Formulating technological strategy of the firm

The concepts in this chapter suggest a number of analytical steps in formulating technological strategy in order to turn technology into a competitive weapon rather than a scientific curiosity.

  1. Identify all the distinct technologies and subtechnologies in the value chain. Every value activity involves one or more technologies. The starting point in formulating technological strategy is to identify all the technologies and subtechnologies, no matter how mundane, that are employed either by the firm or its competitors. In addition, a firm must gain a similar if not as deep understanding of the technologies in its suppliers’ and buyers’ value chains, which often are interdependent with its own. Firms often focus on product technology or on technology in the basic manufacturing operation. They ignore technologies in other value activities, and pay little attention to the technology for developing technology.
  2. Identify potentially relevant technologies in other industries or under scientific development. Often technologies come from outside an industry and such technologies can be a source of discontinuous change and competitive disruption in an industry. Each value activity must be examined to see if outside technologies are present that might be applicable. Information systems, new materials, and electronics should always be investigated thoroughly. All three are having a revolutionary impact in creating new technologies or allowing new technological combinations of old technologies.
  3. Determine the likely path of change of key technologies. A firm must assess the likely direction of technological change in each value activity and in buyer and supplier value chains, including technologies whose sources are unrelated to the industry. No technology should be assumed to be Subtechnologies of it may be changing or maturity may be only a sign of little effort at technological innovation.
  4. Determine which technologies and potential technological changes are most significant for competitive advantage and industry structure. Not all the technologies in the value chain will have signifi-cance for competition. The significant technological changes are those that meet the four tests described in this chapter:
    • Create a sustainable competitive advantage themselves
    • Shift cost or uniqueness drivers in favor of a firm
    • Lead to first-mover advantages
    • Improve overall industry structure

A firm must isolate these technologies, and understand how they will affect cost, differentiation, or industry structure. Supplier and buyer technologies are often among the most important in this respect. Critical technologies will be those with a major effect on cost or differentiation, and where a technological lead is sustainable.

  1. Assess a firm’s relative capabilities in important technologies and the cost of making improvements. A firm must know its relative strengths in key technologies, as well as make a realistic assessment of its ability to keep up with technological Considerations of pride should not obscure such an assessment or a firm will squander resources is an area in which it has little hope of contributing to its competitive advantage.
  2. Select a technology strategy, encompassing all important technologies, that reinforces the firm’s overall competitive strategy. Technology strategy must reinforce the competitive advantage a firm is seeking to achieve and The most important technologies for competitive advantage are those where a firm can sustain its lead, where drivers of cost or differentiation are skewed in its favor, or where the technology will translate into first-mover advantages. As described earlier, firms can do a lot to reinforce advantages gained through technology through investments in other areas.

Included in a firm’s technological strategy should be the following:

    • A ranking of R&D projects that reflects their significance for competitive advantage. No project should be approved without a rationale describing its effect on cost and/or differentiation.
    • Choices about technological leadership or followership in important technologies.
    • Policies toward licensing that enhance overall competitive position rather than reflect short-term profit pressures.
    • Means of obtaining needed technology externally, if necessary, through licenses or otherwise.
  1. Reinforce business unit technology strategies at the corporate level. While technology is ultimately linked to individual business units a diversified firm can play two key roles to strengthen its overall technological position. The first is to assist in monitoring technologies for possible business unit impacts. A corporate group can usefully invest in identifying and analyzing all streams of technology that might have wide impact, and then feed that information to business units. A corporate role in monitoring such technologies as information systems, office automation, factory automation, materials, and biotechnology is often highly desirable.

The second key corporate role in technological strategy is in finding, exploiting, and creating technological interrelationships among business units. A business unit can gain competitive advantage if it can exploit technological interrelationships with others, as Chapter 9 describes in some detail.

The following specific actions at the corporate, sector, or group level can strengthen a firm’s overall technological position:

    • Identify core technologies for the corporation that impact many units.
    • Ensure that active and coordinated research efforts are underway, and that technology migrates among business units.
    • Fund corporate research in important technologies to create a critical mass of knowledge and people.
    • Use acquisitions or joint ventures to introduce new technological skills to the corporation, or to invigorate existing skills.

Source: Porter Michael E. (1998), Competitive Advantage: Creating and Sustaining Superior Performance, Free Press; Illustrated edition.

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