T-109.410 Technology Management in the Telecommunications Industry (2 cr) Sakari Luukkainen Helsinki University of Technology Telecommunications Software and Multimedia Laboratory © Sakari Luukkainen

Background of the course 2001 R&D investments in Finland were 5 billion € of which was privately financed 72 %, major R&D performed by telecom sector, which quadrupled its size in the 90´, currently largest manufacturing sector (Statistics Finland, 2001) Telecom company´s cost structure is dominated by the R&D cost, which is biggest fixed cost Majority of those fixed costs are sunk costs which can not be easily recovered if technology commercialization fails © Sakari Luukkainen

Background of the course Current slowdown - the development moves two steps forward and one step backward Media catalysts overestimated expectations in growth phase, and panic in decline phase Asymmetric information in the technology financing market High 3G license costs delay development Most of the success is related to GSM technologies No history data of business – difficult to forecast, unreliable market research © Sakari Luukkainen

Background of the course VC financing has so far resulted in a very few new success stories Only 20 % of R&D performed by companies can be exploited commercially (3i, 2002) The role of liquidity constraints is negligible in determining R&D investment – steady R&D spending (Niininen, 1999) The effect of public financing has had a significant but limited effect, it works in firms that already have high R&D intensity – successful R&D requires process knowledge (Niininen 1999) Financing by own cashflow puts more pressures to allocate R&D according to market need © Sakari Luukkainen

Background for the course Market uncertainty is however high - many technical possibilities open up with unclear market need - many failures and unexpected success Incumbent companies often lose their competitive position in discontinuous change Incremental change easier to management, focus now on management of discontinuous change by incumbent firms The role of technology and innovation management is increasing © Sakari Luukkainen

Goal of the course To describe technology management as a part of the business process of a telecommunications company The course handles the structure of the telecommunications industry and its innovation characteristics, technology choices, R & D financing, standardization and product strategy © Sakari Luukkainen

Graduating the course The course is especially designed to students taking Telecommunications Management for their major or minor, but is suitable for all students that are interested in techno-economic issues related to telecommunications The preferred but not compulsory prerequisite for this course is TU-91.123 Strategic Management of Technology and Innovation, it can be graduated e.g. parallel during this course Replaces courses T-111.050 and TU-91.126 © Sakari Luukkainen

Graduating the course 11 lectures, on Thursdays hall T2, at 9.15-11 Exam requirements consist of the lectures and the following books: Carl Shapiro, Hal R. Varian, Information Rules, A Strategic Guide to the Network Economy, chapters 5-10 Charles Edquist, The Internet and Mobile Telecommunications System of Innovation, 2003 Following books will also be touched in the lectures: M. McGrath: Product Strategy for High Technology Companies A. Gawer and M. Cusumano: Platform Leadership: How Intel, Microsoft, and Cisco Drive Industry Innovation M. Gaynor: Network Services Investment Guide - Maximizing ROI in Uncertain Times C. Christensen: Seeing What's Next: Using the Theories of Innovation to Predict Industry Change © Sakari Luukkainen

Graduating the course First examination is 9.12.2004 at 13.00 - 16.00 in lecture hall T1 and the enrollment to the exam will be done via Topi, 4 exams / year Exam consists of three essay questions of which two is compulsory, six concept definitions and one applied question concerning some real life business case The exam results will be published within a month in the course www-page and T-109 notice board © Sakari Luukkainen

Telecommunications Management Strategic Management Telecommunications Internet & Multimedia © Sakari Luukkainen

Telecommunications Management Strategic Management (Theory) Telecommunications (Application area, research target) Internet & Multimedia (Application area, research target) © Sakari Luukkainen

Telecommunications Management Prerequisites TU-22.101 Introduction to Industrial Management and Engineering 3-4 Compulsory courses T-110.350 Computer Networks 3 TU-91.129 Principles of Strategic Management 2 TU-91.123 Strategic Management of Technology and Innovation 3 T-109.410 Technology Management in the Telecom Industry 2 T-109.501 Research Seminar on Telecommunications Business  I 2 T-109.551 Research Seminar on Telecommunications Business  II 3 Optional courses T-124.100 Development of Business Processes 2 S-38.001 Telecommunications Forum 1-3 S-38.041 Networking Business 2 TU-22.120 Introduction to Project Management 2 TU-53.309 Cross-Cultural Management 2 TU-91.108 Marketing Management 2,5 T-110.456 Next Generation Cellular Networks 3 © Sakari Luukkainen

Master’s Thesis Scope Technology / Product Strategy Analysis Telecom Service Design Integration of ICT & Business Processes Business Analyses Specific to Telecom Sectors © Sakari Luukkainen

Recent master´s theses Utilisation of WAP technology in extranet business Monetary transactions in mobile environment Mobile location product strategy Mobile information systems in maintenance industry Discriminatory pricing of telecommunications services UWB technology strategy analysis Consolidation in the Finnish consumer ISP industry Disruptive technologies and the music industry © Sakari Luukkainen

Product Management Organization Vice President, Sales and Marketing Marketing Services Product Management Sales Marketing Research Product Manager Product Manager Account Manager Account Manager Advertising © Sakari Luukkainen

Product management is business process management Top Management Sales R&D Purchasing Finance Product Manager Marketing Production Customers Legal © Sakari Luukkainen

Business Assessment: Hierarchy of Strategies Focus on developing and leveraging core competencies Vision Corporate Strategy Divisional Strategy Product/Market Strategy Marketing Tactics Customer Satisfaction Focus on customer- specific needs © Sakari Luukkainen Source: Gorchels

PM´s balance of management activities strategic strategic short-term short-term day-to-day day-to-day the goal the reality © Sakari Luukkainen Source: Gorchels

Technology Management Technology is an ensemble of theoretical and practical knowledge, knowhow, skills and artifacts that are used by the firm to develop, produce and deliver its products and services Technology is a resource that is as pervasively important in the organization as are financial and human resources Its mangement is a basic business function and adds dynamic character to the business definition Key issues in technology management: designing a technology strategy, designing and innovative organization, and implementing a development strategy Vieving technology as a functional capability implies the need to develop a technology strategy © Sakari Luukkainen

Technology Strategy Interrelated decisions related to Technology choice Technology sourcing Level of technology competence Level of funding for R&D Organization for R&D Timing Technology introduction in new products/services Marketing of products/services © Sakari Luukkainen

Technology Strategy The deployment of technology in the firm´s product-market strategy strategy to position itself in terms of differentiation and cost, and gain technology-based competitive advantage The use of technology, more broadly, in the various activities comprised by the firm´s value chain The firm´s resource commitment to various areas of technology The firm´s use of organization design and management techniques to manage the technology function © Sakari Luukkainen Source: Burgelman & Rosenbloom

Determinants of technology strategy Internal Environment G E N R A T I V M C H S I N T E G R A V M C H S Strategic Behaviour Organizational Context Technical Capabilities Technology Strategy Experience Technology Evolution Industry Context External Environment © Sakari Luukkainen Source: Burgelman & Rosenbloom

Characteristics of Innovation New or improved product, service or process from market point of view, which contains new technological solutions and has been commercially successfully introduced to the market Radical, disruptive, sustained, incremental, architectural, service and process innovations Innovator gets competitive advantage through timing advance and IPR protection by patents – short monopoly Monopoly will loosen through trade of patents and licenses or knowledge spillovers when competitors copy the technology and proprietary technology gets common to all players in the industry © Sakari Luukkainen

Innovation process Market appeal Technology push Process innovation Market appeal Service innovation GSM, Internet, fax, I-mode, LAN, ADSL, indoor WLAN Product innovation Proprietary technologies R&D investment Videotext, HDTV, X.400, X.500, videophone, ISDN, WAP, ERMES, IN, ATM, public WLAN, DVB, UMTS? Generic technologies Science base Technology push © Sakari Luukkainen

Growth by industrial sector © Sakari Luukkainen

Historical milestones 1876 Bell invented telephone 1882 Founding of first private teleoperator 1920 State owned teleoperator 1950 Nokia supplies telecables 1969 Nokia supplies transmission systems 1971 ARP 1978 First digital switching centre DX-200 1982 NMT 450 1986 Nokia´s mobile switching centre 1987 NMT 900 1991 GSM 1994 Liberalization of teleservices starts 2000 Nokia is the dominant mobile phone manufacturer in the world © Sakari Luukkainen

Explanation for 90´s competitiveness Firm strategy, structure and rivalry IBA Factor conditions Demand conditions Gov. action Related and supporting industries © Sakari Luukkainen Source: Porter

Telecommunications value chain - telecluster Regulation, tech. policy Content providers Computer industry Network operator Service operator Consumers Mechanics producers Telecom industry Business services Banking, health care, traffic… Semiconductor producers Circuit board installation Software companies Circuit board producers © Sakari Luukkainen

”Possibilities for new ways of competing usually grow out of some discontinuity or change in industry structure often created by new technologies or by new demands that bring existing technologies to market in new combinations and forms. Often innovators are outsiders to the existing industry. A firms ability to sustain its success is most likely a result of constant innovations to adapt to changing circumstances.” Porter, 1990 © Sakari Luukkainen

Discontinuous technology Improvement trajectory of incumbents Magnitude of Change Discontinuous change - radical innovation Incremental change Time © Sakari Luukkainen Source Tushman, 1997

Disruptive technology Performance Improvement trajectory of incubents Disruptive technology Time © Sakari Luukkainen Source Christensen, 1997

Technology sourcing Internal / external Induced / autonomous © Sakari Luukkainen

Classification of R&D Type of R&D Incremental Discontinuous Fundamental Probability of technical success 40-80% 20-40% Small, difficult to assess Time to completion 0,1-2 years 2-4 years 5-10 years Competitive potential Modest, but necessary Large Large, difficult to assess Durability of competitive advantage Short, imitable by competitors Long, protectable by patents Long but risky © Sakari Luukkainen Source: adapted from Pitkänen 2000, ADL 1991

Technology strategy process in firms Autonomous strategic action Strategic context Concept of corporate strategy Induced strategic action Structural context © Sakari Luukkainen Source: Burgelman & Rosenbloom

Technology strategy enactment in firms Induced applied research on new technologies opportunities and threats to support existing and emerging businesses standardization, alliances product development joint ventures acquisitions Autonomous science-based research internal corporate venturing external corporate venturing and if they fail the last change is followership by copying / contracting / licensing without timing and cost advantage © Sakari Luukkainen

Timetable 16.9. Introduction, Sakari Luukkainen 23.9. Technology Marketing, Jari Haggren 30.9. Market Dynamics of Telecom Industry, Sakari Luukkainen 7.10. Standardization, Sakari Luukkainen 14.10. Case GSM, Sakari Luukkainen 21.10. Product Strategy, Eino Kivisaari 28.10. Product Strategy, Eino Kivisaari 4.11. R & D Management, Sakari Luukkainen 11.11. R & D Management, Case TeliaSonera, Jyrki Härkki 18.11. Corporate Venturing, Case Nokia, Taina Tukiainen 25.11 Technology Foresight, Sakari Luukkainen 9.12. Examination © Sakari Luukkainen