LB5124

BUSINESS INNOVATION &

TECHNOLOGY MANAGEMENT

Lecture 7
Technology and Competitive Advantage

LB5207 Managing Entrepreneurial Enterprises

Objectives of Lecture 7

• How to Use Technology to Achieve Cost

Leadership?
• How to Use Technology to Achieve
Differentiation?
• How Does Technology Fuel a Firm’s Strategy?
• Should a Firm License its Technology?
• How do Technologies Evolve in an Industry?
• What are the Challenges to Sustaining a Firm’s
Technology Lead?

LB5207 Managing Entrepreneurial Enterprises

Key readings
White, M. A. & Bruton, G.D. (2011). The Management of
Technology and Innovation: A Strategic Approach (2nd edn).
Mason, OH: South-Western Cengage Learning, c2011.

Barney, J. (1991). Firm resources and sustained competitive

advantage. Journal of Management, 17(1), 99. Retrieved from
https://search-proquest-com.elibrary.jcu.edu.au/docview/21525
8436?accountid=16285
.

Refer to Readings for Week 5's complete reading list.

 What is Business Strategy

Watch the following video (9

minutes), which focuses on
strategy
https://www.youtube.com/watch?v=TD7WS
LeQtVw

What are the key elements of a

business strategy?

https://library.ku.ac.ke/wp-content/downloads/2011/08/Bookboon/Strategy/studying-strat
egy.pdf
 Class Exercise 1
Read the following article which focuses on cost leadership

https://mktoolboxsuite.com/cost-leadership-examples/

• What is the difference between cost leadership and price

leadership?

• What are the key features of cost leadership?

• Which organization’s cost leadership strategy do you prefer?

Explain.
Technology and Cost Leadership

• Cost leadership strategies require that the firm set itself a

primary objective: to minimize its costs.

• It should then identify the ‘experience curve’, that

characterizes the given industry.

• The ‘experience curve’ is an important reference for all

firms competing in a given industry.

• This experience effect has important strategic

consequences for the firm that wants to use technology
to reduce its costs.
LB5207 Managing Entrepreneurial Enterprises
Technology and Cost Leadership
Three factors contribute to the experience effect:

Learning:
• Learning is primarily organizational in nature (see
Lecture 4), and has few direct technological
implications.

Economies of Scale:
• Firms having the greatest production and sales volume
can build a cost advantage using technology.

Innovation:
• Small firms can nullify cost reductions attributable to
economies of LB5207
scale through the use of technology.
Managing Entrepreneurial Enterprises
 Class Exercise 2
Read the following article which focusses on differentiation strategy

https://www.pricingsolutions.com/pricing-blog/6-companies-that-cleverly-use-differentiati
on-strategies-gain-competitive-advantage/

• What is the difference between cost leadership strategy and

differentiation strategy?

• What are the key features of differentiation strategy?

Technology and Differentiation

• Differentiation strategies aim at giving a firm a

competitive advantage based on specific characteristics
of its products, which are recognized and valued by
customers.

• These characteristics can include improved performance,

higher quality, better reliability and durability, as well as
any feature considered unique by customers.

• For a firm to base its strategy on the specific nature of its

product offering, it is essential that this specificity be
sustainable over a period of time.
LB5207 Managing Entrepreneurial Enterprises
Technology and Differentiation

Key Factors for Differentiation:

Imitability
• The true extent of a firm’s competitive advantage, due to
its technology, and the extent to which it is protected from
imitation, by other competitors.

Value:
• The perception by customers, of firm’s product or
service, resulting from the utilization of the technology.

LB5207 Managing Entrepreneurial Enterprises

Technology and Strategic Orientation

Competitive Dynamics:

Two types of strategic orientation, inspired by competitive

behavior, can be observed in all industries:

• Switching from a differentiation strategy, based on a

particular technology, to a cost leadership strategy,
based on scale, accumulated experience and dominant
position;
• Maintaining a competitive advantage, through constant
innovation and improved technology.

LB5207 Managing Entrepreneurial Enterprises

Technology and Strategic Orientation

Technology and Competitive Position:

• A new technology, which modifies key success factors in
an industry, is perceived as a strategic opportunity by
marginal competitors, and as a threat by leading
competitors.

Technological Leaders and Followers:

• A firm can derive advantage from being a technological
leader, but this strategy also entails significant risks.

LB5207 Managing Entrepreneurial Enterprises

Industry Characteristics and Technology
Evolution

Scale Change:
• As firm and industry scale increase, new product and process
technologies may become feasible.

Learning:
• Firms learn about product design and how to perform various value
activities over time, with resulting changes in the technology employed.

Technology Diffusion:
• Diffusion of technology occurs continually, though at different rates
depending on the industry.

Diminishing returns to technological innovation in value activities:

• Technologies may reach limits beyond which further improvement is
difficult. LB5207 Managing Entrepreneurial Enterprises
 Class Exercise 3
Read the following article which focusses on how industry
characteristics and technology evolution

Alibaba and lessons from China's innovative digital giant

• What is a smart business?

• How does Alibaba exploit digital technologies to enter

unavailable markets?

• What is solution leadership?

Challenges to Sustaining Firm’s
Technology Lead

Segmentation of Buyer Needs:

• Where buyer needs differ substantially, competitors
may introduce specialized designs over time to serve
different segments.

Sources of Technology:
• Technological change is more predictable when
industry-specific technologies are dominant, and the
impact of technologies from outside the industry is
small.
LB5207 Managing Entrepreneurial Enterprises
Challenges to Sustaining Firm’s
Technology Lead

Scale and Learning Sensitivity:

• The extent to which the industry technologies are
scale- or learning-sensitive, relative to industry size, will
influence the pressure for standardization.

Technological Limits:
• The technological limits in the different technologies in
the value chain, will affect the path of technological
change.

LB5207 Managing Entrepreneurial Enterprises

Challenges to Sustaining Firm’s
Technology Lead

Technological Linkage Among Value Activities:

• The technologies in the product, and in value activities,

are often linked;
• Changing one sub-technology in the product, often
requires changing others.

LB5207 Managing Entrepreneurial Enterprises

Challenges to Sustaining Firm’s
Technology Lead

Substitution Logic:

• Whether substitutes are threatening, based on cost or

differentiation, will lead to a corresponding emphasis in
technological change.
• This pressure from substitutes, is an important
determinant of the pattern of technological evolution.

LB5207 Managing Entrepreneurial Enterprises