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Technology Strategy. Competition for sustainability in the era of information economy. Vision of corporation. 3M Microsoft GE FedEx Oracle Sheseto Xerox. Align technology with business. The price-quality tradeoff The profit-share tradeoff The growth-position tradeoff

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Technology strategy l.jpg

Technology Strategy

Competition for sustainability in the era of information economy

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Vision of corporation

  • 3M

  • Microsoft

  • GE

  • FedEx

  • Oracle

  • Sheseto

  • Xerox

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Align technology with business

  • The price-quality tradeoff

  • The profit-share tradeoff

  • The growth-position tradeoff

  • The pioneer-harvest tradeoff

  • The consistency-diversity tradeoff

  • The enactment-response tradeoff

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Clarify the core competence

  • Distinguished, non-imitable, substantial, marketable

  • Complementary technology

  • Critical technology

  • Externally acquired technology

  • Fundamental needed technology

  • Mature technology

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Integration considerations

  • Integration for technology exploitation

  • Integration for order fulfillment

  • Integration

    • relevance vs. difficulty

    • Investment vs. controllability

    • Generic vs. specific

  • Modular design vs. integral design

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Competitive advantage

  • Absolute advantage

  • Relative advantage

  • Critical to technology exploitation & integration arrangement

  • Clustering the position

    • Relative market power vs. absolute advantage vs. technology maturity

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The strategic guide to information economy

  • System products

  • Standard competition

  • Rights management

  • Policy

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System products

  • Complementary products

    • Different manufacturers

    • Strategy for complementors as well as competitors

    • Compatibility as strategic choice

    • Standards and interconnection

      • Hardware/software

      • Client/server

      • Viewer/content

  • Product lines

    • High fixed cost, low incremental cost

    • Leaders to value based pricing

    • Lower quality may be more expensive

    • Proliferation strategy

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How Standards Change the Game

  • Expanded network externalities

    • Make network larger, increase value

      • Share info with larger network

      • Attracts more users

  • Reduced uncertainty

    • No need to wait

    • In war, neither side may win

  • Reduced consumer lock-in

    • Netscape’s “Open Standards Guarantee”

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Change Game

  • Competition for the market v. competition in the market

    • Buy into an open standard, that becomes closed?

  • Competition on price v features

    • Commoditized products?

  • Competition to offer proprietary extensions

    • Extending a standard

  • Component v systems competition

    • With interconnection, can compete on components

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Who wins? Who loses?

  • Consumers

    • Generally better off

    • But variety may decrease

  • Complementors

    • Generally better off

    • May serve the brokering role (DVD)

  • Incumbents

    • May be a threat

    • Strategies

      • Deny backward compatibility

      • Introduce its own standard

      • Ally itself with new technology

  • Innovators

    • Technology innovators collectively welcome standards

    • If the group benefits, there should be some way to make members benefit

    • Negotiation costs, opportunistic behavior

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Formal Standard Setting

  • Essential patents must be licensed on “fair, reasonable and non-discriminatory” terms

    • ITU, ANSI and ISO

  • What is your goal?

    • National or international?

    • Protecting your interests?

  • What are others goals?

    • Do they really want a standard?

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Tactics in Formal Standard Setting

  • Don’t automatically participate

    • If you do, you have to license

  • Keep up momentum

    • Continue R&D while negotiating

  • Look for logrolling

    • Trading technologies and votes

  • Be creative about deals

    • Second sourcing, licensing, hybrids, etc.

  • Beware of vague promises

    • Definition of reasonable

  • Search carefully for blocking patents

    • Patents held by non-participants

  • Preemptively build installed base

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Building Alliances

  • Assembling allies

    • Pivotal customers should get special deals

    • But don’t give your first customers too big an advantage

      • Offer temporary price break

  • Who bears risk of failure?

    • Usually ends up with large firms

    • But bankruptcy favors small firms

    • Government is even better!

      • Smart cards in Europe

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Standard is in danger if it lacks a sponsor

Lessons of Unix

Interconnection—searching a migration route

Extension of TLC

Negotiating a truce

Do the benefit cost calculation

How to divide a larger pie?

Managing Open Standards

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The standards game

Player B





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Lessons from standards competition

  • Commoditize technology and complements

  • Competition requires allies

  • How does your standard affect competition?

  • Standards benefit consumers and suppliers, at expense of incumbents and sellers

  • Formal standard setting adds credibility

  • Find natural allies

  • Before a battle, try to negotiate a truce

  • Try to retain control over technology, even when establishing an open standard

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Rights Management

  • The characteristics of information

  • The structure of cost

  • Low reproduction cost is two-edged sword

    • Cheap for owners (high profit margin)

    • But also cheap for copiers

  • Maximize value of IP, not protection

  • Examples

    • Library industry

    • Video industry

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Information & cost

  • Anything that can be digitized

    • Text, images, videos, music, etc.

  • Unique demand characteristics

  • Expensive to produce, cheap to reproduce

  • High fixed cost, low marginal cost

    • Not only fixed, but sunk

    • No significant capacity constraints

    • Particular market structures

      • Monopoly

      • Cost leadership

      • Product differentiation (versioning)

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  • Understand environment

  • IP regime

  • Price discrimination

    • Illegal if it “effectively lessens competition”

    • Legal arguments that work

      • Can set lower prices resulting from lower costs

      • Set differential prices to meet competition

      • Pricing only questionable if it “lessens competition”

  • Competition policy

    • Regulation

    • Antitrust

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Tactics for Lock-In and Switching Costs

  • Systems lock-in: durable complements

    • Hardware, software, and wetware

    • Individual, organizational, and societal

      • Example: Stereos and LPs, Costly switch to CDs

  • Deeply digging the Network Effects

    • Value depends on number of users

    • Positive feedback

    • Indirect network effects

    • Expectations management, preemption

  • Compatibility

    • Backwards & forwards

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Classification of Lock-In

  • Durable purchases and replacement: declines with time

  • Brand-specific training: rises with time

  • Information and data: rises with time

  • Specialized suppliers: may rise

  • Search costs: learn about alternatives

  • Loyalty programs: rebuild cumulative usage

  • Contractual commitments: damages

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Follow the Lock-in cycle

Brand Selection




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Implications for strategy

  • Protects competition as a process

  • Monopoly isn’t illegal, but attempt to monopolize is

  • Monopoly may be inhibited from using strategies that are legal for other firms

  • But even small firms may be accused of antitrust violations

  • Role of treble damages

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Information economy is different, but not so different!

  • Key concepts

    • Versioning

    • Lock-in

    • Systems competition

    • Network effects

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Beyond technology competition—experience











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Upgrading the technology value



Demonstration of experience


Relevance of demand


Add-on service



Raw materials






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Extended readings

  • Porter, Michael (1996), “What is Strategy?”Harvard Business Review, Nov.-Dec.

  • Iansiti, Marco and Jonathan West (1997), Technology Integration: Turning Great Research into Great Products,”Harvard Business Review, May-June.

  • Shapiro, Carl and Hal R. Varian (1998), Information Rule, Harvard Business School Press, Boston.

  • Pine II, B. Joseph, James h. Gilmore (1999), The Experience Economy, Harvard Business School Press, Boston.