TECHNOLOGICAL FORCES:Technology-based issues

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Strategic Management MGT603

Lesson 10

TECHNOLOGICAL FORCES

Revolutionary technological forces:

Profound impact on organizations

Internet

Semiconductors

XML (extensible markup lang.) technologies

UWB (ultra wideband wireless) communications

Revolutionary technological changes and discoveries such as superconductivity, computer engineering,

thinking computers, robotics, unemployed factories, miracle drugs, space communications, space

manufacturing, lasers, cloning, satellite networks, fiber optics, biometrics, and electronic funds transfer are

having a dramatic impact on organizations. Superconductivity advancements alone, which increase the

power of electrical products by lowering resistance to current, are revolutionizing business operations,

especially in the transportation, utility, health care, electrical, and computer industries.

The Internet is acting as a national and even global economic engine that is spurring productivity, a critical

factor in a country's ability to improve living standards. The Internet is saving companies billions of dollars

in distribution and transaction costs from direct sales to self-service systems. For example, the familiar

Hypertext Markup Language (HTML) is being replaced by Extensible Markup Language (XML). XML is a

programming language based on "tags" whereby a number represents a price, an invoice, a date, a zip code,

or whatever. XML is forcing companies to make a major strategic decision in terms of whether to open

their information to the world in the form of catalogs, inventories, prices and specifications, or attempt to

hold their data closely to preserve some perceived advantage. XML is reshaping industries, reducing prices,

accelerating global trade, and revolutionizing all commerce. Microsoft has reoriented most of its software

development around XML, replacing HTML.

Ultra-wideband (UWB) wireless communications that sends information on tiny wave pulses may soon

replace continuous radio waves, allowing ever-smaller devices to do vastly more powerful wireless

communications. The Federal Communications Commission (FCC) is slow to approve UWB in fear of its

disrupting existing wireless communication, but UWB technology pioneered by Time Domain of

Huntsville, Alabama, has the potential to permanently change the way all individuals and businesses

communicate worldwide.

Internet changes the nature of opportunities and threats

Alters life cycle of products

Increases speed of distribution

Creates new products and services

Eases limitations of geographic markets

Alters economies of scale

Changes entry barriers

The Internet is changing the very nature of opportunities and threats by altering the life cycles of products,

increasing the speed of distribution, creating new products and services, erasing limitations of traditional

geographic markets, and changing the historical trade-off between production standardization and

flexibility. The Internet is altering economies of scale, changing entry barriers, and redefining the

relationship between industries and various suppliers, creditors, customers, and competitors.

Capitalizing on Information Technology (IT)

Chief Information Officer (CIO)

Chief Technology Officer (CTO)

To effectively capitalize on information technology, a number of organizations are establishing two new

positions in their firms: chief information officer (CIO) and chief technology officer (CTO). This trend reflects the

growing importance of information technology in strategic management. A CIO and CTO work together to

ensure that information needed to formulate, implement, and evaluate strategies is available where and

when it is needed. These persons are responsible for developing, maintaining, and updating a company's

information database. The CIO is more a manager, managing the overall external-audit process; the CTO is

more a technician, focusing on technical issues such as data acquisition, data processing, decision support

systems, and software and hardware acquisition.

Strategic Management MGT603

Technology-based issues:

Underlie nearly every strategic decision

Technological forces represent major opportunities and threats that must be considered in formulating

strategies. Technological advancements dramatically can affect organizations' products, services, markets,

suppliers, distributors, competitors, customers, manufacturing processes, marketing practices, and

competitive position. Technological advancements can create new markets, result in a proliferation of new

and improved products, change the relative competitive cost positions in an industry, and render existing

products and services obsolete. Technological changes can reduce or eliminate cost barriers between

businesses, create shorter production runs, create shortages in technical skills, and result in changing values

and expectations of employees, managers, and customers. Technological advancements can create new

competitive advantages that are more powerful than existing advantages. No company or industry today is

insulated against emerging technological developments. In high-tech industries identification and evaluation

of key technological opportunities and threats can be the most important part of the external strategic-

management audit.

Organizations that traditionally have limited technology expenditures to what they can fund after meeting

marketing and financial requirements urgently need a reversal in thinking. The pace of technological change

is increasing and literally wiping out businesses every day. An emerging consensus holds that technology

management is one of the key responsibilities of strategists. Firms should pursue strategies that take

advantage of technological opportunities to achieve sustainable, competitive advantages in the marketplace.

Technology-based issues will underlie nearly every important decision that strategists make. Crucial to those

decisions will be the ability to approach technology planning analytically and strategically. . . . Technology

can be planned and managed using formal techniques similar to those used in business and capital

investment planning. An effective technology strategy is built on a penetrating analysis of technology

opportunities and threats, and an assessment of the relative importance of these factors to overall corporate

strategy.

In practice, critical decisions about technology too often are delegated to lower organizational levels or are

made without an understanding of their strategic implications. Many strategists spend countless hours

determining market share, positioning products in terms of features and price, forecasting sales and market

size, and monitoring distributors; yet too often technology does not receive the same respect:

The impact of this oversight is devastating. Firms not managing technology to ensure their futures may

eventually find their futures managed by technology. Technology's impact reaches far beyond the "high-

tech" companies. Although some industries may appear to be relatively technology-insensitive in terms of

products and market requirements, they are not immune from the impact of technology; companies in

smokestack as well as service industries must carefully monitor emerging technological opportunities and

threats.

Not all sectors of the economy are affected equally by technological developments. The communications,

electronics, aeronautics, and pharmaceutical industries are much more volatile than the textile, forestry, and

metals industries. For strategists in industries affected by rapid technological change, identifying and

evaluating technological opportunities and threats can represent the most important part of an external

audit.

Some technological advancements expected soon in the computer and medical Industry are computers that

recognize handwriting; voice-controlled computers; gesture-controlled computers; picture phones; and

defeat of heart disease, AIDS, rheumatoid arthritis, multiple sclerosis, leukemia, and lung cancer. New

technological advancements in the computer industry alone are revolutionizing the way businesses operate

today. Cell phone and wireless Internet access are becoming common, with Finland leading all countries in

this new technology.

Competitive Forces

"Collection and evaluation of information on competitors is essential for successful strategy formulation"

Competition in virtually all industries can be described as intense.

Identifying rival firms:

Strengths

Weaknesses

Capabilities

Opportunities

Strategic Management MGT603

Threats

Objectives

Strategies

Key Questions about Competitors:

Their strengths

Their weaknesses

Their objectives and strategies

Their responses to all external variables (e.g. social, political, demographic, etc.)

Their vulnerability to our alternative strategies

Our vulnerability to successful strategic counterattack Our product and service positioning

relative to competitors

Entry and exit of firms in the industry

Key factors for our current position in industry

Sales and profit rankings of competitors over time

Nature of supplier and distributor relationships

The threat of substitute products or services

The top five U.S. competitors in four different industries are identified in Table. An important part of an

external audit is identifying rival firms and determining their strengths, weaknesses, capabilities,

opportunities, threats, objectives, and strategies.

The Top Five U.S. Competitors in Four Different Industries in 1999

1999 SALES

PERCENTAGE

1999

PERCENTAGE

IN $

CHANGE FROM PROFITS IN CHANGE FROM

MILLIONS

1998

$ MILLIONS

1998

AEROSPACE

Boeing

57,993

2,309

+106

Lockheed

25,530

-3

737

-26

Martin

United

24,127

841

-27

Technologies

Northrop

8,995

483

+149

Grumman

General

8,959

+21

880

+49

Dynamics

FOREST PRODUCTS

International

24,600

199

-19

Paper

Georgia-

17,790

+35

716

+545

Pacific

Kimberly-

13,006

1,668

+50

Clark

Boise

6,952

+13

200

Cascade

Fort James

6,827

350

-29

Strategic Management MGT603

IBM

87,548

7,712

+22

Hewlett-

43,808

+10

3,016

Packard

Compaq

38,525

+24

569

Computer

Dell

25,265

+38

1,666

+14

Computer

Xerox

19,228

-1

1,424

+143

PUBLISHING

Time Warner 27,333

+87

1,960

+1067

CBS

7,373

157

Gannett

5,260

919

-5

McGraw-Hill 3,992

426

+25

Knight-

3,228

+11

Source: Adapted from Corporate Scoreboard, Business Week (March 27, 2000): 167-192.

NM: Not Measurable

Collecting and evaluating information on competitors is essential for successful strategy formulation.

Identifying major competitors is not always easy because many firms have divisions that compete in

different industries. Most multidivisional firms generally do not provide sales and profit information on a

divisional basis for competitive reasons. Also, privately held firms do not publish any financial or marketing

information.

Despite the problems mentioned above, information on leading competitors in particular industries can be

found in publications such as Moody's Manuals, Standard Corporation Descriptions, Value Line Investment Surveys,

Ward's Business Directory, Dun's Business Rankings, Standard & Poor's Industry Surveys, Industry Week, Forbes,

Fortune, Business Week, and Inc.

However, many businesses use the Internet to obtain most of their information on competitors. The

Internet is fast, thorough, accurate, and increasingly indispensable in this regard. Questions about

competitors such as those presented in Table are important to address in performing an external audit.

Key Questions About Competitors

What are the major competitors' strengths?

What are the major competitors' weaknesses?

What are the major competitors' objectives and strategies?

How will the major competitors most likely respond to current economic, social,

cultural, demographic, environmental, political, governmental, legal, technological,

and competitive trends affecting our industry?

How vulnerable are the major competitors to our alternative company strategies?

How vulnerable are our alternative strategies to successful counterattack by our

major competitors?

How are our products or services positioned relative to major competitors?

To what extent are new firms entering and old firms leaving this industry?

What key factors have resulted in our present competitive position in this Industry?

10.

How have the sales and profit rankings of major competitors in the industry changed

Strategic Management MGT603

over recent years? Why have these rankings changed that way?

11. What is the nature of supplier and distributor relationships in this industry?

12. To what extent could substitute products or services be a threat to competitors in

this industry?

Competition in virtually all industries can be described as intense and sometimes cutthroat. For example,

when United Parcel Service (UPS) employees were on strike in 1997, competitors such as Federal Express,

Greyhound, Roadway, and United Airlines lowered prices, doubled advertising efforts, and locked new

customers into annual contracts in efforts to leave UPS customer-less when the strike ended. If a firm

detects weakness in a competitor, no mercy at all is shown in capitalizing on its problems.

Seven characteristics describe the most competitive companies in America:

1) Market share matters; the 90th share point isn't as important as the 91st, and nothing is more dangerous

than falling to 89;

2) Understand and remember precisely what business you are in;

3) Whether it's broke or not, fix it--make it better; not just products, but the whole company if necessary;

4) Innovate or evaporate; particularly in technology-driven businesses, nothing quite recedes like success;

5) Acquisition is essential to growth; the most successful purchases are in niches that add a technology or

a related market;

6) People make a difference; tired of hearing it? Too bad;

7) There is no substitute for quality and no greater threat than failing to be cost-competitive on a global

basis; these are complementary concepts, not mutually exclusive ones.

Competitive Intelligence Programs

Systematic and ethical process for gathering and analyzing information about the competition's activities and general business

trends to further a business' own goals.

Every organization must have an intelligence programmed. It should be ethical and systematic for gathering

and analyzing the information about competitor activities and activities involve in general business.

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