Competitive strategy and technology management

Any on-going concern keeps on hunting for new avenues of growth both in market share and profits.

The three broad channels of growth for a firm are:

1. Intensive

The firm uses it core capabilities to generate growth channels. It involves expanding

its own technological capabilities to generate competitive advantage.

2. Integrative

It involves integrating with other players to generate competitive advantage. The

firms do so by:

a. Vertical integration: Forward integration with buyers and backward integration

with suppliers.

b. Horizontal integration: Acquire one or more of its competitors

3. Diversification

Firms can follow diversification strategy when they enter new markets with new

products. Firms can achieve diversification in three modes:

a. Concentric diversification: New products that have synergies with existing

products. They circumvent the existing products.

b. Horizontal diversification: New products those are unrelated to current

products. For ex. Sony starts manufacturing cleaning liquids for its camera.

c. Conglomerate diversification: New products that are completely unrelated to its

current products or markets.

A firm’s strategy for attaining its business goals can be broadly divided into three parts:

1. Sourcing strategy: Takes care of inbound logistics in value chain.

2. Technology strategy: Takes care of operational issues in value chain.

3. Marketing strategy: Takes care of marketing, selling and post sales service in value chain.

Marketing plan is the first outcome of a marketing strategy describing how the firm is

planning to do to attain its marketing objectives.

This document describes techniques that can be used for identifying the happening in the current

market place that can impact the future of a company. It touches slightly on technology

management and predicting how consumers and non-consumers affect the destiny of a product or

technology.

Disruptive Innovation theory

The three types of innovation that takes place in technology industry are:

1. Sustaining innovation: The companies improve the product quality on similar performance

parameters.

2. Low end innovation: This innovation leads to cheaper products with reduced performance.

3. Disruptive innovation: Products which completely changes the market performance criteria

and take on a new flight.

RPV Theory

To compare one firm to the other or to analyse a firm, you need to look into its resources processes

and values:

1. Resources: The assets both material and intellectual that an organization possesses.

2. Processes: The process that the organization deploys to converts inputs into outputs. It

includes both the main and supporting processes within a supply chain. Processes are an

outcome of organizational learning by doing the same set of things repetitively. This

repetitive problem solving enables the organization to develop expertise in solving a

problem.

3. Values: Values indicates the criteria that the organization adopts to allocate resources to the

processes. It involves decisions such in which project to invest and where not to invest, how

the organization will gather the needed capital and with whom they will ally and not ally.

Values also help identify that who are the company’s most important customers and what

the company is doing to retain them.

VCE Theory

It states that an organization needs to control the most important part of its value chain which

matters most to its customers. You cannot outsource the most critical parts of the products or the

service but the parts that do not influence the core offering can be outsourced. Outsourcing invites

problem of integration and that needs to be taken care of.

SIGNALS OF CHANGE

To identify any signals of change within the market space involves evaluating three customer types:

1. Undershot: Customers whose expectations from the products are not met. They look

forward for improvements in the products and are ready to pay for it. These customers keep

searching the competitor products for better performance and they are the reason behind

sustaining innovation.

2. Overshot: Customers who are happy with the quality of product that is offered and they do

not need any major improvement in product quality but rather they seek a cost reduction.

These customers are mainly responsible for low market innovation or disruptive innovations.

These customers generally demand product that provides the bare minimum features.

3. Non consumers: Customers in this group are not happy with the products that are being

offered in the market space and are looking for some new products that provide them their

needed performance. This group of customers pave the way for new market innovations.

New market disruptive innovation

This type of innovation is targeted towards two customer groups: Non consumers and Overshot

customers. Successful new market disruptive innovations follow two patters:

1. They introduce a simple and relatively affordable product that meets the criteria of most of

the people who were not able to afford the product earlier. The acceptance barrier is low as

the company is competing against non-consumption.

2. They help customers to do more easily and effectively what was done earlier in a very

complex and intricate manner.

New market disruptive innovations have the greatest potential for long term industry change. The

signals that a company is going for new market disruptive growth are:

a. Look for rate of growth of new market segment.

b. Targeting a particular customer segment such as teenagers, college students.

Sustaining innovations

This type of innovation is mainly targeted towards undershot customers who are mainly looking

towards improvements in the current market products and are willing to pay for those

improvements.

Signals for sustaining innovations:

1. Frustrating product reviews demanding improved performance.

2. Prosperity of integrated companies where specialist companies struggles.

The sustaining innovations fall into two categories: radical and incremental sustaining innovations.

Radical provides big leap forward whereas incremental provides small step wise product

innovations. The integrated companies are better poised to play good at both ends.

Low end disruptions

This type of innovation is mainly targeted towards overshot customers who do want any more

performance improvements and are seeking cost reduction. Overshooting is the driver behind

commoditization- the process that results in companies being unfit to profitably differentiate their

products and services.

After functionality and reliability of a product matches the required standards, the product is

evaluated on the scale of: first convenience, then customization and lastly price. It is only after

companies fulfil all customers’ needs that price becomes the only thing that matters.

S-Curve and putting all innovations on the S Curve

Perf/Cost Sustaining innovation Low end disruption

New market innovation

Time

If we try to put everything on the S curve with X axis as performance/cost to Y as time, we find that

During the initial phases, the product is a new market innovation. The number of innovations is low

but the level of hard work to bring out such innovations is high. The product is charged at a premium

from the first movers. This is a time when any company can easily jump into this new product

market as the technology is in very juvenile stage and market standards are not defined so it

becomes very easy for the early movers to define technology standards. The MOTIVATION/ABILITY

framework demonstrates the amount of attention this new market innovation captures from the

incumbents. This is the time when non consumers and overshot consumers look at the new

technology for the desired performance. Hiring process for this phase is very complex as deep

expertise is needed to come with product that displaces the incumbent’s products, beating them by

defining completely new performance parameters.

In the growth phase, the technology is stabilized and well accepted by the market. The adoption of

technology creates the need for better performance and the companies get into sustaining

innovation phase as the customers are willing to pay higher for the technology. The market is

condensed with undershot customers who look for better product performance. A new product

innovation or a low end disruption will not be that effective at this point in time as the pulse of

market is towards exploiting the technology investment already made. The competing firms tries to

come up with better products and the performance of the product keeps on increasing. For Ex,

Apple’s IPAD was a new market innovation of yesterday but today the product has entered into a

sustaining phase and Apple after reading pulse of market is moving towards sustaining innovation.

This is a phase characterized by the war of standards and the hiring process is complex.

In the last stage of a product or technology, the technology gets commoditized and the most of the

customers are overshot and they start looking for cheaper products as the performance needs are

well met. This phase leads to the rise of low end market disruptions which are characterized by

more number of cheaper products that meets all the basic needs. The complexity of these products

is low and the number of products out is high which starts indicating that the technology is on its

decline stage and the companies should start looking to new market innovation for the forthcoming

future. In this phase the standards are well defined and the hiring process adopted by companies is

not complicated.

Competitive Battles

When a company comes up with a new technology innovation in the market place, it is faced by the

challenge posed by the incumbents. It is necessary for the company to evaluate the incumbent’s

reaction and act accordingly.

To evaluate a firm’s strength and weakness we use the RPV framework. A firm that have resources

that it deploy to attack a new opportunity, processes that needs small alteration and values that

permit for entering new domains will surely pose a big challenge to the entrant. Looking at RPV will

provide definitive insight into the capabilities and motivation of an organization and its next action

can be predicted.

Let’s see how the asymmetries in motivation and skills shape the market. Asymmetries of motivation

occur when one firm is motivated to do something which some other firm finds inappropriate.

Asymmetries of skills occur when one firm is capable of doing something which the other firm

cannot do.

Any of the asymmetry present will surely help an entrant to get a shield from the incumbent initially

and mitigate the incumbent’s response when it is finally motivated to counterattack.

Evaluating Strength and Weakness

Analyse RPV to identify a firm’s strength and weakness

Resources: Resources are the things that the company has access to. Tangible resources are

products, equipment and distribution network. Intangible assets are human capital, brand and

cumulative knowledge.

Processes: Processes are patterns of interaction, coordination, communication and decision making

employees use to transform inputs into products and services. When companies must solve the

same problem repeatedly, they develop formal and informal processes to solve it without failure.

Value: Values are the criteria that employees use when making prioritization decisions. They define

the resource allocation process i.e. the threats and opportunities the organization will pursue. To

identify the values you need to look into financial statement and past investment.

a. Income statement provides idea about how the company is making money, what is the gross

profit margin it needs to maintain for breakeven. Balance sheet will provide insight into how

the company is generating capital, what is the D/E ratio.

b. Looking into customer roster will detail what types of customers the firm is serving. It is

unlikely that a company which is driving it major revenue from one single customer will

focus on some other innovation which the customer does not value.

c. See what past investment the company made and what it had forgone.

Looking for Sword and Shield

Whenever a new entrant introduces a new innovation in the market, it needs sword and shield to

fight against the competition posed by incumbents. Asymmetries in motivation provide the shied to

the new entrant while asymmetries of skill provides sword to attack the market with a different

product which might not be the key strength area for an incumbent.

Let’s see how entrants can use the sword and shield to bring a new market innovation. The three

steps of the process are:

1. In the initial stages, there are asymmetries of motivation. The new technology innovation is

not of interest for the incumbents and this provides them shield to grow. Incumbents see

the same technology but their processes and values do not permit them to move early. They

instead try to cram the technology to serve their existing set of customers. For example-

putting the new market technology to bring sustaining innovation. This way the new

technology innovation loses its sheer power. Cramming consumes a lot of energy, time and

money from incumbents.

2. Next when incumbents see the entrants grow in market, they either fight or flee that market

space. If they choose to flee, the companies choose to change their market product mix or

customers. Focusing on core strengths is also a sign that a firm has chosen to flee from the

competition posed by new entrant. Incumbents flee when they have an up market to serve.

3. If the incumbents choose to fight, asymmetries of skill provide entrants the sword to attack

the incumbents.

Let’s see how the incumbents react to disruptive innovations. They choose between the three

strategies:

1. Cede the market – Occurs when the asymmetries are high. Cramming can also happen.

2. Growth driven co-option- Occurs when the asymmetries are low. The incumbent smells the

disruption very early and adopts the new technology to serve new customers. This happen

when the asymmetric barriers are low and the incumbent is motivates early to jump in the

new disruptive innovation market.

3. Defensive co-option- Occurs when the incumbent realises that the new disruptive

innovation is well established in the market. The incumbent comes up with a low market

innovation to bring its presence in the market. For example- IBM released relational data

base very late in the market when it found Oracle has dug deep feet.

Difference between Cramming and co-option

Cramming is the process where the incumbent uses the new disruptive technology within its core

product offerings to its core customers. It’s an early response by incumbents towards a new

disruptive technology. Co-option occurs when the incumbent jumps into the new disruptive

technology market completely and comes up with new products for that market using its internal

resources.

Strategic choices

The choices made by firms will define whether an innovation will rise as a disruptive innovation or a

sustaining innovation.

Three strategic choices that can go against the new markets are:

1. Wrong preparation regimen

2. Overlapping value networks

3. Incumbent’s efficiency to deal with disruptions.

Wrong preparation regimen

Wrong regimen will leads to selecting wrong foothold in the market place. Check for the company’s

investment structure, willing to invest and strength of business plan to evaluate the firm evolution. If

the firm has made very high initial investments then it reduces the flexibility of the firm to change its

course in future. High operating leverage provides high profits after breakeven but if the business

model is not very robust and it needs frequent changes then the firm which has less fixed

investments will steer clear.

Less are the assumptions in the business model more are the chances of success. The incumbent

needs to check the strength of the entrant’s business model to find out its strength.

The second thing to be observed closely might be hiring practices at the organization. Managers who

have previous experience of dealing with uncertainty, new product development, and creative

problem solving ways are better poised to come up with disruptive innovations.

Finally the firm also needs to look at the source of funding. It needs to check what the investors are

bringing to the table and what expected returns they seek? An investor who demands detailed

quantitative analysis and market projections might dismiss a new idea in account of his myopic

attitude towards returns. Investors that have arm’s length distance with the organization generally

stop funding when they saw companies face some turbulence.

Overlapping Value network

The value network of a firm is defined as the network of suppliers, buyers, supply chain partners and

collaborators that help the organization develop and distribute its products to the customers. If the

entrant has overlapping value network with the incumbent, then it makes easier for the incumbent

to co-opt. The overlapping value network reduces the exclusivity of the market space and the

stronger incumbent with large resources and well defined processes can easily plunder new

entrant’s territory.

Overlapping value networks with choke points can limit the ability to create asymmetries. When

overlap is weak, companies have best chance of harnessing asymmetric motivation and creating

asymmetric skills.

Incumbent’s defence

Firms can create separate spinouts or develop internal disruptive engines to tackle the disruptive

innovation. Co-option involves trying to fight off a disruptive attacker internally; spinning out new

ventures creates an external organization to join the fray. Creating a spinout and providing it with

ample latitude in defining its value and processes builds an entity that is better poised to compete in

the entrants disruptive technology market.

Technology Forecasting

Technology forecasting is one technique that helps you identify what the future technologies would

look like. There are two techniques for technology forecasting:

1. Exploratory techniques - Using present knowledge to predict future

2. Normative techniques – Asses future goals, mission and reach present.

Exploratory forecasting methods

1. Delphi method

In this technique various experts are invited and their opinions are taken into consideration

for deciding the future of a technology. First the experts are asked to give their opinion is an

isolated environment and then they are asked to listen to each other’s views and final

outcome is reached.

2. Trend Extrapolation

Both linear and logistic (exponential) regression techniques can be used to predict the

dependent variable from the independent ones.

3. Technology monitoring

Major steps are: Scanning, filtering and development of forecast.

Scanning

Collect as much information available about the technology. Identify how the

technology interfaces with PESTEL ecosystem.

Filtering

Find the information that makes sense for forecasting of technology. Redundant and

superfluous information can be avoided.

Analysis and development of forecast

Find out the technology area for scope of improvement taking into account the

customer criteria for convenience, customization and price. Depending upon the

variability of performance factors, technology will be shaped.

4. Growth curves

Technology

Adoption

Time

The rate of adoption of a technology also follows an S-curve. Initially the technology

adoption is low which gradually increases over time to reach its maximum value and then it

falls.

5. Scenario planning

Scenario building is one another technique that can be deployed to identify the performance

parameters of any offering and depending upon the variability of these performance

parameters, we can identify various scenarios.

Normative techniques

1. Relevance trees

Find the future state and break down the goal into activities. Activities can be

broken down into sub activities and solutions can be suggested. Depending upon the

solution suggested we can retrieve it to the present state. For example Compact city

design can be goal; various type of city design can be target solutions. To implement

each city design a set of activities needs to be carried out. This shapes the direction

that technology will follow.

2. Morphological analysis

The method involves creation of all possible outcomes of a technology in order to

determine different categories of its application. For example the morphological

properties of plastic enable it to be used in variety of applications such as packing

material to car windshield. This involves how the technology can be slightly modified

so that it begins serving other applications too.

3. Mission flow diagrams

Identify all possible ways to accomplish a task and do the cost benefit of each of

them. Technology can be developed on the most optimal way by identifying

significant steps/milestones for each route and then performance requirements are

identified for each associated technology and the same can be used for normative

forecasts.

Technology Life Cycle

The various stages of technology life cycle are shown in the figures below.

The various stages in the technology life cycle shape the direction that technology takes for product

and process innovation. In the initial stages more concentration is put on product innovation but

when the product standards are well defines, focus is shifted on process innovation to achieve low

cost and economies of scale. Let’s go through each stage one by one.

1. Cutting edge

It signifies birth of a new technology. Huge investment of R&D efforts but there is a lot

of uncertainty about target market and commercial viability of the technology. Number

of players is less. More concentration is put on product innovation than process

innovation.

2. State of the Art

This stage signifies that the technology is used to solve the customer’s problems. The

number of product innovations is high and there are lot of inefficiencies in product. This

stage needs technical people to take on the marketing task as the technology is new and

the customers are highly technical people who are interested in niceties of the

technology.

3. Advanced

This stage signifies a rapid market expansion on account of standardization of

technological characteristics. The number of less technical customers who are not

interested in deeper details of the technology increases. This calls in for professional

marketing team to come into picture. The number of players in the market increases and

this invites process standardization. The innovations in this stage are sustaining

innovation and the survival of a firm depends upon the profitability it derives through

automation and sustaining innovation.

4. Mature

In this stage of technology life cycle, the number of product innovations is very low and

the concentration shifts towards process improvements to bring down cost. This invites

production base to shift to third world countries. When it is not possible to reduce

production costs any further, firms shift their concentration towards better customer

service. This stage invites low end innovations to come into picture as the customers

also do not seek any major performance improvement with the product.

5. Decline

This stage is characterized by the decline in total number of customers. This is a time for

firms to invest into new disruptive innovations. All the above mentioned stages have

overlaps which makes the technology life cycle a smooth process.

Formulation of Technology strategy

It is evident from markets behaviour that technology provides a long run competitive advantage to a

firm. Technology strategy has occupied centre stage of long run corporate planning owing to the

emergence of technology as a competitive weapon and the need to grapple with global market

forces through effective deployment of technology within an organization.

Technology strategy comprises of three tasks

1. Internal and external technology sourcing

2. Deploying technology in product and process improvements

3. Using technology in technical support activities.

Below figure explain when and how technology strategy comes into picture