Technology: How important is for my company?

1.   Business competitiveness is a function of several factors: Access to raw material, access to distribution channels, talent and human resources of the organization, productivity, innovation and capacity to generate new products, R&D capacity, relationship with customers, connection with suppliers, product design, internationalization, financing, etc.
2.   In all sectors and in all companies the totally of factors have a weight in competitiveness. But in each sector are just a few of them which determine almost all of the competitive capacity. And they are different in each sector. For example, R&D is a factor that has a high impact on the pharmaceutical sector. However, it does not matter in a sausage maker. In this sector, access to raw material and productivity will be the factors that will almost completely determine its competitive capacity.
3.   Innovation is one more factor of competitiveness. Innovating today is synonymous of an attitude, a business concern. Therefore, all companies must be innovative. But it must be clear that innovation has a very different weight in the competitive capacity of each company and each sector. Not all companies and sectors must be equally innovative.
4.   It must also be very clear that innovation may be of different types (product, process, organization, services …). One of these types is technological innovation. When companies are asked to innovate, it does not necessarily mean that they must innovate in technology. Their competitiveness may depend primarily on other types of innovation.
5.   One step further: Innovating in technology does not necessarily mean developing, creating technology. There are other ways to obtain technology apart from creating it internally (R&D the most typical and pedagogical way to show how companies create technology internally). Some of these other forms to obtain technology that not internally are better suited to particular enterprises and certain sectors. For example, take again the case of to the pharmaceutical sector:

• In this sector it is fundamental for its competitiveness to generate internally differential technology through R&D. That differential technology will be the foundation of the new products, the new drugs of the company
• Of course, it is also important for the competitiveness of those pharmaceutical companies to have adequate technology to produce the products (“machinery”). The quality of this process technology will allow the pharmaceutical company to be more or less productive. But two things happen:

1) The weight of this process technology (of the productivity as a competitiveness factor) in the competitiveness of the company is much much lower than the weight of the product technology (new drugs).

2) The market is full of expert providers that can supply this process technology. Therefore, in this case, the pharmaceutical company acquires this technology externally.

Finally, in all this reasoning, one must also take into account the company’s strategy. It is not the same to obtain technology in a company that is a technological leader in its sector than in a company that is a technological follower.

The previous ones are some first considerations that would help a company to decide the importance that technology has for it.

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Going deeper, you can decide on technology by analyzing the following issues:

• The context in which the company acts: Sector, size, innovation system, role played by external agents such as the regulator, etc.
• The characteristics of the company, which academic theory analyzes from several points of views. One of them is technological trajectories. I will reference that point of view it in a moment.
• The life cycle of innovation

Technological trajectories

Summarizing, the concept of technological trajectories says that designing and producing a car is not the same as designing and producing a medicine or a computer (quite intuitive J). In each case, we are not dealing with a single technology but with several technologies, each with its historical development model, specific skills requirements and also with its own strategic implications. So it is obliged to take into account the differences between companies and sectors, as they differ markedly in terms of their fundamental technologies. Many studies have highlighted the large differences between industrial sectors in terms of the sources and directions of technological change. These differences can be summarized as follows:

1. Size of innovative enterprises: Large in the chemical, motor vehicle, material processing, aeronautics and electronics sectors. Small in sectors of machinery, instruments and software.
2. Type of product manufactured: Sensitive to price in bulk and consumer-oriented sectors, sensitive to characteristics in medicines and machinery
3. Objectives of innovation: Of product in drugs and in machinery for example. Of process in steel. Or both in the automotive sector
4. Sources of innovation: Suppliers of equipment and other inputs of production in the sectors of agriculture and traditional industry (e.g. textiles). Customers in instrumentation, machinery and software. Internal technological activities in the chemical, electronic, transport, machinery, instruments and software sectors. Basic research in the pharmaceutical sector
5. Locus of innovation itself: R&D laboratories in chemistry and electronics. Engineering departments in automobiles and bulk products. Design offices in machinery construction. Systems departments in the service sectors (e.g. banks or supermarket chains)

Five sectorial typologies are distinguished in this theory of technological trajectories.

First, the sectors of companies dominated by suppliers. These are generally small enterprises with little internal R&D capacity in traditional industrial sectors (textiles, paper, wood, etc.), agriculture, sectors such as publishing and printing, construction and also professional, financial and commercial services. These companies base their activity on issues such as product design, branding, advertising or professional skills. The technological factor has little importance in them. In these type of companies technological trajectories are based on cost reduction terms. Companies of this type assign great importance to salaries and the price and characteristics of externally developed capital goods. In fact, most of the innovations come from suppliers of equipment and materials. These sectors identify many process innovations that come from other sectors and innovative product activity is low.

Secondly, scale-intensive enterprises, which tend to be large in size and operate in sectors such as food, automobile construction, cement, steel, etc. They are based on a large volume of production as a strategy to reduce unit costs. They usually have engineering departments dedicated to optimizing the production process (elimination of bottlenecks, design of new production mechanisms, time analysis, etc.). For these large producers, no specific invention is a determinant of competitiveness. The technological leadership is obtained through a productive process with a high content of know-how that is maintained as an industrial secret. They also use, to avoid imitation, technical delays or protection through patents.

The third typology is the sectors of specialized suppliers. Some of the suppliers of the last typology (scale-intensive enterprises) are their main source of process innovation and provide them with machinery, knowledge and design expertise. In those specialized suppliers, competitiveness depends on the company’s ability to introduce constant innovations in its product, in order to improve design and performance, and its ability to be responsive and respond quickly to the needs of its customers. In the small companies that form this group, external collaboration can be an essential factor in the development of new products. Specialized suppliers, therefore, continuously explore new opportunities through R&D collaborations. External partners include clients, competitors, universities and government agencies. Universities and public research centers are important sources of information for these companies.

Finally, companies based on science are the fourth typology. The main source of the innovations of this type of companies is their own R&D, based on a rapid development of the discoveries made, for example, by the universities. The sophistication of technology acts as an entry barrier for potential competitors. These are relatively large companies, which also produce a high proportion of their process technology.

Subsequently a fifth typology was added, that of the information-intensive sectors.

Obviously this model has many exceptions. But it helps to distinguish the different behavior of each sector.

Innovation lifecycle

It is known that technological progress and innovation follow a clear pattern in its evolution. Normally this pattern starts with a technological discontinuity. A technological discontinuity is a radical change of the basal solution that supports an industry. It might be a new business model, a new technology… The discontinuity affects the competitive nature of the sector.

After this discontinuity, it follows stages of evolution in which emerges the dominant design and ends with its displacement and surely death due to a new future technological discontinuity. This pattern has important implications for the competitive dynamics and the viability of both the sector and the companies. Also for the approach of technological strategies, since it is necessary to take into account the moment in which the innovation is. Therefore, types of opportunities in the field of innovation change over time. For example:

• In relatively recent sectors, much more needs to be done to experiment with new products and processes.
• In more mature sectors innovation opportunities focus on process or position innovation, for example, looking for ways to deliver the product or service more economically or more flexibly or trying to identify new market segments.

There is a way to capture this reality and it is the one of the three stages of Abernathy and Utterback, shown in the following figure:

1. Initially, in the context of the conditions of discontinuity that occur when a new technology or market emerges, there is a “fluid” phase in which the paradigm that will prevail is not well known. By “paradigm” we refer to the basal technology or concept. For example, in the electric car sector, future system of electric charge must be defined. It might be by 1) battery swapping, 2) inductive charging or 3) charging points (although it seems that the latter option begins to prevail). In this phase, there is a diversity of solutions, of product designs as all competitors try to respond to the emerging needs of customers. The R&D activities at this stage are often insufficiently specified, as technical and design standards are not yet on the market. Efforts at this stage are mainly directed at product innovation rather than process innovation. Companies compete by trying to deliver product functionality, rather than cost.
2. Gradually, little by little, a “dominant design” is reached, which begins to define the rules of the game. The most popular solution is imposed. But, popular does not mean that it is the best from the technical point of view or the most elegant. The process of defining the dominant design is complex and not well known yet. At this stage, innovations, new proposals, begin to be channeled into a corridor, the dominant design corridor. If you are a company working at this stage, you can do tests but not too far from the solution that the market is gradually accepting. The experimentation aims at improving the dominant design (attempts to imitate the design) and the concretion of the processes. This is the transition phase, from the moment the dominant design is imposed until the emphasis is placed on the imitation and development around that winning concept.
3. The last stage is the specific one. Companies want to produce a specific product with maximum efficiency. The product can become a commodity and the focus of innovation is on improving the process (as cost is the main factor to compete). In this phase, the product innovation is only oriented to the customization of the product, to respond to the specific needs of certain users.

From here, the cycle can start again at any time.

This model is important for the management of innovation and technology in the company. In general, companies find it difficult to manage discontinuities. Companies build capacities around a particular path and those companies that may be strong at a particular stage (for example in the specific phase) will have difficulty managing their entry into the next one. There are cultural and psychological issues, economic issues, sunk costs, and commitments to technologies and markets, all of which affect change.

The fluid phase presupposes the coexistence of the old and the new. In fact, mature technology (before dying) may even accelerate its improvement in this phase, in response to new competing technology.

Anderson and Tushman offered a similar scheme of technological change marked by these stages:

• The initial discontinuities followed by a fermentation stage, with great competition between technological regimes.
• The emergence of the dominant design
• Finally, the incremental change, in which competition is based on costs

The following graph superimposes the two visions (Utterback and Anderson and Tushman) along with the typical S-curve of the technology.

A company should have a clear idea on what stage it is (technology, industry) to develop an appropriate technology strategy. For example, if the paradigm is already defined and we are therefore in the second phase, it might not make sense that the company tried to build new solutions or differentiate itself by the functionalities of the product.

The company should try to anticipate the future. How can you predict a discontinuity? There are some essential questions when we talk about discontinuities:

• How can companies detect signs of change if the changes occur in technological areas that these companies do not know and in which they do not carry out R&D?
• How can these companies understand the needs of a market that does not yet exist? And those needs will conform to what will be the dominant design after the change!
• If those companies talk to customers, they will continue to ask for exactly the same thing as up until then. So, which users do they have to talk to? How do they find them?

There are no answers. The only way is to manage technology and innovation in an open way, without questioning possible new ways of doing things, without preconceiving anything, with agility and flexibility, with the ability to learn fast.