Sunday, January 26, 2014

Technological Power as a Marker for Competitive Analysis: A Conceptual and Analytical Framework

In the previous blog (, 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


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