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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

Technology Strategy

Competition for sustainability in the era of information economy

vision of corporation
Vision of corporation
  • 3M
  • Microsoft
  • GE
  • FedEx
  • Oracle
  • Sheseto
  • Xerox
align technology with business
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
clarify the core competence
Clarify the core competence
  • Distinguished, non-imitable, substantial, marketable
  • Complementary technology
  • Critical technology
  • Externally acquired technology
  • Fundamental needed technology
  • Mature technology
integration considerations
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
competitive advantage
Competitive advantage
  • Absolute advantage
  • Relative advantage
  • Critical to technology exploitation & integration arrangement
  • Clustering the position
    • Relative market power vs. absolute advantage vs. technology maturity
the strategic guide to information economy
The strategic guide to information economy
  • System products
  • Standard competition
  • Rights management
  • Policy
system products
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
how standards change the game
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”
change game
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
who wins who loses
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
formal standard setting
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?
tactics in formal standard setting
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
building alliances
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
managing open standards
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
the standards game
The standards game

Player B

openness

Player

A

openness

lessons from standards competition
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
rights management
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
information cost
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)
policy
Policy
  • 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
tactics for lock in and switching costs
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
classification of lock in
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
follow the lock in cycle
Follow the Lock-in cycle

Brand Selection

Sampling

Lock-In

Entrenchment

implications for strategy
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
information economy is different but not so different
Information economy is different, but not so different!
  • Key concepts
    • Versioning
    • Lock-in
    • Systems competition
    • Network effects
beyond technology competition experience
Beyond technology competition—experience

Absorption

Entertainment

Education

Passive

participation

Active

participation

Aesthetics

Escapism

Immersion

upgrading the technology value
Upgrading the technology value

high

high

Demonstration of experience

Customization

Relevance of demand

Differentiation

Add-on service

Fabrication

Commoditization

Raw materials

low

low

low

high

Pricing

extended readings
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.
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