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Technology and Innovation Strategies and Trajectories
Management of Technological Innovation Lesson 4 Corporate Level Issues <ul><li>Corporate Strategies for Innovation </li></...
Innovation is “Creative Destruction Creative Destruction In Singapore Inc. “ The new Cyber-economy has cast doubt on Singa...
 
“ What Singapore has done right” <ul><li>Kept the economy broad-based </li></ul><ul><li>Deregulated financial services </l...
“ And what else Singapore needs to do” <ul><li>Fast-track the privatization of government-linked corporations </li></ul><u...
Quotes from Jerel Kwek, 21,  Founder of Angel.net in SGP <ul><li>“ Singaporeans have never been known as risk takers.” </l...
 
Distribution of New Products Sales Customers in  Europe, USA, etc. Logistics Technical Service
VALUE: Product Promotion Product & Service Market & Customers Business Value + = Production Value Perceived Value
Time Cash Flow + 0 - Product Concept Design Concept Fundamental Design Implemental Design Introduction Growth Maturity Sat...
1x 2x 4x 6x 8x 10x 0.1x 0.2x 0.4x 0.6x 0.8x Market Share Relative to Top-Product Other Than Your Own In the Product Group ...
1x 2x 4x 6x 8x 10x 0.1x 0.2x 0.4x 0.6x 0.8x Market Share Relative to Top-Product in Product Group Market Growth Rate (%) H...
1x 2x 4x 6x 8x 10x 0.1x 0.2x 0.4x 0.6x 0.8x Market Share Relative to Top-Product in Product Group Market Growth Rate (%) H...
1x 2x 4x 6x 8x 10x 0.1x 0.2x 0.4x 0.6x 0.8x Market Share Relative to Top-Product in Product Group Market Growth Rate (%) H...
Semantic Differential Method In 1952, C.E. Osgood  proposed  that  products could be positioned  on a scale of 5 or 7 (cen...
Extremely Rather Slightly Neutral Slightly Rather Extremely Hard Old-Fashioned Warm Complex Masculine Elderly Subdued Rura...
Window of  Opportunity Expensive Cheap Complex Simple Product Positioning Map [Takahashi, 1999] Characteristics other than...
Western Japanese Traditional Contemporary Japanese Housing Styles Traditional Western Western Eclectic Modern Western Cont...
Corporate Policy/Strategy <ul><li>Creation Point of View </li></ul><ul><li>Innovative Product </li></ul><ul><li>Adaptive P...
S A B Star Epoch Making Design, high risk (10 items per annum) Ability/Awareness Global design,  Stabilize or further pene...
S A B A B Product Development Initial Progress of Innovative Product Further Technological Development, Continuing Design ...
Innovation Challenging Young Pioneering Extreme Build on Quality &Trust Sophisticated Mature Building Up Wide Mass Product...
Amount Sold Introduction Growth Maturity Saturation Decline Time Strategic Product Supplemental Product Priority Product P...
S A B Star Problem Child Cash Cow Dog Strategic Product Priority Product Supplemental Product Star Ability Business Relati...
Corporate Technology Strategies 1. Offensive Strategy: Leadership - “First to Market” 2. Defensive Strategy: “Follow-the-L...
Offensive Strategy: Leadership-“First to Market” <ul><li>Introduce  revolutionary innovations  in their fields. Initiate a...
<ul><li>In close proximity to state of the art. R-tensive. </li></ul><ul><li>R is characterized by scarcity of precedent a...
<ul><li>On marketing side, it is pursuing an as unmanifested but latent customer need. </li></ul><ul><li>Small companies c...
Defensive Strategy: “Follow-the-Leader” <ul><li>The industrial life-cycle model suggests that relatively good profit oppor...
<ul><li>Undertake some nondirected research coupled with intensive applied research. Research may duplicate that of offens...
3. Imitative Strategy: “Me-Too” <ul><li>Establishment of a dominant design stimulates, delineates and coalesces the market...
Reliability Engineering & Quality Control After Sales  Service Marketing Full Production Tertiary  Development & Design Pi...
<ul><li>Imitative technology purchase through licensing from the original primary innovator. A US primary innovator may no...
4. Applications Eng. Strategy: Interstitial <ul><li>A judicious analysis of primary innovators’ strengths, weaknesses, and...
5. Dependent Strategy: “Branch Plant” <ul><li>A subsidiary or a specialist department of a large firm. An MNC may want a l...
Quality Control After Sales Service Marketing Education & Advisory Services Production Branch Plant Base
6. Absorbent Strategy <ul><li>The licensee from a primary innovator uses the surplus cash flow and know-how to build up it...
7. Traditional Strategies <ul><li>Adopted by companies belonging to a mature industry: e.g. farming and wool-textile indus...
8. Other (Nontechnologically) Innovative Strategies <ul><li>Innovations need not just be technological.  </li></ul><ul><li...
 
Exercise With the aid of the previous slide on ‘Strategies and Capabilities’ analyze ‘your’ corporation and outline a feas...
 
Michael Porter’s Competitive Analysis <ul><li>The unit of analysis is the industry producing similar products. </li></ul><...
The ‘Five’ forces  driving industry competition are <ul><li>Relations with suppliers </li></ul><ul><li>Relations with buye...
Analyze the following extract about computer industry from the point of view of Porter’s five forces driving industrial co...
By the early 1990s, the industry had literally disintegrated, with  independent firms most of whom are new entrants since ...
<ul><li>Relations with suppliers:   suppliers relatively weak </li></ul><ul><li>Relations with buyers:  a  few mainframe p...
Analyze the following extract about computer industry from the point of view of Porter’s five forces driving industrial co...
By the early 1990s, the industry had literally disintegrated, with  independent firms most of whom are new entrants since ...
Analyze threats and  chose innovation trajectory <ul><li>Threat: Potential entrants and substitute products </li></ul><ul>...
<ul><li>Threat: Power of suppliers over buyers </li></ul><ul><li>This can be increased by innovations that are more essent...
Five Major Technological Trajectories <ul><li>Supplier-dominated </li></ul><ul><li>Scale Intensive </li></ul><ul><li>Infor...
Supplier-dominated Typical core sectors Agriculture, Services, Traditional manufacture Main sources of technology Supplier...
Scale-intensive Typical core sectors Bulk materials, Automobiles, Civil engineering Main sources of technology Production ...
Information-intensive Typical core sectors Finance, Retailing, Publishing, Travel Main sources of technology Software and ...
Science-based Typical core sectors Electronics, Chemicals Main sources of technology R&D, Basic Research Main tasks of tec...
Specialized Suppliers Typical core sectors Machinery, Instruments, Software Main sources of technology Design, Advanced us...
Organizational Innovation: A HK Example CPC/AJI (HK) LTD  is a well-established food manufacturer producing a range of 120...
The company is applying quick changeover philosophy to enhance flexibility while having minimum inventory in their manufac...
Exercise Identify the technological trajectory class of CPC/AJI (HK) LTD. Comment on the main sources of technology for th...
<ul><li>Exercise </li></ul><ul><li>Using the previous five slides as appropriate, recommend and discuss an innovation stra...
Porter’s generic technology strategies <ul><li>Cost leadership </li></ul><ul><li>Differentiation </li></ul><ul><li>The way...
Product Development Cost Leadership Lower material inputs, Ease of manufacture, Improve Logistics, Minimum features Differ...
Process Development Cost Leadership Learning curve, Economies of scale, Minimize costs Differentiation Precision, Quality ...
<ul><li>Exercise </li></ul><ul><li>Using the previous two slides as appropriate, expand your previously recommended innova...
Constraints faced by individual firms <ul><li>Established Product Base and Technological Competencies </li></ul><ul><li>Ch...
 
The Nature of Firm’s Products and Customers Compare food products, where there typically a wide range of quality and price...
In the 1960s, the oil company Gulf defined its distinctive competencies as producing energy, and so decided to purchase s ...
Exercise <ul><li>What is the lesson you learn from the Gulf case study? </li></ul><ul><li>Why are companies engaged in nuc...
Choosing an innovation strategy involves predicting the future and faith in an opinion. But, as Neils Bohr, the famous ato...
<ul><li>Some predictions that have gone wrong and some opinions that were questionable: </li></ul><ul><li>“ The war in Vie...
Most HK firms are small <ul><li>Can they innovate? </li></ul><ul><li>What does experience elsewhere tell about their prosp...
<ul><li>Assertions </li></ul><ul><li>‘ Small firms make the most of innovation.’ </li></ul><ul><li>‘ Small firms make few ...
Characteristics of small firms <ul><li>Similar objectives —to develop and combine technological and other competencies to ...
Characteristics of small firms (continued) <ul><li>Technological weaknesses —specialized range of technological competenci...
Exercise <ul><li>Why are small firms usually not as effective as large firms in innovating in fields such as chemicals, el...
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  1. 1. Technology and Innovation Strategies and Trajectories
  2. 2. Management of Technological Innovation Lesson 4 Corporate Level Issues <ul><li>Corporate Strategies for Innovation </li></ul><ul><li>Competitive Analysis </li></ul><ul><li>Threats, Technology Trajectories, and Constraints </li></ul>
  3. 3. Innovation is “Creative Destruction Creative Destruction In Singapore Inc. “ The new Cyber-economy has cast doubt on Singapore Inc.’s decades old formula of state-led success. Cant survive?” [A. Shameen and A. Reyes, Asiaweek, 24 March 2000, pp. 43-47.]
  4. 5. “ What Singapore has done right” <ul><li>Kept the economy broad-based </li></ul><ul><li>Deregulated financial services </li></ul><ul><li>Accelerated telecommunications liberalization </li></ul><ul><li>Opened up other parts of the economy </li></ul><ul><li>Welcomed foreign talent </li></ul>
  5. 6. “ And what else Singapore needs to do” <ul><li>Fast-track the privatization of government-linked corporations </li></ul><ul><li>Dismantle laws that restrict entrepreneur ship </li></ul><ul><li>Deregulate the media </li></ul><ul><li>Tackle other sacred cows (e.g. money tied up in Central Provident Fund) </li></ul><ul><li>Build a critical mass of research-knowhow </li></ul>
  6. 7. Quotes from Jerel Kwek, 21, Founder of Angel.net in SGP <ul><li>“ Singaporeans have never been known as risk takers.” </li></ul><ul><li>“ You are just taught that whatever they say is right, to never question, and that everything else is wrong. That is terribly cruel, it is wrong. It is not developing people to their full potential. Our education [system] has done a tremendous disservice to our budding entrepreneurs because it pushes them into a box where they are taught not to challenge, debate or question. But the New Economy is about constantly reinventing yourself and being creative and moving to where you can charge your customer a premium. How else can you do that without breaking rules?” </li></ul>
  7. 9. Distribution of New Products Sales Customers in Europe, USA, etc. Logistics Technical Service
  8. 10. VALUE: Product Promotion Product & Service Market & Customers Business Value + = Production Value Perceived Value
  9. 11. Time Cash Flow + 0 - Product Concept Design Concept Fundamental Design Implemental Design Introduction Growth Maturity Saturation Decline Sales Product Planning Feasibility Testing Fixing Specifications Pre- Production Designing Profit Promotion Costs [Takahashi, 1999]
  10. 12. 1x 2x 4x 6x 8x 10x 0.1x 0.2x 0.4x 0.6x 0.8x Market Share Relative to Top-Product Other Than Your Own In the Product Group Market Growth Rate (%) H H L L 0 2.5 5.0 7.5 10.0 12.5 15.0 17.5 20.0 22.5 A C B D Growth-Share Matrix [Takahashi, 1999]
  11. 13. 1x 2x 4x 6x 8x 10x 0.1x 0.2x 0.4x 0.6x 0.8x Market Share Relative to Top-Product in Product Group Market Growth Rate (%) H H L L 0 2.5 5.0 7.5 10.0 12.5 15.0 17.5 20.0 22.5 A The Product with Top Market share is placed horizontally at 1x. The diameter of each circle is proportional to the volume of sales Products, A, B, C, , belong to the same product group. Red circles: Total volume for each product type. Line representing same Product Type Our Client’s Product Competitor’s Product
  12. 14. 1x 2x 4x 6x 8x 10x 0.1x 0.2x 0.4x 0.6x 0.8x Market Share Relative to Top-Product in Product Group Market Growth Rate (%) H H L L 0 2.5 5.0 7.5 10.0 12.5 15.0 17.5 20.0 22.5 Problem Child Dog Cash Cow Star ? ? 
  13. 15. 1x 2x 4x 6x 8x 10x 0.1x 0.2x 0.4x 0.6x 0.8x Market Share Relative to Top-Product in Product Group Market Growth Rate (%) H H L L 0 2.5 5.0 7.5 10.0 12.5 15.0 17.5 20.0 22.5 Problem Child Dog Cash Cow Star Strategic Product Priority Product Supplemental Product
  14. 16. Semantic Differential Method In 1952, C.E. Osgood proposed that products could be positioned on a scale of 5 or 7 (centered on 0) between pairs of antonyms that put subjective ideas into words. Answers should be given rapidly, according to intuition. According to [Takahashi, 1999], sample of at least 50 provides a good average result.
  15. 17. Extremely Rather Slightly Neutral Slightly Rather Extremely Hard Old-Fashioned Warm Complex Masculine Elderly Subdued Rural Unfamiliar Trashy Dark Lo-tech Unfashionable Conservative Soft Modern Cool Simple Feminine Young Glitzy Fashionable Urban Classy Light Plain Gorgeous Hi-tec Familiar Unconventional
  16. 18. Window of Opportunity Expensive Cheap Complex Simple Product Positioning Map [Takahashi, 1999] Characteristics other than Expensive, Complex may be used.
  17. 19. Western Japanese Traditional Contemporary Japanese Housing Styles Traditional Western Western Eclectic Modern Western Contemporary Western Futuristic Experimental Contemporary Japanese New Japanese Modern Japanese Japanese Traditional Japanese [Takahashi, 1999]
  18. 20. Corporate Policy/Strategy <ul><li>Creation Point of View </li></ul><ul><li>Innovative Product </li></ul><ul><li>Adaptive Product </li></ul><ul><li>Continuation Product </li></ul><ul><li>Marketing (Product Life Cycle) </li></ul><ul><li>Point of View </li></ul><ul><li>Strategic Product </li></ul><ul><li>Priority Product </li></ul><ul><li>Supplemental Product </li></ul>[Takahashi, 1999]
  19. 21. S A B Star Epoch Making Design, high risk (10 items per annum) Ability/Awareness Global design, Stabilize or further penetrate market (40-60 items per annum) Business Brand quality design, Maintain brand name (1000 items per annum) Design Tradition at Sony [Takahashi, 1999]
  20. 22. S A B A B Product Development Initial Progress of Innovative Product Further Technological Development, Continuing Design Process [Takahashi, 1999]
  21. 23. Innovation Challenging Young Pioneering Extreme Build on Quality &Trust Sophisticated Mature Building Up Wide Mass Production Expanded Line & Application Vetran + Junior Maintaining Moderate S B A Innovation Design Personnel Formation Image Media Exposure SAB Design Development Formation [Takahashi, 1999]
  22. 24. Amount Sold Introduction Growth Maturity Saturation Decline Time Strategic Product Supplemental Product Priority Product Product Life Cycle [Takahashi, 1999]
  23. 25. S A B Star Problem Child Cash Cow Dog Strategic Product Priority Product Supplemental Product Star Ability Business Relative Market Share Market Growth
  24. 26. Corporate Technology Strategies 1. Offensive Strategy: Leadership - “First to Market” 2. Defensive Strategy: “Follow-the-Leader” 3. Imitative Strategy: “Me-Too” 4. Applications Eng. Strategy: Interstitial 5. Dependent Strategy: “Branch Plant” 6. Absorbent Strategy 7. Traditional Strategies 8. Other (Nontechnologically) Innovative Strategies
  25. 27. Offensive Strategy: Leadership-“First to Market” <ul><li>Introduce revolutionary innovations in their fields. Initiate a start of an industrial life cycle . Can reap rich rewards. Uncertainties and risks are high. </li></ul><ul><li>Successful examples : IBM in computers; RCA in television; Texas Instruments in semiconductors. </li></ul><ul><li>Failure examples : Comet airlines due to technological reasons; Concorde due to political, economic, and environmental reasons. </li></ul><ul><li>Companies need to have all-round excellence . </li></ul><ul><li>Potential technology-market synergies need to be spotted continually through active participation in nondirected research. </li></ul>
  26. 28. <ul><li>In close proximity to state of the art. R-tensive. </li></ul><ul><li>R is characterized by scarcity of precedent and low stability and predictability. </li></ul><ul><li>An offensive organization usually has the following characteristics: </li></ul><ul><li>1. Nondirective work assignments and indefinite objectives which are “broadcast” widely. </li></ul><ul><li>2. Continuing evaluations of results and swift perception of significant outcomes. </li></ul><ul><li>3. Values innovation over efficiency. </li></ul><ul><li>Needs to be T-tensive too and invest in a bigger way in T. </li></ul><ul><li>Strong need for patenting asap. </li></ul>
  27. 29. <ul><li>On marketing side, it is pursuing an as unmanifested but latent customer need. </li></ul><ul><li>Small companies can also adopt ‘offensive’ strategies. They are typically opportunistic-offensive. Their innovations are radical but not necessarily revolutionary. Such companies are usually spun-off from parent organizations, such as government, university laboratories, or large companies where the invention to be innovated was made. This pattern is particularly notable in the field of scientific instruments. </li></ul><ul><li>EXERCISE </li></ul><ul><li>Identify two small companies that have succeeded in adopting the technology leadership strategy. Discuss the factors and characteristics that could have led to their success. </li></ul>
  28. 30. Defensive Strategy: “Follow-the-Leader” <ul><li>The industrial life-cycle model suggests that relatively good profit opportunities occur in the performance-maximizing stage when the innovation is initially marketed but the dominant design has yet to emerge. Defensive strategists use this opportunity. Follow the leader with own improved version.Example: European semiconductor industry. </li></ul><ul><li>Higher returns at lower risks is the attraction. </li></ul>
  29. 31. <ul><li>Undertake some nondirected research coupled with intensive applied research. Research may duplicate that of offensive innovators so as to obtain autonomous scientific knowledge. </li></ul><ul><li>Must be strong in experimental development and design engineering. </li></ul><ul><li>Need to develop ones own patents so as to use them as bargain counters while weakening the dominant position enjoyed by the offensive counterpart. </li></ul><ul><li>Need to place high premium on superior technological product development, marketing intelligence and responsiveness. </li></ul>
  30. 32. 3. Imitative Strategy: “Me-Too” <ul><li>Establishment of a dominant design stimulates, delineates and coalesces the market. Excellent opportunities then exist for incremental innovations or improvements in the dominant design, based more upon design, reliability and cost considerations than on major technological differences. </li></ul><ul><li>Less R-intensive and more P(production)-intensive. </li></ul>
  31. 33. Reliability Engineering & Quality Control After Sales Service Marketing Full Production Tertiary Development & Design Pilot/ Prototype Production Education & Advisory Services New Product Development Test Marketing Marketing Knowledge Technological Knowledge Imitative Strategy Base
  32. 34. <ul><li>Imitative technology purchase through licensing from the original primary innovator. A US primary innovator may not have presence in a country and may wish to grant license to a domestic innovator. </li></ul><ul><li>Imitating company typically has a truncated technological base from design engineering onwards. Compete only on design improvements and lower manufacturing costs. </li></ul><ul><li>More directive supervision. </li></ul><ul><li>Greater use of management techniques such as PERT. </li></ul><ul><li>Favor efficiency rather than innovativeness. </li></ul>
  33. 35. 4. Applications Eng. Strategy: Interstitial <ul><li>A judicious analysis of primary innovators’ strengths, weaknesses, and strategies, combined with a search for unrealized applications, frequently identifies specialist niches so that incremental innovations for new markets could be developed. </li></ul><ul><li>Example: Control Data Corporation (CDC) was able to market computer systems tailored to users whose needs could not be satisfied by IBM computers. </li></ul><ul><li>Less R&D-tensive. More M(market)-tensive and sensitive to user needs. </li></ul>
  34. 36. 5. Dependent Strategy: “Branch Plant” <ul><li>A subsidiary or a specialist department of a large firm. An MNC may want a local subsidiary to exploit off-shore an market. </li></ul><ul><li>Canada is largely a “branch-plant” economy. The country’s technology is based on companies that are subsidiaries of US or European parent corporations (What about Singapore?). </li></ul><ul><li>Technology base truncated to production and marketing. </li></ul>
  35. 37. Quality Control After Sales Service Marketing Education & Advisory Services Production Branch Plant Base
  36. 38. 6. Absorbent Strategy <ul><li>The licensee from a primary innovator uses the surplus cash flow and know-how to build up its own R&D capability to launch performance-maximizing and cost-reducing incremental innovation. </li></ul><ul><li>In time, the company could become and offensive-defensive innovator. </li></ul><ul><li>Post second war Japan used this approach to avoid the development of a ‘branch-plant’ economy. </li></ul>
  37. 39. 7. Traditional Strategies <ul><li>Adopted by companies belonging to a mature industry: e.g. farming and wool-textile industries. </li></ul><ul><li>Much business activity whether of low, medium, or high technology encompasses the “harvesting” of profits from established products (or old technology) in established ‘old’ markets. </li></ul><ul><li>But, as US farming industry has shown, radical technological innovations can be introduced., e.g. pesticides and fertilizers for increased productiveness, and freeze drying for food processing. </li></ul>
  38. 40. 8. Other (Nontechnologically) Innovative Strategies <ul><li>Innovations need not just be technological. </li></ul><ul><li>Sales of existing products can be increased by innovations in promotion, distribution, and financing. Many such innovations may be technologically cosmetic (e.g. change in packaging) but can boost sales. This approach is particularly useful in consumer expendable industries such as detergents, personal toiletries, and food. </li></ul><ul><li>McDonald and Benihana of Tokyo have noninnovative manufacturing and management principles (but technologically innovative in their own industries) with innovative marketing approaches in fast-food and restaurant industries. </li></ul>
  39. 42. Exercise With the aid of the previous slide on ‘Strategies and Capabilities’ analyze ‘your’ corporation and outline a feasible technology strategy.
  40. 44. Michael Porter’s Competitive Analysis <ul><li>The unit of analysis is the industry producing similar products. </li></ul><ul><li>The goal of the strategic analysis is “to find a position in industry where a company can best defend itself against [the] competitive forces or can influence them in its favor.” </li></ul><ul><li>There are five types of forces to consider: </li></ul>
  41. 45. The ‘Five’ forces driving industry competition are <ul><li>Relations with suppliers </li></ul><ul><li>Relations with buyers </li></ul><ul><li>New entrants </li></ul><ul><li>Substitute products </li></ul><ul><li>Rivalry amongst established firms </li></ul><ul><li>Technological change can influence all the five forces. </li></ul>
  42. 46. Analyze the following extract about computer industry from the point of view of Porter’s five forces driving industrial competition The experience over the past 30 years of the US computer industry is a spectacular example of the power of technological change to transform completely the structure and competitive conditions in an industry. In the early 1970s, the industry was dominated by a few mainframe producers , some of whom were fully vertically integrated from basic circuitry through to distribution . Barriers to entry were high, suppliers relatively weak , and customers had a limited range of choice .
  43. 47. By the early 1990s, the industry had literally disintegrated, with independent firms most of whom are new entrants since the 1970s) competing at each stage from basic circuitry to distribution. The main destabilizing factor has been the rapid rate of technical improvement in the microprocessor —the computer on a chip. This has drastically reduced the costs of computing, thereby lowering barriers to entry to the users of microprocessors and opening of a whole range of potential applications outside mainframes (of which the personal computer is one of the most spectacular), and thereby creating a whole range of new opportunities for firms in systems and applications software . An equally spectacular revolution is presently under way following the development of e-mail, Internet and WWW.
  44. 48. <ul><li>Relations with suppliers: suppliers relatively weak </li></ul><ul><li>Relations with buyers: a few mainframe producers, vertically integrated from basic circuitry through to distribution, suppliers relatively weak, customers had a limited range of choice </li></ul><ul><li>New entrants: independent firms most of whom are new entrants since the 1970s) competing at each stage, </li></ul><ul><li>Substitute products: rapid rate of technical improvement in the microprocessor , a whole range of potential applications outside mainframes </li></ul><ul><li>Rivalry amongst established firms: lowering barriers to entry to the users of microprocessors </li></ul>
  45. 49. Analyze the following extract about computer industry from the point of view of Porter’s five forces driving industrial competition The experience over the past 30 years of the US computer industry is a spectacular example of the power of technological change to transform completely the structure and competitive conditions in an industry. In the early 1970s, the industry was dominated by a few mainframe producers , some of whom were fully vertically integrated from basic circuitry through to distribution . Barriers to entry were high, suppliers relatively weak , and customers had a limited range of choice .
  46. 50. By the early 1990s, the industry had literally disintegrated, with independent firms most of whom are new entrants since the 1970s) competing at each stage from basic circuitry to distribution. The main destabilizing factor has been the rapid rate of technical improvement in the microprocessor —the computer on a chip. This has drastically reduced the costs of computing, thereby lowering barriers to entry to the users of microprocessors and opening of a whole range of potential applications outside mainframes (of which the personal computer is one of the most spectacular), and thereby creating a whole range of new opportunities for firms in systems and applications software . An equally spectacular revolution is presently under way following the development of e-mail, Internet and WWW.
  47. 51. Analyze threats and chose innovation trajectory <ul><li>Threat: Potential entrants and substitute products </li></ul><ul><li>Threats of new entrants can be increased through reducing economies of scale (e.g. telecommunications, publishing), and through substitute products (e.g. microcomputers, aluminum for steel cans). </li></ul><ul><li>They can be decreased through ‘lock-in’ to technological standards (e.g. Microsoft), and through patents and other legal protection (e.g. most major ethical drugs). </li></ul>
  48. 52. <ul><li>Threat: Power of suppliers over buyers </li></ul><ul><li>This can be increased by innovations that are more essential to the firm’s inputs (e.g. microprocessors into computers) </li></ul><ul><li>It can be decreased by innovations that reduce technological dependence on suppliers (engineering materials) </li></ul><ul><li>Threat: Rivalry amongst established firms </li></ul><ul><li>Rival firms can establish a monopoly position through innovation (e.g. Polaroid in instant photography), or destroy a monopoly position through imitation (US general Electric in brain scanners). </li></ul>
  49. 53. Five Major Technological Trajectories <ul><li>Supplier-dominated </li></ul><ul><li>Scale Intensive </li></ul><ul><li>Information-intensive </li></ul><ul><li>Science-based </li></ul><ul><li>Specialized suppliers </li></ul>
  50. 54. Supplier-dominated Typical core sectors Agriculture, Services, Traditional manufacture Main sources of technology Suppliers, Production, Learning Main tasks of technology strategy Use technology from elsewhere to strengthen other competitive advantages
  51. 55. Scale-intensive Typical core sectors Bulk materials, Automobiles, Civil engineering Main sources of technology Production engineering, Production learning, Design offices, Specialized suppliers Main tasks of technology strategy Incremental integration of changes in complex systems, Diffusion of base design and production practice
  52. 56. Information-intensive Typical core sectors Finance, Retailing, Publishing, Travel Main sources of technology Software and systems departments, Specialized suppliers Main tasks of technology strategy Design and operation of complex information processing systems, Development of related products
  53. 57. Science-based Typical core sectors Electronics, Chemicals Main sources of technology R&D, Basic Research Main tasks of technology strategy Exploit basic science, Development of related products, Obtain complementary assets, Redraw divisional boundaries
  54. 58. Specialized Suppliers Typical core sectors Machinery, Instruments, Software Main sources of technology Design, Advanced users Main tasks of technology strategy Monitor advanced user needs Integrate new technology incrementally
  55. 59. Organizational Innovation: A HK Example CPC/AJI (HK) LTD is a well-established food manufacturer producing a range of 120 varieties varieties of basic products and imports about 80 products from its foreign affiliates. Their products include culinary aids, convenience foods, desserts, cooking aids, bread spread dressings, snack and beverages with famous brand names such as “Bestfoods”, “Kingsford”, “Skipp”, and “Torto”.
  56. 60. The company is applying quick changeover philosophy to enhance flexibility while having minimum inventory in their manufacturing operation. To ensure quality, the company has implemented Good Manufacturing Practice (GMP) and Hazard Analysis Critical Control Point (HACCP) together with Safety Improvement Process (SIP) which is in place for continuous improvement (Kaizen) of the working environment. The company was granted the “Gold Award - Effective Communication” by the Labor Department and of the “Productivity Award” of the HK Productivity Council. The company was recognized by the judging panel to be focusing on “customer satisfaction through excellent quality and quick response.”
  57. 61. Exercise Identify the technological trajectory class of CPC/AJI (HK) LTD. Comment on the main sources of technology for the company. Discuss the main tasks to be considered while developing the technology strategy of the company.
  58. 62. <ul><li>Exercise </li></ul><ul><li>Using the previous five slides as appropriate, recommend and discuss an innovation strategy for any one of the following companies and, later, for ‘your’ company: </li></ul><ul><li>Microsoft </li></ul><ul><li>Wellcome supermarket </li></ul><ul><li>DHL </li></ul><ul><li>Texas Instruments </li></ul><ul><li>Cathay Pacific </li></ul><ul><li>Sony </li></ul>
  59. 63. Porter’s generic technology strategies <ul><li>Cost leadership </li></ul><ul><li>Differentiation </li></ul><ul><li>The way the above strategies are applied in product development could be different from that in process development. </li></ul>
  60. 64. Product Development Cost Leadership Lower material inputs, Ease of manufacture, Improve Logistics, Minimum features Differentiation Enhance quality, Enhance features, Enhance deliverability, Niche markets
  61. 65. Process Development Cost Leadership Learning curve, Economies of scale, Minimize costs Differentiation Precision, Quality control, Response time, Precision, Quality control, Response time
  62. 66. <ul><li>Exercise </li></ul><ul><li>Using the previous two slides as appropriate, expand your previously recommended innovation strategy for each of the following companies: </li></ul><ul><li>Microsoft </li></ul><ul><li>Wellcome supermarket </li></ul><ul><li>DHL </li></ul><ul><li>Texas Instruments </li></ul><ul><li>Cathay Pacific </li></ul><ul><li>Sony </li></ul>
  63. 67. Constraints faced by individual firms <ul><li>Established Product Base and Technological Competencies </li></ul><ul><li>Chemical companies do not diversify into electronic products and vice versa. </li></ul><ul><li>It is difficult for a company making traditional textiles to make computers. </li></ul><ul><li>Firm Size </li></ul><ul><li>Large firms adopt ‘broad front’ strategies. </li></ul><ul><li>Small firms are ‘focused’. </li></ul>
  64. 69. The Nature of Firm’s Products and Customers Compare food products, where there typically a wide range of quality and prices, with ethical drugs and passenger aeroplanes where product quality (I.e. safety) is rigidly controlled. Food firms therefore have a wider range of product innovation strategies to choose from. In contrast, drug and aircraft firms require large-scale expenditures on product development and tigorous testing. They are therefore more restricted in their innovation choices.
  65. 70. In the 1960s, the oil company Gulf defined its distinctive competencies as producing energy, and so decided to purchase s nuclear energy firm. The venture was unsuccessful, in part because the strengths of an oil company in finding, extracting, refining and distributing oil-based products, I.e. geology and chemical processing technologies, logistics, consumer marketing, were largely irrelevant to the design, construction and sale of nuclear reactors, where the key skills are electromechanical technologies and in selling to relatively few, but often politicized electrical utilities.
  66. 71. Exercise <ul><li>What is the lesson you learn from the Gulf case study? </li></ul><ul><li>Why are companies engaged in nuclear energy usually politicized? </li></ul><ul><li>Explain the following terms with suitable examples: </li></ul><ul><li>geology, logistics, </li></ul><ul><li>electromechanicaal technologies, </li></ul><ul><li>consumer marketing, </li></ul>
  67. 72. Choosing an innovation strategy involves predicting the future and faith in an opinion. But, as Neils Bohr, the famous atomic scientist said, “Prediction is difficult, especially about the future.”
  68. 73. <ul><li>Some predictions that have gone wrong and some opinions that were questionable: </li></ul><ul><li>“ The war in Vietnam is going well and will succeed” (R. Mcnamara, 1963) </li></ul><ul><li>“ I think there is a world market for about five computers.” (T. Watson, 1948) </li></ul><ul><li>“ Gaiety is the most outstanding feature of the Soviet Union.” (Joseph Stalin, 1935) </li></ul><ul><li>“ I cannot conceive of any vital disaster happening to this vessel.” (Captain of Titanic, 1912) </li></ul>
  69. 74. Most HK firms are small <ul><li>Can they innovate? </li></ul><ul><li>What does experience elsewhere tell about their prospects? </li></ul><ul><li>What are their characteristics? </li></ul>
  70. 75. <ul><li>Assertions </li></ul><ul><li>‘ Small firms make the most of innovation.’ </li></ul><ul><li>‘ Small firms make few innovations since they do little R&D.’ </li></ul><ul><li>‘ Small firms are much more innovative than large firms, since they account foe a higher share of innovations than of R&D.’ </li></ul><ul><li>‘ New firms create a lot of employment.’ </li></ul><ul><li>What the evidence shows </li></ul><ul><li>‘ It depends on the product and the technology.’ </li></ul><ul><li>They do lots of “informal”, “part time” and non-measured R&D, and produce a share of total innovations roughly equivalent to their output and employment </li></ul><ul><li>‘ Not if you include unmeasured, part time R&D.”. </li></ul><ul><li>‘ They also lose a lot since they have high birth and death rate.’ </li></ul>
  71. 76. Characteristics of small firms <ul><li>Similar objectives —to develop and combine technological and other competencies to provide goods and services that satisfy customers better than alternatives, and that are difficult to initiate; </li></ul><ul><li>Organizational strengths —ease of communication, speed of decision-making, degree of employee commitment and responsiveness to novelty. This is why small firms often do not need formal strategies that are used in large firms to ensure communication and co-ordination. </li></ul>
  72. 77. Characteristics of small firms (continued) <ul><li>Technological weaknesses —specialized range of technological competencies, inability to develop and mange complex systems, inability to find long-term and risky programs. </li></ul><ul><li>Different sectors —small firms make a greater contribution to innovation in certain sectors, such as machinery, instruments, and software, than in chemicals, electronics and transport. </li></ul>
  73. 78. Exercise <ul><li>Why are small firms usually not as effective as large firms in innovating in fields such as chemicals, electronics and transportation? </li></ul><ul><li>Given the information on the previous slide, what do you think is the chance of success of the Chief Executive’s vision to transform HKSAR into an innovative society? </li></ul>
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