CLASS 2 a Technology Strategy

8/9/2019 CLASS 2 a Technology Strategy

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Technology-based Industries &

the Management of Innovation

Competitive advantage in technology-intensiveIndustries

Appropriating the returns to innovation

Strategies to exploit innovation Alternative approaches Timing: to lead or to follow? Managing risk

Competing for standards

Implementing technology strategy The conditions for creativity

From invention to innovation

OUTLINE


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The Development of Technology: FromKnowledge Generation to Diffusion

BasicKnowledge

Invention Innovation Diffusion

IMITATION

ADOPTION

Supply side

Demand side


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The Development of Technology: Lags BetweenKnowledge Generation and Commercialization

BASIC FIRST PRODUCT IMITATION

KNOWLEDGE PATENTS LAUNCHXerography late 19th and 1940 1958 1974

early 20thcenturies

Jet Engines 17th-- early 1930 1957 195920th centuries

Fuzzy logic 1960s 1981 1987 1988controllers


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Appropriation of Value:- How are theBenefits from Innovation Distributed?

Customers

Suppliers

Imitators andother

followers

Innovator


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The Profitability of Innovation

Legal protectionComplementaryresources

Imitability of the

technologyLead time

Profitsfrom

Innovation

Value of theinnovation

Innovatorsability to

appropriate thevalue of theinnovation


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Complementary Resources

Bargaining power of owners of complementaryresources depends upon whether complementaryresources are g eneric or specialized .

Manufacturing Distribution

Service

Complementarytechnologies

Other Other

Marketing

FinanceCore

technologicalknow-how


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Lead Time

If rivals can imitate-- time lag is the major

advantage of the innovator.But maintaining lead-time advantage requirescontinuous innovationLead time is reinforced by learning effects


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U.S. Managers Perceptions of the Effectiveness of

Different Mechanisms for Protecting Innovation

P rocesses P roductsPatents to prevent duplication 3.52 4.33

Patents to secure royalty income 3.31 3.75Secrecy 4.31 3.57Lead time 5.11 5.41Moving quickly down the learning 5.02 5.09curve

Sales or service efforts 4.55 5.59

1 = not at all effective 7 = very effective

Source : Levin, Klevorick, Nelson & Winter. Brookin g s P apers on Economic Activity , 1987.


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Risk &Return

Competing

Resources

Examples

LicensingOutsourcing

certainfunctions

StrategicAlliance

JointVenture

InternalCommercialization

Small risk, butlimited returnsalso (unlesspatent positionvery strong

Limits

investment, butdependence onsuppliers &partners

Benefits of

flexibility;risks of informalstructure

Shares

investment &risk. Risk of partner conflict &culture clash

Biggest risks &

benefits.Allows completecontrol

Few Allows outsideresources &

capabilitiesTo be accessed

Permits pooling of theresources/capabilities of

more than one firm

Substantial

resourcerequirements

Konicalicensing itsdigitalcamera toHP

Pixars movies (e.g.Toy Story)marketed &distributed byDisney.

Apple andSharp buildtheNewtonPDA

Microsoftand NBCformedMSNBC

TIsdevelopment of Digital SignalProcessingChips

Alternative Strategies for Exploiting Innovation


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The Comparative Success of Leaders andFollowers

PRODUCT INNOVATOR FOLLOWER WINNERJet Airliners De Havilland (Comet) Boeing (707) Follower Float glass Pilkington Corning Leader X-Ray Scanner EMI General Electric Follower Office P.C. Xerox IBM Follower VCRs Ampex/Sony Matsushita Follower Diet Cola R.C. Cola Coca Cola Follower Instant Cameras Polaroid Kodak Leader Pocket Calculator Bowmar Texas Instruments Follower Microwave Oven Raytheon Samsung Follower

Plain Paper Copiers Xerox Canon Not clear Fiber Optic Cable Corning many companies Leader Video Games Players Atari Nintendo//Sony FollowersDisposable Diapers Proctor & Gamble Kimberly-Clark Leader Web browser Netscape Microsoft Follower PDA Psion, Apple Palm Follower MP3 music players Diamond Multimedia Sony (&others) Followers


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The Strategic Management of Technology:-To Lead or to Follow

K ey considerations :Is innovation appropriable and protectable against

imitation?If so, advantages in leadership.

The role of complementary resourcesFollowers may be able to avoid investing incomplementary resources due to better-established industry infrastructureFirms possessing complementary resourceshave the luxury of waiting

Is owning/ controlling industry standard critical tocompetitive advantage?

if so, advantage in being a leader.


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Uncertainty & Risk Management in Tech-based Industries

Sources of uncertainty

Technologicaluncertainty

Selection process for standards anddominant designs emerge is complexand difficult to predict, e.g. future of 3G

Customer acceptance and adoption ratesof innovations notoriously difficult topredict, e.g. PC, Xerox copier, Walkman

Marketuncertainty

Strategies for managing risk

Cooperating with lead usersearly identification of customer requirements

assistance in new product development

Flexibilitykeep options openuse speed of response to adapt

quickly to new information

learn from mistakes

Limiting risk exposureavoid major capital commitments

(e.g. lease dont buy)outsourcealliances to access other firms

resources & capabilitieskeep debt low


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The Emergence of Standards

Emergence of a dominant design paradigm Model T in autos IBM 360 in mainframes Douglas DC3 in passenger aircraft

Emergence of technical standards Emerge in industries where there are network

extremitiesEntrenchment of the dominant designs and technicalstandards

Learning effects: incremental improvement of thedominant design

Switching costs Need for coordinated action by multiple players


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Sources of Network Externalities

User linkages, e.g. Telephone systemsonly value of telephone is connection to

other users Video game consolessame platform allows users to

exchange games and play interactively On-line auctionvalue of auction depends on number of

buyers and sellers participatingAlso, social identification listening to same music, watching

same TV shows, wearing same clothes in order to conform

Availability of complementary products, e.g. Most PC applications software written for Windows, not Mac. In economy autos, easier to get parts and repair for a Ford

Focus than for a Maruti or Proton

Economizing on switching costs, e.g. In suites of office software, users of Microsoft Office more

likely to avoid switching costs that users of Lotus SmartSuitewhen they move jobs


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Companies that Own Technical Standards

COMPANY PRODUCT CATEGORY STANDARDMicrosoft/Intel PC operating systems Wintel (Windows

OS & Intel *86 series

processorsMatsushita Videocassette recorders VHS systemIomega High capacity PC disk drives Zip drivesIntuit Software for on-line financial

transactions QuickenRockwell/ 3Com 56K modems V90

Dolby Laboratories Sound processing systems Dolby sound reductionQualcomm Digital wireless telecom signals CDMAAdobe Systems Common file format for creating

and viewing documents Acrobat


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Fighting Standards Wars

1. Determine the potential for standards emergenceanalyze network externalities2. Building a bandwagonenlist partners (requires licensing

& sharing returns from the technology)3. Pre-empting the marketBuild user base quickly: May

require sharing benefits with consumers (penetrationpricing)

4. Manage expectations (the Microsoft advantage)

Wh at if youre a loser? (a) ensure compatibility (b) go for niche

How can t h e winner sustainin g t h e standard? --Dont fall behind on technology--Ensure backward compatibility--Meet threat of disruptive technology by offeringcustomers a migration path

--Reinforce standard with other resourcese.g. brand


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The Conditions for Creativity:Operating and Innovating Organizations

O peratin g O r g anization Innovatin g O r g anization

Structure Bureaucratic. Specialization anddivision of labor. Hierarchicalcontrol

Flat organization withouthierarchical control. Task-orientedproject teams.

P rocesses Operating units controlled andcoordinated by top managementwhich undertakes strategicplanning, capital allocation andoperational planning.

Processes directed towardgeneration, selection, funding anddevelopment of ideas. Strategicplanning flexible, financial andoperating controls loose.

Reward

Systems

Financial compensation, promotionup the hierarchy, power and statussymbols.

Autonomy, recognition, equityparticipation in new ventures

P eople Recruitment and selection basedupon the needs of the organizationstructure for specific skills:

functional and staff specialists,general managers, and operatives.

Key need is for idea generatorswhich combine required technicalknowledge with creative

personality traits. Managers mustact as sponsors and orchestrators.


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Strategy Implementation:

Invention to Innovation

While invention depends upon creativity, successfulinnovation requires integrating new knowledge withmultiple business functions.Need to link R&D departments with other functions (theproblem of Xeroxs PARC)The role of cross-functional new product developmentteams as vehicles for integrationThe role of product champions--in achieving integrationand counteracting organizational inertia.

Documents

CLASS 2 a Technology Strategy