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   m atter  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 technolo­ gies in its suppliers’ and buyers’ value chains, which often are interde­ pendent  with   its own.   Firms  often   focus on   product  technology or on technology in the basic m anufacturing operation. They ignore tech­ nologies in other value activities, and pay little attention to the technol­ ogy 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 revolu­ tionary impact in creating new technologies or allowing new technolog­ ical 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 technol­ ogies whose sources are unrelated  to the industry.  No  technology should be assumed to be mature.  Subtechnologies of it may be changing or maturity may be only a sign of little effort at technological innova­ tion.
  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 im portant in this respect. Criti­ cal technologies will be those with a m ajor effect on cost or differentia­ tion, 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  change.   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 technol­ ogies, that reinforces the firm ‘s overall competitive strategy. Technology strategy must reinforce the   competitive  advantage  a   firm   is seeking to achieve and The  most im portant technologies for competi­ tive advantage are those where a firm can sustain its lead, where drivers of cost or differentiation are skewed in its favor, or where the technol­ ogy 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 No project  should  be approved  without a rationale describing its effect on cost an d /o r differentiation.
    • Choices about technological leadership or followership in im­ portant technologies.
    • Policies toward licensing that enhance overall competitive posi­ tion 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 While technology is ultimately linked to individual business units a diversified firm can play two key roles to strengthen its overall techno­ logical 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 corpo­ rate 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 find­ ing, 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 under­ way, and that technology migrates among business units.
  • Fund corporate research in im portant  technologies to create a critical mass of knowledge and people.
  • Use acquisitions or joint ventures  to introduce  new technologi­ cal 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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