Technology Strategy for Managers and Entrepreneurs

Scott Shane
A Malalchi Mixon III Professor of Entrepreneurial Studies Case Western Reserve University Weatherhead School of Management

HOCHSCHULE

PEARSON

Prentice Hall
Upper Saddle River, NJ 07458

CONTENTS

CHAPTER 1

Introducdon 3

1 2

Technology Strategy: A Vignette Introduction

What Is Technological Innovation? 4 Defining Technology 4 Defining Innovation 5 Defining Technological Innovation 6 Why Technological Innovation Is Important

'*> 7 8

Getting Down to Business: Remembering Process Development

Why Technology Strategy? 9 Purpose of the Book 10 Approach to Technology Strategy 10 Technology Strategy in Start-ups and Large, Established Firms A Preview of the Chapters 12 Understanding Technological Change 12 Coming Up with Innovations 13 Benefiting from Innovation 13 Formulating Technology Strategy 14 Discussion Questions Key Terms Notes 15 14 14

11

SECTION A:
CHAPTER 2

"UNDERSTANDING TECHNOLOGICAL CHANGE

Technology Evolution 18 18 21 16 17

16

Technology Evolution: A Vignette Introduction

Evolutionary Patterns of Development

8
i

Radical and Incremental Technological Change Technology S-Curves 22 Shifting S-Curves 23 Who Shifts the S-Curve? 25 Using S-Curves as a Management Tool

27

The Abernathy-Utterback Model 29 The Nature of Innovation and Competition 29 New Firm Performance 31 Number of Firms in the Industry 31 Limitations to the Model 32 Getting Down to Business: The History of Electric Vehicles 33

ix

Modifications to the Abernathy-Utterback Model

34
35

Reverse Product Cycle Theory 34 Competence-Enhancing and Competence-Destroying Innovation Architectural innovation 35 Disruptive Technology and Value Networks 37

Discussion Questions 41 Key Terms 41 Putting Ideas into Practice 41 Notes 42 CHAPTER 3 Technology Adoption and Diffusion 45 Technology Adoption and Diffusion: A Vignette 46 Introduction 47 Distribution of Adopters 47 ^*
Groups of Adopters 49 S-Curves of Adopters 50

Crossing the Chasm

52
53

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

Market Dynamics

56
57

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

Getting Down to Business: Diffusion of MP3 Players

The Delphi Technique 61 Product Diffusion Models 62 The Importance of Complementary Technologies 63 Substitution 64

60

Discussion Questions 67 Key Terms 68 Putting Ideas into Practice 68 Notes 69 CHAPTER 4 Sources of Innovation 71 Technological Opportunities: A Vignette 72 Introduction 72 Sources of Opportunities 73
Technological Change 73 Political and Regulatory Change Social and Demographic Change Combination 78 76 77

Locus of Innovation 79 Research and Development

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

83

87

Contents

Getting Down to Business: Investing to Create Opportunities Forms of Innovation 89 Forms of Innovation and Technology Strategy 90 Industry and the Nature of Innovation 91 Discussion Questions 92 Key Terms 92 Putting Ideas into Practice Notes 93

89

92

SECTION B:
CHAPTER 5

COMING UP WITH INNOVATIONS

Selecting Innovation Projects 97 ^98 96

96

Real Options: A Vignette Introduction 97 Managing Uncertainty

Decision-Making Tools 100 Checklists 100 Analytical Hierarchy Process 101 Net Present Value 103 Internal Rate of Return 104 Real Options 106 Scenario Analysis 109 Decision Trees 109 Portfolio Management 111 Getting Down to Business: Medtronic's Use of Portfolio Management Tools Discussion Questions 113 Key Terms Notes K CHAPTER 6 115 Customer Needs 117 118 119 114 114 Putting Ideas into Practice 113

Lead User Method: A Vignette Introduction 119

Technology Push Versus Market Pull

g| ^

Meeting

Understanding Customer Needs 121 How to Identify Customer Needs 122 The Difficulty of Identifying Customer Needs 123 Significantly Better Benefits Than Existing Products 124 Getting Down to Business: Going Over Like a Wet Tissue 125 the Needs of Many Stakeholders 125 Solutions That Work 126 Developing Profitable Solutions 126 Pricing Products Correctly Setting a Price 128 Market Segmentation 132 134 Contents xi Market Research 134 Market Research Techniques 128

Discussion Questions 141 Key Terms 141 Putting Ideas into Practice 142 Notes 142 CHAPTER 7 Product Development 144 Product Development: A Vignette 145 Introduction 146 Product Cycle Time 146 Concurrent Development 146 Modularity and Product Platforms 148
Product Platforms 151

Identifying the Right Product Features

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

153

Product Development Tools

Web-Based Tools 160 House of Quality 160 Prototyping 162

159

Getting Down to Business: Prototyping at IDEO

Stage Gates 163 Design for Manufacturing 164

163

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

SECTION C:

BENEFITING FROM INNOVATION

170

CHAPTER 8 Patents 170 Patents: A Vignette 171 Introduction 172 Why You Need Intellectual Property Protection What Is Patentable? 174
What Can Be Patented? 175 Novel, Nonobvious, and Useful First to Invent 177 Nondisclosure 178 177

172

Getting Down to Business: Patenting a Snowman Accessory Kit

Expansion of What Is Patentable 179 Design and Plant Patents 180

178

The Parts of a Patent

Defining the Claims Who Can Apply?

180
182 183

Using a Patent

184
1.84

Picket Fences and Brackets

xii

Contents

Patent Litigation 184 Patent Trolls 187 Should You Patent? 188 Advantages of Patenting 188 Disadvantages of Patenting 189 Effectiveness of Patents in Different Industries 191 Discussion Questions Key Terms Notes CHAPTER 9 193 Trade Secrets, Trademarks, and Copyrights 197 . 198 196 193 193 192

Putting Ideas into Practice

Software Copyrights: A Vignette Introduction Secrecy 198 When Does Secrecy Work? 199 Trade Secrecy 200 Secrecy as a Strategy 201 Nondisclosure Agreements 203 Noncompete Agreements 204 Ownership of Intellectual Property

204 206

Getting Down to Business: Using Nondisclosure and Noncompete Agreements Copyrights 207 What Can Be Copyrighted? 207 Who Gets a Copyright and How Do They Get It? Enforcement Through Litigation 207 Recent Developments to Strengthen Copyrights Software Copyrights 211 Trademarks 213 What Can Be Trademarked? 213 Obtaining a Trademark 214 Enforcing'a Trademark 215 Domain Names 216 International Issues in Intellectual Property 218 Differences in Intellectual Property Regimes 218 International Agreements on Intellectual Property 221 Discussion Questions Key Terms Notes CHAPTER 10 224 Capturing Value from Innovation 117 228 226 223 223 222

207 210

Putting Ideas into Practice

Lead Time: A Vignette Introduction

Appropriability Mechanisms 228 Controlling Key Resources 229 Establishing a Reputation 231 Obtaining Architectural Control 232 Exploiting Economies of Scale 232

Contents

xiii

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

235

Teece's Model

239

Difficult to Imitate 240 Easy to Imitate, No Dominant Design 241 Easy to Imitate, Dominant Design 241

Getting Down to Business: Should You be an Innovator or an Imitator? 242 Discussion Questions 243 Key Terms 243 Putting Ideas into Practice 244 Notes 245 CHAPTER 11 Competitive Advantage in High-Tech Industries Core Competence: A Vignette 249 Introduction 250 Industry Analysis 251
Five Forces Model 251 The Value Chain 253 Regimes of Creative Destruction and Creative Accumulation 254

248

A Resource-Based View 258

Resources and Capabilities 258 Core Competencies 261 Core Rigidities 262 Strategic Dissonance 262

Getting Down to Business: Microsoft and Netcentric Computing Discussion Questions 265 Key Terms 265 Putting Ideas into Practice 266 Notes - 266 CHAPTER 12 Technical Standards
Technical Standards: A Vignette

264

269
270

Introduction 271 Technical Standards

272

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

Standards Battles

276

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

281

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

284

CHAPTER 13 Strategy in Networked Industries Network Effects: A Vignette 289 Introduction 290 Increasing Returns Businesses 291
Why Industries Display Increasing Returns Types of Network Effects 293 Strategic Issues in Networked Industries 291 295

288

Getting Down to Business: Starting a New Company in a Networked Industry Strategy for Increasing Returns 298
Start Large 298 Build a Large Installed Base Quickly 299 Get Customers to Ignore Lock In 302 Be a First Mover 303 Limitations to a Strategy Based on Increasing Returns

297

303

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

*'

SECTION D:

FORMULATING TECHNOLOGY STRATEGY

308

CHAPTER 14 Collaboration Strategies 308 Vertical Integration: A Vignette 309 Introduction 310 Contractual and Vertically Integrated Modes of Doing Business Alliances, Licensing, Joint Ventures, Contract Manufacturing, and Outsourcing 313
Strategic Alliances 313 Joint Ventures 315 Licensing 317 Outsourcing and Contract Manufacturing

310

321

Getting Down to Business: Contract Manufacturing in the Medical Device and Equipment Industry 324 Work Alone or Collaborate 325 Making Contractual Arrangements Work 329
Designing Effective Contractual Arrangements Contracting Between Large and Small Firms 329 329

Discussion Questions 330 Key Terms 331 Putting Ideas into Practice 331 Notes 332 CHAPTER 15 Strategic Human Resource Management of Technical Professionals 335 Strategic Human Resource Management: A Vignette 335 Introduction 337 Corporate Culture 337 Contents xv

Managing People

339
340 341

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

Enhancing Creativity 344 Getting Down to Business: Consistent Innovation at 3M Product Development Teams 346 Functional Versus Cross-Functional Teams 347
Matrix Structure and Multiple Project Management Lightweight, Heavyweight, and Autonomous Teams Virtual Teams 352 348 350

346

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

**"

CHAPTER 16 Organization Structure for Technology Strategy Corporate Venture Capital: A Vignette 359 Introduction 360 Basic Organization Structure 361
Centralization Versus Decentralization 361 Mechanistic Versus Organic Organization Structures Efficiency and Slack Resources 365 363

358

Getting Down to Business: Decentralizing R&D at GlaxoSmithKline

364

Does Size MatterFor Innovation? Spin-off Companies 368

Sharing Rewards 368 Bargaining over Profits Source of Value 370 369

366

Venture Capitalists, Business Angels, and Corporate Investors Corporate Venturing 373
Benefits of Corporate Venturing 375 Drawbacks of Corporate Venturing 376 How Much Independence? 378

371

Acquisitions 381 Discussion Questions 383 Key Terms 383 Putting Ideas into Practice 383 Notes 384 Name Index Subject Index 387 393

xvi

Contents