chapter 8 business strategy and technology strategy

7/17/2019 Chapter 8 Business Strategy and Technology Strategy

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MANAGEMENT

ofThe Key to Competitiveness

and WealthCreation

TECHNOLOGY

Tarek Khalil | Ravi Shankar


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Business S

trategyandTechnology

Strategy

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CAN OUTSOURCING CREATE

INNOVATIVE BUSINESS

MODELS? Bharti Airtel Limited is India's largest telecommunications company It has been ranked among the six best performing technologycompanies in the world by Business Week and aims at:

Providing high quality customer service,

Adding new customers without increasing capex and decreasing totalcost of ownership,

Reducing the calling fee to the customers,

Managing end-to-end business processes using latest InformationTechnology (IT),

Managing and helping the telecom network capacity to grow along withthe growth of customers

While a typical strategy book would teach you that an organizationshould focus, nurture and do-it-in house the technology, process andproducts that are its core competencies, Airtel has outsourced the

same


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INNOVATIVE BUSINESS MODELS?

(Contd.) Business Processes Outsourced to IBMExcept marketing, customer service, and finance, Airtel has outsourced

all its major business processes to IBM for managing it for next 10 years

starting 2004

This deal started at $750 million and is worth $2.5 billion by 2011

Telecom Network Outsourced to Ericsson and Nokia Siemens

The initial GSM network of Bharti (now, Airtel) was set up by Ericsson.

By early 2003, Bharti was working with Nokia and Siemens

Due to uniform GSM standards in telecom domain, it is easy and quick to

change the supplier

Payment to Ericsson and Nokia Siemens Networks comes through the

capacity usage calculation (priced per erlang) for their network

infrastructure rather than an upfront payment


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(Contd.)Other Outsourcing by Airtel

Alcatel-Lucent manages Airtel's fixed network

Airtel has outsourced its tower business to Indus

Tower

Airtel has outsourced the managed services to

Comviva

Airtel has selected Infosys as its technology partner for

airtel money


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(Contd.)Logic Behind Reverse Outsourcing

Airtel does not have to now keep investing 30 to 40 percent

extra in excess capacity reserve for forthcoming new customers

It now focuses more on acquiring new customers andmanaging the existing customer-base

Airtel is relatively immune from quick technology

obsolescence in telecom network equipment area as this risk is

now transferred to its partners to whom this business isoutsourced

If not outsourced, there was always a possibility of conflict of

interest with vendors, like Nokia Siemens and Ericsson


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(Contd.)Logic Behind Reverse OutsourcingSince a typical network uses 60 to 70 per cent capacity utilization;

extra 30 to 40 per cent capacity would have been an additional cost

burden to Airtel

Airtel lacked sufficient qualified professionals to meet its IT needs

For Bharti, development and maintenance of IT infrastructure is non-

core competency area

Using IBM's expertise in customer-oriented IT business processes,

Airtel business objective of superior customer service is met withWhen a new customer is added, IBM receives a fixed revenue, while

better services and more frequent and longer calls by customer

improves ARPU (Average Revenue Per Customer), which directly

adds to Airtel's profitability


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WHAT IS MEANT BY

STRATEGY? Strategy involves envisioning and planning for the future Some people think of strategy as developing a long-range plan,assuming that they will continue to do what they are already doing

Strategic management is a process consisting of three important and

interrelated components:Strategic planning

Strategic implementation

Strategic evaluation

Hamel (1996) distinguishes strategizing from planning by the degreeof innovation included in the strategy

A company that performs strategic planning as a routine exercisewithout periodically questioning its directions or pursuing innovativeapproaches can become stagnant and may lose its competitive edge


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FORMULATION OF A

STRATEGY

The Core and Operating Units for the Execution of Strategy


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FORMULATION OF A STRATEGY(Contd.)

Context in which Competitive Strategy is Formulated

Source: Based on Porter, 1980


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FORMULATION OF A STRATEGY(Contd.)

A Model for Strategy Development


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METHODS USED IN STRATEGIC

ANALYSIS AND DECISION-

MAKING

Two-by-Two Matrix Constructed for use as an Aid to Acquisition Decision


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ANALYSIS AND DECISION-MAKING

(Contd.)

Product Evaluation Matrix Used by 3M


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(Contd.)

Market-GrowthMarket-Share Analysis Matrix(Company Portfolio Matrix)


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(Contd.)

Strategies to use in Conjunction with a Portfolio Matrix

Source:Based

onChristens

enetal.,1976


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(Contd.)

Example of an X-Y Plane Representation


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(Contd.)

An M-T Matrix for Analyzing Technical and Product Competence

Source:Basedon

Holt,1992


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(Contd.)

Technology Evaluation for Adoption

Decision


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(Contd.)

Multi-technology, Multi-Attribute Decision Matrix

Source:McConnelland

Khalil,1988;

1988,InstituteofIndustrialEngineers


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(Contd.)

Shop-Floor-Control Application

Source:McConnellandKhalil,1988;

1988;InstituteofIndustrialE

ngineers


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(Contd.)

SWOT matrix

Source:FredDavid,StrategicM

anagement,

6thed.1997Reprintedbype

rmissionof

Prentice-HallInc.,UpperSaddleRiver,NJ


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(Contd.)David (1997) proposes the following approach to theconstruction of a SWOT matrix:List the firms key external opportunities

List the firms key external threats

List the firms key internal strengths

List the firms key internal weaknesses

Match internal strengths with external opportunities, and recordthe resultant SO strategies in the appropriate cell

Match internal weaknesses with external opportunities, and recordthe resultant WO strategies

Match internal strengths with external threats, and record theresultant ST strategies

Match internal weaknesses with external threats, and record the

resultant WT strategies


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(Contd.)

SWOT matrix for food company

Source:FredDavid,StrategicM

anagement,

6thed.1997.Reprintedbypermissionof

Prentice-HallInc.,UpperSadd

leRiver,NJ


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(Contd.)Analysts can review the factors listed in theSWOT matrix and develop four types ofstrategies:

Strengths-opportunities (SO) strategies

Weaknesses-opportunities (WO) strategies

Strengths-threats (ST) strategies

Weaknesses-threats (WT) strategies


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FORMULATION OF A

TECHNOLOGY STRATEGYTechnology is at the core of systems designed to satisfysocietal or customer needs

Companies are formed to provide a structure and a

mechanism that facilitate the spinning out of technology

to satisfy those needs

Ford (1988) explains that technology strategy is concerned

with exploiting, developing, and maintaining the sum

total of the companys knowledge and abilities

There are many factors that determine business success;

although technology is a very important one, it is not in

itself sufficient to ensure business success


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FORMULATION OF A

TECHNOLOGY STRATEGY(Contd.)

Research conducted by Frohman (1982) reveals two commonalities among

companies that use technology as a competitive weapon:

Management views technology as a major competitive weapon but does not

emphasize it at the expense of other areas

The criteria used to support any project consist of (a) whether the projectsupports the business goal, (b) whether the project protects and/or

establishes technological leadership, and (c) whether the project solves

customer problems

A basic purpose of strategy in any business is to answer three fundamentalquestions:

What business should the firm engage in?

How should the firm be positioned in the business?

What technology, production, and marketing will be necessary to attain the

desired position?


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FORMULATION OF A

TECHNOLOGY STRATEGY(Contd.)

Michael Porter (1985) advocates that technology strategy be formulated

within the larger context of business planning

Porter proposes that a technology strategy be formulated using the following

steps:

1.Identify all the distinct technologies and sub-technologies in a value chain

2.Identify potentially relevant technologies in other industries or under scientific

development

3.Determine the likely path of change of key technologies

4.Determine which technologies and potential technological changes are most

significant for competitive advantage and industry structure5.Assess a firms relative capabilities in important technologies and the cost of

making improvements

6.Select a technology strategy, encompassing all-important technologies that

reinforce the firms overall competitive strategy

7.Reinforce business-unit technology strategies at the corporate level


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DIRECTION OF STRATEGY

A strategys direction is a vital ingredient in the

success of an organization. Setting the direction

depends on the changes in technology, customer

needs, and environmental factors

Microsoft decided to change the direction of itsstrategy and has mounted a major effort in

developing software suitable for the Internet

Northwest Airlines Changing Strategy

Two Los Angeles investors, Alfred Checchi and Gary

Wilson, privatized the company in 1989 They hired three consecutive presidents who could

not turn the company into a profitable operation

The company was losing money, but so were many

other airline companies

The Vehicle for Creating Wealth


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DIRECTION OF STRATEGY(Contd.)

Changing the Strategy

Most airlines at the time were using a strategy based on ubiquity in all

markets and the Proctor & Gamble supermarket model of shelf space

After the demise of Eastern Airlines, Northwest had an opportunity to

expand into places where Eastern used to have strength

even though everyone in the company was working hard and meant well,

the personnel were working hard doing the wrong things

Northwest turned to its customers for directions

They were interested in safety, reliability, cleanliness, promptness, reliable

luggage delivery, and frequency of operation in their own areas

The company closed unprofitable hubs in Milwaukee, Washington, and

Seoul, Korea; ended point-to-point service on the East and West Coasts; and

reallocated assets to its hubs in Detroit, Minneapolis, and Tokyo

In adopting this strategy, Dasburg reversed the direction of the industry

strategy. He recognised that less is better than more


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DIRECTION OF STRATEGY(Contd.)

Results of the New Strategy

Changing the direction of Northwests strategy

created a new formula by which the company couldcompete

The new strategy helped restore profitable operation

Northwest complemented its strategy of concentrating

on its core markets by entering into alliances and

bilateral agreements with other airlines in order to

boost cross-border traffic


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CORE COMETENCIES

Core competence is the inner strength upon which a

strategy should be built

An organizations core competence could be in a

technology, a product, a process, or the way it integrates

its technological assets

Corporate Core Competencies


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CORE COMETENCIES (Contd.)

Core competencies are collective sets of knowledge, skills, and

technologies that a company applies to add value for its

customers

This means continuously learning and building capabilities that(a) cannot be easily duplicated by its competitors, (b) create new

products and services for its customers, and (c) generate alliances

and relationships with suppliers to provide its customers with

cost and value advantage The core competencies of an organization are usually converted

to core products, which in turn may be embodied in one or more

end products


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CORE COMETENCIES (Contd.)

Prahalad and Hamel used atree analogy to illustrate theidea of core competencies ina diversified corporation:The roots are thecompetencies of thecorporation, the trunkrepresents core products,

the small branchesrepresent business units,and the leaves are the endproducts

Competencies: The Roots of Competitiveness

Source:BasedonPrahaladandHamel,1990


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CORE COMETENCIES (Contd.) The following common characteristics of core competencies may help anorganization distinguish areas of competencies from the multitude of its otheractivities:

They provide the distinctive advantage of the organization

They are difficult for competitors to imitate

They make a significant contribution to the end products offered by theorganization

They provide access to a wide variety of markets

To capitalize on strength, a company should strive to exploit its corecompetencies. Specifically, it must:

Clearly identify the following:What it does best

What it can do that no other company can do better

What will permit it to achieve best-in-the-world status in regard to what it does

Develop its plans to fully exploit its capabilities


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TECHNOLOGY AND THE CONCET

OF CORE COMETENCE

Technology in a company (or in a product) consists of

three layers

Classification of Technology as to its Relative


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TECHNOLOGY AND THE CONCET

OF CORE COMETENCE (Contd.)

Distinctive technology is what gives an organizationits unique competitive advantage in the marketplace

Basic technologies are technologies widely available

to many organizations

External technologies provide a third level oftechnological need but they are not critical to thecompanys survival

The distinctive, basic, and external technologies of acompany can be determined from a technology auditof the company and its products


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INTEGRATION

When a corporation owns or has control over all or mostof the technologies that contribute to producing andmarketing a product, it is known as avertically integrated

corporation

Vertical integration of a company can be defined at anypoint on a continuum, with one end designating total

ownership of the technology (making the product) andthe other end showing no ownership (i.e., having to buyeverything, as opposed to owning the technology ormaking the product within the company)


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INTEGRATION (Contd.)

Decisions as to whether technology should be owned or not,or whether products should be made or bought, must beguided by the companys standing in technology. Therefore,

a company must be able to:Identify its distinctive technologies and choose areas in which tobuild competence in technology

Do all it can to acquire or keep itself at the top of thesetechnology areas

Decide on the level of integration needed for its operation, basedon realistic technology and business decision-making criteria

Be aware of emerging technology that may impact its business

Modify its business strategy to support its technology strategy


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Vertical Integration

The Boundaries o the Interation Decision


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Backwardintegration occurs when the company seeksownership or control of its suppliers

Horizontalintegration involves increased control over

production competitorsForwardintegration occurs when a company seeks tocontrol distribution, retailing, and post manufacturingactivities

Vertical integration maycombinebackward, horizontal,and forward integration

Many companies achieve integration through mergers,acquisitions, and takeovers


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Manufacturing technology requires developingtechnology-based strategies to deal with the entire valuechain

A business decision is based on financial considerations.Outsourcing may prove to be more economically soundthan production

In all cases, management should seek to establish a close,

trusting relationship with the companys suppliers anddistributors

Distribution retailing can add a significant cost to aproduct without providing an added value to customers


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Integration Evaluation Matrix. This matrix utilizes importanceand level of difficulty as criteria

Integration Evaluation Matrix. This matrix utilizes time and level of investment as criteria

Source:Teece1987.Withpermission

Source:Teece1987.Withpermission


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LINKING TECHNOLOGY AND

BUSINESS STRATEGIES

Framework for Formulation of Business and TechnologyStrategies

Organizations that know how to link their technology strategywith their business strategy will be more competitive in theglobal marketplace

Usually the business side perceives technology as a subset of

business, while technologists perceive business as a subset ofthe general technological ascent of human beings

Source:Mitchell,1995


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BUSINESS STRATEGIES (Contd.)

Interation o Technolo and Business Strateies

A.Organizations that do not integrate technology strategyand business strategy have blurred visions of the future

B. Well-coordinated and focused organizations are morecompetitive

Source:Escobar,1995


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BUSINESS STRATEGIES (Contd.)

Mitchell emphasizes the importance of the linkage between the goalsand objectives of the corporation and its technological strategy

Mitchell poses a number of generic questions that should be addressedby strategic planners on both the business and the technical sides of the

house: To what extent is technology relevant to business?

Which business strategies require technology?

Where will we get it [the technology]?

What are our core technologies for the business?

In which technologies should we focus our research effort? What new strategic options will technologies provide?

In responding to these questions, a company can develop relationshipsamong its high-level strategies, its lines of business, and thetechnologies that are needed to achieve business goals

CREATING THE RODUCT


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CREATING THE RODUCT-

TECHNOLOGY-BUSINESS

CONNECTION

Product-Technology Matrix

To identify the relationship between products or services andthe underlying technology, a company can use any of severalmethodologies

A company can then determine which technologies it owns,

which it would like to acquire, and which it wants to outsource


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WEBLINKS http://www.airtel.in/wps/wcm/connect/about+bharti+airtel/Bhart

i+Airtel/Media+Centre/quick+facts/

http://outsourceportfolio.com/outsourcing-innovative-business-mo

dels/

http://trak.in/tags/business/2010/09/20/bharti-airtel-outsourcing-

africa-business/

http://articles.economictimes.indiatimes.com/2010-04-01/news/28

469946_1_network-outsourcing-maintenance-and-management-contrac

t-ericsson
http://www.airtel.in/wps/wcm/connect/about+bharti+airtel/Bharti+Airtel/Media+Centre/quick+facts/http://www.airtel.in/wps/wcm/connect/about+bharti+airtel/Bharti+Airtel/Media+Centre/quick+facts/http://outsourceportfolio.com/outsourcing-innovative-business-models/http://outsourceportfolio.com/outsourcing-innovative-business-models/http://trak.in/tags/business/2010/09/20/bharti-airtel-outsourcing-africa-business/http://trak.in/tags/business/2010/09/20/bharti-airtel-outsourcing-africa-business/http://articles.economictimes.indiatimes.com/2010-04-01/news/28469946_1_network-outsourcing-maintenance-and-management-contract-ericssonhttp://articles.economictimes.indiatimes.com/2010-04-01/news/28469946_1_network-outsourcing-maintenance-and-management-contract-ericssonhttp://articles.economictimes.indiatimes.com/2010-04-01/news/28469946_1_network-outsourcing-maintenance-and-management-contract-ericssonhttp://articles.economictimes.indiatimes.com/2010-04-01/news/28469946_1_network-outsourcing-maintenance-and-management-contract-ericssonhttp://articles.economictimes.indiatimes.com/2010-04-01/news/28469946_1_network-outsourcing-maintenance-and-management-contract-ericssonhttp://articles.economictimes.indiatimes.com/2010-04-01/news/28469946_1_network-outsourcing-maintenance-and-management-contract-ericssonhttp://trak.in/tags/business/2010/09/20/bharti-airtel-outsourcing-africa-business/http://trak.in/tags/business/2010/09/20/bharti-airtel-outsourcing-africa-business/http://outsourceportfolio.com/outsourcing-innovative-business-models/http://outsourceportfolio.com/outsourcing-innovative-business-models/http://www.airtel.in/wps/wcm/connect/about+bharti+airtel/Bharti+Airtel/Media+Centre/quick+facts/http://www.airtel.in/wps/wcm/connect/about+bharti+airtel/Bharti+Airtel/Media+Centre/quick+facts/

chapter 8 business strategy and technology strategy

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