Technological

Environment
Strategic importance of technology
• The key relationship to consider is that
between technology and strategic
success
• Technology may not be a source of
competitive advantage – if competitors
exploit it too
• Rapid technological change can
challenge all competitors in a market
How technology can change a “business model”

What is a business model?

How a business organises its activities to generate income
(revenues) and incur costs
Examples of “business models” (1)
Facebook generates revenues from advertising, using
the platform of over 500 million users.
Examples of “business models” (2)
Low-cost airline generates revenues by selling direct to
consumers (avoiding intermediaries) with a high proportion of
bookings made online
Technological change provides an opportunity to
change business models
 Technology mechanisms
Technology How It Potentially Creates an Example
Mechanism Advantage
A new process Produce faster, at lower cost or Online video
better quality streaming
Solve a complex Do something competitors find Google search
problem hard to master engine
A new product The first product to market The iPad & iPhone
Protect a Have something others can only Pfizer’s Viagra
valuable idea sell if they pay for a licence
Rewrite the rules A completely new approach Smartphones
which makes other products and
markets redundant
 Technology and Porter’s Five Forces?
Force Examples of Potential Impact of Technology
Barriers to entry May reduce economies of scale – encouraging new
entrants (e.g. digital publishing)
In some case barriers may rise – as products become
more complex and processes difficult to copy
Substitutes New products may displace old – e.g. Online streaming
for DVD, which in turn replaced videotape
Technology in other markets may “steal” customer
spending from other markets – e.g. more spending on
smartphone apps may reduce spending on PC software
Power of customers Technology may free businesses from a single source of
(buyers) & suppliers supply – e.g. Cloud-based applications v Microsoft
Competitive rivalry Rivalry is diminished is technology is successfully
patented and licensed
 Opportunity or Threat?

• Some businesses may be technology

leaders – where technology enables
them to gain an advantage
• Most other businesses need to assess
the threat posed by technology on
their competitive position
Examples of technology as a threat
Examples of technology as a threat
Examples of technology as a threat
 Innovation and technology

• Developing new technology is usually

expensive
• The investment returns depend on the
extent and pace at which a market
adopts new products, or improved
versions of existing products
• This is known as innovation diffusion
 Supply-side factors affecting innovation
diffusion
Supply Factor Potential Effect on Technology
Degree of Does the technological change provide enough incentive for
improvement customers to change?

Compatibility Is the new technology compatible with existing products?; Are

older products likely to become obsolete?

Complexity Does the product or the way it is marketed (e.g. pricing) make it
too complicated for the majority of customers to understand?

Experimentation Can customers test the new technology before committing to

buying it? What feedback is available from early-adopters?

Customer service How easy is it for potential customers to get answers to their
questions before committing to the new technology?

Adapted from Johnson & Scholes – Corporate Strategy

 Demand factors affecting innovation
diffusion
Demand Factor Potential Effect on Technology
Market How aware is the market of the new technology?
awareness What promotional activity is required in order for
customers and distributors to support the technology?
Observability What is the potential for a “band-wagon effect”?
How easy is it for customers and distributors to see the
technology in action and observe the benefits that is
brings?
Customers Which customers are likely to adopt the technology first?
What approach is most appropriate for a successful
launch of the innovation?
How are existing customers going to be supported in
transferring to the new technology?

Adapted from Johnson & Scholes – Corporate Strategy

What is a “tipping point”?

The point in time at

which some new
technology becomes
mainstream
 Tipping points

• With innovation diffusion, demands

tends not to increase steadily
• Often a slow process of adoption
• Then a tipping point – when demand
suddenly takes off (or declines!)
Tablets are past their tipping point?
Tipping point – the amazing growth of Apps
Developing or acquiring technology

Three main options

In-house
Alliances Acquisition
Development
 In-house development
• Favoured if technology is a key
competitive advantage
• Business may have experience of
achieving first-mover advantage
• Requires strong insights into technology
and market needs
• Business must also be willing to take
commercial and financial risks
Perhaps the best example of in-house
development
 Alliances
• Appropriate for technologies which are
important, but which do not confer
competitive advantage (e.g. packaging)
• Business may want to “follow & imitate”
rather than be a market innovator
• New technology may be well beyond
the skills and experience of the business
• Helps limit commercial and financial risk
• A good link with “outsourcing”
Technology alliance examples
Technology alliance examples
 Acquisition
• Often important if speed is important –
i.e. no time for learning
• May be essential if the technology is
complex or if it is providing competitors
with an advantage
• Acquisitions are high risk – have to be
sure that the right technology is being
bought
Technology acquisition - examples
Technology acquisition - examples
Technology acquisition - examples
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