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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 theattributes of the products and services that resultfrom its application

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The Importance of High-Tech

Technology is accounting for an ever largershare 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 productor 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 basedon the technical standard

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Technical Standards for PersonalComputers

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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 withsupplying complementary products

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Establishments of Standards

Companies may lobby the government tomandate an industry standard

Technical standards are often set bycooperation among businesses Public domain

Standard is often selected competitively bymarket 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 thatcustomers adopt them in droves, killing demand forcompeting formats

Aggressively price and market Razor and blade strategy: pricing the product low to

increase the installed base, then pricing complementshigh 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 inthe 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 purchasingmedia (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 ofEstablished 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 themarketplace and is taking root in niches that are

poorly served by incumbent companies usingestablished 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 themainstream of a market and then, as itsfunctionality improves over time, invades the

main market Revolutionizes the industry structure and

competition, often causing the decline ofestablished companies because they listen tocustomers who say they do not want it

Causes a technological paradigm shift

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Strategic Implications of ParadigmShifts for Established Companies

Having access to knowledge about howdisruptive technologies can revolutionizemarkets is valuable

It is important to invest in newly emergingtechnologies that may become disruptive

Commercialization of disruptive technologymay require a different value chain with adifferent cost structure

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Strategic Implications of ParadigmShifts 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