Micro-economics of Innovation III

1. Micro-economics of Innovation III Design and Implementation of Technology Strategy Burgelman and Rosenbloom (1989)

2. Technology Strategy 1 • What distinctive technological competences and capabilities are necessary to establish and maintain competitive advantage? • Which technologies should be used to implement core product design concepts and how should these technologies be embodied in products? • What should be the investment level in technology development? • How should various technologies be sourced – internally or externally? • When and how should new technologies be introduced to the market? • How should technology and innovation be organized and managed? Source: Burgleman and Rosenbloom (1989)

3. Technology Strategy 2 Technological capabilities, Technology strategy and Experience – interact with one another. Exhibit 1 shows the linkages among technical competencies and capabilities, technology strategy, and experience. Technology strategy is a function of the quantity and quality of technical capabilities and competencies. Experience obtained from enacting technology strategy feeds back to technical capabilities and technology strategy (Burgleman and Rosenbloom, 1989).

4. Technological Competence & Capability 1 • Overtime organizations develop distinctive competences that are closely associated with their ability to cope with environmental demands. • These distinctive competences are the combines workplace (technological) and organizational knowledge and skills that together are most salient in determining the ability of an organization to survive. • In general a firm’s distinctive competence involves the differentiated skills, complementary assets, and routines used to create sustainable competitive advantage. • Distinctive competences can some times become a ‘competence trap’ or ‘core rigidity’.

5. Technological Competence & Capability 2 • The collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies, is defined as ‘core competencies’. • Core competence emphasizes technological and production expertise at specific points along the value chain, whereas capabilities are more broadly based, encompassing the entire value chain. • Capability is a set of business processes that are strategically understood. The key is to connect them to real customer needs. • Technological competences and capabilities are complementary concepts and value chain analysis is useful for examination of their relationship.

6. Substance of Technology Strategy • Technology strategy can be discussed in terms of four dimensions: • 1) the deployment of technology in the firm’s product-market strategy to position itself in terms of differentiation (perceived value or quality) and delivered cost and to gain technology-based competitive advantage; • 2) the use of technology, more broadly, in the various activities comprised by the firm’s value chain; • 3) the firm’s resource commitment to various areas of technology; and • 4) the firm’s use of organization design and management techniques to manage the technology function.

7. Technology Strategy Substance • 1) Competitive Strategy Stance: • Technology Choice; Technology Leadership; Technology Entry Timing; Technology Licensing. • 2) Value Chain Stance: • Scope of Technology Strategy. • 3)Resource Commitment Stance: • Depth of Technology Strategy. • 4) Management Stance: • Organizational Fit.

8. Competitive Strategy Stance 1 • From a competitive strategy point of view, technology can be used defensively to sustain achieved advantage in product differentiation or cost. • On the other hand, technology strategy can be used offensively as an instrument to create new advantage in established lines of business or to develop new products and markets.

9. Competitive Strategy Stance 2 • Technology Choice: • The distinction between design concepts and their physical implementation and the distinction between components and architecture in product design and development are useful to establish a framework for technology choice. • For example, a room fan is a system for moving air in a room. Its major components include the blade, the motor that drives it, the blade guard, the control system, and the mechanical housing. • A component is defined as ‘a physically distinct portion of the product that embodies a core design concept and performs a well-defined function.

10. Competitive Strategy Stance 3 • Technology Choice: • Core design concepts correspond to the various functions that the product design needs to embody so that manufactured product will be able to serve the purposes of its user (e.g. the need for fan to move corresponds to a core design concept). • Core design concepts can be implemented in various ways to become components (e.g. the movement of the fan could be achieved through manual or electrical power). • Each of these implementations, in turn, refers to an underlying technological knowledge base (e.g. an electrical fan would require knowledge of electrical and mechanical engineering).

11. Competitive Strategy Stance 3 • Technology Choice: • Each of the core concepts of a product entails technology choices. • In addition to components, a product also has an architecture that determines how its components fit and work together. DD makes the architecture stable. • Technology choices require careful assessment of technical as well as market factors and identify an array of targets for technology development. • The relative irreversibility of investments in technology makes technology choice and targets for development an especially salient dimension of the TS.

12. Competitive Strategy Stance 4 • Technology Leadership: • Often refers to timing (relative to rivals) of commercial use of new technology (product-market) strategy. • A broader definition views technological leadership in terms of relative advantage in the command of a body of technological competencies and capabilities. • Leadership results from commitment to ‘pioneering’ role in the development of a technology rather than a more passive ‘monitoring’ role. • Technology leaders, thus, have the capacity to be first movers but may choose not to do so.

13. Competitive Strategy Stance 5 • Technology Leadership: • A firm’s competitive advantage is more likely to arise from the unique aspects of its TS than from characteristics it shares with others. • The capabilities-based strategies of such firms cannot easily be classified simply in terms of differentiation or cost leadership; they combine both. • Thinking strategically about technology means raising the question of how a particular technical competence or capability may affect a firm’s future degrees of freedom and its control over its fate. • This involves identifying and tracking key technical parameters, considering the impact on speed and flexibility of product and process development as technologies move through their life cycles.

14. Competitive Strategy Stance 6 • Technology Licensing: • Companies may not be able to fully exploit their technologies by themselves alone: • 1) Not all technologies generated by a firm’s R&D fit into its lines of business and corporate strategy. • 2) Firms may consider licensing their technologies to maximize returns on R&D investments, as patent periods are limited. Licensing is a useful tool to prevent competitors from coming up with alternative technologies. • 3) Smaller firms may lack resources and complementary assets. • 4) Local government regulations may require licensing to local firms. • 5) Anti-trust legislation requirements. • Technology-rich companies should therefore consider developing a special capability for marketing their technologies beyond embodiment in their own products.

15. Value Chain Stance • Technology pervades the whole value chain rather than just in products and services and so its competitive use in all the value chain activities is important. • TS in relation to the value chain defines its scope – the set of technological capabilities that the firm decides to develop internally (core vs. peripheral). Peripheral now may become core later. • Broader set of core technologies places a firm in a better position in relation to its competitors. But, resources need to be used efficiently. • It is important to limit the scope of TS to the set of technologies considered by the firm to have a material impact on its competitive advantage. • Keep entry of new technologies in mind.

16. Resource Commitment Stance • The third dimension of TS concerns the intensity of its resource commitment to technology. • Resource commitments determine the depth of the firm’s TS: its strength within the various core technologies, expressed in terms of the number of technological options that the firm has available. • Depth of is likely to be correlated with the firm’s capacity to anticipate technology developments in particular areas early on. • Greater depth may provide increased flexibility and ability to respond to new demands from curomers/users.

17. Management Stance • TS encompasses a management stance: the choice of a management approach and organization design that are consistent with the stances taken on the other substantive dimensions. • Firms that can organize themselves to meet the organizational requirements flowing from their competitive, value chain and resource commitment stances are more likely to have an effective TS. • Example: Central R&D (for science-based technology leader) vs. decentralized R&D to major businesses (exploiting existing technologies).

18. Evolutionary Forces Shaping TS 1 • An evolutionary process perspective raises the question of how a firm’s TS actually comes about and changes over time. • Evolutionary theory applied to social systems focuses on variation-selection-retention mechanisms for explaining dynamic behavior over time. • TS is shaped by the ‘generative forces’ of the firm’s ‘strategic action’ and the ‘evolution of technology’ and by the ‘integrative or selective forces’ of the firm’s ‘organizational context’ and the ‘industry context’.

19. Technology Evolution • A firm’s technical capabilities are affected in significant ways by the evolution of the broader areas of technology of which they are part and that evolve largely independently of the firm: • 1) evolution of technologies along S-curve trajectories; • 2) interplay between product and process technology development within design configurations over the course of a particular technological trajectory; • 3) emergence of new technologies and their trajectories (S-curves); • 4) competence-enhancing or –destroying consequences of new technologies; • 5) dematurity: renewed technological innovation in the context of well-established markets, high production volumes, and well-established organizational arrangements; and • 6) organizational determinants of technological change.

20. Industry Context • 1) the industry structure and its major forces (Porter’s diamond), all of which can be affected by technology and visa versa; • 2) the appropriability regime associated with a technological innovation; • 3) the complementary assets needed to commercialize a new technology; • 4) emergence of dominant designs; • 5) increasing returns to adoption for particular technologies; • 6) emergence of industry standards; • 7) social system aspects of industry development; • 8) competitive effects of interplay of social systems characteristics and technological change. • These various factor and their interplays affect the likely distribution of profits generated by a technological innovation among the different parties involved as well as the strategic choices of the optimal boundaries of the innovating firm.

21. Strategic Action 1 • A firm’s strategy captures organizational learning about the basis of its past and current success. • Strategic action is largely induced by prevailing strategy. • Induced strategic action is likely to manifest a degree of inertia relative to the cumulative changes in the external environment. • Established firms when confronted with the threat of radically new technologies, are likely to increase their efforts to improve existing technology rather than switching to new technology. • Inertial forces associated with a firm’s distinctive competence impede adaptation to changes in the basis of competition as a product moves from specialty to commodity.

22. Strategic Action 2 • Firms also exhibit some amount of ‘autonomous strategic action’ aimed at getting the firm into new areas of business. • These initiatives are often rooted in technology development efforts. For example, in the course of their work technical people may serendipitously discover results that provide the basis for redirection or replacement of major technologies of the firm. • The existence of a corporate R&D capability often provides a ground for the emergence of such new technical possibilities that extend beyond the scope of the firm’s corporate strategy.

23. Organizational Context 1 • Industry context exerts strong external selection pressures on the incumbent firms and their strategies. • Organizational context allows firms (to some extent) to substitute internal for external selection. Organizational context serves as an internal selection environment. • It affects the capacity of the firm to deal with challenges: • 1) the ability to exploit opportunities associated with the current strategy (induced process); • 2) the ability to take advantage of opportunities that emerge spontaneously outside the scope of the current strategy (autonomous process; • 3) the ability to balance challenges 1 & 2 at different times in the firm’s development.

24. Organizational Context 2 • Organizational context takes shape over time and reflects the administrative approaches and dominant culture of the firm. • Product architecture becomes reflected in organization structure and culture and greatly affects communication channels and filters. • This, in turn, makes it difficult for organizations to adapt to architectural innovations that change the way in which the components of a product are linked together but leave in tact the core design concepts.

25. Applying the Framework 1 • Disruptive technologies often emerge first in incumbent firms in their engagement in ‘autonomous strategic action’. • The existing ‘organizational context’, however, is usually not receptive to these initiatives. The existing sales force lacks interest and experience. • The existing customers also may show lack of interest in deviating from the existing dimensions of technology (trajectory). • Initially, the ‘industry context’ represented by existing customers and the ‘organizational context’ reinforce each other in resisting the new technology.

26. Applying the Framework 2 • In the face of organizational rejection, the initiators of the new technology leave the incumbent firm and start their own to pursue the technological opportunity. • The new firm will have to find new customers who are interested in the improvements offered by the new technology along different dimensions. • As new users adopt the technology, ‘technological evolution’ is likely to lead to improvements along the technology’s other dimensions (e.g. price/performance). • As a result, the new technology may become attractive to customers of the old technology. This may precipitate a major shift in the market (industry context) and propel new companies to prominence in the industry. • The performance of the old technology also continues to advance (technological evolution) but in ways that exceed performance levels valued by the old customers, thereby becoming irrelevant.

27. Experience Through Enactment • Experience is viewed in terms of actually performing the different tasks involved in carrying out the strategy. • Experience provides feedback concerning the quantity and quality of the firm’s technical competences and capabilities and the effectiveness of its strategy. • Enactment of several key tasks: 1) internal and external technology sourcing; 2) deploying technology in product and process development; and 3) using technology in technical support activities.

28. Technology Sourcing • Internal sourcing: Each firm’s TS finds partial expression in the way it funds, structures and directs the R&D activities, whose mission is to create new pathways for technology. • In-house R&D also determines the ‘absorptive capacity’ of the firm. • External sourcing: Many technologies used in the value chain are outside the capabilities of the firm. So, technologies need to be sourced externally through alliances or licensing. • Continuous concern with improvement in all aspects of value chain could guard the firm against quirky moves in external sourcing. • One requirement is a continuous concern for gaining as much learning as possible from the relationship in terms of capabilities and skills rather than being concerned solely with price.

29. Product and Process Development • The level of resources committed, the way they are deployed, and how they are directed in product and process development. • How does the organization strike a balance between letting technology drive product development and allowing product development and/or market development to drive technology? • Three potential benefits associated with product and process development: 1) market position; 2) resource utilization; and 3) organizational renewal and enhancement. Most firms fail to derive these benefits due to lack of a development strategy that integrates TS with product-market strategy.

30. Technical Spupport • The function, commonly known as ‘field service’, creates the interface between the firm’s technical function and the user of its products or services. • Experience in use provides important feedback to enhance the firm’s technological capabilities. • Expert knowledge from product developers can enhance the effectiveness of field operations, while feedback from the field informs future development. • Two-way flows of information are relevant.

31. Enactment & Substance of TS • Enactment reveals the substance of TS. • Exhibit 3 presents a framework for mapping the interactions among the components of substance and enactment in TS making. • Two aspects of TS:1) the substance of TS should be comprehensive. TS, as it is enacted through the various tasks of acquisition, development and technical support should address the four substantive dimensions and do so in ways that are consistent across the dimensions. • 2) TS should be integrated. Each of the key tasks should be informed by the positions taken on the four substantive dimensions in ways that create consistency across the various tasks.