3. Relationship of Technology with Wealth of Nation & Firms Specific Knowledge (competitive advantage).

Productivity growth is indispensable to growth in national income and wealth. Research carried out over the last 30 years demonstrates that technological change is an important contributor to productivity growth, and therefore to growth in the income and wealth of nations. The last decade of the twentieth century presents great challenges and opportunities to policy makers and managers concerned with improving technological and economic performance. Technological change is an essential ingredient in the processes of growth. Investment in technological improvement and in the complementary assets and activities needed to support innovation is a positive sum strategy for improving living standards. Enhanced capital, labor and technical progress (or equivalently, total factor productivity) are the three principal sources of the economic growth of nations. The rate of growth of labor is generally constrained by the rate of growth of population. For industrialized countries, the rate of growth of the labor force is seldom higher than two percent per annum, even with international migration. Consequently, the rate of growth of capital (physical and human) and technical progress have been found to account for a significant proportion of economic growth by a long line of distinguished economists
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Firms Specific Knowledge (competitive advantage)

Creation of knowledge: Efforts at creating new capability may be focused on better satisfying the needs already being addressed or on responding to new needs (creating new business).
Includes basic research, applied research, and development.

Application of knowledge (Doing): Applying newly acquired capability or creative application of already available capability.
Includes product (design engineering), process (manufacturing engineering, quality control, fabrication, computer-integrated manufacturing), and market (application engineering, physical distribution, and product service).
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Technological Innovation in a Competitive Environment

Decisions about technology and innovation are very strategic and managers need to approach them in a systematic way. Two generic strategies a company can use include Low-cost leadership can drive innovation as companies try to gain cost advantages through pioneering lower-cost product designs Differentiation strategy can drive innovation as companies seek the advantages that come from having a unique product or service that customers pay a premium price for

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TECHNOLOGICAL POLICIES AND GENERIC COMPETITIVE STRATEGIES

GENERIC Overall Cost Leadership TECHNOLOGICAL Product devt to reduce product cost by lowering materials content, facilitating ease of manufacture, simplifying logistical requirements. Learning curve process improvement. Process devt to enhance economies of scale. STRATEGY Overall Differentiation POLICIES Product devt to enhance product quality, features, deliverability, or switching costs. Focus-Segment Cost Leadership Product devt to design in only enough performance for the segments needs. Process devt to tune production and delivery system to segment needs in order to lower cost. Focus-Segment Differentiation Product design to exactly meet the needs of the particular business segment application. Process devt to tune the production and delivery system to segment need in order to improve performance.

Product technological change

Process technological change

Process devt to support high tolerances, greater quality control, more reliable scheduling, faster response time to orders, and other dimensions that improve performance.

(Porter, 1983)
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MICHAEL PORTERS MATRIX

High Niche/focu s 2 Outstandin g success 3

DEGREE OF MARKETING DIFFERENTIATION

4 Disaster Cost leadership

Low High RELATIVE COSTS

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Low
5

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The Strategic Management Process (Source: Viljoen and Dann, 2000, p47)
Analysis of the external environment

Strategic analysis

Analysis of internal skills and resources Analysis of stakeholder needs and expectations

STRATEGIC INFORMATION SYSTEM

Formulate strategic objectives Identify performance measures Generate strategic options

Strategy choice

Choose a preferred strategy

Develop appropriate systems

Strategy implementation

Acquire and utilise skills and resources Develop appropriate organisation structure Manage the culture

Strategy evaluation & control

Measure strategic objectives Take corrective action

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VISION MISSION VALUES

Strategic direction

LEADERSHIP VS FOLLOWERSHIP

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DETERMINANTS OF THE LEADERSHIP FOLLOWERSHIP CHOICE

Industry structural characteristics:
opportunity to influence cost or differentiation the uniqueness of the firms technological skills first mover advantages the continuity of technological change rate of change in process technology or customer purchasing behaviour irreversibility of investments uncertainty, and leadership externalities.
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LEADERSHIP EXTERNALITIES
Gaining regulatory approvals and code compliance Winning customers away from substitutes (marketing costs, penetration prices) Customer education on product usage Investments in infrastructure such as supply sources, machinery, training repair and service personnel Investments to improve the performance price or availability of complementary goods.

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Technology Evaluation Matrix

Strategic

Technology leader

Catch up or get out

Operational

De-emphasise technology

Technology adopter

Leader

Laggard

Technology position of the firm in industry

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Technology Leadership

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Technology Followership
Following the technology leader can support both low-cost and differentiation strategies
The follower learns from the leaders experience The follower can avoid the costs and risks of technology leadership The follower can adapt the products or delivery systems to fit buyers needs more closely

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TECHNOLOGICAL LEADERSHIP-FOLLOWERSHIP AND GENERIC STRATEGIES

O verall cost leadersh ip O verall differentiation T ech nological L eadersh ip First m over on low est cost product or process technology. First m over on unique product or process that enhances product perform ance or creates sw itching costs. First m over on low est cost segm ent technology. First m over on unique product or process tuned to segm ent perform ance needs, or creates segm ent sw itching costs. T echnological F ollow ership L ow er cost of product or process through learning from leaders experience. A dapt product or delivery system m ore closely to m arket needs (or raise sw itching costs) by learning from leaders experience. A lter leaders product or process to serve particular segm ent m ore efficiently. A dapt leaders product or process to perform ance needs of particular segm ent or create segm ent sw itching costs.

F ocu s low est segm en t cost F ocu s segm en t differentiation

(Porter, 1983)

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TECHNOLOGICAL LEADERSHIPLEADERSHIPFOLLOWERSHIP AND GENERIC STRATEGIES

Technological Leadership Technological Followership First mover on lowest cost product Lower cost of product or process Overall cost or process technology. through learning from leaders leadership experience. First mover on unique product or Adapt product or delivery system Overall more closely to market needs (or differentiation process that enhances product performance or creates switching raise switching costs) by learning costs. from leaders experience.

(Porter, 1983)

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Assessing Technology Needs

In todays increasingly competitive environment failure to correctly assess the technology needs of the organization can fundamentally impair the organizations effectiveness Assessing the technology needs of the organization involves:
measuring current technologies Measuring external trends affecting the industry
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Measuring Current Technologies

A technology audit helps clarify the key technologies on which an organization depends One technique for measuring competitive value categorizes technologies as: Emerging technologies are still under development and thus are unproved Pacing technologies have yet to prove their full value but have the potential to alter the rules of competition by providing significant advantage Key technologies have proved effective, but they also provide a strategic advantage Base technologies are those that are common place in the industry
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Assessing External Technological Trends

There are several techniques that managers use to better understand how technology is changing within an industry
Benchmarking is the process of comparing the organizations practices and technologies with those of other companies Scanning focuses on what can be done and what is being developed, placing a great emphasis on identifying and monitoring the sources of new technologies for an industry
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