STRATEGY AND TECHNOLOGY

Prepared for class discussion By Prof. S.Suryanarayanan

High-Technology Industries
those in which the underlying scientific knowledge that companies

in the industry use is ad ancing rapidly !as" are the attributes of the products/services that result from its application are also advancing rapidly.#

Technology is$

Scientific knowledge used in production of goods or ser ices %ccounting for a larger share of economic acti ity &e olutioni'ing the product or production system in industries not thought of as high-tech

Technical Standards and (ormat )ars

standards are a set of technical specifications that

producers adhere to when making the product or a component of it.

(ormat wars

*ne standard will come to dominate a market. +any ,attles in high-tech industries are companies competing to set standard.

Product differentiation and competiti e ad antage are ,ased

on a technical standard.

Technical Standards for Personal -omputers

Benefits of Standards

.uarantee compati,ility ,etween products / compliments &educe consumer confusion &educe production costs &educe risks associated with supplying complementary products

Standards lead to low-cost and differentiation ad antages for companies.

0 )ays Standards 1merge$

2.

(irms lo,,y go ernment to mandate industry standard- pu,lic domain.

3.

Standards often set ,y cooperation among firms4forums.

5.

Standards often selected ,y

market demand.

6etwork effects Positi e feed,ack loop 7ockout

Positi e (eed,ack in 8-& +arket

)inning a (ormat )ar

Successful strategies re ol e around finding ways to

make network effects work in their fa or and against their competitors$

1nsure supply of complement- Plus product itself 9iller applications- 6ew products so compelling customers adopt rapidly killing demand for competition

%ggressi ely price4market- Price product low to increase installed ,ase: price complements high for profits

-ooperate with competitors-Speed up adoption 7icense format- &educe incenti e for competitors to de elop own

-ost Structures in High-Tech Industries

7aw of ;iminishing &eturns To produce more of a good: a company hires more la,or in ests in more plant4machinery additional resources are not as producti e increasing marginal costs.#
Strategic Significance of High-Tech -ost Structure

(i<ed costs of de eloping product ery high: ,ut costs of producing additional units are low$

If can shift from cost structure with increasing marginal costs to high fi<ed costs ,ut low marginal costs- profita,ility may increase.

)hen company faces high fi<ed costs4low marginal costs: it should dri e prices down to dri e up olume.

Strategy of pricing low to dri e olume to reap wider profit margins is central to ,usiness model of some successful high-tech companies.

Impact of Imitation on (irst +o er Profits

(irst-+o er %d antages
(irst to de elop4pioneer re olutionary products can lead

to enduring competiti e ad antage. 5 key %d antages$

*pportunity to e<ploit network effects and positi e feed,ack loops

%,ility to esta,lish significant ,rand loyalty %,ility to ramp up sales olume early %,ility to create switching costs for customers %,ility to accumulate alua,le knowledge. Being first-mo er does not guarantee success. Success depends on first-mo er strategy pursued.

(irst-+o er ;isad antages

2.

Pioneering cost- de elop technology / distri,ution channels / educate customer

0. 5.

Prone to mistakes- uncertainties in new market &isk ,uilding wrong resources / capa,ilitiesmass-market may differ from the needs of early adopters

=.

+ay in est in inferior4o,solete technology- if underlying technology ad ancing rapidly

1<ploiting (irst-+o er %d antages

Strategies
2. 3. 0.

.oing it alone- de elop4market inno ation Strategic alliance4>oint enture- de elop4market inno ation with other companies 7icense inno ation- let them de elop the market

-hoosing strategy$

;oes company ha e complementary assets to e<ploit inno ation? How difficult for imitators to copy inno ation? %re there capa,le competitors who could rapidly imitate inno ation?

Strategies for Profiting from Inno ation

Technological Paradigm Shifts

6ew technologies emerge that$

&e olutioni'e structure of industry ;ramatically alter nature of competition &e@uires firms adopt new strategies

+ore likely to occur with$

6atural limits to technology- esta,lished technology is mature / approaching natural limit 6ew disrupti e technology- entered marketplace and taking root in niches poorly ser ed ,y firms using esta,lished technology

Technology S--ur e

1sta,lished and Successor Technologies

Swarm of Successor Technologies

;isrupti e Technology
new technology that gets its start away from

mainstream of market and in ades main market as functionality impro es...#

&e olutioni'es industry structure / competition -auses technological paradigm shift

Often causes decline of established companies

because they listen to customers who say they do not want it.

Implications of Paradigm Shifts1sta,lished -ompanies

9nowledge a,out how disrupti e technologies can re olutioni'e markets is alua,le asset. Important for esta,lished firms to in est in newly emerging technologies that may ,ecome disrupti e. -ommerciali'ation may re@uire different alue chain / cost structure.

Chances of success in developing &

commercializing disruptive technology will be enhanced if it is placed in its own organization.

Implications of Paradigm Shifts- 6ew 1ntrants

%d antages$

6o pressure to continue out-of-date ,usiness . 6o worry a,out esta,lished customer ,ase: distri,ution channels: or suppliers.

-hallenges:

-onstrained ,y lack of capital 6eed to manage organi'ational pro,lems from rapid growth (ind way to take technology from small niche to the mass-market .o it alone or partner with esta,lished company

 The guy with the competiti e ad antage is the

one with the ,est technology.# - )alter )riston

% ,usinessAs fle<i,ility in adapting to change

and market dynamics will mark the winners and losers in this fast-changing Internet %ge.# +ichael ;ell