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Strategy in High Technology_grp 3

The document discusses strategies in high-tech industries, emphasizing the importance of technical standards, network effects, and the dynamics of format wars. It highlights the significance of first-mover advantages and the impact of disruptive technologies on market competition. Additionally, it outlines the challenges and strategies for both established companies and new entrants in adapting to technological changes.

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13 views

Strategy in High Technology_grp 3

The document discusses strategies in high-tech industries, emphasizing the importance of technical standards, network effects, and the dynamics of format wars. It highlights the significance of first-mover advantages and the impact of disruptive technologies on market competition. Additionally, it outlines the challenges and strategies for both established companies and new entrants in adapting to technological changes.

Uploaded by

amreen0509
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Strategy in High – Technology

Industries

Apoorva Mamgain
Arangadurai S
Bala subhramanyam
Manoj Kumar R
Raj Kiran Gokeda
Introduction
 Technology

◦ Body of scientific knowledge used in the production of


goods or services
 High – Tech Industries
o Underlying scientific knowledge that companies in the
industry use is advancing rapidly and by implication are the
attributes of the products and services that result from its
application
o Examples : computer industry, telecommunications,
aerospace, biotech
Technical Standards
 Set of technical specifications that produces adhere to
when making the product or a component of it – source
of competitive advantage
 Source of product differentiation is based on technical
standard
 Only one standard will come to dominate a market
 Examples: QWERTY, personal computer
Benefits of Standards
 Guarantee compatibility between products and their
complements
◦ Example: PC’s used with software application
 Helps to reduce confusion
◦ Example: DVD forum – technical standard for DVD
players and disks that all companies adhered to
 To reduce production cost
 Reduce risk associated with supplying complementary
products
 Establishment of Standards
 Companies in an Industry might lobby government to
mandate an industry standard
◦ Example: US – FCC single technical standard for DTV
 Technical standards – cooperation among business with
out government help
◦ Example: DVD forum
 Standard is selected on market demand
◦ Example: Symbian, Microsoft and Palmsource in format
war – OS standard for smart phones
Network Effects, Positive Feedback
and Lockout
 Network Effects
◦ The size of the “network” of complementary products is a primary determinant of
demand for an Industry’s product. Example: Sony’s Betamax vs Matsushita’s VHS
 Positive Feedback
◦ Reinforcing network effects to encourage adoption of a standard. Example:
Telephone
 Lock out
◦ when consumers are unwilling to bear switching costs required for them to
abandon the established standard and adopt new standard. Example: Microsoft os
and a new os
 Switching cost
◦ Costs that consumers must bear to switch from a product based on one
technological standard to a product based on another. Example: Analog record
Format War
 Format war
◦ Battles to set and control technical standards in a market

◦ Example: battle on ownership of OS used by smart


phones
 Winning a format war requires

1. Company to build installed base

2. Leveraging positive feedback loop

3. Bear switching costs

4. Locking the market into its technology


Strategies for winning a Format war

 Ensure a supply of complements


 Leverage killer applications
 Aggressive Price and Market
 Cooperate with competitors
 License the format
Costs in High Technology Industries
 High tech industries fixed cost of developing product
are very high but cost of producing one extra unit of
product are very low
◦ Example: Microsoft – develop Windows XP
 Comparative cost economics
 Strategic Significance
Comparative Cost economics
 Law of diminishing returns
 High tech industries not applicable
Strategic Significance
 If a company can shift from increasing marginal cost to
one where fixed costs may be high but marginal costs
are much lower – its profitability increases
◦ Example: Analog recording systems to CD players
 When a high – tech company faces high fixed costs and
low marginal costs, it strategy should emphasize low
cost option: drive prices down to drive volume up
◦ Example: Microsoft
Managing Intellectual Property
Rights
• Patents, copyrights, and trademarks give individuals and
companies incentives to engage in the expense and risk of
creating new intellectual property.
 Digitalization and piracy rates
◦ Large scale problem with high piracy rates
◦ Legal and technological solutions are required
 Strategies for managing digital rights
◦ Low costs of copying and distributing digital media
 Can be used to the company’s advantage
 Drive down costs of purchasing media
◦ Encryption software
◦ Vigorous defense of intellectual property rights
Capturing First Mover
Advantage
First Mover Advantages
Exploit network effects and positive
feedback loops, locking customers into
technology
 Establish significant brand loyalty
 Cost advantages due to economies of
scale and learning curve
 Create switching cost for customers
 Accumulate valuable knowledge
(related to customer needs,
distribution channels, etc)
First Mover Disadvantages
 Bear Pioneering Costs
 More prone to make mistakes
 Risk of building the wrong
resources and capabilities
 May invest in Inferior or
Obsolete technology
The Impact of Imitation on
Profits of a First Mover
Strategies for exploiting First
Mover Advantages
 Three basic strategies:
 Go Alone
 Entering into Strategic Alliance and Joint Ventures
 Licensing Innovation to others
 Choice of strategy depends on answers
to following questions:
Does the company have the complementary
assets to exploit its innovation?
How difficult is it for imitators to copy the
company’s innovation (height of barriers to
imitation)?
Are there capable competitors who could rapidly
imitate the innovation?
Strategies for profiting from
Innovation
Technological Paradigm Shifts
Technological changes occur in industry

 Revolutionize the structure of the industry

 Dramatically alter the nature of the competition

 Requires companies to adopt new strategies to survive

Paradigm shifts occur with:

 Natural limits to technology

 New disruptive technology


The Technology S-Curve

7-
19
Established and Successor
Technologies

7-
20
Swarm of Successor Technologies

7-
21
Disruptive Technology
(Clayton Christenson)

 Disruptive technology is a new technology that gets its


start away from the mainstream of a market and invades
the main market as its functionality improves over time.

◦ Example: Mechanical Excavators in 1940s


Strategic Implications for Established
Companies
 Having access to knowledge about how disruptive
technologies can revolutionize markets is in itself a
valuable asset.
 It is important for established enterprises to invest in
newly emerging technologies that may become
disruptive.
 Commercialization of disruptive technology may require
a different value chain with a different cost structure.
Strategic Implications for New Entrants
 Advantages
◦ Pressure to continue the out-of-date existing business model does not hamper
new entrants.
◦ New entrants need not worry about established customer base, distribution
channels, or suppliers.
 Challenges
o constrained by lack of capital
o Need to manage the organizational problems associated with rapid
growth
o Find a way to take the technology from a small niche into the mass
market
o Decide whether to go it alone or partner with an established company

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