Technology & Strategy GEST-S-484

Pr Manuel Hensmans

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GROUP 1

Shirley Chojnacki

Laura Prevost

Louise Hermanus

Stephanie Previnaire

GROUP 2

Emilie Blondel

Thibault Olbrechts

Neda Sekkat

Christophe Querton

GROUP 3

Vincent Crochet

Chloe Pirard

Guillaume Wissocq

Beatriz Aldea Puyeo

GROUP 4

Yannick Oswald

Sandra Morales

Frederic Coget

Lauren Kleynjans

GROUP 5

Jean Pierre Adrien

Nathan Ubfal

Marine Rozet

Lena Guilbert

GROUP 6

Hanna Daoudy

Laura Barazzoni

Aude Pornel

Marc Jacobs

GROUP 7

Yavanna Valencia

Sylvain Rousseau

Louis Vercruysse

GROUP 8

Jorge Sanchez Bravo

Aline Evrard

Jonathan Kesteloot

Choose company/technological innovation

• By next class!

– First presentation: class 7

– Second presentation: class 12

– Case-study 8000 words by end of May

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Last week’s quiz

• Good level, apart from one very worrying result

• Only 6 out of 27 participants got the most important Q right!

– Which of the following statements about being a successful

innovator is most likely to be true?

• a. To innovate successfully, you should start out with only a vague

idea.

• b. Your thinking should not be structured so ideas can pop into your

head.

• c. You need clearly defined strategies and processes.

• d. You should have a completely open mind about how to proceed and

“go with the flow.”

• Answer is c; Most people had d

– Typical for engineering students: focus on technological innovation

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Business model often >> tech innovation

• What is Innovation? • the conversion of new knowledge about how to solve a problem into a

new product, process or service

AND

• the diffusion of this new product, process or service into actual use

» Fortune favours the prepared!

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Today

• Good strategy is more important in tech strategy

– Than in low-tech strategy

• Industry analysis

– 5 forces framework

• Example of airlines

– Difficulty in high-tech industry

• Example of biotech

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Good strategy is more important in tech!

Why did Nokia dump its mobile OS Symbian at the beginning

of 2011? • Symbian was world leader in market share!

– Android phones upcoming competitor

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« Tendency for that which is ahead to get farther ahead, for

that which loses advantage to lose further advantage”

Increasing returns

• Definition

– Not simply growth in returns, but growth in the rate of return

• For example

– if a company experiences 7 percent growth rate in its profits during

three consecutive years it experiences…

• constant returns

– a lower than 7 percent growth for 2011 implies…

• diminishing returns

– a higher growth rate compared to 7 percent in 2012 would mean

• increasing returns

• Caused by?

– Large up-front costs: know-how intensive

• Market instability versus traditional market equilibrium

• Small change can make big difference

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The turnaround of

• 1995 release of

– Wintel standard is flying

– Business Week, Feb ‘95

• Apple CEO Gil Amelio

– Reorganized group into four groups

– Added a new Internet Services group

– 1997: Apple two months from bankruptcy

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Steve Jobs returns

• What did he do?

– Shrunk Apple to a scale/scope suitable to niche player

– From 15 desktop models to one

– Back to one laptop

– Cut out all printers/peripherals

– Cut development engineers

– Cut software development

– Cut distributors

– Cut out five of the company’s six national retailers

– Cut out virtually all manufacturing -> offshore to Tawiwan

– Cut inventory by 80 percent

– Started Web store

– Focus on simplicity and elegance of design

– Waited for next opportunity for increasing returns!

• Convinced Microsoft to keep writing software compatible with Mac

• iMac, iTunes, iPod, iPhone, iPad….

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2nd part class: Industry analysis

• What is an “industry”? • Firms producing similar principal products/services

• 2 goals of industry analysis?

– Assess attractiveness industry structure

• Should we get in or out?

– Can we shape industry structure in our favour

• Once in, can we improve or not?

• Importance of business models in tech strategy

– Overcome weak industry structure

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Industry analysis: 5 forces framework

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Attractiveness industry structure

• How many stars?

– Soft-drinks, pharmaceutical: 5 star industry

– Airlines, hotels: 0 star industry

• Especially US airlines (but also EU!)

– Never a sustained return on investment!

• Long periods of loss-making

• Spurts of mediocre profitability

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Airlines industry: 5 forces

• Threat of entry – Low barriers of entry make for a constant stream of new entrants

– You can rent a plane, lease a gate, it’s all generic technologies

– No high capital requirements for planes: high resale value!

– Can start with one flight, very sexy industry

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Airlines industry: 5 forces

• Threat of substitutes – Businesses: videoconferencing

– Customers: trains, cars, ferries

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Airlines industry: 5 forces

• Power of buyers – Online-comparison easy

– Strong middle men

• Expedia, LastMInute

– Buy tickets in bulk and sell to customers

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Airlines industry: 5 forces

• Power of suppliers – Only 2 main manufacturers

• Boeing and Airbus

– Airports have lots of clout

– Pilots

• No substitute!

• If they strike they can shut you down!

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Airlines industry: 5 forces

• Competitive rivalry – Very hard to differentiate economy travel

• Same planes, seats

– All about price!

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What can airlines do?

• Buyer power

– Find better ways of differentiating

– Sell directly to customers

• Supplier power

– Encourage new aircraft manufacturers

• Bombardier, ...

• Substitutes

– Improve reliability and check-in procedures

– Total journey times should fall!

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What can airlines do?

• New entrants

– Find ways to discourage airports and others to let in new players

• Competitive rivalry

– Enforce new price discipline

• Form new alliances

• Let strong players take over weak ones

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« no-nonsense » business model

• Do not compete on service/meals

• Not through traditional airlines

– Hub-and-spoke model

• But point-to-point departures

– Secondary airports

• Speed and reliability

• Personnel cannot be syndicated

• …

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Read article + Break

• Read « Can science be a business? » • Think about the attractiveness of the biotech industry

• Think about the industry structure and how it could be changed

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Biotech industry: profitability?

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Industry analysis in high-tech: difficulty!

• Defining the right industry in high-tech is difficult

– Converging industries

• Pharma (marketing) & biotech (discovery)

• Lifesciences!

– Different market segments

• E.g. Biotech industry

– Complementors (sixth force?)

• 1+1>2

– Microsoft & Intel

– ARM & Apple

– Facebook & Zynga

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Competitive rivalry

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– Large number of biotech startups and SMEs

– alongside small number of large companies

• Amgen, Genentech...

• High fixed costs

• Struggle to discover « biotech blockbuster » !

• Lots of growth, yet no clear profits!

-> Overall moderate rivalry

Threat of entry

• Promise of human genome revolution, but high entry

barriers! • Strong intellectual property protection

• Most biotech start-ups are…

– Academic research spin-offs

» Long start-up periods with little profit

» High fixed costs

• Only a few very profitable pharma have cash/regulatory skills

– To acquire biotech firms

• Lengthy & costly clinical trials in biotech industry

-> Overall moderately weak threat

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Threat of substitutes

• Medical biotech

– conventional therapeutic drugs

– Less effective than biotech drugs

– BUT! New threat of « biosimilars»

• http://www.economist.com/node/17316667

• Agricultural biotech

– Seeds enhanced through selective breeding

-> Overall moderate threat

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Power of buyers

• Main buyers are…

– Medical biotech

– Healthcare providers such as GP doctors, hospitals,…

– Agricultural biotech

– Farmers, growers…

• Successful produts are differentiated in performance

• One company ownership of innovation • Patent protected = Less buyer power

• Reference pricing imposed by government • More buyer power

-> Overall moderate power

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Power of suppliers

• Major suppliers are • Manufacturers of lab equipment, software publishers, chemical

companies …

– Little differentiation between suppliers

– Less supplier power

– Yet, more supplier power

– small likelihood backward integration

-> Overall moderate power

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5 forces summary

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Can Science Be a Business?

• Can organizations motivated by the need to make profits and please shareholders succesfully conduct basic scientific research as a core activity?

• Pisano: The anatomy of the biotech sector is fundamentally flawed and therefore cannot serve the needs of both basic science and business

• Anatomy is borrowed from succesful models in ICT industry

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Why biotech R&D is different from ICT

• Profound and persistent uncertainty, rooted in the limited knowledge of human biological systems and processes, makes drug R&D highly risky

• The process of drug R&D cannot be broken neatly into pieces, meaning that the disciplines involved must work in an integrated fashion

• Much of the knowledge in the diverse disciplines that make up the biotech sector is intuitive or tacit, rendering the task of harnessing collective learning especially daunting

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Change industry structure!

• More vertical integration

• Fewer, closer, longer-term collaborations

• Fewer indepedent biotech firms

• Quasi-public corporations

• A new priority for universities towards maximizing their

contributions to the scientific community

• More cross-disciplinary academic research

• More translational research

Search for new business model

• Solution to three problems

– Need for long-term financial risk management

• 15-20 years

– Integration different sciences and techniques

• Computer science, chemistry, physics, engineering, biology…

• Knowledge base is cumulative

– Very hard to dvp 1, let alone more successful drugs autonomously

• Track record of companies with multiple drugs is very, very small

– Amgen, Genentech (acquired by Roche)…

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Discuss per group

• Come up with a business model

– That solves the three problems

• More profits/revenues and less costs

– Give More or less catchy name

• Do not choose business models in trouble!

– Old pharma blockbuster model

• Does not work anymore: competition & regulation

– Generics will take over

– Specialized diseases is future

• Too much competition generics

– Biotech company is acquired

• Very hard to integrate pharma & biotech cultures

• Most innovation by biotech start-ups

• Hard to replicate success in same biotech company

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Possible business models (1)

• Disposable firm model • Project model

– ~movie production

– Temporary limited liability company (2-3 years)

– Bring all kinds of talent together

• Only IP is sold to large firm

– Give all participants part of profits once IP is sold

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Possible business models (2)

• Pharma satellite model • Become special-purpose R&D satellite of large pharma

– E.g. diabetes

– E.g. 10 years of VC by pharma in biotech company

» Initially Genentech-Roche (till Roche decided to acquire G)

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Possible business models

• Integrated sciences platform model

– Biotech is a constellation of technologies

– Integrate techs on a platform

» To solve a problem for companies in an particular industry

» Not just therapeutics, also energy, food companies,

– How to become a platform

»

» Open up innovation process & IP on platform

» Publish standard interfaces & performance

requirements to the outside world

» Enlist the talents and creativity of thousands of

application developers, merchants and even

customers…

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To read for next class

• Please read in advance

– “The rise, fall and resurgence of industrial hot spot”

• Print out / bring to class for class reading

– “Getting an Inside Look: Given Imaging’s Camera Pill”

– Schilling textbook

• p.15-18

• Other optional reading

– “Is the Internet a US invention?”

• By David C. Mowery & Timothy Simcoe

– Research Policy 31 (2002), pp. 1369–1387

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