MANAGEMENT

of
TECHNOLOGY
The Key to Competitiveness and Wealth
Creation

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Tarek Khalil | Ravi Shankar
 Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
Business Strategy

Technology
Strategy
and

0
 CAN OUTSOURCING CREATE
INNOVATIVE BUSINESS MODELS?
Bharti Airtel Limited is India's largest telecommunications company
It has been ranked among the six best performing technology
companies in the world by Business Week and aims at:
Providing high quality customer service,
Adding new customers without increasing capex and decreasing total

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

cost of ownership,
Reducing the calling fee to the customers,
Managing end-to-end business processes using latest Information
Technology (IT),
Managing and helping the telecom network capacity to grow along with
the growth of customers
While a typical strategy book would teach you that an organization
should focus, nurture and do-it-in house the technology, process and
products that are its core competencies, Airtel has outsourced the
same
 CAN OUTSOURCING CREATE
INNOVATIVE BUSINESS MODELS?
(Contd.)
Business Processes Outsourced to IBM
Except marketing, customer service, and finance, Airtel has outsourced
all its major business processes to IBM for managing it for next 10 years
starting 2004

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

This deal started at $750 million and is worth $2.5 billion by 2011
Telecom Network Outsourced to Ericsson and Nokia Siemens
The initial GSM network of Bharti (now, Airtel) was set up by Ericsson.
By early 2003, Bharti was working with Nokia and Siemens
Due to uniform GSM standards in telecom domain, it is easy and quick to
change the supplier
Payment to Ericsson and Nokia Siemens Networks comes through the
capacity usage calculation (priced per erlang) for their network
infrastructure rather than an upfront payment
 CAN OUTSOURCING CREATE
INNOVATIVE BUSINESS MODELS?
(Contd.)
Other Outsourcing by Airtel
Alcatel-Lucent manages Airtel's fixed network
Airtel has outsourced its tower business to Indus

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Tower
Airtel has outsourced the managed services to
Comviva
Airtel has selected Infosys as its technology partner for
airtel money
 CAN OUTSOURCING CREATE
INNOVATIVE BUSINESS MODELS?
(Contd.)
Logic Behind Reverse Outsourcing
Airtel does not have to now keep investing 30 to 40 percent
extra in excess capacity reserve for forthcoming new customers

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

It now focuses more on acquiring new customers and
managing the existing customer-base
Airtel is relatively immune from quick technology
obsolescence in telecom network equipment area as this risk is
now transferred to its partners to whom this business is
outsourced
If not outsourced, there was always a possibility of conflict of
interest with vendors, like Nokia Siemens and Ericsson
 CAN OUTSOURCING CREATE
INNOVATIVE BUSINESS MODELS?
(Contd.)
Logic Behind Reverse Outsourcing
Since a typical network uses 60 to 70 per cent capacity utilization;
extra 30 to 40 per cent capacity would have been an additional cost
burden to Airtel

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Airtel lacked sufficient qualified professionals to meet its IT needs
For Bharti, development and maintenance of IT infrastructure is non-
core competency area
Using IBM's expertise in customer-oriented IT business processes,
Airtel business objective of superior customer service is met with
When a new customer is added, IBM receives a fixed revenue, while
better services and more frequent and longer calls by customer
improves ARPU (Average Revenue Per Customer), which directly
adds to Airtel's profitability
 WHAT IS MEANT BY
STRATEGY?
Strategy involves envisioning and planning for the future
Some people think of strategy as developing a long-range plan,
assuming that they will continue to do what they are already doing
Strategic management is a process consisting of three important and

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

interrelated components:
Strategic planning
Strategic implementation
Strategic evaluation
Hamel (1996) distinguishes strategizing from planning by the degree
of innovation included in the strategy
A company that performs strategic planning as a routine exercise
without periodically questioning its directions or pursuing innovative
approaches can become stagnant and may lose its competitive edge
FORMULATION OF A
STRATEGY

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

The Core and Operating Units for the Execution of Strategy
FORMULATION OF A STRATEGY
(Contd.)

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Source: Based on Porter, 1980

The Wheel of Competitive Strategy

FORMULATION OF A STRATEGY
(Contd.)

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Source: Based on Porter, 1980

Context in which Competitive Strategy is Formulated

 Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
FORMULATION OF A STRATEGY

A Model for Strategy Development

(Contd.)
METHODS USED IN STRATEGIC
ANALYSIS AND DECISION-
MAKING

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Two-by-Two Matrix Constructed for use as an Aid to Acquisition Decision
 METHODS USED IN STRATEGIC
ANALYSIS AND DECISION-MAKING
(Contd.)

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Product Evaluation Matrix Used by 3M
 METHODS USED IN STRATEGIC
ANALYSIS AND DECISION-MAKING
(Contd.)

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Market-GrowthMarket-Share Analysis Matrix (Company Portfolio Matrix)
 METHODS USED IN STRATEGIC
ANALYSIS AND DECISION-MAKING
(Contd.)

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Source: Based on Christensen et al., 1976
Strategies to use in Conjunction with a Portfolio Matrix
 METHODS USED IN STRATEGIC
ANALYSIS AND DECISION-MAKING
(Contd.)

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Example of an X-Y Plane Representation
 METHODS USED IN STRATEGIC
ANALYSIS AND DECISION-MAKING
(Contd.)

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Source: Based on Holt, 1992
An M-T Matrix for Analyzing Technical and Product Competence
 METHODS USED IN STRATEGIC
ANALYSIS AND DECISION-MAKING
(Contd.)

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Technology Evaluation for Adoption
Decision
 METHODS USED IN STRATEGIC
ANALYSIS AND DECISION-MAKING
(Contd.)

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Source: McConnell and Khalil, 1988;
1988, Institute of Industrial Engineers
Multi-technology, Multi-Attribute Decision Matrix
 METHODS USED IN STRATEGIC
ANALYSIS AND DECISION-MAKING
(Contd.)

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Source: McConnell and Khalil, 1988;
1988; Institute of Industrial Engineers
Shop-Floor-Control Application
 (Contd.)

SWOT matrix
Source: Fred David, Strategic Management,
6th ed. 1997 Reprinted by permission of
Prentice-Hall Inc., Upper Saddle River, NJ
METHODS USED IN STRATEGIC
ANALYSIS AND DECISION-MAKING

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

 METHODS USED IN STRATEGIC
ANALYSIS AND DECISION-MAKING
(Contd.)
David (1997) proposes the following approach to the
construction of a SWOT matrix:
List the firms key external opportunities
List the firms key external threats

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

List the firms key internal strengths
List the firms key internal weaknesses
Match internal strengths with external opportunities, and record
the resultant SO strategies in the appropriate cell
Match internal weaknesses with external opportunities, and record
the resultant WO strategies
Match internal strengths with external threats, and record the
resultant ST strategies
Match internal weaknesses with external threats, and record the
resultant WT strategies
 (Contd.)

SWOT matrix for food company

Source: Fred David, Strategic Management,
6th ed. 1997. Reprinted by permission of
Prentice-Hall Inc., Upper Saddle River, NJ
METHODS USED IN STRATEGIC
ANALYSIS AND DECISION-MAKING

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

 METHODS USED IN STRATEGIC
ANALYSIS AND DECISION-MAKING
(Contd.)
Analysts can review the factors listed in the
SWOT matrix and develop four types of
strategies:

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Strengths-opportunities (SO) strategies

Weaknesses-opportunities (WO) strategies

Strengths-threats (ST) strategies

Weaknesses-threats (WT) strategies

 FORMULATION OF A
TECHNOLOGY STRATEGY
Technology is at the core of systems designed to satisfy
societal or customer needs
Companies are formed to provide a structure and a

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

mechanism that facilitate the spinning out of technology
to satisfy those needs
Ford (1988) explains that technology strategy is concerned
with exploiting, developing, and maintaining the sum
total of the companys knowledge and abilities
There are many factors that determine business success;
although technology is a very important one, it is not in
itself sufficient to ensure business success
 FORMULATION OF A
TECHNOLOGY STRATEGY
(Contd.)
Research conducted by Frohman (1982) reveals two commonalities among
companies that use technology as a competitive weapon:
Management views technology as a major competitive weapon but does not
emphasize it at the expense of other areas

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

The criteria used to support any project consist of (a) whether the project
supports the business goal, (b) whether the project protects and/or
establishes technological leadership, and (c) whether the project solves
customer problems

A basic purpose of strategy in any business is to answer three fundamental

questions:
What business should the firm engage in?
How should the firm be positioned in the business?
What technology, production, and marketing will be necessary to attain the
desired position?
 FORMULATION OF A
TECHNOLOGY STRATEGY
(Contd.)
Michael Porter (1985) advocates that technology strategy be formulated
within the larger context of business planning
Porter proposes that a technology strategy be formulated using the following
steps:

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

1. Identify all the distinct technologies and sub-technologies in a value chain
2. Identify potentially relevant technologies in other industries or under scientific
development
3. Determine the likely path of change of key technologies
4. Determine which technologies and potential technological changes are most
significant for competitive advantage and industry structure
5. Assess a firms relative capabilities in important technologies and the cost of
making improvements
6. Select a technology strategy, encompassing all-important technologies that
reinforce the firms overall competitive strategy
7. Reinforce business-unit technology strategies at the corporate level
 DIRECTION OF STRATEGY
A strategys direction is a vital ingredient in the
success of an organization. Setting the direction
depends on the changes in technology, customer
needs, and environmental factors

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Microsoft decided to change the direction of its
strategy and has mounted a major effort in
developing software suitable for the Internet
Northwest Airlines Changing Strategy
Two Los Angeles investors, Alfred Checchi and Gary
Wilson, privatized the company in 1989
They hired three consecutive presidents who could
not turn the company into a profitable operation
The company was losing money, but so were many
other airline companies

The Vehicle for Creating Wealth

 DIRECTION OF STRATEGY
(Contd.)
Changing the Strategy
Most airlines at the time were using a strategy based on ubiquity in all
markets and the Proctor & Gamble supermarket model of shelf space
After the demise of Eastern Airlines, Northwest had an opportunity to

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

expand into places where Eastern used to have strength
even though everyone in the company was working hard and meant well,
the personnel were working hard doing the wrong things
Northwest turned to its customers for directions
They were interested in safety, reliability, cleanliness, promptness, reliable
luggage delivery, and frequency of operation in their own areas
The company closed unprofitable hubs in Milwaukee, Washington, and
Seoul, Korea; ended point-to-point service on the East and West Coasts; and
reallocated assets to its hubs in Detroit, Minneapolis, and Tokyo
In adopting this strategy, Dasburg reversed the direction of the industry
strategy. He recognised that less is better than more
 DIRECTION OF STRATEGY
(Contd.)
Results of the New Strategy
Changing the direction of Northwests strategy
created a new formula by which the company could

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

compete
The new strategy helped restore profitable operation
Northwest complemented its strategy of concentrating
on its core markets by entering into alliances and
bilateral agreements with other airlines in order to
boost cross-border traffic
 CORE COMPETENCIES
Core competence is the inner strength upon which a
strategy should be built
An organizations core competence could be in a

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

technology, a product, a process, or the way it integrates
its technological assets

Corporate Core Competencies

CORE COMPETENCIES (Contd.)

Core competencies are collective sets of knowledge, skills, and

technologies that a company applies to add value for its
customers

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

This means continuously learning and building capabilities that
(a) cannot be easily duplicated by its competitors, (b) create new
products and services for its customers, and (c) generate alliances
and relationships with suppliers to provide its customers with
cost and value advantage
The core competencies of an organization are usually converted
to core products, which in turn may be embodied in one or more
end products
CORE COMPETENCIES (Contd.)

Prahalad and Hamel used a

tree analogy to illustrate the
idea of core competencies in
a diversified corporation:

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

The roots are the
competencies of the
corporation, the trunk

Source: Based on Prahalad and Hamel,1990

represents core products,
the small branches
represent business units,
and the leaves are the end
products

Competencies: The Roots of Competitiveness

Tree Analogy to Core Competencies: Honda
Branches/canopy
represents the widely different
product markets to which
the core competency has provided access

MOTORCYCLES
SNOWBLOWERS

SMALL LAWN

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CARS MOWERS

ENGINES
SMALL
Trunk is the core The core
product, or the physical product must be
embodiment of the significantly related to benefits
core competencies. end-user receives.

SUPERIOR R&D CORPORATE

CULTURE
SUPERIOR
SUPERIOR MARKETING &
MANUFACTURING
KNOWLEDGE OF CUSTOMERS
Roots are underlying skills and capabilities that represent core competencies.
CORE COMPETENCIES (Contd.)
The following common characteristics of core competencies may help an
organization distinguish areas of competencies from the multitude of its other
activities:
They provide the distinctive advantage of the organization
They are difficult for competitors to imitate
They make a significant contribution to the end products offered by the

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

organization
They provide access to a wide variety of markets
To capitalize on strength, a company should strive to exploit its core
competencies. Specifically, it must:
Clearly identify the following:
What it does best
What it can do that no other company can do better
What will permit it to achieve best-in-the-world status in regard to what it does
Develop its plans to fully exploit its capabilities
CORE COMPETENCIES (Contd.)
Exploitation of Competencies: Management must consider the
companys core competencies as its distinct advantage around
which to develop technology and business strategy
Develop, cultivate, and enhance the companys core competencies
Deploy core competencies as widely as possible throughout the

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

companys products and services
Align all other activities in the company around the areas of
competencies to create synergy
Develop an optimal plan for technology integration and outsourcing
Build barriers to competitors entry into the companys areas of
competencies
Overcome temptation for short-term gains rather than long-term
strategic positioning
 TECHNOLOGY AND THE CONCEPT
OF CORE COMPETENCE
Technology in a company (or in a product) consists of
three layers

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Classification of Technology as to its Relative
 TECHNOLOGY AND THE CONCEPT
OF CORE COMPETENCE (Contd.)
Distinctive technology is what gives an organization
its unique competitive advantage in the marketplace
Basic technologies are technologies widely available

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

to many organizations
External technologies provide a third level of
technological need but they are not critical to the
companys survival
The distinctive, basic, and external technologies of a
company can be determined from a technology audit
of the company and its products
 INTEGRATION
When a corporation owns or has control over all or most
of the technologies that contribute to producing and
marketing a product, it is known as a vertically integrated
corporation

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Vertical integration of a company can be defined at any
point on a continuum, with one end designating total
ownership of the technology (making the product) and
the other end showing no ownership (i.e., having to buy
everything, as opposed to owning the technology or
making the product within the company)
 INTEGRATION (Contd.)

Decisions as to whether technology should be owned or not,

or whether products should be made or bought, must be
guided by the companys standing in technology. Therefore,
a company must be able to:

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Identify its distinctive technologies and choose areas in which to
build competence in technology
Do all it can to acquire or keep itself at the top of these
technology areas
Decide on the level of integration needed for its operation, based
on realistic technology and business decision-making criteria
Be aware of emerging technology that may impact its business
Modify its business strategy to support its technology strategy
 INTEGRATION (Contd.)

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Vertical Integration

The Boundaries of the Integration Decision

 INTEGRATION (Contd.)

Backward integration occurs when the company seeks

ownership or control of its suppliers
Horizontal integration involves increased control over

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

production competitors
Forward integration occurs when a company seeks to
control distribution, retailing, and post manufacturing
activities
Vertical integration may combine backward, horizontal,
and forward integration
Many companies achieve integration through mergers,
acquisitions, and takeovers
 INTEGRATION (Contd.)

Manufacturing technology requires developing

technology-based strategies to deal with the entire value
chain

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A business decision is based on financial considerations.
Outsourcing may prove to be more economically sound
than production
In all cases, management should seek to establish a close,
trusting relationship with the companys suppliers and
distributors
Distribution retailing can add a significant cost to a
product without providing an added value to customers
 INTEGRATION (Contd.)

Source: Teece 1987. With permission

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Integration Evaluation Matrix. This matrix utilizes importance
and level of difficulty as criteria

Source: Teece 1987. With permission

Integration Evaluation Matrix. This matrix utilizes time and level of investment as criteria
 LINKING TECHNOLOGY AND
BUSINESS STRATEGIES
Organizations that know how to link their technology strategy
with their business strategy will be more competitive in the
global marketplace
Usually the business side perceives technology as a subset of

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

business, while technologists perceive business as a subset of
the general technological ascent of human beings

Source: Mitchell, 1995

Framework for Formulation of Business and Technology
Strategies
 LINKING TECHNOLOGY AND
BUSINESS STRATEGIES (Contd.)
A. Organizations that do not integrate technology strategy
and business strategy have blurred visions of the future

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B. Well-coordinated and focused organizations are more
competitive

Source: Escobar, 1995

Integration of Technology and Business Strategies
 LINKING TECHNOLOGY AND
BUSINESS STRATEGIES (Contd.)
Mitchell emphasizes the importance of the linkage between the goals
and objectives of the corporation and its technological strategy
Mitchell poses a number of generic questions that should be addressed
by strategic planners on both the business and the technical sides of the

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

house:
To what extent is technology relevant to business?
Which business strategies require technology?
Where will we get it [the technology]?
What are our core technologies for the business?
In which technologies should we focus our research effort?
What new strategic options will technologies provide?
In responding to these questions, a company can develop relationships
among its high-level strategies, its lines of business, and the
technologies that are needed to achieve business goals
 CREATING THE PRODUCT-
TECHNOLOGY-BUSINESS
CONNECTION
To identify the relationship between products or services and
the underlying technology, a company can use any of several
methodologies
A company can then determine which technologies it owns,

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

which it would like to acquire, and which it wants to outsource

Product-Technology Matrix
 WEBLINKS
http://www.airtel.in/wps/wcm/connect/about+bharti+airtel/Bhart
i+Airtel/Media+Centre/quick+facts/
http://outsourceportfolio.com/outsourcing-innovative-business-mo
dels/

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http://trak.in/tags/business/2010/09/20/bharti-airtel-outsourcing-
africa-business/
http://articles.economictimes.indiatimes.com/2010-04-01/news/28
469946_1_network-outsourcing-maintenance-and-management-contrac
t-ericsson