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Technology & StrategyGEST-D-484

Manuel Hensmans

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First things first…

• Register by 16 February– Fill out your name, year of study and

student id on sheet in class • In capitals, please!

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All info on…

• http://technologystrategy.skynetblogs.be/– Slides, readings, syllabus description, guide

to grading, overview course…

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Some general references

• Non-compulsory reference textbooks • Strategic Management Of Technological Innovation

(3rd Edition)– Author: Melissa Schelling

• Exploring Corporate Strategy (8th or 9th edition)– Authors: Johnson, Scholes & Whittington

Overview Course

• Part I: Introduction– Class 1: Overview– Class 2: Introductory strategic concepts

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Overview Course

• Part II: Industry dynamics techn innovHow and why innovation occurs in an industry

Why some innovations rise to dominate others– Class 3: Strategic sources of innovation– Class 4: Technological (R)evolution– Class 5: Standard Wars– Class 6: Strategic timing of innovation– Class 7: Class presentations

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Overview Course

• Part III: Firm-level strategyHow to formulate techn innovation strategy

How to organize techn innovation strategy– Class 8: Strategic direction– Class 9: Ecosystem strategy – Class 10: E-business strategy – Class 11: Organizing for innovation– Class 12: Class presentations

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Presentations• Choose a business involved in a tech

innovation• Presentation 1

– Strategic analysis of past dynamics• Describe history technological innovation and

industry dynamics to create & capture value• In terms of relevant theories of Parts I & II

– Focus on rivalry established players & new entrants

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Presentations• Presentation 2

– Strategic choices for the future• From the viewpoint of business & recent

technological innovation• in terms of relevant theories of Part III

– What would established players vs new entrants do?– Why would they make such strategic choices?

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Examples of choices… non-exhaustive list!• Car industry

– E.g. electrical / hybrid cars• E-businesses

– E.g. social media, insurance,…• Biotech & pharma

– E.g. UCB, biotechinbrussels.be,…• Mature industries under threat

– E.g. newspapers… • ...

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Case-study

• On chosen firms– Elaborate on presentations– 6000-8000 words

• Create a group blog to monitor progress of presentations and cases

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Marking

• 10 points– class presentations & case-study– participation in class!

• 10 points• 1 question on your case-study• 1 open question

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Strategic management of technological innovation

• How to obtain, use or develop technology to achieve a new competitive advantage

or

to defend an existing competitive advantage against erosionLAST C

LASS

How to sustainably create and capture value of innovation

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Today1) Tech Strategy different from general

business strategy?– Reading

• « Increasing returns & the new world of business »

2) Main framework for industry analysis– 5 forces framework– Apply to biotechnology industry– Reading

• « Can science be a business?»

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Discussion Reading

• Who has read? Discuss!• Why has Nokia dumped its own mobile

operating system Symbian?• Symbian is world leader in market share!

• Android phones– 1 year ago: 1/25th of market– Now: ¼ of market

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Increasing returns

• Market instability• More accurate than in text?

– « Those that are growing, will grow more; those that are shrinking, will shrink more »

• Unpredictability• Multiple potential outcomes• Small changes in interdependence, large effects

– Samsung left Symbian, joined Android platform

• Lock-in • Due to customer switching costs

– Inferior product can come to dominate!

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Increasing returns

• Winner-takes-it-all tendency• Fat profits for winner(s)

– Others» Either lose everything» Or become complementors to winning platform

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Microsoft and the Internet: Explain!

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Talk of a « New Economy »

• New Economy?– Post-1995 acceleration

• Exponential growth in computer speed, memory & interconnectedness

• Development of the Internet

– Frictionless economy? • No inflation of costs, no diminishing returns…

• What do you think?• «The computer chip has transformed us at least as much as

the advent of electricity or internal combusion engines »

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Stock market crash

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

Year1995 1996 1997 1998 1999 2000 2001 2002 20031994

NASDAQ Points

Launch of Amazon.com

Normalization? Pre-internet computers Rise of the Internet

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– 45%

2004 2005 2006

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2007

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Only true to some extent

• Not jobless technologies…• Limitations on human attention & time• Substitution one technology for another?

• Productivity revival new economy?• Primarily computer hardware, telecom…

» With spillover to 12% economy involving manufacture durable goods

• Mostly in US, not in Europe!– Why?

• Greatest benefits computers in the past?

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Jobless technology possible?

• See article on 3D manufacturing technology– Appeared in The Economist– See http://technologystrategy.skynetblogs.be/

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In sum: technology strategy

• How different from business strategy?– more uncertainty

• very small portion new tech leads to new products/processes

– more use of intellectual property management• R&D, protection & translation tacit knowledge

– probability of radically new products/services• bigger opportunities for new ventures

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In sum: technology strategy

• How different from business strategy?– alignment needed with HR/organizational

dynamics• E.g. • especially if basic scientific R&D is involved

– Tension customer orientation vs technological discovery?

– in some aspects different decision-making• Standards, increasing returns, tipping points, first

mover advantage…

2nd part class: Industry analysis

• What is an “industry”?• Firms producing similar principal products/services

• 2 goals of industry analysis?– Assess attractiveness industry structure

• Should we get in or out?

– Can we shape industry structure in our favour • Once in, can we improve or not?

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Read article + Break

• Read hand-out – « Can science be a business? »

• Think about the attractiveness of the biotech industry

• Think about the industry structure and how it could be changed

Industry analysis: 5 forces

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COMPETITIVE RIVALRYSuppliers

Potential entrants

Buyers

Substitutes

THREAT OF ENTRY

THREAT OF SUBSTITUTES

POWER BUYERS

POWER SUPPLIERS

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1 Competitive rivalry • Among existing competitors

– Competitor balance• Numerous or roughly equal in size & power?

– Industry growth • Slow often means fierce rivalry• Fast could mean rivalry about profit is still coming!

– Fixed costs• High often means fierce rivalry

– Exit barriers• High tends to increase rivalry (esp declining ind)

– Low differentiation?30

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Global biotech industry

• Competitive rivalry?

– Large number of biotech startups and SMEs– Alongside small number of large companies

• Novartis, Roche,...

• High fixed costs• Few companies make profit• Struggle to discover « biotech blockbuster »

– >Overall moderately strong rivalry

2 Threat of Entry• Height entry barriers

– Economies of scale and experience• Automobiles, advertising FMCG, pharma

– But Internet banking (only 10,000 customers to be viable)

– Expected retaliation• Price war or marketing blitz; global retaliation

– E.g. Coca-Cola or videogame industry

– Access to supply or distribution channels• Bypassed by Dell and Amazon

– Legislation or government action– Lengthy & costly clinical trials in biotech industry

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2 Threat of Entry • Height entry barriers

– Switching costs customer• Long-distance telephone vs Skype

– Diversification from other markets• Leverage existing resources and capabilities

– Apple and music distribution

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Global biotech industry

• Threat of entry– Strong growth, but high entry barriers!

• Strong intellectual property protection• Most biotech start-ups are…

– Academic research spin-offs» Long start-up periods with little profit» High fixed costs

– But pharma diversifying into biotech!

– > Moderately strong threat

3 Threat of substitutes

• Price/performance ratio• Alumnium vs steel in automobile applications• Videoconferencing vs travel

• Extra-industry influences– Always present, always take into account!

• Demand wired teleph lines in emerging economies– Capped due to choice for wireless mobilies– How many people have mobile phone access?

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Global biotech industry

• Threat of substitutes?– Medical biotech

• conventional therapeutic drugs– Less effective than biotech drugs

• BUT! New threat of « biosimilars»– http://www.economist.com/node/17316667– Traditional pharma

» Owner becomes poacher

• At the moment, moderate threat

4 Power of Buyers

• Power of buyers (not necess ultimate customers)

– Concentrated buyers• Telecoms didn’t want Nokia to partner with Google

– Low switching costs• Low for weakly differentiated commodities

– Steel, mobile phones (not smartphones)...

– Buyer competition threat• Buyer own supply facilities?

– Threat of backward vertical integration» E.g. window manufacturers against glass manufact

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Global biotech industry• Power of buyers?

– Main buyers are…• Medical biotech

– Healthcare providers such as GP doctors, hospitals,…

• Agricultural biotech– Farmers, growers…

– One company ownership of innovation• Patent protected = Less buyer power

– Reference pricing imposed by government • More buyer power

– > Overall…moderate threat

5 Power of Suppliers

• Power of suppliers– Concentrated suppliers

• Iron ore industry: 3 main producers– Fragmented steel companies: weak bargaining power

– High switching cost• Microsoft’s operating system

– Buyers prepared to pay premium to avoid hassle

– Supplier competition threat• Foward vertical integration: e.g. on-line booking

– Low-cost airlines cut out travel agencies

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Global biotech industry

• Power of suppliers?– Major suppliers are

• Manufacturers of lab equipment, software publishers, chemical companies …

• Little differentiation between suppliers– Less supplier power

• Yet, more supplier power– small likelihood backward integration– buyers can’t substitute certain raw material or equipment

– > Moderate threat

Industry analysis: difficulty!

• Define the right industry– Different market segments

• E.g. Biotech industry

– Converging industries • Pharma (marketing) & biotech (discovery)• Telephone & photographic

– Kodak vs Nokia or Samsung

– Complementors (sixth force?)• 1+1>2

– Dell and Microsoft ()– ARM & Apple

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Biotech market segementation (2009 data)

Competition and Collaboration

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Achieve accredited supplier status

e.g. Microsoft ecosystem (or business

schools)

Fragmented nature of doctors and hospitals good

for pharma!BUT collaboration with centralized government

drug-specifying agencies

Trade associations may promote safety standards or

technical specifications

Internet customer self-service, co-creation or

customizatione.g. Amazon, Made.com (on-line furniture retailer),

Dell

Collaborative timingMicrosoft MS-DOS OS & IBM’s personal computer

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To read for next class

• “Is the Internet a US invention?”– By David C. Mowery & Timothy Simcoe

• Research Policy 31 (2002), pp. 1369–1387

• Additional reading if you have time…– “China vs the World”

• By Hout and Ghemawat– Harvard Business Review, December 2010