Defining the minimum winning game in high-technology ventures

California Management Review

Volumn 49, Issue 3, 2007, Pages

  Burgelman, Robert A ^a,b   Siegel, Robert E ^c  

^a Department of Management ^*  (United States)

^b STANFORD UNIVERSITY   (United States)

^c Video and Software Solutions for GE Security

Author keywords

[No Author keywords available]

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EID: 34250721679     PISSN: 00081256     EISSN: None     Source Type: Journal    
DOI: 10.2307/41166392     Document Type: Review

References (53)

1. Henry Kloss, a prototypical technological entrepreneur, cogently articulated the dilemma a long time ago: "The kind of products that people might want are not limited to what people have said they want or what people, when you knock on their door, say that they will want. In the first case, it's too late if people express the desire for what they want. In the second case, the answers are invalid when you ask about it." See R.S. Rosenbloom, "Advent Corporation," [Harvard Business School case 9-674-027] in R.A. Burgelman, C.M. Christensen, and S.E. Wheelwright, Strategic Management of Technology and Innovation, 4th edition (New York, NY: McGraw-Hill/Irwin, 2004), p. 58.
2. See, for instance, P. Berthon, J. Hulbert, and L.F. Pitt, "To Serve or Create? Strategic Orientations Toward Customers and Innovation," California Management Review, 42/1 (Fall 1999): 37-58.
3. See, for instance, R.A. Burgelman and L.R. Sayles, Inside Corporate Innovation: Strategy, Structure, and Managerial Skills (New York, NY: Free Press, 1986).
4. See, for instance, S. Macdonald, "Too Close for Comfort? Implications for Strategy Arising from Getting Close to the Customer," California Management Review, 37/4 (Summer 1995): 8-27.
5. C.M. Christensen, The Innovator's Dilemma (Boston, MA: Harvard Business School Press, 1997).
6. Without underestimating the strong incentives that venture capitalists have to impose strategic discipline on the ventures they fund and the high levels of expertise they bring in helping entrepreneurs adopting such discipline, we think that there is still a lot of room for improving the strategic discipline tool kit. Hence, we believe that our approach may be useful to both VC -funded ventures and those that are not so funded.
7. The MWG is a scalable concept. At the more micro level, for instance, bench scientists in R&D could use it to define the set of critical experiments necessary to validate a technological solution. At the more macro level, it could be used, for instance, by the U.S. Government to define the set of institutional arrangements that must be put in place as a first MWG in setting the nation on a path toward achieving universal health care insurance.
8. See, for instance, H. Bahrami and S. Evans, "Strategy Making in High-Technology Firms: The Empiricist Mode," California Management Review, 31/2 (Winter 1989): 107-128;
9. J. Morone, "Strategic Use of Technology," California Management Review, 31/4 (Summer 1989): 91-110;
10. K.M. Eisenhardt, "Speed and Strategic Choice: How Managers Accelerate Decision Making," California Management Review, 32/3 (Spring 1990): 39-54;
11. G. Bacon, S. Beckman, D.C. Mowery, and E. Wilson, "Managing Product Definition in High-Technology Industries: A Pilot Study," California Management Review, 36/3 (Spring 1994): 32-56;
12. S. Thomke and D. Reinertsen, "Agile Product Development: Managing Development Flexibility in Uncertain Environments," California Management Review, 41/1 (Fall 1998): 8-30.
13. L. Denend, R.A. Burgelman, and R.E. Siegel, "Matrix Semiconductor (A) and (B)," Stanford Business school cases 2004 and 2005, respectively.
14. C. McVie, R.A. Burgelman, and R.E. Siegel, "Pixim (A)," "Pixim (B)," "Pixim (C)," Stanford Business School cases, October 2003.
15. The second author of this article founded Weave Innovations.
16. These efforts are described in R. Bamford and R.A. Burgelman, "Intel Corporation: The Hood River Project (A) and (B)," Stanford Business School, 1997.
17. A. Block, R.A. Burgelman, and R.E. Siegel, "StubHub (A) and (B)," Stanford Business School cases.
18. "Fab" is the abbreviation of "fabrication plant," which is part of the vernacular in the semiconductor industry.
19. Block et al., op. cit.
20. See S. Stecklow, "StubHub's Ticket to Ride: Web Site Conceived In School Is Now Leader In Hawking Access to Sold-Out Events," The Wall Street Journal, January 17, 2006.
21. See, for instance, Burgelman and Sayles, op. cit., chapter 3.
22. Some have emphasized the importance of setting "big hairy audacious goals"-so-called BHAGs-to help explain why some companies endure longer and more successfully than others. See J. Collins and J. Porras, Built to Last (New York, NY: HarperBusiness, 1994). Defining the MWG at any given time is not inconsistent with setting very ambitious goals. It does, however, impose discipline in being clear about the strategy necessary for reaching such goals, in helping establish time frames within which progress in achieving them can be measured in a realistic way, and in considering the feedback effects of reaching them on the strategy. The importance of the latter is subtle and easily overlooked as the recent example of the fate of the Robert Mondavi winery business illustrates.
23. See "The Fall of the House of Mondavi," Business 2.0 (April 2005), p. 101. "Warren Winiarski, the founder of Stag's Leap Vineyard and another alum of the heady early years at Mondavi, hinted at the root cause of the downfall. 'Large dreams sometimes lead in directions different from the intent,' he says. 'By that I mean that large-scale ambitions could be a source of weakness."
24. Depending on the path chosen to climb Mt. Everest, for example, mountaineers know they and their team must arrive in good condition at four or five base camp destinations before starting the final climb to the summit.
25. The MWG is concerned with risk management, but should not be confused with risk preferences. In other words, we are not concerned here with the choice of objectives that involves, for instance, climbing a 20,000-foot mountain with 50 percent probability of success or a 10,000-foot one with 100 percent probability of success. Rather, we are concerned with what the "base camps" (MWGs) are that must be reached given the chosen objective. (Note, however, that this is also not inconsistent with the possibility that some venture capitalists may systematically favor entrepreneurs who choose the 20,000-foot climb over the 10,000-foot one.)
26. For the story of Intel's first MWG, see G. Gilder, Microcosm: The Quantum Revolution in Economics and Technology (New York, NY: Simon and Schuster, 1989). In the case of PC-based video conferencing in the mid-1990s, Intel CEO Andy Grove refused to go along with the general manager of the emerging "ProShare" venture, who argued for defining the first MWG in terms of a vertical niche strategy (e.g., vertical niches in mortgage lending and health care, among others), and insisted on what he later called a 'landing in Normandy" approach to defining the MWG, i.e., a horizontal assault with ProShare on the entire PC market segment. In the case of making Intel a major supplier of components for the consumer electronics in the mid-1990s, the company defined the MWG as one that would lead consumer electronics companies to use the leading-edge microprocessor (the Pentium n at the time) in new product development. Unfortunately, with price points in the $300-500 range for consumer electronics products, this was not possible (PC price points were still in the $2,000 range at the time). If Intel had defined the MWG in terms of bringing the Intel Architecture (IA) into the consumer electronics industry with a previous generation microprocessor rather than with the Pentium II, the company might have been able to bring a "disruptive technology" into the industry and establish a beachhead.
27. For the PC-based videoconferencing story and consumer electronics story (the Hood River case), see R.A. Burgelman, Strategy is Destiny: How Strategy-Making Shapes a Company's Future (New York, NY: Free Press, 2002), chapter 9.
28. G.A. Moore, Crossing the Chasm (New York, NY: HarperBusiness, 1991).
29. B. Arthur, "Competing Technologies: An Overview," in G. Dosi, ed.. Technical Change and Economic Theory (New York, NY: Columbia University Press, 1987), pp. 590-607.
30. A. Brandenburger and B. Nalebuf, "The Right Game: Use Game Theory to Shape Strategy," Harvard Business Review, 73/4 (July/August 1995): 57-71.
31. Apple Computer in the desktop operating system industry is a classic example.
32. G.A. Moore, Inside the Tornado (New York, NY: HarperBusiness, 1995).
33. The first author thanks Professor Ezra Zuckerman of the MIT Sloan School for pointing out this implication.
34. One of the authors served for about two years on this company's board of directors. Its identity was revealed to the reviewers but is kept confidential here.
35. Burgelman (2002), op. cit.
36. Technology as the main driver is particularly important in science-driven industries such as pharmaceuticals and biotechnology. Intel's betting on metal oxide semiconductor (MOS) technology development to win against standard "core memory" products for mainframe computers at the time of its founding is an example of technology development as a strong driver of strategic action.
37. The idea of "absorptive capacity" is further explained in W.M. Cohen and D.A. Levinthal, "Absorptive Capacity: A New Perspective on Learning and Innovation," Administrative Science Quarterly, 35/1 (March 1990): 128-152.
38. MIPS Computer Systems' failed efforts to build and bring to market desktop computer systems based on the development of reduced instruction set computing (RISC) technology in the mid-1980s is an example of some of the pitfalls of technology development as the main driver of strategic action.
39. The development of the Palm Pilot personal digital assistant during the mid-1990s is an excellent example of superb product development driving strategic action. Note that Palm defined a MWG based on delivering a PDA with functionality that was sufficient to meet customer needs of a clearly defined target market. Apple, in contrast, a few years earlier had defined the MWG for its Newton OS-based PDA with functionality that was too ambitious and feature rich, and thus it did not function well enough to meet the needs of their targeted customers.
40. M.A. Maidique and B.J. Zirger, "The New Product Learning Cycle," Research Policy, 14/6 (December 1985): 299-313.
41. Henry Kloss's effort to bring to market one of the first large-screen video systems is a classic example of this pitfall of product development as a driver of strategic action. See R.S. Rosenbloom, "Advent Corporation," [Harvard Business School case 9-674-027] in R.A. Burgelman, C.M. Christensen, and S.E. Wheelwright, Strategic Management of Technology and Innovation, 4th edition (New York, NY: McGraw-Hill/Irwin, 2004).
42. This problem is perhaps most acute in internal corporate ventures because of extremely strong corporate pressures to show progress and the venture leader's belief that the backing of the large corporation will allow it to catch up later for building infrastructure lor additional new product development. See R.A. Burgelman, "A Process Model of Internal Corporate Venturing in the Diversified Major Firm," Administrative Stience Quarterly, 28/2 (June 1983): 223-244.
43. Apple Computer in the early 1980s is a classic example of product development driving the company in multiple directions. The Apple III product development went awry because of misleading market research information and much greater than anticipated demand for the Apple II that it was supposed to replace; at the same time Apple was also developing the radically different new Lisa product (driven by Steve Jobs). See J.S. Gable, S. Tylka, and M.A. Maidique, "Apple Computer (A),"Stanford Business School case, 1983.
44. Hewlett Packard's "Kittyhawk," the first 1.3-inch disk drive product brought to market in 1992, shows how trying to serve somewhat idiosyncratic customer needs may lock a potentially disruptive product in a development process bound to fail. See G.C. Rogers and C.M. Christensen, "Hewlett-Packard: The Flight of the Kittyhawk," Harvard Business School case, 1997.
45. Andy Grove's sole source strategy for x86 microprocessors (as of the 386 product generation) for the PC market segment is one of the great examples of business strategy driving product development and technology development for outstanding results during more than 10 years. A more recent example is Steve Jobs's strategic insight into the opportunities (for technology companies) and threats (as perceived by the music industry in the late 1990s) associated with digital distribution of music driving the development of the iPod portable music downloader and player.
46. Insightful discussions of building a mere "device" vs. building a "whole product" can be found in William A. Davidow, Marketing High Technology-An Insider's View (New York, NY: The Free Press, 1986);
47. Geoffrey A. Moore, Crossing the Chasm (New York, NY: Harper Business, 1992).
48. Insightful discussions of the need for strategic flexibility and the ability to experiment and learn can be found, for instance, in G.S. Lynn, J.G. Morone, and A.S. Paulson, "Marketing and Discontinuous Innovation: The Probe and Learn Process," California Management Review, 38/3 (Spring 1996): 8-37; Thomke and Reinertsen, op. cit.
49. Intel's ill-fated attempt to bring PC-based videoconferencing ("ProShare") to market in the mid-1990s is an example of the pitfalls of having technology and product development driven by an inertial business strategy that was working extremely well in the microprocessor-for-PC market segment but did not apply in the not-yet-ready market for videoconferencing and, as noted earlier (see note 21), led to defining an unrealistic MWG. See Burgelman (2002), op. cit., chapter 9.
50. See Burgelman (2002), op. cit., pp. 103, 106, 163.
51. McVie, Burgelman, and Siegel, op. cit.
52. Many established firms in the technology industry use some form of MRD and PRD as part of the process that documents and captures product and service plans in the broader context of their strategic planning and resource allocation processes.
53. See Bamford and Burgelman (1997), op. cit. An example of an MRD and a PRD is available from the second author of this article upon request.