Competitive Technology Strategy

Dr. R.K. Mitra Indian Institute of Foreign Trade New Delhi EPGDIB 2010-12

Competitive Technology Strategy

Technology Diffusion and Adoption Technological Innovations are broadly 02 types Nature of Value
Discontinuous or Disruptive Innovation
New Market

How Value is Delivered? Process

Incremental Innovation

Distribution Line Extensions

No significant impact on market

Competitive Technology Strategy

Technology Diffusion and Adoption A flow of line extensions to wrest away market share by way of incremental innovations is far different from the potentially fundamental and far-reaching changes brought about disruptive innovations. Incremental Disruptive Incumbent Start-ups

Competitive Technology Strategy

Technology Diffusion and Adoption The Incumbent Vs. Start-ups (Innovators) A technology, however, innovative it may be, cant alone deliver market success, it needs a host of complementary assets and its here incumbent firms hold key competitive advantage over start-ups. At the same time, incumbents are widely considered to be innovation challenged. They are better followers than leaders and, relative to their size, account for a disproportionately small amount of non-process-driven (e.g., Contd. disruptive) innovation.

Competitive Technology Strategy

Technology Diffusion and Adoption The Incumbent Vs. Start-ups (Innovators) This is due to a variety of factors, including organizational inertia, customer expectations, Wall Street earnings commitments, and capital structure.

Competitive Technology Strategy

Technology Diffusion and Adoption The Incumbent Vs. Start-ups (Innovators) The Evolution of Industry Innovation
Dominant design Product innovation Rate of innovation

Process innovation

Pre-paradigmatic Paradigmatic period period [As Exhibit shows, at the early period of product life cycle (embryonic), disruptive productoriented innovation is paramount in the pre-paradigmatic period; the paradigmatic period is dominated by process-oriented change. The transition occurs as a dominant design takes hold.]

Competitive Technology Strategy

Technology Diffusion and Adoption The Incumbent Vs. Start-ups (Innovators) In the early periods of product life cycle, before product innovation reaches its peak, innovators are likely to play a more significant role than incumbents. In the mature phase, once the new product paradigm has been established, processoriented incremental innovation becoming more prevalent. Incumbents are likely to pay a dominant role.

Competitive Technology Strategy

Technology Diffusion and Adoption The Incumbent Vs. Start-ups (Innovators)
Innovators Incumbents

Rate of Investment

Pre-paradigmatic

Paradigmatic

Competitive Technology Strategy

Technology Diffusion and Adoption Confronting Disruptive Innovation: Incumbents are blessed or cursed? Tushman and Anderson concluded that industry veterans are most likely to pioneer a breakthrough innovation. They believe that even the innovations that threaten the competencies of an incumbent firm are more likely to be pressed forward by that firm, which prefers to deal with the consequences rather than be hunted down.

Competitive Technology Strategy

Technology Diffusion and Adoption Confronting Disruptive Innovation: Incumbents are blessed or cursed? More recently, Christensen has asserted that incumbents are adept at managing sustaining (process-related) technologies, but not so adept at dealing with disruptive technologies, since these

Competitive Technology Strategy

Technology Diffusion and Adoption Confronting Disruptive Innovation: Incumbents are blessed or cursed? disruptions often call into question the underlying the value proposition of the firm and its complementary assets.

Competitive Technology Strategy

Technology Diffusion and Adoption Confronting Disruptive Innovation: Incumbents are blessed or cursed? MITs James Utterback explains this critical exception: Identifying the path to the future is an important requirement for survival and success when discontinuities surface. For established firms, getting off the path they are currently on is another, more difficult challenge. The impulse for firms to continue on the path of cash generating Contd. technologies

Competitive Technology Strategy

Technology Diffusion and Adoption Confronting Disruptive Innovation: Incumbents are blessed or cursed? is powerful.Established firms are apt to approach discontinuities and conflicting corporate interests with compromise.Bridging a technical discontinuity by having one foot in the past and the other in the future may be a viable solution in the short run, but the potential success of hybrid strategies is diluted from the outset compared to rivals with a single focus.
Contd.

Competitive Technology Strategy

Technology Diffusion and Adoption Confronting Disruptive Innovation: Incumbents are blessed or cursed? The conclusion is that even if an incumbent pioneers a new technology, it may be unwilling to press the technology as a dominant design, and a general inability to deal with disruptive change can lead to the firms failure.

Competitive Technology Strategy

Technology Diffusion and Adoption Confronting Disruptive Innovation: Incumbents are blessed or cursed? While incumbents are often aware of candidates for disruptive technology, the organizational bias toward internally developed incremental change may hinder appropriate investigation.

Competitive Technology Strategy

Technology Diffusion and Adoption Confronting Disruptive Innovation: Incumbents are blessed or cursed? With no internal champion, continued uncertainty, and the potential for the innovation to disrupt the status quo, firms may let the disruptive opportunity pass them by in favor of more incremental change.

Competitive Technology Strategy

Technology Diffusion and Adoption

Incumbent Adoption and Bandwagon Pressure

Whether or not an incumbent is truly excited about an emerging disruption, the sheer number of other organizations adopting the innovation can cause bandwagon pressure. Like the herding effect, the bandwagon effect provokes organizations in the industry and adjacent to it to adopt an innovation simply to keep up. This helps drive dominant design and propel movement up the S curve.

Competitive Technology Strategy

Technology Diffusion and Adoption

Jump in S-Curve
The long-term view of industry evolution is represented by overlapping technology S curves (Exhibit 1). While one technology delivers on its promise, incremental improvement continues, and successful firms profit, multiple candidates for the next big thing are plotting the overthrow of the status quo. The trajectories of these other new technologies are shown as the emerging candidate curves in Exhibit 2.

Strategic Management of Technology

Industry Evolution from One Technology to the Next
Product Performance

Time

Strategic Management of Technology

Emerging Candidates for a Disruptive S Curve
Product Performance

Time

Competitive Technology Strategy

Technology Diffusion and Adoption

Jump in S-Curve
Many of these new technologies never take hold, either because the supporting infrastructure, market demand, and complementary industries dont develop or because the technology itself fails to deliver on its promise.

Competitive Technology Strategy

Technology Diffusion and Adoption

Jump in S-Curve
Nuclear energy presents an excellent example, Nuclear fission was once expected to be one of the greatest disruptive technologies of our time. Light water uranium-based fission reactors originally promised to offer a clean and unlimited source of electricity, expected to be too cheap to meter.

Competitive Technology Strategy

Technology Diffusion and Adoption

Jump in S-Curve
From the late 1960s to the early 1970s, the cost data and growth rates for nuclear power suggested a disruptive change that would end U.S. dependency on coal. Between 1970 and 1980, coal-generated power dropped from roughly 55 percent of electricity production to 45 percent, while nuclear power rose from 2 percent to 12 percent.

Competitive Technology Strategy

Technology Diffusion and Adoption

Jump in S-Curve
From all early indications, the coal industry and power plant construction and management industry were facing major discontinuity, and both would need to retool for uranium or face extinction. Except in a few countries, that isnt at all what occurred.

Competitive Technology Strategy

Technology Diffusion and Adoption

Jump in S-Curve
In the United States, nuclear power generation topped out at roughly 20 percent of total energy capacity, and almost half of that capacity was brought on line in order to fulfill existing contracts established in the early 1970s.

Competitive Technology Strategy

Technology Diffusion and Adoption

Jump in S-Curve
No nuclear plants have been ordered in the United States since 1978, and more than 100 reactors have been canceled, including all of those ordered after 1973. Construction costs, operating costs, regulatory compliance, waste disposal, security concerns and public opinion have all created a far different scenario than that envisioned at the start of the nuclear age, while continued incremental change in conventional plants raised the bar further.

Competitive Technology Strategy

Technology Diffusion and Adoption

Jump in S-Curve
A number of other potential new technologiesincluding co-generation, fuel cells, and photovoltaic nanotechnology- may turn out to represent disruptive S curves for power generation, but light water fission-based technology has not proven to be one of them.

Competitive Technology Strategy

Technology Diffusion and Adoption

Jump in S-Curve
In the much different world of computer operating systems, OS/2 is an example of a potentially disruptive technology that didnt climb the S curve, exhibiting its own melt-down of sorts. In the 80s, IBMs OS/2 was expected to be the disruptive successor to DOS and the future of computing.

Competitive Technology Strategy

Technology Diffusion and Adoption

Jump in S-Curve
IBM ran into a series of problems, however, as users found early versions of the software slow and clunky. Venture capitalist Stuart Alsop went so far as to say in 1991 that every single decision [IBM has] made about operating systems so far has been wrong.

Competitive Technology Strategy

Technology Diffusion and Adoption

Jump in S-Curve
As a result, Microsoft was able to press its installed base leverage and position the Windows rather than the IBM operating system as the dominant technology.

Competitive Technology Strategy

Technology Diffusion and Adoption

Jump in S-Curve
This cycle may repeat itself. Linux, although much touted as an open, secure, and stable replacement for Windows, suffers from disputes over ownership and evidence that it may not offer a lower total cost of ownership.

Competitive Technology Strategy

Technology Diffusion and Adoption

Jump in S-Curve
Several analysts (much as the Meta Group), pointing to Linuxs rapid growth in market share, predict that open source Linux will capture more than 50 percent of the market and change the economics of software.

Competitive Technology Strategy

Technology Diffusion and Adoption

Jump in S-Curve
Others (such as IDC) believe that rather than disrupting the software industry, Linux may merely be replacing UNIX, Microsofts other major challenger. They cite Microsofts continued dominance in market share and a drop-off in UNIXs sales that has matched Linuxs rise.

Competitive Technology Strategy

Technology Diffusion and Adoption

Error of Commission
Continuously plotting the potential trajectories from the high-growth portions of candidates S curves, would create an alarmist attitude toward virtually every new technology that emerge. The hype cycle reinforces this alarmist posture. In the OS/2 case, Lotus, Borland, Ashton-Tate, and other software makers that committed heavily to OS/2 were not against change, but merely rode the wrong horse.

Competitive Technology Strategy

Technology Diffusion and Adoption

Error of Commission
Anticipating a high-growth trajectory and disruption, they all placed large bets on OS/2, with disastrous consequences. Former Intel CEO Andy Grove, using an engineers vocabulary, described the ambiguity underlying the potential disruptors as a signal versus noise issue.

Competitive Technology Strategy

Technology Diffusion and Adoption

Error of Commission
He cited the use of x-rays to produce semiconductors as an example of a case where Intel was unable to determine whether a new technology was going to create wholesale changes in the industry. Over-commitment to xray-based production innovation would have damaged Intel severely.

Competitive Technology Strategy

Overreaction and Overconfidence Errors
Overreaction: Projections of performance based on early gains do not materialize. Product Performance Overreaction: Current value gap does not indicate eventual performance Product Performance Projected trajectory based on early slope Current industry S curve Eventual curve Current industry S curve Current value gap

Eventual curve

Disruptive candidate

Disruptive candidate

Time

Time

Competitive Technology Strategy

Technology Diffusion and Adoption

The S Curve Jump

Eventually, a disruptive technology from among the candidates does take hold, creating magnitudinal rather than steady changes in the nature of the category. This gives rise to secondary inflection points, as apparently mature and stable sectors jump from one flattening S curve to the next high-growth one. As the current S curve flattens, the successor technology takes hold.

Competitive Technology Strategy

Technology Diffusion and Adoption

The S Curve Jump

The new paradigm represented by the successor technology can potentially change the entire goto-market strategy, economics, competencies, complementary assets, and/or internal organization necessary for success. Over time, a market may jump S curves several times.

Competitive Technology Strategy

Technology Diffusion and Adoption
Jumping S Curves
Product Performance

Time

Competitive Technology Strategy

Technology Diffusion and Adoption

Ambidextrous Organizations
The ideal incumbents are ambidextrous organizations; that is, they are capable of generating and mainstreaming radical innovationand, thus, of capturing markets for themselveswhile still maintaining the organizational architecture necessary to build, protect, and capitalize on the complementary assets that drive incremental success.

Competitive Technology Strategy

Technology Diffusion and Adoption

Ambidextrous Organizations
Unlike early vertical startup entrants, incumbents can use well-established infrastructure to dominate markets. While they are not immune to mistakes, these firms have the high level of organizational resilience necessary to adapt to changing environments.

Competitive Technology Strategy

Technology Diffusion and Adoption

Ambidextrous Organizations
Many pharmaceutical companies partner in order to acquire drugs to keep their pipeline full when necessary, but also work on internal development that will make their own products obsolete before others do so for them.

Competitive Technology Strategy

Technology Diffusion and Adoption

Ambidextrous Organizations
IBM provides manufacturing and engineering assistance to fabless semiconductor companies, while also supporting internal R&D.

Competitive Technology Strategy

Technology Diffusion and Adoption

Ambidextrous Organizations
Sony has been able on occasion to make internally generated innovation the winning technology. It maintains a group called CSL (Computer Science Lab), whose researchers fiercely guard their right to pursue pure science without pressure to work on projects with obvious practical implications.

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