Hi tech industry

7

Strategy in High-
Technology
Industries

• ASSIGNMENT:
– Make a research on IPR – Intellectual Property
Rights, Patent and Legal issues
– Group reporting on Dec. 5, Wednesday
– Make sure every member in the group has role to
play or part in the presentation.
– As to who will report, randomly picked after
checking of the attendance.

Copyright © Houghton Mifflin Company. All rights reserved. 7-2

Overview

• Technology
– The body of scientific knowledge used in the
production of goods or services
• High-tech industries
– Those in which the underlying scientific
knowledge that companies in the industry use is
advancing rapidly, and by implication so are the
attributes of the products and services that result
from its application


The Importance of High-Tech
• Technology is accounting for an ever larger
share of economic activity
• Many low-tech industries are becoming more
high tech
• High-tech products are making their way into
a wide range of businesses
• Even in industries not thought of as high tech,
technology is changing aspects of the product
or production system


Technical Standards for Personal
Computers


Benefits of Standards

• Helps to guarantee compatibility
• Can help to reduce confusion
• Can help to reduce production costs
• Can help to reduce the risks associated with
supplying complementary products


Establishments of Standards

• Companies may lobby the government to
mandate an industry standard
• Technical standards are often set by
cooperation among businesses
– Public domain
• Standard is often selected competitively by
market demand


Network Effects and Positive Feedback

• Network effects
– The size of the network of complementary
products is a primary determinant of demand for
an industry’s products
• Positive feedback
– Reinforcing network effects to encourage adoption
of a standard


Positive Feedback in the Market for
VCRs


Lockout and Switching Costs
• Lockout
– Occurs when the market settles on a standard and
companies promoting alternate standards are no
longer able to compete
• Switching costs
– The costs consumers must bear to switch from a
product based on one standard to a product based
on another
• If consumers are unwilling to bear switching
costs, a company will be locked out

Copyright © Houghton Mifflin Company. All rights reserved. 7 - 10

Strategies for Winning a Format War

• Ensure a supply of complements
• Leverage killer applications
– New technology or products that are so compelling that
customers adopt them in droves, killing demand for
competing formats
• Aggressively price and market
– Razor and blade strategy: pricing the product low to
increase the installed base, then pricing complements
high to make profits
• Cooperate with competitors
• License the format

Managing Intellectual Property Rights

• Intellectual property rights
– The product of any intellectual and creative effort
– Patents, copyrights, and trademarks give
individuals and companies incentives to engage in
the expense and risk of creating new intellectual
property
• Digitalization and piracy rates
– Scale of the problem is very large
– Legal and technological solutions are required


Managing Intellectual Property Rights
(cont’d)
• Strategies for managing digital rights
– Recognize that low costs of copying and
distributing digital media can be used to the
company’s advantage
– Take advantage of low costs of copying and
distribution to drive down costs of purchasing
media (coupled with encryption software)


Capturing First-Mover Advantages

• The company that is first to develop
revolutionary new products
• If the new product satisfies unmet consumer
needs and demand is high:
– The first mover can capture significant revenues
and profits
– Revenues and profits signal an opportunity to
potential rivals


The Impact of Imitation on Profits of a
First Move


First-Mover Advantages
• Opportunity to exploit network effects and
positive feedback loops
• Potential to establish significant brand loyalty
• May be able to reap economies of scale and
learning effects
• May be able to create switching costs for
customers
• May be able to accumulate valuable
knowledge


First-Mover Disadvantages

• Bear significant pioneering costs
• More prone to make mistakes
• Run the risk of building the wrong resources
and capabilities
• May invest in inferior or obsolete technology


Strategies for Exploiting First-Mover
Advantages
• Develop and market the innovation itself
• Develop and market the innovation jointly
with other companies through a strategic
alliance or joint venture
• License the innovation to others and let them
develop the market


Choosing a Strategy for Exploiting First-
Mover Advantages
• Does the company have the complementary
assets to exploit its innovation?
• How difficult is it for imitators to copy the
company’s innovation (height of barriers to
imitation)?
• Are there capable competitors who could
rapidly imitate the innovation?


Strategies for Profiting from Innovation


Technological Paradigm Shifts

• When new technologies emerge that
– Revolutionize the structure of the industry
– Dramatically alter the nature of competition
– Require companies to adopt new strategies to
survive


Paradigm Shifts and the Decline of
Established Companies
• Paradigm shifts are more likely to occur when
– The established technology in the industry is
mature and approaching its natural limit
– A new disruptive technology has entered the
marketplace and is taking root in niches that are
poorly served by incumbent companies using
established technology


The Technology S-Curve


Established and Successor Technologies


Swarm of Successor Technologies


Disruptive Technology
• A new technology that gets its start from the
mainstream of a market and then, as its
functionality improves over time, invades the
main market
• Revolutionizes the industry structure and
competition, often causing the decline of
established companies because they listen to
customers who say they do not want it
• Causes a technological paradigm shift


Strategic Implications of Paradigm
Shifts for Established Companies
• Having access to knowledge about how
disruptive technologies can revolutionize
markets is valuable
• It is important to invest in newly emerging
technologies that may become disruptive
• Commercialization of disruptive technology
may require a different value chain with a
different cost structure


Strategic Implications of Paradigm
Shifts for New Entrants
• May be constrained by lack of capital
• May have to manage the organizational
problems associated with rapid growth
• May need to find a way to take the technology
from a small niche into the mass market
• May need to decide whether to go it alone or
partner with an established company


QUESTIONS?


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