CHAPTER TWO

Strategic Process and the Management of

Technology and Innovation
Introduction
• The foundation for the understanding of the
strategic management portion of MTI is
presented in this chapter.
• The specific issues addressed include:
– The meaning of strategy
– Continuous versus radical technology
– Offensive versus defensive technology
– Key MTI concerns in strategy
– The strategy process
• To be successful, the strategy of the
firm and its management of
technology should be intertwined.
WHAT IS STRATEGY?
• Strategy is a coordinated set of actions
that fulfill a firm’s objectives, purposes,
and goals.
– It is not a single act that occurs in a firm.
• Frequently, individuals confuse strategy
with strategic planning.
• Strategic planning is the process that lays
the groundwork and direction of the firm
over the next several years.
• Typically, strategic planning efforts
produce a formal written strategic plan.
• However, strategy is more than the
document that results from such
planning efforts or the planning effort
itself.
Strategic Management
• It is an ongoing process through which
the organization defines the nature of
the businesses in which the firm will be
active, the kind of economic and human
organization it intends to be, and the
nature of the contribution it intends to
make to its various constituents
• In establishing a strategy in a technology-
focused firm, that firm’s technology is not a
minor issue.
– An organization fails when its strategy and
technology became separated.
CENTRALITY OF MTI IN STRATEGIC
MANAGEMENT
• Strategic management’s benefit is critical
because it helps the entire organization
move toward consistent goals.
• Figure 2.1 (i.e. See the next slide) shows
how strategy, technology, and other
organizational factors interact to
determine the organization s outcomes.
• The resulting interactions in the figure look
complex.
• However, the fundamental point is that
technology affects the strategic process in
multiple places.
• Internally, the figure demonstrates that
technology affects the organizational
structure, people, processes, procedures, and
systems.
• Additionally, external environmental factors, such
as politics, rate of innovation, laws, and public
policy, all influence the interaction of people,
processes, and structures.
• These external environmental factors also impact
key stakeholders such as customers, competitors,
and investors.
• Thus, a business clearly does not create its
strategy in isolation.
• A business is impacted by, and sometimes can
impact, its broader environment.
Integrating MTI and Strategy
• Capabilities are skills that a firm
develops.
• Firms are similar to their competitors in
most areas detailed in Figure 2.1.
• Therefore, fast-food firms such as
McDonald’s and Burger King look very
similar in many aspects.
• However, to be successful, there
should be five or six capabilities the
firm develops and maintains that are
superior to its competitors.
• These capabilities are the building
blocks for the firm’s strategy.
• It is at the level of capabilities that the
firm’s integration of technology with
strategic concerns should begin because
the business ultimately develops its
competitive advantage over other firms
from its capabilities.
• The capabilities of a firm can be classified
as either technical or market.
1. Technical Capabilities
• Technical capabilities address how the
firm approaches technology it already
has or wishes to have in the future.
• Therefore, the firm’s approach to these
capabilities can be classified in one of
three ways: destroy, preserve, or
develop.
• Destroying is concerned with eliminating
certain technological capabilities in the
organization and replacing them with others.
• Although destroying capabilities seems
counterintuitive for a firm’s strategy, perhaps
the technology that has been employed is
flawed, and improvement must take place.
• Developing new technology capabilities
can give a firm a competitive leap over
others in the industry by changing the
playing field.
• These capabilities can be purchased
externally or developed internally.
• Many firms pursue new technology
capabilities to maintain or enhance their
competitive position.
• An example of this includes retailers who
pursue new Internet capabilities to
complement their existing store locations,
such as Ethiotelecom, Walmart, and CBE.
• Alternatively, a firm may seek to preserve
its technology.
• In these situations, the technology may be
old, but the firm believes it still has utility.
• Such firms may practice continuous
improvement, but they preserve some
aspects of the technology.
• This continuous improvement process is
part of the firm’s technology strategy.
2. Market Capabilities
• The firm must not only have direct technical
capabilities; it must also have market-relevant
skills that indirectly impact the technology of
the firm.
• Engineers may develop tremendous new
products but may have ignored issues such as
how to distribute those products.
• In summary, technology is viewed in
some texts as an input to strategy but
not as a central factor.
• The argument here is that technology
should be considered a central
component of the firm’s strategy.
• In fact, technology should be considered
even at the most basic level of the firm.
• The firm’s various proficiencies must be
consistent and intertwined with its
technological capabilities.
• The firm’s capabilities, including technology,
provide the firm with its competitive
advantage.
• The goal is that the competitive advantage be
sustainable by the business over a significant
period of time.
– Thus, the goal is a sustainable competitive
advantage.
Technology and Competitive Advantage

• A competitive advantage is what the firm

does better than any of its competitors.
• However, the ability to perform an
activity better than competitors will lead
to a sustainable competitive advantage
only if the activity is something that the
customers value and other firms cannot
easily duplicate.
• To illustrate, the ability to have faster
processing by computer chips can be a
competitive advantage for a chip
manufacturer only if there is a demand for
such chips.
• Thus, a competitive advantage must not only
be something a firm does better than its
competitors, but it must be something that
impacts the customers purchasing decisions so
that they buy the firm’s product over its
competitors products.
• As we think of technology and
competitive advantage, there are several
ways to analyze technology.
• Specifically, technology development can
be viewed as either continuous or
radical; plus the technology can be used
in an offensive or defensive manner.
– These different aspects of technology are
not mutually exclusive.
Continuous versus Radical Technology
• Technology development can be classified as
either a continuous or radical.
• An example of continuous technology
development is the personal computer.
– It seems personal computers become lighter and
more mobile every year. These changes in
technology are not a constant progression;
instead, they happen over relatively short periods
of time.
• Therefore, they are viewed as continuous
improvements in the technology by
consumers because there are no major
changes that occur at one time.
• This progression is designed to change an
existing technology but not to change its
functionality.
• The innovation is aimed at improving
performance, function, and/or quality at
a lower cost.
• On the other hand, radical technology
development causes a dramatic change
in the way things are done.
• The initial introduction of computers
altered the way information was processed
and stored in organizations and by
individuals.
• The automobile was a radical technology when
introduced. It provided an extreme change in
modes of transportation. No longer were
individuals dependent on horses, nor were they
limited to where the railroads went.
• In the same way, when Henry Ford took the theory
of assembly lines and began using it to make
automobiles, he radically changed how products
were made.
• More recently, the smart phone has
changed the way we communicate and
work.
• These radical technologies established a
new functionality and a new way of
doing things in business and society.
Next-generation technologies
• Between continuous and radical technologies,
a third type of technology development exists
that is not often recognized.
• Continuous and radical technologies can be
viewed as the ends of a continuum.
• In between on this continuum are
next-generation technologies.
• These changes in technology and their
impact on society are more than the
small step experienced in continuous
change, but they are not revolutionary
either.
• For example, the personal computer is a
next-generation technology from the
mainframe computer, made possible by
the radical innovation known as the
silicon chip.
• Before the silicon chip, computers used
tubes for connectivity and then wires and
contacts.
• These were uncomfortable and much
less dependable than the silicon chip.
• As the discussion of computers
illustrates, technology can be radical,
next generation, and continuous at
different points in time.
• The type of technology and innovation
can also be different for various
industries.
• Radical technology for one firm or
industry may be continuous technology
for another.
• Finally, an improvement in one industry
may cause another industry to fail.
Group discussion session
• Page 39 for group I
• Page 58 for group II
• Page 64 for group III
Maturing Process of Technology
• A tool often used to examine where
technological change is going is the
S-curve.
• The technology life cycle in the
S-curve has four phases: embryonic,
growth, maturity, and aging.
FIGURE 2.2 The S-Curve of Technological Progress
• The embryonic phase includes the invention
and application of the invention through
innovation.
• Improvement in the uses and the processes
directly related to the technology mark the
growth phase.
• During the maturity phase, firms that have
done a good job of managing the first two
phases can enjoy high profitability.
• In the aging phase, there is a decline in the utility
of the technology.
• The technology may be re-energized and a
modification of the S-curve will take place, or the
product or process may become obsolete.
– To illustrate, digital music format has evolved rapidly in
recent years. In two generations, silicon has replaced
nylon, and memory cards are replacing CDs. Ultimately,
the quest is to provide music with no moving
mechanical parts and huge storage volume.
– As a result, the S-curve for digital music has been re-
energized constantly, but individual products in the
domain have become obsolete.
Offensive versus Defensive Technology

• A firm can employ technology in either an

offensive or defensive manner.
• The firm uses an offensive technology in a way
that is not being used by competitors so that it
gains a competitive advantage.
• This advantage may come from lower costs for
the firm or from providing value more
effectively or efficiently to customers.
• Alternatively, a firm can have a defensive
technology and obtain technology that others
already employ.
• The firm making the purchase in this situation feels
it must employ that technology to be competitive.
• This use of technology will not give the firm an
advantage, but it allows the business to match its
competitors.
• Another defensive use of technology can occur
when a firm acquires or employs a particular
technology to block its use by others.
THE STRATEGIC PROCESS IN MTI
• The strategic process of a firm can be broken
down into three principal activities.
• In practice, a well-managed firm performs these
activities simultaneously and continuously.
• Thus, while the components are presented here
in discrete units, it should be recognized that in
a firm these are part of an ongoing internal
process.
• The three components are: 1. Planning 2.
Implementation 3. Evaluation and control
FIGURE 2.3 Key Activities in the Strategic
Management Process
Planning
• Planning is defined as the systematic gathering
of information that leads to the generation of
feasible alternatives for the firm, selection of
the most appropriate action among the
alternatives, and ultimately to the setting of
direction for the firm.
• Activities in the planning process include
– 1. Data gathering
– 2. Mission generation
– 3. Objective setting
– 4. Strategy establishment
Implementation
• After the strategic planning (information
gathering, mission generation, objective
setting, and strategy selection), the firm must
implement the plans.
• As shown in the figure 2.3, once the firm has
gathered information; identified a gap in the
market; and developed a mission, goals, and
strategy to be successful in that market, it will
ultimately need to implement its strategy.
• Activities in a firm are not isolated from
each other.
• The actions in one area have implications
for employees in other sections of the
business.
• The result is that the implementation of
the strategy requires the firm to conduct
activities that are consistent with the
given strategy.
FIGURE 2.7 Strategic Implementation Process
Evaluation and Control
• As noted earlier, the strategic process is
circular.
• Once the strategy is implemented, the firm
must make sure that its strategy is working.
• The firm, through planning, establishes goals
and objectives.
• After the strategy is implemented, the firm
must ensure that the goals and objectives are
met.
• If they are not met, then adjustments are
required.
• This process is referred to as evaluation
(comparison of actual outcomes with
expected outcomes) and control (adjustments,
as needed).
• The firm must determine why it is not meeting
its goals and objectives and either change
what it is doing or change what it wants to
accomplish.
• Determining if the goals are not met is a
straightforward evaluation process.
• The control process is more difficult and
frequently requires revisiting the
planning process.
• The feedback then must be given to the
appropriate areas in the firm and
changes pursued.
• A key part of evaluation and control is
establishing means to determine whether the
firm is successful or not.
• There are two keys aspects in any such
measures:
– Defined quantitative objectives in the production
process and in the marketplace
– Defined qualitative measures focused on strategic
concerns
THE NEXT STEPS IN INTEGRATING MTI AND STRATEGY

• The major questions, then, for the organization

trying to strategically manage its technology
become:
– 1. Should we create our own new technology and
innovations internal to the firm?
– 2. Or should we acquire technology from others
through acquisitions or strategic alliances?
• The answers are determined by the costs and the
likely outcomes as well as how the approach fits
into the goals and future direction of the firm.
• As noted financial analysis can be critical to
this evaluation.
• There are ways to take and build on the
financial analysis discussed as part of internal
data gathering to judge whether an individual
project or investment in a technology should
be made.
• Only a few of the key methods to make this
evaluation are discussed here.
• There are others that specific firms may wish
to employ.
• This review provides a basic
understanding of how financial
information can be used to make such
evaluations.
• Specifically, two key methods are
examined: net present value and payback
period.
Net Present Value
• In making an investment in technology, a firm
expects to receive some financial benefit over
time.
• However, money received in the future is not
as valuable as money received today because
the future money needs to be discounted for
inflation.
• Thus, the technology may provide some
monetary benefit to the firm, but that amount
of money comes over time so it must be
discounted.
• The net present value predicts cash flow for
the firm typically for four to five years in the
future.
Payback Period
• A payback period calculation is another
method to evaluate whether or not to
buy or invest in a given technology.
• This technique compares the payback
period of a new technology with the
expected lifetime of the equipment or
investments that need to be made.