International Competitiveness and Innovation. Topic 04: Technology and Innovation Strategy

Transcription

1 International Competitiveness and Innovation Topic 04: Technology and Innovation Strategy

2 agenda seminar sessions outline S01 S02 S03 S04 S05 S06 S07 Topic 01: Introduction Topic 02: What is Innovation and Why does it Matter? Topic 03: Managing Capabilities in the Firm Topic 04: Design and Selection Technology Strategies Topic 05: Knowledge and Technology Sourcing Topic 06: Managing Collaborations and Alliances Topic 07: The Role of IPR in Protecting Innovations Topic 08: Open Innovation Topic 09: Sectoral Patterns of Innovations Topic 10: Nations and Innovation Capacity Topic 11: Public Policy for Promoting Innovation and Competitiveness Topic 12: Globalization of Research and Technology Topic 13: MNCs and their Global Research and Development Operations Topic 14: International Transfer of Knowledge and Technology

3 agenda Part the strategic context of innovation..... academic model business cycles Part 2... technological business strategy what is strategy? why should we care? elements of strategy models Part 3... influences levers sectors

4 part 1: static v. dynamic cycles neoclassical economic theory (revival of an earlier classical style) Decision rule of rational economic actors with full information in perfect markets is profit maximization linear/static theories of innovation Focus on innovation as a big bang. Firm decides to do something based on a formula and it does it. End of story. Incremental-Radical Dichotomy Abernathy-Clark Model Henderson-Clark model Christensen Disruptive technology model Strategic Leadership View

5 part 1: static v. dynamic cycles Abernathy-Clark model Market Capabilities Under what conditions might we expect to see incumbents equally or better positioned to innovate as new entrants? Technical capabilities Preserved Destroyed Preserved Destroyed Regular Niche Revolutionary Architectural

6 part 1: static v. dynamic cycles Dynamics of Process Innovation Rate of innovation Product innovation Process innovation Time Fluid Transitional Specific

7 part 1: static v. dynamic cycles how does technology evolve? Do we all understand the biology metaphor? Do we all understand complexity theory (sensitivity to initial conditions & dynamic increasing returns)? Continuity (demand pull, technology push & incremental innovation) versus Discontinuity (punctuated equilibrium with disruptive technologies and radical innovations)

8 part 1: static v. dynamic cycles trajectories define the cumulative/incremental playing environment of a technology during periods of continuity from industry to industry as knowledge/tech is diffused through the industry discussion threads What is a tipping point? Once technology has trajectorized, can it go back? Can you think of real-world trajectories? Is competition the same at all stages in the life cycle of a trajectory? Is it be beneficial to identify emerging trajectories? Can you identify any emerging trajectories? What are Dominant Designs and are they the best?

9 part 1: static v. dynamic cycles S curve representation of Industry Life Cycle discussion thread What are characteristics of the emerging stage of the Industrial Life Cycle? Performance How might you know that your biz is in a growth phase? When do dominant designs come in to play? Describe the shakeout phase Physical limit Aging Maturing Growing Emerging Cumulative effort (not time)

10 part 1: static v. dynamic cycles disruptive technologies (management of discontinuities) Emerging tech Often more than 2! Performance Current tech Cumulative Effect Who has the guts to invest in this under performing & cannibalistic technology? Assuming you ve got the guts, how do you manage jumping curves?

11 part 1: static v. dynamic cycles market adoption life cycle Early Majority Late Majority Chasm Innovator 1/3 1/3 Laggard 1/6 Early Adopter Time & process of adoption

12 part 1: static v. dynamic cycles

13 part 1: static v. dynamic cycles Innovators: The Techies Technology enthusiasts; they love it First to buy, even at high prices Willing to learn, very tolerant Gatekeeper role, but minimal buying power Will bug the heck out of you Problem: Not many of them

14 part 1: static v. dynamic cycles Early Adopters: Visionaries Want a new technology to dramatically improve their business in a strategic manner Want discontinuous breakthrough improvement in critical business process Goal: improve business, not use technology Builders not maintainers Project oriented Anxious, champions High risk/high reward types Make bet their career decisions Mountain Climbers

15 part 1: static v. dynamic cycles Early Majority: The Pragmatists Want incremental improvement Evolutionary not revolutionary products Want proven, established products Can t sell them new, risky technology Can t sell dreams, only reality Live with their decisions long time Hill climbers at best

16 part 1: static v. dynamic cycles Late Majority: The Conservatives Back side of curve = 1/3 population Significant opportunity for sales & profits Technology adverse; don t like change Want only mature whole products, fully packaged and supported...at a low price buy at Costco & Target Most technology products they buy are sold through retail distribution channels

17 part 1: static v. dynamic cycles Laggards: The Skeptics Last 1/6 of population = 17% Don t buy technology unless they have to Just now buying microwave ovens & VCRs Not worth talking about Not worth me making this slide! Enough said...

18 part 1: static v. dynamic cycles Moore s First Minor Chasm: Innovators to Early Adopters Have to convert technically interesting product into a major strategic benefit Must enable a strategic leap forward Must have a single compelling application & strong reasons to buy Early adopters can be sold futures, vaporware, & dreams

19 part 1: static v. dynamic cycles Moore s Major Chasm: Early Adopter to Early Majority A major leap many firms never make Requires a significant change in marketing and sales strategy Conservatives and visionaries have different objectives & goals Must provide pragmatists a compelling reason to buy to overcome fear & reluctance of a new technology

20 part 1: static v. dynamic cycles Visionaries and Pragmatists Don t Relate to Each Other Visionaries Willing to take significant risks to achieve significant improvement in critical business processes They are change agents; catalysts; shake things up, Minimize importance of proven infrastructure Willing to make bet your career decisions Don t relate to industry colleagues More interested in technology than industry Not concerned about the long term; they don t plan on being there a long time; they move on to new challenges

21 part 1: static v. dynamic cycles Pragmatists Won t buy futures, visions, or dreams Want incremental improvements not radical, discontinuous, disruptive ones Want solid industry references before buying Take longer to sell -more steps in the sales cycle Want healthy competition in market because: o Provides safe backup alternatives o Drives prices down Security conscious, risk averse, in no hurry Wants to play it safe Plan to stay long time at company & in the industry Want secure, long term vendor relationships

22 part 1: static v. dynamic cycles Therefore: You must change your marketing strategies and sales tactics to fit pragmatists: Entire value proposition must change Product positioning must stress proven product; stable, solid, main stream, industry standard Sales tactics must change Sales pitches, brochures, seminars, ads Best to reference other pragmatists

23 part 1: static v. dynamic cycles Direct sales presentations must change Pitch to a Visionary: It s new, it will fix your critical problem Will be a significant improvement Be the first in your industry to use Be a leader; be a hero Pitch to a Pragmatist: It s proven technology your industry has embraced Based on industry standards Our firm is the leader in your industry Industry references are available Low risk, complete whole product solution

24 agenda Part the strategic context of innovation..... academic model business cycles Part 2... technological business strategy what is strategy? why should we care? elements of strategy models Part 3... influences levers sectors

25 part 2: what why elements models influences Definitions of strategy Corporate strategy Concern of the parent company and represents the long-term goals of the firm. About meeting stakeholder expectations and adding value to different parts of the enterprise. Business strategy (Tactical) Concern of individual business units (also called SBUs). Adoption of course of action and allocation of resources necessary to compete in a particular business area. Technology strategy Developed in part at business unit level, but is best positioned at corporate level. Incorporates strong innovation focus

26 part 2: what why elements models influences Definitions of strategy Technology Strategy How to create, enhance & deploy resources and capabilities in support of corporate and business strategy. defined by a set of interrelated decisions encompassing.. technology choice level of technology competence level of funding for technology development introduction in new products/ services organisation for technology application and development (Burgelman and Rosenbloom, 1997).

27 part 2: what why elements models influences Definitions of strategy Technology strategy A firm s approach to the development and use of technology. Although it encompasses the role of formal R&D organizations, it must also be broader because of the pervasive impact of technology on the value chain Technology strategy must address a number of broad issues including: - What technologies to develop - Whether to seek leadership in those technologies - The role of technology licensing (M. Porter, 1985).

28 part 2: what why elements models influences discussion point Why is technology strategy important? Rise of new technologies (knowledge intensive) Increase in rate of change / complexity Perceived success of high technology based firms Shifting global strengths China Newly Industrialised Countries Perceived link between technology and competitiveness Move of strategic planning from corporate centre

29 part 2: what why elements models influences Elements of a technology strategy Organisation of technological activities (corporate structures and globalisation etc.) Relationship to future business (foresight in the firm) Sources of technological knowledge (relations to science base, collaboration, mergers & acquisitions etc.) Response to external pressures (environment includes public attitudes, law/ regulations etc.)

30 part 2: what why elements models influences Portfolio of technology innovation elements Base technologies: current technologies which are part of the industry entry price. Often candidates for scaling down or outsourcing. Key technologies: current technologies which confer competitive advantage. Often candidates for strengthening Pacing technologies: emerging technologies which could become differentiators. They may be candidates for internal development, or knowledge acquisition via licensing, alliances, acquisitions, university collaborations Exploratory areas: branches of scientific research which are expected to eventually generate valuable new technologies, but in ways not yet fully defined.

31 part 2: what why elements models influences Portfolio of technology innovation elements Base technologies: Chips, Battery, Miniaturization, Overseas Mfg, Intellectual Properties, Base OS, GSM Key technologies: 3G / WiFi, Touch, Internet integration Pacing technologies: Application Distribution, Multimedia support, Touch interface Exploratory areas: Powerful graphics, Application Distribution, Gaming, More powerful OS, 4G / WiMax.

32 part 2: what why elements models influences The Technology Audit A list of the technological capabilities you have A definition of each capability and what it enables you to do An inventory of the staff, skills, knowledge and equipment for each capability A classification of the technologies according to their value to the firm An assessment of the level of the firm s capability in each of the identified technologies.

33 part 2: what why elements models influences Porter s five forces classical approach 1. degree of rivalry in the sector 2. threat of new entrants into the sector 3. threat of substitutes to existing products/ services 4. buyer power (down stream) 5. supplier power (up stream) Note: each force generates opportunities and threats Question: How does this play to the sectors?

34 part 2: what why elements models influences Porter s five forces classical approach Technology leadership: Aim - be first to market. Basis - leadership and blue ocean Requires - commitment to creativity and risk-taking close linkages both to major sources of new knowledge focus on needs of customers. Technology followership: Aim - be late to market. Basis - imitating (learning) from leaders. Requires - commitment to competitor analysis reverse engineering cost cutting and learning in manufacturing.

35 part 2: what why elements models influences discussion point What factors and influences contribute to sustainability? Factors Competitors cannot duplicate technology Firm innovates fast or faster than competitors can catch-up Influences : Source of technological change Sustainable cost (position) Differentiation advantage in technology development activity. Relative technological skills Rate of technology diffusion

36 part 2: what why elements models influences Weaknesses with Porter s classical approach Underestimates power of technological change to transform industrial structures, and overestimates power of managers to decide and implement strategy. Biased towards external environment at expense of consideration of internal resources needed to implement strategy. Underestimates importance of firm-specific technological and organisational competencies, since possession of distinctive competencies can also be a crucial source of competitive advantage. Weak in dealing with new or unstable industries, where products might be ill defined.

37 part 2: what why elements models influences Generic business strategies & product/process technological change (Porter,1985) Product technological change Cost leadership Differentiation Cost Reducing materials used. Ease of manufacture. Lean logistic system. Improve product quality. Enhance product functional performance. Improve deliverability. Focus Development of minimum product functionality required. Focus Differentiation focus Development of product key features for niche market. Production process technological change Learning curve. Economies of scale. Quality control. Scheduling reliability. Response time. Time-to-market. Cost minimisation. Development of process characteristics required to improve key features of the market

38 part 2: what why elements models influences Range of technology strategies available to firms Freeman & Soete (1997) list following technology strategies: - Offensive (or aggressive) - Defensive (or conservative) - Imitative (or reactive) - Dependent - Traditional - Opportunist.

39 part 2: what why elements models influences Offensive strategy Aim to achieve technological & market leadership by being ahead of competitors with introduction of new products. Firm s R&D department plays a key role. The firm pursuing an offensive strategy is normally highly research intensive and places considerable importance to patent protection & must be prepared to take a very long-term view and high risks. All firms use new scientific knowledge, but firm exhibiting this strategy must get there years sooner. Most critical technological functions are centred on experimental development work (problem-solving). Firm will not only have to be good at R&D, will also need to educate both its customers and its own personnel (highly education intensive). Note: this is only followed by small minority of firms

40 part 2: what why elements models influences Defensive strategy A defensive policy may be just as research intensive as an offensive policy & defensive innovators might not wish to be first in the world, but they do not wish to be left behind by the tide of technical change. Most industrial R&D is defensive in character, concerned with minor improvements, and closely linked to product differentiation. Experimental development and design are just as important for defensive innovator as for offensive innovator. Firms need to devote resources to education & training of customers and their own staff. Emphasis on technical assistance & advice. On other hand, advertising & selling organisations will be more important, where some technical services will be bound up with this. Firms can wait to see how a market develops & if pioneers make mistakes, but speedy decision-making required.

41 part 2: what why elements models influences Imitative strategy Imitative firm content to follow leaders in established technologies & generally rely on pioneering work of others. An enterprising imitator may aspire to adopt defensive strat. Imitator must enjoy certain advantages to enter the market in competition with the established innovating firms. Unless imitators enjoy significant market protection or privilege they must rely on lower unit costs of production to make progress. Consequently they need to be strong in areas of production engineering and design. Need to be strong in area of scientific and technical information services, as selection of products to imitate & of firms from which to acquire know-how are important components of this strategy implementation.

42 part 2: what why elements models influences Dependent strategy A dependent strategy involves acceptance of a satellite or subordinate role in relation to other stronger firms. Many large firms will have a number of such satellite firms around them supplying components or doing contract fabrication and machining, or supplying some services. These dependent firms are often a subcontractor or sub-subcontractor. Small subcontract firms can move from a dependent status to the category of innovative firms by upgrading their specialised knowledge in a narrow field. Dependent strategy following firms need to only possess high quality scientific/ technical expertise in areas of production engineering & quality control ; and some capability in design engineering, technical information and training areas.

43 part 2: what why elements models influences Traditional strategy Products supplied by a traditional firm changes little, because market does not demand a change, and competition does not compel. These firms generally lack the technical capacity to initiate product changes of a far reaching character. But one traditional firm strength is that it may be able to cope with design changes which are essentially fashion rather than technique (i.e. aesthetic design fine tuning). Their technology is often based on craft skills and their scientific inputs are minimal. Incapable of initiating technical innovation in their product lines, they can be gradually driven out of the market.

44 part 2: what why elements models influences Opportunist (or niche) strategy The efforts of firms to survive & grow have led them to adopt one or more of the technology strategies previously described. But the variety of possible responses to changing circumstances is great. To allow for this element of variety, one other category could be included, which is Opportunist strategy. There is possibility that entrepreneurs will identify new opportunities in the rapidly changing market, which may not require in-house R&D, or complex design, but will enable them to prosper by finding an important niche. Generally there is no recipe which can ensure success. The fact that firms are often innovating on a world market increases the uncertainty which they confront, and can lead to involvement of government to subsidise R&D. Therefore economic policy can be enmeshed with S&T policies.

45 part 2: what why elements models influences Technology Strategies Summary Offensive high risk technology investment. Must be able to sustain long-term. Patents key. Defensive not first, but not left behind. Tech investment may be just as big. Imitative follow the leaders. Must be able to absorb Dependent subcontract to larger firm. Highly specialized and dependent Traditional Focused on incremental innovation Opportunistic Entrepreneurial niche focused

46 part 2: what why elements models influences Scope and depth of technology strategy Scope of technology strategy: Firms with a broader set of core technologies seem to be less vulnerable to attacks from new entrants. Resource constraints put limit on how many technologies the firm can opt to develop internally. Scope of a firm s technology strategy may be determined to a significant extent by its scale and business focus. Depth of technology strategy: This can be expressed in terms of the number of technological options that the firm has available. Depth of technology likely to be correlated with the firm s capacity to anticipate technological developments in particular areas early on.

47 part 2: what why elements models influences Competence refreshing Aim - acquire new technologies which have potential to generate a cluster of new future applications. Risk - High, as it involves changing the technology base and concerns new application areas. Mode - acquiring companies that have developed know-how in a key area. internal venture or venture capital investment could be appropriate to the initial phase. Internal R&D can be undertaken in later phases.

48 part 2: what why elements models influences Competence destroying dangers When to Refresh If a firm recognises that there are no opportunities to shift its knowledge base to stay in the same application range, it needs to refresh its current technological base. Why to Refresh If not refreshed, a competence destroying set of technologies can emerge. How to Refresh This process can be speeded up through alliances that help reduce cost of refreshing competence. Firms also need to be careful in selecting from different technology strategy options, since some technologies may erode the set of knowledge that might be required for certain existing applications to be performed in the future.

49 agenda Part the strategic context of innovation..... academic model business cycles Part 2... technological business strategy what is strategy? why should we care? elements of strategy models Part 3... influences levers sectors

50 part 3: levers sectors Strategic Levers (Market) Market Segmentation and Coverage Market Entry Timing (first mover, fast follower or late entrant) Market Share Management (capture 25% or don t go) Market Research and Customer Needs Analysis Capabilities Market Adoption Lifecycle Geographic Expansion Regulatory Management Sustainable and Defensible Competitive Positioning Industry Structure

51 part 3: levers sectors Strategic levers (Technology) Technology Product Development Product Differentiation Product Platform, Families, & Lines Licensing Technology Standards Technology Capabilities R&D (portfolio) Market & Technology Scanning IP Management Change/Core Competence Refreshing

52 part 3: levers sectors Strategic levers (People) Leadership Incentive Culture Recruitment Training Organizational Structure & Virtualization/Outsourcing

53 part 3: levers sectors Strategic levers (Financial) Cash Flow Management Budget Management (for each capability including tech) Asset Management (where, how much, how long) Credit and Financing Management A/R Management Hurdle Rates Acquisitions

54 part 3: levers sectors Strategic levers (Operations) Manufacturing Process Manufacturing Scale Logistics Speed and Quality Cost and Quality Management

55 part 3: levers sectors Strategic levers (Sales and Marketing) Product Portfolio Management (vertical versus horizontal) Packaging Whole Product Brand Management PR Pricing (price leader or premium niche) Demand Chain Management Supply Chain Management Sales Force & Pipeline Management Account Management

56 part 3: levers sectors Innovation Innovation is a key aspect of strategy because it focuses our attention on change! How will I meet the needs of my customers in a sustainable and defensible manner using the resources that I actually have CONTINUALLY OVER TIME GIVEN CONSTANT CHANGE And since technology is key to innovation, technology strategy is key to business strategy

57 part 3: levers sectors Categorization of firms by their innovation strategies (Pavitt s 4 categories of firms) SCIENCE SPECIALIST SCALE SUPPLIER INFO Competitive Strategies Generate new ideas and resulting tech Problem solvers (in collaboration with clients) Activities are based upon production of high volumes for economies of scale Do not compete through technological development. Apply tech, not develop it Where info gathering and manipulation is central to the firms activities Investment in R&D Substantial R&D activity is considerable but informal and applied Significant internal R&D Rarely undertake own R&D formally. More likely to do market research Size Tend to be large Often small & focused Tend to be large Often small in size Can be big or small Notes Occasionally happen upon killer application Technologies can underpin competitive strategy

58 part 3: levers sectors Categorization of firms by their innovation strategies (Pavitt) (1) Supplier-Dominated: includes firms from mostly traditional manufacturing such as textiles and agriculture which rely on sources of innovation external to the firm. (2) Scale-Intensive: characterized by mainly large firms producing basic materials and consumer durables, e.g. automotive sector. Sources of innovation may be both internal and external to the firm with a mediumlevel of appropriability (reproducibility). (3) Specialized Suppliers: smaller, more specialized firms producing technology to be sold into other firms, e.g. specialized machinery production and high-tech instruments. There is a high level of appropriability due to the tacit nature of the knowledge. (4) Science-based: high-tech firms which rely on R&D from both in-house sources & university research, including industries such as pharmaceuticals &electronics. Firms in this sector develop new products or processes & have a high degree of appropriability from patents, secrecy, & tacit know-how.

59 part 3: levers sectors Choosing the right technology strategies for the given context greatly reduces uncertainty by helping to predict the following: Market Acceptance and Cashflow Forecasts Tie between needed skills and skills posessed Costs associated with Development, Manufacturing, & Distribution Competitive Responses Risks and Chance of Success

60 questions Questions?