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9.strategy and Technology

1. High-technology industries are characterized by rapidly advancing scientific knowledge and evolving products. Standards play a key role by ensuring compatibility between products and reducing costs and risks. However, battles often emerge between companies competing to set the dominant standard. 2. In high-tech industries with high fixed costs of development but low marginal costs of production, companies should drive prices down to increase volume and profits. First-mover advantages include exploiting network effects but companies also face pioneering costs and risks of obsolescence. 3. Technological paradigm shifts occur when disruptive new technologies revolutionize industry structures and competition, requiring new strategies from established companies. Both new entrants and incumbents must manage implications and challenges around disrupt

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Chiranjeet Ganguly
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86 views

9.strategy and Technology

1. High-technology industries are characterized by rapidly advancing scientific knowledge and evolving products. Standards play a key role by ensuring compatibility between products and reducing costs and risks. However, battles often emerge between companies competing to set the dominant standard. 2. In high-tech industries with high fixed costs of development but low marginal costs of production, companies should drive prices down to increase volume and profits. First-mover advantages include exploiting network effects but companies also face pioneering costs and risks of obsolescence. 3. Technological paradigm shifts occur when disruptive new technologies revolutionize industry structures and competition, requiring new strategies from established companies. Both new entrants and incumbents must manage implications and challenges around disrupt

Uploaded by

Chiranjeet Ganguly
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© Attribution Non-Commercial (BY-NC)
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STRATEGY AND TECHNOLOGY

Prepared for class discussion By Prof. S.Suryanarayanan

High-Technology Industries
those in which the underlying scientific knowledge that companies

in the industry use is ad ancing rapidly !as" are the attributes of the products/services that result from its application are also advancing rapidly.#

Technology is$

Scientific knowledge used in production of goods or ser ices %ccounting for a larger share of economic acti ity &e olutioni'ing the product or production system in industries not thought of as high-tech

Technical Standards and (ormat )ars


standards are a set of technical specifications that

producers adhere to when making the product or a component of it.

(ormat wars

*ne standard will come to dominate a market. +any ,attles in high-tech industries are companies competing to set standard.

Product differentiation and competiti e ad antage are ,ased

on a technical standard.

Technical Standards for Personal -omputers

Benefits of Standards

.uarantee compati,ility ,etween products / compliments &educe consumer confusion &educe production costs &educe risks associated with supplying complementary products

Standards lead to low-cost and differentiation ad antages for companies.

0 )ays Standards 1merge$


2.

(irms lo,,y go ernment to mandate industry standard- pu,lic domain.

3.

Standards often set ,y cooperation among firms4forums.

5.

Standards often selected ,y


market demand.

6etwork effects Positi e feed,ack loop 7ockout

Positi e (eed,ack in 8-& +arket

)inning a (ormat )ar


Successful strategies re ol e around finding ways to

make network effects work in their fa or and against their competitors$


1nsure supply of complement- Plus product itself 9iller applications- 6ew products so compelling customers adopt rapidly killing demand for competition

%ggressi ely price4market- Price product low to increase installed ,ase: price complements high for profits

-ooperate with competitors-Speed up adoption 7icense format- &educe incenti e for competitors to de elop own

-ost Structures in High-Tech Industries

7aw of ;iminishing &eturns To produce more of a good: a company hires more la,or in ests in more plant4machinery additional resources are not as producti e increasing marginal costs.#
Strategic Significance of High-Tech -ost Structure

(i<ed costs of de eloping product ery high: ,ut costs of producing additional units are low$

If can shift from cost structure with increasing marginal costs to high fi<ed costs ,ut low marginal costs- profita,ility may increase.

)hen company faces high fi<ed costs4low marginal costs: it should dri e prices down to dri e up olume.

Strategy of pricing low to dri e olume to reap wider profit margins is central to ,usiness model of some successful high-tech companies.

Impact of Imitation on (irst +o er Profits

(irst-+o er %d antages
(irst to de elop4pioneer re olutionary products can lead

to enduring competiti e ad antage. 5 key %d antages$

*pportunity to e<ploit network effects and positi e feed,ack loops

%,ility to esta,lish significant ,rand loyalty %,ility to ramp up sales olume early %,ility to create switching costs for customers %,ility to accumulate alua,le knowledge. Being first-mo er does not guarantee success. Success depends on first-mo er strategy pursued.

(irst-+o er ;isad antages

2.

Pioneering cost- de elop technology / distri,ution channels / educate customer

0. 5.

Prone to mistakes- uncertainties in new market &isk ,uilding wrong resources / capa,ilitiesmass-market may differ from the needs of early adopters

=.

+ay in est in inferior4o,solete technology- if underlying technology ad ancing rapidly

1<ploiting (irst-+o er %d antages


Strategies
2. 3. 0.

.oing it alone- de elop4market inno ation Strategic alliance4>oint enture- de elop4market inno ation with other companies 7icense inno ation- let them de elop the market

-hoosing strategy$

;oes company ha e complementary assets to e<ploit inno ation? How difficult for imitators to copy inno ation? %re there capa,le competitors who could rapidly imitate inno ation?

Strategies for Profiting from Inno ation

Technological Paradigm Shifts


6ew technologies emerge that$

&e olutioni'e structure of industry ;ramatically alter nature of competition &e@uires firms adopt new strategies

+ore likely to occur with$

6atural limits to technology- esta,lished technology is mature / approaching natural limit 6ew disrupti e technology- entered marketplace and taking root in niches poorly ser ed ,y firms using esta,lished technology

Technology S--ur e

1sta,lished and Successor Technologies

Swarm of Successor Technologies

;isrupti e Technology
new technology that gets its start away from

mainstream of market and in ades main market as functionality impro es...#


&e olutioni'es industry structure / competition -auses technological paradigm shift

Often causes decline of established companies

because they listen to customers who say they do not want it.

Implications of Paradigm Shifts1sta,lished -ompanies


9nowledge a,out how disrupti e technologies can re olutioni'e markets is alua,le asset. Important for esta,lished firms to in est in newly emerging technologies that may ,ecome disrupti e. -ommerciali'ation may re@uire different alue chain / cost structure.

Chances of success in developing &

commercializing disruptive technology will be enhanced if it is placed in its own organization.

Implications of Paradigm Shifts- 6ew 1ntrants


%d antages$

6o pressure to continue out-of-date ,usiness . 6o worry a,out esta,lished customer ,ase: distri,ution channels: or suppliers.

-hallenges:

-onstrained ,y lack of capital 6eed to manage organi'ational pro,lems from rapid growth (ind way to take technology from small niche to the mass-market .o it alone or partner with esta,lished company

The guy with the competiti e ad antage is the

one with the ,est technology.# - )alter )riston

% ,usinessAs fle<i,ility in adapting to change

and market dynamics will mark the winners and losers in this fast-changing Internet %ge.# +ichael ;ell

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