Five Competitive Forces of Technology and Three Generic Technology Strategies: A New Theory of Competitive Technology Strategy

Amongst the various management theories, Michael Porter’s Theory of Competitive Forces is one of the most elegant theories ever expounded. It not only is the foundation for the broader theories of competitive strategy and competitive advantage but also provides a template for studying competitiveness in any domain. The author in his blog “Strategy Musings” how the Porter’s framework can be extended as well as supplemented to develop competitive strategies in several enterprise level and functional level approaches. One such extension by the author has been in the domain of talent management.  Reference may be made to the author’s blog post, “Five Competitive Forces in Organizational Talent Arena: Porter’s Competitive Strategy Framework Extended”, Strategy Musings, June 16, 2013, (http://cbrao2008.blogspot.in/2013/06/five-competitive-forces-in.html) which provides how the five forces model enhances the understanding of any domain and in the development of generic domain competitive strategies.

Technology, like talent, is another domain to which the Porter theory can be extended appropriately. Technology is a key driver of the five competitive forces. While it plays itself out directly in a force like the threat of substitute products, it is also a key factor in determining the way the other four competitive forces shape up. For example, the intensity of competition tends to be a result of commoditization of technology which enables several players entering the industry simultaneously.  Suppliers of superior technology could exert higher competitive power if their products have superior technological capability. Buyers can become more discerning and more demanding once they understand the power of technology. This is not to suggest that several other factors such as management and investment do not operate as primary or secondary drivers of competitive forces. However, technology is a key driver of competitiveness which could benefit from the application of the five forces theory for itself.

Technology as a driver

Technology brings new products and processes to fruition, creating markets and jobs. Technology drives competitive forces. Firms which are technologically innovative and competitive outsmart other firms, and inversely firms which are technologically laggards and uncompetitive erode their own markets and destroy employment. In between are firms which are technologically alert and agile; they tend to be fast followers and reasonably competitive. A large number of successful firms tend to be fast followers in technology domain. In the smartphone category, Apple reflects the first class of innovative competitive firms, Palm represents the second class of lagging uncompetitive firms and Samsung represents the third class of competitive fast-follower firms. Interestingly, firms can move between and across the three categories.

On an overall basis, each of the five competitive forces of Porter’s theory is a blend of technology and management, deployed in different proportions by the leadership of each firm. There has been some impressive level of theory and practice as to how management and leadership can be the variables that can be worked on. To the extent that both management and leadership are significantly related to persons and personalities, there is a trainable or developable human element as an influence on the managerial and leadership competitiveness.  Less understood are the forces that determine the competitiveness on the technology dimension. Does education drive technological competitiveness or does laboratory infrastructure drive; and, does experimental culture drive technological competitiveness or does risk-taking culture drive? Probably, these are too generic to explain the competitive forces of technology all by themselves.   

Five forces of technology

Fundamentally, the true and sustainable premise is that new competitive technology makes existing mature technology obsolete. There are five powerful forces that can be harnessed by a firm to develop new technology that could be competitive and rendering the existing technology obsolete.  These are (i) the power of new functionalities (ii) the power of substitute materials, (iii) the power of substitute processes, (iv) the power of operating system, and (v) the power of supportive ecosystem. Competitive forces are forces that need to be generated and harnessed by firms to attack or overcome the attacks of competitors.  Factors like science and technology levels, investment levels, and R&D commitment are underlying enablers but not the manifestations of competitive technology forces. Product functionalities, materials and components, manufacturing processes, operating systems and ecosystems, on the other hand, are the real sources of competitive force.

Product functionality

It is important for a firm to understand where and how the firm could be positioned with respect to each of the forces. The power of new functionalities clearly is the essence of new product and market development. There is an effective 2X2 approach for understanding how product functionalities can be developed. For a broader discussion of how a 2 dimensional matrix can effectively conceptualize and analyze any endeavor, please refer to the author’s blog post “The 2 Dimensional Matrix: A Universal Analytical Tool”, Strategy Musings, July 3, 2011, (http://cbrao2008.blogspot.in/2011/07/2-dimensional-matrix-universal.html).   Applying this to product functionality, the first dimension can be partitioned in terms of the first time discovery of a new functionality and the enhancement of an existing functionality. The second dimension can be partitioned in terms of convergence (multiple functionalities available equally) or crossover (amongst multiple functionalities, a few being dominant). The design philosophy as it works through the 2 dimensional product functionality matrix generates unique technological competitive force. 

Materials and components

Materials and components play a significant role in determining the efficiency, durability, reliability, maintainability and elegance of a product, be it industrial or consumer. Two products of similar functionality can be differentiated by the use of materials and components of different technological characteristics. Two cars can be equally well-designed in terms of traction but if one is a solar powered hybrid because of solar overwrap materials, clearly the latter would be a differentiated car. The extent to which a firm understands the material and component technology would determine if the firm would be able to synergize the forces of materials with that of product functionality. Clearly, to the extent that a material or a component is also a product, the five competitive technological forces would be relevant to the material and component firms as well. One of the most striking examples of how material technological force can override product functionality has been evident in the evolution of flat panel televisions, and later in the evolution of flat panel screens themselves in terms of plasma, liquid crystal display, light emitting diode and organic light emitting diode screens.     

Manufacturing processes

The relationship between product industry and manufacturing equipment industry tends to be less integrated than the relationship between product industry and materials/component industry, relatively speaking. Quite commonly, manufacturing process is seen as a derivative of the capability of manufacturing equipment, and as having the objectives of better tolerances and higher productivity.  This may provide operating efficiency and competitive advantage in the normal course but if process is understood and deployed as one of the five important competitive technological processes, the outcomes would be significantly superior. It has been well established, for example, that automobile firms  which have engineers of different domains such as machine tool, electronics and instrumentation technologies (besides core mechanical and automobile engineering) and pharmaceutical firms which have chemical and instrumentation engineers (besides core pharmaceutical scientists) are able to generate and harness the competitive technical force as a competitive advantage.

Operating system

The unique aspect of any product in the contemporary digital world is that it is governed by a “brain” of its own, which may be called the operating system. From having mechanical toggles and electronic switches to programming logic controls and computer controls, there had certainly been efforts to govern the functioning of a product in the past too. However, structuring a product uniquely around an operating system and developing operating systems to govern products is the new reality of the contemporary digital world. This trend, however, is unlikely to stop here. Strides in artificial intelligence are likely to develop products that are not merely code controlled but are also speech responsive, gesture reactive, thought guided and intent managed. Strategic alliances for customized operating systems could be the next frontier for managing the competitive technology force.

Ecosystem

The traditional technology relationships have been simple; a firm and its customer are connected by a product, and a product and a customer are connected by the match between customer need and product performance. In the contemporary and emerging scenarios, however, just as people are seamlessly connected by social networks, products are connected by technology networks.  The performance of products can go beyond what they are designed for if they are placed in the right ecosystem. The system of technology-driven ecosystems is somewhat akin to a system of technology democracy wherein independent technologists motivate themselves to develop a host of applications for what they believe are virtuous products, thus creating a totalistic ecosystem.  The extent of the ecosystem, or the lack of it could be a significant competitive technology force, positive or negative for firms.

Generic technology strategies

Porter suggested cost leadership, differentiation and niche as the three generic competitive strategies available for a firm to cope with the five competitive forces. In the context of the five competitive technology forces as discussed herein there is a need for formulating generic technology strategies too. It would be tempting to develop mirror generic strategies in terms of technological followership, technological innovation and niche. However, such an approach, besides offering nothing new, does not also address the impact and implications of the five technology forces. A more appropriate model would postulate three generic technology strategies: functional technology, experience technology and customized technology. These three generic technology strategies would manage the competitive technology forces in varying degrees and provide competitive advantage also in varying degrees.

Functional technology strategy

Generic functional technology strategy aims at sticking to functionalities that are essential to deliver performance that users “require”.  These functionalities could, depending on the essential purpose of the product, focus only on some of the five competitive technology forces. A water submersible pump would focus on the highest materials and process technological power to provide failure-proof performance by the pump under the rigorous operating conditions for which it is intended. An on-the-ground pump would, on the other hand, focus on a different set of performance metrics such as high throw and low noise. By focusing on functional technologies, firms are likely, but not necessarily be able, to optimize on investments and cost leadership. Functional technology strategy is thus different from the generic cost leadership strategy. The former, even if functional, could require advanced technologies with high investments and high product costs. Only in some cases of the former, cost leadership could be a correlated strategy. On the other hand, in cost leadership as a strategy, the starting and finishing objectives would focus on cost-competitiveness choosing only relevant technologies. Firms following the generic functional technology strategy are upfront clear about the customers and product needs they seek to serve with top-of-the-flight technologies for the chosen dimensions. Firms following generic functional technology strategies are required to stay focused in terms of technology development and investment commitment to cover target market segments to achieve an optimal investment-revenue-profit relationship.

Experience technology strategy

Generic experience technology strategy aims at providing the broadest set of users with total high-end product performance complete with product elegance. The experience strategy goes beyond the known essential purposes of a product, and in the bargain focus on all the five competitive forces. The generic experience technology leader generates a product leader, from all the dimensions one can possibly consider.  One of the most recent striking examples of experience technology strategy is Sony’s Xperia Z Ultra smartphone-tablet (a segment called phablet). It has the fastest processor (2.2 GHz quad core) in the industry and the largest screen  (6.4” or 16.3 cms diagonal display) in a device that can double up both as a phone and tablet. It incorporates the latest proprietary Sony Triluminos display technology with OptiContrast Full HD 1080p LCD touch screen, an 8 MP rear HD camera with Exmor sensor and a 2 MP front HD camera with virtually all the connectivity options. It also has on offer thousands of songs and movies from Sony’s media empire.

Sony Experia Z Ultra pushes the design envelope further, being the slimmest (at 6.5 mm thickness) and the lightest (at 212 gms) in the tablet category, with an elegant but compact form factor (the only tablet that can be held and operated by one hand).  It also is the only device that has scratch-proof and shatter-proof glass for both the front and rear casings. The construction is almost bezel-less enabling the largest screen in the smallest form factor. To cap it all, it marks a new high for all communication devices with its unique water and dust resistance (IP 58 certified). As the example of Sony Xperia Z Ultra demonstrates, experience technology strategy involves marshalling of all the five technology forces in terms of all the conceivable functionalities at high-end performance levels, state-of-the-art materials, exacting manufacturing process ensuring elegance with water and dust resistance, a full-function latest generation Jelly Bean 4.2 Android Operating System and the expansive Sony media and entertainment ecosystem. Experience strategy requires firms to have scientists and technologists from multiple domains and ensure tightest technology networking to achieve the fastest go-to-market (even beating the nimble Koreans at the game for once) and also invest aggressively to achieve the technology goals. Experience technology strategy as a competitive strategy is more expansive than differentiation as the former seeks and achieves differentiation in all the dimensions, and not just one or two. Firms following experience technology strategies are required to commit large investments to cover multiple market segments to achieve pan-market domination which could be investment-intensive but offer reasonably high market share and high profitability.   

Customized technology strategy

In contrast to both the functional technology and experience technology strategies, generic customized technology strategy seeks to achieve the heights of perfection in any chosen area of operation. The relentless quest of Bose Corporation to develop audio systems that capture, process and deliver real, pure, rich and deep sound is an example. The pioneering initiative of Toyota to develop hybrid and electric cars that meet all the exacting parameters of automobile performance with green technologies of exceptional fuel-efficiency is another fitting example. The decision and determination of Amgen to specialize in new biological drugs when large molecule drugs represented a nascent technology is another example. Customization does not mean that firms need to be reactive to market research; on the other hand they must be responsive to their “inner technology voices” that require products to meet human sensory and life needs. Generic customized technology requires that firms invest in fundamental sciences and technologies to achieve increasing levels of perfection. Firms typically would be required to commit resources to develop laboratories of fundamental research organically or invest in strategic alliances with such laboratories in universities. Firms following customized technology strategies are required to commit large investments in narrow market segments which could be risky but offer premium pricing and returns to firms.  

The model of the five competitive technology strategies and the three generic competitive technology strategies, which to the author’s mind is a first in management literature (as a unique reinterpretation and extension of Porter’s five forces theory) , has the potential to lead a more powerful deployment of technology for superior business performance and enhanced competitive strategy.

Posted by Dr CB Rao on August 18, 2013