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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

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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





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)
  • 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




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











upgrading the technology value
Upgrading the technology value



Demonstration of experience


Relevance of demand


Add-on service



Raw materials






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.