Technology strategy: The Choice of Technologies to Develop

At the core of a technology strategy is the type of competitive advantage a   firm   is trying   to   achieve.   The  technologies   that  should be developed are those that would most contribute to a firm’s generic strategy, balanced against the probability of success in developing them. Technology strategy  is a potentially  powerful   vehicle with   which a firm can pursue  each of the three  generic strategies. Depending  on which generic strategy is being followed, however, the character  of technology strategy will vary a great deal, as shown  in Table 5-1.

In many firms, R& D programs are driven more by scientific inter­ ests than by the competitive advantage  sought. It is clear from Table 5-1, however, that the primary focus of a firm’s R& D programs should be consonant  with the generic strategy  that  is being pursued.  The R&D program  of a cost leader, for example, should  include a heavy dose of projects designed to lower cost in all value activities that represent a significant fraction   of cost,   as well as projects  to   reduce the cost of product design through value engineering. R& D by a cost leader on product performance  must be aimed at maintaining  parity with competitors  rather  than  adding  costly new features or the goals of R& D will be inconsistent with the firm’s strategy.

Another im portant observation from Table 5-1 is that both prod­ uct and process technological change  can   have a role in supporting each of the generic strategies. Firm s often incorrectly  assume that process technological change is exclusively cost-oriented and product technological change is intended  solely to enhance  differentiation. Chapter 3 has shown how product technology can be critical in achiev­ ing low cost, while Chapter 4 has shown how changes in process technology may be the key to differentiation (a favorite tactic of Japa­ nese companies).

It is also im portant that a firm’s technology strategy extend beyond product and process R& D as they are traditionally defined. Technology pervades a firm’s value   chain   and   relative   cost and  differentiation   are a function   of the   entire chain.   Thus  a systematic  examination  of all a firm’s technologies will reveal areas in which to reduce  cost or en­ hance differentiation. The  information  system department  may have more impact  on technological change  in some firms today than  the R&D   department,  for   example.   Other  im portant  technologies   such as transportation, materials handling, communications, and office auto­ mation also deserve more than ad hoc or informal attention. Finally, development in all technological areas m ust be coordinated to ensure consistency and exploit interdependencies among them.

Crown Cork and Seal provides a good example of the link between technology strategy and competitive advantage.  Crown  focuses on se­ lect customer industries and provides cans together with highly respon­ sive service. Crown does little or no basic research and does not pioneer new products. Rather, its R& D departm ent is organized to solve spe­ cific customer problems on a timely basis, and to imitate successful product innovations rapidly. Crown’s R& D approach, then, closely supports its focus strategy. Its technological  policies are quite different from those of American  Can  or Continental  Group,  which supply broad lines of packaging in addition to cans. American and Continental invest heavily on research in basic materials and new products.

The  selection of specific technologies in the value chain   on which to concentrate development effort is governed by the link between technological change and competitive advantage. A firm should con­ centrate on those technologies that have the greatest sustainable impact on cost or differentiation, either directly or through  meeting the other tests described earlier. These tests allow a ranking  of technological changes that  would yield   the   greatest  competitive  benefit.   The  cost of improving   the   technology   m ust   be   balanced  against  the   benefit, as well as the likelihood that the improvement can be achieved.

Firms  often   confront  a choice   between   attempting  to   improve an established technology  for performing  a value activity or investing in a new one. In aluminum smelting, for example, a firm might concen­ trate on improving the Hall-Heroult process now in use, or it might attempt to develop carbothermic reduction. Technologies seem to go through a life cycle in which early m ajor improvements give way to later incremental ones. This argues that the benefit/cost tradeoff in improving m ature technologies may be less (though  perhaps  more certain) than that in improving newer technologies.

This can be a dangerous assumption, however, that is self-fulfilling. A technology   can be assumed   to be m ature  only   with   great caution. M ajor improvements in the efficiency of the Hall-Heroult process are occurring today, for example, despite  the fact that  it was developed prior to 1900. Similarly, the fuel efficiency of low-speed diesel engines has risen significantly since 1974. Diesel technology  is also over 80 years old and was widely viewed as m ature compared to gas turbines, yet diesels have actually increased   their  lead over turbines.   In   both these examples, the rapid rise in energy prices stimulated  active atten­ tion to fuel efficiency. Greater attention to improving the technologies was coupled with improvements in materials technology, instrumenta­ tion, and electronics that allowed better process control, higher tem­ peratures, and other benefits.

As noted earlier, most products  and value activities embody  not one technology but  several   technologies   or   subtechnologies.   It   is only a particular combination   of subtechnologies  that  can   be assumed   to be mature,  not  individual subtechnologies  themselves. Significant changes in any one of the subtechnologies  going into a product  or process may create new possibilities for combining them that produce dramatic improvements, such as those achieved in smelting and low- speed diesel engines. The  advent of microelectronics,  a subtechnology that can be applied to many  other technologies, is having a profound effect on many industries through unlocking possibilities for new tech­ nological combinations.

Thus  in choosing among  technologies to invest in, a firm must base its decisions on a thorough understanding of each important technology in   its value chain   and  not  on simple indicators  such as age. Sometimes all that  is necessary   to produce  technological progress is effort and investment, as both examples illustrate. In other cases, advances in subtechnologies may allow improvement in the existing technology.   Efforts at improving  an   older technology  can   sometimes be futile, however. In such instances the best course of action is to attempt to leapfrog it. The decision by a firm to discard its own technol­ ogy may be difficult,   particularly  if it   was developed   in-house, but such a choice may be essential to maintaining the firm’s competitive position.

The choice of  technologies to develop should   not be limited to those few where there are opportunities for m ajor breakthroughs. Mod­ est improvements in several of the technologies in the value chain, including those not related to the product or the production process, can add up to a greater benefit for competitive advantage. Moreover, cumulative improvements in many  activities can be more  sustainable than a breakthrough  that  is noticeable to   competitors  and   becomes an easy target for imitation. The success of Japanese firms in technology is rarely due to breakthroughs, but to a large number of improvements throughout the value chain.

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

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