Technology & StrategyGEST-D-484
First things first…
• Register by 16 February– Fill out your name, year of study and
student id on sheet in class • In capitals, please!
All info on…
• http://technologystrategy.skynetblogs.be/– Slides, readings, syllabus description, guide
to grading, overview course…
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
• Part I: Introduction– Class 1: Overview– Class 2: Introductory strategic concepts
• 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
• 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
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
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?
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… • ...
• On chosen firms– Elaborate on presentations– 6000-8000 words
• Create a group blog to monitor progress of presentations and cases
• 10 points– class presentations & case-study– participation in class!
• 10 points• 1 question on your case-study• 1 open question
Strategic management of technological innovation
• How to obtain, use or develop technology to achieve a new competitive advantage
to defend an existing competitive advantage against erosionLAST C
How to sustainably create and capture value of innovation
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?»
• 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
• 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!
• Winner-takes-it-all tendency• Fat profits for winner(s)
– Others» Either lose everything» Or become complementors to winning platform
Microsoft and the Internet: Explain!
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 »
Stock market crash
Year1995 1996 1997 1998 1999 2000 2001 2002 20031994
Launch of Amazon.com
Normalization? Pre-internet computers Rise of the Internet
2004 2005 2006
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?
Jobless technology possible?
• See article on 3D manufacturing technology– Appeared in The Economist– See http://technologystrategy.skynetblogs.be/
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
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
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?
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
THREAT OF ENTRY
THREAT OF SUBSTITUTES
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
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
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
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?
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
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
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
Biotech market segementation (2009 data)
Competition and Collaboration
Achieve accredited supplier status
e.g. Microsoft ecosystem (or business
Fragmented nature of doctors and hospitals good
for pharma!BUT collaboration with centralized government
Trade associations may promote safety standards or
Internet customer self-service, co-creation or
customizatione.g. Amazon, Made.com (on-line furniture retailer),
Collaborative timingMicrosoft MS-DOS OS & IBM’s personal computer
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