Strategic Issues in Managing Technology & Innovation

Management of technology & innovation is crucial to corporate

success due to increased competition & accelerated product development
cycles.

The issues are how a company can generate a significant return

from investment in R&D & maintain enthusiasm for innovation behavior
& risk taking.

The importance of technology & innovation must be emphasized by

people at the very top & reinforced by people throughout the corporation.

Managers tend to perceive R&D as a line expense (based on what the

company could afford & guided by how much the competition was
spending) rather than an investment in the future.
Only half of all newly introduced products were still being sold five years
later. Only one in 13 products ideas ever made it into test markets. This %
needs to be improved, but few people say that too high a % means that a
company isn’t taking the risks necessary to develop a really new product.

The importance of top management’s providing appropriate direction is

exemplified by chairman Morita’s statement of his philosophy for Sony
Corporation :

“The key to success for Sony, and to everything in business, Science, and
technology for that matter, is never to follow others. Our basic concept
has always been this to give new convenience, or new methods, or new
benefits, to the general public with our technology.
 nvironmental Scanning :

) External Scanning- Corporation need to continually scan their external

ocietal task environments for new developments in technology that may
Have some application to their current or potential products.

echnology Research : Intelligence deptts. have sophisticated scanning

ystem.

canning Monitoring the latest technology developments introduced at

cientific conferences, in journals, & in trade gossip.

helps in building “technology roadmaps” that assess where breakthroughs

re likely to occur, when they can be incorporated into new products, how
much money their development will cost, and which of the developments
being worked on by the competition.
 Focusing one’s scanning efforts too closely on one’s own industry is
dangerous.

A heavy emphasis on being customer- driven could actually prevent

companies from developing innovative new products.

A study of the impact of technological discontinuity in various industries

revealed that the leading firms failed to switch to the new technology not
because management was ignorant of the new development, but rather
because they listened too closely to their current customers.

i) Internal Scanning : Strategists should also assess their company’s

bility to innovate effectively by asking the following questions.

. Has the company developed the resources needed to try new ideas ?
. Do the managers allow experimentation with new products or services ?
. Does the corporation encourage risk taking & tolerate mistakes ?
. Are people more concerned with new ideas & with defending their turf.
. Is if easy to form autonomous project terms?
• In addition to answering these questions, strategists should assess how
well company resources are internally allocated & evaluate the
organization’s ability to develop & transfer new technology in a timely
manner into the generation of innovative products & services.

• Resources Allocation issues

 As % of sales revenue
 It various by industry ( computer pharma---- 11-13%)
 Average of industry
 Consistency in R&D strategy & resource allocation.

• Large firm tend to spend development money to increase the efficiency

of existing performance to reduce cost & down sizing.

• Small firms tend to apply technology to improving effectiveness with

a goal of improving quality & customer satisfaction.
 me to Market Issues:

A decade ago, the time from inception to profitable of a specific R&D

program was 7 to 11 years. Now it is 4-5 years.
ime available to complete the cycle is getting shorter. Companies no
longer can assume that competitors will allow them the number of
years needed to recoup their investment.
ime to market is an important issue because 60% of patented innovations
are generally imitated within 4 years as 65% of the cost of innovation
ntel is no longer content to introduce one to two new-generation
microprocessors annually & a complete new family of computer
microchips every four years. Intel plans to continue developing new c
families every two years. It believes that this fast face of development
will keep chip cloners from ever catching up with Intel.
Strategy Formulation : R&D strategy deals not only with the decision
To be a leader or a follower in terms of technology & market entry, but
Also with the source of the technology.

•Should a company develop its own technology or purchase it from

others?

•R&D mix i.e. basic vs applied & product vs process

•A company’s competence in different aspects of R&D can affect its

competitive strategy & its ability to successfully enter new markets

•R&D strategy in a large corporation also deals with the proper balance
of its product portfolio based on the life cycle of the products.
Technology Sourcing : Make or buy decision
Product innovations are most important because the product’s physical
attributes & capabilities most affect financial performance.
Process Innovations such as improved manufacturing facilities,
increasing product quality, and faster distribution become important to
maintaining the product’s economic returns.

Technology Sourcing :
When technology cycles were longer, a company was more likely to
choose an independent R&D strategy not only because it gave the firm a
longer lead time before competitors copied it.
In today’s world of shorter innovation life cycles & global competition,
a company may no longer have the luxury of waiting to reap a long-term
profit.
During a time of technological discontinuity in an industry, a company
may have no choice but to purchase the new technology from others if it
wants to remain competitive.
 Firms that are unable to finance alone the huge costs of developing a
new technology may coordinate their R&D with other firms through a
strategic alliance

hese alliance can be :-

Joint programs or contracts to develop a new technology.
JVs establishing a separate company to take a new product to market.
Minority investments in innovation firms where in innovator obtains
Needed capital & the investor obtains access to research.
 Product & Process R&D in the Innovation Life Cycle :
Cash
flow
Innovation cycle time

(Mostly Product is released

Product To production Positive Net
R&D) cash profit
flow period

Opportunity
occurs
Time
Negative
Cash flow

Product Project
Activity Product Become extinct
begins Definition &
First
Plans Freeze
Customers are
satisfied
Opportunity
is perceived
(mostly process R&D)
 When should a company buy or license from others instead developing
it internally?

A company buy technologies that are commonly available, but make

(& protect)those that are rare, valuable, hard to imitate & having no
close substitutes.

Out Sourcing technology is appropriate when:

The technology is of low significance to competitive advantage.
The supplier has proprietary technology.
The supplier’s technology is better &/or cheaper & reasonably easy to
integrate into the current system.
The company’s strategy is based on system design, marketing &
service not on development & manufacturing.
The technology development process requires special expertise.
The technology development process requires new people & new
resources.
Strategy Implementation:

•If a corporation decides to develop innovations internally it must make

sure that its corporate system & culture are suitable for such a strateg

•It must make sufficient resources available for new products, provide
collaborative structures & processes & incorporate innovation into it
overall corporate strategy.

•It must assure that its R&D operations are managed well.

•It must establish procedures to support all five stages of new product
development.

•If, like most large corporations, the culture is too bureaucratic & rigid
to support entrepreneurial projects, top management must reorganize
so that innovation projects can be free to develop.
Developing an Innovation Entrepreneurial Culture:
•To create a more innovative corporation, top management must develop
an entrepreneurial culture- one that is open to the transfer of new
technology into company activities & products & service
•The company must be flexible & accepting of change.
•Must be willing to withstand a certain % of product failure on the way
to success.
•R&D in companies is managed quite differently from traditional
companies: Firstly, employees are dedicated to a particular project
outcomes rather than to innovation in general. Secondly, employees
are responsible for all activities. Thirdly, these internal ventures are
often separated from the rest of the company to provide greater
freedom & access to top management.
•The innovative process involves individual at different organizational
levels who fulfill three different types of entrepreneurial roles: prod
champion, sponsor & orchestrator.
Product Champion: is a person who generates a new idea & supports it
through many organizational obstacles.

A Sponsor: is usually a department manger who recognizes the value of

the idea, helps obtain funding to develop the innovation & facilities its
implementation.

An Orchestrator: is someone in top management who articulates the

need for innovation, provides for innovating activities, creates incentives
for middle managers to sponsor new ideas & protects idea/ product
champions from suspicious or jealous executives.

•Unless all of these roles are present in a company, major innovations

are less likely to occur.
Organizing for Innovation: Corporate Entrepreneurship

Also called entrepreneurship-”is the birth of new businesses within existing

organizations i.e. internal innovation or venturing; and transformation of
organizations through renewal of the key ideas on which they are built i.e.
strategic renewal.”

•A large corporation that wants to encourage innovation & creativity

within its firm must choose a structure that will give the new busine
unit an appropriate amount of freedom while maintaining some degr
of control at HQs.
•A particular original design should be determined by the Strategic
importance of new business to the corporation & the relatedness of t
unit’s operation to those of the corporation.
 Organizational begins for Corporate Entrepreneurship :

Very Important Uncertain Not Important

Special Independent Complete

Unrelated Business Unit Business Unit Spin- off

New Product
Relatedness
Operational

New Venture
Partly Business Division Contracting
Department

Micro New
Direct Nurturing &
Ventures
Strongly Integration Contracting
Department

Strategic Importance
Various Organizational Design (By Combining 2 Factors) :

1.Direct Integration : A new business with great deal of strategic

importance & operational relatedness must be a point of the
corporation’s mainstream. Product champions- people who are
respected by others in the corporation & who know how to work
the system- are needed to manage these projects.

2.New Product Business Department : This should be as a separate

department, organized around an entrepreneurial project in the
division where skills & capabilities can be shared.

3. Special Business Unit : Should be a special new business unit with

specific objectives & time horizons.
Micro New Ventures Department : Should be a peripheral projects,
which is likely to emerge in the operating divisions on a continuous
basis. Each division thus has its own new ventures department.

New Ventures Division : It brings together projects that either exist

in various parts of the corporation or can be acquired externally;
Sizeable new business are built.

Independent Business Units : External arrangements become attractive

in this situation.

Nurturing & Contracting : Top management might help the

entrepreneurial unit to spin off from the corporation. It is important
that the parent corporation continue to support the development of the
spin-off unit.
Contracting : As the required capabilities & skills of the new business
are less related to those of the corporation, the parent corporation may
spin-off the strategically unimportant unit, yet keep some relationship
through a contractual arrangement with new firm. The connection is
useful in case the new firm eventually develops something of value to
the corporation.

Complete Spin-off : If strategic importance & the operational relatedness

of the new business are negligible, the corporation is likely to completely
sell off the business to another firm or to the present employees in some
form of ESOP or LBO.
Organizing for innovation has become especially important for those
corporation that want to become more innovative, but their age & size
have made them highly bureaucratic with a culture that discourages
creative thinking.

These new structural designs for corporate entrepreneurship can not

work by themselves.

The entrepreneurial units must also have the support of management &
sufficient resources.

They must also have employees who are risk takers, willing to purchase
an ownership interest in new ventures.
Evaluation & Control :

•Companies want to gain more productivity at a faster pace from their

research & development activities. But how do we measure the
effectiveness or efficiency of a company’s R&D.

•This is a problem given that a company should not expect more than
1 in 20 products ideas from basic research to make it to the marke
place.

•Some companies measure the proportion of their sales attributable to

new products.

•Other companies judge the quality of research by counting how many

patents are filed annually.
 A high tech consulting firm PRTM (Pittiglio Rabin Todd MCGrath)
proposes an index of R&D effectiveness. The index is calculated by
dividing the % of total revenue spent on R&D into new product
profitability which expressed as %.

me companies use the following 3 measures of R&D success:-

Improving technology transfer from R&D to business units.
Accelerating time to market for new products & processes.
Institutionalizing cross functional participation in R&D.