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MANAGEMENT of

The Key to Competitiveness and Wealth Creation

TECHNOLOGY

Tarek Khalil | Ravi Shankar

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The Acquisition andExploitation of Technology

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TECHNOLOGY ACQUISITION BY HERO

• Hero Moto Corp is the world's largest two-wheeler company in India where its market share is about 56% in 2011–12

• For about 27 years, it had an enduring technology sharing arrangement with Japanese firm, Honda Motors

• To maintain continuity in Hero's business, it retained a licence agreement with Honda till 2014

• Hero must have counted the number of days during which it has to develop its own strength in technology

• Hero MotoCorp was on a look-out for a new global partner for technology acquisition

• Hero MotoCorp carefully evaluated the EBL's technological superiorly in customised super-bike, which needs tremendous capability to conduct in-house R&D

• Hero's strategy for technology acquisition has two facets: short-term and long-term

• EBR is likely to provide support in establishing this R&D base

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INTRODUCTION• In the quest to keep up with the pace of technological

change, organization must be able to acquire needed technologies and exploit their own technologies

• Special emphasis is placed on research and development as a critical activity in the creation of technology

• National and corporate strategies for R&D have a profound impact on the competitive posture of industry in any country

• These strategies, in turn, influence the level of technological capability and thus, can lead to improvements in the products and services offered and to increased wealth

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ACQUISITION OF TECHNOLOGY

• Technology planning encompasses the development of plans

for the acquisition of technologies that will impact a firm’s

competitiveness

• Managers must then make a choice as to which technology

or set of technologies the firm should immediately acquire

or pursue in the future

• Methods of Acquiring Technology

– Using internal R&D

– Participating in a joint venture

– Contracting out for R&D

– Licensing in of technology

– Buying the technology

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ACQUISITION OF TECHNOLOGY (Contd.)

Factors Affecting the Technology Acquisition Decision

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EXPLOITATION OF TECHNOLOGY

• Technology can be thought of as an asset or a commodity to

be purchased and sold

• If a company is strong in a technology, its success in

licensing the technology to others is high

• Technology may need to be exploited as rapidly as possible

for a company to have a chance at getting the market’s

general acceptance of its technology and at defining the

industry standard

• Ford (1988) developed an exploitation matrix, which

includes factors affecting technology exploitation decisions

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EXPLOITATION OF TECHNOLOGY (Contd.)

Factors Affecting The Technology Exploitation Decisions

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TECHNOLOGY CREATION THROUGH R&D

• The creation of technology can result from either an individual or a group effort

• The rise of organised R&D activities can be traced back to Thomas Edison, who in 1876 established a scientific research laboratory at Menlo Park, Pennsylvania

• The U.S. government also created a number of R&D establishments to support the defense industry and national security effort

• Private industry and academic institutions also expanded their involvement in research, having appreciated the role of science and technology in increasing knowledge and creating opportunities for growth

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STAGES OF TECHNOLOGY DEVELOPMENT

• Basic research• Applied research• Development• Technology enhancement• Bhalla (1987) makes some pertinent observations

related to science and technology development:– Science builds on prior science, except for rare random

discoveries– Technology builds on prior technology– Technology development goes through multiple stages,

each stage requiring different skills and talents– Key technologies require 8 to 15 years to develop

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THE TECHNOLOGY PORTFOLIO AND INDUSTRIAL R&D

• The classification introduced by Merten and Ryu (1982) proposed dividing industrial laboratory research activities into five categories:– Basic research

– Exploratory research

– Development of new commercial activities

– Development of existing commercial activities

– Technical services

• Jain and Triandis (1990) proposed the following R&D needs, which apply to any company technology portfolio:– Normative needs

– Comparative needs

– Forecast needs

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THE TECHNOLOGY PORTFOLIO AND INDUSTRIAL R&D (Contd.)

Technology Portfolio Categorised by Stage of Technology

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THE TECHNOLOGY PORTFOLIO AND

INDUSTRIAL R&D (Contd.)• Corporations use R&D basically to lead and support innovation. Areas where this is relevant are:– Product innovations

– Material innovations

– Process innovations

– Market innovations for new business development

– Service innovations

• Leveraging opportunities require up-front R&D investment in a balanced spectrum of programmes. These can include:– Focused and targeted short-term projects

– Focused and targeted long-term projects

– Speculative and exploratory work

– Supportive research projects for existing products and services

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JUSTIFICATION OF R&D EXPENDITURES

• Conducting R&D requires both human and financial resources

• In all cases, funding decisions for R&D are dependent on the justification methodology used by R&D managers to get management approval. Existing methods for funding R&D in corporations are usually based on one of the following:– R&D is supported as an overhead (OH) expense

– R&D is supported as an investment

• The ROI and similar financial justification methodologies are inherently biased against long-term R&D projects, in which the future is uncertain

• There is an important segment of the technical activity covering applied research, exploratory development, and feasibility that is difficult to justify using either of the two funding models mentioned above

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JUSTIFICATION OF R&D EXPENDITURES (Contd.)

Strategies Objectives of R&D and Preferred Method of Funding

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• The price of the call option is equivalent to the cost of the R&D activities at the time of the call

• Management is more likely to accept strategic positioning projects justified financially as an option

• Many R&D projects with potential opportunities may exist, but they may require expenditures beyond the range acceptable to an organization

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JUSTIFICATION OF R&D EXPENDITURES (Contd.)

Strategies for Bringing R&D Projects to Acceptable Level

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• A national technology policy can be formulated to make use of the concepts discussed above. Technology policy can encourage consortia and other cooperative business alliances, provide matching funds to industry, and facilitate wide diffusion of federal R&D

• These strategies involve changing the cost and risks associated with new technologies

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JUSTIFICATION OF R&D EXPENDITURES (Contd.)

• General Observations on Industrial R&D

– Large firms undertake the major part of all industrial R&D

– The larger the company, the more likely it is to have some research activities

– Although the great bulk of R&D takes place in large firms, significant inventions have emanated from small firms and from individuals

– Only a small percentage of R&D projects turn out to be a commercial success

– Small firms are credited with expanding national employment figures; they are effective in matching technology with customer needs

– R&D can be divided into two activities: research and development

– In the early stages of the product life cycle, technology is more crucial than development and marketing activities

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THE GOVERNMENT AND MILITARY ROLE IN R&D

• Most industrialized countries recognize the importance of R&D and its role in developing technologies to create economic growth and preserve national security

• National R&D expenditure in defense-related endeavours has been greater than or equal to R&D expenditure for non-defense-related endeavours

• In contrast to the United States, Japan devotes a great majority of its R&D expenditure to the commercial sector

• It also led to growth in Japan’s economy. Japan’s investment in R&D has moved Japanese industries from being imitators of technology to being leaders in innovation

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GLOBAL MANAGEMENT OF R&D

• In a review of corporate trends in R&D, Perrino and Tipping (1989) found the following characteristics:

– While markets are global, technology will continue to develop locally in pockets of innovation

– Critical mass will be a key factor in successful technology development

– External relationships are becoming more important—survival is no longer a matter of being a technological island; rather, it depends on being part of a research consortium, joint venture, or the like

– Companies can get more out of their research by linking it more closely to market needs and customer requirements rather than by increasing spending

– The global network model is the wave of the future

• Perrino and Tipping found that European, American, and Japanese companies deploy their R&D resources in different patterns:

– The European pattern is based on acquisition of entire companies

– The Japanese pattern is based on home production and centralised R&D plus ‘listening posts’ for acquiring technology rather than on overseas expansion of R&D

– The U.S. pattern is based on setting up overseas laboratories staffed by their own company’s U.S. or foreign nationals employees

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GLOBAL MANAGEMENT OF R&D (Contd.)

Electronics Autos Biotechnology

Acquire technology 1 2 1

Keep abreast of technological developments 2 2 1

Assist parent company in meeting U.S. customer needs

1 1 3

Employ U.S. scientists and engineers 2 3 2

Follow competition 3 3 4

Take advantage of favorable research and development

4 4 1

Cooperate with other U.S. R&D labs 2 3 2

Assist parent company in meeting U.S. environmental regulation

4 1 4

Assist parent company’s U.S. manufacturing plants in procurement

4 2 4

Engage in basic research 3 4 2

1 = Extremely important, 2 = Important, 3 = Neutral, 4 = Unimportant

Reasons for Foreign R&D Investment in the United States (Reasons given by senior R&D/technical executives)

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WEBLINKS• http://www.heromotocorp.com/

• http://www.livemint.com/2011/07/03105814/Hero-Honda-intensifies-RampD.html

• http://www.thehindubusinessline.com/companies/article1993292.ece

• http://www.financialexpress.com/news/tata-steelcorus-deal-was-biggest-buy-of-the-year/255031/

• http://www.steelworld.com/focusfeb07.pdf

• http://www.outlookindia.com/article.aspx?233036

• http://www.thehindubusinessline.com/companies/article2436532.ece

• http://www.nytimes.com/2006/06/25/business/worldbusiness/25iht-steel.html?pagewanted=all

• http://www.strategicbusinessteam.com/successful-entrepreneurs/how-lakshmi-mittal-created-arcelor-mittal-steel-and-how-he-joined-the-forbes-list-of-worlds-top-ten-richest-billionaires/