Technology: The Value of Technological Strength Core Competence The Technological Gap

Chapter 2
Technology
Part 1
The Value of Technological Strength;
Core Competence
The Technological Gap
Part 2
Strategic Management of Technology
NUS Lecture-3 1
Part 1
The Value of Technological Strength:
2.1. Technology in today’s companies

technology in general in Industry
2.2. Core Competence
technology in MNCs and larger LEs
2.3. Technology Gap in Industry
technology in SMEs and small LEs
D-ETM NUS Lecture-3 2

2.1. Technology in today’s companies
Technology in Industry has been defined (chapter 1):

“industrial application of scientific and
engineering knowledge”.
Remember: “3rd Generation R&D”:
Technology is the process that enables a company to say: “We know how
to apply science/engineering to…..” in a way that clarifies, what the
technology does for the business i.o. just, what the technology is.

Manufacturing and Technology
Manufacturing was defined as:
“mechanical, physical or chemical transformation of materials, substances or components

into new products”
Technology is needed to achieve such a transformation.
Technology applied to the product determines its:

Appearance
Usability
Quality
Price
The end product contains the technology used.

It is not better or worse than the technology used can offer.
The competitive position of the product on the global market is largely dependent on the
technology strength of the company.
We will discuss now:
a. the impact of type of technology

on competition potential of the company
(this means in a general sense)
b. impact of maturity of the technology
c. position relative to the competitor

a).Competitive Impact of Technologies
Technologies can be split into (“3rd Generation R&D”) :
Pacing technologies – technologies which have the potential to change

the basis of competition.
Key technologies - technologies which are embodied in the specific

products and processes of a company, and which are the most critical to
competitive success, because they offer the opportunities for meaningful
process and product differentiation.
Base technologies - essential, but known to and practiced by all

competitors; these technologies are widespread and shared.

(cont’d)
Pacing technologies require “fundamental R&D”
(large R, no or small D)
Key technologies require “radical R&D”

(large R, large D)
Base technologies require “incremental R&D”

(small R, large D)
The difference in competitive impact of the different technologies in the

company is essential in the strategic management of technology in the
company.
(where to put my resources? open or closed? manage like D or
like R? what can I afford? will be discussed later)

Repetition of the remarks on the terminology in Innovation and
Technology
In Chapter 1 we have seen and discussed the concepts of:
Continuous vs. discontinuous innovation

In discontinuous innovation: radical vs. disruptive
Sustaining vs. disruptive technology
Open vs. closed innovation
This discussion will not be repeated here, except I want to show (from
Chapter 1) the summary again of the terminologies used in this course.

TERMINOLOGIES (summary)
TECHNOLOGY INNOVATION MARKET/PRODUCT
discontinuous new, high end market

or (same product range)
radical innovation
sustaining
technology continuous continuous or incrementa
or improvement
incremental innovation (same product range)
discontinuous innovation new, low end market

disruptive or (maybe same, maybe
technology (disruptive innovation) new product range)

32
“The Innovator’s Dilemma” by Clayton Christensen describes the
phenomenon of failing established companies because of disruptive
products. Christensen gives ample examples. He bases his theory mainly
on disc drives. This is important as disc drives deal with the OEM
market. Especially in the OEM market customers are very influential.
However, disruptive products occur in all markets. Professor Hang has

discussed (or will discuss) this issue extensively and I do not need to
repeat.
For a company to cope with disruptive products and technologies one

needs R&D or better: research.
Research (“thinking out of the box”) has to provide

the technology option to make the disruptiveness sustainable;
We will discuss the consequences for the R&D organization

later.

As a conclusion:
Sustaining and disruptive technologies have to be dealt with in R&D management

in a different way.
Although you cannot say that all sustaining technologies are “base technologies”,
the reverse is true.
On the other hand, not all “pacing technologies” are disruptive technologies, but
the reverse is often true.
Management of R&D has to deal with all these differences.

b).Technology maturity
Technologies do not remain constant: they mature with the product (product life
cycle).
Because of this maturity the scope for additional technological advances changes
overtime (see next slides).
Technology will ultimately reach its natural limit.
Example:
magnetic material technology in electronic applications (ferroxcube, ferroxdure)
Maturity of technology helps understand the possibilities for additional advances

in the technology. Strategic management with regard to specific t%chnologies is
different for the different stages of maturity ( see for its impact on R&D later in
the course)

Characteristics of R&D as a function of technological maturity
Time to Knowledge to Predictability Durability of

Technological Commercial- Competitive Commercial
Maturity ization R&D Advantage
Technical Reward R&D Cost

Embryonic 7-15 years Poor Poor Fair Poor High
Growth 2-7 years Fair-Moderate Fair High Moderate Moderate
Mature 1-4 years High High High High Fair
Aging 1-4 years High Very High Very High Very High Short
Source : Adapted from Philip A. Roussel, “Technological Maturity Proves a Valid

and Important Concept,” Research Management, vol.27, no. 1 (January
-February 1984), p.30.

c). Technology strength relative to the competitor
Three concepts play a dominant role in strategic management of technology

(as we will see in part 2 of this Chapter).
Two concepts we have discussed already above:
1. Competitive impact (effect of the specific technology used on the
business in the company)
2. Technology maturity (possibility of technical advance in the differen4
stages)
The third concept is looking at the outside world:

3. TechnologiCal competitive position (compared to otHer companies)

Summarizing the discussion above:
Technological strength especially in the Key Technology areas is the basis of competition
in a technology-driven market.
New products, new processes need new technologies or new advances of the existing
technologies. These new technologies or technology advances are needed for a company
to be or become a world class company.
However, in all stages of technology maturity, the degree of the advancements of
technology are different. This has its impact on the R&D effort needed to keep the
competitive position of the products of the company.
Although the market nowadays is not only technology-driven (some markets are typically
market-driven), technological superiority remains a dominant factor in competition.
This is the basis for an ever lasting need of R&D in the technology based manufacturing
industry.
The position on the global market is, however, always relative to the competitors; also the
technological strength is relative.

Managing a company strategically
We mentioned the impact of technology strength through the concepts
of
1. Maturity of technology in the company
2. Its competitive impact in company products
3. Its competitive position compared with the outside world
However, although technology may be dominant, there is more needed for a company
to stay ahead of competition: Core Competence, (where technology is a prominent
element).
We will discuss Core Competence first, followed by the “Gap in Technology”, and
how to bridge that, before we will discuss the strategic management of the technology
in a company, followed by the role of R&D in it.

2.2. Core Competence
In 1990s till today: discussion very popular in many MNCs
C K Prahalad and Gary Hamel,

“The Core Competence of the Corporation”,
Harvard Business Review May/Jun 1990, 68 (3),
pp 79-91
Gary Hamel and C K Prahalad, “Competing for the Future”,

Harvard Business School Press, Boston, USA, 1994
(C K Prahalad: consultant to Philips in 1980s – 1990s)

“Inside-out” and “Outside-in” models
Prahalad / Hamel inside-out
Porter outside-in
Michael Porter (1980 “onwards”): five forces model

company strategy should be based on forces, coming from outside
the company, like customers, competitors, etc.
Prahalad / Hamel (1990 onwards): core competence
company strategy should be based on strength within the company

Porter’s model:
- holds for all companies
Potential
Entrants
Threat of new entrants
Bargaining Industry competitors Bargaining

Suppliers Buyers
power Rivalry among power
existing firms
Threat of substitute
products or services
Substitutes

Three quotations from
Prahalad / Hamel’s paper:

Core Competence model (metaphor)
- holds mainly for large, diversified companies
“A diversified corporation is a large tree:

The trunk and major limps are core products (components, subassemblies :
business divisions),
The smaller branches are business units,
The leaves, flowers and fruit are end products,
The root system that provides nourishment, sustenance and stability, is the core
competence.
You may miss the strength of competitors by looking only at their end products; in
the same way you miss the strength of a tree if you look only at its leaves.”
C.K.Prahalad and Gary Hamel (1990)

“Disparate businesses become coherent
in the core competencies underlying them.”
Examples
NEC (1990): leading in computing, telecoms, semiconductors, as well

as in consumer electronics
underlying: digital technology (VLSI), systems integration
Honda (1990): leading in cars, motorcycles, lawn mowers, generators
underlying: engines, power trains
Canon (1990): leading in copiers, laser printers,cameras, image scanners
underlying: optics, imaging, microprocessor controls

Competitive Advantage
“The real sources of advantage are to be found in Management’s ability to

consolidate corporate wide technologies and production skills into competencies
that empower individual businesses to adapt to quickly changing opportunities.”
Conclusion: a company must select

CORE COMPETENCIES

What is Core Competence?
A core competence is NOT just a specific quality, a capability like technology, in

which a company is very good.
A core competence is a collective capability in a company which makes growth

possible.
Three main elements (identifying core competence):

1. Potential access to a wide variety of markets
2. Significant contribution to perceived customer benefit
3. Difficult for competitors to imitate

A capability is an area where one is good at. Can be technology, can be
marketing, can be everything.
A Core Competence in a company consists at least out of three types of

capabilities:
Superior technological know-how (also called “Core (Key) Technological Competence”)
Reliable processes in the organization
Close external relationships
(“Dynamics of Core Competencies in Leading MNCs”, California

Management Review, Summer 1998)
Examples
1) optical storage in consumer electronics (Philips)
2) medical equipment (GE)
3) turbocharger service (Tru-Marine in Singapore)

Representation of company capabilities (competencies) in end products
Capabilities Core Core Products End Products

Competencies

Core Competence and Core Products provide the competitive edge and are needed for
world class products
Core Competence needed for growth of the company
Core Technological Competence (Key Technologies): one of the 3 main elements

identifying a Core Competence in a technological driven company
No World Class Technology without strong Core Technological Competence, strong
Key Technologies
Technological Strength of technology company must be World Class to play a role
on the global market

Product Functionality and Core Products
At the level of core competence, the goal is to build world leadership in the design and
development of a particular class of product functionality:
- compact data storage and retrieval (Philips’ optical media)
- compactness, ease of use (Sony’s micromotors and microprocessor
controls)
To sustain leadership, companies seek to maximize their world manufacturing share in core
products:
- supply of subassemblies in video recording (JVC)

Remark on Core Competence
by Christensen and Raynor
C.K.Prahalad and Gary Hamel coined the term “core competence” to be used in a
diversified company (esp. MNCs).
They were developing a view of diversification based on the exploitation of established
capabilities, broadly defined.
Nowadays the term is often used synonymously to “focused”; that is, firms that seek to
exploit their core competences do NOT diversify. They focus their business on those
activities, that they do particularly well.
------------------------------------------------------------------------
This explanation is opposite to Prahalad and Hamel’s idea and brings the company
easily into the “innovator’ dilemma”!

Example of Core Technological Competencies
by William J. Walsh
Definition: “those established and relatively unique areas of engineering

expertise and manufacturing capabilities that underlie the Division’s products”
Implicit in this definition is the total teaming of people skills, process
capabilities, and materials sourcing, that leads to a superior product.
7 Core Technological Competencies found:
Engineered plastics
High-current blade-switch operators
Molded elastomeric components
Electromagnetic operators
Extended environmental electronics
Power thermal elements
Bimetal operators

Technological Competence Building
and the role of R&D
Main element in Company Core Competence of a technology driven company:

Core technological competence = competence in the key technologies of the product
 Core technological competence has to be built up within the company itself.

 Non-core can stay outside and can be tapped upon when necessary (if available!)
 These 2 statements are basic in Prahalad and Hamel’s paper!
Three phases to be distinguished in building up core technological competence in the

company:
1. Capture of the key technologies
2. Growth of the key technologies
3. Use of the key technologies

(combining concept of Core Competence with “3rd Generation”)
These 3 phases are also mentioned in “3rd Generation” as the 3 elements needed
to manage technology strategically:
1. Recognizing important technologies for the business and the corporation

(by their maturities and their competitive impact).
2. Mastering these technologies to gain sustainable competitive advantage.
3. Using these technologies effectively by integrating them with the other
success factors of business.

Capture of technology, primary task of R&D
Stages
Identification of necessary technology
Identification of existing sources
Trying out/using these sources
Acquisition of the technology
Example: company makes plastic casings for TVs and wants to go in micro IM of medical devices.
Which technologies are “core”?

Materials, plastics • Medical expertise
Injection moulding • Powder IM
Environmental
Where can these be found?

• universities, RIs
• suppliers
• consultants
Experimenting outside?
How to transfer to company?

• buying, licensing
• hiring relevant technological expert
2. Growth of competence, also primary task of R&D
Transfer of technology to company

Licensing/collaboration
Hiring RSEs with relevant expertise
Further exploration of the technology
Preparation for use of technology in prototype products

3. Use , assisted by R&D
Prototype manufacturing
Problems during up scaling

R&D Dept to further experiment
R&D Dept to support manufacturing
Continuous improvement

Pitfalls in the build-up
Distinction “core” – “non-core”

Is source willing to license?
Is company capable to take up?
Time to identify, test, transfer
Talent and time to grow
Transfer from R&D to manufacturing
Needed are
SKILLS – technical, creativity
TIME

Summary
Basis for World Class Companies:
-- core competence = leadership in the design and development of a particular class
of product functionality
Basis or main element of core competence in a technology driven company
-- core technological competence = competence in the key technologies of the
product range
Key technologies require “radical R&D” and also the relevant “incremental R&D”
Key technologies remain “key” with the right R&D support;
-- core: R&D in house
-- non-core: R&D can be outside
(Key technologies are the collective of specific technologies, which in itself mature
with the product life cycle, but which as a collective must remain)

2.3 Technology Gap in Industry
Statement:
The higher the level of the technology, the more reluctant
the Industry to follow.
This seems true for “Local Enterprises” (LEs) and especially for SMEs
This seems only partly true for MNCs
This does not seem true for high-tech start-ups

2.3.1. The technology gap in Singapore
Most of Singapore’s industry falls in the category LE’s. The MNC’s are in
most cases not indigenous Singaporean, and the successful high-tech start-ups
are limited.
In 2002 the NSTB (now A*STAR) invited Markovits to study this

phenomenon as it was perceived to be threatening the industry more in
Singapore than in the rest of the world.
We will present the outcome of this study first before we will compare with the
rest of the world (ROW), and before we will indicate why modern
management of industrial R&D will help bridging this gap (4th Generation
R&D).

Markovits’ study on the basis of the “Innovation Lifecycle”
Gary Markovits (Innovation Business Partners, Inc) investigated the difference in the
Innovation Lifecycle in Singapore with and without MNCs in a study in 2002.
MNCs span the whole innovation lifecycle from product ideas till consequences in the
market place.
LEs cover a small portion only (production and commercialisation)
RIs cover another small portion (research and development)
gap in between
Singapore’s Innovation Infrastructure without MNCs
RIs LEs
Needs/ Research Development Commer- Diffusion & Consequences

Problems Basic & Applied cialisation Adoption
Imagined Possible Feasible Realised Accepted Unimagined
INNOVATION LIFECYCLE
Gary Markovits
(Cont’d)
Because of the gap in the innovation lifecycle the LEs lack access to high
technology and as a result they cannot build up core technology competence to
get a position on the world market
Basis of the gap is the different worlds of RIs and LEs

RIs include Universities (industrial collaborations)
LEs include often the local representation of MNCs

What determines this gap?
Technology
Culture
History
Knowledge level
RIs do not move (automatically) in the direction of LEs

RSEs want to do “research”
RSEs find working for industry “low level”
RSEs do not understand industry
RSEs do not like stress

(Cont’d)
LEs do not look (automatically) in the direction of RIs for technical support
RIs are supposed upstream
RSEs (PhDs) too high level
RIs don’t understand companies
RIs are arrogant
RIs have aggressive IPR policies
ALSO: • Singapore has no history in R&D;

• RIs have a high percentage foreigners
• LEs so far have got their technical
support from MNCs and
from equipment suppliers

2.3.2. The technology gap in ROW
The gap is universal for the same kind of reasons
However, extra wide in Singapore (historical, cultural)
USA • SMEs have often their own R&D

• many SMEs : high tech start ups
• much government support to transfer
technology from public R&D to industry
Europe • large public R&D organizations to support industry

- TNO (Netherlands)
- Fraunhofer (Germany)
• European initiatives (ADL study)
• SME organization (Bologna charter)
Japan • SMEs mainly suppliers to MNCs (tech. transfer)
Taiwan • ITRI over 30 years active
• R&D structure in universities 40 years

2.3.3. Recommendations in Singapore
Economic Review Committee, subcommittee for manufacturing
(Sep 2002)
Recommends to bridge the gap in the following way:
Develop closer links between R&D and industry activity
Needs/
Problems ACTIONS
Research Basic RIs • Help local enterprises
& Applied
generate Type 2 IP
Development
• Increase A*STAR RIs’
collaboration with local
Commer-
enterprises
cialisation\
SMEs • Grant Singapore-based
Diffusion &
companies technology
Adoption
licenses on preferential
Consequences
terms
Ministry of Law, ERC Manufacturing Subcommittee

(cont’d)
Institute of Policy Studies (IPS)

Forum on Economic Restructuring (IFER, July 2002)
“Create Centre for Manufacturing”
“… Centre in Partnership with industry

… complement the research and development work”

Singapore’s state of affairs
1. RIs - pushed by A*STAR into industry support
GET-UP
T-UP
OTR
- slow process
In Science & Engineering Research Council

- SIMTech - IME
- IMRE - DSI
- I2R - IHPC
- ICES
Furthermore
- DSTA
- DTI (NUS & TUE)
- TLI (NUS & Georgia Tech)
- other university centres

(cont’d)
1. LEs • cannot be forced
• grants - EDB
- SPRING
- A*STAR
• A*STAR initiatives
- GET-UP
- T-UP
- OTR
• support in IPR matters (IPOS, ETPL)
Compare with OECD countries, where many SMEs/LEs

- Start their own R&D
- Or co-develop with RIs

2.3.4. How to bridge the technology gap
Going back to Markovits’ findings in Singapore and the solutions developed
Simple solution: companies move to the left and/or Universities/RIs move to the right
**this has been seen as partly executed in ROW**
Process is slow
Nowadays Industry does not get the time
Therefore Universities/RIs have to change attitude
**if Industry does not have the time, but Universities/RIs adapt to support Industry, the
gap can be closed**
There still is time if reaction is fast

What is needed is “Open Innovation” or well-managed Industrial R&D, which will be
discussed in Module 3
But, how can Universities/RIs adapt?
Academic Excellence versus
Industrial Relevance for Academics and RSEs
we will use “academic excellence vs. industrial relevance”
( Prof K Bhattacharyya of Warwick Manufacturing Group, UK)
Academic
Excellence
high
low
low high
Industrial Relevance

(cont’d)
In the case of a technology gap the company’s RSE’s are, and therefore the
company is, in the right hand lower corner
Universities/RIs are normally in the left hand upper corner (often also left hand
lower!)
distance too far for fruitful cooperation

no way for the company to upgrade on its own
Companies could move to the left, but this is irrelevant

Companies have to move up (either themselves, but this will cost time, or through
“Open Innovation”)
Universities/RIs have to move to the right (and sometimes downward)
what is the most relevant route for Universities/RIs to move?

Three Routes
(for RSEs in LEs to move)
Academic
Excellence
2
high
academics
low RSEs in the
3 industry (LEs)
low high
D-ETM NUS Lecture-3 Industrial Relevance 55
Two Scenarios
Academic
Excellence
2–3 Goal
high years 10 years?
2–3
years
Present
low situation
low high

The Gap is wider the more upward in the diagram
Academic
Excellence
2
high
low 3
low high

As a result route 3 is the most advisable
This is specifically true for developing countries

This route was chosen for some RIs in Singapore in the 90s (abandoned now?)
Same was successfully done by TNO in The Netherlands
Route 2 can be followed only when the cooperating company has high
level RSEs (no gap)
Examples:
Philips Corporate Research (1960 – 1990)
assumingly WMG is following this route as well

Technology: The Value of Technological Strength Core Competence The Technological Gap

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Chapter 2

2.1. Technology in today’s companies

D-ETM NUS Lecture-3 2

Technology in Industry has been defined (chapter 1):

Remember: “3rd Generation R&D”:

D-ETM NUS Lecture-3 3

“mechanical, physical or chemical transformation of materials, substances or components

Technology is needed to achieve such a transformation.

Technology applied to the product determines its:

The end product contains the technology used.

a. the impact of type of technology

b. impact of maturity of the technology

c. position relative to the competitor

D-ETM NUS Lecture-3 5

Pacing technologies – technologies which have the potential to change

Key technologies - technologies which are embodied in the specific

Base technologies - essential, but known to and practiced by all

D-ETM NUS Lecture-3 6

Key technologies require “radical R&D”

Base technologies require “incremental R&D”

The difference in competitive impact of the different technologies in the

D-ETM NUS Lecture-3 7

In Chapter 1 we have seen and discussed the concepts of:

Continuous vs. discontinuous innovation

D-ETM NUS Lecture-3 8

discontinuous new, high end market

discontinuous innovation new, low end market

D-ETM NUS Lecture-3 9

However, disruptive products occur in all markets. Professor Hang has

For a company to cope with disruptive products and technologies one

Research (“thinking out of the box”) has to provide

We will discuss the consequences for the R&D organization

D-ETM NUS Lecture-3 10

Sustaining and disruptive technologies have to be dealt with in R&D management

Management of R&D has to deal with all these differences.

D-ETM NUS Lecture-3 11

Maturity of technology helps understand the possibilities for additional advances

D-ETM NUS Lecture-3 12

Time to Knowledge to Predictability Durability of

Technical Reward R&D Cost

Source : Adapted from Philip A. Roussel, “Technological Maturity Proves a Valid

D-ETM NUS Lecture-3 14

Three concepts play a dominant role in strategic management of technology

The third concept is looking at the outside world:

D-ETM NUS Lecture-3 15

D-ETM NUS Lecture-3 17

D-ETM NUS Lecture-3 18

In 1990s till today: discussion very popular in many MNCs

C K Prahalad and Gary Hamel,

Gary Hamel and C K Prahalad, “Competing for the Future”,

(C K Prahalad: consultant to Philips in 1980s – 1990s)

Prahalad / Hamel inside-out

Michael Porter (1980 “onwards”): five forces model

D-ETM NUS Lecture-3 20

Threat of new entrants

Bargaining Industry competitors Bargaining

D-ETM NUS Lecture-3 21

Prahalad / Hamel’s paper:

D-ETM NUS Lecture-3 22

“A diversified corporation is a large tree:

C.K.Prahalad and Gary Hamel (1990)

D-ETM NUS Lecture-3 23

NEC (1990): leading in computing, telecoms, semiconductors, as well

this has been seen as partly executed in ROW