Technology Strategy for Managers and Entrepreneurs

387 Pages·2013·7.441 MB·English

by  Scott Shane

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ISBN 978-1-29204-032-5 1
e
9 781292 040325
Pearson New International Edition

Technology Strategy for Managers
and Entrepreneurs
Scott A. Shane
First Edition
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ISBN 13: 978-1-292-04032-5
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P E A R S O N C U S T O M L I B R AR Y
Table of Contents
1. Introduction
Scott Shane 1
2. Technology Evolution
Scott Shane 15
3. Technology Adoption and Diffusion
Scott Shane 45
4. Sources of Innovation
Scott Shane 71
5. Selecting Innovation Projects
Scott Shane 97
6. Customer Needs
Scott Shane 119
7. Product Development
Scott Shane 147
8. Patents
Scott Shane 175
9. Trade Secrets, Trademarks, and Copyrights
Scott Shane 203
10. Capturing Value from Innovation
Scott Shane 235
11. Competitive Advantage in High-Tech Industries
Scott Shane 259
12. Technical Standards
Scott Shane 281
13. Collaboration Strategies
Scott Shane 301
I
333257915
14. Strategy in Networked Industries
Scott Shane 329
15. Strategic Human Resource Management of Technical Professionals
Scott Shane 351
Index 375
II
Introduction
Learning Objectives Why Technology Strategy?
Introduction Purpose of the Text
Approach to Technology Strategy
Technology Strategy: AVignette
Technology Strategy in Start-ups and Large,
What Is Technological Innovation?
Established Firms
Defining Technology
Discussion Questions
Defining Innovation
Defining Technological Innovation Key Terms
Why Technological Innovation Is Important Notes
Getting Down to Business: Remembering
Process Development
Learning Objectives
After reading this chapter, you should be able to:
1.Define technological innovation, explain why it is important, and
describe how firms use it to achieve their objectives.
2.Describe how technological innovation occurs, and explain the
effects that it has on individuals, firms, and society.
3.Define technology strategy, and explain why it is important for
entrepreneurs and managers to develop technology strategies.
4.Describe the approach to technology strategy taken in the text,
and explain why that approach is important.
5.Identify the core areas of technology strategy, and spell out how
these different areas of technology strategy affect businesses.
6.Describe how the core areas of technology strategy differ for new
and established firms, and explain why these types of firms need
to take different approaches to technology strategy.
From Chapter 1 of Technology Strategy for Managers and Entrepreneurs. Scott Shane. Copyright © 2009 by Pearson Prentice Hall.
All rights reserved.
1
Introduction
Technology Strategy: A Vignette1
The Xbox 360 game machine, developed by Microsoft to challenge Sony’s
position as the market leader in the sale of video game consoles, is a prime
example of a company’s effort to develop an innovative new product as part
of its overall technology strategy. It also illustrates many of the topics that
are covered in this text.
Video game consoles are a high-technology product, requiring signifi-
cant investment in research and development to create. Moreover,
Microsoft’s effort to develop a competitive video game console involves a
variety of strategic issues. First, video games involve network effects,
which influence the relationship between game and console makers. If
Microsoft can sell more Xbox 360 consoles than Sony can sell PlayStation
3consoles, then video game makers will design the best games for the
Xbox. The availability of the best games for the Xbox will increase sales of
the consoles, generating a positive returns cycle for the company.
Second, the manufacture of the consoles faces very significant
economies of scale. As the volume of production of video game consoles
goes up, costs per unit (the amount of money that the company needs to
spend to create each console) decline. As a result, the largest producers of
consoles have significant cost advantages over their competitors.
Moreover, initial sales are often made at a loss, as a company ramps up to
minimum efficient scale. During that ramp-up process, companies often
lose a lot of money. Microsoft, for example, lost $4 billion on the develop-
ment and production of the Xbox hard drive and microprocessor alone.2
Third, success in this business depends on Microsoft’s ability to
develop the right capabilities to manage a video game business.
Traditionally, the company’s expertise has been in making computer soft-
ware. However, video game consoles are pieces of computer hardware.
Because the manufacture and sale of computer hardware are very different
than the production and sale of computer software, to produce and
successfully market the Xbox, Microsoft has to develop very different
capabilities than it has needed in its software business.3
Fourth, the production of the Xbox requires Microsoft to develop a new
supply chain. The Xbox 360 contains 1,700 different parts, which all have
to be brought together to make the product. To keep costs down, Microsoft
produces the Xbox in China. It uses two factories, each of which serves as
a hedge against problems that would shut down the other. Around these
two core manufacturers are a host of suppliers of plastic parts for the
boxes, capacitors, cooling fans, and other parts whose production needs to
be coordinated.4
Fifth, the development and production of the Xbox requires Microsoft to
manage contractual relationships with other companies. Specifically, it has
to coordinate their production of the graphics chip and hard drive used in
the Xbox. Its entire effort to sell Xboxes could derail if these producers run
into production delays. While diversification protects Microsoft against
problems with the production of the hard drive—the console’s hard drive is
a commodity sourced from a variety of manufacturers—it is vulnerable to
problems with the chip, which is custom-made by IBM. The reliance on IBM
could prove to be a problem if anything hinders its ability to deliver the key
component.5
2
Introduction
INTRODUCTION
Technological innovation has become an important part of the process by which
companies in many industries generate competitive advantage, making it a crucial
part of firm strategy. In recent years, many companies have increased their level of
technological innovation to produce a greater variety of new products, and to
introduce those new products to market faster. In many industries, the share of
sales and profits accounted for by products introduced in the past five years
has been growing rapidly. In fact, some companies, like 3M, now generate 40 per-
cent of their sales from products that did not exist five years ago.
Companies have also increased their level of technological innovation in response
to competition. The reduction of costs and the improvement in quality of products
made in lower wage countries, like China and India, have posed a major challenge for
firms in developed countries, like the United States and Germany. Many firms from
developed countries have responded to this challenge by introducing new products at
a faster pace to stay ahead of imitators, and by using technological innovation to
reduce their own production costs.6
Technological innovation has also increased as more companies that once pro-
duced commodity products now seek to differentiate their offerings from those of
competitors. The desire of more companies to offer differentiated products has short-
ened the product life cycle and has increased the importance of investments in new
product and process development.7
Furthermore, technological innovation has increased as companies have turned
intellectual property into a marketable asset. In recent years, the licensing of tech-
nology to other companies has become an important revenue stream for many com-
panies, with some, like IBM, adopting the approach that all of its intellectual
property is potentially for sale. This marks a major change from only a couple of
decades ago when intellectual property was used only as an input into a company’s
product or service.
In addition, there has been significant growth recently in the formation of high-
technology start-ups that use funding by venture capitalists and business angels
(individuals who invest their own money in start-up companies, usually by taking
an equity stake in them) to introduce high-technology products and compete with
established firms. As a result, technological innovation has also been increasing
because of entrepreneurs, including those who create spin-off companies, using tech-
nology developed at major corporations and universities.
This emphasis on technological innovation as a way to generate or preserve
competitive advantage has led to an increased need for managers and entrepre-
neurs who can develop strategies to successfully manage this activity. While com-
panies can, and do, introduce new products, improve production processes, and
target new markets without strategies or plans, companies are better at these
activities if they develop, and execute, an effective strategy to undertake them.8
By combining an understanding of markets and technological evolution with an
understanding of firm organization and capabilities in a deliberate and organized
manner, managers and entrepreneurs can generate value by developing technol-
ogy products and services that better meet customer needs, and can become better
at capturing that value.
The increased need for managers and entrepreneurs to develop strategies for
technological innovation, in turn, has led to an increased demand for business
school courses in the management of technological innovation, and for strategic
3
Introduction
management courses that focus on issues particular to high-tech companies. In
short, technology strategy is now an important part of the education of business
leaders.
WHAT IS TECHNOLOGICAL INNOVATION?
The previous vignette illustrates the importance of understanding technology strat-
egy by highlighting many of the important issues that companies face and that are
the subject matter of this text. But before we get into a discussion of what technology
strategy is, and how to develop it effectively, we need to lay a little ground work. We
have to define technological innovation and explain how firms use it to achieve their
objectives. After all, strategy is just an approach to achieving a particular goal, mak-
ing technology strategy nothing more than an approach to using technological inno-
vation to achieve a goal.
So our first step is to define technological innovation. That is best done
by decomposing the phrase into its two parts, the concepts of technology and
innovation.
Defining Technology
While there has been a tendency for the popular media to use the word technologyas
shorthand for information technology, technologyis much broader than just informa-
tion technology. It is the application of tools, materials, processes, and techniques to
human activity.
Certainly, information technology—the use of zeros and ones in digital form on
computers—is an important technology, but there are many other important tech-
nologies as well. Biologically based technologies, such as those used to create new
drugs or to clean up pollution, are also important. Similarly, mechanically based
technologies, such as those that make pumps or valves, matter. New materials, such
as those in new ceramic composites, are valuable too.
So when this text discusses technology, we aren’t talking just about information
technology. Rather, we are talking about a host of technologies, including, but not
limited to, new microorganisms, new mechanical devices, new materials, and a vari-
ety of other products and processes. So when you see the word technology or the
phrase technological innovation, do not just think of the Internet and computer soft-
ware, think of processes like nanofabrication (the process of making things less than
one micrometer in size) and products like fuel cells, ceramic composites, new drugs,
or heart valves.
The use of technology is more prevalent in some industries than in others.
Figure 1 shows the industries that the U.S. government defines as technology-
intensive. Clearly, these industries are the ones in which an understanding of
technology strategy is important to entrepreneurs and managers.
4
Introduction
FIGURE 1 Technology-Intensive Industries
Industry
Aerospace product and parts manufacturing
Agriculture, construction, and mining machinery manufacturing
All other electrical equipment and component manufacturing
Architectural, engineering, and related services
Audio and video equipment manufacturing
Basic chemical manufacturing
Commercial and service industry machinery manufacturing
Communications equipment manufacturing
Computer and office machine repair and maintenance
Computer and peripheral equipment manufacturing
Computer systems design and related services
Data processing services
Educational support services
Electrical equipment manufacturing
Engine, turbine, and power transmission equipment manufacturing
Industrial machinery manufacturing
Management, scientific, and technical consulting services
Manufacturing and reproducing magnetic and optical media
Medical equipment and supplies manufacturing
Motor vehicle body and trailer manufacturing
Motor vehicle manufacturing
Motor vehicle parts manufacturing
Navigational, measuring, electromedical, and control instruments manufacturing
Online information services
Ordnance & accessories manufacturing—ammunition (except small arms) manufacturing
Ordnance & accessories manufacturing—other ordnance and accessories manufacturing
Ordnance & accessories manufacturing—small arms ammunition manufacturing
Ordnance & accessories manufacturing—small arms manufacturing
Other chemical product and preparation manufacturing
Other general purpose machinery manufacturing
Paint, coating, and adhesive manufacturing
Pesticide, fertilizer, and other agricultural chemical manufacturing
Petroleum refineries
Pharmaceutical and medicine manufacturing
Resin, synthetic rubber, and artificial and synthetic fibers and filaments manufacturing
Scientific research and development services
Semiconductor and other electronic component manufacturing
Soap, cleaning compound, and toilet preparation manufacturing
Software publishers
The U.S. government defines these industries as technology intensive because the firms in them devote a large proportion of
their revenue to research and development.
Source:Adapted from Science and Engineering Indicators, 2006, http://www.nsf.gov/statistics/seind06.
Defining Innovation
The next important definition is that of innovation—the process of using knowledge
to solve a problem. Innovation is different from invention, which is the discovery of
a new idea, because it involves more than just coming up with an idea about how to
5