The most successful businessman is the man who holds onto the old just as long as it is good and grabs the new just as soon as it is better. | ||
| --Robert P. Vanderpoel | ||
Despite all of our recent technologic achievements, from mapping the human genome to exploring the outer planets, humanity is still grounded in beliefs that span the centuries. While few of us could recite the process for converting iron ore into steel—one of the pillars of our modern technologic existence—most could recite parts of a belief system, such as that outlined by the Old Testament, that dates back to before the first smelters were conceived. Paradoxically, many of these belief systems are viable today because they provide a framework for dealing with the complexity of the man-made environment created by civilization.
Consider, for example, the applicability of classic Chinese cosmology in a modern, technologic society. In this belief system, the principles of yin and yang represent opposite and complementary forces in nature that combine to produce all that comes to be. Yin is the feminine, passive, dark, and wet; and yang, the masculine, active, bright, and dry. There is always an element of yang and an element of yin within any object, and yin and yang combine in various proportions to produce all the different objects in the universe. In addition, the characteristics of yin cannot exist without those of yang, nor can the characteristics of yang exist without yin. As such, Chinese philosophers stress the importance of balance between the yin and yang to avoid rebellion, floods, and disease and assure social and political harmony.
In our modern, technologic society, the concepts of magic and technology represent opposite and complementary principles, especially as they relate to characterizing business products and activities. Magic is artistic, qualitative, unknown, and variable, while technology is rational, rooted in science, quantitative, known, and fixed. As such, business relies on technology for continued survival in the marketplace, but managers often consider technology to be as fleeting as magic. That is, the transformation of technology from the magical state to one of tangibility is the definition of customer wants and needs. Furthermore, commercial success is limited by the degree to which the consumer drives research and development.
From an entrepreneur's perspective, developing a product involves the alchemical transformation of a concept to a solid technology—a product offering. Modern high-tech products, from software to cell phones, are the result of this business alchemy. Moreover, during the alchemical transformation, the relative proportion of technology to magic—the unknown and variable—is different at each point in the transformation, both absolutely and in the perceptions of customers and the developers, engineers, marketing, sales, and corporate management involved in product creation. That is, depending on the experience of the customer, desktop copiers, communications satellites, genetic engineering, PCs, wristwatches, and operating systems all fall somewhere between known technological quantities and pure magic. However, regardless of the consumer's understanding of the inner workings of these devices, the benefits to the consumer of the proposed product offering must be readily apparent.
This chapter introduces the reciprocal relationship of magic and technology, thereby providing a framework for the discussions in the subsequent chapters. Specifically, the proposition advanced in this chapter provides decision makers with a set of predictive tools for knowing where a technology lies in the alchemical transformation from a qualitative, unmeasurable, magical state to a known, quantitative, measurable product. Decision makers can use these tools to
Understand the process and risks involved in bringing a product to market, for example, how to move a software product out of an entrepreneur champion's head and out of the door in a "shrink-wrapped" concept box
Clearly communicate the development status of an in-house project to those in R&D, sales, marketing, and investors
Assess the status of the competition or any technology-oriented company, whether it is a supplier, competitor, substitute product, or a potential acquisition
Appreciate the importance of timing in progressing from magic to product and the effect of delays at various stages of development and production on achieving a product
Develop the appropriate hiring strategy along the continuum to maintain an on-target set of revenue and R&D goals
According to the Encarta World English Dictionary ([New York: St. Martin's Press, 1999], p. 1084), magic is defined as a special, mysterious, or inexplicable quality, talent, or skill. Technology, in contrast, is defined as the study, development, and application of devices, machines, and techniques for manufacturing and productive processes (p. 1831). Although these definitions are a good starting point for the discussion that follows, it may help to review the range of characteristics normally ascribed to magic and technology, shown in Figure 1.1. For example, the first item, Ancillary Uses, indicates that products with magical or undefined customer qualities tend to have limited application outside of a very specific domain or application. In contrast, products that are solid technologies can generally be successfully applied to a variety of application areas. For example, a sheet of Gore-Tex® can be used to make a rain-resistant hat, pair of boots, or coat; repair the lining of the aorta; or repair an inguinal hernia. In other words, there are economies of scale and scope because Gore-Tex can be used across multiple functional areas.
To illustrate the predictive value of knowing where a product or process lies in the alchemy—technology continuum, consider how the products and processes are characterized in the following discussion.
For the purposes of illustration, consider two products, an ordinary countertop color TV and a prototype of a full-motion holographic video display. The TV is a sample of thousands of virtually identical units produced weekly at a plant in Singapore and sold in the United States under a variety of inexpensive brands. Compare the holographic display, one of a kind, tucked away in the high-security area of a research lab at a major electronics manufacturer. The holographic display shows animated images of objects from a three-dimensional (3-D) perspective. Now, compare and contrast the characteristics of each device from the perspective of magic and technology, using Figure 1.1 as a guide.
- Countertop TV.
Consider a couple walking into one of the hundreds of electronic superstores across the United States in search of a color countertop TV for their kitchen. For most consumers, this sort of task represents an impulse buy, something conjured up over breakfast while reading through the sales in the Sunday paper. And that is as it should be, given that the color TV, commercially available in the United States since the early 1950s, represents a mature, stable technology, with a variety of related or ancillary uses. The couple can use the TV to view cable programs, a video on DVD or videotape, a movie from their roof-mounted satellite decoder, the baby on their remote baby monitor, home movies on their digital camcorder, the security camera at the front door, or the output of their computer game console.
Because the basic patents covering color TV expired long ago, there is considerable competition in the countertop color TV market from manufacturers in Mexico and Southeast Asia. This competition is a boon to the couple that can choose among a broad selection of models that offer a range of features and prices. Like most consumers, the couple's perspective toward their TV purchase is based on the traditional marketing concepts of product, price, place, and promotion for the company offering the TV. That is, they attend to the salient features, such as the number of channels, size of the screen, perhaps the number and type of input and output jacks, and the brand of the TV, for example. The price of a TV, a commodity item, tends to be stable, even with the occasional sale, in part because of competition among TV manufacturers.
Because variability in the production process and in the electronic components used by a manufacturer means that even though two TV units of the same make and model have the same specifications, there will be aesthetic and perceptual differences in side-by-side comparisons of the video images on their screens. Many of these differences may be difficult for customers to articulate, but customers can usually perceive differences in picture quality. For example, the couple visiting the superstore quickly spots a TV picture they like out of a floor-to-ceiling wall display of TVs playing the same DVD signal.
As a result, the couple believes that they are buying a known quantity, and part with their cash with a reasonable expectation of satisfaction. For the couple, the risk of buying a TV is relatively low, given the extended warranties most electronic superstores offer. In addition, there are numerous TV repair services in most cities that are capable of repairing a TV that is out of warranty. Similarly, the return on investment tends to be known, especially when a national brand is involved. Several brands of TVs stand for quality and value, either as a result of marketing or through consumers' personal experience.
From the manufacturer's perspective, customer expectations are generally known and quantifiable due to the large, existing body of market research for the home entertainment industry. Customers do not expect to have to know anything about the inner workings of the TV—the amount of RAM and ROM on board, for example—but expect to simply push the on-off button, select a channel, and begin enjoying their favorite programs. They understand what the TV is supposed to do from an operational perspective, and that certain conditions must be satisfied in order for the product to perform normally. For example, it is now common sense that a TV has to be plugged into a power source and connected to a cable or other signal source for normal operation.
As the couple expects, once they have the TV in their home, setup is trivial. The configuration time is very low and typically automatic. Assuming the TV is plugged in and is connected to an appropriate video source, it will automatically determine which channels are available and remove the others from the previous/next channel list that is accessed through the remote control.
Most customers do not consciously consider all of the issues listed in Figure 1.1 in purchasing a TV, in part because a TV for sale in a mall or an electronics outlet is assumed to fulfill the basic requirements for what constitutes a TV. Although it may be difficult to appreciate today, 30 years ago, before the color TV was really a commodity item, technical details were much more relevant. The front panels of TVs from different manufacturers would boast, for example, "solid-state tuner," to differentiate a TV from an older model based on vacuum tube technology, or "built-in pattern generator" to at least suggest that adjusting the color balance and the red, green, and blue guns could be performed without the assistance of a pattern-generator-toting repair technician.
This shift in sales focus from minutiae of technical details to an overall product-benefit gestalt can be appreciated by reviewing the history of the changing customer perception of personal computers (PCs) in the marketplace. The change moved PCs from technologic puzzles to commodities. In the 1980s PC purchases were rooted in discussions with technically savvy salespeople regarding the amount of RAM, ROM, disk space, nature of the input/output bus, CPU clock speed, and other technologic parameters. However, just as the number of transistors or ICs used in the tuner of a modern TV receiver has little if anything to do with picture quality, for most PC users, this level of technical detail is irrelevant. As long as a TV produces a clear picture and vibrant sound, it has fulfilled customer expectations. Similarly, as long as a PC runs the standard software suites without inordinate delays for saving data or spell-checking a document, it is normally considered good enough to satisfy most consumers' needs and wants. There are two factors important to the consumer in reaching a decision to buy a product: its functional durability and its cachet as a status symbol.
- 3-D Display.
Now, consider a 3-D holographic video display intended to be the centerpiece for the home entertainment system of the future, which represents the magical product in Figure 1.1, somewhere between the leading edge and bleeding edge. The display is usable only as a demonstration prototype in a highly controlled laboratory setting. As far as the R&D staff knows, there isn't any significant competition, except perhaps for similar prototypes in one or two laboratories around the world. In any event, since the prototype is not for sale, there is no competition yet for customers.
Because of the custom circuitry, the complexity of the display is high and operation is finicky. Configuration time is high, in that modifying the display for different types of experimental video signals takes considerable time and effort, and the environmental conditions must be carefully controlled. Since the configuration is in constant flux, the cost of ownership is high and variable. The R&D department's deliverable is a stable prototype that demonstrates the potential of the device as product, whether for a specific customer, such as the military, or the general consumer market.
In either case, in a pure R&D shop there may be little concern at this point for issues such as scalability of the prototype for mass production. However, for a company with its sights set on eventually bringing the display to market, marketing should be involved at this point.
The marginal cost of creating additional 3-D displays is very high, and to those outside of the intimate circle of R&D, the mechanism of action of the 3-D display is generally unknown—hence magic. As such, the perception of the display from the point of view of observers not intimately involved with the technology is primarily emotional as opposed to technical. To the uninitiated, the display may seem like something out of a science fiction movie. Because there are so many unknowns, the risk of failure is high for the manufacturer; there is a chance that the investment in R&D may result in a dead end.
For example, even if the 3-D display is a technologic success, it may be a failure in the market because of compatibility or cost issues, for example. Thus, what we see here is the self-evident need to drive technological innovation via the consumer's need rather than the black-box approach to technology development. The primary success factor for the development group, which is motivated by pushing technology to the limit, is largely a function of its internal motivation and innate technical ability—that is, in the basic alchemical transformation of their idea into prototype. This is the crux of the tension between R&D and product marketing. Marketing is driven by the need to satisfy the customer, not the insatiable appetite of the developer, to build the latest and greatest gadget. Without an infusion of marketplace realism, as generated through market research, the prototype may be completely different from what research says consumers want.
The differences between the mature TV market and the new 3-D display market show that the Alchemy-Technology Continuum should be understood by comparing and contrasting a product's market and technology maturity as two distinct yet interrelated facets. Looking at these two facets will lead to information about the types of people that are required to lead the organization (see Figure 1.2).
The two products discussed in the preceding section, the "magical" 3-D display and the technologically stable countertop TV, illustrate the Alchemy–Technology Continuum from a product perspective. However, a technology can be expressed as a process as well as a product. Process development, like product development, undergoes a transformation from an idea to a specific prescription linked to a certain outcome. The alchemical transformation of ideas into processes is often difficult to appreciate because the transformation occurs in the context of the complexity of everyday life.
The degree of alchemical transformation of an idea to a practical process is evident when we encounter something new or experience something familiar in a strange context. In a business course that we teach at Harvard, we follow this line of reasoning when we define the Alchemy–Technology Continuum in terms of the real-world environment. For example, a scenario that we use entails two students who have no exposure to western cuisine visiting the United States from central Asia. The two are indirectly exposed to an American delicacy—a peanut butter and jelly sandwich and a glass of milk. They both see the meal described in a TV advertisement for milk featuring a small girl enjoying a peanut butter and jelly sandwich while on a picnic with her family. Intrigued, but with only a vague understanding of the meal, the two students decide to recreate the delicacy, but each in his or her own way. The first student, Sam, decides to go with his intuition, while the second student, Jay searches for a recipe.
- Brute Force Method.
Sam, who isn't very risk averse, but has no experience with western-style cooking, heads directly to a grocery store on his way home from school. In the store, he finds the aisle lined with jars of peanut butter, jellies, jams, and other spreads, and is temporarily immobilized by the number of choices. In the peanut butter section, there are fat-reduced, crunchy, smooth, salted, unsalted, and natural peanut butters. There are even jars of premixed jelly-peanut butter swirls, with grape, honey, and strawberry flavors. Dismayed by the assortment, he asks a clerk for advice. The clerk comes over and indicates his favorite brand of strawberry jelly and then shows Sam the creamy peanut butter that is on sale. Sam thanks the clerk and heads over to the bakery section of the store, where he finds a loaf of soft, sliced white bread.
Back at his apartment, Sam brings the bag of ingredients into the kitchen. He finds a plate, opens the bread wrapper, takes out two slices, and places them on the plate. Next, he finds a spoon, opens the peanut butter, and takes a big scoop of peanut butter out of the jar. Because the bread is soft and fresh, it tears as he pulls the lump of peanut butter across the spongy face. Undaunted, Sam takes another slice of bread out of the wrapper and, this time holding the bread carefully in his hand, slowly and gently pulls the peanut butter across the face of the bread. After the operation, the slice of bread is more or less covered with peanut butter, in a thickness that varies from less than an eighth of an inch to almost a half-inch.
Next, Sam opens the jar of strawberry jelly, dips the peanut butter smeared spoon into the jar and adds a dollop of jelly on top of the peanut butter-covered slice of bread. Because the jelly cannot adhere to the bread, it runs off of the sides of the peanut butter and onto the plate. Sam licks the spoon, covers the jar of jelly, and cleans the cabinet top. He pours himself a tall glass of milk, takes the sandwich on the plate, and goes off to his room to study. In his attempt to work while eating the sloshing sandwich, he ends up dripping jelly all over his class notes. Sam does not understand how Americans can be so infatuated with such a heavy, gooey mess.
- A Recipe.
Jay, who is more risk averse than Sam, but has the same burning desire to experience a peanut butter and jelly sandwich, searches for a recipe at her local bookstore. She finds a simple recipe, similar to the one shown in Figure 1.3, and goes to her local grocery store for the necessary ingredients. Later that night, around dinner time, Jay pulls out the recipe, lays out the ingredients, and uses a spreader to cover one side of one slice of bread with a quarter-inch layer of peanut butter. Next, she distributes the jelly onto one side of the other piece of bread, again to a quarter-inch thickness. Then she puts the jelly-coated slice of bread face down on the slice with peanut butter and uses the knife to make two diagonal cuts, creating four triangle-shaped finger sandwiches. Jay places the four sandwich pieces on the plate, pours herself a glass of skim milk, and retires to the living room to watch her favorite TV show while enjoying her newly discovered favorite treat. She is pleasantly surprised that her first peanut butter and jelly sandwich and skim milk chaser are delightful.
- A Comparison.
Sam and Jay, neither of whom has tasted a peanut butter and jelly sandwich before, start with the same goals and the ingredients available to them. However, Sam does not have a detailed process description or recipe and is unable to create a sandwich to his liking on his first attempt. However, through trial and error, and finally by consulting with Jay, Sam becomes much better at creating what most Americans would agree passes for a peanut butter and jelly sandwich. He discovers that he can use much less peanut butter and jelly on the sandwich, and that a spreader is much better at distributing the peanut butter on the bread than a spoon. That is, through experimentation, he manages to improve the process to his liking. Through a process that starts out as magic, Sam manages, through trial and error and data gathering from a number of sources, to come to a recipe or technology that suits his purposes.
Jay, who takes the time to locate a recipe—a simple process description—achieves her desired results very efficiently and with a known Return on Investment (ROI). The greater the detail in the recipe, the less room for error of interpretation and action. For example, the recipe shown in Figure 1.3 assumes that the reader knows his way around a kitchen. Given the appropriate ingredients, tools, storage and work spaces, and other resources, anyone with experience in making a sandwich of any type should be able to use the recipe to create a reasonable facsimile of a traditional peanut butter and jelly sandwich.
Consider the qualities of a good recipe. It can be reconfigured and applied to variety of other uses (e.g., grape jelly can be substituted for strawberry jelly). There is brisk competition—and therefore a much wider selection—among the jelly and peanut butter brands. The recipe simplifies the entire operation, and the configuration or setup time is low. Assuming the recipes in the book are tried and true, anyone following them can expect to be pleased with the results. By following the recipe, the cost is contained and known a priori, and the result is a commodity, that is, a dish known and understood within the culture. If Jay decides to serve peanut butter and jelly sandwiches at her next house party, she can fairly accurately predict what she'll need in terms of resources in order to feed any number of guests. Her risk of failure is relatively low; most of her guests, who are a mix of Asians and Americans, will instantly recognize and presumably enjoy the peanut butter and jelly sandwiches. Of course, she can add a few Asian delicacies to the mix, but there is a risk that some of her guests may not be familiar with, or like, an unfamiliar food. She'll know whether her efforts at creating an American staple are successful by watching the number of sandwiches that disappear from the table. In the event that demand exceeds supply, she can easily direct a guest to help her create more sandwiches, following the recipe. However, Jay may find that the recipe does not scale very well. At some point, it will make more sense to buy peanut butter and jelly by the 10-pound tub and use special tools or processes, such as canvas pastry bags with a large pore tip, to apply the spreads on slices of bread, or use an assembly-line, self-serve approach.
Sam, who goes about recreating his peanut butter and jelly experience through trial and error, but with a clear idea of what he wanted to create, is initially at the magical end of the process spectrum. Sam's initial process is unduly complex and wasteful in resources and time, and the initial results aren't acceptable. He is involved in a loop of creating prototypes and adjusting the various parameters with each generation until he happens upon a process that he can use to create his dream peanut butter and jelly sandwich. Sam's initial marginal cost for each sandwich is high, in part because he wastes jelly and ruins bread, and in part because the techniques he uses do not result in a homogenous, repeatable distribution of peanut butter and jelly on the bread. His risk of failure is also high, and his ROI from one sandwich to the next is unknown.
If, before developing the recipe, Sam had to create a few dozen sandwiches for houseguests, he would have been hard pressed to determine how much bread, jelly, and peanut butter he would need. In other words, unless he had an explicit recipe, the scalability of his technique would probably be low. What's more, if demand outstrips supply, he would have difficulty instructing a guest on how to make sandwiches quickly and efficiently. At that point, Sam would probably be better off allowing guests to create their own sandwiches with a peanut butter buffet.
As every chef knows, any cooking process involves a bit of art and creativity. A good chef can substitute one ingredient for another on the fly, keep costs low and resource requirements fixed, and yet produce a delectable dish. In fact, a chef who is experienced in the kitchen adds a bit of his own signature—his art—even when he strictly follows a recipe. For example, he may use freshly ground pepper instead of preground pepper; sea salt instead of free-running, iodized salt; fresh basil and mint instead of the dried varieties; and his favorite dinner white wine instead of a generic, white cooking wine. The result, although repeatable at one level, is really a single event. Like a live music performance, it will never be exactly replicated. In other words, a master chef's work fits somewhere in the continuum between magic and technology. This scenario suggests that there are specific personality types and process approaches that are appropriate for every point within the Continuum. For example, both R&D and marketing require a degree of creativity and an ability to focus their art in order to move a product along the Continuum.
The Alchemy-Technology Continuum, referred to henceforth as the Continuum, is depicted graphically in Figure 1.4. The model provides a means of tracking and predicting the development of technology within a business and in the marketplace. It consists of five critical decision points and four periods characterized by specific conditions. Ideally, a product progresses unimpeded from inception to the marketplace, but in reality, most products are abandoned before they are fully developed or marketed. In the United States, for example, less than a third of all software-development projects—including in-house development in engineering, legal, medical, and financial institutions—make it to completion within specification, on time, and on budget.
To illustrate alchemical transformation of an idea into a product along the Continuum, consider the development of a software product, The Lean Machine, the first commercial desktop microcomputer-based nutrition and weight-loss prescription program. The program was developed and marketed in 1982 by Home Health Software, Bryan Bergeron's first software company.
- Background.
As a bit of background, the microcomputer hardware and software environment of the early 1980s was characterized by volatility, uncertainty, and, like the more recent eCommerce boom, rapid growth. For home computer users, Apple, Commodore, and Tandy vied for a rapidly expanding game and home utility market. With the exception of small businesses that used the VisiCalc spreadsheet on the Apple II, most "serious" computing was performed on mainframe systems run in batch mode. That is, instead of interacting with a display, most users worked with punched cards. However, applications that today would be found in the discount software bins of electronics stores, including several nutrition and exercise tracking and prescription programs, were not yet available, even on mainframe systems.
- Market Research.
In the few nutrition systems that were available at major medical institutions in the United States, physicians, dietitians, and other clinicians still could not use the "what-if" analysis common to applications such as spreadsheets. Nor could a person interactively determine how much more time she would need to exercise if, for example, she ate an extra 8-ounce container of sweetened, low-fat yogurt. A clinician setting up an exercise and diet regimen for a patient could not predict the effect on a patient's weight loss if exercise time on a treadmill or swimming was increased from 15 to 25 minutes and caloric intake was increased by 200 calories. What's worse, those who were interested in taking charge of their own nutrition and weight loss were far removed from the system and were dependent on their clinician for solutions.
Because of the limited availability of nutrition and exercise software on any computer platform and the lack of interactivity in the systems that did exist, it seemed that there was an obvious, unanswered need that could be satisfied by software that would run on the new, inexpensive desktop microcomputer technology.
- Shareholders.
Bryan's first step was to determine who would use the program, what they would pay for it, what the interactive screens would look like, how they would be used, and what kinds of questions a typical user would need the software to answer. After researching what was available on large systems and the most popular programs available on the new desktop computers—mainly games and word processing, database, and spreadsheets programs—Bryan developed a set of software requirements specifications. By casually interviewing dieticians, physicians, and friends and exploring his own needs, Bryan determined that the ideal system would provide the features listed in Figure 1.5, which appeared on the software packaging. At the time, $40 was the going price for microcomputer software, so it was easy to set the price for the nutrition program at the same level.
- Process.
The next step was proving that a prescriptive nutrition program of significant capabilities and ease of use could be created on a microcomputer. The three core technologic hurdles to be overcome were database design, case mix analysis, and graphical user interface design. The first challenge was met using a standard file system supported by BASIC, the most popular language for software development on microcomputers at that time. Using data from government publications that listed common foods in standard measures along with over 20 macro- and micronutrients—carbohydrates, protein, vitamins, and minerals—the database was partially populated. Once the operation of the database was verified, the next challenge was to determine if the database and the program code could fit on a floppy disk, while leaving enough space for user-defined foods as well as a record of the user's diet and exercise program. This could not be answered until the size of the program code was determined.
Suspending work on the database, he began working on the case mix analysis component of the program, crafting and recrafting code until it could perform on a microcomputer quickly enough to satisfy users while fitting comfortably in a small amount of disk space. The unknown or magic, at this stage of the project was developing a linear algebra routine that could solve multiple equations with multiple unknowns using data from the food database, together with user-defined preferences for food.
Part of the challenge was that the initial development platform, the Apple II, had a processor slower than a PalmPilot™ PDA (personal digital assistant), with only about a tenth of the RAM. Again, using BASIC as a prototyping tool, Bryan developed a set of routines that could solve problems in the following form:
Weight loss should be 1 pound per week
and
Fat consumption must be less than 30 grams per day
and
Protein consumption must be at least 1 gram per kg of body weight per day
and
What is a medically safe diet for breakfast, lunch, and dinner, based on user-specified ranked preferences for foods in the database, that satisfies the above requirements as well as the recommended daily allowance (RDA) for vitamins and minerals for a patient of specified age, sex, weight, and activity level?
Because the program was originally coded in BASIC, a typical solution required about a minute of processing—too slow for an interactive program. Recoding the algorithms in Assembler was still a possibility. However, before rewriting the algorithms, Bryan decided to explore user interface options, which were linked to the available hardware platforms.
Of the most popular platforms, the Tandy, Apple, and Commodore, the Apple and Commodore were the most popular in the home market. However, because of the Commodore's greater graphical and sound capabilities, popularity, and lower price (than Apple), he chose the Commodore 64 as the initial development platform. This choice was to prove fatal in the long term. However, he made it because of the graphical and sound hardware in the Commodore that made building innovative user interfaces possible. In 1982, about four years after its introduction in the marketplace, the Apple was still limited in the quality and types of graphics that could be drawn and displayed. The Commodore, by contrast, had routines not available in the Apple line until the introduction of the Macintosh in 1984.
With the hardware selected and specifications clearly defined—the database, mathematical routines, and graphical user interface—Bryan began programming in earnest. In order to provide the speed necessary for the mathematical calculations, he rewrote the original BASIC routines in low-level but highly efficient Assembler code. Similarly, in order to provide a "look and feel" that was less intimidating than a blinking prompt, he wrote the user interface in Assembler, allowing the use of colorful icons, floating menus, 3-D bar graphs and pie charts, and other graphical treatments not available on the Apple. After several months of programming, design, and keying in data for 600 common foods (by hand) the product was ready for beta testing.
- Product.
As the product coding was coming to completion, with testing and subsequent minor bug fixes underway, marketing and financial issues took on more significance, as did customer support and fulfillment. At the start, most of these activities were done in-house. For example, Bryan found binders made to hold the then standard 5 ¼-inch diskettes with slots for inserting product description, and developed a marketing plan that included direct mailings, catalog sales, and several magazine advertising campaigns. A local printer produced an initial run of a thousand packages, complete with documentation, packaging artwork, and customer response cards, bound in a 6 × 9 three-ring binder with a product description on the front and rear covers. He also designed flyers for direct mailing. Simultaneously, he invested in disk duplication hardware and basic office supplies, and established methods of handling payment.
Bryan also addressed intellectual property issues by registering the software with the U.S. copyright office. To sell this and subsequent programs, he located a distributor of health-related software for the Apple and Commodore lines located in Southern California and negotiated a comarketing agreement that included space in their catalog. In addition, he found a part-time salesperson in California who worked on a commission basis and was selling directly to the microcomputer centers that were springing up like Starbucks outlets in the malls on the West Coast.
- Outcome.
For about a year, sales were good, totaling in the thousands of packages, but demand was dropping for the product, as well as for two other home health products he subsequently developed on the Commodore platform. But at the same time, three factors changed the computing landscape: the increased dominance of the Apple in the marketplace; the segregation of the Commodore as more of a game computer, even though its hardware was more advanced than Apple's; and the introduction of the IBM PC and Apple Macintosh to the scene. By 1985, demand for Home Health Software's products on the Commodore 64 was only a few dozen copies a month, and even the sale of major commercial programs on the Apple was in decline. Like many other software development houses, the company developed its next product on the increasingly popular Apple Macintosh, again because of the user interface possibilities.
The inception, development, deployment, and eventual demise of The Lean Machine illustrates how the start of the Continuum is characterized by an overwhelming preponderance of magic, with what may be little more than a scribbling on a paper napkin. At the other end of the spectrum, there is a product rooted in pure technology that eventually fades from the marketplace. Between the two extremes, magic is replaced with technology—a tangible product with specific benefits—in a predictable way over time. However, the progress of moving from magic to technology is nonlinear and frequently impeded by factors related to the product, company, or market. A product might take two months to move from inception to mature product or fail completely at any point along the way.
The story of The Lean Machine is significant in that it illustrates many of the real-world challenges faced by the typical "garage" startup: the lack of marketing know-how and resources, that is, incomplete marketing information on the competition, consumer demographics, and optimum selling price. Bryan had no real way to gauge likely customer demand, other than belief that the product would succeed. Although this approach worked for Alexander Graham Bell and other entrepreneurs, their connections to investors and name recognition helped them overcome many of the hurdles faced by other innovators operating blindly. Today, successful entrepreneurs rely on a mix of talents, especially marketing, as they move a product along the continuum.
The five key points in the Continuum are milestone events against which progress can be measured. They are the Inception, Technical Gateway, Product Point, Market Gateway, and Completion. In the world of technology development, although there may be flashes of insight and abrupt changes in the economy, there is nonetheless continuity from one point to the next. Furthermore, the times between each of the five points are periods of variable length. The characteristics of each of the points and periods in the Continuum and their characteristics are outlined in Figure 1.6. The points and periods are named here for reference later; what's important are the concepts embodied in each step from ephemeral idea to marketable product.
- Inception.
A product may begin as an idea that addresses an obvious need, like The Lean Machine, or it may simply germinate from a diagram sketched on a napkin over a lunch discussion with a friend. However, unlike the fate of most marked-up napkins, the ideas that make it to Inception on the Continuum are typically instantiated and clarified by a working document, like a specification or a pitch to investors. Inception is characterized by a preponderance of emotion and magic, and marks the beginning of a working requirements specification, which is a list of features that the product or service should provide—whether formally documented, expressed in a few lines of demonstration code, or embodied in a PowerPoint presentation.
The key issues and decisions at Inception include an assessment of the risks and rewards associated with the dream. The decision makers must ask the questions listed in Figure 1.7. The answer to many of these questions may be unknown and unknowable. Some may require guessing, with different levels of certainty associated with each guess, and some guesses will be blatantly wrong. For example, as a typical garage entrepreneur holding multiple jobs and lacking marketing support, Bryan had to guess on the demographic of the typical user. In retrospect, assuming that the typical user of any of the three home health software products was an adult health-conscious male or female was an error. When demographic data on computer use began to be compiled and distributed in the trade magazines, it was clear that male users far outnumbered female users. In this regard, the continuum model should help decision makers identify the challenges along the way to a marketable product and effectively avoid similar, costly mistakes.
- Concept Development.
This period, which extends from Inception to the Technical Gateway, marks the time of idealization, when magic significantly outweighs any technology available to match the vision of the developers. This is the time of excitement within a development group, when ideas are quickly generated and short pieces of code or physical mockups are created, testing concepts and trying the limits of thinking out of the box. The concept development ends with the Technical Gateway, which is when a pure R&D effort starts to make use of customer-driven feedback and marketing analysis. As noted earlier, market-driven product development begins at the Inception.
- Technical Gateway.
The second major point in the Continuum is the Technical Gateway, a decision point where product development and management determine whether the technology involved in the proposed product is worth pursuing. The Technical Gateway is characterized by the development of a technically viable prototype that demonstrates a subset of the technology involved in the proposed product.
For the peanut butter and jelly sandwich recipe, the inclusion of pastry bags in the process may mark the Technical Gateway because it allows the recipe to be scaled to significant production levels. If hundreds of sandwiches per hour were required, then other technologies would have to be included, such as conveyer belts and automatic dispensers that provide fixed aliquots of jelly and peanut butter, or the use of refrigerated, semisolid blocks of peanut butter and jelly together with slicing equipment. For example, the successful repair of a sheep's aorta with Gore-Tex (and subsequent lack of rejection) marks its Technical Gateway. In the development of The Lean Machine, the Technical Gateway was achieved when the first prototype of the system was developed, prior to developing the graphical user interface.
At this point, a company has typically invested significant resources, especially developer time, in achieving the prototype or demonstration stage. As such, the CEO should have a much better idea of exactly what will be required, in terms of development resources, time, and money, to move from a prototype to a demonstrable product. However, if the CEO is a 19-year-old with a promising innovation but no marketing experience, the results may be less than ideal.
Regardless of whether the CEO is a neophyte or a gray-haired, brick-and-mortar company veteran, the issues and decisions that should be reassessed at the Technical Gateway involve asking these questions:
Are there competing solutions in the marketplace that may be technologically superior?
What are the capital and other resource requirements relative to the expected ROI?
What are the results of the break-even analysis (BEA)?
Is the likely ROI worth the risk of investing resources?
Is the functional specification—the document that precisely specifies the technical features of the product—clear and complete?
The ease of determining end-user requirements and competition is a function of the maturity of the market. Usually the more mature the market, the easier the information-gathering process. The challenge with assessing the marketplace is that there may be technologies under development by any number of companies that will compete directly with a product. In addition, technical superiority is often difficult to assess because products may excel in some areas and be deficient in others.
- Prototype Development.
This period is the time of significant, rapid technologic progress toward the realization of a prototype. This is the time when programmers and other development staff disappear from corporate management's radar and bury themselves in development efforts. If all goes well, Prototype Development ends with the Product Point. If there are insurmountable obstacles along the way, then this period may extend beyond the initial time allotted to creating a prototype, either because the technologies available or selected are incapable of addressing the prototype's needs, or because the resources required to reach the product point are excessive or not available. Most development efforts fail in the prototype development stage because development is out of touch with customer needs. In some cases the development time is simply too long.
The Prototype Development stage is also the time when marketing and sales first become involved in the product in a small, new, or pure R&D-focused company. In a mature enterprise, sales and marketing should be involved from Inception. Assuming corporate management believes in the eventual product, then marketing, public relations, and sales forces—usually a skeleton crew—are established to help identify potential markets and customers for the product under development.
For a new venture, this is also the time when management starts working toward securing funding, either from venture capital in the case of a small business, or from the enterprise in the case of a large corporation. In an established company, not only would funding be secured at this point, but the focus would include strategies for deployment support, customer service, and maintenance strategies.
- Product Point.
The third key point along the Continuum, the Product Point, marks a shift in the magic–technology mix from magic to technology. Although this determination is usually based on qualitative measures, a product that can be evaluated objectively also characterizes the Product Point. In getting to the Product Point, it's assumed that limited in-house testing has been performed (alpha testing) and that tests using external subjects in a variety of real-world settings (beta testing) are either scheduled or underway. In The Lean Machine project, the Product Point was reached with the completion of coding and testing on the hardware delivery platform.
The key issues and decisions at the Product Point are the following:
Does the composition of the current senior management team fulfill the organization's plans for product deployment?
In a new, resource-limited venture, is it time to change from a technology-oriented management team to one focused on the marketplace?
In a market-driven company, how should resources be allocated between marketing and R&D?
What is the obvious end-user application for the product that demonstrates the technology and creates a story for potential investors and yet exposes the company to minimum risk?
Who, and what organizations, should be considered for beta testing?
Can beta testers be converted to paying customers?
What are the incentives (political and financial) for the initial beta sites? Are these incentives sustainable over time?
- Clarification.
Like the historical period following the real Dark Ages in Europe, this period marks the time of technologic enlightenment. There is clarity in what the technology can and cannot do, and during this time customers begin buying the product and providing feedback (problems or new feature requests). This period is characterized by rapid innovation and clarification of the underlying technology. That is, while Prototype Development is a time of mutation and revolutionary change, potentially resulting in a usable technology product, Clarification is the time to increasingly refine the most successful technologies instantiated by the product.
- Market Gateway.
The fourth point in the Continuum, Market Gateway, is marked by a preponderance of technology. From this point on, only minor advances in the core technology may be realized, in terms of the magic-technology mix. However, major changes in the technology may be realized, as determined by customer needs or structural and necessary market changes. In The Lean Machine example, the market shifted from the Commodore 64 to the Apple Macintosh.
Major advances in the magic-technology mix are often ruled out because of time, time to market, cost, or other considerations that typically get earmarked for "the next release" of the product. Even minor advances can be costly in terms of time and resources, so they may be ruled out too. Postponed advances may multiply releases in response to customer complaints or advances made by the competition. At this point, it is important not to get too caught up in maintenance issues or current systems, but to establish a core development team to examine looming technology changes on the horizon. Success then depends primarily on gaining acceptance in the market and only minimally on furthering the technology. The issues and decisions at the Market Gateway involve asking these questions:
Is the market share sufficient to maintain growth?
What is the likely life span of the technology?
Are there competing technologies on the horizon?
Is market positioning optimum for growth?
How can the company maintain an R&D effort while resources are consumed by creating product updates?
Is it time to explore and develop new technologies in order to maintain or gain market share?
Issues in the Market Gateway are typically critical to the success of any product. For example, although there are hundreds of PC manufacturers, the top five companies—Dell, Compaq, Hewlett-Packard, IBM, and NEC—control over 40% of the world market. Even the top manufacturer, Dell, which commands almost 13% of the world market, has a gross margin below 10%. The other manufacturers, especially the off-brand labels that compete on price, are squeezed even more. Compaq, Hewlett-Packard, and IBM all reported losses or breakeven results from PC operations for the first quarter of 2001. As a result, many PC manufacturers are more concerned with surviving than growing. However, even in this environment, the premier microprocessor manufacturer, Intel, must continually update its products, if only to fend off competition from AMD, Motorola, and other microprocessor manufacturers.
- Stabilization.
The final period in the Continuum, Stabilization, is characterized by efforts to stabilize the current technology offering, with only minute changes or enhancements to the underlying technology. That is, there is very little magic involved in the product. The time of Stabilization may be long or short, depending on changes in the customer base or emergence of competition. For example, toothpicks have not changed much in recent years, nor have paper clips. However, a variety of competitors of the toothpick and basic paper clip have emerged. Although triangular, plastic, and metal-plated clips have appeared, the basic paper clip is a relatively unchanging staple in the business world.
In the case of Home Health Software, the rapidly increasing popularity of Apple computers in the home and classroom, along with the development of the Macintosh, were omens of the eventual fall of the Commodore line. This illustrates the need to keep an eye on products and technologies from within and across market sectors. For example, artificial organs replacing the need for donor transplantation will phase out the need for immunosuppressive therapy.
- Completion.
The final point in the Continuum, Completion, marks the end of technical development. The product performs as defined in the functional specification, and there are no dangling "any time now" additions. Completion is stable, but only to the extent that customers' needs do not shift the desired Completion point to satisfy some other perceived or real customer need. However, in time, customer needs always shift. For this reason, it may be necessary to create a mechanism for assessing and responding to changing customer needs.
Examples of products that have reached Completion include the pencil, the ballpoint pen, the paper clip, the spoon, the countertop TV, and the countertop clock radio. In the case of Home Health Software, additions and modifications to The Lean Machine were limited because company resources were devoted to developing additional titles for the Commodore and, later, the Macintosh.
The issues and decisions at Completion include:
How long will the product in its current form be viable in the marketplace?
How should the technology be modified or improved?
Can the product be applied to new markets, such as international markets?
What is the risk of ignoring R&D and focusing solely on marketing and sales?
In progressing from one point to the next, it generally is not possible to skip over a point, at least in the long term. For example, skipping over the Technical Gateway and going directly to the Product Point will undoubtedly result in a product that fails to perform to specification, and the business will suffer. At one extreme, potential investors could interpret this as fraud.
Models are of value only insofar as they confer predictive value or are a means of increasing efficiencies or cost savings in a business process. In this context, the Continuum model is relevant to modern business operations because it makes explicit the dynamic tension between magic and technology for the major players or stakeholders involved—product development, marketing, sales, corporate management, and customers. The person who must communicate the company's vision of the product must also address the expectations and interests of all these different groups, each with its own viewpoint and agenda. Here again, the model helps the communicator preserve the original magic through the product actualization process. That is, the Continuum makes explicit the evolution of technology from Inception to Completion. This assumes that someone in the company can determine if a technology has room for refinement. Sometimes this determination requires someone close to the technology, but in some cases, evaluating the need for significant refinement is transparent and obvious to nontechnology personnel. For example, consider the peanut butter and jelly sandwich recipe listed in Figure 1.8, and compare it to the simple recipe in Figure 1.3. In addition to listing resources and processes in business terms, the instructions in Figure 1.8 make virtually no assumptions about the cooking ability of the reader.
Although it may seem unnecessarily detailed, the recipe in Figure 1.8 fulfills the requirements for a mature process description, since it
Lists all resources, including the work environment, not simply the ones in the recipe
Identifies all the variables involved, and provides explicit examples
Provides details of pre- and postpreparation activities
Not surprisingly, a mature process description has a lot in common with a well-documented computer program. A C++ program, for example, lists the resources required for compilation, in the form of INCLUDE statements at the beginning of the program. Similarly, all of the variables included in the program are explicitly defined.
Of course, even the recipe in Figure 1.8 makes several assumptions. The first is that it will be used in a typical home environment. If the recipe were used in a commercial setting, then some variables would have to be altered to accommodate legal requirements. For example, the cutting board would have to be plastic, not open wood, and the maximum temperature of the refrigerator would be specified. Similarly, the workspace would have to include a three-section sink (wash, rinse, and drain) to fulfill board of health regulations for commercial food preparation areas.
In another application of the Continuum model, consider the flurry in the biotech industry surrounding how to make sense—and money—out of the roughly three billion chemical bases that describe the human genome. Because of the sheer complexity and volume of the data, which encompass one-dimensional gene sequences to three-dimensional protein structures, no one knows yet how to mine the data. However, biotech companies are filling their databases, assuming that someone will develop the technologies needed for data mining, visualization, integration, and computer networking. The CEOs of these biotech companies, including several major pharmaceuticals, are operating in an area of uncertainty. Their success is dependent on identifying companies that promise to deliver workable technologies—not mere displays of magic—in the relatively near future. That is, they need to identify the position of the supplier's technology in the Continuum.
Similarly, in the post-dotCom era, where securing venture capital (VC) money takes more than an idea scribbled on a dinner napkin, potential investors need to critically evaluate the status of a technology, in terms of time and likelihood of a reasonable return on investment. The CEO of the hopeful startup has the challenge of communicating this information to investors in a clear, understandable, and believable manner. In addition to showing the usual criteria—the company's competitive advantage, the financial and intellectual backers of the company, the revenue model, the exact nature of the product or service, the market, and the competition—a CEO has to paint a picture of the road to profitability. That is, she must demonstrate that her company has at least made it to the Product Point and is making headway to the Market Gateway. Using the Continuum definition at each point and period, the CEO can identify the position of her company's product in the Continuum, describing progress as well as expectations for the immediate and foreseeable future.
Consider the need for an easily understood model for communications within a technology development organization. It is often the case, for example, that marketing and sales perceive a need in the marketplace and want product development to add features to address the need, but have no idea of what is involved from a time or process perspective. They typically rely on necessarily vague reports from product development that the desired feature can be added, but to do so will add six weeks to the development process and therefore delay the release date by as many weeks.
Management then checks in six weeks later either to find that the feature set has been added or that it is only a week or two away. If management and marketing are technologically savvy, they may understand the progress limitations and be able to help product development assign weights to the product development options. However, the usual case is that those in management, marketing, and sales have no idea of where the other two groups perceive a product is in development. In this regard, the Continuum provides a common language that all three groups can use to communicate their needs and progress with time. The Continuum also helps product development understand the expectations over time, especially when hard dates are assigned to the key points and periods.
The application of the Continuum model in this and similar situations is detailed in Part Three. Chapter 2 continues to explore the alchemical transformation of idea to marketable product from the perspective of the traditional Product Lifecycle. It examines the relevance of the Continuum as a predictor of success in the marketplace.
Most technologies begin as an idea or a dream—an apparent bit of magic—that developers hope can do things that customers think impossible through other means. Companies involved in developing technology-based products are charged with the challenge of moving the dream along a continuum to realization as a process or device that delivers value. Selling and marketing the value of the technology involves getting the customer to share the initial magical dream by buying into the actual device or process.
The Continuum describes the evolution of a technology-based product from its conception to its full implementation. There are internal issues that must be addressed, in terms of allocating and focusing resources, and external issues, in terms of knowing what the economic climate has to offer, what customers want, and what the competition is up to. Just as the complementary concepts of yin and yang should be in balance, the ideal situation is to fit the tangle of business transactions and their inherent benefits and risks into a model that makes sense, and that can be of some use in predicting or changing the future. In this regard, the Continuum extends from the magical—the mysterious and inexplicable—to technology—the actual result of applying theory. The various points and periods that compose the Continuum correspond to key decision points and challenges that characterize the development of a product within the organization. The value in the Continuum model is that it provides a dynamic view of a product at every stage of development and deployment. In particular, characterizing any development project as tension between multiple factors—technology, magic, risk, and prospect for reward—can help the decision maker determine how to allocate effort and resources when the company is buffeted by the inevitable pressures to release a quality product as early as possible in a highly competitive market.
A key concept in the Continuum is that there are two types of development. The first is the result of a new venture—a chance discovery in the R&D department of an established company or the result of years of labor in an inventor's basement—that leads to a prototype with unknown market potential. In this scenario, marketing is called in to support the movement of the prototype to product along the Continuum. Marketing is involved in both market research and, later, sales support. Although this is not necessarily the most opportune time to start considering sources of funding, the potential market for the product, price, or other factors related to success in the marketplace, it is a common predicament. The primary value of the Continuum in this situation is as a means of predicting the requirements needed by the startup or established company in bringing the innovation to market.
At the other end of the spectrum, the second type of development is the result of an extensive market research initiative. Only after there is a quantifiable probable demand for a particular product or product improvement does R&D get the go-ahead from upper-level management to invest time, money, and other resources toward realizing the product. Once a prototype is developed and determined to be viable, marketing begins tooling up to support the sales effort. The Continuum model is useful in this scenario as a means of communicating progress among the divisions in the company involved in the project—R&D, marketing, sales, and management—so that product expectations and timing are aligned.