Groupe ESC Toulouse
International Management Option
Cherian S. Thachenkary, Ph.D.
Associate Professor
Department of Managerial Sciences
The J. Mack Robinson College of Business
Georgia State University
35 Broad Street, Suite 824
Atlanta, Georgia 30303
Tel (404) 413-7551
thachenkary@gsu.edu
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Module 2
Technology Strategy and Competition
• In Module 2, we examine various models of Technology
Strategy. The writings of Michael Porter, Kim Clark, and
David Teece, among others, are introduced and
critiqued.
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Porter suggests that, "Of all the things that can change the rules of
competition, technological change is among the most prominent." Porter
explains how to assess technology in terms of its impact on a firm's relative
cost position or its differentiation strategy.
Kim Clark argues that the "decision to invest in new technology ... is among
the most important competitive decisions that management must make."
Clark proceeds to introduce the concept of transilience, an innovation's
capacity to transform existing systems of technology and marketing.
David Teece examines the issue of timing of an innovation; that is, first
mover vs. follower strategy and the conditions that will determine whether
the innovator or imitator will profit. Regimes of appropriability, dominant
design paradigm, and complementary assets are key concepts we will
review.
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Module 2: Learning Objectives
• Does technology change competition?
– French examples?
• Porter’s models of technology and competition (“value chain
analysis”)
– Technology strategy
• Leadership, followership, licensing?
• Kim Clark’s model of transilience map
– What are the four types of innovations?
– Implications for competition
• David Teece’s: What question does he explore?
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Why do innovators fail?
Why do imitators succeed?
Condition 1: Regimes of appropriability
Condition 2: Dominant design paradigm
Condition 3: Complementary assets
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– Technology strategy: Contract
or integrate
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TECHNOLOGY AND COMPETITION
(Michael Porter)
– Technology and the Value Chain
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Pervasive role of technology
Embodied in Primary and support activities
Information systems
Telecommunication systems
Linkages of technologies in value chain
– Technology and Industry Structure
• Technology and the Five Forces Model
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TECHNOLOGY AND COMPETITION
• Technology and Competitive Advantage
– Significant role to change relative cost position or
differentiation
– Impact on cost drivers
– Impact on uniqueness drivers
– Discover a better technology to perform a value
activity than your competitor?
– Technology can change other cost/uniqueness
drivers
• Japanese aluminum firms, carbothermic reduction
• Reduce power consumption
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TECHNOLOGY AND COMPETITION
• Tests of a desirable technological change?
– Lowers costs, enhances differentiation, lead is
sustainable?
– Shifts drivers in firm’s favor?
– Pioneering leads to 1st mover advantages?
– Improves overall industry structure?
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TECHNOLOGY AND COMPETITION
• Technology and industry structure
• Technology and entry barriers
– Economies of scale
– Learning curve
– Switching costs
• Technology and buyer power
– Bargaining relationships
– Integration potential
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TECHNOLOGY AND COMPETITION
• Technology and supplier power
– Similar to buyers?
• Technology and substitutes
– Most commonly recognized impact
• Fiberglass, microwaves
• Technology and rivalry
– Raises exit barriers?
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TECHNOLOGY AND COMPETITION:
TECHNOLOGY STRATEGY
• Must address three broad issues:
– What technologies to develop?
– Technological leadership?
– Technology licensing?
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TECHNOLOGY AND COMPETITION:
TECHNOLOGY STRATEGY
• What technologies to develop?
– Competitive advantage?
– Help generic strategy?
• If cost leadership, does R&D lower costs in all
value activities?
– Is advantage sustainable?
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TECHNOLOGY AND COMPETITION:
TECHNOLOGY STRATEGY
• Technological leadership or followership?
– Seeks to be the first to introduce technology
– Sustain the technological lead?
– First mover advantages/disadvantages?
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Reputation/pioneer
Preempt a positioning
Switching costs/avoid disruption
Channel selection
Definition of standards
Institutional barriers: patents, protections
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TECHNOLOGY AND COMPETITION:
TECHNOLOGY STRATEGY
• Technology licensing?
– Unable to exploit own technology development
– Competitors might invent around
• Tapping unavailable markets?
• Faster standardization
– VHS
• Create good competitors
– Stimulate overall demand
• Choosing a licensee; pitfalls in licensing
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TECHNOLOGY AND COMPETITION:
TECHNOLOGY STRATEGY
• FORMULATING TECHNOLOGY STRATEGY
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Identify all technologies in the value chain
Identify potential technologies in other industries
Determine the likely path of technology evolution
Determine which technologies are most suited for
competitive advantage and industry structure
– Assess a firm’s relative capabilities
– Select technology strategy to reinforce firm’s overall
competitive strategy
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Investment in New Technology and
Competitive Advantage (Kim Clark)
• “The decision to invest in new technology…is among
the most important competitive decisions that
management must make.”
• Requires “a commitment to new concepts in managing
production, new approaches to customers and markets,
and the application of new technology.”
• Clark proposes a way of “thinking about the competitive
role of new technology.”
• Issue: Changing nature of Competition
– International Players
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Competitive Advantage
• Not from product features, but the firm’s unique
set of capabilities and strengths in producing the
features that appeal to the customers
• Domains of competitive capability
– Technology domain
– Market domain
• Technology impacts
– Conservative: enhances value of existing capability
– Radical: disrupts and destroys
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Transilience
• An innovation’s capacity to transform existing
systems of technology and marketing
• Generates four different types of innovations
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Architectural
Regular
Niche creation
Revolutionary
• Examples from the steel industry
• Implications for decision making about new
technology
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Transilience Map
NICHE CREATION
ARCHITECTURAL
Radical technology
applied to new
markets
Refinements in technology
applied to new customer
groups
Technology/Production
Conserve/Entrench existing
competence
Disrupt/obsolete existing
competence
Refinements in technology
applied to existing markets/
customers
Disruptive changes in
technology
applied to existing
markets/customers
REVOLUTIONARY
REGULAR
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• Steel Industry Examples
• Architectural: Bessemer Process
– Prior to 1860:
• single crucible process/limited quantities
– Bessemer
• Air is blown through molten iron
• Combustible mixture
– Construction of special buildings, converters
• Increased output, lowered costs
– Created new markets, channels, and applications
• Skyscrapers, skeleton constriction, use of rivets
– New problem solving skills in real time
• New plant design, procedures, etc.
– Requires experimentation; Doing things differently
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• Regular Innovation: Modern
Continuous Casting
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1950s
Transforms liquid steel to semi finished slabs
Eliminates ingots and slabbing
Far less technical uncertainty
Innovative changes in the equipment
Extend and refines existing skills
Systems are custom designed to specification
Reinforces relations with existing customers
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• Revolutionary: The Continuous Micromill
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Nucor Co. (USA)
Scrap metal as raw material
Location decision
Electric furnace
Output: 50,000 tons per year
Highly automated
Fewer people, flat structure, low costs
Serves small local, but existing markets
Compete head on with existing big players
• Play to competitor’s weakness
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• Niche Creation: Continuous Heat-Treating
Process (CHTP)
– Heat treating of sheet steel
– Automated material flow
– Complex, computer-based control system
– Greater uniformity of steel structure
– Refinements and extensions of existing
technology
• Computer process control
• Extension of integrated steel mill technology
• New product characteristics
– Create new markets or customers by uncovering
needs/new applications
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Implications of Transilience Map
• Innovations are of different types
• Each quadrant suggests different management
skills, responses
• Each quadrant has different modes of
competition
• Assess firm’s Strategy-Technology fit
– Investment consistent with strategy?
– Yield defensible advantage over competition?
• Competitors response: acquire your skills easily?
• Implications for Cash Flow Analysis (DCF)?
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Transilience Map
NICHE CREATION
ARCHITECTURAL
Radical technology
applied to new
markets
Refinements in technology
applied to new customer
groups
Technology/Production
Conserve/Entrench existing
competence
Disrupt/obsolete existing
competence
Refinements in technology
applied to existing markets/
customers
Disruptive changes in
technology
applied to existing
markets/customers
REVOLUTIONARY
REGULAR
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Profiting from Technological Innovation: Implications
for Integration, Collaboration, and Public Policy
(David J. Teece)
• Why Innovators (First Movers) Fail?
• Why Imitators (Second or Late
Movers) Succeed?
• Firms that have related capabilities
that the innovator needs?
• Taxonomy of four quadrants
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INNOVATOR
WIN
LOSE
FOLLOWER-IMITATOR
EMI/GE/CAT SCAN
G. D. SEARLE/NUTRAWEET
NETSCAPE/EXPLORER?
PALM
PFIZER/VIAGRA
AOL?
AMAZON.COM?
CELERA/HUMANGENOME?
SONY/BETAMAX
XEROX
LOTUS 1-2-3
WANG
WORDPERFECT
ATT
HAYES MODEMS
IBM
MATSUSHITA/VHS
MICROSOFT
POLAROID
DELL
GATEWAY
AIRBUS
MCI/SPRINT
KOADK
DIGITAL
COMPAQ
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Profiting from Innovations
• Three Factors to Consider:
– Regimes of Appropriability
– The Dominant Design Paradigm
– Complementary Assets
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Profiting from Innovation
• Regimes of Appropriability
– Innovator’s ability to capture the profits
– Tight or Weak?
– Nature of the technology
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Product
Process
Tacit (difficult to articulate)
Codified (easier to transmit/receive)
– Legal instruments
• Patents (inventing around patents)
• Copyrights
• Trade secrets (Coca Cola)
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Profiting from Innovation
• The Dominant Design Paradigm
– Signals scientific maturity
– Competition shifts to price
– Windows in computing
– Cell Phones: CDMA/GSM
– Once established, compete on process
innovations
– Imitators could succeed
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Profiting from Innovation
• Complementary Assets
– Hardware vs. Software
– Internet and E-Mail
– Assets:
• Generic: General purpose
• Specialized: Unilateral dependence
• Co-specialized: Bilateral/Mutual dependence
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Profiting from Innovation
• Who benefits?
– Tight appropriability regime
• Competition is weak
– Weak appropriability regime
• Design needs to be market sensitive
• Pre-paradigm; low probability for innovators
• Paradigm: Complementary assets significant
– Owners of specialized assets can succeed
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Profiting from Innovation:
Contract or Integrate?
• Contract
– Tight appropriability
– Complementary assets are abundant
– Strategic partnering (IBM-Microsoft/PC)
• Partner’s failure
• Partner becomes competitor
– Avoid irreversible capital investments
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Profiting from Innovation:
Contract or Integrate?
• Integrate
– Involves ownership
– Weak regime
– Easy imitation
– Timing and cash constraints
– Competitor analysis is key to success
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INNOVATOR
WIN
LOSE
FOLLOWER-IMITATOR
EMI/GE/CAT SCAN
G. D. SEARLE/NUTRAWEET
NETSCAPE/EXPLORER?
PALM
PFIZER/VIAGRA
AOL?
AMAZON.COM?
CELERA/HUMANGENOME?
SONY/BETAMAX
XEROX
LOTUS 1-2-3
WANG
WORDPERFECT
ATT
HAYES MODEMS
IBM
MATSUSHITA/VHS
MICROSOFT
POLAROID
DELL
GATEWAY
AIRBUS
MCI/SPRINT
KOADK
DIGITAL
COMPAQ
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Module 2: Summary
• What did we learn?
• Compare: Porter, Clark, and Teece
– Similarities?
– Differences?
• Integrate the three frameworks?
• French examples?
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