Book: Strategic Management of Technological Innovation Chapter 6~9
Strategy • What is strategy? • Why is it so important? • Strategic failure / or success manifests late. • Strategic – Successes last long – Failures become inevitable Example • China one child policy turned out to be bad after 35 years (1980~2015)
• Choosing innovation projects • Collaboration Strategies DEFINING THE ORGANIZATION’S STRATEGIC DIRECTION Step 1 • Assess the environment • The first step in establishing a coherent strategy for the firm is assessing the external environment. • Two commonly used models of external analysis are – Porter’s five-force model and – stakeholder analysis. Porter’s Five-force Model Porter’s Five-force Model • assessing the degree of 1. existing rivalry, 2. threat of potential entrants, 3. bargaining power of suppliers, 4. bargaining power of customers, and 5. threat posed by substitutes. • Recently Porter added a sixth force, 6. the role of complements. 1. Existing rivalry • Rivalry among the existing competitors • Price discipline • Depends on – Industry structure, concentration and fragmentation – Product or service differentiation – Industry exit barrier 2. Threat of potential entrants • Depends on the existence and extent of barriers to enter the industry • Question: How difficult would it be for new competitors to enter the industry? – Industries that are easy to enter will generally be more competitive than industries with high barriers to entry 3. Bargaining power of suppliers • This is affected by – Concentration of industry – Switching cost of suppliers’ customers – Supply substitutes • Question: Are suppliers ale to increase prices, restrict supply, or pass on rising input costs to customers? • Suppliers of scarce or limited parts or elements often possess significant pricing power. 4. Bargaining power of customers • This is affected by – Size and concentration of customers – Customers’ cost of switching to other company – Customers’ ability to produce the product or service themselves • Question: Are customers able to force price reductions or better payment terms? 5. Threat posed by substitutes • Affected by the availability of alternative product categories that can satisfy customer needs • Question: Are lower-priced brands close substitutes for premium brands and vice versa? 6. Role of complements • Is this industry dependent on complements? • How available are the complements? • Is it difficult (or easy) to vertically integrate the complements’ industry? Stakeholder Analysis • Involves identifying any entity with – an interest in the firm, what it wants from the company, and what claims it can make on the company. Step 2 • Analyze the internal environment, – firms often begin by identifying strengths and weaknesses in each activity of the value chain. – The firm can then identify which strengths have the potential to be a source of sustainable competitive advantage. – Often times SWOT analysis is used to assess internal environment Step 3 • Identify organization’s core competencies. • Core competencies are integrated combinations of abilities that distinguish the firm in the marketplace. • Several core competencies may underlie each business unit, and several business units may draw upon the same core competency. Step 3 Flag on Core Competencies • Sometimes core competencies can become core rigidities that limit the firm’s ability to respond to a changing environment • Example – Nokia’s mobile OS Symbian – Samsung’s hardware skills Step 4 • Develop dynamic capabilities • These are competencies that enable a firm to quickly reconfigure the firm’s organizational structure or routines in response to change in the firm’s environment or opportunities. Step 5 • Look far into long term 10 to 20 years out • Build an intent • A firm’s strategic intent is the articulation of an ambitious long-term goal or set of goals. The firm’s strategic intent should build upon and stretch its existing core competencies. Who’s Intent Could this be? Step 6 • Identify the resources and capabilities that the firm must develop or acquire to achieve its strategic intent. Useful Tool: Balanced Scorecard • A measurement system that encourages the firm to consider its goals from multiple perspectives: financial, customer, business process, innovation and knowledge, and establish measures that correspond to each of those perspectives. Example: Balance Score Card CHOOSING INNOVATION PROJECTS Innovation Strategy is Risky • Developing innovative new products and services is expensive and time-consuming. • A vast majority of development projects fail. • Firms have to make difficult choices about which projects are worth the investment • Then they have to make sure those projects are pursued with a rigorous and well-thought- out development process. Many Methods To Use • Firms often use a combination of quantitative and qualitative methods to evaluate which projects should be funded. • Though some methods assume that all valuable projects will be funded, resources are typically constrained and firms must use capital rationing. Discounted Cash Flow • Net present value (NPV) – NPV = Present value of cash inflow – Present value of cash outflows • Internal rate of return (IRR). – Find out when NPV goes from negative to zero. • While both methods enable the firm to create concrete estimates of returns of a project and account for the time value of money, the results are only as good as the cash flow estimates used in the analysis (which are often unreliable). Both methods also tend to heavily discount long-term or risky projects, and can undervalue projects that have strategic implications that are not well reflected by cash flow estimates. Real Options Method • Real options better account for the long-run strategic implications of a project. • Unfortunately, many new product development investment decisions do not conform to the assumptions inherent in an options valuation approach. Qualitative Screening • Subject the project to a series of screening questions that consider the project from multiple angles. • These questions may be used merely to structure the discussion of a project or to create rating scales that are then utilized in an approach that combines qualitative and quantitative assessment. Project Mapping Method • A company’s portfolio of projects typically includes projects of different types – advanced R&D, breakthrough, platform, and derivative projects – that have different resource requirements and different rates of return. • Companies can use a project map to assess what their balance of projects is (or should be) and allocate resources accordingly. Q-Sort Method • A qualitative method to assessing projects whereby individuals rank each project under consideration according to a series of criteria. • Q-sort is most commonly used to provide a format for discussion and debate. • Done by portfolio leaders and their lead team. Conjoint Analysis • A method of converting qualitative assessments of a choice into quantitative weights of the different criteria underlying the choice. • It is most often used for assessing how customers value different product attributes. Data Envelopment Analysis Method • DEA combines qualitative and quantitative measures. • Enables projects that have multiple criteria in different measurement units to be ranked by comparing them to a hypothetical efficiency frontier. Summary 1 • Spend lots of time and top level resource to craft strategic technology plan by rigorous research study and analysis to maximize sustainability for organization in the long term (10~20 years) • Use meticulous methods to evaluate prospect of each innovative project and allocate resource so that it yields maximum over all success COLLABORATION STRATEGIES Story
http://www.tatasteel.com/ Factors Influencing Collaboration • A potential partner has the required capabilities or other resources, • Degree to which collaboration would make proprietary technologies vulnerable to expropriation by a potential competitor, • Importance the firm places on controlling the development process and any innovation produced • Role of the development project in building the firm’s own capabilities or permitting it to access another firm’s capabilities When to Avoid Collaboration • When in-house capability is already available – To protect proprietary technologies – To control the development process Advantages of Collaboration • Sharing costs and risks of development • Combining complementary skills and resources • Enabling the transfer of knowledge between firms • Joint creation of new knowledge • Facilitating the creation of shared standards. Strategic Alliance Vs Joint Venture • Strategic Alliance is a broad • A joint venture is a class of collaboration partnership between firms activities that may range that entails a significant from highly structured to equity investment and often informal. Strategic alliances results in the creation of a • Can enable simple pooling new separate entity. of complementary • Joint ventures are usually resources for a particular designed to enable partners project, to share the costs and risks • Or they may enable the of a project transfer of capabilities • they have great potential between partners. for pooling or transferring capabilities between firms. Outsourcing Advantages Disadvantages • Rapidly access another • Overreliance on firm’s expertise, scale, or outsourcing, however, can other advantages. make the firm hollow. • Avoid the fixed asset commitment of performing those activities in-house. • Gives more flexibility and enables to focus on its core competencies. Licensing • The selling of rights to use a particular technology (or other resource) from a licensor to a licensee. • Licensing is a fast way of accessing (for the licensee) or leveraging (for the licensor) a technology, • But offers little opportunity for the development of new capabilities What’s needed to succeed? • Choose partners that have both a resource fit and a strategic fit. • Developing clear and flexible monitoring and governance mechanisms to ensure that partners understand their rights and obligations, and • Deploy methods of evaluating and enforcing each partner’s adherence to these rights and obligations. Summary 2 • Choice of collaborating partners are governed by strategy, capability and business directions • Joint ventures require partners to follow a fine line of management and soft control so that they would avoid jeopardizing each others business interest and strategic goals from the joint venture.
