PART ONE

Meeting the Challenges of the 21st Century

Chapter

Strategy and the Management of Technology and Innovation

PowerPoint Presentation by Charlie Cook The University of West Alabama 2007 Thomson/South-Western. All rights reserved.

Overview
Issues addressed in this chapter include:
The meaning of strategy Continuous versus radical technology Offensive versus defensive technology

Key MTI concerns in strategy

The strategy process Understanding an industry and its impact Strategic groups within an industry

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Strategy
Strategy Defined
A coordinated set of actions that fulfill the firms

objectives, purposes, and goals.

It is not a single act in a firm.

Without a strategy, managers have:

No well-defined business path to follow No roadmap to manage by No cohesive, reasoned action plan to produce

successful performance

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Establishing the Strategy

Strategic Planning
The process that lays the groundwork and direction of

the firm over the next several years as outlined in a formal written strategic plan.

Strategic Management
An ongoing process in which the organization defines:

the nature of the businesses in which it will be active the kind of economic and human organization it intends to be

The nature of the contribution it intends to make to its various constituents

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FIGURE 2.1

External and Internal Strategic Interactions

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Types of Capabilities
Technical Capabilities
How the firm approaches technology

Destroyeliminating and replacing technology Preservemaintaining technology; continuous improvement Developleaping others with new technological capabilities

Market Capabilities
the ability to place the product or technology

appropriately.

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Competitive Advantage
Competitive Advantage
Something that the firm does better than any of its

competitors. Goal: To have a sustainable competitive advantage

Requires that the advantage: Must be valued by customers Cannot be easily duplicated by competitors

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FIGURE 2.2

The S-Curve of Technological Progress

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FIGURE 2.3

Key Activities in the Strategic Management Process

SOURCE: Adapted from UC Santa Cruz Leadership Convocation, Kristine Hafner, Director Business Initiatives, UCOP, February 4, 1999. 2007 Thomson/South-Western. All rights reserved.

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The Planning Process

1. 2. 3. 4. Data gathering Mission generation Objective setting Strategy establishment

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Mission Statement
A simple statement of the basic purpose or reason for a firm to exist.
It should:
Identify Identify Help

what is unique about the firm

the scope of activities it wants to pursue

the firm stay focused by defining who and what it is.

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FIGURE 2.4

Levels of Strategy

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Corporate Strategy
The pattern of decisions in a company that:
Determines and reveals the firms objectives,

purposes, or goals Produces the principal policies and plans for achieving those objectives, purposes, or goals Defines:
The range of businesses the firm is to pursue The kind of economic and human organization it is or intends to be The nature of contribution it intends to make to its constituencies.

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Business Level Strategy

Business Level Strategy
How to operate the businesses that the firm decides

to enter into. Porters model of low cost and differentiation is the most popular business level strategy model.

Functional Strategy
How each functional area in a given business will

operate to aid the firms business level strategy. Examples: marketing strategy, and financial strategy

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FIGURE 2.5

External Environment

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FIGURE 2.6

Porters Five-Forces Model Plus

SOURCES: Co-opetition: Competitive and Cooperative Business Strategies for the Digital Economy, Nalebuff B., Brandenburger A., Strategy and Leadership (1997,Vol. 2, No. 6) Emerald Group Publishing Limited. http://www.emeraldinsight.com/sl.htm. Republished with permission, Emerald Group Publishing Limited; adapted with the permission of The Free Press, a Division of Simon & Schuster Adult Publishing Group, from COMPETITIVE STRATEGY: Techniques for Analyzing Industries and Competitors, by Michael E. Porter. Copyright 1980, 1998 by The Free Press. All rights reserved. 2007 Thomson/South-Western. All rights reserved. 216

Buyers
Factors increasing the bargaining power of a buyer:
The larger the percentage of the industrys output that

the buyer purchases. The lower the cost of switching to competing brands. The greater the number of sellers available to the buyer.

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Suppliers
Factors increasing the bargaining power of a supplier:
There is high demand for suppliers goods. The quality and performance of suppliers product are

unique. Customers are unable to vertically integrate backward into the suppliers industry.

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New Entrants
The threat of new entrants in a competitive rivalry is reduced when:
Customers have strong brand loyalties. Economies of scale must be achieved. Large capital requirements are required.

New entrants cannot gain easily gain access to

distribution channels Industry products have proprietary protection (e.g., patents)

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Substitutes
The power of substitutes increases when:
Customers have the opportunity to compare

quality/performance. Customers costs for switching to competitors products are low

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Complementors
The power of complementors to influence the competitive environment of an industry increases when:
They have the ability to integrate forward/backward

into the complements industry There are few or no substitute complements Buyer or supplier switching costs are high There is relative concentration in the complements industry

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FIGURE 2.7

Strategic Implementation Process

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FIGURE 2.8

Technologies in the Value Chain

SOURCE: Adapted with the permission of The Free Press, a Division of Simon & Schuster Adult Publishing Group, from COMPETITIVE ADVANTAGE: Creating and Sustaining Superior Performance, by Michael E. Porter. Copyright 1985, 1988 by Michael E. Porter. All rights reserved. 2007 Thomson/South-Western. All rights reserved. 223

FIGURE 2.9

Balanced Scorecard Issues

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Major Strategic Questions in MTI

Should we create our own new technology and innovations internal to the firm? OR Should we acquire technology from others through acquisition or strategic alliances?

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Managerial Guidelines
For a firm to navigate successfully the strategic processes involved in the management of technology and innovation, it must keep certain actions in mind. These include:
1. Forget traditional organizational functionsjudge

ideas, not positions. 2. Know where the firm is in the life cycle of the technology and where its competitors are. 3. Be willing to assume risk if the potential long-term reward is great. 4. Utilize all resources in the environment. Do not get caught by the not invented here syndrome.
2007 Thomson/South-Western. All rights reserved. 226

Managerial Guidelines
5. Break down communication barriers. Many firms lose

opportunities because of a not shared here approach to lessons learned. 6. Keep expectations realistic. Too often, firms abandon technologies too soon because unrealistic expectations cannot be met. 7. Establish processes for newinitiative approaches to management.

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FIGURE 2.10

Characteristics of a Technology-Driven Corporate Cycle

SOURCE: Girifalco, L. Dynamics of Technological Change. 1991,Van Nostrand Reinhold, p. III. Reprinted with permission of Springer Science and Business Media. 2007 Thomson/South-Western. All rights reserved.

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Key Terms
barriers to entry buyers capabilities competitive advantage complementors continuous technology defensive technology disruptive technology low-end disruption next-generation technologies offensive technology radical technology S-curve strategic group strategy sustainable competitive advantage

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