Technology Strategy for Managers and Entrepreneurs

Technology Strategy for Managers and Entrepreneurs Scott Shane A Malalchi Mixon III Professor of Entrepreneurial Studies Case Western Reserve University Weatherhead School of Management HOCHSCHULE PEARSON Prentice Hall Upper Saddle River, NJ 07458

CONTENTS t CHAPTER 1 Introducdon 1 Technology Strategy: A Vignette 2 Introduction 3 What Is Technological Innovation? 4 Defining Technology 4 Defining Innovation 5 '*> Defining Technological Innovation 6 Why Technological Innovation Is Important 7 Getting Down to Business: Remembering Process Development 8 Why Technology Strategy? 9 Purpose of the Book 10 Approach to Technology Strategy 10 Technology Strategy in Start-ups and Large, Established Firms 11 A Preview of the Chapters 12 Understanding Technological Change 12 Coming Up with Innovations 13 Benefiting from Innovation 13 Formulating Technology Strategy 14 Discussion Questions 14 Key Terms 14 Notes 15 SECTION A: "UNDERSTANDING TECHNOLOGICAL CHANGE 16 8 i CHAPTER 2 Technology Evolution 16 Technology Evolution: A Vignette 17 Introduction 18 Evolutionary Patterns of Development 18 Radical and Incremental Technological Change 21 Technology S-Curves 22 Shifting S-Curves 23 Who Shifts the S-Curve? 25 Using S-Curves as a Management Tool 27 The Abernathy-Utterback Model 29 The Nature of Innovation and Competition 29 New Firm Performance 31 Number of Firms in the Industry 31 Limitations to the Model 32 Getting Down to Business: The History of Electric Vehicles 33 I ix

Modifications to the Abernathy-Utterback Model 34 Reverse Product Cycle Theory 34 Competence-Enhancing and Competence-Destroying Innovation 35 Architectural innovation 35 Disruptive Technology and Value Networks 37 Discussion Questions 41 Key Terms 41 Putting Ideas into Practice 41 Notes 42 CHAPTER 3 Technology Adoption and Diffusion 45 Technology Adoption and Diffusion: A Vignette 46 Introduction 47 Distribution of Adopters 47 ^* Groups of Adopters 49 S-Curves of Adopters 50 Crossing the Chasm 52 Identifying the Take-Off Stage 53 How to Cross the Chasm 53 Choosing the Customer 54 Beachhead Strategy 55 Market Dynamics 56 Forecasting Demand 56 Information Diffusion Models 57 How Not to Do It 58 The Bass Model 59 Getting Down to Business: Diffusion of MP3 Players 60 The Delphi Technique 61 Product Diffusion Models 62 The Importance of Complementary Technologies 63 Substitution 64 Discussion Questions 67 Key Terms 68 Putting Ideas into Practice 68 Notes 69 CHAPTER 4 Sources of Innovation 71 Technological Opportunities: A Vignette 72 Introduction 72 Sources of Opportunities 73 Technological Change 73 Political and Regulatory Change 76 Social and Demographic Change 77 Combination 78 Locus of Innovation 79 Research and Development 83 Types of R&D 83 Why Firms Invest in R&D 84 Costs of R&D 86 Linking Research and Development 87

Getting Down to Business: Investing to Create Opportunities 89 Forms of Innovation 89 Forms of Innovation and Technology Strategy 90 Industry and the Nature of Innovation 91 Discussion Questions 92 Key Terms 92 Putting Ideas into Practice 92 Notes 93 SECTION B: COMING UP WITH INNOVATIONS 96 CHAPTER 5 Selecting Innovation Projects 96 Real Options: A Vignette 97 Introduction 97 ^- Managing Uncertainty 98 Decision-Making Tools 100 Checklists 100 Analytical Hierarchy Process 101 Net Present Value 103 Internal Rate of Return 104 Real Options 106 Scenario Analysis 109 Decision Trees 109 Portfolio Management 111 Getting Down to Business: Medtronic's Use of Portfolio Management Tools 113 Discussion Questions 113 Key Terms 114 Putting Ideas into Practice 114 Notes 115 K CHAPTER 6 Customer Needs 117 Lead User Method: A Vignette 118 Introduction 119 Technology Push Versus Market Pull 119 Understanding Customer Needs 121 How to Identify Customer Needs 122 The Difficulty of Identifying Customer Needs 123 Significantly Better Benefits Than Existing Products 124 g Getting Down to Business: Going Over Like a Wet Tissue 125 ^ Meeting the Needs of Many Stakeholders 125 Solutions That Work 126 Developing Profitable Solutions 126 Pricing Products Correctly 128 Setting a Price 128 Market Segmentation 132 Market Research 134 Market Research Techniques 134 xi

Discussion Questions 141 Key Terms 141 Putting Ideas into Practice 142 Notes 142 CHAPTER 7 Product Development 144 Product Development: A Vignette 145 Introduction 146 Product Cycle Time 146 Concurrent Development 146 Modularity and Product Platforms 148 Product Platforms 151 Identifying the Right Product Features 153 ^ Conjoint Analysis 153 Kano Method 156 Perceptual Mapping 158 Concept Testing 158 Product Development Tools 159 Web-Based Tools 160 House of Quality 160 Prototyping 162 Getting Down to Business: Prototyping at IDEO 163 Stage Gates 163 Design for Manufacturing 164 Discussion Questions 165 Key Terms 165 Putting Ideas into Practice 166 Notes 167 SECTION C: BENEFITING FROM INNOVATION 170 CHAPTER 8 Patents 170 Patents: A Vignette 171 Introduction 172 Why You Need Intellectual Property Protection 172 What Is Patentable? 174 What Can Be Patented? 175 Novel, Nonobvious, and Useful 177 First to Invent 177 Nondisclosure 178 Getting Down to Business: Patenting a Snowman Accessory Kit 178 Expansion of What Is Patentable 179 Design and Plant Patents 180 The Parts of a Patent 180 Defining the Claims 182 Who Can Apply? 183 Using a Patent 184 Picket Fences and Brackets 1.84 xii

Patent Litigation 184 Patent Trolls 187 Should You Patent? 188 Advantages of Patenting 188 Disadvantages of Patenting 189 Effectiveness of Patents in Different Industries 191 Discussion Questions 192 Key Terms 193 Putting Ideas into Practice 193 Notes 193 CHAPTER 9 Trade Secrets, Trademarks, and Copyrights 196 Software Copyrights: A Vignette 197 Introduction 198. Secrecy 198 When Does Secrecy Work? 199 Trade Secrecy 200 Secrecy as a Strategy 201 Nondisclosure Agreements 203 Noncompete Agreements 204 Ownership of Intellectual Property 204 Getting Down to Business: Using Nondisclosure and Noncompete Agreements 206 Copyrights 207 What Can Be Copyrighted? 207 Who Gets a Copyright and How Do They Get It? 207 Enforcement Through Litigation 207 Recent Developments to Strengthen Copyrights 210 Software Copyrights 211 Trademarks 213 What Can Be Trademarked? 213 Obtaining a Trademark 214 Enforcing'a Trademark 215 Domain Names 216 International Issues in Intellectual Property 218 Differences in Intellectual Property Regimes 218 International Agreements on Intellectual Property 221 Discussion Questions 222 Key Terms 223 Putting Ideas into Practice 223 Notes 224 CHAPTER 10 Capturing Value from Innovation 226 Lead Time: A Vignette 117 Introduction 228 Appropriability Mechanisms 228 Controlling Key Resources 229 Establishing a Reputation 231 Obtaining Architectural Control 232 Exploiting Economies of Scale 232 xiii

Moving Up the Learning Curve 233 Exploiting a First Mover Advantage (Lead Time) 235 Teece's Model 239 Difficult to Imitate 240 Easy to Imitate, No Dominant Design 241 Easy to Imitate, Dominant Design 241 Getting Down to Business: Should You be an Innovator or an Imitator? 242 Discussion Questions 243 Key Terms 243 Putting Ideas into Practice 244 Notes 245 CHAPTER 11 Competitive Advantage in High-Tech Industries 248 Core Competence: A Vignette 249 Introduction 250 Industry Analysis 251 Five Forces Model 251 The Value Chain 253 Regimes of Creative Destruction and Creative Accumulation 254 A Resource-Based View 258 Resources and Capabilities 258 Core Competencies 261 Core Rigidities 262 Strategic Dissonance 262 Getting Down to Business: Microsoft and Netcentric Computing 264 Discussion Questions 265 Key Terms 265 Putting Ideas into Practice 266 Notes - 266 CHAPTER 12 Technical Standards 269 Technical Standards: A Vignette 270 Introduction 271 Technical Standards 272 The Development of Technical Standards and Dominant Designs 273 Not Always the Best Technology 274 Technical Standards and Customer Adoption 275 Standards Battles 276 How to Win a Standards Battle 276 What If You Lose? 279 Defending a Technology Standard 281 Technical Standards and Competition Between Systems 281 Open Versus Closed Standards 282 Getting Down to Business: The Story of Open-Source Software 284 Discussion Questions 285 Key Terms 285 Putting Ideas into Practice 285 Notes 286 xiv

CHAPTER 13 Strategy in Networked Industries 288 Network Effects: A Vignette 289 Introduction 290 Increasing Returns Businesses 291 Why Industries Display Increasing Returns 291 Types of Network Effects 293 Strategic Issues in Networked Industries 295 Getting Down to Business: Starting a New Company in a Networked Industry 297 Strategy for Increasing Returns 298 Start Large 298 Build a Large Installed Base Quickly 299 Get Customers to Ignore Lock In 302 Be a First Mover 303 Limitations to a Strategy Based on Increasing Returns 303 Discussion Questions 304 *' Key Terms 305 Putting Ideas into Practice 305 Notes 306 SECTION D: FORMULATING TECHNOLOGY STRATEGY 308 CHAPTER 14 Collaboration Strategies 308 Vertical Integration: A Vignette 309 Introduction 310 Contractual and Vertically Integrated Modes of Doing Business 310 Alliances, Licensing, Joint Ventures, Contract Manufacturing, and Outsourcing 313 Strategic Alliances 313 Joint Ventures 315 Licensing 317 Outsourcing and Contract Manufacturing 321 Getting Down to Business: Contract Manufacturing in the Medical Device and Equipment Industry 324 Work Alone or Collaborate 325 Making Contractual Arrangements Work 329 Designing Effective Contractual Arrangements 329 Contracting Between Large and Small Firms 329 Discussion Questions 330 Key Terms 331 Putting Ideas into Practice 331 Notes 332 CHAPTER 15 Strategic Human Resource Management of Technical Professionals 335 Strategic Human Resource Management: A Vignette 335 Introduction 337 Corporate Culture 337 xv

Managing People 339 Managing R&D Personnel 339 Managing Internal Communication 340 Social Networks and External Ties 341 Developing Incentives 342 Enhancing Creativity 344 Getting Down to Business: Consistent Innovation at 3M 346 Product Development Teams 346 Functional Versus Cross-Functional Teams 347 Matrix Structure and Multiple Project Management 348 Lightweight, Heavyweight, and Autonomous Teams 350 Virtual Teams 352 Discussion Questions 353 Key Terms 353 **" Putting Ideas into Practice 354 Notes 354 CHAPTER 16 Organization Structure for Technology Strategy 358 Corporate Venture Capital: A Vignette 359 Introduction 360 Basic Organization Structure 361 Centralization Versus Decentralization 361 Mechanistic Versus Organic Organization Structures 363 Getting Down to Business: Decentralizing R&D at GlaxoSmithKline 364 Efficiency and Slack Resources 365 Does Size Matter For Innovation? 366 Spin-off Companies 368 Sharing Rewards 368 Bargaining over Profits 369 Source of Value 370 Venture Capitalists, Business Angels, and Corporate Investors 371 Corporate Venturing 373 Benefits of Corporate Venturing 375 Drawbacks of Corporate Venturing 376 How Much Independence? 378 Acquisitions 381 Discussion Questions 383 Key Terms 383 Putting Ideas into Practice 383 Notes 384 Name Index 387 Subject Index 393 xvi