Description
importance of technolgy and innovation as a tool of strategy. It also explains innovation life cycle and how R&D expenditure is important from strategy point of view in the long run.
Strategic Management of Technology and Innovation
Technology Management
• Technology innovation most important driving force in economic growth owing to increased competition and accelerated product development cycle. • Technology innovation needs large investments • Involves long gestation period • Single firm may not have enough resources and motivation to undertake technology innovation • Major concern is to generate significant return from investment in R&D
Technology Management
• Importance of technology and innovation must be felt at the top level • Strategic managers have an obligation not only to encourage new product development but also to develop a system to ensure that technology is being used most effectively keeping consumer in mind. • “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.” ----Morita
Technology Management
• • • • Environment Scanning Strategy formulation Strategy implementation Evaluation and control
Environment Scanning
• External scanning
– New development may come from different quarters – New technologies can change the very basis of competition – Scientific conferences, journals and trade gossips provide useful information for building „Technology Roadmaps?
• How to incorporate in new product • What cost • Which is being worked out by competitors
– In case of new products/technology market research may be of very little use
Environment Scanning
• Internal scanning
– Resource allocation
• R&D spend a principal means of gaining market share • Consistency in R&D strategy and resource allocation improves corporate performance
– Time to market
• Technology transfer • Japanese firms gained incredible advantage by reducing time to market to 3 years (against normal 7-11 years)
– Technology discontinuity
• When to abandon present technology and adopt new • Enhancement of present technology gives incremental results but key to competitiveness is to determine when to shift to a new technology with more potential
Technology Discontinuity
„S? Curve
Product Performance
Mature Technology New Technology
Research efforts
Technology forecasting
• Future technologies likely to emerge and become economically feasible • Identifying technology gaps
– Use current knowledge – Specific scientific refinement of information – Quantitative conclusions
• Techniques
– Trend projections – Intuitive methods – Econometric models
Strategy Formulation
• To be a leader or follower in terms of technology • Make or buy technology • Product versus process R&D • Strategy should match company?s corporate and business strategies and level of industry development
Technology sourcing
• In-house R&D important source of technology knowledge • Strategic alliances / Contractual agreements, e.g. licensing, JVs, R&D consortium, minority investments in R&D firms • Ford paid $100 ml to get exclusive access to Cummins truck engine technology and saved $300 ml expense of designing a new engine to meet US emission norms • GM, P&G and six other companies purchased $20 ml of equity in a small artificial intelligence company (Tecknowledge) to get access to its software products
Product vs Process R&D
• Match the product life cycle stages • In the beginning product innovations more suitable
– Product?s physical attributes and capabilities affect financial performance – Helps in achieving differentiation strategies
• Later process R&D innovations needed
– – – – Improved production facilities Improved product quality Faster distribution Helps in successful cost leadership strategy
• On an average US firms spend 70% on product innovations and 30% on process while German firms spend 50-50 and Japanese firms spend 70-30.
Innovation Life Cycle
Cash flow
Product R&D Innovation cycle
Product released Positive cash flow Negative cash flow Activity begins Opportunity perceived First customers satisfied Break even Project becomes extinct
Process R&D ??
Opportunity occurs
Net profit
?? Time
Product plans freeze
Technology competence
• Absorption capacity • Minimum level of in house R&D capability
– to correctly evaluate technology developed by others – To assimilate and exploit new knowledge
• Employee readiness to use new technology is key factor to successful adoption
Strategy implementation
• Corporate system and culture should match R&D strategy • Large bureaucratic system resist technology development • Create entrepreneurial culture
– Open to technology creation and transfer – Willing to live with initial failures on way to success
• Encourage employees to bring and try new ideas • Check feasibility • Reallocate resources and employees
– Multifunctional teams with significant autonomy and dedication to the project
• In a survey of 701 firms 85% used it and 62% rated it as successful
Evaluation and control
• Measure R&D effectiveness and efficiency
– Sales as proportion to new products
• Not more than 1 in 20 product ideas reach market • Only 20% firms (among 45 large electronic manufacturers) have shown positive payback from their spend on R&D • Their revenue growth was double the average of all the 45 companies
Measures of R&D success
• Improving technology transfer from R&D to business units • Accelerating time to market for new products and processes • Institutionalizing cross functional participation in R&D
R&D Expenditure
Country GDP (2004) US Japan 11,200 3,7450 R&D($bn.) R&D as (2004) % GDP 301.50 119.84 2.70 3.20 R&D $bn. R&D $ bn. (Projected) (Projected) (2005) (2006) 312.50 123.33 320.70 126.40
China
India
7,262
3,319
108.93
46.47 26.83
1.50
1.40 2.90
125.49
52.88 28.06
139.63
57.64 30.18
S.Korea 925.1
Taiwan
540.2
11.88
2.20
12.42
12.98
Technical Human Resource
Patent Filing
Count ry 199920002000 01 200102 200203 200304 200405 200506* 200607+
US Japan
31255 38007 43005 41292 41203 43465 7473 9567 11904 14063 17391 20193
45813 24809
10655 8351
India
101
190
295
525
764
724
677
129
R&D Funding as percent of total
Source of fund Industry Government Academia & Others Funds From abroad U.S. 61.2% 31.3% 7.3% NA India 22.85% 74.03% 4.67% NA Japan 73.9% 18.2% 7.5% 0.4%
Plan-wise Expenditure on S&T in India
Plan Period Total S&T outlay (Rs. in Crore) Actual Expenditure as % of total outlay
First Plan (1951-56)
Second Plan (1956-61) Third Plan (1961-66) Fourth Plan (1969-74) Fifth Plan (1974-79) Annual Plan (1979-80) Sixth plan (1980-85) Seventh plan (1985-90) Eight plan (1992-97) Ninth plan (1997-2002) Tenth Plan (2002-07)
4.61
41.68 71.60 130.80 91.40 1,020.40 3,023.90 7,109.53 12106.20 25,243.0
0.22
0.86 0.95 0.52 0.72 1.04 1.69 1.63 1.44 1.64
Indian Industry and R&D
• In a survey by Business Lines 82 % of the companies were not reporting their R&D expenditure. • According to Company Act, the expenditure below 1% of the total turnover is exempted from the reporting. • This verifies that most of the private companies are spending less than 1% of their total turnover on R&D.
doc_971127125.pptx
importance of technolgy and innovation as a tool of strategy. It also explains innovation life cycle and how R&D expenditure is important from strategy point of view in the long run.
Strategic Management of Technology and Innovation
Technology Management
• Technology innovation most important driving force in economic growth owing to increased competition and accelerated product development cycle. • Technology innovation needs large investments • Involves long gestation period • Single firm may not have enough resources and motivation to undertake technology innovation • Major concern is to generate significant return from investment in R&D
Technology Management
• Importance of technology and innovation must be felt at the top level • Strategic managers have an obligation not only to encourage new product development but also to develop a system to ensure that technology is being used most effectively keeping consumer in mind. • “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.” ----Morita
Technology Management
• • • • Environment Scanning Strategy formulation Strategy implementation Evaluation and control
Environment Scanning
• External scanning
– New development may come from different quarters – New technologies can change the very basis of competition – Scientific conferences, journals and trade gossips provide useful information for building „Technology Roadmaps?
• How to incorporate in new product • What cost • Which is being worked out by competitors
– In case of new products/technology market research may be of very little use
Environment Scanning
• Internal scanning
– Resource allocation
• R&D spend a principal means of gaining market share • Consistency in R&D strategy and resource allocation improves corporate performance
– Time to market
• Technology transfer • Japanese firms gained incredible advantage by reducing time to market to 3 years (against normal 7-11 years)
– Technology discontinuity
• When to abandon present technology and adopt new • Enhancement of present technology gives incremental results but key to competitiveness is to determine when to shift to a new technology with more potential
Technology Discontinuity
„S? Curve
Product Performance
Mature Technology New Technology
Research efforts
Technology forecasting
• Future technologies likely to emerge and become economically feasible • Identifying technology gaps
– Use current knowledge – Specific scientific refinement of information – Quantitative conclusions
• Techniques
– Trend projections – Intuitive methods – Econometric models
Strategy Formulation
• To be a leader or follower in terms of technology • Make or buy technology • Product versus process R&D • Strategy should match company?s corporate and business strategies and level of industry development
Technology sourcing
• In-house R&D important source of technology knowledge • Strategic alliances / Contractual agreements, e.g. licensing, JVs, R&D consortium, minority investments in R&D firms • Ford paid $100 ml to get exclusive access to Cummins truck engine technology and saved $300 ml expense of designing a new engine to meet US emission norms • GM, P&G and six other companies purchased $20 ml of equity in a small artificial intelligence company (Tecknowledge) to get access to its software products
Product vs Process R&D
• Match the product life cycle stages • In the beginning product innovations more suitable
– Product?s physical attributes and capabilities affect financial performance – Helps in achieving differentiation strategies
• Later process R&D innovations needed
– – – – Improved production facilities Improved product quality Faster distribution Helps in successful cost leadership strategy
• On an average US firms spend 70% on product innovations and 30% on process while German firms spend 50-50 and Japanese firms spend 70-30.
Innovation Life Cycle
Cash flow
Product R&D Innovation cycle
Product released Positive cash flow Negative cash flow Activity begins Opportunity perceived First customers satisfied Break even Project becomes extinct
Process R&D ??
Opportunity occurs
Net profit
?? Time
Product plans freeze
Technology competence
• Absorption capacity • Minimum level of in house R&D capability
– to correctly evaluate technology developed by others – To assimilate and exploit new knowledge
• Employee readiness to use new technology is key factor to successful adoption
Strategy implementation
• Corporate system and culture should match R&D strategy • Large bureaucratic system resist technology development • Create entrepreneurial culture
– Open to technology creation and transfer – Willing to live with initial failures on way to success
• Encourage employees to bring and try new ideas • Check feasibility • Reallocate resources and employees
– Multifunctional teams with significant autonomy and dedication to the project
• In a survey of 701 firms 85% used it and 62% rated it as successful
Evaluation and control
• Measure R&D effectiveness and efficiency
– Sales as proportion to new products
• Not more than 1 in 20 product ideas reach market • Only 20% firms (among 45 large electronic manufacturers) have shown positive payback from their spend on R&D • Their revenue growth was double the average of all the 45 companies
Measures of R&D success
• Improving technology transfer from R&D to business units • Accelerating time to market for new products and processes • Institutionalizing cross functional participation in R&D
R&D Expenditure
Country GDP (2004) US Japan 11,200 3,7450 R&D($bn.) R&D as (2004) % GDP 301.50 119.84 2.70 3.20 R&D $bn. R&D $ bn. (Projected) (Projected) (2005) (2006) 312.50 123.33 320.70 126.40
China
India
7,262
3,319
108.93
46.47 26.83
1.50
1.40 2.90
125.49
52.88 28.06
139.63
57.64 30.18
S.Korea 925.1
Taiwan
540.2
11.88
2.20
12.42
12.98
Technical Human Resource
Patent Filing
Count ry 199920002000 01 200102 200203 200304 200405 200506* 200607+
US Japan
31255 38007 43005 41292 41203 43465 7473 9567 11904 14063 17391 20193
45813 24809
10655 8351
India
101
190
295
525
764
724
677
129
R&D Funding as percent of total
Source of fund Industry Government Academia & Others Funds From abroad U.S. 61.2% 31.3% 7.3% NA India 22.85% 74.03% 4.67% NA Japan 73.9% 18.2% 7.5% 0.4%
Plan-wise Expenditure on S&T in India
Plan Period Total S&T outlay (Rs. in Crore) Actual Expenditure as % of total outlay
First Plan (1951-56)
Second Plan (1956-61) Third Plan (1961-66) Fourth Plan (1969-74) Fifth Plan (1974-79) Annual Plan (1979-80) Sixth plan (1980-85) Seventh plan (1985-90) Eight plan (1992-97) Ninth plan (1997-2002) Tenth Plan (2002-07)
4.61
41.68 71.60 130.80 91.40 1,020.40 3,023.90 7,109.53 12106.20 25,243.0
0.22
0.86 0.95 0.52 0.72 1.04 1.69 1.63 1.44 1.64
Indian Industry and R&D
• In a survey by Business Lines 82 % of the companies were not reporting their R&D expenditure. • According to Company Act, the expenditure below 1% of the total turnover is exempted from the reporting. • This verifies that most of the private companies are spending less than 1% of their total turnover on R&D.
doc_971127125.pptx