In the previous blog (http://cbrao2008.blogspot.in/2014/01/technology-fluidics-and-adaptive.html),
I have postulated that competitor analysis is best carried out in terms of
technological power of a firm, expressed through the fluidic ability and
adaptive agility of new technology. Unlike the traditional strategy theory of
the 1980s, which positioned technology as a core competence and collaborative
factor, it would now be more relevant to view all technology that is outside of
a firm’s intellectual ownership or commercial access as being a potentially
competitive force against the firm. Technology, being an embedded invisible
platform, is too abstract to identify a priori in terms of commercial potential
and feasibility. While Porter’s Five Forces theory considers technology as a
competitive force, it depends on a physical surrogate (ie., substitute
products) for identification. A relevant approach in the new age would be to
analyze competition in terms of technology share, ahead of substitute products
coming up commercially. This blog post proposes a conceptual and analytical
framework to understand and quantify technological competencies of a firm, in
an industry context.
Technology, in the context of blog post,
includes science. Technology represents both product and process technologies,
and at every level of a product or service value chain. For example, in the
case of processed foods such as corn flakes, technology represents the complete
spectrum from corn cultivation, including soil and seed development, through
flake manufacture, including packaging, to customer delivery, including
logistics, distribution and retailing. The technologically optimal firm is the
one that deploys the best of technologies across this full corn value chain.
The highest technological power is derived when each part of the corn value
chain deploys the leading edge technologies. Very often, internal strategists
and external analysts miss this point and assess technology only from the
end-product or consumer point perspective which leads to quite a high level of
lag in holistic development of the total technological value chain. Many times,
technological solutions are developed in parts to meet specific needs but
probably more would be gained if each such challenge is leveraged to address
the total value chain.
Parts are more than the whole
The much used saying of management is that
the whole must always be greater than sum of the parts, reflecting the
principle of synergy. In respect of technology the sum of parts can be more
than the sum of the parts only if the full potential of each part is exploited
at each challenge. Let us take the case of introduction of non-asbestos gasket
in automobiles as a response to regulatory and environmental concerns on the
use of asbestos. Most automobile companies took up the issue as an individual
fix of replacing the asbestos gaskets by non-asbestos gaskets, mostly as an
initiative of component manufacturers. Some manufacturers simply made gasket to
gasket replacement while some considered the finer aspects of change in gasket
thickness vis-à-vis cylinder block and cylinder head clearance, to redesign key
components. However, a few wise automobile companies considered the total
challenge of increasing the fuel efficiency and reducing the environmental
impact, not merely through non-asbestos gaskets but essentially through a
series of measures from micro-mixing of fuel to catalytic converters in
exhausts.
Another fine example of total technological
value chain approach would be to reduce the cost of an automobile. The results
of a cost reduction exercise can be astounding if the exercise is taken up in a
larger format. Weight reduction of each component can reduce the overall
material consumption and reduce costs. It also can reduce frictional losses of
the engine and also lead to better power to weight ratios. It can also enhance
the load carrying capacity for a similar form factor. There is, therefore,
merit in approaching any particular technological problem through a broader
technological spectrum. If breakfast cereal makers approach the challenge of
healthy foods from a perspective broader than just reducing salt, sugar and
preservative content across the board but customize them in terms of age needs
and nutritional requirements product development would be more comprehensive.
This requires defining the technology value chain in terms of agro-biology;
aligning crops and food processing with human physiology and disease pathology.
A broader definition of technological power in the manners described is easier
said than achieved.
Refocus versus defocus
Whenever major shifts in strategic
perspectives and technological platforms take place, rather than address the
shifts appropriately, such shifts are addressed stylistically than
substantively. The former would hypothesize that automobile industry will in
future be redefined as global navigation industry or dairy product industry be
redefined as probiotics industry. Dramatic though it may seem and worthy of
publication in HBRs, such presumptive portrayals of industry shifts represents
defocus rather than refocus. The reason is that the core objectives of products
do not disappear merely because of convergence of other functionalities. An automobile
will never cease to be an automobile just because of the integration of leading
edge electronics and global navigation technologies. A dairy product manufacturer
cannot afford to redefine itself a dairy company or as a probiotics company
just because dairy biotechnology has developed to let dairy products work as
gastro-intestinal medicines. Google may not cease to be an Internet company
even if it masters the driverless or self-driving car technology.
Extension and deepening of product
capabilities by firms based on new technological capabilities needs to be
distinguished from deliberate moves by companies from one industry to another
(as was the case with Nokia, for example). For every firm which desires to be
competitive, the passion must be not in terms of reinventing its industry roots
but in terms of vitalizing and expanding the spectrum of technologies that can
be embedded in its core products. As the simultaneous efforts by Google at one
end and Toyota at the other end show, one may utilize each other’s products or
capabilities but driverless car as a technological concept transcends
companies. The same was applicable to robots whether developed by Honda or Sony;
a robot is robot. The key point to note is that while it is the power of
technology that redefines product capabilities it is the access to technology
across the total technological value chain that redefines a firm’s
capabilities. It is important firms to appreciate that while technologies can be
integrated in a variety of ways two are the most important ones; each affording
different opportunity - challenge profiles and different risk - reward profiles
for different firms.
Assessing and accessing
It is easy to overdo the technology angle as
much as under-do. There is a significant difference between technology cycle
and product cycle. The first payoff for technology is in terms of a product
embedding the technology. The payoffs for technology and product thereafter occur
in layers, first in terms of sales, then in terms of profits and finally in
terms of payback on investments. Depending on the industry, the payoffs from
the first investment in technology to the final back could take anywhere
between five to twenty years. Clearly, the volume base of new technology
products determine where the payback needle would settle. We discussed earlier
that the total technological power of a product is a sum of the parts. However,
a technological value chain tends to be only as strong as its weakest link. A high
performance formula car, for example, cannot survive on normal on-road tyre
technology. In terms of quantification, a more powerful expression would be a
multiplication of the technological indices of the individual parts of the
total technology value chain. A firm would do well to completely define the
technological value chain of its product, objectively index each part’s
technological power and multiply all the indices to arrive at the total
technological power of the product. Such analysis also lets the firm analyze
the vulnerabilities across parts and measure the sensitivity to enhancements.
Clearly, it is a strategic necessity to ensure
the full complement of technologies. That said, it is neither commercially appropriate
nor practically feasible for firms to develop technologies across the total
chain organically. What must be done, however, is to develop a few core
technologies organically and access the best of technologies for all the rest. Accessing
technologies in strategic partnership with firms ensures total coverage of the
technology value chain. This requires creation of competencies in the firm to
constantly scan the intellectual property landscape and hone in on the best
alliances and licensing arrangements. Such competencies should include ability
to continuously phase in new technologies across the value chain. Three
dimensions are proposed to quantify this capability. The first is the ability
to commercially upscale or downscale new technologies across the value chain. The
second is the ability to upscale or downscale technologies to other products in
the same design family. The third is the ability to embed the technologies of
one product into other significantly different products.
Posted by Dr CB Rao on January 26, 2014