technology strategies and trajectories
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Technology and Innovation Strategies and Trajectories
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Management of Technological InnovationLesson 4
Corporate Level Issues
• Corporate Strategies for Innovation
• Competitive Analysis
• Threats, Technology Trajectories, and Constraints
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Innovation is “Creative Destruction
Creative Destruction In Singapore Inc.
“The new Cyber-economy has cast doubt on Singapore Inc.’s decades old formula of state-led success. Cant survive?”
[A. Shameen and A. Reyes, Asiaweek, 24 March 2000, pp. 43-47.]
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Singapore Hong KongPopulation 3.9 mil 6.9 milPer-capita GNP (nominal) US$21,828 US$24,716Per capita GDP(purchasing power parity), US$27,740 US$21,830Inflation 1.5% -5.3%Exports US$115b US$State companies among top10 listed firms 6 0Electronics as % of totalexports 67% 30%Internet service providers 6 159Population with Net access 30% 16%Major private-sectorelectricity suppliers 0 2Rank in GlobalCompetitiveness Report 1st 3rd
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“What Singapore has done right”
• Kept the economy broad-based
• Deregulated financial services
• Accelerated telecommunications liberalization
• Opened up other parts of the economy
• Welcomed foreign talent
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“And what else Singapore needs to do”
• Fast-track the privatization of government-linked corporations
• Dismantle laws that restrict entrepreneur ship
• Deregulate the media
• Tackle other sacred cows (e.g. money tied up in Central Provident Fund)
• Build a critical mass of research-knowhow
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Quotes from Jerel Kwek, 21, Founder of Angel.net in SGP
• “Singaporeans have never been known as risk takers.”
• “You are just taught that whatever they say is right, to never question, and that everything else is wrong. That is terribly cruel, it is wrong. It is not developing people to their full potential. Our education [system] has done a tremendous disservice to our budding entrepreneurs because it pushes them into a box where they are taught not to challenge, debate or question. But the New Economy is about constantly reinventing yourself and being creative and moving to where you can charge your customer a premium. How else can you do that without breaking rules?”
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Future years
Profit Profitgoal
ForecastProfit from
Current operations
Gap to befilled by
innovations
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Distribution of New Products
Sales
Customers in Europe, USA, etc.
Logistics
TechnicalService
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VALUE: Product Promotion
Product &Service Market &
Customers
BusinessValue
+ =
ProductionValue
PerceivedValue
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Time
CashFlow
+
0
-
Product Concept
Design ConceptFundamentalDesign
ImplementalDesign
Intr
oduc
tion G
row
th
Mat
urity
Sat
urat
ion
Dec
line
SalesP
rodu
ct P
lann
ing
FeasibilityTesting
FixingSpecifications
Pre-Production
Designing
Profit
PromotionCosts
[Takahashi, 1999]
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1x2x4x6x8x10x 0.1x0.2x0.4x0.6x0.8x
Market Share Relative to Top-Product Other Than Your Own In the Product Group
Mar
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)H
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5.0
7.5
10.0
12.5
15.0
17.5
20.0
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A
C
B
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Growth-ShareMatrix
[Takahashi, 1999]
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1x2x4x6x8x10x 0.1x0.2x0.4x0.6x0.8x
Market Share Relative to Top-Product in Product Group
Mar
ket
Gro
wth
Rat
e (%
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H L
L 0
2.5
5.0
7.5
10.0
12.5
15.0
17.5
20.0
22.5
A
The Product with Top Market share is placed
horizontally at 1x.
The diameter of each circle is proportional to
the volume of sales
Products, A, B, C, , belong to the same
product group.
Red circles: Total volume for each product type.
Line representing same Product Type
Our Client’s Product
Competitor’s Product
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1x2x4x6x8x10x 0.1x0.2x0.4x0.6x0.8x
Market Share Relative to Top-Product in Product Group
Mar
ket
Gro
wth
Rat
e (%
)H
H L
L 0
2.5
5.0
7.5
10.0
12.5
15.0
17.5
20.0
22.5 Problem Child
DogCashCow
Star
?
?
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1x2x4x6x8x10x 0.1x0.2x0.4x0.6x0.8x
Market Share Relative to Top-Product in Product Group
Mar
ket
Gro
wth
Rat
e (%
)H
H L
L 0
2.5
5.0
7.5
10.0
12.5
15.0
17.5
20.0
22.5 Problem Child
DogCashCow
Star
StrategicProduct
PriorityProduct
SupplementalProduct
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Semantic Differential MethodIn 1952, C.E. Osgood
proposed that products could be positioned
on a scale of 5 or 7 (centered on 0)between pairs of antonyms
that put subjective ideas into words.Answers should be given rapidly,
according to intuition.According to [Takahashi, 1999], sample of at least 50 provides
a good average result.
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Ext
rem
ely
Rat
her
Sli
ghtl
y
Neu
tral
Sli
ghtl
y
Rat
her
Ext
rem
ely
HardOld-Fashioned
Warm
Complex
Masculine
Elderly
Subdued
Rural
Unfamiliar
Trashy
Dark
Lo-techUnfashionable
Conservative
Soft
Modern
Cool
Simple
Feminine
Young
Glitzy
Fashionable
Urban
Classy
Light
Plain Gorgeous
Hi-tec
Familiar
Unconventional
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Windowof
Opportunity
Expensive
Cheap
Complex Simple
Product Positioning Map[Takahashi, 1999] Characteristics
other thanExpensive,Complex
may be used.
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Western
Japanese
Tra
dit
ion
al
Con
tem
por
ary
Japanese Housing Styles
TraditionalWestern
Western
Eclectic
Modern Western
ContemporaryWestern
FuturisticExperimentalContemporary
Japanese
NewJapanese
ModernJapanese
Japanese
TraditionalJapanese
[Takahashi, 1999]
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Corporate Policy/Strategy
Creation Point of View• Innovative Product• Adaptive Product• Continuation Product
Marketing (Product Life Cycle)Point of View• Strategic Product• Priority Product• Supplemental Product
[Takahashi, 1999]
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S
A
B
StarEpoch Making Design, high risk
(10 items per annum)
Ability/Awareness Global design,
Stabilize or further penetrate market(40-60 items per annum)
BusinessBrand quality design, Maintain brand name
(1000 items per annum)
Design Tradition at Sony[Takahashi, 1999]
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SA
B
AB
Product Development
Initial Progress ofInnovative Product
FurtherTechnological Development,Continuing Design Process
[Takahashi, 1999]
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Innovation Challenging Young Pioneering Extreme
Build onQuality &Trust
Sophisticated Mature Building Up Wide
MassProduction
Expanded Line& Application
Vetran +Junior
Maintaining Moderate
S
B
A
Innovation Design PersonnelFormation
Image MediaExposure
SAB Design Development Formation[Takahashi, 1999]
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Am
ount
Sol
d
Introduction Growth Maturity Saturation DeclineTime
StrategicProduct
SupplementalProduct
PriorityProduct
Product Life Cycle[Takahashi, 1999]
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S
A
B
Star ProblemChild
CashCow Dog
StrategicProduct
PriorityProduct
SupplementalProduct
Star
Ability
Business
Relative Market Share
Mar
ket G
row
th
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Corporate Technology Strategies
1. Offensive Strategy: Leadership - “First to Market”
2. Defensive Strategy: “Follow-the-Leader”
3. Imitative Strategy: “Me-Too”
4. Applications Eng. Strategy: Interstitial
5. Dependent Strategy: “Branch Plant”
6. Absorbent Strategy
7. Traditional Strategies
8. Other (Nontechnologically) Innovative Strategies
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Offensive Strategy: Leadership-“First to Market”
• Introduce revolutionary innovations in their fields. Initiate a start of an industrial life cycle. Can reap rich rewards. Uncertainties and risks are high.
• Successful examples: IBM in computers; RCA in television; Texas Instruments in semiconductors.
• Failure examples: Comet airlines due to technological reasons; Concorde due to political, economic, and environmental reasons.
• Companies need to have all-round excellence.
• Potential technology-market synergies need to be spotted continually through active participation in nondirected research.
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• In close proximity to state of the art. R-tensive.
• R is characterized by scarcity of precedent and low stability and predictability.
• An offensive organization usually has the following characteristics:
1. Nondirective work assignments and indefinite objectives which are “broadcast” widely.
2. Continuing evaluations of results and swift perception of significant outcomes.
3. Values innovation over efficiency.
• Needs to be T-tensive too and invest in a bigger way in T.
• Strong need for patenting asap.
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• On marketing side, it is pursuing an as unmanifested but latent customer need.
• Small companies can also adopt ‘offensive’ strategies. They are typically opportunistic-offensive. Their innovations are radical but not necessarily revolutionary. Such companies are usually spun-off from parent organizations, such as government, university laboratories, or large companies where the invention to be innovated was made. This pattern is particularly notable in the field of scientific instruments.
EXERCISEIdentify two small companies that have succeeded in adopting the
technology leadership strategy. Discuss the factors and characteristics that could have led to their success.
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Defensive Strategy: “Follow-the-Leader”
• The industrial life-cycle model suggests that relatively good profit opportunities occur in the performance-maximizing stage when the innovation is initially marketed but the dominant design has yet to emerge. Defensive strategists use this opportunity. Follow the leader with own improved version.Example: European semiconductor industry.
• Higher returns at lower risks is the attraction.
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• Undertake some nondirected research coupled with intensive applied research. Research may duplicate that of offensive innovators so as to obtain autonomous scientific knowledge.
• Must be strong in experimental development and design engineering.
• Need to develop ones own patents so as to use them as bargain counters while weakening the dominant position enjoyed by the offensive counterpart.
• Need to place high premium on superior technological product development, marketing intelligence and responsiveness.
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3. Imitative Strategy: “Me-Too”
• Establishment of a dominant design stimulates, delineates and coalesces the market. Excellent opportunities then exist for incremental innovations or improvements in the dominant design, based more upon design, reliability and cost considerations than on major technological differences.
• Less R-intensive and more P(production)-intensive.
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Reliability Engineering&
Quality Control
AfterSales Service
MarketingFull
Production
Tertiary Development
&DesignPilot/
PrototypeProduction
Education&
AdvisoryServices
NewProduct
Development
TestMarketing
Mar
keti
ngK
now
ledg
e
Tec
hnol
ogic
alK
now
ledg
e
Imitative Strategy Base
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• Imitative technology purchase through licensing from the original primary innovator. A US primary innovator may not have presence in a country and may wish to grant license to a domestic innovator.
• Imitating company typically has a truncated technological base from design engineering onwards. Compete only on design improvements and lower manufacturing costs.
• More directive supervision.
• Greater use of management techniques such as PERT.
• Favor efficiency rather than innovativeness.
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4. Applications Eng. Strategy: Interstitial
• A judicious analysis of primary innovators’ strengths, weaknesses, and strategies, combined with a search for unrealized applications, frequently identifies specialist niches so that incremental innovations for new markets could be developed.
• Example: Control Data Corporation (CDC) was able to market computer systems tailored to users whose needs could not be satisfied by IBM computers.
• Less R&D-tensive. More M(market)-tensive and sensitive to user needs.
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5. Dependent Strategy: “Branch Plant”
• A subsidiary or a specialist department of a large firm. An MNC may want a local subsidiary to exploit off-shore an market.
• Canada is largely a “branch-plant” economy. The country’s technology is based on companies that are subsidiaries of US or European parent corporations (What about Singapore?).
• Technology base truncated to production and marketing.
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Quality
Control
After
Sales
Service
Marketing
Education&
AdvisoryServices
Production
Branch Plant Base
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6. Absorbent Strategy• The licensee from a primary innovator uses the surplus
cash flow and know-how to build up its own R&D capability to launch performance-maximizing and cost-reducing incremental innovation.
• In time, the company could become and offensive-defensive innovator.
• Post second war Japan used this approach to avoid the development of a ‘branch-plant’ economy.
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7. Traditional Strategies• Adopted by companies belonging to a mature industry: e.g.
farming and wool-textile industries.
• Much business activity whether of low, medium, or high technology encompasses the “harvesting” of profits from established products (or old technology) in established ‘old’ markets.
• But, as US farming industry has shown, radical technological innovations can be introduced., e.g. pesticides and fertilizers for increased productiveness, and freeze drying for food processing.
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8. Other (Nontechnologically) Innovative Strategies
• Innovations need not just be technological.
• Sales of existing products can be increased by innovations in promotion, distribution, and financing. Many such innovations may be technologically cosmetic (e.g. change in packaging) but can boost sales. This approach is particularly useful in consumer expendable industries such as detergents, personal toiletries, and food.
• McDonald and Benihana of Tokyo have noninnovative manufacturing and management principles (but technologically innovative in their own industries) with innovative marketing approaches in fast-food and restaurant industries.
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Strategies and Capabilities
Off
ensi
ve
Def
ensi
ve Im
itat
ive
App
lied
Eng
.
Bra
nch
Pla
nt
Nondirected fundamental research M M N N NApplied Directed Research M M N N NExperimental Development and Design H H N L/M NAdvanced Development and Design H H H H LPilot/Prototype to Full Production M M H M MQuality Control/Product Design M M H M MPatents and Licenses H M L M N“After-Sales” Services H M H H MEducation and Advisory Services H M L H MLong-Term Planning H M L H N
Key: N-None, L-Low, M-Medium, H-High
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Exercise
With the aid of the previous slide on ‘Strategies and Capabilities’ analyze ‘your’ corporation and outline a feasible technology strategy.
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Technology-Market MatrixExternal
EnvironmentGenericMarkets
&Opportunities
OLD NEW
OLD
Nor
mal
Inte
rnal
Env
iron
men
t
Gen
eric
Tec
hnol
ogic
alC
apab
iliti
es &
Pro
duct
s
NE
W
Rev
olu-
tiona
ry
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Michael Porter’s Competitive Analysis
• The unit of analysis is the industry producing similar products.
• The goal of the strategic analysis is “to find a position in industry where a company can best defend itself against [the] competitive forces or can influence them in its favor.”
• There are five types of forces to consider:
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The ‘Five’ forces driving industry competition are
• Relations with suppliers• Relations with buyers• New entrants• Substitute products• Rivalry amongst established firms
Technological change can influence all the five forces.
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Analyze the following extract about computer industry from the point of view of Porter’s five forces driving industrial competition The experience over the past 30 years of the US computer
industry is a spectacular example of the power of technological change to transform completely the structure and competitive conditions in an industry. In the early 1970s, the industry was dominated by a few mainframe producers, some of whom were fully vertically integrated from basic circuitry through to distribution. Barriers to entry were high, suppliers relatively weak, and customers had a limited range of choice.
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By the early 1990s, the industry had literally disintegrated, with independent firms most of whom are new entrants since the 1970s) competing at each stage from basic circuitry to distribution. The main destabilizing factor has been the rapid rate of technical improvement in the microprocessor—the computer on a chip. This has drastically reduced the costs of computing, thereby lowering barriers to entry to the users of microprocessors and opening of a whole range of potential applications outside mainframes (of which the personal computer is one of the most spectacular), and thereby creating a whole range of new opportunities for firms in systems and applications software.
An equally spectacular revolution is presently under way following the development of e-mail, Internet and WWW.
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• Relations with suppliers: suppliers relatively weak
• Relations with buyers: a few mainframe producers, vertically integrated from basic circuitry through to distribution, suppliers relatively weak, customers had a limited range of choice
• New entrants: independent firms most of whom are new entrants since the 1970s) competing at each stage,
• Substitute products: rapid rate of technical improvement in the microprocessor, a whole range of potential applications outside mainframes
• Rivalry amongst established firms: lowering barriers to entry to the users of microprocessors
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Analyze the following extract about computer industry from the point of view of Porter’s five forces driving industrial competition The experience over the past 30 years of the US computer
industry is a spectacular example of the power of technological change to transform completely the structure and competitive conditions in an industry. In the early 1970s, the industry was dominated by a few mainframe producers, some of whom were fully vertically integrated from basic circuitry through to distribution. Barriers to entry were high, suppliers relatively weak, and customers had a limited range of choice.
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By the early 1990s, the industry had literally disintegrated, with independent firms most of whom are new entrants since the 1970s) competing at each stage from basic circuitry to distribution. The main destabilizing factor has been the rapid rate of technical improvement in the microprocessor—the computer on a chip. This has drastically reduced the costs of computing, thereby lowering barriers to entry to the users of microprocessors and opening of a whole range of potential applications outside mainframes (of which the personal computer is one of the most spectacular), and thereby creating a whole range of new opportunities for firms in systems and applications software.
An equally spectacular revolution is presently under way following the development of e-mail, Internet and WWW.
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Analyze threats and chose innovation trajectory
Threat: Potential entrants and substitute products• Threats of new entrants can be increased through reducing
economies of scale (e.g. telecommunications, publishing), and through substitute products (e.g. microcomputers, aluminum for steel cans).
• They can be decreased through ‘lock-in’ to technological standards (e.g. Microsoft), and through patents and other legal protection (e.g. most major ethical drugs).
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Threat: Power of suppliers over buyers• This can be increased by innovations that are more
essential to the firm’s inputs (e.g. microprocessors into computers)
• It can be decreased by innovations that reduce technological dependence on suppliers (engineering materials)
Threat: Rivalry amongst established firms• Rival firms can establish a monopoly position through
innovation (e.g. Polaroid in instant photography), or destroy a monopoly position through imitation (US general Electric in brain scanners).
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Five Major Technological Trajectories
• Supplier-dominated
• Scale Intensive
• Information-intensive
• Science-based
• Specialized suppliers
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Supplier-dominated
Typical core sectorsAgriculture, Services, Traditional manufacture
Main sources of technology
Suppliers, Production, Learning
Main tasks of technology strategy
Use technology from elsewhere to strengthen other competitive advantages
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Scale-intensive
Typical core sectorsBulk materials, Automobiles, Civil engineering
Main sources of technology
Production engineering, Production learning, Design offices, Specialized suppliers
Main tasks of technology strategy
Incremental integration of changes in complex systems, Diffusion of base design and production practice
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Information-intensive
Typical core sectorsFinance, Retailing, Publishing, Travel
Main sources of technology
Software and systems departments, Specialized suppliers
Main tasks of technology strategy
Design and operation of complex information processing systems, Development of related products
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Science-based
Typical core sectorsElectronics, Chemicals
Main sources of technology
R&D, Basic Research
Main tasks of technology strategy
Exploit basic science, Development of related products, Obtain complementary assets, Redraw divisional boundaries
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Specialized Suppliers
Typical core sectorsMachinery, Instruments, Software
Main sources of technology
Design, Advanced users
Main tasks of technology strategy
Monitor advanced user needs
Integrate new technology incrementally
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Organizational Innovation: A HK Example
CPC/AJI (HK) LTD is a well-established food manufacturer producing a range of 120 varieties varieties of basic products and imports about 80 products from its foreign affiliates. Their products include culinary aids, convenience foods, desserts, cooking aids, bread spread dressings, snack and beverages with famous brand names such as “Bestfoods”, “Kingsford”, “Skipp”, and “Torto”.
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The company is applying quick changeover philosophy to enhance flexibility while having minimum inventory in their manufacturing operation. To ensure quality, the company has implemented Good Manufacturing Practice (GMP) and Hazard Analysis Critical Control Point (HACCP) together with Safety Improvement Process (SIP) which is in place for continuous improvement (Kaizen) of the working environment.
The company was granted the “Gold Award - Effective Communication” by the Labor Department and of the “Productivity Award” of the HK Productivity Council. The company was recognized by the judging panel to be focusing on “customer satisfaction through excellent quality and quick response.”
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Exercise
Identify the technological trajectory class of CPC/AJI (HK) LTD.
Comment on the main sources of technology for the company.
Discuss the main tasks to be considered while developing the technology strategy of the company.
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ExerciseUsing the previous five slides as appropriate,
recommend and discuss an innovation strategy for any one of the following companies and, later, for ‘your’ company:
• Microsoft• Wellcome supermarket• DHL• Texas Instruments• Cathay Pacific• Sony
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Porter’s generic technology strategies
• Cost leadership
• Differentiation
The way the above strategies are applied in product development could be different from that in process development.
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Product DevelopmentCost Leadership
Lower material inputs, Ease of manufacture, Improve Logistics, Minimum features
Differentiation
Enhance quality, Enhance features, Enhance deliverability, Niche markets
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Process DevelopmentCost Leadership
Learning curve, Economies of scale, Minimize costs
Differentiation
Precision, Quality control, Response time, Precision, Quality control, Response time
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ExerciseUsing the previous two slides as appropriate, expand
your previously recommended innovation strategy for each of the following companies:
• Microsoft• Wellcome supermarket• DHL• Texas Instruments• Cathay Pacific• Sony
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Constraints faced by individual firms
Established Product Base and Technological Competencies
• Chemical companies do not diversify into electronic products and vice versa.
• It is difficult for a company making traditional textiles to make computers.
Firm Size• Large firms adopt ‘broad front’ strategies.• Small firms are ‘focused’.
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Public goods-type
knowledge
Publications, tech.monitoring,
conferences,informal contacts
Licensing, know-how agreements,
mergers andacquisitions
Consortia, jointventures, strategic
partnering
R&D, design & eng.,learning by doing,
marketingexperience
Other firm'sproprietoryknowledge
New Knowledgegenerated jointlywith other firms
E ndogenouslygeneratedknowledge
Firm'sstock of
knowledge
Obsoleteknoweldge
Forgetting bynot doingHow firms can acquire knowledge
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The Nature of Firm’s Products and CustomersCompare food products, where there typically a wide
range of quality and prices, with ethical drugs and passenger aeroplanes where product quality (I.e. safety) is rigidly controlled. Food firms therefore have a wider range of product innovation strategies to choose from. In contrast, drug and aircraft firms require large-scale expenditures on product development and tigorous testing. They are therefore more restricted in their innovation choices.
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In the 1960s, the oil company Gulf defined its distinctive competencies as producing energy, and so decided to purchase s nuclear energy firm. The venture was unsuccessful, in part because the strengths of an oil company in finding, extracting, refining and distributing oil-based products, I.e. geology and chemical processing technologies, logistics, consumer marketing, were largely irrelevant to the design, construction and sale of nuclear reactors, where the key skills are electromechanical technologies and in selling to relatively few, but often politicized electrical utilities.
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Exercise
• What is the lesson you learn from the Gulf case study?
• Why are companies engaged in nuclear energy usually politicized?
• Explain the following terms with suitable examples:
geology, logistics,
electromechanicaal technologies,
consumer marketing,
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Choosing an innovation strategy involves predicting the future and faith in an opinion.But, as Neils Bohr, the famous atomic scientist said, “Prediction is difficult, especially about the future.”
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Some predictions that have gone wrong and some opinions that were questionable:
• “The war in Vietnam is going well and will succeed” (R. Mcnamara, 1963)
• “I think there is a world market for about five computers.” (T. Watson, 1948)
• “Gaiety is the most outstanding feature of the Soviet Union.” (Joseph Stalin, 1935)
• “I cannot conceive of any vital disaster happening to this vessel.” (Captain of Titanic, 1912)
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Most HK firms are small
• Can they innovate?
• What does experience elsewhere tell about their prospects?
• What are their characteristics?
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Assertions• ‘Small firms make the most of
innovation.’
• ‘Small firms make few innovations since they do little R&D.’
• ‘Small firms are much more innovative than large firms, since they account foe a higher share of innovations than of R&D.’
• ‘New firms create a lot of employment.’
What the evidence shows• ‘It depends on the product and
the technology.’
• They do lots of “informal”, “part time” and non-measured R&D, and produce a share of total innovations roughly equivalent to their output and employment
• ‘Not if you include unmeasured, part time R&D.”.
• ‘They also lose a lot since they have high birth and death rate.’
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Characteristics of small firms• Similar objectives—to develop and combine
technological and other competencies to provide goods and services that satisfy customers better than alternatives, and that are difficult to initiate;
• Organizational strengths—ease of communication, speed of decision-making, degree of employee commitment and responsiveness to novelty. This is why small firms often do not need formal strategies that are used in large firms to ensure communication and co-ordination.
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Characteristics of small firms(continued)
• Technological weaknesses—specialized range of technological competencies, inability to develop and mange complex systems, inability to find long-term and risky programs.
• Different sectors—small firms make a greater contribution to innovation in certain sectors, such as machinery, instruments, and software, than in chemicals, electronics and transport.
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Exercise
• Why are small firms usually not as effective as large firms in innovating in fields such as chemicals, electronics and transportation?
• Given the information on the previous slide, what do you think is the chance of success of the Chief Executive’s vision to transform HKSAR into an innovative society?