[MUSIC]. In this lecture, we'll talk about the Segway case. So, please read the case before watching the video. You'll get a little bit more out of it. So, the story is that Dean Kamen invented this thing called the Segway. Remember, this was code name It. And It was going to change the world. It was amazing thing, it was going to get rid of cars, it was going to be to cars what the, it'll be the cars, what cars were to horses. So, basically horses went away, cars will go a way as a means of transportation. It's going to revolutionize cities, cities will plan different, the world will be a better place, due to the Segway. And so, there were going to be billion dollar markets. This what Dean Kamen, you know, the inventor of the Segway who was, who had this idea that if it's only a small $3 billion market, that's nothing. We have not achieved our aims. This is gigantic. This is going to change the world. And we're going to get rich doing it. We're going to create massive amounts of wealth. When you think about it, you know, risk is good. Right, so the return on your portfolio, you know, the more risky something is, the riskier the project is, you know, if it's a mean, meaningful project, the higher the return should be. And so, this was the kind of thinking that they were doing. They were saying, well, let's, you know, it was a risky project, but nonetheless, we're going to get a high return off of it. And the kind of people the work in this high return area is what we call the venture capitalist. And so, venture capitalist, in this case, Kleiner-Perkins, had invested about $80 million. $80 million is a lot of money in the early basically in the early 2000 for this device. It was going to have 12 and a half mile per hour top speed, weigh about 80 pounds, it could go about 11 miles in range they were projecting about 40,000 of these per month. And so, at the end of 2002 is when they were going to launch. And so, they were expecting a launch volumes of 40,000 units per month. That's like iPhone numbers. Remember when the iPhone first came out. Those were the kind of numbers that they were expecting to have. But what happened? I mean, I know lots of people with iPhones, I know very, very few people with a Segway. Well, let's look at the timeline. The iBot, remember the iBot, was the self balancing wheel chair which Dean Kamen had developed for Johnson & Johnson, in 1999. the Ginger Prototype was developed in 2000, went on to get the Venture Capital of financing. 2001 was this, the IT. The IT was leaked. There was a media explosion and interest in this thing. the Segway was finally launched on Good Morning America in, in mid 2001. And 2002, the first 100 units were delivered. They were given to some, for trial uses in some commercial setting that people are using there. And on 2003, somewhere between 3,000 300 and 1,000, 300 and 1,000 were developed and were given to advanced consumers, like people have ordered these via Amazon.com. Amazon.com was new thing then, also. This was not that long ago. Then, as the thing became available, so then the question was, would people buy it? here is the kind of typical market study survey that you might use, you know, if the, you know, if the, if the Segway cost this much and had this properties, would you be likely to buy one? I showed this to my students at my class all the time, I say, hey, fellow, this thing out, what I normally get is probably about 60 or 70% click that box, and that's a little problematic. And then, the rest of them click that box. Maybe one or two brave souls will say I may or may not. no one says they probably would. no one says they definitely would because if they definitely would, they would certainly would buy one one. And this is at a price of 29 95 which is a small lot, smaller than an actual Segway ended up costing. And so, even at this lower price, people are unwilling to buy it and knowing everything, they do know about a Segway. So, the question is why not, why are they not buying it? Like, what happened that caused people to say, you know what, that's neat, I don't need it, I don't want it? Right? So, this is the kind of in, in innovation failure that we want to be able to understand because if we were Dean Kamen, we'd love to do some analysis ahead of time, to be able to avoid the situation that he ended up being in. So, why wasn't his dream fulfilled, you know, what kind of constraints were overlooked? You know, this is my proposition, this is about constraints. And so, I wanted to show you how to analyze this case using the constraints model to understand, what was overlooked and how it is that you wanted to do in the same place. So, to do the constraints analysis for the Segway, the question we want to answer is, what are the critical, critical strengths? What are the critical ones? Are there several, are there one, like how do we think this through? So, what I want us to do is sort of step through each of the constraint types. I'm sure we can go ahead and give you the punch line, this is the answer, this is the thing we're going to find. and say that there are some classic constraint failures. These are the kind of classic constraints that you'll see. at the individual level, there was a reliance on prior success. Group level, there was no process, there was a problem with problem definition. With the organization level they had market strategy. When we talk about strategy, strategy was uninspired, that was problematic. they weren't concerned with substitution. the diffusion rate was problematic. That they didn't understand how it was going to diffuse. there were adverse. societal attitudes to the thing. regulation stepped in also. And even from a technical perspective. There were cost and complimentary infrastructure problems. There were no infrastructure there forth. So, let's step through these and take a look closely and, and let me just bring you through this kind of analysis on this case. So, from an individual constraints, pers, perspective, we talked about perception, intellection and expression in these three constraints. Well, take a look at this. So, if you see, Dean Kamen, is talking about himself and how he say, you know, I would have to always take my reputation on this. Well, what reputation does he have? Dean Kamen was successful, actually one of the things that he invented, as a young person, was in the fusion pump. And so, the fusion pump to have people carry a pump with them for diabetes that would, that would infuse glucose things like that. I'm not sure exactly how that works, but that, that was one of his early inventions, and he was successful in that. He also made the iBot, the iBot which was a self balancing wheelchair. So, it seems like what ended up happening is that his prior success led him to think that he was going to solve this problem in the same way. Problems he had solved, problems in the path, the way it solve the problem in the past worked. Here's another problem, I'll just solve it in the same way. And so, the things that drove him before, the ways that he had thought about it, the solving, problem solving strategies he used, worked before. So, certainly they should work now. I think the answer is that they actually did not work the same way. There's some important differences. The group constraint level, we talked about emotion, culture, environment and process as being the kinds of constraints. And so, what happened in the case? One problem for groups is how you define the problem. So, say you have an idea, but then how do you actually have other people help you and work on that problem? You know, what problem were they solving? Were they solving the problem of like, the efficiency of mail carriers and how do we make mail carriers more efficient? Maybe it was, you know, how do we extend the range and mobility of police officers, that could be, could be another way of looking at it. Or was it how to provide fun transportation experience for people, you know, how do we make things fun. In some ways, these could have been the kind of problems they were trying to solve. What it looked like though, was much more of what can we do with a two wheeled, dynamically stabilized mobility technology. And so, he'd done the iBot, and so for some reason the group thought, we have to make this iBot thing work. Not really understanding what the need for it was. So, the problem definition was very problematic. Remember when we saw the video of the group brainstorming and the, the role in the group about the printer, and we said, basically the problem definition really matters a great deal when you put group together to do this. And so, it seems like somehow that they did not nail this down and as a result they suffered from it. The group process. And in some ways they started here, where the purple arrow is, right? Sort of in the middle there, they tried to jump the learning curve and say, oh, we already know this stuff, from the beginning we know what it's all about, we know what it's for. And they try to jump to that place and they just really never made it out of there. And so, by jumping a learning curve, they didn't understand enough about the market. They didn't understand enough about how they we're defining the problem, as a way to solve it. So, they didn't really know what problem that Sagway was solving. You know, it was to make a world a better place. And to displace cars, but how. And at what level. Emotional constraints. And those who read that case, think about what was going on in that meeting. That particular meeting where just Steve,Jobs, Steven Jobs Bezos was there Jeff Bezos the guy from Climber Perkins Dean Kamen, the CEO, the guy who was the, the chief marketing person. What was going on there? Name calling, posturing people trying to save face, criticizing, people not listening, people interrupting, etcetera, etcetera. It sounded terrible. Really sounded like, you know a heinous meeting. It's no surprise that no good decisions came out of that. That just seemed like it was not a information processing session. It was all about emotion and not about information. Remember, we talked about that as a group constraint, a very problematic one. And if that meeting was any indication of what had gone on before, what went on subsequent to that meeting, clearly there's some problem that there was not getting action out of this group. And even the person who is working for Dean Kamen seem to be reluctant to challenge him. That is to say, you know what, I don't think this is going to work. We're talking about the devil's advocate and roles like that. It seems also that Dean Kamen was not willing to step up and protect his people as well. And so, this idea of a psychological safety, a safe place for people to, to discuss what the issues are was not present. And so, the kind of a group constraints we saw, emotion constraint and process constraints as well. Next, we could take the organizational constraints analysis or the business school. We'll talk about strategy, structure and resources, and what happened there. Well, the organization that was put together was working on these kind of problems. These are all important problems. However, we saw lots of money in time and I think it was over $50 million spent between 2000 and 2001, on these issues here, the technical performance, the production capacity, getting up to speed, right? because they're going to sell a ton of these, so they need production capacity. You know, legality, patents staffing the organization. And much less time and probably much less money spent on, you know, where are people going to ride it? Which market is this, are we after? You know, what's the price point? What's a meaningful price point? You know, how much demand are we actually going to have? Not worry about production, but worry about demand, and what are the benefits? How do we sell this thing to people to say your life will be better if you use this thing. And so, here, we have an organization that's set up to solve the one kind of problem, not the other kind of problem. It's probably overstaffed with engineers, a lot of technical types, lots of people who are in operations, in manufacturing, and places like that, and very, and lawyers, and very few people in this area of marketing. And of user analysis, and of understanding and, and of, of, you know, understanding what transportation's really about for people. Also, from a strategic perspective, you can look at it this way. You can say, well, you know, they're trying to change things. I think this is a useful chart, a useful way to look at innovation. So, on the, on the horizontal axis here, it's about the technology. And so, if you're in the far corner down there, it is it's an existing technology that you currently use. Then, you might use existing technology that you, that you you don't currently use. It is a technology that exist, but you don't use it. And then, we have new technology on this side. things that are brand new. And in the vertical axis, we have existing markets that we already serve. Markets that exist, but we don't serve. And then, brand new markets. And so, as you look at this, where would you put the Segway? Where do you think the Segway lies? Which of these, these squares, which of these nine squares, where would you place the Segway? Well, here's one place to think about it, is that new market and new technology or is it here? You know, where it's, it's it's a new market, but the technology is, exist was this the iBot again or, you know, where is this thing? And I think some confusion that they had about which kind of product this was and what was the new technology, what is the new market, the confusion about that is something that got in the way of innovation, that got in the way of them being clear, being strategically aligned with what is it we're trying to do together. Let's talk about organizational strategy constraints further. So, there's two possible strategies that they might have undertaken. in the one project, like swinging for the fence, let's just go big, go hard. if, if it's super important, we think there's some time pressure and some competitor pressure. Let's just make it happen and let's go big and let's go fast. The next one is contingent action, action, where we assume that we have time, that we can actually segment the needs and market and understand and work our way into it. It's really is just kind of a an incremental step. And we may get to a place where we just have to kill the project or we understand that. We have to wait and acquire, that we just let it go through. Basically, this is a slow second mover, wait, wait until that it works, if they, if there's an emerging technology, just buy them up. This may be a way that you think of Microsoft when they buy small companies, or Google when they buy small companies to, to basically, to, to put on, to hook onto their big mothership. They don't do the innovation, but they allow others do the innovation. And then, purchase them. And then, we have the second strong second mover. And that's where people are watching carefully. They are watching early entrance as they succeed or fail. And as soon as they see an opening, they move into the market or as soon as they see it dive, they pull out of the market. And they're just very attentive to the market. So, these are some possible strategies. So, which of these do you think would you say that Segway was using? Well, one way to think about this is, in this quadrant is this way. At the top is things that where there's, let's call it a high opportunity cost of delay, it is waiting, it is costly. If there's some kind of problem that if you wait too long, then you'll get you won't succeed because of that. And then, down below are the ones that have a low opportunity cost of waiting. That is that there's not, it's not super competitive. There's not a time there's not a rush. And the vertical axis is where uncertainty is high and its going to stay high for some time. And in the other axis over here is where uncertainty can be, basically can be reduced over time. And one thing is we can reduce uncertainly, actually by willfully that, we, we,we can do it on purpose. We can do, there are things we can do to drive down uncertainty. So, it looks like in the red up here is where Segway thought they were. That they thought it was a high opportunity cost of delay, but they had to hurry that if they waited to long, it was all going to be over. What, what do you think drove that? It's interesting to me because there were no competitors and any rush they were in seemed to be brought in from the inside. They were rushing themselves, but there was no one outside who is saying, hey, hurry up, hurry up. Or was there? Maybe the Venture Capitalist, in their short time horizon said, you know, they're expecting a return. They've given this company so much money, more company that they ever given any company before, as my understanding. And so, they said, you know, we need to see that money come back quickly. And so, they created this artificial high opportunity cost of delay. That in fact, they had more time, they could have done more things and more, more thinking and more thoughtful exploration. But they perceived that there was not time for that. Normally, it's, it's calendar things, like getting a product out before Christmas or getting, getting a product out before a big gift giving holiday. That might be a real window of opportunity cost. If the walls are about to change, that may create an opportunity cost. If there's a competitor in there, working really hard to unseat you, that may create a competitive opportunity cost. But generally, you know, Venture Capitalist should not necessarily do that if its not good for the business. And then, we have on the blue circles where they might have been. This is a place where if there's low opportunity cost of delay, where you can actually buy down risk. So, in other words, if something is risky and if I do a market study, I can bring down the risk a little bit. So, remember the, the marketing thing I showed you that my it had to do with my students. And everyone marks the, you know, definitely will not buy. Well, that's a study you can do early on and begin to probe in and understand why is it that people believe that they won't buy it and what can I do to change a product, in order to get them to buy it? And I want to do this early in the process because I don't want to change it after I already designed it and I've already made it. And it could be that, in fact, what's happened is this, you know, constraint that is people not wanting to buy their product as it is, that Dean Kamen and the crew, they did not want to, they didn't want to hear that. They didn't want to understand it. So, the best way to insulate yourself from that information is that the people don't like your innovation is to not do the market study. So, the kind of constraints we saw, a business strategy constraints, organizational structure constraints. They had the resources, they had the money. And a few weeks ago when we talked about resource and the true cost of capital, you have to understand that, that money comes with covenants. That money come, comes with something attached. In this case, it was the urge or the need to push forward, to push forward, to push forward, when in fact, there was not really an external need to rush through the project, through the development process.
