Overview

Technology
The body of scientific knowledge used in the production of goods or services

High-tech industries
Those in which the underlying scientific knowledge that companies in the industry use is advancing rapidly, and by implication so are the attributes of the products and services that result from its application
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The Importance of High-Tech

Technology is accounting for an ever larger share of economic activity Many low-tech industries are becoming more high tech High-tech products are making their way into a wide range of businesses Even in industries not thought of as high tech, technology is changing aspects of the product or production system
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Technical Standards and Format Wars

Technical standards
A set of technical specifications that producers adhere to when making the product or a component of it

Format wars
Battles to set and control technical standards

The source of product differentiation is based on the technical standard

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Technical Standards for Personal Computers

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Benefits of Standards
Helps to guarantee compatibility Can help to reduce confusion Can help to reduce production costs Can help to reduce the risks associated with supplying complementary products

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Establishments of Standards
Companies may lobby the government to mandate an industry standard Technical standards are often set by cooperation among businesses
Public domain

Standard is often selected competitively by market demand

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Network Effects and Positive Feedback

Network effects
The size of the network of complementary products is a primary determinant of demand for an industrys products

Positive feedback
Reinforcing network effects to encourage adoption of a standard

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Lockout and Switching Costs

Lockout
Occurs when the market settles on a standard and companies promoting alternate standards are no longer able to compete

Switching costs
The costs consumers must bear to switch from a product based on one standard to a product based on another

If consumers are unwilling to bear switching costs, a company will be locked out
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Strategies for Winning a Format War

Ensure a supply of complements Leverage killer applications
New technology or products that are so compelling that customers adopt them in droves, killing demand for competing formats

Aggressively price and market

Razor and blade strategy: pricing the product low to increase the installed base, then pricing complements high to make profits

Cooperate with competitors License the format

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Managing Intellectual Property Rights

Intellectual property rights
The product of any intellectual and creative effort Patents, copyrights, and trademarks give individuals and companies incentives to engage in the expense and risk of creating new intellectual property

Digitalization and piracy rates

Scale of the problem is very large Legal and technological solutions are required
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Managing Intellectual Property Rights (contd)

Strategies for managing digital rights
Recognize that low costs of copying and distributing digital media can be used to the companys advantage Take advantage of low costs of copying and distribution to drive down costs of purchasing media (coupled with encryption software)

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Technological Paradigm Shifts

When new technologies emerge that
Revolutionize the structure of the industry Dramatically alter the nature of competition Require companies to adopt new strategies to survive

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Paradigm Shifts and the Decline of Established Companies

Paradigm shifts are more likely to occur when
The established technology in the industry is mature and approaching its natural limit A new disruptive technology has entered the marketplace and is taking root in niches that are poorly served by incumbent companies using established technology

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The Technology S-Curve

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Established and Successor Technologies

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Disruptive Technology
A new technology that gets its start from the mainstream of a market and then, as its functionality improves over time, invades the main market Revolutionizes the industry structure and competition, often causing the decline of established companies because they listen to customers who say they do not want it Causes a technological paradigm shift
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Strategic Implications of Paradigm Shifts for Established Companies

Having access to knowledge about how disruptive technologies can revolutionize markets is valuable It is important to invest in newly emerging technologies that may become disruptive Commercialization of disruptive technology may require a different value chain with a different cost structure
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Strategic Implications of Paradigm Shifts for New Entrants

May be constrained by lack of capital May have to manage the organizational problems associated with rapid growth May need to find a way to take the technology from a small niche into the mass market May need to decide whether to go it alone or partner with an established company

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