry strategy used for the US?
The entry strategy for the US was based on an established brand developed at home. Extensive
and unique advertising was used in the US to launch the product. It was a very successful launch.
One of the key problems faced was securing distribution agreements with the big US retailers
(department stores, JC Penny). The retailers wanted reassurance that Dyson could deliver the
products to the stores on time. This meant Dyson had to fill warehouses across the US with
products. The penalty for failing to deliver was severe.
Dyson chose not to defend his patents in the US because he did not want to spend lots of money
on lawyers fees.
response may well be that the 15 per cent is flexible and while they may be times when it is not
feasible, over a long time frame, scientists are afforded approximately 15 per cent of their time.
Moreover, they will be some who choose not to use this time. Once again, this is a flexible
guideline that is about trying to ensure there is slack in the R&D environment for creativity.
4. Encouraging product and brand managers to achieve 25 per cent of sales
from recently introduced products would be welcomed by shareholders,
but what happens if a successful business delivers profits without 25 per
cent of sales from recently introduced products?
Take the Post-It notes business for instance for many years in the early period of its
development, it could barely keep up with demand for existing products; so the idea that it had to
deliver new products was almost humorous and certainly difficult to achieve. Moreover, any firm
would probably have said keep doing what you are doing, the profits are great. The point here is
once again the emphasis on delivering innovation and new products, in particular, forced the firm to
at least think of the future and start considering new products. Arguably, this helped the firm deliver
a whole range of different versions of the original yellow Post-It note. So we had different sizes,
different colours and later, different types in the form of book marks and other forms of labels.
5. Some people may argue that 3Ms success is largely due to the
significance given to science and technology and this is the main lesson
for other firms. Discuss the merits of such a view and the extent to which
this is the case.
It is unquestionably the case that the firm has an impressive record when it comes to investing in
science and technology over a 70-year period. But science and technology alone is not enough as
many once-successful firms will testify. Indeed, in the late 1990s, 3M came under severe pressure
from investors to show some return from its investment in R&D; this was because profits were
sluggish and the new product pipeline was looking empty. Good science alone is not enough;
Alexander Flemming was credited with discovering penicillin, but it was 30 years later that a US
pharmaceutical firm profited from antibiotics.
6. Explain how the innovation dilemma affected 3M.
The Six Sigma programme is a series of management techniques designed to increase efficiency.
For the most part, the implementation of the Six Sigma programme was successful as it focused
on the operations (manufacturing/logistics) side of the business. However, when 3Ms R&D
personnel were asked to adopt Six Sigma processes, the results were less favourable. While
established operational processes like manufacturing require strict monitoring, measuring, and a
regimented set of procedures, the innovation process requires a different approach.
3M felt stifled by the new structure and pressured to produce more new products faster. The result
was a greater number of incremental product-line extensions than true new product innovations.
Traditionally, 3M drew at least one-third of sales from products released in the past five years, but
in 2006 that fraction has fallen to one-quarter of sales. In 2004, 3M was ranked No. 1 on the
Business Week/BCG list of Most Innovative Companies. In 2007, the company dropped to number
seven.