Transcript Teradyne’s Aurora Project Solving The Innovator’s Dilemma

Teradyne’s Aurora Project
Solving The Innovator’s Dilemma
Sailu Challapalli, Michael Chu, Annie Kuo,
Emily Liu, Arundhati Singh, Erick Tseng
Roadmap

Background

Teradyne



The Innovator’s Dilemma






Motivation & Background
Organization
CMOS
Windows NT
The Aurora Project
Analysis of Aurora
Extending the Aurora Methodology
Conclusion
Thesis


The Aurora Project solved the
Innovator’s Dilemma
However, the Aurora methodology is not
a guaranteed solution to the Innovator’s
Dilemma
Sources

Key interviews






Harvard Business School



Alex d’Arbeloff, CEO and Chairman
Marc Levine, Product Group Manager
Hap Walker, Group Engineering Manager
Tom Newman, VP Corporate Relations
Gordon Saksena, ICD Engineer
Video interviews
Case studies
Bedford plant trip
Introduction: Teradyne






Founded in 1960 by MIT alumni Alex
d’Arbeloff and Nick DeWolf
Headquartered in downtown Boston
Industry leader for Automatic Test
Equipment (ATE) for semiconductor
manufacturing
Annual sales of $1.8 billion
8,000+ employees worldwide
Also a market leader in software,
telephone, and PC Board testing
Teradyne’s Organization
Alex d’Arbeloff
Chairman and CEO
James Prestridge
Vice Chairman
Owen Robbins
Vice Chairman and CFO
George Chamillard
President and COO
Logic Test
(VLSI)
Finance and Control
Sales and Service
Memory Test
Mixed Signal
(ICD)
Integra Test
(Aurora)
Alex d’Arbeloff


Chairman and CEO
of Teradyne
Heterogeneous
Engineer




Vision
Networking
Business acumen
History of
experimentation
The “Innovator’s Dilemma”


Established firms follow
a technology trajectory
in accordance with
customer demands
These firms are not
mobile enough to
respond to emerging
disruptive technologies
Technology Trajectories
Disruptive Technology
Sustaining Technology
Time or Engineering Effort
Key Components of
Innovator’s Dilemma
Innovator’s Dilemma
Sustaining Technologies:
Disruptive Technologies:
Barriers to Innovation:
Value Network:
Teradyne
Bipolar
UNIX
CMOS
NT
Industry veteran
Customer-driven
High-end ATE
Disruptive Technology

Characteristics





Cheaper and smaller
Initially worse performance
Higher trajectory slope
Gains initial foothold in low end markets
Potentially Disruptive Technologies in
Semiconductor ATE


CMOS
Windows NT
ATE Hardware:
CMOS As Disruptive Technology

CMOS vs. Bipolar ECL






Lower speed
Lower accuracy
Higher level of integration
Less power consumption
Simpler design
Industry trend toward CMOS
ATE Software:
NT As Disruptive Technology

Windows NT vs. UNIX




Traditionally less powerful workstations
Not compatible with customers’ installed
UNIX base
Reduced software development time and
cost due to OLE/COM
Industry trend towards Windows
The Rise of CMOS and
Windows NT
CMOS, Windows NT
Bipolar, UNIX
Time or Engineering Effort
Key low end niche market was microcontrollers
Roadmap


Background
The Aurora Project







Motivations and Goals
Implementation
Results
Solving the Innovator’s Dilemma
Analysis of Aurora
Extending the Aurora Methodology
Conclusion
Market Environment

Highly cyclical Semiconductor Testing
Industry
1986
1990
1993
1995
Aurora Project: Motivations

Emergence of new technologies:



CMOS as predominant semiconductor technology
Windows NT as operating system
Competitors developing new technologies

Credence
“It was clear that our industry was recovering very
quickly, and at that point I was looking beyond
what we were doing to see what the holes were”
– Alex d’Arbeloff
Aurora Project



Investigate CMOS and Windows NT
Produce smaller, cheaper testers
Target new customers in low-end ATE
market

Microcontrollers


Small market share
Trade-off accuracy for cost
Aurora Project:
Implementation Challenges

Teradyne as an immobile firm




Large
Established
Customer-driven
Public company
Key Leaders

Marc Levine appointed
general manager



Experienced software
engineering manager in ICD
Total Quality Management
(TQM) manager
Hap Walker

Background in hardware,
software, and tester design
Aurora Project

Created as small division




Separate facilities in Bedford, MA
Separate budget
Internal hires and new recruits
“Start-up” culture


Quick development
Reported directly to board of directors
The New Look and Feel...
vs.
J973 VLSI Tester
J750 INTEGRA Tester
J750: A Technical Success


Reduced costs by 25%
“Zero footprint system”



Elimination of bulky
mainframe and
interconnection cabling
95% parallel test
efficiency for up to 32
devices
J750 IG-XL test
software uses Windows
NT
A Financial Success


Total orders valued over $200M in
less than 2 years
Fastest product ramp in Teradyne
history
1995
1998
1999
2000
Solving the Innovator’s
Dilemma
Innovator’s Dilemma
Aurora Project
Identification of Disruptive
Technologies:
CMOS
NT
Selecting Suitable Markets:
Microcontrollers
Dependence on Customers:
New market chosen
Constraints Imposed By a
Large Corporation:
Creation of
autonomous division
“Start-up” culture
Roadmap



Background
The Aurora Project
Analysis of Aurora



Sources of Internal Resistance
Extending the Aurora Methodology
Conclusion
Sources of Internal Resistance




Emigration of Talent
Customer Satisfaction
Technical Feasibility
Previous Instances of Failure
Emigration of Talent

Open mobility across divisions



Gambling the firm’s best engineers on a risky
venture


Entrepreneurial
Empowers employees
Failure would waste valuable resources
Managers fear loss of talent to the Project

Jeopardizing the firm’s core business
Customer Satisfaction:
Lack of Customer Interest

Testing business is very customer-driven



Based on long, well-developed relationships
Teradyne must be very responsive to customer
needs
Very little customer interest in Aurora


Most customers required greater accuracy
Customers preferred familiar technology

Avoid wasting resources retraining technicians
Customer Satisfaction:
“The Customer is Always Right”


Teradyne managers felt obliged to listen to
customer needs and recommendations
Managers did not want to devote resources
to undesired technology
“These projects are big bets. So you bet the division
every time you do one of these things… The problem
is that your customers lock you in.”
– Ed Rogas, Vice President of Logic Test Division
Technical Feasibility

Doubts about meeting device specifications



Device Speed
Device Accuracy
Software Compatibility


Backward compatibility with previous product line
Compatibility with other Integra test products
Past Failures:
History of Experimentation

Alex d’Arbeloff has a history of suggesting
new technologies to the firm




Kinetrix
J401 Tester
Many past projects were unsuccessful
Many of these projects were also met with
internal resistance but then initiated with
d’Arbeloff’s backing
Roadmap




Background
The Aurora Project
Analysis of Aurora
Extending the Aurora Methodology


Past Failures
Conclusion
Aurora’s Extensibility
Is the Aurora methodology a formula for
solving the Innovator’s Dilemma…
1) Within Teradyne?
2) In any other company?
Past Failures: Kinetrix

Foray into Semiconductor Handling Business


Technology was not developed with
customers in mind


Populated by 12 companies with no economies of
scale to step forward
Collaborated with MIT mechanical engineers
Customers did not find the device familiar
Past Failures: J401 Tester

Project Goals



85% cheaper than existing testers
Easier to program
Implementation



D’Arbeloff set up a new facility three blocks away
from Boston headquarters
Tom Newman hired internally to lead initiative
Startup culture
Past Failures: J401 Tester

Results

Successfully met product specifications



Product was 75% cheaper
Programming interface was extremely userfriendly
No market adoption



Still too expensive for new intended market
No “correlation in test”
Sold only 24 testers in first two years
(compare to Aurora’s sales of 350)
J401 Tester:
A Direct Correlation to Aurora

Both projects were…





Extremely ambitious
Met with similar internal resistance
Initiated thanks to Alex d’Arbeloff’s
persistence and backing
Set up as startup ventures
Technically successful
Roadmap





Background
The Aurora Project
Analysis of Aurora
Extending the Aurora Methodology
Conclusion
Conclusion

The Aurora Project did solve Christensen’s
Innovator’s Dilemma



Overcame hurdles that are typical of large,
established firms
Established a new product trajectory
Technology was successfully reintegrated back
into the firm
Conclusion (continued)

Teradyne has not developed a formula for
success

Too many uncontrollable forces




Market conditions
Technical feasibility
Company culture
The Alex d’Arbeloff Factor
“It may be that you need a CEO like Alex d’Arbeloff as part of the
formula [for solving the Innovator’s Dilemma]. He’s a very bright, very
persistent person and he understood entrepreneurial startups.”
– Marc Levine, Aurora Project Manger
Closing Remarks
“Discovering markets for emerging technologies
inherently involves failure, and most individual decision
makers find it very difficult to risk backing a project
that might fail because the market is not there.”
– Clayton Christensen, The Innovator’s Dilemma
“One must always be prepared for failure. Failure does
not result in professional death. Instead, we must
wrap failures back into the firm.”
– Tom Newman, J401 Project Manager
Questions
Teradyne’s Aurora Project:
Solving the Innovator’s Dilemma