Technological Change and Strategy

What is strategic importance?

• The key relationship to consider is that between technology and strategic success

• Technology may not be a source of competitive advantage - if competitors exploit it too

• Rapid technological change can challenge all competitors in a market

What is a business model?

• How a business organises its activities to generate income (revenues) and incur costs

  • Income

  • Costs

What are examples of business models?

• Facebook generates revenues from advertising, using the platform of over 500 million users

• Ryan Air: Low-cost airline generates revenues by selling directly to consumers (avoiding intermediaries) with a high proportion of bookings made online

How technological change provides an opportunity to change business model?

• The product being sold:

  • E.g. The material or production process used

  • E.g. The method of delivery (e.g. physical vs online)

  • E.g. The extent of customisation

• How the product is sold:

  • E.g. what distribution channel is used (direct vs intermediaries)

  • E.g. The pricing model (subscription vs free)

What are technology mechanisms?

• A new process: Produce faster, at lower cost or better quality

  • Online video streaming

• Solve a complex problem: Do something competitors find hard to master

  • Google search engine

• A new product: The first product to market

  • The iPad and iPhone

• Protect a valuable idea: Have something others can only sell if they pay for a licence

  • Pfizer’s Viagra

• Rewrite the rules: A completely new approach which makes other products and markets redundant

  • Smartphones

What is an opportunity or threat?

• Some businesses may be technology leaders- where technology enables them to gain an advantage

• Most other businesses need to assess the threat posed by technology on their competitive position

What are examples of technology as a threat?

• Kodak film not being able to keep up with digital cameras

• Game group not being able to pay the high fixed costs and be able to keep up with the ambitious international expansion

• Cisco camcorders being killed off by smartphones

What is innovation and technology?

• Developing new technology is usually expensive

• The investment returns depend on the extent and pace at which a market adopts new products or improved versions of existing products

  • This is known as innovation diffusion

What are supply-side factors affecting innovtion diffusion?

• Degree of improvement: Does the technological change provide enough incentive for customers to change?

• Compatibility: Is the new technology compatible with existing products? Are older products likely to become obsolete?

• Complexity: Does the product or the way it is marketed (e.g. pricing) make it too complicated for the majority of customers to understand?

• Experimentation: Can customers test the new technology before committing to buying it? What feedback is available from early adopters?

• Customer service: How easy is it for customers to get answers to their questions before committing to the new technology?

What are demand factors affecting innovation diffusion?

• Market awareness:

  • How aware is the market of the new technology?

  • What promotional activity is required in order for customers and distributors to support technology?

• Observability:

  • What is the potential for a ‘band-wagon effect’?

  • How easy is it for customers and distributors to see the technology in action and observe the benefits that it brings?

• Customers:

  • Which customers are likely to adopt the technology first?

  • What approach is most appropriate for a successful launch of the innovation?

  • How are existing customers going to be supported in transferring to the new technology

What is a ‘Tipping Point’?

The point in time at which some new technology becomes mainstream

What are examples of tipping points?

• With innovation diffusion, demands tend not to increase steadily

• Often a slow process of adoption

• Then a tipping point- when demand suddenly takes off (or decline

What are examples of developing or acquiring technology?

• In-house Development

• Alliances

• Acquisition

What is in-house development?

• Favoured if technology is a key competitive advantage

• Business May have experience in achieving a first-mover advantage

• Requires strong insights into technology and market needs

• Businesses must also be willing to take commercial and financial risks

What are alliances?

• Appropriate for technologies which are important, but do not confer competitive advantage (e.g. packaging)

• Business may want to ‘follow and imitate’ rather than be a market innovator

• New technology may be well beyond the skills and experience of the business

• Helps limit commercial and financial risk

• A good link with ‘outsourcing’

What is an acquisition?

• Often important if speed is important- i.e. no time for learning

• It may be essential if the technology is complex or if it is providing competitors with an advantage

• Acquisitions are high risk- have to be sure that the right technology is being bought