Part Two

Formulating Technological Innovation Strategy

Assessing the firms position and defining its strategic direction, Choosing innovation projects in which to invest, including both quantitative and qualitative valuation techniques, Deciding whether and how the firm will collaborate on development activities, choosing a collaboration mode, and choosing and monitoring partners, Crafting a strategy for protecting or diffusing a technological innovation through such methods as patents, trademarks, copyrights, and trade secrets.
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.

Chapter

Chapter 6

Defining the Organizations Strategic Direction

McGraw-Hill/Irwin

2005 The McGraw-Hill Companies, Inc. All rights reserved.

Redefining Handspring Are Smart Phones a Smart Move?

In 2001, Handspring was second only to Palm Computer in worldwide market share of the PDA market. However price wars had shrunk margins and Handspring had yet to turn a profit. Handspring decided to discontinue development of its line of PDAs and focus all of its effort on developing a smartphone the Treo. Handspring sold 250,000 Treos by the end of 2002, but this was a small number compared to the 1 million PDAs it had sold its first year.

Redefining Handspring Are Smart Phones a Smart Move?

Discussion Questions: 1. How does Handsprings move into smart phones change the nature of the external threats and opportunities that Handspring faces? 2. What new resources and capabilities will Handspring have to develop to be successful in the smart phone market? 3. Why do you think Handspring chose to discontinue the Visor line when it moved to smart phones, rather than supporting both product lines? 4. Was Handsprings move to smart phones too early? Too ambitious?

Overview
A coherent technological innovation strategy leverages the firms existing competitive position and provides direction for future development of the firm. Formulating this strategy requires:
Appraising the firms environment, Appraising the firms strengths, weaknesses, competitive advantages, and core competencies, Articulating an ambitious strategic intent.

Assessing the Firms Current Position

External Analysis Two common methods are Porters Five-Force Model and Stakeholder Analysis. Porters Five-Force Model
1. Degree of existing rivalry. Determined by number of firms, relative size, degree of differentiation between firms, demand conditions, exit barriers. 2. Threat of potential entrants. Determined by attractiveness of industry, height of entry barriers (e.g., start-up costs, brand loyalty, regulation, etc.) 3. Bargaining power of suppliers. Determined by number of suppliers and their degree of differentiation, the portion of a firms inputs obtained from a particular supplier, the portion of a suppliers sales sold to a particular firm, switching costs, and potential for vertical integration.

Assessing the Firms Current Position

4. Bargaining power of buyers. Determined by number of buyers, the firms degree of differentiation, the portion of a firms inputs sold to a particular buyer, the portion of a buyers purchases bought from a particular firm, switching costs, and potential for vertical integration. 5. Threat of substitutes. Determined by number of potential substitutes, their closeness in function and relative price. 6. Recently Porter has acknowledged a sixth force: the role of complements. If complements are necessary, industry will be influenced by their availability, quality, and price.

Assessing the Firms Current Position

Five-Force Model

Assessing the Firms Current Position

Stakeholder Analysis
1. Who are the stakeholders. 2. What does each stakeholder want. 3. What resources do they contribute to the organization. 4. What claims are they likely to make on the organization.

Assessing the Firms Current Position

Internal Analysis
1. Identify the firms strengths and weaknesses. Helpful to consider each element of value chain.

Assessing the Firms Current Position

2. Assess which strengths have potential to be sustainable competitive advantage
Rare Valuable Durable Inimitable
Competitive Advantage Sustainable Competitive Advantage

Resources are difficult (or impossible) to imitate when they are:

Tacit Path dependent Socially complex Causally ambiguous

Identifying Core Competencies and Capabilities

Core Competencies: A set of integrated and harmonized abilities that distinguish the firm in the marketplace.
Competencies typically combine multiple kinds of abilities. Several core competencies may underlie a business unit. Several business units may draw from same competency. Core competencies should:
Be a significant source of competitive differentiation Cover a range of businesses Be hard for competitors to imitate

Identifying Core Competencies and Capabilities

Research Brief
Identifying the Firms Core Competencies Gallon, Stillman and Coates offer a step-by-step program for identifying core competencies.
Module 1 -- Assemble a steering committee, appoint a program manager, and communicate the overall goals of the project to all members of the firm. Module 2 -- Constructing an inventory of capabilities categorized by type. Assess their strength, importance, and criticality. Module 3 Organize capabilities by both their criticality and the current level of expertise within the firm for each. Module 4 Distill competencies into possible candidates for the firm to focus on. No options should be thrown out yet. Module 5 -- Testing the candidate core competencies against Prahalad and Hamel's original criteria. Module 6 -- Evaluate the firms position in the core competency.

Risk of Core Rigidities

When firms excel at an activity, they can become over committed to it and rigid.
Incentives and culture may reward current competencies while thwarting development of new competencies. Dynamic capabilities are competencies that enable the firm to quickly respond to change.
E.g., firm may develop a set of abilities that enable it to rapidly deploy new product development teams for a new opportunity; firm may develop competency in working with alliance partners to gain needed resources quickly.

Strategic Intent
Strategic Intent: A long-term goal that is ambitious, builds upon and stretches firms core competencies, and draws from all levels of the organization.
Typically looks 10-20 years ahead, establishes clear milestones Firm should identify resources and capabilities needed to close gap between strategic intent and current position.

Theory in Action
The Balanced Scorecard
Kaplan and Norton argue that effective performance measurement should incorporate: Financial perspective Customer perspective Internal perspective Innovation and learning

Discussion Questions
1. What is the difference between a strength, a competitive advantage, and a sustainable competitive advantage? 2. What makes an ability (or set of abilities) a core competency? 3. Why is it necessary to perform an external and internal analysis before the firm can identify its true core competencies? 4. Pick a company you are familiar with. Can you identify some of its core competencies? 5. How is the idea of strategic intent different from models of strategy that emphasize achieving a fit between the firms strategies and its current strengths, weaknesses, opportunities and threats (SWOT)? 6. Can a strategic intent be too ambitious?