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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.