Technology Strategyfor Managersand Entrepreneurs

Scott ShaneA Malalchi Mixon III Professor of Entrepreneurial StudiesCase Western Reserve UniversityWeatherhead School of Management

HOCHSCHULE

PEARSON

PrenticeHall

Upper Saddle River, NJ 07458

CONTENTS

t

CHAPTER 1 Introducdon 1Technology Strategy: A Vignette 2Introduction 3What Is Technological Innovation? 4

Defining Technology 4Defining Innovation 5 '*>Defining Technological Innovation 6Why Technological Innovation Is Important 7

Getting Down to Business: Remembering Process Development 8Why Technology Strategy? 9

Purpose of the Book 10Approach to Technology Strategy 10Technology Strategy in Start-ups and Large, Established Firms 11

A Preview of the Chapters 12Understanding Technological Change 12Coming Up with Innovations 13Benefiting from Innovation 13Formulating Technology Strategy 14

Discussion Questions 14Key Terms 14Notes 15

SECTION A: "UNDERSTANDING TECHNOLOGICAL CHANGE 16CHAPTER 2 Technology Evolution 16

Technology Evolution: A Vignette 17Introduction 18Evolutionary Patterns of Development 18Radical and Incremental Technological Change 21Technology S-Curves 22

Shifting S-Curves 23Who Shifts the S-Curve? 25Using S-Curves as a Management Tool 27

The Abernathy-Utterback Model 29The Nature of Innovation and Competition 29New Firm Performance 31Number of Firms in the Industry 31Limitations to the Model 32

Getting Down to Business: The History of Electric Vehicles 33i

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Modifications to the Abernathy-Utterback Model 34Reverse Product Cycle Theory 34Competence-Enhancing and Competence-Destroying Innovation 35Architectural innovation 35Disruptive Technology and Value Networks 37

Discussion Questions 41Key Terms 41Putting Ideas into Practice 41Notes 42

CHAPTER 3 Technology Adoption and Diffusion 45Technology Adoption and Diffusion: A Vignette 46Introduction 47Distribution of Adopters 47 ^*

Groups of Adopters 49S-Curves of Adopters 50

Crossing the Chasm 52Identifying the Take-Off Stage 53How to Cross the Chasm 53Choosing the Customer 54Beachhead Strategy 55

Market Dynamics 56Forecasting Demand 56Information Diffusion Models 57How Not to Do It 58The Bass Model 59

Getting Down to Business: Diffusion of MP3 Players 60The Delphi Technique 61Product Diffusion Models 62The Importance of Complementary Technologies 63Substitution 64

Discussion Questions 67Key Terms 68Putting Ideas into Practice 68Notes 69

CHAPTER 4 Sources of Innovation 71Technological Opportunities: A Vignette 72Introduction 72Sources of Opportunities 73

Technological Change 73Political and Regulatory Change 76Social and Demographic Change 77Combination 78

Locus of Innovation 79Research and Development 83

Types of R&D 83Why Firms Invest in R&D 84Costs of R&D 86Linking Research and Development 87

Contents

Getting Down to Business: Investing to Create Opportunities 89Forms of Innovation 89

Forms of Innovation and Technology Strategy 90Industry and the Nature of Innovation 91

Discussion Questions 92Key Terms 92Putting Ideas into Practice 92Notes 93

SECTION B: COMING UP WITH INNOVATIONS 96CHAPTER 5 Selecting Innovation Projects 96

Real Options: A Vignette 97Introduction 97 ^ -Managing Uncertainty 98Decision-Making Tools 100

Checklists 100Analytical Hierarchy Process 101Net Present Value 103Internal Rate of Return 104Real Options 106Scenario Analysis 109Decision Trees 109

Portfolio Management 111Getting Down to Business: Medtronic's Use of Portfolio Management Tools 113Discussion Questions 113Key Terms 114Putting Ideas into Practice 114Notes 115

K CHAPTER 6 Customer Needs 117Lead User Method: A Vignette 118Introduction 119Technology Push Versus Market Pull 119Understanding Customer Needs 121

How to Identify Customer Needs 122The Difficulty of Identifying Customer Needs 123Significantly Better Benefits Than Existing Products 124

g| Getting Down to Business: Going Over Like a Wet Tissue 125^ Meeting the Needs of Many Stakeholders 125

Solutions That Work 126Developing Profitable Solutions 126

Pricing Products Correctly 128Setting a Price 128

Market Segmentation 132Market Research 134

Market Research Techniques 134

Contents xi

Discussion Questions 141Key Terms 141Putting Ideas into Practice 142Notes 142

CHAPTER 7 Product Development 144Product Development: A Vignette 145Introduction 146Product Cycle Time 146Concurrent Development 146Modularity and Product Platforms 148

Product Platforms 151Identifying the Right Product Features 153 ^

Conjoint Analysis 153Kano Method 156Perceptual Mapping 158Concept Testing 158

Product Development Tools 159Web-Based Tools 160House of Quality 160Prototyping 162

Getting Down to Business: Prototyping at IDEO 163Stage Gates 163Design for Manufacturing 164

Discussion Questions 165Key Terms 165Putting Ideas into Practice 166Notes 167

SECTION C: BENEFITING FROM INNOVATION 170CHAPTER 8 Patents 170

Patents: A Vignette 171Introduction 172Why You Need Intellectual Property Protection 172What Is Patentable? 174

What Can Be Patented? 175Novel, Nonobvious, and Useful 177First to Invent 177Nondisclosure 178

Getting Down to Business: Patenting a Snowman Accessory Kit 178Expansion of What Is Patentable 179Design and Plant Patents 180

The Parts of a Patent 180Defining the Claims 182Who Can Apply? 183

Using a Patent 184Picket Fences and Brackets 1.84

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Patent Litigation 184Patent Trolls 187

Should You Patent? 188Advantages of Patenting 188Disadvantages of Patenting 189Effectiveness of Patents in Different Industries 191

Discussion Questions 192Key Terms 193Putting Ideas into Practice 193Notes 193

CHAPTER 9 Trade Secrets, Trademarks, and Copyrights 196Software Copyrights: A Vignette 197Introduction 198 .Secrecy 198

When Does Secrecy Work? 199Trade Secrecy 200Secrecy as a Strategy 201Nondisclosure Agreements 203Noncompete Agreements 204Ownership of Intellectual Property 204

Getting Down to Business: Using Nondisclosure and Noncompete Agreements 206Copyrights 207

What Can Be Copyrighted? 207Who Gets a Copyright and How Do They Get It? 207Enforcement Through Litigation 207Recent Developments to Strengthen Copyrights 210Software Copyrights 211

Trademarks 213What Can Be Trademarked? 213Obtaining a Trademark 214Enforcing'a Trademark 215Domain Names 216

International Issues in Intellectual Property 218Differences in Intellectual Property Regimes 218International Agreements on Intellectual Property 221

Discussion Questions 222Key Terms 223Putting Ideas into Practice 223Notes 224

CHAPTER 10 Capturing Value from Innovation 226Lead Time: A Vignette 117Introduction 228Appropriability Mechanisms 228

Controlling Key Resources 229Establishing a Reputation 231Obtaining Architectural Control 232Exploiting Economies of Scale 232

Contents xiii

Moving Up the Learning Curve 233Exploiting a First Mover Advantage (Lead Time) 235

Teece's Model 239Difficult to Imitate 240Easy to Imitate, No Dominant Design 241Easy to Imitate, Dominant Design 241

Getting Down to Business: Should You be an Innovator or an Imitator? 242Discussion Questions 243Key Terms 243Putting Ideas into Practice 244Notes 245

CHAPTER 11 Competitive Advantage in High-Tech Industries 248Core Competence: A Vignette 249Introduction 250Industry Analysis 251

Five Forces Model 251The Value Chain 253Regimes of Creative Destruction and Creative Accumulation 254

A Resource-Based View 258Resources and Capabilities 258Core Competencies 261Core Rigidities 262Strategic Dissonance 262

Getting Down to Business: Microsoft and Netcentric Computing 264Discussion Questions 265Key Terms 265Putting Ideas into Practice 266Notes - 266

CHAPTER 12 Technical Standards 269Technical Standards: A Vignette 270Introduction 271Technical Standards 272

The Development of Technical Standards and Dominant Designs 273Not Always the Best Technology 274Technical Standards and Customer Adoption 275

Standards Battles 276How to Win a Standards Battle 276What If You Lose? 279Defending a Technology Standard 281Technical Standards and Competition Between Systems 281

Open Versus Closed Standards 282Getting Down to Business: The Story of Open-Source Software 284Discussion Questions 285Key Terms 285Putting Ideas into Practice 285Notes 286

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CHAPTER 13 Strategy in Networked Industries 288Network Effects: A Vignette 289Introduction 290Increasing Returns Businesses 291

Why Industries Display Increasing Returns 291Types of Network Effects 293Strategic Issues in Networked Industries 295

Getting Down to Business: Starting a New Company in a Networked Industry 297Strategy for Increasing Returns 298

Start Large 298Build a Large Installed Base Quickly 299Get Customers to Ignore Lock In 302Be a First Mover 303Limitations to a Strategy Based on Increasing Returns 303

Discussion Questions 304 *'Key Terms 305Putting Ideas into Practice 305Notes 306

SECTION D: FORMULATING TECHNOLOGY STRATEGY 308CHAPTER 14 Collaboration Strategies 308

Vertical Integration: A Vignette 309Introduction 310Contractual and Vertically Integrated Modes of Doing Business 310Alliances, Licensing, Joint Ventures, Contract Manufacturing,and Outsourcing 313

Strategic Alliances 313Joint Ventures 315Licensing 317Outsourcing and Contract Manufacturing 321

Getting Down to Business: Contract Manufacturing in the Medical Deviceand Equipment Industry 324Work Alone or Collaborate 325Making Contractual Arrangements Work 329

Designing Effective Contractual Arrangements 329Contracting Between Large and Small Firms 329

Discussion Questions 330Key Terms 331Putting Ideas into Practice 331Notes 332

CHAPTER 15 Strategic Human Resource Managementof Technical Professionals 335

Strategic Human Resource Management: A Vignette 335Introduction 337Corporate Culture 337

Contents xv

Managing People 339Managing R&D Personnel 339Managing Internal Communication 340Social Networks and External Ties 341Developing Incentives 342

Enhancing Creativity 344Getting Down to Business: Consistent Innovation at 3M 346Product Development Teams 346Functional Versus Cross-Functional Teams 347

Matrix Structure and Multiple Project Management 348Lightweight, Heavyweight, and Autonomous Teams 350Virtual Teams 352

Discussion Questions 353Key Terms 353 **"Putting Ideas into Practice 354Notes 354

CHAPTER 16 Organization Structure for Technology Strategy 358Corporate Venture Capital: A Vignette 359Introduction 360Basic Organization Structure 361

Centralization Versus Decentralization 361Mechanistic Versus Organic Organization Structures 363

Getting Down to Business: Decentralizing R&D at GlaxoSmithKline 364Efficiency and Slack Resources 365

Does Size MatterFor Innovation? 366Spin-off Companies 368

Sharing Rewards 368Bargaining over Profits 369Source of Value 370

Venture Capitalists, Business Angels, and Corporate Investors 371Corporate Venturing 373

Benefits of Corporate Venturing 375Drawbacks of Corporate Venturing 376How Much Independence? 378

Acquisitions 381Discussion Questions 383Key Terms 383Putting Ideas into Practice 383Notes 384

Name Index 387Subject Index 393

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