Business Marketing Case Study

American Switching System

Group 1
Daman Bir Singh Deepak Bansal Anand Jaggi Gaurav Lingwal Tanuj Goyal

Group1, American Switching System

Contents
Environment background ....................................................................................................................... 2 Products Overview .............................................................................................................................. 2 Advantages and Disadvantages .............................................................................................................. 2 SWOT Analysis: ....................................................................................................................................... 4 Major Trends in Technology Products and Markets ............................................................................... 4 The Technology Portfolio ........................................................................................................................ 5 Evaluating the different Proposals.......................................................................................................... 6 General Considerations....................................................................................................................... 6 Criteria Weight .................................................................................................................................... 7 The Technological S-curve ...................................................................................................................... 7 Recommendations .................................................................................................................................. 8

Group1, American Switching System

Environment background
American Switching Systems is the fourth largest telephone-switching (PBX, Private Branch Exchange) manufacturer in the United States. The company started as manufacturer of radar control computers, but moved into private premise equipment after the end of the Vietnam War. The core business of the company are the small and medium size systems (less than 800 phones connected), together with strong networking of several system located at different sites. During the booming of the mid-eighties the company decided to develop and market a large-scale system supporting up to 5,000 extensions. However, since 1990, the company has faced a considerable reduction in profit (sales for $850 Mio in 1994) and growth (less than 5%) in both its activities. This situation has led to a 25% reduction of personnel, with 2% in the core department of engineering. Company has heavy investment in GSM (3G) base station, supported by its high-quality administration software for those systems. But return on investments is low. The embodied in it, requires 900X product

compatible infrastructure. But by the time 900X hit the market,

competitors have improved their base stations beyond 900X. So market share remains stable and small. Adding fuel to fire, industrialized has gradation was a big challenge. decided only new 3G networks and so major up

Products Overview
950FX large scale system; - ATM based switches; - New slide in the voicemail module; - 500X, 700X redesign; - 500X, 700X upgrade and extension; - 500X downsize (5-20 extension system for small business and households).

Advantages and Disadvantages

950FX large scale switching system consisting of 5 CPUs with parallel computing Possibility of market growth (new corporate headquarters, new biotech companies) High performance which would increase the market share Poor market growth (15%) 2

Group1, American Switching System Demand for moderate size switches with excellent networking Competition attack imitative

500X-700X Redesign is targeted to improve the remote diagnostic capabilities Focus on core business 8% cut of manufacturing cost Serviceability improvement Upgrade/extension as cheaper alternate defensive 500X-700X Upgrade/ Extension Upgrade/Extension is targeted to maintain competiveness Focus on core business Little risk and effort Serviceability improvement Redesign as alternative Defensive

500X downsize Market growth Too costly for small business market, if same hard disk and processor Niche ATM based switch Asynchronous Transfer Mode : packet switching protocol that allows easier and much faster switching of mixed voice and data traffic Prototypes by Northern Telecom and AT&T 7 years before the hit of the market Possibility to catch up High risk Risk of obsolescence if WAN and Internet-like packet routing protocols become strong

Group1, American Switching System

SWOT Analysis:
Strength:
Large Network of Systems Installed at Different Sites. Large Market Share on Small and Medium Systems. Adaptability and Flexibility to New Market Trends.

Weakness:
Slow Growth Since 1990 (<5%) Weakest on Large Size Systems. Lack of Serviceability. High Manufacturing Costs. Late and Out of Budget R&D Projects. Business and technology strategy coordination.

Opportunity:
New technologies knowledge: Asynchrononous Transfer Mode (ATM) Technology-WAN/Internet Technology Packet Routing Protocol new customers: Upgrade and Extend Small and Medium Size Systems and create Extension for Small Businesses and Households Competition on Small and Medium Size Systems To adopt 802.16 culminated with 2G to give mobility benefits.

Threat:
Major Trends in Technology Products and Markets which are fast changing and incurs large cost. Moreover development cost is huge and break even is dependent on heavy dependence on market.

Major Trends in Technology Products and Markets

The major technology trends in the mid 1990s were the ATM switch technology along with the WAN technology. As the following Cisco Systems news release extract from late 1993 describes: "As our customers plan their future internetworking requirements, it makes sense for Cisco to be able to provide all major components," said John Chambers, Cisco's senior vice president. "ATM switching will be another key component of the router-cluster architecture, along with the native ATM interface that we demonstrated at Interop '93 Fall." Cisco will begin offering ATM switching in mid-1994, inconjunction with the ATM Interface Processor for the Cisco 7000. Cisco will offer ATM switching as part of a complete router cluster solution for the campus or building core network.

Group1, American Switching System

The Technology Portfolio

By evaluating the technology portfolio, we should evaluate the following: - Annual R&D project cost (capacity demand) - R&D project cost to completion (overrun) - Probability of success - Technology maturity - Technological competitive strength - Project attractiveness - Competitive impact of the technologies

CAPACITY DEMAND FOR PROJECTS Person Years (PYs) Estimated by development 2006 2007 2008 2009 10 10 10 10 30 30 30 30 40 40 40 40 70 20 80 50 50 50 50 70 120 80 30 60 90 100 90 90 90 50 110 130 410 550 510 330 300 300 300 300

Project Field Support Small Releases Mfg and serviceability MW500/700 Redesign MW500L-Downgrade 900X Upgrade 950 FX 3G Antenna Redesign Streaming Server 802.16 Device Total Capacity

2010 10 30 20

80 140 300

2011 Total 10 60 30 180 180 90 180 100 300 250 270 20 390 60 1970 300 1800

Effort (Person Years)

400 300 200 100 0 Upgrade 500X Development 500X Development 700X Development 900X Effort (Person Years)

R&D project effort for completion (overrun) 5

Group1, American Switching System

Evaluating the different Proposals

General Considerations
To be able to choose which development American Switching Systems should undertake we first need to understand the companys innovation strategy. They seem to invest a lot in research and development, being the engineering department the core of the company, but they are quite defensive in their strategy. They do not wish to be the first in the world, but they are able to catchup and to learn from the first mover. In the past, they were able to modify their product portfolio to survive the fall in the demand of radar control after the end of the Vietnam War. The company was not scared by the change in their environment, but they were able to adapt their radar technology to accommodate the different features (callback, forwarding, conferencing and number recognition) needed for PBX switching. They improved the design of their first product (500X) by an upgrade and, when the market was booming, they chose to differentiate by scaling-up their switching systems. It is also important to understand and make the link between the technology portfolio and the business portfolio of the company. We see the small and medium size systems (500X and 700X) as the actual core business of the American Switching. These systems are still profitable, even if Mitel (one of the competitors) is eroding the market share. Moreover, these do not suffer of stability problems like the larger system 900X. During the development phase, they did not exploit as many resources like the 900X did. From this information it seems reasonable to conclude that the engineers at American Switching Systems are, at this time, more comfortable with the development of small medium size systems. Consequently, we think that American Switching Systems should focus their innovation on the small-medium systems. However, given their strong technical background, it is our belief that the company would be able to modify its defensive strategy into a niche strategy, by identifying a new opportunity in the changing market environment and providing a product with consumers value and reduced competition. We have identified this opportunity as the small 520 extension system for small business and households.

The arguments that support this idea can be found in the discussion Dull and Aleck had. Dull pointed out both the threat coming from a new technology on the horizon (ATM) and the opportunity coming from the growing demand of downsized system for small business and households. And, although Aleck pointed out that the ATM technology is already threatened by WAN technology and Internet-like packet routing protocol, he did not provided any insight about the current development of these technologies. It sounds extremely appealing the opportunity to successfully implement a promising technology (ATM) to a product with high customer value and high importance for the business. 6

Group1, American Switching System

Criteria Weight
Probability of technical success 3 Probability of commercial success 5 R&D cost to completion (overrun) (-) 3 Capacity demands (-) 2 Alignment with core business 4 Alignment with research strategy 4

The Technological S-curve

Concerning the technology maturity and the technological competitive strength, we can refer to technological S-Curve, which summarizes the diverse technological capabilities.

According to this framework, Pacing technologies are technologies in the early development stage with demonstrated potential for changing the basis of competition. We see switching using ATM as a superior pacing technology, since it could hit the market of the PBX switches within seven years and two industry giants like Northern Telecom and AT&T are already testing ATM prototypes. On the contrary, we see switching based on WAN/Internet as an inferior pacing technology, due to the high uncertainty about the feasibility of their technical development and implementation Key technologies are the ones that have the greatest impact on competitive performance. At the moment, the 500X downsize could represent a key technology, since it would exploit a portion of the market with almost no competition.

Base technologies are the pillars on which the company rest. They are essential, but no longer critical, since they are in the mature phase. The 500X and 700X switches is the base of American Switching Systems. The 900X and 950FX are also in the mature phase, but represent an inferior technology, considering its stability and competition problems.

From the S-curve it is possible to conclude that the small-medium business represents the key business of the company. However, the current PBX technology is on an inferior technology curve, due to the threat of ATM and WAN/Internet technologies.

American Switching Systems should, therefore, has choose a project portfolio that would allow them to exploit the possibilities in the small-medium business, extend as much as possible the mature phase of the base technology and develop the emerging, superior technology to assure a

Group1, American Switching System competitive advantage in the future, in this case the ATM based switch. This would allow them to maintain a good mix of products in their R&D portfolio.

Recommendations
Concerning the Voicemail slide-in Unit, since Octel, the current supplier of voicemails has demonstrated to be a reliable partner with a high valuable experience, so the American Switching Systems should simply try to reinforcing the compatibility of its switches with Octels voicemail and strengthen the partnership. This would allow American Switching Systems to provide a better perceived service to its customers, while avoiding introducing in its portfolio a project that deviates considerably from its core business.

American Switching should drive the majority of its innovation efforts to the creation of new platforms and the development of new processes with the superior technology and the most promising market growth

The company should also invest some effort in the improvement of the derivative projects related to its core business, in order to sustain the existing market relationships. Hence, American Switching should focus on the small-medium business, putting its technology effort in the 500X downsize and in the development of the ATM Switch, that would, in the medium run, start replacing the existing 500X/700X products.

In order to remain profitable in the period of time necessary to launch the first smallmedium switches supported by ATM technology, the company should try to increase as much as possible the serviceability of its core profitable products. In this sense, upgrading and extending the 500X and 700X switchers should be a priority and these projects should be complemented by all other projects intended to generally increase serviceability and reduce costs.

American Switching Systems should not engage in the development of the 950FX, which represents a mature inferior technology, in a business where the company has reduced growth possibility, strong competition and insufficient technology advantage. However, it would be dangerous to abandon the 900X product and leave this market segment completely unattended. Therefore, taken into account that upgrading the 900X would use many resources and the probability of technical success is fairly high and hence can sustain it should remain in our portfolio. 8