Strategic Management/ Business Policy Power Point Set #7: Technology Strategy.
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Transcript of Strategic Management/ Business Policy Power Point Set #7: Technology Strategy.
The Development of Technology: From Knowledge Generation to Diffusion
The Development of Technology: From Knowledge Generation to Diffusion
Basic Knowledge
Invention Innovation Diffusion
IMITATION
ADOPTION
Supply side
Demand side
The Development of Technology: Lags Between Knowledge Generation and Commercialization
The Development of Technology: Lags Between Knowledge Generation and Commercialization
BASIC FIRST PRODUCT IMITATIONKNOWLEDGE PATENTS LAUNCH
Xerography late 19th and 1940 1958 1974
early 20th centuries
Jet Engines 17th-- early 1930 1957 1959
20th centuries
Fuzzy logic 1960’s 1981 1987 1988
controllers
Appropriation of Value:- How are the Benefits from Innovation Distributed?
Appropriation of Value:- How are the Benefits from Innovation Distributed?
Customers
Suppliers
Imitators and other
“followers”
Innovator
The Profitability of InnovationThe Profitability of Innovation
• Legal protection
• Complementary resources
• Imitability of the technology
•Lead time
Profits from
Innovation
Value of the innovation
Innovator’s ability to
appropriate the value of the innovation
Legal Protection of Intellectual PropertyLegal Protection of Intellectual Property
• Patents —exclusive rights to a new product, process, substance or design.
• Copyrights —exclusive rights to artistic, dramatic, and musical works.
• Trademarks — exclusive rights to words, symbols or other marks to distinguish goods and services; trademarks areregistered with the Patent Office.
• Trade Secrets — protection of chemical formulae,
recipes, and industrial processes.
Also, private contracts between firms and between a firm and itsiemployees can restrict the transfer of technology and know how.
Complementary ResourcesComplementary Resources
Bargaining power of owners of complementary resources depends upon whether complementary resources are generic or specialized.
Manufacturing Distribution
Service
Complementarytechnologies
OtherOther
Marketing
FinanceCore
technological know-how
U.S. Managers’ Perceptions of the Effectiveness of Different Mechanisms for Protecting Innovation
U.S. Managers’ Perceptions of the Effectiveness of Different Mechanisms for Protecting Innovation
Processes Products
Patents to prevent duplication 3.52 4.33
Patents to secure royalty income 3.31 3.75
Secrecy 4.31 3.57Lead time 5.11 5.41
Moving 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. Brookings Papers on Economic Activity, 1987.
The Technology Transfer Process
Research Disclosure IP Decision
IP Protection
Commercialization Strategy Licensing
$29.5
billion
6,375 patent
applications
13,039
disclosures
4,362 licenses
454 new companies3,764 issued
patents
Source: AUTM
Licensing Survey:
FY 2000
Risk & Return
CompetingResources
Examples
LicensingOutsourcing
certain functions
Strategic Alliance
Joint Venture
Internal Commercialization
Small risk, but limited returns also (unless patent position very strong
Limits investment, but dependence on suppliers & partners
Benefits of flexibility; risks of informal structure
Shares investment & risk. Risk of partner conflict & culture clash
Biggest risks & benefits. Allows complete control
Few Allows outside resources & capabilitiesTo be accessed
Permits pooling of the resources/capabilities of more than one firm
Substantial resource requirements
Konica licensing its digital camera to HP
Pixar’s movies (e.g. “Toy Story”) marketed & distributed by Disney.
Apple and Sharp build the “Newton” PDA
Microsoft and NBC formed MSNBC
TI’sdevelopment of Digital Signal Processing Chips
Alternative Strategies for Exploiting InnovationAlternative Strategies for Exploiting Innovation
The Comparative Success of Leaders and Followers
The Comparative Success of Leaders and Followers
PRODUCT INNOVATOR FOLLOWER WINNER
Jet 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/Sega/Sony Followers
Disposable Diapers Proctor & Gamble Kimberly-Clark Leader
Web browser Netscape Microsoft Follower
PDA Psion, Apple Palm Follower
MP3 music players Diamond Multimedia Sony (&others) Followers
Uncertainty & Risk Management in Tech-based IndustriesUncertainty & Risk Management in Tech-based Industries
Sources ofuncertainty
Technologicaluncertainty
Selection process for standards and dominant designs emerge is complex and diifficult to predict, e.g. future of 3G
Customer acceptance and adoption ratesof innovations notoriously difficult topredict, e.g. PC, Xerox copier, Walkman
Marketuncertainty
Strategies formanaging risk
Cooperating with lead usersearly identification of customer requirements
–assistance in new product development
Flexibilility—keep options open—use speed of response to adapt
quickly to new information—learn from mistakes
Limiting risk exposure—avoid major capital commitments
(e.g. lease don’t buy)—outsource—alliances to access other firms’
resources & capabilities—keep debt low
The Emergence of StandardsThe 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 extremities
• Entrenchment of the dominant designs and technical standards
– Learning effects: incremental improvement of the dominant design
– Switching costs
– Need for coordinated action by multiple players
Sources of Network ExternalitiesSources of Network Externalities
• User linkages, e.g. – Telephone systems—only value of telephone is connection to
other users– Video game consoles—same platform allows users to
exchange games and play interactively– On-line auction—value 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
Companies that Own Technical StandardsCompanies that Own Technical Standards
COMPANY PRODUCT CATEGORY STANDARD
Microsoft PC operating systems Windows
Intel PC microprocessors *86 series
Matsushita Videocassette recorders VHS system
Iomega High capacity PC disk drives Zip drives
Intuit Software for on-line financial transactions Quicken
AMR Computerized airline reservations system Sabre
Rockwell/ 3Com 56K modems V90
Qualcomm Digital wireless telecom signals CDMA
Adobe Systems Common file format for creatingand viewing documents Acrobat
Competing for Standards:Value Appropriation vs. Market Acceptance
Competing for Standards:Value Appropriation vs. Market Acceptance
Maximize value
appropriation
Maximize market
acceptance
LOOSE TIGHT
VHS
IBM-PC Mac
Betamax
The Conditions for Creativity:“Operating” and “Innovating” Organizations
The Conditions for Creativity:“Operating” and “Innovating” Organizations
Operating Organization Innovating Organization
Structure Bureaucratic. Specialization and division of labor. Hierarchical control
Flat organization without hierarchical control. Task-oriented project teams.
Processes Operating units controlled and coordinated by top management which undertakes strategic planning, capital allocation and operational planning.
Processes directed toward generation, selection, funding and development of ideas. Strategic planning flexible, financial and operating controls loose.
Reward
Systems
Financial compensation, promotion up the hierarchy, power and status symbols.
Autonomy, recognition, equity participation in new ventures
People Recruitment and selection based upon the needs of the organization structure for specific skills: functional and staff specialists, general managers, and operatives.
Key need is for idea generators which combine required technical knowledge with creative personality traits. Managers must act as sponsors and orchestrators.
Strategy Implementation: Invention to Innovation
Strategy Implementation: Invention to Innovation
• While invention depends upon creativity, successful innovation requires integrating new knowledge with multiple business functions.
• Need to link R&D departments with other functions (the problem of Xerox’s PARC)
• The role of cross-functional new product development teams as vehicles for integration
• The role of product champions--in achieving integration and counteracting organizational inertia.
Radical Innovation
Architectural Innovation
Modular Innovation
Incremental Innovation
Reinforced OverturnedCore Concepts
Unchanged
Changed
Lin
kage
be
twe
en c
ore
co
nce
pts
a
nd
co
mp
onen
tsEXHIBIT 1 A Framework for Defining Innovation p. 450
Absorptive Capacity and a Firm’s Technical Knowledge
Absorptive capacity Technical knowledge
Spillovers of competitors’ knowledge,Extra-industry knowledge
Internal R&D
Adapted from: Cohen and Levinthal, 1990
OmahaTelemarketingHotel ReservationsCredit Card Processing
Wisconsin / Iowa / IllinoisAgricultural Equipment
DetroitAuto Equipmentand Parts
RochesterImaging Equipment
Western MassachusettsPolymers
BostonMutual FundsMedical DevicesMgmt. ConsultingBiotechnologySoftware and NetworkingVenture CapitalHartfordInsurance
ProvidenceJewelryMarine Equipment
New York CityFinancial ServicesAdvertisingPublishingMultimedia
Pennsylvania / New JerseyPharmaceuticals
North CarolinaHousehold FurnitureSynthetic FibersHosiery
Dalton, GeorgiaCarpets
South FloridaHealth Technology Computers
Nashville / LouisvilleHospital Management
Baton Rouge / New OrleansSpecialty Foods
Southeast Texas / LouisianaChemicals
DallasReal Estate Development
WichitaLight AircraftFarm Equipment
Los Angeles AreaDefense AerospaceEntertainment
Silicon ValleyMicroelectronicsBiotechnologyVenture Capital
Cleveland / LouisvillePaints & Coatings
PittsburghAdvanced MaterialsEnergy
West MichiganOffice and Institutional Furniture
MichiganClocks
San DiegoGolf EquipmentBiotech/Pharma
MinneapolisCardio-vascularEquipmentand Services
Warsaw, IndianaOrthopedic Devices
ColoradoComputer Integrated Systems / ProgrammingEngineering ServicesMining / Oil and Gas Exploration
Las VegasAmusement / CasinosSmall Airlines
OregonElectrical Measuring EquipmentWoodworking EquipmentLogging / Lumber Supplies
SeattleAircraft Equipment and DesignSoftwareCoffee Retailers
BoiseInformation TechFarm Machinery
Geographical Distribution of Clusters
Source: Adapted from Professor Michael E. Porter, Harvard Business School