Tse bus model_teece_analysis_2014

Teece AnalysisEntrepreneurial Strategy Matrix

1

The Smart Entrepreneur

Essentially...

The Teece model assesses:

• Can your business enter the market independently and compete effectively with other companies?

• Or should you enter a partnership with an established company in order to successfully reach the market?

This means sharing some value with the partners, but also accessing their complementary assets instead of building your own.

• Are you likely to make any money?

Copyright of Bart Clarysse and Sabrina KieferThe Smart Entrepreneur

And further...

Clarysse’s Entrepreneurial Strategy Matrix goes a step further and assesses:

• Should you go into a Market for Products or a Market for Technology? (Or a Hybrid strategy?)

• What sort of resources will you need to develop?


The Teece model

Assessing your business based on:

•Protectability of the idea

•Ease of accessing complementary assets

Route to market

•Cooperation vs competition strategies


Teece model: why?

• Start-up entrepreneurs usually have limited resources and risk giving away value or seeing competitors or other partners profit from their inventions.

• Teece’s approach attempts to identify a viable business strategy by assessing two of the most critical threats: A business idea’s protectability (formal IP, secrecy, complexity?) How hard it is to acquire the complementary assets that are needed

to get to market.


How to use a Teece matrix: protectability

For instance:Idea is not protectable or can be easily imitated or reverse engineered

For instance:There is a clearly defendable patent

APPROP-

RIABILITY

L

o

w

high

How protectable is your business idea from imitation (low or high)? (See Protection Mechanisms in IE&D Toolbox )

•Patents and other Intellectual Property rights?•Complexity?•Secrecy?


Teece: what Complementary Assets do you need?

CoreTechnology

&InnovativeKnow-how

“Those assets necessary to translate an innovation into commercial returns”


What Kinds of Complementary Assets are important in competition?

• Things you own

• Brand name• Distribution channels• Customer relationships

• Things you can do

• Manufacturing capabilities• Sales and service expertise

Resou

rces

Capab

ilities


Comp. Assets: look at your value chain •Which players in your value chain hold the important complementary assets to reach your customers?

• Usually downstream players who have relationship with the end market

•How tightly are these assets held?• e.g. If there are only a few companies with established assets, or those

assets are highly specialised, their bargaining power with respect to you is high

Technology Product development

Production Marketing Distribution

DOWNSTREAMUPSTREAM


Teece matrix: complementary assets

COMPLEMENTARY ASSETS

Freely available or unimportant

Tightly held and important

For instance:

Access to manufacturing, distribution channels, or specialised marketing may be difficult or expensive to obtain, particularly if there are only a few established specialist players (monopoly or oligopoly) .

For instance:

• The customer can be accessed easily

• There are many alternative players to work with, so competition is fair and anyone can enter the market easily


Teece matrix: where and how?

APPROP-

RIABILITY

L

o

w

high


Freely available or unimportant Tightly held and important

Difficult for new entrant to make money – anyone can copy you

Inventor is powerful– you can reach market

easily and create barriers to entry

Company which holds complementary assets – it controls the relationship with captive customers

The Inventor or the party with more bargaining power - Depends how strong the IP is or how crucial the assets are

Where are you in the matrix, and how can you make money?


Teece matrix: choice of strategy?

APPROP-

RIABILITY

L

o

w

high




Established companies can imitate easily.

So success is dependent on finding a blind unaddressed niche and ‘going under the radar’

You have Choice between going alone to market or entering a contract with partner

Some possibilities to contract with partners

Success is dependent on the existence of a willing and principled partner

Can contract with established companies

Success is dependent on the negotiating power of the inventor/entrepreneur

Gans and Stern (2003)

The attacker’s advantage

Greenfield competition

Reputation- based ideas trading

Idea factory

Teece model: strategy

• Depending on the venture’s position in the matrix and its competitive advantage, there is a strategic choice between:• Competition strategy

The company goes it alone plays on the market for products• Cooperation strategy

The company partners with other entities and plays on the market for ideas


Teece: Competition or cooperation?Choosing between:

• Competition:• Integrate downstream: investing money to set up your own production,

distribution and/or marketing in-house• Partially integrate– retain certain functions in-house and outsource

others.• Cooperation:

• Partner with companies that already have established complementary assets

• e.g.: joint venture, licence agreement,…• Bargaining power: if specialist investment is needed (e.g. new

manufacturing processes), partners will take some risk, and are likely to negotiate an agreement at a risk level they can accept


Teece matrix: competition vs cooperation

APPROP-

RIABILITY

L

o

w

high




Competition

Competition or cooperation,

inventor decides

(vb. Xerox/Nintendo)

Cooperation with reputed players is preferable(players who will not expropriate skills & IP)

Cooperation is necessary to access the value chain

Gans and Stern (2003)

Pros and cons of going Solo vs. types of cooperation Speed Cost Control Potential for

Leveraging Existing Competencies

Potential for developing new Competencies

Potential for Accessing Other Firms' Competencies

Solo internal development

Low High High Yes Yes No

Strategic Alliances

Varies Varies Low Yes Yes Sometimes

Joint Ventures

Low Shared Shared Yes Yes Yes

Licensing In High Medium Low Sometimes Sometimes Sometimes

Licensing Out High Low Medium Yes No Sometimes

Outsourcing Medium/High

Medium Medium Sometimes No Yes

Collective Research Organisations

Low Varies Varies Yes Yes Yes


Types of cooperation: Strategic alliances• Between firms with similar capabilities. Why?

• Pooling of knowledge, IP and resources • Not useful if there is a complete overlap of capabilities, only when there is

complementarity

• Large firms seek alliances with smaller ones. Why?• Smaller firms often have more innovation capability and are nimble• Large firms are organised to preserve existing business lines

• Small firms seek alliances with larger ones. Why?• For access to complementary assets, experience and resources/facilities

• Disadvantages• Lack of shared language, routines and coordination that facilitate the

transfer of knowledge• Require a pool of dedicated people willing to travel, test-bed facilities and

active procedures for internalising what has been learnt


Types of cooperation: Joint Ventures

• Significant equity investment from each partner

• Often results in establishment of a new separate business entity


For examples of Teece model analysis showing several types of company, see Appendix slides.

Teece model: examples


Choice between competition and cooperation is not always straightforward for start-ups• e.g. Cambridge Display Technologies (CDT):

• Polymer technologies, one of the applications being light emitting plastics (for mobile phones, calculators) = worldclass

• Nearly went bankrupt when producing the displays themselves• New business model: license technology to existing manufacturers

(Philips Electronics, DuPont,…)

• e.g. CropDesign• Choosing right application and whether to integrate vertically or partner• Started with idea of integration, encountered market problems, then

partnered with BASF, which ultimately became its acquirer• See chapter 3 of The Smart Entrepreneur for full story

Teece model is relevant to real life!


Clarysse: Entrepreneurial Strategy MatrixClarysse takes Teece a step further...

1. A clear and compelling market segment can somewhat compensate for lack of IP: (’going under the radar’)

2. A complex sales process is also a challenge, even when complementary assets are not: In a given B2B situation, how complex is the typical customer’s

decision cycle? • Economic buyer, Technical Buyer, User Buyer, etc.

See Entrepreneurial Market Research in Toolbox• How long does it take to acquire a customer, how hard is it?

(Procurement cycle, risk aversion, switching costs, etc.)• Consumer buying decisions are generally simpler

(though not easy!)


Clarysse/Kiefer: Choosing a strategy

Assess Environmental factors

Choose best Market approach (Strategy)

Foresee Resources needed

What’s your competitive position like?

Should you enter a market for products or a market for technology?

What resources will you need? Will you develop them yourself or partner with others?

Will you aim to grow profits quickly, or to grow human and intellectual capital?

What quadrant of the matrix are you in?

Source: Clarysse & Kiefer, The Smart Entrepreneur (2011).Copyright of Bart Clarysse and Sabrina Kiefer

The Smart Entrepreneur

Clarysse: The Teece Matrix revisited

1. Value Proposition based on Product Offer (or standardised service)•Specific product / market niche•Control over the value chain •Diverse founding team with experience in industry•Funding from founders’ own capital, debt or possibly an Angel, followed by early revenues

-> Revenue Growth by selling standardised products to customer segments

2. Value Proposition based on Technology Offer•Focus on developing one application•Build a technology team•Establish technology partnerships•Source specialized VC for start-up and development capital

-> Employment Growth to build up intellectual capital, with view to a trade sale

4. Value Proposition for Customised Services or Consulting (possibly a ‘Transitional’ start-up)•Specialist knowledge or technology used in bespoke projects for single customers•Build team with technical ,consulting and customer relations skills. Keep tacit knowledge confidential•Direct access to customers (usually small businesses)•Low capital requirements: ‘bootstrapping’

-> Organic growth through customer relationships, but not really scalable; ‘Lifestyle’ business

3. Hybrid Value Proposition based on Technology Offer and Market Approach•Acquire technology •Establish commercial partnerships•Acquire partners in the downstream value chain•Source specialized VC in different funding rounds, for start-up, development and acquisition capital

-> Revenue + Employment Growth

ENVIRONMENT COMPLEXITY(complementary assets important/tightly held

and/or a complex sales process)

Low High

ENVIRONMENT UNCERTAINTY(Strength of IPR

and/or Target Market

Clarity)

Low

high

See Ch. 7 of The Smart Entrepreneur


Examples

1. Value Proposition based on Product Offer (or standardised service)

•Artica (chapter 5)•Jean-Marc de Fety and mummysworld.co.uk (chapter 2)•TomTom (after 10 years – ch. 6 and 7)

-> Revenue Growth by selling standardised products to customer segments

2. Value Proposition based on Technology Offer

•CropDesign (chapter 3)

-> Employment Growth to build up intellectual capital, with view to a trade sale

4. Value Proposition for Customised Services or Consulting (possibly a ‘Transitional’ start-up)

•TomTom (during early years, a ‘transitional start-up’ – chapters 6 and 7)

-> Organic growth through customer relationships, but not really scalable; ‘Lifestyle’ business

3. Hybrid Value Proposition based on Technology Offer and Market Approach

•Clear2Pay•KeyWareSee Clarysse, Bruneel & Wright, 2011, Strategic Entrepreneurship Journal.

-> Revenue + Employment Growth

ENVIRONMENT COMPLEXITY(complementary assets important/tightly held

and/or a complex sales process)

Low High

ENVIRONMENT UNCERTAINTY(Strength of IPR

and/or Target Market

Clarity)

Low

high

See The Smart Entrepreneur

In summaryThe Teece and Clarysse matrices help you to gauge:

• Whether your business can make money independently or is better off partnering with another player in the value chain

• Whether you should be in the market for products or the market for technology

• What kind of company structure, growth path and resources are most suitable


Further Reading

• Clarysse, B. and Kiefer, S., 2011. The Smart Entrepreneur. London: Elliot & Thompson, Ch. 7.

• Clarysse, Bruneel and Wright, 2011. Explaining growth paths of young technology-based firms: structuring resource portfolios in different competitive environments. Strategic Entrepreneurship Journal, Vol. 5, Issue 2, p. 137–157.

• Teece, D.J., 1986. Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy. Research Policy, Vol. 15, Issue 6, p. 285-305.

• Gans, J.S. & Stern, S., 2003. The product market and the market for “ideas”: commercialization strategies for technology entrepreneurs. Research Policy, Vol. 32, p. 333-350.


Appendix: Teece model examples1. RC Cola• 1958: RC Cola, a small American soft drinks company introduces the first cola in a can

and the first diet cola (in 1958) to the market. The company has its own distribution chains, but only has a limited market share in the soft drinks industry.

2. Windshield wiper• 1960: Robert Kearns invents the first intermittent windshield wiper in his garage. • Kearns, a Wayne State University professor, received numerous patents in 1967 for his

design for wipers that paused between swipes, making them useful in very light rain or mist. The invention allows the driver to set the interval at which the wiper sweeps the window.

3. New diet beer• An entrepreneur is considering bringing a new beer to the market. This beer will have

certain dietary characteristics, and is based on a combination of a number of ingredients, such as hop and mint.

• Tests show that the beer has a positive impact on health and may be considered a dietary product. The entrepreneur thinks that the product should be targeted at women, mostly those concerned about weight, and who still like to taste their (sweet) beer, without feeling guilty.


4. Utility Cars• Yoyco Flints, operational manager of the utility car department at a large utility company, wants

to spin off a company for utility car leasing.• Yoyco Flints works at a large Belgian company, Belgaz, which operates the Belgian electricity

network. Yoyco is head of an operational department that manages car leasing. Yoyco is proud of the fact that his department works so smoothly.

• There are two main sub-departments: one of these is responsible for management and sales cars, another for utility cars.

• This latter department is very specific to the company: given that the technicians who drive the utility cars have to take a lot of equipment with them, they rebuild ordinary vans so that all equipment fits in them perfectly and does not move during the trip. The department has thus built up a lot of experience transforming vans into utility cars.

• At the new year’s drinks reception, one of Yoyco’s colleagues congratulates him on the functioning of his department and tells him about a talk he had with a friend of his, working at another utility company, who complained about the infrastructure of their utility cars.

• As a joke, Yoyco mentions that they should sell the product and service to other companies instead of keeping this simply as an internal department. But some days later, Yoyco cannot resist talking about the idea of setting up a spin-off to deliver the service of transforming vans into utility cars to external companies. Some of his colleagues are really enthusiastic and say they believe there is a market for it. One colleague mentions that even traditional lease companies are not in this business because they lack the know-how.

Appendix - Teece model: examples cont…


5. Child Leisure• Ever sent your kids to athletics? Or volleyball courses? Or tennis camps? The experience many parents have

is that kids tend to get bored very quickly with most of the sports classes they take, especially when they are young (6-12 years old). They find the techniques and exercises practiced to be to repetitive. But what should you do as a parent, if you believe that your kids should do some sports to be healthy?

• An entrepreneur is offering a solution. A new American wave is coming our way that is offering kids “general movement”. In each class, they are given different exercises that are targeted at moving and exercising each muscle in their body. Your kids will be happy to follow these classes after school, during weekends or at camp.

6. Swimmate• New inventions are coming to the sports world: a step counter, a run mate that reports on the miles run, speed

per hour etc. Some techniques already exist to measure the distance swum by swimmers, but these techniques demand a lot of investment by the swimming pool operators, and therefore, most opreators have not installed such systems. An entrepreneur, who swims frequently himself, has developed a technology to measure the length and speed swum. The technology consists of a watch, to be worn by the swimmer, and two receivers, to be placed at both ends of the swimming pool. The system is low-cost, both for the swimming pool operators and the swimmer. Furthermore, the accuracy of measurement is better than in the systems that are already on the market.

7. Iced Yoghurt• An entrepreneur has the idea of bringing iced yoghurt ice to the market. The product can be manufactured by

freezing yoghurt and adding some ingredients.

8. Netscape• 1995 : Netscape develops its Navigator browser .

Appendix - Teece model: examples cont..


Appendix - Teece examples: Appropriability (strength of IP rights)

APPROPRIABILITY(patents, copyright, etc.)

L

o

w

high

Utility Cars

NetscapeSwimmate

Yoghurt Ice

Windshield wiper

Child Leisure

Diet Beer

RC Cola


Appendix - Teece examples: value chain and comp assets

COMPLEMENTARY ASSETS(capabilities, relationships, etc.)


Utility Cars

Diet Beer

Child Leisure

RC Cola

Diet Beer

Netscape

SwimmateWindshield wiper

Yoghurt Ice


Cases: Teece matrix – who makes money?

APPROP-

RIABILITY

L

o

w

high



Difficult to make money

Holder of compl assets

Inventor

Inventor or party with bargaining power

Swimmate

NetscapeWindshield wiper

Yoghurt Ice

RC Cola

Child Leisure

Diet Beer

Utility CarDiet Beer

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