1. APPROACHES TO TECHNOLOGY
STRATEGY

2. • This chapter reviews major contributions on
the relationship between technology and
strategy, the process of technology strategy
formulation, and the identification of the
major categories of decision related to
technology. The chapter is structured as a
chronological excursus of the key
contributions to our understanding of the
problem.

3. 2.1.1 Porter’s Framework
• In the late 70s and early 80s, several works dealt
with how to treat technology as a strategic
variable. They mostly contributed identify the
categories of decision related to technology and
the types of innovation strategies firms can
follow. A comprehensive work which in the early
80s addressed the point of how to formulate a
firm's technology strategy studying both the link
with the business strategy and the key
dimensions of technological choices is that of
Michael Porter (1980) and (1985).

4. The basic elements of the Porter’s
approach
• competition is searching for favorable
competitive environments (selecting the
appropriate business area), where favorable
means that firms in that business area are likely
to be profitable in the medium-long term;
• strategy is defining how to achieve a sustainable
competitive advantage (positioning within the
selected business area). He identifies four generic
strategies: cost leadership, product
differentiation, cost focus, differentiation focus.

5. • Therefore, there are two key decisions:
selecting the business area and positioning
within this.
• He suggests two tools supporting the two key
decisions: the five forces model and the value
chain, respectively.

6. • The business area is selected on the basis of
the industry attractiveness.
• Determinants of the industry attractiveness
are the following five forces: rivalry among
established firms, substitute products, new
entrants, relations with suppliers, relations
with customers.

7. • Porter recognizes that:
• technology is a determinant of the industry
structure and therefore affects the
profitability within the industry;
• technology affects a firm’s potential to
generate competitive advantages and can be
at the basis of the firm’s positioning within the
business area.

8. Table 2.1. Technology influence over
the five forces - Examples.
• Rivalry among competitors: modification of the cost
structure, substitution costs, exit barriers
• Potential new entrants: economies of scale, learning
curve, access to distribution channels
• Substitute products: substitution threats coming from
completely different industries, modification of the
relative price of products
• Power of customers and suppliers: change of
switching costs, opportunity/obstacle to vertical
integration, modification of the bargaining power
(increasing/reducing the number of
customers/suppliers)

9. • On the other hand, technology affects each
activity of the firm's value chain both primary and
support (Figure 2.1). It can therefore support or
be directly source of advantage in terms of cost
or differentiation. Therefore, it can be at the basis
of each of the four generic strategies: cost
leadership, product differentiation, cost focus,
differentiation focus. These strategies can be all
the result of or affected by either product or
process technological change (Table 2.2).

10. • Then, Porter in depth studies the elements of
a fm’s technology strategy. He suggests that
technology strategies consist of three key
elements, which correspond
• to three key decisions:
• the selection of the technologies to develop;
• whether to be leader or follower;
• whether to sell the technology or not.

11. Selection of technologies
• . The selection of the technologies to develop is based on two
principles:
• - the coherence of the technological choices with the firm’s basic
strategy (cost vs. differentiation, focus vs. broad range, which are
the two dimensions of the matrix in Table 2.2). At the core of a
technology strategy there is the type of competitive advantage a
firm is trying to achieve and the basic question to answer is how
technology can support this (the previous table shows examples of
technological change consistent with the generic strategies);
• the test of whether the technological change is desirable for the
firm. The technological change is desirable when the advantage
generated is sustainable for the firm and when the changes in the
industry structure is favorable. Porter emphasizes that often firms
do not pay attention to the changes

12. Leadership vs. followership.
• The choice whether to be leader or follower is
based on three factors:
• - the sustainability of the technological
leadership;
• - the advantages of being first mover;
• - the disadvantages of being first mover. Each
is in turn affected by a number of factors.

13. The sustainability of the technological
leadership depends on four factors:
• the source of the technological change. If the source of technology is within the
industry, the technological leadership can be easier sustained, whereas, when
technological source is external, other firms can access such source and the
leadership is not sustainable;
• advantages related to the activity of technology development. A firm which has
advantages in the activity of technology development such as scale economies in
R&D R&D, higher R&D productivity, higher R&D efficiency, can sustain its
leadership over the long term;
• the relative technological competencies. If technological competencies are unique
with respect to competitors, the leadership can be easier sustained;
• the rate of diffusion of the leader technology. The diffusion of a firm’s technology
and the process of learning by competitors can take place in a variety of ways such
as reverse engineering, technology transfer through suppliers and customers,
technology transfer through consultants and press, personnel turnover, scientific
publications. The leader can protect its technology through a variety of
instruments: patenting, internal development of prototypes and production
equipment, vertical integration of the production of key components, personnel
management policies.

14. six categories of technological
innovation strategy

15. Licensing a technology (whether to
sell or not).
• The decision about technology licensing is related to the
introduction of a new technology onto the market rather
than its development. The decision to license a technology
should be taken when licensing out allows to:
• exploit the technology which otherwise would remain not
exploited;
• access markets otherwise not available;
• introduce more rapidly a new standard;
• create ‘good’ competitors, who may play a role in
stimulating the market demand, share pioneering costs,
and raising entry barriers;
• have higher profits than those granted by the exploitation
on the market

16. process of technology strategy
formulation
• identification of the specific technologies and sub-technologies of the
firm’s value chain;
• identification of the relevant technologies available in other industrial
sectors;
• definition of the probable patterns of technological change;
• identification of the technologies critical for the firm’s competitive
advantage and favorable for the industry structure;
• valuation of the firm’s capabilities and the required investments for
technology development;
• selection of a technology strategy able to reinforce the firm’s competitive
• position (the technology strategy is composed of the elements given
above, i.e.
• selection of the technologies on which to invest, decision whether to be
leader or follower, decisions whether to license out technologies). A
further decision concerns whether to acquire technologies from external
sources.