Chapter 7 - Technology Strategy in Lumpy Market Landscapes

Chapter 7 focuses on the technological constraints faced by firms when trying to provide customers with all of the product features they want. The authors, Ian MacMillan and Rita McGrath, use an extremely appropriate example throughout this chapter, laptops. They detail the complex balancing matrix a manufacturer of laptops must deal with in order to make decisions on whether to make their product ultra-light or ultra-rugged, or some combination on a spectrum between the two. Companies face this dilemma all while keeping an eye on what the market is doing, what their competitors are doing and in the face of technology barriers that constrain their options.

The authors use the term "lumpy" when describing the markets as a way to convey that market segments often become tightly grouped around characteristics they value, "dimensions of merit". In the laptop market, for instance, some users need a more ruggedized system, while others need a more portable, small, light-weight model, then yet a third group may want a combination of the 2. Each of these groups would classify as a "lump", because of the distinct set of needs each makes purchasing decisions on. Each group would be willing to make tradeoffs between ruggedness and portability depending on available alternatives and price. The key as a manufacturer is to try to capture as many of these "lumps" as possible. In the books example, a company may be able to capture a good portion of 2 of the 3 groups, however, capturing that 3rd group would require a dramatic shift in technology. In other words the company would need to break the current technology barriers. If laptop manufacturer could manufacture a system that provided the portability the traveling executives require and still be rugged enough for the sales reps, they could capture both those segments. However, until they pushed the technology barrier back to the point where they could make the same small portable system rugged enough for the service technicians they could never break into that market segment. Once they are able to push that barrier, they would be able to capture all 3 market segments.

In order to take full advantage of capturing lumps, managers must perform assessments on current and future segments and the needs of each as well as segment sizes and their elasitcity of demand. That is, managers must determine what needs they can fulfill in the future with technology investments that will provide the biggest return on investment. Managers must also make strategic decisions as to how they can use technology development to move into new markets, their strategic alternatives are:

1. Single niche domination - dominating one "lump"
2. Niche fusion - capturing business from multiple "lumps"
3. Creating a new technology envelope - development of new a new technology that will displace the current market

While this concept is by no means new, the way the authors describe it and the methods used to assess the markets they refer to provide a new, fresh outlook on the subject of strategic product management. The basic premise being, as a company, we need to find out what we are doing, what our competition is doing, where the differences are, what differences the customers value & to what extent and what new features do customers want in the products they purchase.