STRATEGY IN HIGHTECH IND

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STRATEGY IN HIGH-TECH IND

• DR. MARK FRUIN
• BUS 189
• SPRING 2007

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WHAT ARE HIGH-TECH IND?

• TEXT INDUSTRIES IN WHICH UNDERLYING TECHNOLOGIES
  (SCIENTIFIC KNOWLEDGE) ADVANCE RAPIDLY
• HIGH GROWTH HIGH TECH? (TEXT)
• OR, MY DEFINITION OF HIGH TECH
• HIGH COST
• HIGH RISK
• HIGH GROWTH
• HIGH COMPLEXITY

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WHAT MAKES AN INDUSTRY HIGH-TECH

• BESIDES FACTORS JUST LISTED, INTERNAL TO THE
  INDUSTRY, THERE IS THE EXTERNAL ENVIRONMENT
• NORMALLY, FIRMS ADAPT TO ENVIRON OR FAIL, BUT IS
  ADAPTING TO H-T ENV ENOUGH?
• RICHARD DAVANI HYPERCOMPETITION, A STATE OF
  PERMANENT INNOVATION (NO EQUILIBRIUM, NO REST)
• GARY HAMEL STRATEGY AS REVOLUTION
• ANNALEE SAXENIAN - A REGIONAL RELATIONAL NETWORK
  OF CAPABILITIES

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IMPORTANCE OF STANDARDS DOMINANT DESIGN

• TECH STANDARDS, WIDELY ADOPTED FORMATS,
  DOMINANT DESIGNS
• REDUCE CONFUSION
• REDUCE COSTS
• REDUCE RISK
• ENHANCE COMPATIBILITY AND ADVENT OF COMPLEMENTARY
  ASSETS/RESOURCES/PROD
• INCREASE OPPORTUNITIES TO MAKE MONEY

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TECH STANDARDS FOR PCs

• P. 232 FIRGURE 7.1
• EXAMPLES OF DOMINANT DESIGN
• OS
• MICROPROCESSOR
• INTERNAL HARD DRIVE
• MONITOR
• KEYBOARD
• MODEM
• CD (FLOPPY DISK)
• PERIPHERAL SLOTS

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COMMUNITIES OF PRACTICE

• CREATE THEIR OWN ACTIVITIES/ ECONOMIES THAT
  ARE NOT WIDELY AVAILABLE OTHERWISE
• BOUNDARY SPANNING IN THIS SENSE IS OPPORTUNITY
  ENHANCING
• RELATIONAL PATTERNS DEFINED BY ACTOR SETS

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MUCH OF THE WORKING OUT OF D.D./STANDARDS

• IS DONE COOPERATIVELY
• SMALL NUMBERS COOPERATION
• STRATEGIC ALLIANCES
• JOINT VENTURES
• COALITIONS SUPPLY CHAINS
• LARGE NUMBERS COOPERATION
• SPECIAL ECONOMIC ZONES/INDUST. DISTRICTS
• GLOBAL FIRMS NETWORKS OF SUBSIDIARIES
• INTERFIRM NETWORKS

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ESTABLISHING STANDARDS

• RECOGNIZING BENEFITS OF STANDARDS, FIRMS IN
  INDUSTRY LOBBY GOV
• RECOGNIZING BENEFITS, FIRMS COOP WITHOUT GOV
  HELP, OFTEN THROUGH MECHANISMS OF INDUSTRY ASSOC.
• COMBO OF PUBLIC/PRIVATE EFFORTS
• INDUSTRY STANDARDS EMERGE SELECTIVELY PRIVATELY
• PREEMPT COMPETITION
• FIRST MOVER ADVANTAGES
• COALITIONS OF RIVAL FIRMS/STNDRDS
• BETAMAX (SONY) V. VHS (MATSUSHITA)/INTEL V. AMD

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NETWORK EFFECTS

• INCREASING AND DECREASING BENEFITS ARE POSSIBLE
  BASED ON NETWORK EFFECTS
• SIZE IS IMPORTANT
• COMPLEMENTARY PRODUCTS ARE IMPORTANT
• HOW MANY DIFFERENT WAYS CAN NETWORK BE ACCESSED
  USED?
• FREE RIDING

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NETWORK EFFECTS

• WHAT ARE THEY?
• 2ND LAW OF SILICON VALLEY
• BOB METCALFE, 3COM
• AND 1ST LAW IS? MOORES LAW
• EXTERNALITIES AND NETWORK EFFECTS - WHAT ARE THEY?

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METCALFES LAW

• COST OF A NETWORK EXPAND LINEARLY WITH INCREASE
  IN SIZE, WHILE VALUE OF NETWORK INCREASES
  EXPONENTIALLY

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STRATEGIES FOR WINNING FORMAT WARS

• ENSURE SUPPLY OF COMPONENTS
• LEVERAGE KILLER APPS
• AGGRESSIVELY PRICE AND CAPTURE MARKET SHARE
• RAZOR BLADE STRATEGY
• COOPERATE WITH COMPETITORS (IMMED. PRIOR TO
  MATURE PHASE)
• LICENSE FORMAT

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LAW OF DIMINISHING RETURNS

• IN MANY INDUSTRIES, OTHER THAN HIGH-TECH, LAW OF
  DIMINISHING RETURNS HOLDS
• MARGINAL COSTS RISE AS OUPUT EXPANDS
• MORE LABOR INVEST TO PRODUCE MORE
• TRADITIONAL ECONOMIES OF SCALE SCOPE
• H-T INDUSTRIES, SUCH AS SOFTWARE AND MULTIMEDIA,
  MARGINAL COSTS ARE ESSENTIALLY ZERO

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INTELLECTUAL PROPERTY RIGHTS AND HIGH-TECH

• RECOGNIZE DIFFERENCE BETWEEN BIO-TECH AND
  SOFTWARE, FOR EXAMPLE
• R D INVESTMENT/HUMAN RISK
• APPROPRIABILITY OF VALUE
• MARKET CONTESTABILITY
• THE VALUE OF ONE IS NOT DIMINISHED BY USE, QUITE
  THE CONTRARY
• OLD NOTION OF COMMONS, NEW NOTION OF COMMONS
• COMPLEXITY COMPLEMENTARITY OF KNOWLEDGE

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FIRST-MOVER ADVANTAGES

• FIRST MOVER MORE EASILY EXPLOIT NETWORK EFFECTS
  (SPEED OF FADS)
• MAY BE ABLE TO ESTABLISH BRAND LOYALITY BEFORE
  RIVALS APPEAR
• MAY BE ABLE TO HARNESS 4Ss BEFORE RIVALS WHEN
  RIVALS APPEAR, CUT PRICES TO REFLECT 4S
  ADVANTAGES HELD
• CREATE SWITCHING COSTS
• ACCUMULATE VALUABLE MARKET, CUSTOMER, PROD
  PROCESS KNOWLEDGE

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FIRST MOVER DISADVANTAGES

• FAST FOLLOWER STRATEGIES MAY BE SUPERIOR TO FIRST
  MOVER STRATEGIES
• LEARN FROM MISTAKES OF OTHERS
• INVEST LESS DO MORE
• CROSS CHASM ON BACKS OF OTHERS
• ECONOMIC BACKWARDNESS IN HISTORICAL PERSPECTIVE
• ALEXANDER GERSCHENKRON
• BUT CATCH-UP REQUIRES MORE BETTER PLANNING

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CAPTURING FIRST MOVER ADVANTAGES

• BUILD HIGH BARRIERS TO IMITATION
• KNOWLEDGE ABOUT MINOR/MAJOR NEW INNOVATION HARD
  TO KEEP SECRET ALTHO
• KNOWLEDGE ABOUT KNOWLEDGE OF, NOT THE SAME
  THING
• DEVELOP COMPLEMENTARY ASSETS
• MANUFACTURING CAPABILITY, MKTNG KNOWLEDGE,
  ADEQUATE SALES FORCE, SUPPORT
• HARNESS CAPABLE COMPETITORS
• A SMALL PIECE OF A BIG PIE IS BETTER THAN

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INNOVATION STRATEGIES

• GOING IT ALONE
• ENTERING INTO AN ALLIANCE
• LICENSING INNOVATION
• ALL 3 DEPEND ON
• INNOVATOR HAVING REQUIRED COMPLEMENTARY ASSETS?
• HEIGHT OF BARRIERS TO IMITATION
• OF CAPABLE COMPETITORS

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INNOVATION TYPES

• INCREMENTAL - MOST OF IT
• RADICAL - ONCE IN A BLUE MOON
• SOMETIMES CALLED BREAKTHROUGH INNOVATION
• BY DEFINITION, REQUIRES LOTS OF RESOURCES
• DISCONTINUOUS - OCCASIONALLY IN HIGH-TECH-LIKE
  INDUSTRIES WHERE COMPETING TECHNOLOGY PARADIGMS
  DOMINANT DESIGNS

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CHRISTENSEN DISRUPTIVE TECHNOLOGY

• CLAY CHRISTENSEN, HBS, ARGUES THAT ESTABLISHED
  FIRMS ARE OFTEN AWARE OF NEW TECH BUT TOO
  INVESTED IN OLD TECH TO PAY HEED TO IT
• PARTLY NIH SYNDROME
• PARTLY LACK OF CUSTOMER INTEREST IN NEW,
  UNPROVEN, EMERGING TECH
• AS A RESULT, ESTAB FIRMS CONT TO IMPROVE INVEST
  IN OLD TECH UNTIL ONE DAY

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DISRUPTIVE TECHNOLOGY

• OFTEN TAKES A RADICALLY DIFFERENT VALUE CHAIN TO
  COMMERCIALIZE
• SMALL FIRMS WITH ENTREPRENEURIAL MANAGERS ARE
  MORE RISK TAKING
• IN GENERAL, H-T SMALL COS ARE ESTABL TO TAKE
  RISKS
• BIG FIRMS BUY SMALL FIRMS BECAUSE THEY ARE
  INNOVATIVE TO REDUCE COMPETITION

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DIGITAL EQUIPMENT CORP

• DEC ENGINEERS COULD DESIGN A PC WITH EYES CLOSED
• PLANS FOR PCs at FOUR DIFFERENT TIMES
• BUSINESS MODEL WAS MINICOMPUTERS WITH LARGE SCALE
  COMPUTING POWER, LARGE SALES FORCE, AND IN-FIELD
  SUPPORT FOR CUSTOMERS
• WHY ABANDON SALES OF HIGH MARGIN, HIGH PRICED
  COMPUTERS IN FAVOR OF PCs?

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DEC AND DISRUPTIVE TECHNOLOGY

• DEC WAS VULNERABLE TO DISRUPTIVE TECHNOLOGY
• RIVALS SEE DIFFERENT SEGMENTS THAT ARE
  UNDERSERVED IN THE SAME INDUSTRY
• DISRUPTIVE DOES NOT ALWAYS MEAN RADICAL
• DISRUPTIVE MEANS PICKING OFF THE LEAST ATTRACTIVE
  SEGMENTS OF A BUSINESS AND RUNNING WITH THEM

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OTHER EXAMPLES

• TOYOTA AND CREW MAX
• APPLE AND iPHONE
• HONDAJET

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SOURCES OF INNOVATION

• INNOVATION ARISES THROUGH INTERACTIONS
• INNOVATIONS ARE OFTEN STIMULATED WHEN
  INTERACTIONS OCCUR BETWEEN HETEROGENEOUS ACTORS
• EFFORTS TO CLARIFY, ALIGN, RE-ALIGN, INTEGRATE,
  CALIBRATE RESULT IN INNOVATIONS

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CAUSES CONSEQUENCES OF INNOVATION

• IN WHAT SORT OF ORGANIZATIONAL AND INSTITUTIONAL
  CIRCUMSTANCES ARE INNOVATIONS LIKELY TO OCCUR
• ATTITUDES OF MANAGERS TOWARDS DIFFERENT SORTS OF
  INNOVATION
• WHAT SORT OF FIRMS, IF ANY, SHOULD PURSUE
  INNOVATION-BASED STRATEGIES AS B-L STRATEGIES?
• SUCH AND SUCH FIRMS AT SUCH AND SUCH MOMENTS IN
  THE INDUSTRY LIFE CYCLE