Technological Environment

Environment for Business

Technological Environment
Technology is one of the important determinants of success of a firm as
well as the economic and social development of a nation.
It includes the tools both machines (hard technology) and ways of
thinking (soft technology), available to solve problems and promote
progress between & among societies.
Systematic knowledge for the manufacture of a product, for the
application of a process or for the rendering of a service and does not
extend transactions involving mere sale or lease of goods.
It includes not only knowledge or methods that are necessary to carry
on or to improve the existing production and distribution of goods and
services, but also entrepreneurial expertise and professional know how.
Innovation
Important factor that provides competitive advantage and
consequently determines success.
May take any of the following forms:
Introduction of a new product
Use of new method of production
The opening of new market
The conquest of a new source of raw material supply
Reorientation of an industry
In the business context, innovation can be defined as the
technical, industrial & commercial steps which lead to the
marketing of new manufactured products and to commercial use of
new technical processes and equipment.
Classifying innovation
Radical innovation
Basic technological innovation that establishes a new functionality
Incremental innovation
A change in existing technology system that does not alter functionality but
incrementally improves performance, features, safety or quality or lowers
cost.
Next-generation technology innovation
A change in existing technology system that does not alter functionality but
dramatically improves performance, features, safety, or quality or lowers
cost and opens up new applications.
Why new products fail?
Calantone & Cooper have identified 6 major reasons for the new
product failure:
The better mousetrap no one wanted
The me-too product meeting a competitive brick wall
Competitive one-upmanship
Environmental ignorance
Technological dog products
The price crunch
Product & Process Innovation
William Abernathy & James Utterback have pointed out that
usually, the pattern of early innovations in a new technology based
industry will be first, product innovations; later shifting to improving
production process to make the product cheaper with better
production quality.
Product & Process Innovation

Product
Innovations Process Innovations
Rate of Innovations

Time
Design
Standardization
Technology S-Curve
Development of technology follows an S shaped curve, with an
initial exponential rate, slowing to a linear line and turning toward a
natural limit.
Nature of Limits
Technology Performance Parameter

New Innovation Technology Mature

Period Improvement Technology
Period
Technological Leadership and Followership

Technological leadership
A firm seeks to be the first to introduce technological changes that support
its generic strategy.
Technological followership
A conscious and active strategy in which a firm explicitly chooses not to be
first on innovation.
The choice of whether to be a technological leader or follower in
an important technology is based upon following 3 factors:
Sustainability of the technological lead
First mover advantages
First mover disadvantages
Technology & Competitive Advantage

Technology can help influence all the five competitive forces viz.,
inter-firm rivalry, threats of new entrants and substitutes and
bargaining power of suppliers & buyers.
According to Porter technological change by a firm may lead to
sustainable competitive advantage under following conditions:
It lowers cost or enhances differentiation and the firms technological lead is
sustainable.
The technological change shifts costs or uniqueness drivers in favour of a
firm.
Pioneering the technological change translates into first mover advantages
besides those inherent in the technology itself.
The technological change improves overall industry structure.
Sources of Technological Dynamics

Innovative drive of the company

Customer needs / expectations
Demand conditions
Suppliers offerings
Competitive dynamics
Substitutes
Social factors
Research organizations / technical facilities
Government policy
Time Lags in Technology
Introduction / Absorption
Considerable time lags between countries in respect of
introduction or absorption of technologies.
This may result in some products not being able to reap the
market.
Many companies in advanced countries consider the developing
countries as a market for their obsolete technology.
Several developing countries even import second hand plant and
machinery.
Even among developed countries the technology absorption is not
simultaneous and similar.
Appropriate Technology &
Technology Adaptation
It needs to be ensured that the chosen technology is appropriate
for the company/country in terms of factors such as topographical
conditions, climatic/weather condition, soil conditions etc.,
difference in income levels, scale of operation, demand conditions,
use facility characteristics, customer characteristics.
IT Revolution & Business
Environment
IT provides new ways to design organizations.
Creates new relationships between customer & suppliers who
electronically link themselves together.
Enables tremendous efficiencies in production and service
industries through electronic data interchange to facilitate just-in-
time production.
Changes the basis of competition and industry structure.
Provides mechanisms through groupware for coordinating work
creating a knowledge base of organizational intelligence.
Contributes to the productivity and flexibility of knowledge workers.
Provides the manger with electronic alternatives to face-to-face
communications & supervisions.
Trends that altered the way
technology is used
The use of technology to transform the organization.
The use of information technology as a part of corporate strategy.
Technology as a pervasive part of the work environment.
The use of personal computers as managerial work stations.
The evolution of computer from a computational device to a
medium for communications.
Impact of Technology on
Globalization
Technology has been a very important facilitating factor of
globalization.
Global sourcing was encouraged by technological developments
apart from trade liberalization.
Technology monopoly (patents etc.) encourage internationalization
as the firm can exploit respective demand without any competition.
Technological revolution in several spheres like transport &
communication has reduced disadvantages of natural barriers like
distance & cost.
ICT & Marketing
Advances in ICT are revolutionizing the modus operandi of
marketing & business system.
Effective use of ICT can help companies:
Reduce inventories
Reduce delivery time/unproductive waiting time
Reduce stock outs/lost sales
Respond faster to market changes
Reduce rush orders
Cut down over production
Reduce unnecessary movement (forwarding & backtracking)
Reduce paperwork & wasteful processes
Plan production better
Transfer of Technology
Technology transfer is the process by which commercial
technology is disseminated.
Types of transfer transactions (listed by Draft TOT Code by
UNCTAD):
The assignment, sale & licensing of all forms of industrial property, except
for trademarks, service marks & trade names when they are not part of
transfer of technology transactions.
The provisions of know-how and technical expertise in the form of feasibility
studies, plans, diagrams, models, instructions, guides, formulae, basic or
detailed engineering designs, specifications and equipment for training,
services involving technical advisory and managerial personnel, and
personnel training.
Types of transfer transactions (contd.)

The provision of technological knowledge necessary for the installation,

operation and functioning of plant & equipment, and turnkey projects;
The provision of technological knowledge necessary to acquire, install and
use machinery, equipment, intermediate goods and/or raw materials which
have been acquired by purchase, lease or other means;
The provision of technological contents of industrial and technical
cooperation arrangements.
Levels of TT
Operational level
Needed for operating a given plant: these involve basic manufacturing skills
as well as more demanding troubleshooting, quality control, maintenance &
procurement skills.
Duplicate level
Includes investment capabilities needed to expand capacity and to
purchase and integrate foreign technologies.
Adaptive level
At this technological self-reliant level, imported technologies are adapted
and improved and design skills for more complex engineering learned.
Innovative level
Based on formal R&D
Channels of Technology Flow
Foreign investment
Technology licence agreements & joint ventures
Methods of Technology Transfer
Training or employment of technical expert
Contracts for supply of machinery & equipment
Licensing agreements
Turnkey contracts
Issues in Transfer of Technology
In many cases, developing countries obtain foreign technology at
unreasonably high prices.
In number of cases of FDI associated with TT, the net outflow of
capital by way of dividends, interest, royalties & technical fees has
been higher than the corresponding inflow.
Appropriateness of the foreign technology to the physical, economic
& social conditions needs to be considered.
Heavy reliance on foreign technology may lead to technological
dependence.
Unfavourable to the promotion of domestic technological capacities
and discouraging for local scientists & technicians.
Tendency to transfer outdated technology to the developing
countries.
Areas of Regulation
The extent & terms of equity participation.
Phasing of domestic manufacturing
The appropriateness of the technology
Payment terms and foreign exchange outflow
Restrictive terms in the agreement
Promotional Measures
Assessing technological requirements of various sectors and
identifying areas where foreign technology is required.
Dissemination of information in foreign countries regarding foreign
investment potentials and scope for technical collaboration in the
domestic economy, government policy & regulation in respect of
foreign capital & technology, institutional assistance and
infrastructural and other facilities for industrial development.
Provision of advisory services to Indian entrepreneurs in respect of
foreign technology including the techniques and process of
technology transfers.