Chapter 6: Technology-based industries Team 6: Charles Nell, Andrew Platter, Brice Freedle, and Collin Voyles

Introduction Focus for this chapter: Business environments where technology is a key driver of change and an important source of competitive advantage

By the end, you will able to: Analyze how technology affects industry structure and competition Identify the factors that determine the returns to innovation and evaluate the potential for an innovation to establish competitive advantage Formulate strategies for exploiting innovation and managing technology Design the organizational conditions needed to implement such strategies successfully

Competitive Advantage in Technology intensive Industries Innovation forms a key link between technology and competitive advantage. It is the pursuit for competitive advantage that causes firms to invest in innovation; it is innovation that is responsible for new industries coming into being; and it is innovation that is the main reason are able to DOMINATE their industries.

The innovation process Invention- the creation of new products and processes through the development of new knowledge or from new combinations of existing knowledge Innovation- the initial commercialization of invention by producing and marketing a new good or service or by using a new method of production

Wd-40 Developed by Norm Larsen in 1953 Spread by CEO John Barry in 1969 Originally designed to repel water and prevent corrosion, and later was found to have numerous household uses.

The profitability of innovation Property rights in innovation Tacitness and complexity of the technology Lead time Complementary Resources

Strategies to Exploit innovation: How and when to enter Now that we have determines the key factors that determine the returns on innovation we will now discover strategies to manage technology and exploit innovation.

Alternative strategies to exploit innovation How should a firm maximize the returns on its innovation? The choice of strategy mode depends on characteristics of the innovation and the resources and capabilities of the firm.

Characteristics of  innovation and Resources and capabilities of the firm Characteristics of the innovation Patents are clear and defensible Many companies license there discoveries to other large companies that posses the right resources. The positive aspect of licensing is that the company who owns the patent doesn’t have to worry about obtaining resources or commercialization. Resources and capabilities of the firm The resources and capabilties of the firm determine how to exploit an innovation. Large companies are better suited for internal commercialization Innovation requires coordination between multiple companies

Timing innovation: to lead or to follow? Is it best to be a leader or follower in innovation? Its can go either way, a company can be the first to innovate a new product and get the prize or fall to the cost of pioneering. Optimal timing and the itroduction of new equipment are complex issues Table 6.1  Leaders, followers and winners in emerging industries gives examples of different companies and where they fall in there industry as either a follower or leader and whether they won in there industry.

To Lead or to follow Advantages of being an early mover depends on: The extent to which innovation can be protected by property rights or lead-time The importance of complementary resources The potential to establish a standard

Managing risk 2 Main Sources of Uncertainty: Managing Risk: Technological Uncertainty: arises from the unpredictability of technological evolution and the complex dynamics through which technical standards and dominant designs are selected. Market Uncertainty: relates to the size and growth rate of markets for new products. Managing Risk: Reliable forecasting (forecasting demand for new products is hazardous since it is based on past data) If reliable forecasting is impossible, entities should: Focus on their alertness and responsiveness to emerging trends Limit vulnerability to mistakes by avoiding large-scale commitments Risk Management Strategies: Cooperating with lead users Limiting risk exposure Flexibility

Managing risks in the ebook market Uncertainty of Firms in e-Reader Industry: Technological Uncertainty: firms didn’t know what screen and power technologies would dominate e-readers Market Uncertainty: it was unclear if individuals would make the transition from traditional paper books to digital books, and if so, whether they would use the e-reader or e-tablet platform. Risk Management Strategy of Key Players: Amazon: made a “Kindle” App available to a wide range of tablet and           smartphone users Kobo: expanded into new markets by entering partnership agreements                         with leading book retailers  Barnes & Noble: sought to develop and co-brand its “Nook” devices                              with electronic goods manufacturers

Competing for standards Standard: format, interface, or system that allows interoperability (Ex: lightbulbs) Emergence of digital, networked economy Ownership/influence of standards creates potential for unmatched returns  Microsoft Windows Standard for... PC operating systems Java (Sun Microsystems) Programming language for Web apps Acrobat PDF (Adobe Systems) Common file format for creating/viewing documents

Types of standard Public vs Private Standards Mandatory Standards Public Standards: are available to all either free or for a nominal fee and are set by public bodies and industry associations. Private Standards: technologies and designs are owned by companies or individuals. Companies can license technology to others who wish to use it. Mandatory Standards Set by the government and have the force of law behind them (includes standards relating to car safety, construction, and TV broadcasting.) De Facto Standards  Emerge through the voluntary adoption by producers and users  Delayed emergence creates potential for duplicate investments, delayed market development, or even the end of a technology all together.

Why standards appear: Network externalities Network Externality: exists when the value of a product to an individual customer depends on the number of other users of that product. Requires compatibility of products with some form of common interface. Negative Externalities: product value decreases with more users  Network Externalities Arise From: Products where users are linked to a network  Availability of complementary products and services Economizing on switching costs Create Positive Feedback “Tipping” Process: results in tendency of market domination by single supplier. Learning Effects and Collective Lock-Ins

Winning standards wars Most losers due to being late to the game Must create allies, in consumer, suppliers, and even competition Fully try to convince customers and suppliers that you are the winner and that you are the best Must share value with customer, nobody wants a bad product Almost examples, Lotus, Netscape, WordPerfect WD-40 is a winner

Implemanting technology strategies:Creating the conditions for innovation No correlation between profits and RD research investing  Must be successful to get the return

Managing creativity The conditions of the workplace must be perfect Everyone must be communicating and working together Must  be supportive with praise, resources, and time to spend on new projects Willing to try multiple times WD-40 tried 40 times

From Invention to innovation: the challenge of integration Must meet common goal for business and creativity Two very different trends and thoughts and life styles but they must coincide to be successful IE Disney fired a guy wanting more animated movies and rehired him twenty years later to be the head of Pixar animation Cross-functional product Development teams Product Champions- 3M uses a lot of this- Competitor 

Summary Innovation is key to staying on top as company Lots of work, money, and resources but if successful well worth investment Must create new industry standards Then be willing to break your standard and grow/build another