MANAGEMENT OF INNOVATION &

TECHNOLOGY

Unit 7
TECHNOLOGY
STRATEGY
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Unit Objectives …/
• At the end of this unit, students should be able to:
• Define technology strategy.
• Describe the link between technology and business strategy
decisions. Be able to discuss the reasons why this link exists.
• Investigate how the technology strategy of a firm is a
fundamental driver of its profitability.
• Explain the central principles that underlie technology choices.
• Explain the differences between and similarities among the four
broad types of technology strategies available to a firm.
• Investigate the stages through which technology strategy is
formulated and how these stages influence one another.
• Define collaborative arrangement and investigate the special
characteristics inherent in the definition. 2
Unit Objectives
• Compare and contrast the two categories of collaborative
arrangements.
• Distinguish between the three types of strategic alliances
firms develop to further their competitive objectives.
• Investigate the major risks involved for firms that participate
in collaborative arrangements.
• Explain how the environmental trend of globalization is
influenced by the increasing emphasis on the collaborative
mode of implementation of technology strategy.
• Investigate the managerial implications associated with using
collaborative arrangements as a means to implement
technology strategy. 3
 Introduction
• Firms continually make decisions involving technology, which
lie at the heart of the firm’s competitive advantage and the
value created by the business.
• Decisions also include the appropriate mode of
implementation – whether a firm decides to implement the
decision itself, in conjunction with others through strategic
alliances or through outright acquisition.
• The technology intelligence gathering activities described in
the previous unit precede the development of technology
strategy.

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About this Lecture
• This Lecture discusses
• the key principles underlying
technology strategy,
• the various types of strategies,
• how firms formulate strategies

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Technology Strategy
• DEFINITION: Technology strategy is the revealed pattern in the
technology choices of firms.
• The firm’s choice of technologies influences its current and
future competitive position within an industry.
• The technology strategy of a firm is a fundamental driver of its
profitability.
• The commitments surrounding technology selection define
these strategies, which are not confined to high-technology
industries.
• It focuses on the kinds of technologies that a firm selects for
acquisition, development, deployment, or divestment.
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TECHNOLOGY-BUSINESS CONNECTION

There are three elements:

1.The Domains of Technology Choices
2.Linkage between Technology Choices
and Competitive Advantage
3.Reasons for the Linkage between
Technology and Business Strategy
Decisions
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The Domains of Technology
Choices
• Technology strategy refers to the
strategically important technology choices
made by a firm, which are made across
three domains:
i. Technology Appropriation
ii. Deployment In Products
iii. Deployment In Value Chains

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Technology Appropriation
• Commitments to build technological capabilities.
• Decisions that influence the ability to create new
businesses, to pioneer new markets, and to discern new
strategic directions.
• Firms tend to have strong in-house research and
development functions; they also rely on collaborative
arrangements to accomplish objectives.

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Deployment In Products
• Commitments to exploit technological
capabilities through new product development

• The firm’s technology choices that are most visible in the

marketplace.
• Technology deployment focuses on:
a) Incremental innovation: introduction of new products
either through addition or enhancements of existing
features.
b) Radical or architectural innovations: introduction of
drastically new products.

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Deployment In Value Chains
• Commitments to exploit technological
capabilities in operations

• Every activity in the value chain of a firm uses some technology

to combine raw materials or components and human resources
to produce some output.
• This technology may be a simple set of procedures for hiring or
may involve complex technologies like logistics, which combines
disciplines such as industrial engineering, electronics and
material technology.
• Reconfiguring a firm’s activity value may occur in two ways:
i. Whether specific activities are modified, incrementally or radically
ii. Whether the linkages among the activities themselves are
modified, incrementally or radically.
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Linkage between Technology
Choices and Competitive
Advantage
Technology Development and
Deployment

Create
Alter the Support Existing
Fundamentally
Rules of Rivalry Businesses
New Business

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Linkage between Technology Choices
and Competitive Advantage
As shown in the preceding slide, the technology
choices in various domains allow a firm to secure
competitive advantage in three ways:
1.Creating fundamentally new business:
discovering opportunities for totally new
businesses often results from a firm’s pursuit of
basic and applied research
2.Altering the rules of rivalry in existing
competitive domains through the deployment of
technological capabilities
3. Supporting existing businesses involves product
and process innovations 13
Reasons for the Linkage between Technology
and Business Strategy Decisions

1. Technology directly affects competitive position of firms.

2. Technology competes for resources within a firm. Firms
decide how to deploy its resources in light of the available
opportunities.
3. Structure, processes, and information systems for
managing technology are costly. Administrative costs for
reducing technological uncertainty are high.
4. Technology decisions are strategic in nature : long-time
frames, deploy significant resources and often
irreversible.
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TECHNOLOGY STRATEGY
Defined
• Technology Strategy is the revealed pattern in
the technology choices of firms.
• The choices involve the commitment of
resources for the appropriation, maintenance,
deployment, and abandonment of technological
capabilities.
• These technology choices determine the
character and extent of the firms’ principal
technical capabilities and the set of available
product and process platforms.
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TECHNOLOGY STRATEGY:
Elements of the Definition
1. Technology strategy focuses on the kinds of
technologies that a firm selects for acquisition,
development, deployment, or divestment.
2. Commitments surrounding technology
selection define technology strategies.
3. Technology strategies are not confined to
high-technology industries.
4. Technology strategies embrace both the
hardware and software elements of a
technology.
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Technology Strategy and the
Domains of Technology Choices
1. A firm makes technology choices in the
appropriation and deployment domains.
2. The choices are linked to the three
fundamental business objectives of the
firm.
3. Technology strategy is revealed in the
pattern of these choices and reflects the
technical capabilities and the available
process and product platforms.
4. It could be a driver of business decisions
and be driven by it. 17
The Role of the
Chief Technology Officer (CTO)
1. Technology strategy is decided at the top
levels of an organization, and CTOs serve
as the champions of technology strategy.
This therefore constitutes their primary
task.
2. They provide top management with the
intelligence as well as sponsor specific
technology selection decisions within an
organization. 18
The Key Principles Underlying
Technology Strategy
1. Objectives
2. Drivers
3. Decision Criteria
4. Choice Outcomes

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 Key Principle: Objectives
1. The fundamental objective of any firm is
the creation of value for its customers and
its investors.
2. A firm should commit resources to
technology appropriation and deployment
only if the commitments are judged to
result in significant competitive advantage
in the marketplace.

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Key Principle: Drivers
1. Technology and strategic considerations should be weighed
in the process of arriving at the technology choices.
2. Process should focus on two questions:
a) Does the environment offer sites for value
creation or can the sites be created?
• Technological opportunity
• Appropriability
b) Is the firm well positioned to exploit the sites?
• Technology development
• Technology deployment
3. Technology choices should interface with
business/corporate strategy formulation

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Key Principles: Decision
Criteria
• A firm’s technology choices compete
with other alternatives for resources.
The ultimate choice will reflect its
commitment and focus.
• It will therefore focus on a limited
number of choices, where it will expect
to gain a competitive advantage based
on the availability of profit sites and the
firm’s strategic position.
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TECHNOLOGY STRATEGY
TYPES
• The specific technology choices made by firms
may be deliberate or emergent. Either way,
specific technology choices exhibit a pattern
over time.
• Broadly, these patterns may be classified along
two dimensions:
1. Scope
2. Leadership
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Technology Strategy Types
1. Scope
these decisions refer to what technologies
firms should be in. The firm should focus on a
limited number of technological sites in pursuit
of competitive advantage.
2.Leadership
technology leadership refers to a firm’s
commitment to a pioneering goal in the
development or exploitation of a technology as
opposed to a more reactive goal.
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Broad Types of Technology Strategies

Based on the two dimensions, four broad types of

technology strategies are available to a firm:

1.Technology leadership strategy

2.Niche strategy
3.Follower strategy
4.Technology rationalization

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Four Broad Types of Technology
Strategies
A. Technology leadership strategy:
establishing and maintaining a preeminent position in the
competitive domain in all the technologies for a
dominant market position through both technology development
and deployment. Technology is the main tool for creating
and maintaining competitive advantage for these firms.
B. Niche strategy:
focusing on a limited number of critical technologies to seek
leadership. Technology development is selective, and
deployment is directed toward exploiting the technological
strength of the firm in selected technologies to create
competitive advantage.
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Four Broad Types of
Technology Strategy
C. Follower strategy: maintaining technological
adequacy in a broad set of technologies. Focused
on deployment, avoiding the risks of basic
research.
D. Technology rationalization: maintaining
adequacy only in a select set of technologies.
Their technology deficit should be compensated
by other strengths in order for them to survive
in many competitive domains.
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 Technology Strategy Types
Technology leaders view
Full Selective technology appropriateion
as a source of future
competitive advantage in
the markets in which they
Full Line choose to operate.
Leadership Niche
Technology
Player Technology followers view
Leader acquisition of capabilities
as subordinates to their
Leadership business- or corporate-
level strategies.

Niche developers and

Technology Technology technology leaders differ
Followership Follower Rationalizer fundamentally in their
deployment of products
and processes

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See further notes below
Appropriateness of Technology
Strategy Types
The various strategy types are appropriate for different
strategic contexts, characterised by the stages in
technological evolution of competitive domains and the
strategic positions of firms:
A. Era of Incremental Innovation – technological
leadership strategy is appropriate for firms that have
strong technological and market positions. Niche strategy
for technologically strong but competitively moderate. A
firm that is competitively weak should adopt a technology
rationalization strategy.
B. Era of Technology Emergence – the leader strategy is
much more applicable, because the technologies and
markets tend to be highly fluid, thus more opportunities
to gain competitive advantage. 29
Diversified Firms
• In diversified firms (those that operate simultaneously in several
industries or competitive domains) technology strategy is obviously
more complex than in single industry businesses.
• Each business in a diversified firm may pursue its own technology
strategy, depending on its competitive domain and strategic
position within it.
• Diversified firms may exploit the potential synergies among the
technologies of various businesses.
• The connections among the technology strategies of businesses
depend on the type of diversification pursued by the firm:
A. Technology-related diversifiers
B. Market-related or conglomerate diversifiers
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Technology-related and Market-
related Diversifiers
• TECHNOLOGY-RELATED DIVERSIFIERS
• There are significant synergies among the technology
strategies of various businesses. Firms have core
technological competencies, thus, each business benefits from
the technology development and deployment of other
businesses.
• MARKET-RELATED or CONGLOMERATE DIVERSIFIERS
• The technology strategies of various businesses tend to be
unrelated. Even when there are potential synergies among
various businesses, conglomerates leave the businesses to run
by themselves, deliberately refusing to explore the synergies,
if any. This would be dictated by the corporate strategy of the 31
firms.
A FRAMEWORK FOR FORMULATING
TECHNOLOGY STRATEGY

1. Strategic Diagnosis
2. Formulation of Technology Strategy
3. Crafting an Implementation Approach
4. Execution

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Steps in the Formulation of Technology
Strategy
• Technology Intelligence
• Profiling Competitive Domains
• Identifying profit sites

ENVIRONMENTAL ASSESSMENT
Crafting an
Strategic Formulation of
Implementation Execution
Diagnosis Technology Strategy Approach

 Technology Inventory  Appropriation of Technology  Mode of Implementation

 Firm’s Competitive Position  Deployment in Products  Organizational Strategy
 Technology Requirements  Deployment in Value Chains  Intellectual Property Strategy

COMPETITIVE POSITION OF FIRM

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1. Strategic Diagnosis
• Environmental assessment:
• Identifying actual and potential technologies
inside and outside the firm
• Assessing the applications that might emerge
from them and the impact of these applications
on current and future competitive domains:
a) Technology intelligence
b) Profiling competitive domains
c) Identifying profit sites
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1. Strategic Diagnosis
• Competitive position of the firm:
Assessing the technological strengths of a firm relative to
its competitors and the technological requirements of its
strategic position in the market
a) Technology inventory (internal and competitive
benchmarking)
b) Profiling a firm’s competitive position in current
and future technologies
c) Charting the technological requirements of
strategic positioning (requires input from the
business strategy function – information on
industry context and firm resources and 35
capabilities).
2. Formulation of Technology Strategy

This is when a firm decides to commit

resources to a select set of technology
choices:
1. Appropriation of technology
2. Deployment in products
3. Deployment in value chain
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Formulation of Technology
Strategy
• Several central principles underlie the
formulation of technology strategy.
1.First, a firm should commit resources to
technology appropriation and deployment only if
the commitments are judged to result in
significant competitive advantage in the
marketplace.
2.Second, technology and strategic considerations
should be weighed in the process of arriving at
the technology choice.
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Formulation of Strategy
3. Finally, the resources of a firm should be
focused on a limited number of choices. Making
these choices ultimately results in one of four
types of technology strategy:
• technology leadership strategy
• niche strategy
• follower strategy
• technology rationalization

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Crafting an Implementation
Approach
Where technology choices need to be
implemented in order for them to
contribute to the competitive
advantage of firms.

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Crafting an Implementation
Approach: 3 steps
1. Mode of Implementation: firms may choose to
implement technology strategy either by going it
alone or in collaboration with other firms.
2. Intellectual property strategy: firms may take
action to prevent the value derived from their
technology choices from being dissipated by the
forces of imitation or holdup
3. Organization for implementation: technology
choices may require in-house research and
development, product development, or value
chain reconfiguration prior to implementation. 40
Execution
• A firm develops detailed
operational plans and human
resource deployments necessary
for the execution of technology
choices.

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END OF LECTURE

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