CHAPTER 7 STRATEGY AND TECHNOLOGY 2017 Cengage Learning

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CHAPTER 7 STRATEGY AND TECHNOLOGY © 2017 Cengage Learning. All Rights Reserved. May not

CHAPTER 7 STRATEGY AND TECHNOLOGY © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

LEARNING OBJECTIVES § Understand the tendency toward standardization in many high-technology markets. § Describe

LEARNING OBJECTIVES § Understand the tendency toward standardization in many high-technology markets. § Describe the strategies that firms can use to establish their technology as the standard in a market. § Explain the cost structure of many hightechnology firms, and articulate the strategic implications of this structure. § Explain the nature of technological paradigm shifts and their implications for enterprise strategy. © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2

LEARNING OBJECTIVES § Explain the cost structure of many hightechnology firms, and articulate the

LEARNING OBJECTIVES § Explain the cost structure of many hightechnology firms, and articulate the strategic implications of this structure. § Explain the nature of technological paradigm shifts and their implications for enterprise strategy. © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3

TECHNICAL STANDARDS AND FORMAT WARS Technical standards • Set of technical specifications that producers

TECHNICAL STANDARDS AND FORMAT WARS Technical standards • Set of technical specifications that producers adhere to when making the product, or a component of it. Format wars • Battles to control the source of differentiation, and the value that such differentiation can create for the customer. Dominant design • Common set of features or design characteristics. © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 4

© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated,

© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5

BENEFITS OF STANDARDS § Guarantees compatibility between products and their complements. § Reduces confusion

BENEFITS OF STANDARDS § Guarantees compatibility between products and their complements. § Reduces confusion in the minds of consumers. § Reduces production costs and risks associated with supplying complementary products. § Leads to low-cost and differentiation advantages for individual companies. § Helps raise the level of industry profitability. © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 6

ESTABLISHMENT OF STANDARDS § Standards emerge in an industry when the benefits of establishing

ESTABLISHMENT OF STANDARDS § Standards emerge in an industry when the benefits of establishing are recognized. § Technical standards are set by cooperation among businesses, through the medium of an industry association. § When the government sets standards they fall into the public domain. § Public domain: Any company can freely incorporate the knowledge and technology upon which the standard is based into its products. © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 7

NETWORK EFFECTS, POSITIVE FEEDBACK, AND LOCKOUT § Network effects: Network of complementary products as

NETWORK EFFECTS, POSITIVE FEEDBACK, AND LOCKOUT § Network effects: Network of complementary products as a primary determinant of the demand for an industry’s product. § Positive feedback loops - Increase in demand for a technology that triggers an increase in demand for products that support it. § Alternative standards get locked out as consumers are unwilling to bear the switching costs. © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 8

© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated,

© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 9

STRATEGIES FOR WINNING A FORMAT WAR § Make network effects work in one’s favor

STRATEGIES FOR WINNING A FORMAT WAR § Make network effects work in one’s favor and against competitors. § Build the installed base for the standard as rapidly as possible. § Ensure a supply of complements. § Leverage killer applications. § Killer applications: Applications or uses of a new technology or product so compelling that customers adopt them in droves, killing competing formats. © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10

STRATEGIES FOR WINNING A FORMAT WAR § Pursue aggressive pricing and marketing. § Razor

STRATEGIES FOR WINNING A FORMAT WAR § Pursue aggressive pricing and marketing. § Razor and blade strategy: Pricing the product low to stimulate demand, and pricing complements high. § Cooperate with competitors. § License the format. © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 11

FIRST MOVER § Firm that pioneers a particular product category or feature by being

FIRST MOVER § Firm that pioneers a particular product category or feature by being first to offer it to the market. § Creation of a revolutionary product results in a monopoly position. § First-mover advantage - Pioneering new technologies and products that lead to slowing the rate of imitation. § First-mover disadvantages: Competitive disadvantages associated with being first. © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 12

STRATEGIC IMPLICATIONS: CROSSING THE CHASM Advantages • Opportunity to exploit network effects and positive

STRATEGIC IMPLICATIONS: CROSSING THE CHASM Advantages • Opportunity to exploit network effects and positive feedback loops. • Ability to establish brand loyalty and increase sales volume ahead of rivals. • Ability to create switching costs for customers and accumulate knowledge. Disadvantages • Bear significant pioneering costs. • More prone to making mistakes. • Risk of building the wrong resources and capabilities. • Risk of investing in inferior or obsolete technology © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 13

STRATEGIES FOR EXPLOITING FIRSTMOVER ADVANTAGES § Develop and market the innovation jointly with other

STRATEGIES FOR EXPLOITING FIRSTMOVER ADVANTAGES § Develop and market the innovation jointly with other companies. § Through a strategic alliance or joint venture. § License the innovation to others and allow them to develop the market. © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 14

FACTORS TO CONSIDER WHEN SELECTING A STRATEGY § Complementary assets § Required to exploit

FACTORS TO CONSIDER WHEN SELECTING A STRATEGY § Complementary assets § Required to exploit a new innovation and gain a competitive advantage. § Help build brand loyalty and achieve rapid market penetration. § Height of barriers to imitation § Higher the barriers, longer it takes for rivals to imitate. § Give the innovator more time to build an enduring competitive advantage. © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 15

FACTORS TO CONSIDER WHEN SELECTING A STRATEGY § Capable competitors § Companies that can

FACTORS TO CONSIDER WHEN SELECTING A STRATEGY § Capable competitors § Companies that can move quickly to imitate the pioneering company. § Competitors’ capability depends on their research and development skills and access to complementary assets. © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 16

TECHNOLOGICAL PARADIGM SHIFT § Shifts in new technologies that: § revolutionize the structure of

TECHNOLOGICAL PARADIGM SHIFT § Shifts in new technologies that: § revolutionize the structure of the industry. § dramatically alter the nature of competition. § require companies to adopt new strategies for survival. § Occur in an industry when: § established technology is approaching or is at its natural limit. § new disruptive technology has entered the marketplace and is invading the main market. © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17

© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated,

© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 18

© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated,

© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 19

© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated,

© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 20

STRATEGIC IMPLICATIONS FOR ESTABLISHED COMPANIES § Being aware of how disruptive technologies can revolutionize

STRATEGIC IMPLICATIONS FOR ESTABLISHED COMPANIES § Being aware of how disruptive technologies can revolutionize markets is a valuable strategic asset. § Investing in new technologies that may become disruptive technologies. § Creating an autonomous operating division solely for the disruptive technology. © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 21

STRATEGIC IMPLICATIONS FOR NEW ENTRANTS § Do not face pressures to continue the existing

STRATEGIC IMPLICATIONS FOR NEW ENTRANTS § Do not face pressures to continue the existing out-of-date business model. § Do not have to worry about established: § customer base. § relationships with suppliers and distributors. § Can focus their energies on the opportunities offered by the new disruptive technology. § Must decide whether to partner with an established company or go solo. © 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22

Chapter 13 Heart 2017 Cengage 2017 Learning CengageChapter 13 Heart 2017 Cengage 2017 Learning Cengage
Chapter 12 Blood 2017 Cengage 2017 Learning CengageChapter 12 Blood 2017 Cengage 2017 Learning Cengage
Chapter 3 Cells 2017 Cengage 2017 Learning CengageChapter 3 Cells 2017 Cengage 2017 Learning Cengage
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2013 Cengage Learning Leadership 1 2013 Cengage Learning2013 Cengage Learning Leadership 1 2013 Cengage Learning
2013 Cengage Learning Leadership 1 2013 Cengage Learning2013 Cengage Learning Leadership 1 2013 Cengage Learning
International Strategy Multidomestic Strategy Global Strategy Transnational StrategyInternational Strategy Multidomestic Strategy Global Strategy Transnational Strategy
Content Strategy Content Strategy Content Strategy Content StrategyContent Strategy Content Strategy Content Strategy Content Strategy
Ys strategy Strategy 1 Strategy 2 Strategy 1Ys strategy Strategy 1 Strategy 2 Strategy 1
Strategy Strategy Phases Strategy Plan l Strategy DocumentStrategy Strategy Phases Strategy Plan l Strategy Document
Chapter 18 Digestive System 2017 Cengage 2017 LearningChapter 18 Digestive System 2017 Cengage 2017 Learning
Chapter 17 Respiratory System 2017 Cengage 2017 LearningChapter 17 Respiratory System 2017 Cengage 2017 Learning
Chapter 5 Integumentary System 2017 Cengage 2017 LearningChapter 5 Integumentary System 2017 Cengage 2017 Learning
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2013 Cengage Learning References and Testing 2013 Cengage2013 Cengage Learning References and Testing 2013 Cengage
2013 Cengage Learning References and Testing 2013 Cengage2013 Cengage Learning References and Testing 2013 Cengage
2010 Cengage Learning Employment Law 1 2010 Cengage2010 Cengage Learning Employment Law 1 2010 Cengage
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