Pyramid of Technology and Competitive Strategies: Drivers of Industrial Growth

Technology is the primary driver of industrial development. Generally, technology is viewed in terms of two categories: innovative (or discovery) technologies and generic (or copycat technologies). It is commonly understood that innovative technologies open up new markets with first-to-market products and services, and generic technologies thereafter follow with same or similar products, expanding the markets further. The extent and pace of generic technologies depend on the protection of intellectual property rights (IPR), and the attendant monopoly rights that innovator firms enjoy. The sequence and balance between innovative and generic technologies is well established in certain industries such as pharmaceuticals and electronics while it is somewhat blurred in other industries such as automobiles and Fast Moving Consumer Goods (FMCG).

Technology is hard to develop innovatively for two intertwined reasons; innovation requires intellectual capital which, in turn, requires an ecosystem that nurtures innovation. Generally, innovation is considered technology, and investment intensive and only financially very well endowed firms are considered capable of performing in the innovation space. The real take on that is a bit ambivalent. Fundamental research, no doubt, requires sophisticated equipment and high calibre people, both of them costing a lot. On the other hand, some of the brightest technological innovations be it genomics, epigenetics, stem cells, artificial intelligence, drones and so on have been initiated on a small scale in start-up or academic research formats. The fact of the matter is that it is difficult to categorise technology in a binary format. This blog post proposes that technology is complex and needs to be appreciated from multiple angles.

Technology pyramid

Pyramid is a very graphic template to appreciate multi-layered activities or experiences. Regular pyramid has a square base and an apex point joined to the base by four equal triangles. Viewed from any angle of elevation, the pyramid would look like a triangle. There are three separators in this triangle from a technology point of view. At the very top lies the true innovator space. The middle space belongs to improver-followers. The bottom space belongs to followers. While there is no research body that points to clear statistics, the ratio of innovators to improvers to followers tends to be 1:3:6 in technology oriented industries, and 1:1:8 in commodity oriented industries. The higher the complexity of innovation of the top 10 percent, the greater will be the number of technology components. This provides an opportunity for improver-followers (30 percent) to improve upon the components, making the follower products similar but with some improvements. Most players (60 percent) find even partial improvements daunting, and are satisfied with being generic clones.

The relationship between technology and science has been age old. Science is the foundation of technology. While classification of technologies as above tends to be secular, depending on the edge of the base, there are four types of industries, driven by four different types of sciences. The first is driven by material sciences, the second by biological sciences, the third by mechanical sciences and the fourth by computer sciences. Depending on the base scientific driver, the proportions cited above vary. Semiconductors, medical equipment, wearables, white goods are some examples of predominantly materials sciences driven industries. Vaccines, ayurvedic products, pharmaceuticals, biologics and regenerative medicines are examples of biological sciences driven industries. Robotics, automobiles and machine tools are examples of industries driven by mechanical sciences. Artificial intelligence, IoT and Cloud are examples of computer sciences driven industries. In today’s world, though, there is significant cross-dependence and convergence. Wearables, for example, are driven by advances in computer sciences as well.

Strategy grid

Given that technology driven product strategy is the core of business strategy, the technology pyramid influences the business strategy of a firm, which has two principal components: investment direction and earnings potential. There are two fundamental dimensions of investment; one of technology (including both design and manufacture) and the other of marketing (including both selling and distribution). Innovators need to be extraordinarily high on design and manufacturing investments as well as marketing investments. Improvers need to be balanced in terms of technical and marketing investments. Followers need to be high on marketing investments but can afford to be low on design and manufacturing investments. Only those products which are on phase-out can afford to be low on investments on both technical and marketing dimensions.

There tends to be an earnings grid that corresponds to the investment grid and that has two dimensions: the revenue grid and the (gross) margin grid. Gross margin (or, simply margin) is defined by earnings before depreciation, interest and taxes. The innovator firms would be high on both revenue and margin dimensions. Improvers will be high on revenue grid and medium on margin grid. Followers would be low on both revenue and margin grids. Clearly, there are logically strong incentives to be innovators, followed by improvers and trailed by followers. The reality, however, is otherwise. Most firms tend to prefer an improver strategy or a follower strategy and only the strong hearted tend to pursue the innovator strategy. One financial reason is that the investment intensity adversely affects the net margin potential of a firm, because of depreciation and interest. As a result, even innovator firms tend to follow a strategy of mixed portfolio, with a fair proportion of improvers in their portfolio.

Competitive strategies

There are three competitive strategies of technology that firms can pursue based on the desired positioning in the technology pyramid. These are innovation leadership, improver differentiation and follower productivity. The classification has relevance in terms of organizational leadership characteristics as well.   

Innovation leadership

Innovation leaders are in the forefront of experimentation. Such firms tend to invest enormous resources, including time and effort, not only in their primary scientific drivers (say, materials or mechanicals) but also in exploration of how the other drivers can also be leveraged for greater innovation. Microsoft acquiring DNA sequence to store trillions of data bytes is an example. Another example is driverless cars, combining car and computer technologies.  Innovators are not disheartened by failures and would press on with resource allocations until breakthroughs are achieved. Innovation leaders are often driven by insightful and intuitive leaders who are visionary rather than data oriented analytical leaders.

Improver differentiation

Improver differentiation looks at multiple components of a successful innovator system to develop a new value proposition. Modular smartphone, for example LG G5 model, which enables modular enhancers like DSLR camera which can be attached for performance enhancement, reflects improver differentiation. Such firms tend to take off where others stop. Fitbit, launching a fitness watch, is an example. Despite the launch of Apple watch or Samsung Gear smart watch, Fitbit fitness band continued to be popular. However, the firm recognized that getting a watch bezel on to the band would be a key differentiator and portfolio enhancer. Improver differentiators are driven by leaders who are observant and thoughtful leaders who are creative rather than analytical leaders.  

   

Follower productivity

Followers need agility, accuracy and efficiency to play the generics game successfully. Wise followers keep their generic follower templates ready even as the innovator products are launched. They understand that the marketing universe is diverse, and the bottom of the economic pyramid so large, that there would always be scope for follower products. Generic pharmaceutical industry is a shining example of how follower productivity enables me-too followers transform the structure of an existing industry, and in the process virtually build a whole new industry segment successfully. Generic followers succeed based on the quality of management and rigour of operations. Leaders who lead follower productivity tend to be operational and efficiency experts.

Crystallisation versus Commoditization

Those who are familiar with solid-liquid physics and chemical engineering understand that crystallization is a complex process. There are many natural crystallization processes that are time scale dependent (examples, mineral crystals or snowflakes). Innovation, likewise, is time dependent; leaders committed to innovation need patience. Laboratory crystallization works on a number of parameters (concentration, temperature, polarity, ionic strength etc.,) to ensure required crystallization. Innovation similarly requires specialization, energy, passion and persistence. More importantly, just as crystal growth happens with the primary crystallization or the first nucleus formation (convergence) and then develops secondary crystallization, innovation also starts with one unique idea and then builds on to make a whole new innovative product eventually.  Examples are electric cars built around high performance electric batteries, smart phones around bright displays, driverless cars on sensors, and so on.

Technology, on the other hand, has a paradoxical aspect. Even highly sophisticated technologies, with high investment intensity, are subject to rapid commoditization so long as they are not protected by patent and monopoly rights. Commoditization stimulates proliferation of competing products. Commoditization occurs when a core or base product is recast into multiple end-user products as in the case of iron and steel. Commoditization is an inevitable outcome of outsourcing of design, development and manufacture. Outsourcing promotes diffused technological entrepreneurship. As more systems developers and component makers get their teeth into their own proprietary technologies, commoditization of technologies tends to occur. This phenomenon, widely commonplace in white goods industry, is now evident in electronics and other industries as well. Commoditization as a phenomenon supports a wide base for followers, and works to the advantage of consumers.

Posted by Dr CB Rao on May 03, 2015     

Technological Behaviour in Retrospect: Near Perfect but Never Perfect?

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Acknowledgements

This is my 300^th post in my Blog “Strategy Musings” which is dedicated to my essays on various aspects of strategy and policy. I am grateful to my revered God Almighty,  Sri Venkateswara Swami Varu for gifting me the capability to think and express myself as creatively and as consistently as possible in pursuance of my passion for sustainable growth with equity.

This blog post on technology is dedicated to the extraordinary scientists and technologists whose innovative, experimental and practical capabilities transform human life.

CB Rao

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Consumer facing industries sparkle with a continuous flow of new products, to retain consumer loyalty. The mobile phone industry is a witness to such a continuous product flow. More manufacturers are in fray with more products than ever in the marketplace. More importantly, industry level competition is commoditizing technologies as never before forcing innovative firms to keep coming up with innovative breakthroughs periodically. In one sense, all major manufacturers tend to be pioneers, viewed of course in a liberal thought perspective, even if they are followers of an innovation introduced by someone else. By offering incremental value even on known formats, a pioneering development can be accomplished. The smartphone industry offers an excellent canvas to study and test several of the concepts. This blog post will focus on the behaviour of technology in the hands of firms, called technological behaviour, for the purposes of this paper.

Developing large screen phones has been a Samsung innovation (Galaxy series) but soon LG developed similar phones with a few pioneering features, including the thinnest bezel structure (G3). Apple followed with a pioneering departure from its small screen format but bringing its famous all glass structure for its large screen phones (iPhone 6 and 6 Plus). Sony brought in a different concept of dust and water resistance (Z series). Samsung developed an even larger and stylus based Note phone series and stayed on as a pioneer for a long time in that segment. It improved the Note by bringing for the first time an edge display (Note 4 Edge). Again, it has improved the edge concept further with a dual edge concept that has just been introduced through the mainline Galaxy series (S6 and S6 Edge). In the camera department again, innovations in pixel density, image stabilization and low-light imaging continue to take place (various models).   

      

Technological behaviour    

Like different human beings are considered to behave differently based on individual differences in genetic dispositions, family upbringing and institutional environment, technology can also be interpreted to exhibit its own distinctive behaviour based on the fundamental foundations of innovation of a firm and the way technological innovation is nurtured by successive generations of a firm’s leadership, in an overall competitive industry landscape. For example, Sony has its fundamental roots in the depth of its electronics technology.  It is this capability that still vests in Sony a leadership position in consumer and industrial electronics despite the buffeting of business strategies by own lags as well as competitor leads. This is evidenced by continuing innovations in Playstation, camera sensors, robotics, and in special design elements of its products and robotics. Bose is another example of how the fundamental foundations of acoustic purity have consistently driven new product developments.

Technological behaviour can be defined in terms of hardware specifications, operating system, experiential novelty, market timeliness and user affordability as a holistic paradigm. Hardware specifications define the core performance of a product while the operating system (OS) defines the ultimate product performance. The OS not only integrates the hardware of a product but also integrates the product, user and the environment in a unique way. Experiential novelty defines how the product delivers an experience in a fashion that is hitherto unexperienced. Market timeliness occurs when a product is introduced in such a way that it leads to a transformation in how the activities are performed. Finally, user affordability reflects the ultimate relevance of the product to generate value for the user in return to the price paid. It also means to the firm the returns provided by the product for all the costs and expenses incurred by the firm in developing, manufacturing and delivering the product to the customer.

Never perfect

As with everything, product perfection is the ultimate goal of a competitive firm. This, in turn, requires perfect technological behaviour. Unfortunately, however, neither product perfection nor its driver, the perfect technological behaviour, are rarely achieved in an optimal fashion in the first occurrence, even for a virtuous firm. Reverting to the smartphone example, Apple despite its design and OS elegance could not master the large screen approach of Samsung or the high pixel and image stabilization camera technologies of Nokia. Similarly, Samsung could not go beyond the plastic body technology and could introduce a superior body only in the most recent sixth iteration of its Galaxy series. Despite its being a consistent follower, rather than a leader ever, LG scored its own victories with the thinnest bezel design ever (G3) and curved phones (Flex). Even the visible and successful accomplishments of competitors do not seem to alter the technological behaviour of firms beyond a point.

Even though Apple recognized the inevitability of larger screen phones and introduced iPhone 6 and iPhone 6 Plus, the firm failed to develop and offer the superior bezel technology of LG, higher camera technology of Nokia or unique dust and water resistance of Sony even in the latest product offerings. There exist two interpretations for this apparent lacuna. The first is that firms find it difficult to acknowledge and appreciate the superior behaviour of competitors, and consequently delay a responsive behaviour as long as possible. The second is that certain firms, foundationally, tend to be prone only to certain technological behaviours. The examples cited above illustrate the twin features of technological behaviour that makes products stay less than perfect, even at the hands of big firms. Even when perfect technological behaviour could be well within reach from a pure technology point of view, certain managerial aspects of technological behaviour relating to timeliness and affordability may influence a less than perfect approach.

Near perfect

The firm’s own fundamental technological propensities and its leadership’s own strategic dispositions influence the technological behaviour, and therefore cause the product attributes of their firms to be less than perfect. One may wonder that if perfection is impossible even for a Sony or Apple, what would be the chance for smaller firms. Perfection is not a function of scale; it is a behavioural mind-set. Big or small firms can certainly achieve at least a state of near perfection. Near perfection is achieved when a firm seeks near perfection on each of the five dimensions of hardware, software, novelty, timeliness and affordability discussed earlier. It would not suffice to be a leader on some and laggards on others. Interestingly, near perfection in technological behaviour turns out to be a conflict, if not clash, between the technology leadership and management leadership that a firm desires to have. Technology leadership drives the hardware, software and novelty components while management leadership drives the timeliness and affordability components.

In one important sense, technology and management leadership components should have a balance for a firm to achieve near perfection. The balance would be unique to each firm. The balance would be within the respective technological and management components as well; for example between hardware excellence and software perfection or between both of these together on one hand and novelty on the other. Similarly, a balance would need to be struck between timeliness to the market and affordability to the user. This brings us to the second principle of near perfection, that a fine balance within all the five components is essential. Integrating the discussion so far, it is clear that near perfection does not happen by accident; it happens by achieving near perfection on each of the five dimensions on one hand and striking a fine balance among the technology and management components, intra and inter.

Retrospectively prospective

Firms in the business of technology intensive products have a challenge. While planning technological innovation and product development, current plans and execution for the future would look appropriate, in some cases more than appropriate. Yet, once the competitive landscape is played out fully, the deficiencies become patent. It would appear that in retrospect technological behaviour of firms is found to be never perfect. This inherent feature of technological behaviour of firms is contrarian to the need to develop technologically and commercially competitive products of perfection. This deficiency seems to hurt even technologically and commercially giant-scale firms. This blog post proposes a simple prescription. The prescription requires the firms to modify their technical behaviour in an insightful manner to be able to review future products in retrospect even while staying at the current point of time so that the final product development is future-perfect!

Firms must, prior to launching the development of any product, imagine and conceptualize the competitive landscape at the time of actual product launch. Appropriate technical behaviour would eschew firm-specific biases and habits; instead, a genuine effort would be made to understand the limits to which each component of the firm’s technical behaviour can be stretched. It would also be necessary to assess the capabilities of the firm and its competitors to incorporate the perfect or near-perfect dimensions in product development. Once this analysis is completed, the product specifications would need to be frozen. That would not be the end of the exercise. The real test for the firm would be in terms of taking a leap into the prospective future and assess the planned product profile in retrospect, and evaluate its status on the perfection scale. The more a technology and product is planned in a prospective future but evaluated in a virtual retrospect from the intended date of launch, and further improvements effected, the more effective would be the journey of perfection!

Posted by Dr CB Rao on March 30, 2015  

From Being Different to Becoming Differentiated: A Cumulative and Aggregative Technological Model for Smart Differentiation

A popular view is that in an industry, there tend to be only a few leaders and several followers. Another view is that a typical industry structure comprises one pioneer, a few innovators and several followers. A more refined view is that a typical industry structure is better defined by a pioneering innovator, a few incremental innovators and several followers. In emerging markets such as India where barriers to entry are low and barriers to innovation are high, and where technologies are imported and replicated, the typical industry structure is fragmented with several look-alike players. Yet, industries in emerging markets are characterized by intense competition with look-alike products or services trying to be similar and different simultaneously. Some industries in India such as consumer goods and pharmaceuticals are archetypes of industries where look-alikes wage a no-holds barred war to be different.

   

The unique nature of industrial development in India (probably even in China and other Asian markets) which promotes small and medium enterprises facilitates regional development of local enterprises which clone a few national companies. The emphasis is on being different in terms of branding and packaging or in terms of marketing and promotion. Multiple brands with little to claim by way of differences in product characteristics compete to be different. In most cases, the channel becomes an enabler while packaging, promotion and pricing become differentiators; the core product or service has little to differentiate itself. Even highly technology driven products find it difficult to remain differentiated as technology and manufacture become commoditized. The smart phone industry which was a technology flagship is a classic example. This blog post proposes that an approach that accumulates and aggregates technological developments in terms of five smart differentiation principles is the key to sustainable differentiation.

Defining differentiation

Differentiation is not merely being different. When every smart phone has a rectangular profile, the beleaguered BlackBerry has come up with a square design. It is different certainly but is not seen to be offering a new benefit that could make it a popular smart phone. Samsung’s Note 4 has an edge design to bring differentiation to the ageing phablet line-up and so does LG curved smart phone. These are different designs certainly but are seen to be complex to operate. The rotary Wankel engine brought a revolutionary engine to automobile design but had little to offer as a differentiater to the customer. In contrast, the phablet, although in one sense a large scale small phone or a down-sized tablet, became a differentiated product. Extending 2 wheel drive to 4 wheel drive has become a differentiating factor for rugged all-terrain SUVs.  

Differentiation arises primarily from a unique combination of innovative product design and superior functional utility.  It can arise also from superior customer service which often emerges from deployment of unique technologies. In some cases, companies get associated with certain industry leading characteristics that extend beyond products. Good examples are Apple getting associated with product elegance, Toyota with product quality, Shinkansen (Japanese Bullet Train) with timeliness, L&T with construction quality, Tatas with ethical business, and Harvard with management education, for example.   All of these position the product or the company in a differentiated manner in the eyes of the consumer, evoking trust and confidence. Differentiation leads to respectful recall of a product or service by the customers at one level and expectant anticipation of a new differentiated product or service at another level.

Cumulative and aggregating  

Differentiation is rarely a one-time occurrence. Like learning, differentiation is a cumulative experience. Continuous differentiation alone can place a firm or a product line as truly differentiated. The challenge here is one of ensuring a raising bar of differentiation, and leveraging design, manufacture and marketing to raise above the raising bar through successive product introductions. One of the most striking examples of such differentiation has occurred in the field of medical imaging and radio/laser therapy domains, with successive developments achieving sharper imaging and more precise surgery respectively. Incessant march of technology is the principal support for continuous differentiation. This includes a clear understanding of the deficiencies of current technologies and development of gap-filling technologies.

Like learning, differentiation is a judicious combination of specialization and diversification. A door locking mechanism can become more specialized in terms of mechanical sturdiness, key grooving complexity and multiple turn locks. A door locking mechanism can also be made different through number locking or biometric locking (finger print or iris). By combining the features of all of the four approaches, however, a truly differentiated locking mechanism can be developed. The success of the lock maker as a differentiated lock maker would thus depend on specializing in the core locking technologies and integrating diversified locking technologies. The same has been true for watch making too. Mechanical capabilities are integrated with a range of digital technologies, including GPS technologies. The next frontier in watch making is opening up with integration of cellular and medical technologies.  Differentiation is a resultant of cumulative and aggregating technologies.

Smart differentiation

Differentiation would appear to pose challenges of a highly investment-intensive and design-specific technological process. Firms believe that huge upscale investments in R&D would be required to be a differentiated firm. As a result, many firms would choose to be fast followers or licensors rather than pioneering differentiators. The reality, however, is that differentiation is as much a function of smart use of technology as it is of intense development of technology. There are certain principles of smart differentiation which can help firms become and stay differentiated even with reasonable investments in technology. Observation, Sensing, Imagination, Learning and Timing (OSILT) are the key to smart differentiation.  The following five principles of the OSILT model of differentiation illustrate.

Observe a future

One of the fundamental drivers of smart phones has been the camera technology. Integration of camera functionality of increasing sophistication with higher megapixels and photo editing software has differentiated successive generations of smart phones. However, until recently all makers gave increasingly superior technology (up to 20 megapixels level) to rear cameras and allowed the front cameras to languish at a 2 megapixel level. Clearly, the established notion that cameras are only to take pictures of others has been so deep-rooted that even the most innovative smart phone makers perpetuated the past despite the hugely increasing popularity of selfies for the last few years. It is only now that a few makers are providing an equally capable front camera in smart phones. The lesson is that the key to differentiation could be so obvious that it escapes attention. Smart observation can help utilize available technologies to achieve substantial differentiation.

Sense a future

Sensor technologies are emerging to be game changers as computer chips have been. Virtually any product can be refined or re-engineered with sensor technologies. Some of the earliest applications have been on the shop floor with sensor driven line logistics.  Today, driver-less cars are a practical reality due to sensor technologies (coupled with imaging, navigation and telecommunication technologies). Biological sensors would be the next frontier in sensory technologies helping the individuals and healthcare sector provide proactive and effective healthcare delivery.

Imagine a future

Differentiating individuals or entities are good in imagination. They constantly imagine how life can be made better. Magnification technologies have revolutionized surgeries. Cellular labeling could provide even greater precision in future. The emerging use of drones for a number of applications is a practical example of how imagination provides new differentiated solutions.  One may imagine how a Bed and Pillow Combination (BPC) could move from being just a sleep aid to being a health monitor and wellness provider. Given that sleep of 6 to 8 hours, on an average, is the typical daily routine of an individual it is easy to imagine that BPC has a much better potential to provide wellness than an annual medical check-up!

Learn a future

Future is built by individuals who learn constantly. Learning comes from a host of inputs. A designer who is entrusted with differentiation, however, has a special responsibility. While books of science and engineering, design laboratories, simulators and testing arenas are all essential for the designers to learn and develop, the greatest learning comes from the practical behavior of current products in the field. The linkage between the designer and user has to be set in the real time world rather than through observations and analysis of market researchers. In differentiated companies, individuals of all departments, including the CEO, learn from the marketplace on a continuous basis.

Time a future

There are two views on innovation-led differentiation. One is that an innovation would be off mark if it is commercialized ahead of market preparedness. The other is that prompt introduction of innovations creates its own markets. If any or all of the above four methods of are utilized to develop a differentiated product or service, it would be an injustice to socio-economic development to hold back on such differentiation. That said, certain geo-political or socio-economic considerations dictate or influence the timeliness of innovations. Given India’s developmental aspirations, innovation and differentiation that support development of smart cities, good governance and Make in India would be timely for a new future for India.  

OSILT as a design faculty

Competitiveness of a business accrues from superior faculties. Adoption of methods of sharp observation, sophisticated sensing mechanisms, imagining the use of ordinary to deliver extraordinary, learning from the past as well as the present and timing the innovations ought to be developed as a core faculty for designers. This would imbue them with the ability to make products or delivers services that are not merely different but more importantly truly differentiated. Development of such an OSILT faculty needs to be a strong cultural facet of differentiated organizations.  

Posted by Dr CB Rao on December 25, 2014           

  

  

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

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