technology & strategy gest-d-484 manuel hensmans 1
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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
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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
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Year1995 1996 1997 1998 1999 2000 2001 2002 20031994
NASDAQ Points
Launch of Amazon.com
Normalization? Pre-internet computers Rise of the Internet
321
– 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…
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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
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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
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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
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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
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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
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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
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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)
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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