TechnologicalEnvironmentTechnologicalEnvironment

Strategic importance of technology

• The key relationship to consider is that between technology and strategic success• Technology may not be a source of

competitive advantage – if competitors exploit it too• Rapid technological change can

challenge all competitors in a market

How technology can change a “business model”

What is a business model?What is a business model?

How a business organises its activities to generate income (revenues) and incur costs

Examples of “business models” (1)

Facebook generates revenues from advertising, using the platform of over 500 million users.

Examples of “business models” (2)

Low-cost airline generates revenues by selling direct to consumers (avoiding intermediaries) with a high proportion of

bookings made online

Technological change provides an opportunity to change business models

Technology mechanisms

Technology Mechanism

How It Potentially Creates an Advantage

Example

A new process Produce faster, at lower cost or better quality

Online video streaming

Solve a complex problem

Do something competitors find hard to master

Google search engine

A new product The first product to market The iPad & iPhone

Protect a valuable idea

Have something others can only sell if they pay for a licence

Pfizer’s Viagra

Rewrite the rules A completely new approach which makes other products and markets redundant

Smartphones

Technology and Porter’s Five Forces?

Force Examples of Potential Impact of Technology

Barriers to entry May reduce economies of scale – encouraging new entrants (e.g. digital publishing)In some case barriers may rise – as products become more complex and processes difficult to copy

Substitutes New products may displace old – e.g. Online streaming for DVD, which in turn replaced videotapeTechnology in other markets may “steal” customer spending from other markets – e.g. more spending on smartphone apps may reduce spending on PC software

Power of customers (buyers) & suppliers

Technology may free businesses from a single source of supply – e.g. Cloud-based applications v Microsoft

Competitive rivalry Rivalry is diminished is technology is successfully patented and licensed

Opportunity or Threat?

• Some businesses may be technology leaders – where technology enables them to gain an advantage• Most other businesses need to assess

the threat posed by technology on their competitive position

Examples of technology as a threat

Examples of technology as a threat

Examples of technology as a threat

Innovation and technology

• Developing new technology is usually expensive• The investment returns depend on the

extent and pace at which a market adopts new products, or improved versions of existing products• This is known as innovation diffusion

Supply-side factors affecting innovation diffusion

Adapted from Johnson & Scholes – Corporate Strategy

Supply Factor Potential Effect on Technology

Degree of improvement

Does the technological change provide enough incentive for customers to change?

Compatibility Is the new technology compatible with existing products?; Are older products likely to become obsolete?

Complexity Does the product or the way it is marketed (e.g. pricing) make it too complicated for the majority of customers to understand?

Experimentation Can customers test the new technology before committing to buying it? What feedback is available from early adopters?‐

Customer service How easy is it for potential customers to get answers to their questions before committing to the new technology?

Demand factors affecting innovation diffusion

Demand Factor Potential Effect on Technology

Market awareness

How aware is the market of the new technology?What promotional activity is required in order for customers and distributors to support the technology?

Observability What is the potential for a “band-wagon effect”?How easy is it for customers and distributors to see the technology in action and observe the benefits that is brings?

Customers Which customers are likely to adopt the technology first?What approach is most appropriate for a successful launch of the innovation?How are existing customers going to be supported in transferring to the new technology?

Adapted from Johnson & Scholes – Corporate Strategy

What is a “tipping point”?

The point in time at which some new

technology becomes mainstream

The point in time at which some new

technology becomes mainstream

Tipping points

• With innovation diffusion, demands tends not to increase steadily• Often a slow process of adoption• Then a tipping point – when demand

suddenly takes off (or declines!)

Tablets are past their tipping point?

Tipping point – the amazing growth of Apps

Developing or acquiring technology

Three main optionsThree main options

In-houseDevelopment

In-houseDevelopment AlliancesAlliances AcquisitionAcquisition

In-house development

• Favoured if technology is a key competitive advantage• Business may have experience of

achieving first-mover advantage• Requires strong insights into technology

and market needs• Business must also be willing to take

commercial and financial risks

Perhaps the best example of in-house development

Alliances

• Appropriate for technologies which are important, but which do not confer competitive advantage (e.g. packaging)• Business may want to “follow & imitate”

rather than be a market innovator• New technology may be well beyond

the skills and experience of the business• Helps limit commercial and financial risk• A good link with “outsourcing”

Technology alliance examples

Technology alliance examples

Acquisition

• Often important if speed is important – i.e. no time for learning• May be essential if the technology is

complex or if it is providing competitors with an advantage• Acquisitions are high risk – have to be

sure that the right technology is being bought

Technology acquisition - examples

Technology acquisition - examples

Technology acquisition - examples

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