Technology Strategies and Trajectories

Strategies and Trajectories, Management of Technological Innovation, KV Patri

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Technology and Innovation Strategies and Trajectories


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Management of Technological InnovationLesson 4

Corporate Level Issues

• Corporate Strategies for Innovation

• Competitive Analysis

• Threats, Technology Trajectories, and Constraints


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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.]


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Singapore Hong KongPopulation 3.9 mil 6.9 milPer-capita GNP (nominal) US$21,828 US$24,716Per capita GDP(purchasing power parity), US$27,740 US$21,830Inflation 1.5% -5.3%Exports US$115b US$State companies among top10 listed firms 6 0Electronics as % of totalexports 67% 30%Internet service providers 6 159Population with Net access 30% 16%Major private-sectorelectricity suppliers 0 2Rank in GlobalCompetitiveness Report 1st 3rd


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“What Singapore has done right”

• Kept the economy broad-based

• Deregulated financial services

• Accelerated telecommunications liberalization

• Opened up other parts of the economy

• Welcomed foreign talent


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“And what else Singapore needs to do”

• Fast-track the privatization of government-linked corporations

• Dismantle laws that restrict entrepreneur ship

• Deregulate the media

• Tackle other sacred cows (e.g. money tied up in Central Provident Fund)

• Build a critical mass of research-knowhow


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Quotes from Jerel Kwek, 21, Founder of Angel.net in SGP

• “Singaporeans have never been known as risk takers.”

• “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?”


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Future years

Profit Profitgoal

ForecastProfit from

Current operations

Gap to befilled by

innovations


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Distribution of New Products

Sales

Customers in Europe, USA, etc.

Logistics

TechnicalService


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VALUE: Product Promotion

Product &Service Market &

Customers

BusinessValue

+ =

ProductionValue

PerceivedValue


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Time

CashFlow

+

0

-

Product Concept

Design ConceptFundamentalDesign

ImplementalDesign

Intr

oduc

tion G

row

th

Mat

urity

Sat

urat

ion

Dec

line

SalesP

rodu

ct P

lann

ing

FeasibilityTesting

FixingSpecifications

Pre-Production

Designing

Profit

PromotionCosts

[Takahashi, 1999]


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1x2x4x6x8x10x 0.1x0.2x0.4x0.6x0.8x

Market Share Relative to Top-Product Other Than Your Own In the Product Group

Mar

ket

Gro

wth

Rat

e (%

)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-ShareMatrix

[Takahashi, 1999]


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1x2x4x6x8x10x 0.1x0.2x0.4x0.6x0.8x

Market Share Relative to Top-Product in Product Group

Mar

ket

Gro

wth

Rat

e (%

)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


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1x2x4x6x8x10x 0.1x0.2x0.4x0.6x0.8x


Mar

ket

Gro

wth

Rat

e (%

)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

DogCashCow

Star

?

?


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1x2x4x6x8x10x 0.1x0.2x0.4x0.6x0.8x


Mar

ket

Gro

wth

Rat

e (%

)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

DogCashCow

Star

StrategicProduct

PriorityProduct

SupplementalProduct


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Semantic Differential MethodIn 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.


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Ext

rem

ely

Rat

her

Sli

ghtl

y

Neu

tral

Sli

ghtl

y

Rat

her

Ext

rem

ely

HardOld-Fashioned

Warm

Complex

Masculine

Elderly

Subdued

Rural

Unfamiliar

Trashy

Dark

Lo-techUnfashionable

Conservative

Soft

Modern

Cool

Simple

Feminine

Young

Glitzy

Fashionable

Urban

Classy

Light

Plain Gorgeous

Hi-tec

Familiar

Unconventional


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Windowof

Opportunity

Expensive

Cheap

Complex Simple

Product Positioning Map[Takahashi, 1999] Characteristics

other thanExpensive,Complex

may be used.


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Western

Japanese

Tra

dit

ion

al

Con

tem

por

ary

Japanese Housing Styles

TraditionalWestern

Western

Eclectic

Modern Western

ContemporaryWestern

FuturisticExperimentalContemporary

Japanese

NewJapanese

ModernJapanese

Japanese

TraditionalJapanese

[Takahashi, 1999]


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Corporate Policy/Strategy

Creation Point of View• Innovative Product• Adaptive Product• Continuation Product

Marketing (Product Life Cycle)Point of View• Strategic Product• Priority Product• Supplemental Product

[Takahashi, 1999]


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S

A

B

StarEpoch Making Design, high risk

(10 items per annum)

Ability/Awareness Global design,

Stabilize or further penetrate market(40-60 items per annum)

BusinessBrand quality design, Maintain brand name

(1000 items per annum)

Design Tradition at Sony[Takahashi, 1999]


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SA

B

AB

Product Development

Initial Progress ofInnovative Product

FurtherTechnological Development,Continuing Design Process

[Takahashi, 1999]


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Innovation Challenging Young Pioneering Extreme

Build onQuality &Trust

Sophisticated Mature Building Up Wide

MassProduction

Expanded Line& Application

Vetran +Junior

Maintaining Moderate

S

B

A

Innovation Design PersonnelFormation

Image MediaExposure

SAB Design Development Formation[Takahashi, 1999]


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Am

ount

Sol

d

Introduction Growth Maturity Saturation DeclineTime

StrategicProduct

SupplementalProduct

PriorityProduct

Product Life Cycle[Takahashi, 1999]


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S

A

B

Star ProblemChild

CashCow Dog

StrategicProduct

PriorityProduct

SupplementalProduct

Star

Ability

Business

Relative Market Share

Mar

ket G

row

th


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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


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Offensive Strategy: Leadership-“First to Market”

• Introduce revolutionary innovations in their fields. Initiate a start of an industrial life cycle. Can reap rich rewards. Uncertainties and risks are high.

• Successful examples: IBM in computers; RCA in television; Texas Instruments in semiconductors.

• Failure examples: Comet airlines due to technological reasons; Concorde due to political, economic, and environmental reasons.

• Companies need to have all-round excellence.

• Potential technology-market synergies need to be spotted continually through active participation in nondirected research.


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• In close proximity to state of the art. R-tensive.

• R is characterized by scarcity of precedent and low stability and predictability.

• An offensive organization usually has the following characteristics:

1. Nondirective work assignments and indefinite objectives which are “broadcast” widely.

2. Continuing evaluations of results and swift perception of significant outcomes.

3. Values innovation over efficiency.

• Needs to be T-tensive too and invest in a bigger way in T.

• Strong need for patenting asap.


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• On marketing side, it is pursuing an as unmanifested but latent customer need.

• 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.

EXERCISEIdentify two small companies that have succeeded in adopting the

technology leadership strategy. Discuss the factors and characteristics that could have led to their success.


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Defensive Strategy: “Follow-the-Leader”

• 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.

• Higher returns at lower risks is the attraction.


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• Undertake some nondirected research coupled with intensive applied research. Research may duplicate that of offensive innovators so as to obtain autonomous scientific knowledge.

• Must be strong in experimental development and design engineering.

• Need to develop ones own patents so as to use them as bargain counters while weakening the dominant position enjoyed by the offensive counterpart.

• Need to place high premium on superior technological product development, marketing intelligence and responsiveness.


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3. Imitative Strategy: “Me-Too”

• 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.

• Less R-intensive and more P(production)-intensive.


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Reliability Engineering&

Quality Control

AfterSales Service

MarketingFull

Production

Tertiary Development

&DesignPilot/

PrototypeProduction

Education&

AdvisoryServices

NewProduct

Development

TestMarketing

Mar

keti

ngK

now

ledg

e

Tec

hnol

ogic

alK

now

ledg

e

Imitative Strategy Base


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• 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.

• Imitating company typically has a truncated technological base from design engineering onwards. Compete only on design improvements and lower manufacturing costs.

• More directive supervision.

• Greater use of management techniques such as PERT.

• Favor efficiency rather than innovativeness.


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4. Applications Eng. Strategy: Interstitial

• 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.

• Example: Control Data Corporation (CDC) was able to market computer systems tailored to users whose needs could not be satisfied by IBM computers.

• Less R&D-tensive. More M(market)-tensive and sensitive to user needs.


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5. Dependent Strategy: “Branch Plant”

• A subsidiary or a specialist department of a large firm. An MNC may want a local subsidiary to exploit off-shore an market.

• 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?).

• Technology base truncated to production and marketing.


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Quality

Control

After

Sales

Service

Marketing

Education&

AdvisoryServices

Production

Branch Plant Base


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6. Absorbent Strategy• 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.

• In time, the company could become and offensive-defensive innovator.

• Post second war Japan used this approach to avoid the development of a ‘branch-plant’ economy.


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7. Traditional Strategies• Adopted by companies belonging to a mature industry: e.g.

farming and wool-textile industries.

• 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.

• 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.


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8. Other (Nontechnologically) Innovative Strategies

• Innovations need not just be technological.

• 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.

• 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.


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Strategies and Capabilities

Off

ensi

ve

Def

ensi

ve Im

itat

ive

App

lied

Eng

.

Bra

nch

Pla

nt

Nondirected fundamental research M M N N NApplied Directed Research M M N N NExperimental Development and Design H H N L/M NAdvanced Development and Design H H H H LPilot/Prototype to Full Production M M H M MQuality Control/Product Design M M H M MPatents and Licenses H M L M N“After-Sales” Services H M H H MEducation and Advisory Services H M L H MLong-Term Planning H M L H N

Key: N-None, L-Low, M-Medium, H-High


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Exercise

With the aid of the previous slide on ‘Strategies and Capabilities’ analyze ‘your’ corporation and outline a feasible technology strategy.


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Technology-Market MatrixExternal

EnvironmentGenericMarkets

&Opportunities

OLD NEW

OLD

Nor

mal

Inte

rnal

Env

iron

men

t

Gen

eric

Tec

hnol

ogic

alC

apab

iliti

es &

Pro

duct

s

NE

W

Rev

olu-

tiona

ry


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Michael Porter’s Competitive Analysis

• The unit of analysis is the industry producing similar products.

• 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.”

• There are five types of forces to consider:


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The ‘Five’ forces driving industry competition are

• Relations with suppliers• Relations with buyers• New entrants• Substitute products• Rivalry amongst established firms

Technological change can influence all the five forces.


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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.


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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.


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• Relations with suppliers: suppliers relatively weak

• 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

• New entrants: independent firms most of whom are new entrants since the 1970s) competing at each stage,

• Substitute products: rapid rate of technical improvement in the microprocessor, a whole range of potential applications outside mainframes

• Rivalry amongst established firms: lowering barriers to entry to the users of microprocessors


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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.


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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.


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Analyze threats and chose innovation trajectory

Threat: Potential entrants and substitute products• 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).

• 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).


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Threat: Power of suppliers over buyers• This can be increased by innovations that are more

essential to the firm’s inputs (e.g. microprocessors into computers)

• It can be decreased by innovations that reduce technological dependence on suppliers (engineering materials)

Threat: Rivalry amongst established firms• 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).


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Five Major Technological Trajectories

• Supplier-dominated

• Scale Intensive

• Information-intensive

• Science-based

• Specialized suppliers


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Supplier-dominated

Typical core sectorsAgriculture, Services, Traditional manufacture

Main sources of technology

Suppliers, Production, Learning

Main tasks of technology strategy

Use technology from elsewhere to strengthen other competitive advantages


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Scale-intensive

Typical core sectorsBulk materials, Automobiles, Civil engineering


Production engineering, Production learning, Design offices, Specialized suppliers


Incremental integration of changes in complex systems, Diffusion of base design and production practice


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Information-intensive

Typical core sectorsFinance, Retailing, Publishing, Travel


Software and systems departments, Specialized suppliers


Design and operation of complex information processing systems, Development of related products


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Science-based

Typical core sectorsElectronics, Chemicals


R&D, Basic Research


Exploit basic science, Development of related products, Obtain complementary assets, Redraw divisional boundaries


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Specialized Suppliers

Typical core sectorsMachinery, Instruments, Software


Design, Advanced users


Monitor advanced user needs

Integrate new technology incrementally


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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”.


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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.”


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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.


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ExerciseUsing the previous five slides as appropriate,

recommend and discuss an innovation strategy for any one of the following companies and, later, for ‘your’ company:

• Microsoft• Wellcome supermarket• DHL• Texas Instruments• Cathay Pacific• Sony


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Porter’s generic technology strategies

• Cost leadership

• Differentiation

The way the above strategies are applied in product development could be different from that in process development.


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Product DevelopmentCost Leadership

Lower material inputs, Ease of manufacture, Improve Logistics, Minimum features

Differentiation

Enhance quality, Enhance features, Enhance deliverability, Niche markets


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Process DevelopmentCost Leadership

Learning curve, Economies of scale, Minimize costs

Differentiation

Precision, Quality control, Response time, Precision, Quality control, Response time


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ExerciseUsing the previous two slides as appropriate, expand

your previously recommended innovation strategy for each of the following companies:

• Microsoft• Wellcome supermarket• DHL• Texas Instruments• Cathay Pacific• Sony


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Constraints faced by individual firms

Established Product Base and Technological Competencies

• Chemical companies do not diversify into electronic products and vice versa.

• It is difficult for a company making traditional textiles to make computers.

Firm Size• Large firms adopt ‘broad front’ strategies.• Small firms are ‘focused’.


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Public goods-type

knowledge

Publications, tech.monitoring,

conferences,informal contacts

Licensing, know-how agreements,

mergers andacquisitions

Consortia, jointventures, strategic

partnering

R&D, design & eng.,learning by doing,

marketingexperience

Other firm'sproprietoryknowledge

New Knowledgegenerated jointlywith other firms

E ndogenouslygeneratedknowledge

Firm'sstock of

knowledge

Obsoleteknoweldge

Forgetting bynot doingHow firms can acquire knowledge


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The Nature of Firm’s Products and CustomersCompare 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.


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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.


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Exercise

• What is the lesson you learn from the Gulf case study?

• Why are companies engaged in nuclear energy usually politicized?

• Explain the following terms with suitable examples:

geology, logistics,

electromechanicaal technologies,

consumer marketing,


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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.”


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Some predictions that have gone wrong and some opinions that were questionable:

• “The war in Vietnam is going well and will succeed” (R. Mcnamara, 1963)

• “I think there is a world market for about five computers.” (T. Watson, 1948)

• “Gaiety is the most outstanding feature of the Soviet Union.” (Joseph Stalin, 1935)

• “I cannot conceive of any vital disaster happening to this vessel.” (Captain of Titanic, 1912)


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Most HK firms are small

• Can they innovate?

• What does experience elsewhere tell about their prospects?

• What are their characteristics?


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Assertions• ‘Small firms make the most of

innovation.’

• ‘Small firms make few innovations since they do little R&D.’

• ‘Small firms are much more innovative than large firms, since they account foe a higher share of innovations than of R&D.’

• ‘New firms create a lot of employment.’

What the evidence shows• ‘It depends on the product and

the technology.’

• 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

• ‘Not if you include unmeasured, part time R&D.”.

• ‘They also lose a lot since they have high birth and death rate.’


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Characteristics of small firms• 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;

• 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.


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Characteristics of small firms(continued)

• Technological weaknesses—specialized range of technological competencies, inability to develop and mange complex systems, inability to find long-term and risky programs.

• 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.


78

Exercise

• Why are small firms usually not as effective as large firms in innovating in fields such as chemicals, electronics and transportation?

• 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?

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