Technological Change and Strategy

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

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)

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

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

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

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

Supply-side factors affecting innovation 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?

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 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

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