QUINTEN KRZYSKOGARRETT MIZE

JONATHAN SCHNEIDERALLISON SCOTTALEX STEAKLEY

Foundations of StrategyChapter 6

Chapters Focus

Business environments where technology is a key driver of change and an important source of competitive advantage.

Facebook, MySpace, eHarmony, Match.com

Primary concern will be the use of technology as a tool of competitive strategy

You will learn

How technology affects industry structure and competition

Returns to innovation & evaluate the potential for an innovation to establish competitive advantage

Formulate strategies for exploiting innovation and managing technology

How to win standard battlesHow to manage risk

Strategies to exploit innovation: How and when to enter

Alternative strategies to exploit innovation Licensing

Little investment/little return, few resources Outsourcing certain functions

Limited investment, external resources Strategic alliance

Flexible/ informal structure, permits pooling of resources and capabilities of more than 1 firm

Joint venture Shares investment risk w/ partner, same as strategic

alliance Internal Commercialization

Large investment , substantial amount of resources

Characteristics of innovation

The extent to which a firm can establish clear property rights in an innovation critically determines the choice of strategy

Licensening is only viable where ownership is an innovation is clearly defined by patent or copyrights. (pharmaceuticals)

How and when to enter

Resources and capabilities of the Firm Start up firms possess few of the complementary

resources and capabilities needed to commercialize their innovations (licensing, outsourcing, alliance or joint ventures)

Large established corporations are better placed for internal commercialisation

Timing innovation: to lead or to follow?

Evidence is mixed on whether it is better to be leader or follower

Early mover advantages Extent of innovation protection Importance of complementary resources Potential to establish a standard

Optimal timing also is dependent of resources and capability fir has at disposal

Managing risk

Technological uncertainty Arises from unpredictability of technological evolution

Market uncertainty Relates to the size and growth rates of the markets for

new product

Managing risk continued

Cooperating with lead users In early phases of development be careful monitoring

and responding to trends to avoid major errorsLimiting risk exposure

Financial risk can be minimized by avoiding adversity, avoiding debt and keeping fixed cost low

Flexibility Response to unpredicted events, being flexible means

keeping options open and delaying commitment

Competing For Standards

Standard is a format, interface, or system that allows interoperability

Standards allow us to do many thingsCan be public or privateCan be mandatory or de factoDelayed emergence of a standard may kill a

technology all together

Network Externalities

Exist when the value of a product to an individual customer depends on the number of other users of that product

Do not need everyone to use the same product or even the same technology

Only require that products are compatible through some interface

Network externalities can create positive feedback or have a negative effect, this is called tipping

Winning Standards War

In markets subject to network externalities, control over standards is the primary basis for competitive advantage

1st key to winning is determining if the market will converge around a single technical standard

2nd key is to recognize the role of positive feedback

Winning Standards War Cont.

You need to have allies before going to warEnter the market early, adopt penetrating

pricing, make deals with key customers, and achieve fast cycle product development

Convince customers and suppliers you will emerge as the victor

Winner of these battles often adopt an evolutionary strategy not a revolutionary strategy

Key Resources needed to Win a Standards War

Control over an installed base of customersOwning intellectual property rights in the

new technologyThe ability to innovate1st mover advantageStrength in componentsReputation and brand name

Competitive Advantage in Technology-Intensive Industries

It is the quest for competitive advantage that causes firms to invest in innovation

And innovation is the main reason why some firms are able to dominate their industries

The Innovative Process

InventionInnovation

Diffuses Demand side: through customers purchasing the good or

service Supply side: through imitation by competitors

Profitability of Innovation

No consistent evidence that either R&D intensity or frequency of a new product introductions are positively associated with profitability

Profitability depends on the value created by the innovation

Regime of Appropriability

Regime of appropriability: conditions that influence the distribution of returns to innovation Strong: innovator captures most of the value of the

innovation Property rights, complexity of technology, lead-time, and

complementary resources Weak: other parts derive most of the value

Property Rights in Innovation

Intellectual PropertyEffectiveness depends on the type of

innovation New manufacturing processes, patents may fail to

prevent rivals Patents disadvantage: make info public Hard to keep private

Complexity of the Technology

How easily the innovation can be replicated depends on how easily the technology can be comprehended

First depends on how codifiable the technology is

Second how complex it is Complexity : look for non easily copied ideas

Complementary Resources

Bringing new products to market requires not just invention, it also requires the diverse resources and capabilities needed to finance and market the innovation Generic comp resourc. – the innovator is in a much

stronger position to capture value Adobe Systems’ Acrobat Portable Document Format

PDF- still able to capture most of the value because it is compatible with almost any software application

Managing Creativity

Creativity associated with personality traitsCurious, uninhibited, imaginative peopleCreativity stimulated by human interaction

Play Permits unconstrained forms of experimentation

Low cost experimentation has expanded thanks to computer modeling and simulation capabilities

Organising for Creativity

Creatively oriented people tend to prefer an incentive based work environment Space and resources to be spontaneous Experience freedom and have fun in tasks Praise, recognition, and opportunities for educational

growth more important than managerial responsibilities

Work environment that is secure, not cosy Microsoft meetings: Open criticism and intense

disagreements, spurs progress towards better solutions

Organisational Approaches to Management of Innovation

Tension between operating and innovating parts of company inevitable, but both are necessary Innovation upsets established routines and changes

status quo More stable operations, ore resistance to innovation

Initiatives aimed at stimulating development and new technology

Cross Functional Product Development Teams

Highly effective for integrating creativity with functional effectiveness

Deploy broad range of specialist knowledge, while integrating that knowledge with flexibility i.e. Japanese companies Product Development Teams

staffed by specialists from different departments with leadership from a heavyweight manager who protected from corporate influence

Product Champions

Permit individuals who are sources of creative ideas to lead teams that develop those ideas Follow through their ideas to an organisational level

Commitment to their innovations

Buying Innovation

Buying Obtaining innovation from other, smaller firms Licensing, outright purchase of patents, or acquiring

whole companyCorporate Incubators

Developments made to fund new businesses based on technologies that have been developed internally Limited applications within a company’s established

businesses Very popular in IT boom at end of 1990’s Very few firms obtained success through incubators

Summary

Technological change often changes industry dynamics, altering amongst other things cost structures, models of revenue generations, rivalry, entry barriers and the relative bargaining strength of buyers and suppliers.

Firms that succeed in technologically intensive industries recognize the strategic characteristic of their market and adapt effectively