ISL456U-TECHNOLOGY AND INNOVATION MANAGEMENT
Chapter 5: Technology and Innovation Strategy
Introduction
Strategic management encompasses efforts for nurturing and maintaining resources, capabilities, and selecting and implementing strategies to form sustainable competitive advantage. Based on what you have seen in your strategic management course, technology and innovation management will be elaborated from the strategic management point of view in this chapter. The chapter begins with an overview of strategic management to refresh your minds, and then delves into innovation and technology strategies.
An Overview of Strategic Management
From a broader perspective, strategy encompasses the ideas, decisions, and actions that enable an organization to succeed. After the 1950s, strategy has been popularized as a managerial concept. Initial users of the concept were more interested in the planning notion, whereas later users employed the term as a form of integrated decision- making philosophy.
For Mintzberg, strategy can be viewed as a plan, an action, a market mechanism, and a broader perspective. As a plan, strategy shows the means for reaching the ends; as a pattern of action, it harmonizes organizational activities coherently; as a market mechanism, it helps organizations to differentiate themselves from their competitors. As a perspective, it sets the vision of the organization.
What makes a strategy different from other efforts, decisions, activities, and objectives? According to Ansoff:
1. Strategy is a process. 2. Strategy requires research activities. 3. Historical dynamics can lead to preferred areas and alternatives, but strategy is always about searching for new possibilities. 4. Strategy formulation is never done in perfectly rational conditions; thus, strategy formulation must be based on highly aggregated, incomplete, and uncertain information about the strategic choices. 5. The distinguishing characteristic is uncertainty. 6. Strategy is more about the journey rather than the destination itself. 7. Strategy is made up of a hierarchically coherent set of objectives.
We can conclude that the strategy forms a comprehensive master approach that states how the business will achieve its mission and objectives by maximizing its competitive advantages and minimizing competitive disadvantages.
Why Strategic Management?
For successfully maneuvering and staying ahead of the competitors, management needed to be reinterpreted from the strategic point of view. Globalization, innovation, and increasing awareness of sustainability are strongly
affected and are still transforming how we think and approach managerial issues.
Definition of Strategic Management
Strategic management consists of the analyses, decisions, and actions that an organization undertakes to create and sustain competitive advantages.
Phases that the concept went through are (1) basic financial planning, (2) forecast-based planning, (3) strategic planning, and finally (4) strategic management.
Strategic management directs the organization toward overall goals and objectives, its holistic view recognizes the needs and expectations of multiple stakeholders in decision making, shortterm and long-term perspectives are harmonized within the strategic management process, and strategic management allows necessary trade-offs between efficiency and effectiveness to be made continuously.
Strategic Management Approaches
Strategic management strives to gain and sustain competitive advantage. So, what is competitive advantage? An organization is said to have competitive advantage when implementing a value-creating strategy which is not simultaneously implemented by any current or potential competitor (Barney, 1991: 102). An organization can claim that it has competitive advantage when it can create more economic value than its competitors. Economic value is the difference between what people are willing to pay for the organization’s products and the total cost of production.
Competitive advantage can be either temporary or sustained. When the organization creates the same value with its rivals, this is called competitive parity. On the other hand, competitive disadvantage means the organization creates less value than its rivals. The purpose of strategic management is to create and sustain competitive advantage. Sustained competitive advantage is about implementing a value creation strategy which is not simultaneously implemented by current or potential competitors, and when these organizations cannot duplicate the benefits of this strategy.
To fulfill the purpose of gaining sustained competitive advantage, two approaches, namely the positioning approach and the resource-based approach, were offered in the strategic management literature.
Positioning Approach
In the positioning approach, competitive advantage first relies on sectoral characteristics and its position within that sector. To unearth the reason behind the superb performance, sectoral analysis is required. According to Michael Porter; five competitive forces that shape the competitive advantage potential of the organization are (1) the rivalry among existing competitors, (2) the bargaining power of buyers, (3) the bargaining power of suppliers, (4) the threat of substitute products, and (5) the threat of new
entrants. By focusing on the systematic analysis of external forces, the positioning approach enables potential new entrants and incumbents to establish or maintain a competitive advantage by making smart decisions
Reource-Based Approach
Unlike the positioning approach, the resource-based approach focuses on the internal environment of the organization. Organizations are a bundle of resources, and each organization uniquely configures and uses them to fulfill organizational objectives. According to the resource-based view; organization’s competitive advantage stems from its endowment of strategic resources that are valuable, rare, costly to imitate, and costly to substitute. Resources can be classified as tangible and intangible. Tangible resources can be financial, physical, technological, organizational, whereas intangible resources include knowledge, innovation, creativity, and reputation.
Strategic Management Process
The positioning approach seeks a competitive advantage in the external environment, while the resource-based approach seeks it within the organization’s boundaries. Nevertheless, the organization’s reality and the current competition integrate these two approaches into a coherent process. According to a contemporary understanding of strategic management, these two approaches are not mutually exclusive; they are viewed as two sides of the same coin. The strategic management process built on these two approaches assumes that organizations and their environments are characteristically dynamic, formulated strategies have to be coherent with implementation, and top management support has an enormous impact on the process’s success. The strategic management process consists of four essential elements: (1) Environmental scanning, (2) strategy formulation, (3) strategy implementation, and (4) evaluation and control.
Innovation Strategies
An organization’s innovations strategy is “a vector of organization choices spanning the domains of technology development and commercialization”. The decisions related to various factors have to be made. To develop or to imitate, the intensity of research activities, budget priorities for innovation, locus of research activities within the organization, geographical scope, nature and breadth of technologies, knowledge management strategy, value creation alternatives, mode of commercialization are among these crucial trade-offs.
Overall, innovation strategy designates to what degree and in what way an organization uses innovation to fulfill its corporate, business, and functional strategies. Ahmed and Shepherd offer three basic orientations for classifying innovation strategies. These generic archetypes of innovation strategies are classified based on their main orientations, namely, (1) product-market-focused
strategies, (2) opportunityrisk-focused strategies, and (3) time- (or industry) focused strategies.
Product-Market-Focused Innovation Strategies
This classification is based on Michael E. Porter’s generic strategies (1998). The main logic behind these strategies is developing products better than competitors by either being different or cost-efficient to sustain competitive advantage. Differentiation, low-cost, and niche strategies are strategic alternatives that an organization can pursue to create better value propositions.
Differentiation Strategy
Organizations employing differentiation strategy at the business level try to provide unique and superior value to the buyer. The uniqueness may come from product quality, special features, or after-sales services. Differentiation can take many forms, such as prestige or brand image, quality, technology, innovation, product features, customer service, dealer networks, etc.
Low-Cost Strategy
Another generic strategy offered by Michael Porter is the low-cost strategy. The low-cost strategy is about an organization’s ability to design, produce, and market a comparable product more efficiently than its competitors. a low-cost strategy should not be confused with lower prices. Size differences and economies of scale/size differences and diseconomies of scale (rightsizing), experience differences and learning-curve economies, lowcost differential access to productive inputs, technological advantages independent of scale, policy choices are all important sources of cost advantages.
Niche Strategy
The third generic strategy offered by Michael E. Porter is the niche strategy. The niche or focus strategy is based on the choice of a narrow competitive scope within an industry. An organization adopting this alternative selects a segment of the market and tailor its offerings for that segment. The idea behind the niche strategy is that an organization strives to attain superior returns by identifying and positioning itself in the market’s sub-sectors. While former generic strategies attract the mass market, a niche strategy focuses on a narrower specific segment.
Opportunity-Risk-Focused Innovation Strategies
Risk and future orientations of organizations are critical in the second group of innovation strategies.
Defenders
According to Ahmed and Sheperd, defenders are organizations that have a narrow product-market domain and do not tend to search for new opportunities outside of this domain. Offering a limited range of products superior to their rivals in terms of quality, service excellence, or lower prices in a relatively stable product niche are the main characteristics of the organizations applying this choice. Thus, the ultimate effort is focused on the current operation.
Prospectors
Prospectors are organizations with fairly broad product lines that focus on product innovation and market opportunities. Although strong sales orientation makes them somewhat inefficient, they always emphasize creativity over efficiency
Analyzers
Analyzers try to bridge the former two, operate in two different product-market areas, one stable and one variable. Coherent with market expectations, efficiency is emphasized in the stable one, whereas in the variable one, effort is focused on innovation
Reactors
Reactors are doomed to fall. Miles and Snow argued that the reactors are the residual organizations who “missed the bus”. The environment reactors face is rapidly changing and uncertain, but they cannot respond effectively and efficiently. Reactors are in a vicious cycle of responding inappropriately to environmental change and uncertainty, worsened by their reluctance to act aggressively in the future.
Time-Focused Innovation Strategies
Correctly calculated entry timing decisions will boost the organization’s competitive advantage while out- maneuvering competitors within an industry. In addition to timing, another factor that needs to be considered is time to market (TTM) for innovative products. Time to market is the duration of time from the product being conceived to its reaching the marketplace. If products are outdated quickly, TTM gains importance.
First-Mover Strategy
If the product is brand new, it may create a whole industry from scratch. These organizations are called pioneers, and the strategy they are using is called a pioneering or first- mover strategy. A pioneer can be the inventor of a technology or product innovation. When it is a unique new product, the pioneering strategy also requires the organization to commercialize the innovation. According to Fagerberg, when an organization selects an innovation path very early, it may enjoy the first-mover advantage, but it also risks being “locked-in” to this specific innovation path. Switching paths can be too costly or too late. Since every innovation consists of a new combination of existing ideas, capabilities, skills, resources, etc., it is advised to remain open for new alternatives. Being a first-mover is expensive and risky. However, when successfully implemented, the return on investment is expected to be high.
Follower Strategy
Entrants that do not enter the market until the product begins to penetrate the mass market or later are called late entrants or the followers. Naturally, the disadvantages of pioneering organizations are the advantages of followers. Followers may be able to imitate the technological advances of others, thus keeping R&D costs low, keeping risks down
by waiting until a new technological standard or market is established, and taking advantage of the first mover’s natural inclination to ignore market segments. An early follower (fast follower) organization is not the first but one of the earliest followers. These organizations can be a later mover in the industry but introduce products at just the right time and thereby gain a competitive advantage. This can happen when the ultimate success depends on the availability of complementary products or Technologies.
Technology Strategies
Gaining a competitive advantage through innovation requires an organization to develop technology strategies. Technology strategy concerns the generation and deployment of technological resources; that is, theoretical and practical knowledge, skills, and artifacts that can be used to develop products and their production and delivery systems for competitive advantage in business strategy.
Which technology competencies does the organization want to develop?
Which option among “buy-make-collaborate” does the organization plan to select?
Technology Entry Strategies
Technologies grow in a pattern that generally follows an S-curve. This pattern is usually called the technology life cycle. The cycle includes four sequential processes, including (1) generic research, (2) applied R&D, (3) production scale-up, and (4) technological maturity.
In the first stage, organizations make significant initial investments in generic research. Generic research constructs the pool from which fundamental revisions of the current technology are being made. In the applied R&D stage, organizations try to exploit the knowledge base generated through generic research to meet the market needs. The third stage is characterized by an increased commitment to the technology and formulating strategies for exploitation. Prototypes transform into marketable products. In the fourth stage, technology becomes widespread; thus, competition intensifies.
Strategic Management of Technology
The pitfalls of traditional R&D to exploit technology make the strategic management of technology a must for the organization. It is argued that traditional R&D approaches are not effectively capable of absorbing external technologies and implementing new technologies within the organization. Strategic management of technology encompasses a portfolio of approaches for acquiring new technology externally and internally. The acquired technological knowledge must be managed and used effectively, ubiquitously, user-friendly, and quickly both by organizational members and customers.