Fraunhofer IAO, Germany Developing Integrated Business and Technology Strategies

1. Fraunhofer IAO, Germany Developing Integrated Business and Technology Strategies NITM International Seminar Series A series of Seminars for Executives & Managers NITM, Dublin, September 17th, 2003 Frank Wagner & Flavius Sturm Fraunhofer Institute for Industrial Engineering

2. Agenda • Introduction • Strategic Management for SMEs “Navigating in Turbulent Times” • Business and Technology Strategies • Portfolio, Balanced Scorecards and other Tools • How Scenarios and Roadmaps can help (Cases) • Business and Technology Scouting

3. Linking Business & Technology Integrated Strategy Development Examples

4. Linking Business & Technology

5. Strategic Management framework: Business & Technology Strategy Network Strategy Corporate Strategy Business Strategy / Technology Strategy

6. Prod/Serv 1 Prod/Serv 2 Prod/Serv 3 Prod/Serv 4 business business 1 2 Core product 2 Core product 1 - - Core Core Core competence 3 competence 2 competence 1 Business & Technology – From core competences to products

7. What are Technologies? Technologies: Bundling of scientific-technical and application-oriented knowledge in respect to possible problem solutions. Technologies therefore represent a specific knowledge base for potential products and processes Source: Peiffer, 1992, p.36 • Product Technologies • - are incorporated in products and become part of them. • Process Technologies • are used to develop, produce, or market products • support the achievement of the company goals • - are not incorporated in products and do not become part of them

8. There are different kinds of Technology • Pacing Technologies • Technologies that have the potential to change the entire basis of competition but have not yet been embodied in a product or process. • These technologies often develop into key technologies • Key Technologies • Technologies that are most critical to competitive success because they offer the opportunity for meaningful process or product differentiation • These technologies yield competitive advantage • Base Technologies • Technologies that, although necessary and essential to practice well, offer little potential for competitive advantage • These technologies are typically widespread and shared Source: Roussel, Saad, Erickson; Third Generation R&D; 1991

9. Parameter Options Performance Technology Leader Technological Presence Timing Pioneer Early Follower Late Follower Technology Source Obtain Licences Contract Research Acquisition Technology Utilisation Self-Utilisation Issue Licences Technology selling Field of Application Used Technology Unused Technology New Technology Strategic Dimensions of Technology Management (Source: Brodbeck, 1999)

10. Pay for licenses External Procurement Buy Components Buy Technology Buy Patent Sources of Technology Acquire a business Joint Research, Joint Venture Internal R&D Contract Research Sources of Technology (Source: Brodbeck, 1999)

11. Utilisation of Technology Licence to other Industry Licence to competitor External Licence to supplier/customer Shared utilisation in alliances Utilisation of Technologies Shared utilisation in Joint-Venture Sell patent Internal Sell technology Launch Spin-off business (Source: Specht, 1996)

12. Limit of new technology Limit of old technology Technology performance potential New technology R&D-effort = Status at the point of time when a change of technology is considered Problem with Technologies: Substitution potential (Double-S-Curve) Capacity of technology (benfit/costs) Old technology cumulated R&D-effort Source: Krubasik (1982)

13. The problem: Disruptive Technologies Disruptive Technological Innovation Performance demanded at the high end of the market Product Perfromance Performance demanded at the low end of the market Progress due to sustaining technologies Progress due to sustaining technologies Time Very few companies are able to retain dominance in the Fortune 500 (Neely, 1998). These companies introduce sustainable innovations and continually improve their products and processes, but they get caught unaware by newcomers who have introduced disruptive innovations, capturing and transforming traditional markets (Christensen, 1997) 03

14. Examples of disruptive technologies • Digital photography has eroded the profits and viability of companies like Polaroid and Kodak. • Digital video recorders (DVRs) — which require no tape medium, allow ads to be skipped, and allow TV shows to be transmitted via the Internet — threaten the business models of pay-for-view TV programming. 05

15. The problem with disruptions: cause for a new business cycle- Business Cycles traditional and disruptive Source: Cosier & Hughes, 2001

16. Metaphor for understanding Technology Development - Cambrian Explosion (Exploration vs. Exploitation) “In the Cambrian period, some 500 million years ago, a burst of biological creativity took place. Over a relatively brief period of time, a vast diversity of fundamentally different life forms appeared. The way in which technology evolves is strikingly similar to the Cambrian explosion. Diverse forms branch out bushily at the beginning, then the rate of branching declines, extinction sets in, and, like today's phyla, only a few major alternative forms persist at the end”. Source: Kaufmann, 1995

17. Product/Technology Lifecycles Potential / Age Current Situation Searching for innovative technologies, searching for new growth opportunities! ? Time Why the Need for an Integrated Business & Technology Strategy?Technology Lifecycles and Growth opportunities • For a good business & technology strategy it is crucial to identify the current maturity level of the technologies applied.

18. Why the Need for an Integrated Business & Technology Strategy?Classical Business Strategy Options Classical Options for Business Development: Ansoff‘s Classic Matrix Existing Product New Product ExistingMarket Market Penetration Product Development NewMarket Market Development Diversification Source: Ansoff, ...

19. Why the Need for an Integrated Business & Technology Strategy?Dealing with disruptive new technologies Ansoff‘s EXTENDED Matrix – for Technology Intensive Environments Existing Product New Product Product New Technology ExistingMarket Market Penetration Product Development Technological Product Substitution High Technology NewMarket Market Development Diversification Source: ...

20. Why the Need for an Integrated Business & Technology Strategy?New Issues in Technology-Intensive Contexts • Even without technological innovation in an expanding market customers will enter the market place without product knowledge • The company must not only learn about the new customer but also educate the customer about the product • The less the customer knows about the product the more difficult the task is for the marketer. • The customer is often not only unfamiliar with the product but also with its underlying technology. • The company will have to educate the customer about the technology before the customer can be shown the benefits of the new product

21. Integrated Business & Technology StrategyLinking emerging needs with emerging technologies Needs emerging Future business potential Current business potential existing Technologies emerging existing Source: CCSO, 1998

22. Linking emerging needs with emerging technologies - Example Source: Day et al., 2001

23. Disruptive Innovation – Ofita Spanish Market Leader in Office Furniture GENIUS - THE INTELLIGENT PLATFORM – disrupting the office furniture market concept of platform, basing the product on adaptability, easy and simple transformations of the work stations, always using the same parts 05

24. Disruptive Innovation – Networked Home Appliances – Smart Kitchen New technologies disrupting business models New pricing strategy New customer segments New strategic alliances New value proposition New competitors

25. Linking Business & Technology Integrated Strategy Development

26. Market Pull Markets & Applications • Segment A.1 • Segment A.2 Market A • Segment B.1 • Segment B.2 • Etc. etc. Market Market B ... Market ... Technology Push Integrated Business & Technology Strategy - considerations Up to now new technology investment decisions have not been linked sufficiently with future market demand and the customer needs Solution Functionalities and Performance Criteria Product & Process Technologies Base Technologies Cost Efficiency Technology Performance Quality ... Necessitiy to actively search for technological synergies between different applications

27. Strategy Development: Strategic Analysis for integrated Technology and Market Planning Business Analysis Innovation Analysis Technology Analysis Search field Generation SWOT- Analysis SWOT - Analysis SWOT- Analysis Business- portfolio Innovation Portfolio Technology Portfolio Business List Technology List Business Strategy Technology Strategy Innovation Strategy Formulation of Strategic Programm for Business Units Formulation of Strategic Programm for Technology Development Units Source: Bürgel et al., 1996

28. Strategy Development: Technology Portfolio Development for the Evaluation of Alternative Solutions (Example) • Potential for further development • Extend of technological • Further development • performance increase Indicators on potential Investment Attractivity of Technology Selection Compatibility positive or negative influences on already used technologies Pulllback Indicators on requirements Strength of resources • Broadness of application • Dispersion of technical • further development • fields of application Strength ofKnow-How Financial strength State of Know-How Stability of Know-Hows Budget Continuity of budgets Speed of action Speed to market compared to competition Technical qualitative degree of mastery Quality (economic+techn.) of own solution compared to competition Potentials Further development potentials in personnel, financial and legal resources Source: Pfeiffer et al., 1991

29. Integrated Business & Technology Strategy Development PROCESS External Analysis Competitors Stakeholders Customers Scenario Development Gap Analysis & Options Development Internal Analysis Scenario I Chances & Risks Project Portfolios Environ-ment Markets Business Today Scenario II External Technology Roadmaps Internal Technology Roadmaps x x x Customers x x Competitors - Technologies- Markets- Products- Competencies Technology Delphi Study Scenario III Make & Buy Technology Portfolios Technology Assessment Technology Strategy Society Continuous Technology Scouting Process

30. Integrated Business & Technology Strategy - Typical RESULTS (1/2) . . Assessment of current markets, products, competencies and technologies Scenariosfor the future of the business context Strategic Gaps and Options for business development

31. Integrated Business & Technology Strategy - Typical RESULTS (2/2) Technologieauswahl T1 T2 T3 T4 Kriterien Szenario- feld Portfolio GFK Szenario Absatz Kosten Werkstoffe Summe Energieverbrauch / Globalität Innovation Concept projects / Strategic Technology Roadmaps for promising technology fields A robust and integrated Technology & Business Strategy Continuous Technology Scouting Process and instrumentation

32. Linking Business & Technology Integrated Strategy Development Examples

33. Technology Orientation: Assessing new technologies • Changing Environment • customers demand lighter and smaller devices • reduced available space for components • weight reduction of parts and modules • convergence of technologies •  Micro- and Nanotechnology as future technology in automation (EXAMPLE) • Evaluation criteria • available and necessary competences of the company • Integration of different disciplines • Activities of competitors • Maturity of technology • Substitution of technology • Necessary R&D-Budget • Time to market Market potential Pneumatic handling of micro parts New production technologies New services Medical-technology as new market Holistic evaluation of innovation opportunities and risks

34. Market demands lighter, smaller and integrated devices and parts Trend towards Micro Technologies Indirect impact on pneumatics Direct impact on pneumatics • Pneumatics can be used for new applications  micro actuators in medicine technology •  micro-fluidic subsystems with pneumatic drives for biotech and gene analysis applications • New valves and drives can be developed using new production technologies • part sizes in the automobile industry have drastically decreased • engineering industry demands small autonomous subsystems • tool machines demand higher precision •  new handling devices are needed •  standard pneumatics can not be used for these applications Investment in Micro-Technologies will:  open great potential new markets  avoid the risk of loosing important markets High market potential Impact of changing environment on pneumatics

35.  Medium Technology attractivity • high market potential • early state in technology lifecycle • medium to high ‘time to market’ • high acceptance of Micro Technology • overall enhancement of competitive position high Strong Investment medium low low medium high Technology position of the company  High • medium relevant R&D competencies • few activities of the competitors • high R&D budget available • technological leader on the market Integrated Technology Strategy in Micro Technologies

36. Strategy Orientation: Bridging the gaps between today and the future Scenarios = pictures for the Siemens-operation areas Influencing factors Strategic vision individual Automation & control Day-to-day business • Retropolate from • Scenarios: • New markets • New customer requirements • New technologies • New business possibilites society • Extrapolate via roadmaps • Products • Technologies • Customer • requirements Information & communications policy economy Lighting environment Medical customers Power technology Transportation competition Today short-term medium term long-term Source: Austrian Research Center, 2002

37. Project a Project f high Project e Project d Project c Project h medium Potential Profit Project b Project g low 25 50 75 100 Probability of Success (%) Portfolio Management: Market Attractiveness/Probability of Success Project costs 1 Mio $

38. Portfolio Management: Market/Technology Project Portfolio Project g Project a totallynew Project h Market Project d new for Project e Project f Project b Project c known for known for new for totally new Project costs 1 Mio $ Technology