MANAGEMENT

of
TECHNOLOGY
The Key to Competitiveness and Wealth
Creation
Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Tarek Khalil | Ravi Shankar

The

Acquisition

Exploitation of
Technology

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

and

TECHNOLOGY ACQUISITION BY
HERO

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Hero Moto Corp is the world's largest two-wheeler company in India where
its market share is about 56% in 201112
For about 27 years, it had an enduring technology sharing arrangement with
Japanese firm, Honda Motors
To maintain continuity in Hero's business, it retained a licence agreement with
Honda till 2014
Hero must have counted the number of days during which it has to develop
its own strength in technology
Hero MotoCorp was on a look-out for a new global partner for technology
acquisition
Hero MotoCorp carefully evaluated the EBL's technological superiorly in
customised super-bike, which needs tremendous capability to conduct inhouse R&D
Hero's strategy for technology acquisition has two facets: short-term and longterm
EBR is likely to provide support in establishing this R&D base

INTRODUCTION

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

In the quest to keep up with the pace of technological

change, organization must be able to acquire needed
technologies and exploit their own technologies
Special emphasis is placed on research and development
as a critical activity in the creation of technology
National and corporate strategies for R&D have a
profound impact on the competitive posture of industry
in any country
These strategies, in turn, influence the level of
technological capability and thus, can lead to
improvements in the products and services offered and to
increased wealth

ACQUISITION OF TECHNOLOGY
Technology planning encompasses the development of plans for the
acquisition of technologies that will impact a firms competitiveness
Managers must then make a choice as to which technology or set of
future
Methods of Acquiring Technology
Using internal R&D
Participating in a joint venture
Contracting out for R&D
Licensing in of technology
Buying the technology

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

technologies the firm should immediately acquire or pursue in the

Factors Affecting the Technology Acquisition Decision

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Source: David Ford, Develop Your Technology

Strategy. Reprinted from Long Range Planning, Vol.
21, No. 5, 1988, p. 91, with permission from Elsevier
Science

ACQUISITION OF TECHNOLOGY
(Contd.)

EXPLOITATION OF
TECHNOLOGY
Technology can be thought of as an asset or a commodity to be
purchased and sold
technology to others is high
Technology may need to be exploited as rapidly as possible for a
company to have a chance at getting the markets general acceptance
of its technology and at defining the industry standard
Ford (1988) developed an exploitation matrix, which includes factors
affecting technology exploitation decisions

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

If a company is strong in a technology, its success in licensing the

Factors Affecting The Technology Exploitation Decisions

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Source: David Ford, Develop Your Technology

Strategy. Reprinted from Long Range Planning, Vol.
21, No. 5, 1988, p. 92, with permission from Elsevier
Science

EXPLOITATION OF TECHNOLOGY
(Contd.)

TECHNOLOGY CREATION
THROUGH R&D

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

The creation of technology can result from either an

individual or a group effort
The rise of organised R&D activities can be traced back to
Thomas Edison, who in 1876 established a scientific
research laboratory at Menlo Park, Pennsylvania
The U.S. government also created a number of R&D
establishments to support the defense industry and
national security effort
Private industry and academic institutions also expanded
their involvement in research, having appreciated the role
of science and technology in increasing knowledge and
creating opportunities for growth

STAGES OF TECHNOLOGY
DEVELOPMENT
Basic research
Applied research
Development
Technology enhancement
Bhalla (1987) makes some pertinent observations related
to science and technology development:
Science builds on prior science, except for rare random discoveries
Technology builds on prior technology
Technology development goes through multiple stages, each stage
requiring different skills and talents
Key technologies require 8 to 15 years to develop

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

THE TECHNOLOGY PORTFOLIO

AND INDUSTRIAL R&D
The classification introduced by Merten and Ryu (1982) proposed
dividing industrial laboratory research activities into five categories:
Basic research
Development of new commercial activities
Development of existing commercial activities
Technical services

Jain and Triandis (1990) proposed the following R&D needs, which
apply to any company technology portfolio:
Normative needs
Comparative needs
Forecast needs

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Exploratory research

THE TECHNOLOGY PORTFOLIO

AND INDUSTRIAL R&D (Contd.)

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Technology Portfolio Categorised

by Stage of Technology

THE TECHNOLOGY
PORTFOLIO AND
INDUSTRIAL
(Contd.)
Corporations
use R&D basically to leadR&D
and support innovation.
Areas where
this is relevant are:

Product innovations
Material innovations
Market innovations for new business development
Service innovations

Leveraging opportunities require up-front R&D investment in a balanced

spectrum of programmes. These can include:
Focused and targeted short-term projects
Focused and targeted long-term projects
Speculative and exploratory work
Supportive research projects for existing products and services

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Process innovations

JUSTIFICATION OF R&D
EXPENDITURES
Conducting R&D requires both human and financial resources

R&D is supported as an overhead (OH) expense

R&D is supported as an investment

The ROI and similar financial justification methodologies are inherently

biased against long-term R&D projects, in which the future is uncertain
There is an important segment of the technical activity covering applied
research, exploratory development, and feasibility that is difficult to
justify using either of the two funding models mentioned above

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

In all cases, funding decisions for R&D are dependent on the

justification methodology used by R&D managers to get management
approval. Existing methods for funding R&D in corporations are
usually based on one of the following:

JUSTIFICATION OF R&D EXPENDITURES

The price of the call option is
equivalent to the cost of the
R&D activities at the time of
the call
Management is more likely to
accept strategic positioning
projects justified financially as
an option
Many R&D projects with
potential opportunities may
exist, but they may require
expenditures beyond the
range acceptable to an
organization

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Strategies Objectives of R&D and Preferred Method

of Funding

Source: Mitchell & Hamilton, 1988

(Contd.)

JUSTIFICATION OF R&D EXPENDITURES

Strategies for Bringing R&D Projects to Acceptable

Level

A national technology policy

can be formulated to make
use of the concepts discussed
above. Technology policy can
encourage consortia and other
cooperative business
alliances, provide matching
funds to industry, and
facilitate wide diffusion of
federal R&D
These strategies involve
changing the cost and risks
associated with new
technologies

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Source: Mitchell, 1995

(Contd.)

JUSTIFICATION OF R&D EXPENDITURES

(Contd.)
General Observations on Industrial R&D
Large firms undertake the major part of all industrial R&D

Although the great bulk of R&D takes place in large firms, significant
inventions have emanated from small firms and from individuals
Only a small percentage of R&D projects turn out to be a commercial
success
Small firms are credited with expanding national employment figures;
they are effective in matching technology with customer needs
R&D can be divided into two activities: research and development
In the early stages of the product life cycle, technology is more crucial
than development and marketing activities

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

The larger the company, the more likely it is to have some research
activities

THE GOVERNMENT AND

MILITARY ROLE IN R&D

National R&D expenditure in defense-related endeavours has been

greater than or equal to R&D expenditure for non-defense-related
endeavours
In contrast to the United States, Japan devotes a great majority of its
R&D expenditure to the commercial secto
It also led to growth in Japans economy. Japans investment in R&D
has moved Japanese industries from being imitators of technology to
being leaders in innovation

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Most industrialized countries recognize the importance of R&D and

its role in developing technologies to create economic growth and
preserve national security

GLOBAL MANAGEMENT OF R&D

While markets are global, technology will continue to develop locally in pockets of innovation

Critical mass will be a key factor in successful technology development

External relationships are becoming more importantsurvival is no longer a matter of being a

technological island; rather, it depends on being part of a research consortium, joint venture, or the like

Companies can get more out of their research by linking it more closely to market needs and
customer requirements rather than by increasing spending

The global network model is the wave of the future

Perrino and Tipping found that European, American, and Japanese companies deploy their
R&D resources in different patterns:

The European pattern is based on acquisition of entire companies

The Japanese pattern is based on home production and centralised R&D plus listening posts for
acquiring technology rather than on overseas expansion of R&D

The U.S. pattern is based on setting up overseas laboratories staffed by their own companys U.S. or
foreign nationals employees

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

In a review of corporate trends in R&D, Perrino and Tipping (1989) found the following
characteristics:

(Contd.)
Electronics

Autos

Biotechnology

Acquire technology

Keep abreast of technological developments

Assist parent company in meeting U.S. customer

needs

Employ U.S. scientists and engineers

Follow competition

Take advantage of favorable research and

development

Cooperate with other U.S. R&D labs

Assist parent company in meeting U.S.

environmental regulation

Assist parent companys U.S. manufacturing plants

in procurement

Engage in basic research

1 = Extremely important, 2 = Important, 3 = Neutral, 4 = Unimportant

Reasons for Foreign R&D Investment in the United States (Reasons given by senior R&D/technical executives)

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Source: Dalton and Serapio, 1995

GLOBAL MANAGEMENT OF R&D

WEBLINKS
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http://www.livemint.com/2011/07/03105814/Hero-Honda-intensifies-Ram
pD.html
http://www.thehindubusinessline.com/companies/article1993292.ece