Competitive Technology and Business Strategy

1. Competitive Technology and Business Strategy Models: technology-push, market-pull and strategy-pull Models: base/key/emerging technology Models: stable, flexible and turbulent tehcnology

2. Technology and Business Strategy • Technology strategy is harmonized with business and corporate strategy; • Tehnology strategy defines the continuous process of generating, evaluating and assessment, selection and choice of technological options; • It identifies the Strategic Technological Area of a firm based on external and internal factors analysis

3. Strategic profiles of firms: 1. Firms engaged in strategic planning.The ultimate goal is the development of competitive strengths within a given corporate business portfolio. 2. Firms with strong financial control.The ultimate goal is to achieve highest possible results in terms of financial indicators. 3. Firms with clear strategic control. A combination of competitive and financial ambitions meaning investments in strategically sound and progitable businesses.

4. Factors influencing Business Strategy Consumer needs Consumer groups Alternative technologies

5. Two general business/technology strategies: 1. Reactive strategy:when firms respond to consumer needs and actions of competitors, and 2. Proactive strategy:when firms enforce change in the environment by anticipating the needs of consumers. There are many subdivisions and more detailed presentations of strategy.

6. Reactive strategy Strategic options: Responsive Imitative/Fast follower Late entrant Defensive

7. Responsive strategyis oriented at quick response of a firm to the explicite needs of consumers by products/services provided. Involves focus on product/service innovation. • Imitative strategy/Fast follower is oriented at quick response to the action of competitors who have introduced newproduct/service by copying, imitating its output. • (3) Late entrantis a strategy base on imitation with effort to further develop/innovate of the competitors` products and services. • (4) Defensive strategyis again an answer to the action of competitors with efforts focused at innovating own products/service as response to their new output.

8. Proactive strategy Strategic options: R&D based Entrepreneurial strategy Purchasing strategy Marketing strategy

9. (1) R&D based (Internal development)oriented at intramural R&D with innovation offensively introduced with pioneer strategy in market penetration. (2) Entrepreneurial strategyoriented at introducing innovation with high risk, new on the market innovation but not necessarily new to the world. (3) Purchasing strategy, focused at buying new technology product/service and process already developed involving smaller risk, its a pure strategfy of horizontal technology transfer with different options (equipment purchasing, licencing, joint ventures, etc). (4) Marketing strategy oriented at high involvement of strategic marketing initiatives at aggresive product/service innovation.

10. Creation of new knowledge Technology development- dominated by universities and dominated by organisations large science-based organisations Consumers express their needs and wants through the consumption of products Needs of Science and Technological the market technology base developments Conceptual framework

11. Tehnological strategy - models • Technology-push • Market pull • Strategy pull

12. 1. Technology pushbased on classical approaches postulating the primary role of R&D in the process of technological innovation in firms. R&D Production Marketing Market need

13. 2. Market Pulldeveloped with the rising sense of the significance of customers and market needs R&D Production Market need Marketing Is it necessary to question market need at the end of the cycle? Why yes or why no?

14. 3. Strategy Pullfocused at strategy and strategic management mission, goals Strategy R&D Production Marketing Market need Strategy (corporate, business, technology) derived from strategic analysis (external OT and internal SW)

15. Technology strategy – options: • Exploitation of existing technology – no change in technology; • 2. Innovation of existing technology (internal/ext. sources - incremental innovation) • 3. Technology substitution (external/internal sources); • 4.Radically new technology and competence (radical innovation – external and/or internal sources).

16. Incremental (evolutive) vs. Radical (disruptive) Innovation

17. Why disruptive innovations are hard to market? • Fear, uncertainty & doubt (FUD) • No established solutions • No existing infrastructure to support • High risk buying decision Source: G. Moore, 1993

18. Technology adoption life cycle Source: G. Moore, 1993

19. High Tech Marketing model Source: G. Moore, 1993

20. 3 phases of High Tech Marketing Source: G. Moore, 1993

21. User needs understanding… • “There is no reason anyone would want a computer in their home.” Ken Olson, president, chairman and founder of Digital Equipment Corp., 1977 • This 'telephone' has too many shortcomings to be seriously considered as a means of communication. The device is inherently of no value to us. Western Union internal memo, 1876.

22. Alignment with current market Market creation Commercializing technology & user needs (1) Need know: new solution Need anticipated: new solution Need uncertain: solution evolves Need know: improved solution Source: D. Leonard-Barton, 1994

23. Alignment with current market Market creation Uncertainty & Risk Low High Commercializing technology & user needs (2) Difficulty of communicating product concept Low High Source: D. Leonard-Barton, 1994

24. Traditional Market Research Market intuition Emphatic design Lead users Living with customers Users as developers,Customers as partners Industry Experts, Trend exploration Scenarios of future Surveys, Focus groups Commercializing technology & user needs (3) Market creation Alignment with current market Source: D. Leonard-Barton, 1994

25. Great ideas vs great products (1) Source: Fortune, 2000

26. Great ideas vs great products (2) Source: Fortune, 2000

27. Complementary Innovation and Assets

28. Complementary assets • Innovation consists of some technical knowledge • Knowledge & know how are partly codified, partly tacit • Commercialization of innovation requires the know-how to be utilized in conjunction with other capabilities or assets: • new drug: dissemination of information to doctors, pharmacy… • new computer hardware – operating systems & application software • distribution, service… Source: Teece, 1986

29. Complementary assets Source: Teece, 1986

30. Standards • Networked environment • products made by various companies must be compatible to be of value to the customers • Trains • Faxes • Surfing on the Internet • Supporting a standard with a new product may be risky… • all based on wide acceptance of the standard • may wait to reduce risk  fast-follower strategy

31. Standards and Innovation Commercialization

32. Standards • Diffusion of a product designed to a particular standard is often contingent upon the availability of complementary products – VHS vs Beta • Example: 56K modems • different standards first adopted by Rockwell & 3 Com • Wait & see attitudes of software suppliers, suppliers of complementary goods, modems purchasers  sales suffered • more collaborative attitude later,  common standards

33. Standards • In some industries, different standards can co-exist and share the market: • TV: NTSC, PAL, SECAM • Electrical standards: North America; !10 V, Europe: 220 V • Railroad gauges in Europe • Digital wireless in USA: TDMA, CDMA & GSM • Implications: product development & manufacturing more complex and costly – lack of economies of scale

34. Standards & High-tech markets (1) • Sharing of the marketplace is NOT the norm for standards in those markets • Competition between standards will often lead to a situation where the winner “takes all” • Wintel vs Mac • “Network effects” & positive feedback for high-tech products

35. Standards & High-tech markets (2) • Example: fax machine • Valueless by itself • 2 fax machines communicating with each other have value • Value increases according to Metcalfe’s law: • Value of the network grows at the square of the number of participants in the network • As use of a particular standard increases, products based on that standard can communicate with more products based on the same standard…

36. Standard wars • Internet browsers: • Microsoft & Netscape • Audio & Video software on Internet: • Microsoft & RealNetworks • Rewritable DVD: • DVD-R: 230 companies including Apple, AOL/Time Warner, Hitachi, LG, Matsushita, Pioneer… • DVD+R: Dell, HP, MCC/Verbatim, Philips, Ricoh, Sony, Thomson & Yamaha

37. Rival technology Compatible Incompatible Rival Evolutions Evolution versus Revolution Compatible Your technology Revolution versus Evolution Rival Revolutions Incompatible Types of standard wars Source: Shapiro, Varian, CMR 1999

38. De facto standard advantage (1) • The company who has control on the de facto standard is generally pushed into a dominant competitive advantage, i.e.“gorilla” • Competitive advantage is expressed in 4 dimensions: • getting more customers • keeping more customers • driving costs down • keeping profits up

39. De facto standard advantage (2) • Getting more customers • top company attracts most attention: better press coverage, better shelf space, more interest form customers • attracts new customers • has ability to sell more than competitors  reinforces its position • Ex: PC software developers have to be Microsoft Windows compatible

40. De facto standard advantage (3) • Keeping more customers • Barriers to entry are high - competitors need to match offer from “gorilla” • Switching costs – high practical & financial costs for customers to switch to another product • driving costs down • keeping profits up

41. De facto standard advantage (4) • Driving costs down • Gorilla has often advantages linked to economies of scale • Can also control the element in the Value Chain that adds most value with low cost – core competency

42. De facto standard advantage (5) • Keeping profits up • Gorilla’s products often viewed as bringing more value as a whole (products + services fulfilling customer needs). Companies supplying complementary products put first their resources behind a product complementing the market leader • More and better products come out in support of the gorilla’s offer…

43. Standards in the computer industry 1999-2000 Source: Technoweb

44. Standards – key things to remember • Control over installed base of users • Intellectual property rights • Ability to innovate • First-mover advantage • Manufacturing capabilities • Strengths in complements • Brand name & reputation

45. Technology Portfolio

46. Technology Portfolio • The list of technologies that are available in the firm • Not necessarily the technology that are in exploitation • Technologies that the firm are entitled to use (developed within the firm or acquired/purchased by different modes of horizontal technology transfer) • Technology portfolio management – at the core of corporate strategy (multi/single-business; focused/diversified-related/unrelated)

47. STRATEGIC TECHNOLOGY DIMENSIONS:(Arthur D. Little model): • Base technology – mostly present in the core operations of the firm, generating the biggest part of revenue, but competitive capacity declining, not decisive; • 2) Key technology-strongest competitive force, rising percent in revenue, perspective of becoming base; • 3) Emerging technology- tecnology in early stages, marginally contributing to revenue, still being developed with the prospect of becoming key.

48. Comparison of Technology Porfolio of two firms in relation to Technology Life Cycle (TLC) Sales Firm A Time Firm B

49. Technology portfolio Competitive potential Significant Medium Weak Low Medium High Degree of competence

50. Technology portfolio structure It is necessary to ,,nurture”, maintain and enhance the tehnology portfolio, similar to gardens : Old trees are to be cut and the garden should be kept with gardening, watering, and new trees to be planted. For firms it is the necessity to reconsider the content of the technology portfolio in relation to the basic business character of base, key and emerging technologies.