Fall 2000MGTO321 (L1 & L2) -- Dr. JT Li1 Lecture #13: Technology and Industry Evolution The Industry Life Cycle Competitive Advantage in Technology-Intensive Industries Strategic Management of Technology

Fall 2000MGTO321 (L1 & L2) -- Dr. JT Li2 The Industry Life Cycle Drivers of industry evolution : demand growth creation and diffusion of knowledge Introduction GrowthMaturityDecline Industry Sales Time

Fall 2000MGTO321 (L1 & L2) -- Dr. JT Li3 How Typical is the Life Cycle Pattern? Technology-intensive industries (e.g. pharmaceuticals, semiconductors, computers) may retain features of emerging industries. Other industries (especially those providing basic necessities, e.g. food processing, construction, apparel) reach maturity, but not decline. Industries may experience life cycle regeneration. Sales Sales 1900 ‘50 ‘60 ‘ MOTORCYCLES TV’s Color B&W Portable HDTV ?

Fall 2000MGTO321 (L1 & L2) -- Dr. JT Li4 Development of Technology: From Knowledge Generation to Diffusion Basic Knowledge Invention Innovation Diffusion IMITATION ADOPTION Supply side Demand side

Fall 2000MGTO321 (L1 & L2) -- Dr. JT Li5 Appropiability : How are the Benefits From Innovation Distributed? Customers Suppliers Imitators and other “followers” Innovator

Fall 2000MGTO321 (L1 & L2) -- Dr. JT Li6 The Profitability of Innovation Legal protection Complementary resources Imitability Lead time Profits from Innovation Value of the innovation Ability to appropriate the value

Fall 2000MGTO321 (L1 & L2) -- Dr. JT Li7 Complementary Resources Bargaining power: whether complementary resources are generic or specialized. Competitive manufacturing Distribution Service Complementary technologies Other Marketing Finance Core technological know-how in innovation

Fall 2000MGTO321 (L1 & L2) -- Dr. JT Li8 Technology Imitation Key factors: How codifiable is the knowledge? Explicit knowledge is easier to understand than tacit knowledge. How complex is the technology?

Fall 2000MGTO321 (L1 & L2) -- Dr. JT Li9 The Strategic Management of Technology: To Lead or to Follow Key considerations: Is innovation appropriable and protectable against imitation? If yes, advantages in being a leader. Complementary resources Followers may avoid investing in complementary resources due to better- established industry infrastructure Firms possessing complementary resources have the luxury of waiting Is owning/ controlling industry standard critical to competitive advantage? If yes, advantage in being a leader.

Fall 2000MGTO321 (L1 & L2) -- Dr. JT Li10 Comparative Success of Leaders and Followers PRODUCTINNOVATORFOLLOWERWINNER Float glassPilkingtonCorningLeader Instant CamerasPolaroidKodakLeader Fiber Optic CableCorningmany companiesLeader Disposable DiapersProctor & GambleKimberly-ClarkLeader Jet AirlinersDe Havilland (Comet)Boeing (707)Follower X - Ray ScannerEMIGeneral ElectricFollower Office P.C.XeroxIBMFollower Diet ColaR.C. ColaCoca ColaFollower Pocket CalculatorBowmarTexas InstrumentsFollower Microwave OvenRaytheonSamsungFollower Video Games PlayersAtariNintendo/SegaFollowers Plain Paper CopiersXeroxCanonNot clear Internet BrowserNetscapeMicrosoftNot clear

Fall 2000MGTO321 (L1 & L2) -- Dr. JT Li11 Figure Alternative Strategies for Exploiting Innovation Strategies for Exploiting Innovation Risk & Return Implications Resources Licensing Strategic Alliance Joint Venture Internal Commercialization Low risk Low returns Share investment and risk Risk of partner conflicts and culture clash Control High risks None Pooling capabilities of more than one firm Substantial resource requirements

Fall 2000MGTO321 (L1 & L2) -- Dr. JT Li12 Strategic Management of Technology: Managing Risks Cooperate with lead users –Early identification of customer requirements –Assistance in new product development and refinement –Source of early cash flow Limit exposure –Keep fixed costs low –Lease, don’t buy –Outsource/ collaborate where possible –Keep financial leverage low Flexibility –Respond quickly to new information from the market –Learn from failure –View investments in technology as options.

Fall 2000MGTO321 (L1 & L2) -- Dr. JT Li13 The Emergence of Standards Emergence of a dominant design paradigm –Model T in autos –IBM 360 in mainframes –Douglas DC3 in passenger aircraft Emergence of technical standards Entrenchment of the dominant designs and technical standards –Learning effects: incremental improvement of the dominant design –Switching costs / path dependency –Coordinated action by multiple players

Fall 2000MGTO321 (L1 & L2) -- Dr. JT Li14 Competing for the Future: The Role of Scenario Analysis Stages in Scenario Analysis: Identify forces driving industry change Predict impacts of each force on the industry environment Identify interactions between different forces Identify 2-4 most likely scenarios Consider implications of each scenario Identify key signs on the emergence of each scenario Prepare contingency plan