Business and the Technological Environment
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The document discusses the strategic importance of technology in business, emphasizing that while it can drive competitive advantage, rapid technological change can also pose significant challenges. It outlines how technology can transform business models, introduces concepts like innovation diffusion and tipping points, and explores options for acquiring new technology, including in-house development, alliances, and acquisitions. Additionally, it examines the impact of technology on competitive forces such as barriers to entry and the power of customers.
Business and the Technological Environment
- 2. Strategic importance of technology • The key relationship to consider is that between technology and strategic success • Technology may not be a source of competitive advantage – if competitors exploit it too • Rapid technological change can challenge all competitors in a market
- 3. How technology can change a “business model” What is a business model? How a business organises its activities to generate income (revenues) and incur costs
- 4. Examples of “business models” (1) Facebook generates revenues from advertising, using the platform of over 500 million users.
- 5. Examples of “business models” (2) Low-cost airline generates revenues by selling direct to consumers (avoiding intermediaries) with a high proportion of bookings made online
- 6. Technological change provides an opportunity to change business models
- 7. Technology mechanisms Technology How It Potentially Creates an Example Mechanism Advantage A new process Produce faster, at lower cost or Online video better quality streaming Solve a complex Do something competitors find Google search problem hard to master engine A new product The first product to market The iPad & iPhone Protect a Have something others can only Pfizer’s Viagra valuable idea sell if they pay for a licence Rewrite the rules A completely new approach Smartphones which makes other products and markets redundant
- 8. Technology and Porter’s Five Forces? Force Examples of Potential Impact of Technology Barriers to entry May reduce economies of scale – encouraging new entrants (e.g. digital publishing) In some case barriers may rise – as products become more complex and processes difficult to copy Substitutes New products may displace old – e.g. Online streaming for DVD, which in turn replaced videotape Technology in other markets may “steal” customer spending from other markets – e.g. more spending on smartphone apps may reduce spending on PC software Power of customers Technology may free businesses from a single source of (buyers) & suppliers supply – e.g. Cloud-based applications v Microsoft Competitive rivalry Rivalry is diminished is technology is successfully patented and licensed
- 9. Opportunity or Threat? • Some businesses may be technology leaders – where technology enables them to gain an advantage • Most other businesses need to assess the threat posed by technology on their competitive position
- 10. Examples of technology as a threat
- 11. Examples of technology as a threat
- 12. Examples of technology as a threat
- 13. Innovation and technology • Developing new technology is usually expensive • The investment returns depend on the extent and pace at which a market adopts new products, or improved versions of existing products • This is known as innovation diffusion
- 14. Supply-side factors affecting innovation diffusion Supply Factor Potential Effect on Technology Degree of Does the technological change provide enough incentive for improvement customers to change? Compatibility Is the new technology compatible with existing products?; Are older products likely to become obsolete? Complexity Does the product or the way it is marketed (e.g. pricing) make it too complicated for the majority of customers to understand? Experimentation Can customers test the new technology before committing to buying it? What feedback is available from early-adopters? Customer service How easy is it for potential customers to get answers to their questions before committing to the new technology? Adapted from Johnson & Scholes – Corporate Strategy
- 15. Demand factors affecting innovation diffusion Demand Factor Potential Effect on Technology Market How aware is the market of the new technology? awareness What promotional activity is required in order for customers and distributors to support the technology? Observability What is the potential for a “band-wagon effect”? How easy is it for customers and distributors to see the technology in action and observe the benefits that is brings? Customers Which customers are likely to adopt the technology first? What approach is most appropriate for a successful launch of the innovation? How are existing customers going to be supported in transferring to the new technology? Adapted from Johnson & Scholes – Corporate Strategy
- 16. What is a “tipping point”? The point in time at which some new technology becomes mainstream
- 17. Tipping points • With innovation diffusion, demands tends not to increase steadily • Often a slow process of adoption • Then a tipping point – when demand suddenly takes off (or declines!)
- 18. Tablets are past their tipping point?
- 19. Tipping point – the amazing growth of Apps
- 20. Developing or acquiring technology Three main options In-house Alliances Acquisition Development
- 21. In-house development • Favoured if technology is a key competitive advantage • Business may have experience of achieving first-mover advantage • Requires strong insights into technology and market needs • Business must also be willing to take commercial and financial risks
- 22. Perhaps the best example of in-house development
- 23. Alliances • Appropriate for technologies which are important, but which do not confer competitive advantage (e.g. packaging) • Business may want to “follow & imitate” rather than be a market innovator • New technology may be well beyond the skills and experience of the business • Helps limit commercial and financial risk • A good link with “outsourcing”
- 26. Acquisition • Often important if speed is important – i.e. no time for learning • May be essential if the technology is complex or if it is providing competitors with an advantage • Acquisitions are high risk – have to be sure that the right technology is being bought
- 27. Technology acquisition - examples
- 28. Technology acquisition - examples
- 29. Technology acquisition - examples
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