Author: Price, Robert M.
Source: California Management Review 38(3): 38-56. 1996 Spring.

Abstract

    Creating and applying new knowledge and technology has long been a critical key to financial success. With increasing resource requirements for technological advance and acceleration in the rate of global technology diffusion, strategic thinking about technology must go beyond the simple development of new products or services. There are 3 common management failings in the strategic management of technology: 1. the inability to understand status and trends of the technologies necessary to and sufficient for competitive advantage, 2. a focus on product technologies and neglect of process technologies, particularly information technologies, in search for competitive advantage, and 3. the inability to accurately assess the time and cost of converting market need into market demand for new technology. Two straightforward but rigorous metaphors, Strategic Space and the Technology Food Chain, can help to overcome these basic shortcomings in strategic thinking.

Full Text

    "Today, success in the global marketplace means creating and applying new knowledge-which is to say new technology-faster than one's competitors. That is the fundamental law in this competitive world. " Erich Bloch Distinguished Fellow, Council on Competitiveness

    What do Intel and WalMart have in common? Both enjoy great success in their respective industries through their ability to apply technology to their critical processes and take advantage of the time compression factor implicit in Erich Bloch's "fundamental law."

    Creating and applying new knowledge-new technology-have long been the keys to economic success. In today's world, however, business people feel a new urgency due to the increasing resource requirements for technological advances as well as the accelerating rate of global technology diffusion. This requires strategic thinking about technology beyond the simple development of new products or services. The task of managing technology is integral to, and essentially synonymous with, strategic management.

    To manage technology effectively requires a better understanding not only of technology itself, but of the evolution, maturation, and diffusion of technologies throughout the global economy. Such an understanding begins with the simple fact that technology is the change factor that is most responsive to creative management action. Social, economic, and demographic change result from factors far beyond the control of any individual firm. Even in governmental policy making, where business has a clear responsibility to participate, the individual firm is unlikely to have a significant influence on decisions. Technology management, on the other hand, resides squarely with the firm. Technology is potentially available from both society at large and from the minds and skills of the firm's employees. The managerial task is to capture this know-how more rapidly and effectively than the firm's competitors. Basic to this managerial task is creating an organizational culture where change is looked upon as an opportunity rather than a threat, and where the search for new technologies is the focus of attention at all levels in the organization.

 Defining Management of Technology

    A basic problem in understanding the management of technology begins with the word "technology" itself. Most people, including business executives, think of technology as the exotic, esoteric fringe of science and engineeringsynthetic genes, lasers, semi-conductor chips, computers, and the like. This mind-set is part of the reason that so much of business and academic thinking relegates technology to the concern of specialists. Thus, in business it is a common belief that only those executives and managers in so-called high-technology industries need concern themselves with technology. In academia, technology is generally left to schools of engineering.

    The Oxford English Dictionary defines technology as "the industrial arts." An even more straightforward definition is "know-how." Technology is the know-how we apply to basic science or to previously developed products, tools, and processes to fashion a solution to a new need. The management of technology task, in that light, becomes at once more mundane and all-pervasive. It simply will not do to view the task as adding more "bells and whistles" to a product or service. Rather, it is necessary to have a comprehensive framework for understanding the myriad ways in which technology affects both strategy and the dayto-day functioning of the business.

    First, the management of technology requires a systemic view as opposed to a discipline-oriented view of the management task. In fact, and more critically, it requires the skill of systemic thinking and then the application of the appropriate know-how to create pathways toward the organization's goal. This task is not sporadic; rather, it is a continuous one. Equally important, the management of technology is not simply "managing the R&D Department." More pointedly, a business's basic strategic objective is to attain competitive advantage, and it is this goal to which the management of technology task is addressed. The management of technology, then, necessarily involves all the functions and skills of the organization. Examples of this are easily found in quite diverse success stories such as those of Edward Marshall Boehm, Inc., and WalMart Stores, Inc. (see Exhibits 1 and 2).

    With these systemic considerations in mind, the management of technology can be defined this way: Management of Technology links engineering, science, marketing, operations, human resources, and other management disciplines to formulate EXHIBIT I. Edward Marshall Boehm, Inc.: The Systemic View of Technology Management E. M. Boehm was no technologist. Neither was he particularly interested in business. Indeed, he was so averse to financial matters that he wouldn't even write checks.Yet the story of Edward Marshall Boehm, Inc., is a simple but powerful illustration of the systemic nature of technology management-of the relation between process and product technologies and between them and marketing-including pricing, channels of distribution, and promotion.

    Early in their marriage, his wife Helen urged Boehm, who was working as an assistant veterinarian, to get serious about his art. He began researching ancient ways of handling clay, and finally developed his own formula for hard paste porcelain that had the properties and translucence which were to be key to the beauty of Boehm objects. Hard paste porcelain technology was not unknown, but it's formulation was a closely guarded secret of the fine porcelain houses of Europe and Asia.There was no equivalent technology in the United States until Boehm developed his formula.

    However, art and porcelain technology, no matter how unique, did not suffice to make a successful enterprise. Rather, it was Helen Boehm's marketing and financial skills that grew the company from basement start-up in 1954 to a $15 million world-renown enterprise in 1991. It was Helen Boehm who raised the initial capital for the company. She also convinced her husband to switch from modeling farm animals (which he loved) to modeling birds and smaller objects that she knew would sell more easily. As she once said, "Even though it was hard for him to move away from the massive proportions of cows and horses, he had to listen to what the marketplace was saying." Clearly it was Helen Boehm who listened to and understood the marketplace. It was Helen's initiative that brought Boehm porcelain to the attention of President Eisenhower, thus establishing a tradition that every president since Eisenhower has commissioned Boehm for gifts to foreign dignitaries.

    When Edward Boehm died in 1969 of a heart attack at the age of 56, it might well have meant the end of Boehm porcelain. However, with an eye on continuity and expansion, Helen and Edward had brought younger artisans into the business to learn from him and to produce equivalent creations. Helen knew the business and she was determined to keep going. Some years later she said, "There was an amazing omen right away. We were commissioned by President Nixon to create a new symbol of world peace. We decided on two mute swans and it was the most difficult project we'd ever attempted. It took two years and ten tons of plaster to make, and when the piece was finally finished, we learned that President Nixon was taking [it] as his gift to the people of China on his 1972 trip. I felt validated and I felt stronger than I ever had in my life."

    Edward Boehm combined artistic skill and fine porcelain technology to bring beauty into being. Helen Boehm combined marketing and management skills to bring that beauty to the world.*

 *The material presented here is taken from: a business case write up by James Brian Quinn,"Edward Marshall Boehm, Inc.," in H. Mintzberg and J. B. Quinn, eds., The Strategy Process, 2nd edition (Englewood Cliffs, NJ: Prentice Hall, 199 I); Sally Friedman,"New Jersey Q&A: Helen Franzolin Boehm: 'Aggressive Salesperson' or 'Shy Artist,"' The New York Times, August 8, 1993; and D Lasseter, "The Boehm Empire Started in the Basement With a $1000 Loan," Business for Central New Jersey, September 4, 1 EXHIBIT 2. WalMart Stores, Inc.: A Dramatic Example of Technology Utilization

    Ask almost any business analyst to name the source of WalMart's competitive advantage and the answer will certainly be "economies of scale." Economies of scale, however, is a result not a cause. It is the utilization of information technology that provides the means for effectively managing the scale of the business. WalMart does not even have an R&D Department, but it is nonetheless a leader in the understanding and utilization of information technology. Superior use of information technology differentiates WalMart from other retail/distribution businesses, allowing both stores and vendors to operate in a justin-time time mode while responding to changing customer demand. More than that, information technology provides a vehicle for sharing needs, best practices, and real-time information about "what's going on out there." Big companies frequently speak of their commitment to operating like a small company where every employee feels that what he or she thinks and does matters, but they rarely honor that commitment. At WalMart, information technology helps to realize this goal through explicit management commitment to effective utilization and deployment of technology. In WalMart's annual report, for example, the letter to shareholders states: "We attempt to provide our associates [employees] the very best in technology...'making technology pay' is a phrase frequently used within our WalMart stores."* At WalMart, diverse elements of the enterprise, from employee understanding and commitment to marketing and inventory control, are viewed as a system that can be enhanced and served through the use of information technology. *Letter to Shareholders,WalMart, FY 1993 Annual Report. marketing, operations, human resources, and other management disciplines to formulate strategy, develop technological capabilities, and use them to achieve strategic objectives.1

 Technology and Strategy

    The task of devising strategy involves determining one's (potential) source of competitive advantage. The process of determination covers the spectrum from "gut feel" to exhaustive computer analysis of massive databases. Prescriptions for successful strategies range from time-honored nostrums such as "location, location, location" in retailing and real estate to academic formulations for national economies such as those contained in Michael Porter's Competitive Advantage of Nations.2 Although technology may be given implicit or peripheral consideration in these prescriptions, managers, in general, fail to deal with technology as an integral factor in strategy formulation. This failure takes three forms: an inadequate understanding of necessary and sufficient technologies; a focus on product technologies and neglect of process technologies; and an inability to properly assess barriers to converting technology push into market pull.

These three failures have their roots in the way business strategy is studied and taught.

    Business thinking and practice are built on an academic foundation of economics. Unfortunately, most economics models do not encompass change, but rather focus on equilibria. They do not hold technology in a central position. As a result, business education, thought, and practice are shaped within a flawed economic framework. However, Nelson and Winter have presented a non-equilibrium economic model that focuses directly on change and evolution.3 In their model, the functioning of an enterprise is treated as a set of "routines." Technology is embodied in every activity of the enterprise, and the search for and selection of new technologies is a continuous one.

    Partly as a consequence of this flawed foundation, business strategy is analyzed and taught as a collection of discrete and essentially unrelated approaches to gaining competitive advantage. Strategic approaches such as "product differentiation," "low-cost producer," "first mover," "fast follower," and "focused differentiation" do not provide a unified way of framing sources of competitive advantage and the dynamic forces that alter those sources. A more straightforward and comprehensive approach to strategy is the answer to the "if only" quandary: If only I had a product or service no one else had; if only I had a process that was cheaper, faster, better than anyone else's; or, best of all, if only I were the sole competitor in some market. The quest for competitive advantage occurs in a space of three dimensions: products, processes, and markets (see Figure 1). Viewing strategy in relation to this three-dimensional space helps us understand how changed process technologies can give rise to new products, which in turn have new process implications that are integral to the total strategy. Each strategic move will reposition the firm with respect to all three dimensions. (Note that "process" as used here is not narrowly defined as manufacturing or production processes. Competitive advantage can, in fact, come from any process, including administrative, marketing, information, and financial processes.)

 (Chart Omitted)

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    There are forces at work that dictate how a firm changes strategy, i.e., repositions itself in strategic space. The forces that drive strategic change are: changing social values, government policy and regulation, economic change, demographic shifts, and technology. In Michael Porter's familiar five force model, a successful competitive strategy must cope with competitive rivalry, buyer power, supplier power, entry barriers, and the threat of substitutes. At any given time, the relative intensity and nature of these five forces will determine industry structure and the probability of a given strategy's success (see Figure 2).

    Although management certainly needs to assess the strategic impact of all these external factors, it is principally technology that provides management the means for coping with the changes in the other external factors and for achieving competitive success. In a very real sense, "management of technology" is synonymous with "formulating strategy."

 Necessary versus Sufficient Technology

    There are two classes of technology involved in the functioning of an enterprise: "necessary" and "sufficient."4 Devising successful strategies (i.e., those that yield competitive advantage) involves being able to discern those technologies that are required to be competitive, but are not of themselves sufficient to yield competitive advantage. These are the "necessary" technologies. Successful strategy also involves being able to discern those technologies, either existing or potential, that secure competitive advantage by differentiating a firm from its competitors. These are the "sufficient" technologies. Say, for example, a firm that makes bicycles wishes to distinguish itself by making the lightest weight bike. It should focus its attention on the technology of light weight materials and architectures. All the other technologies that go into a bicycle are necessary, but should not be the focus of the firm's attention. Although this seems straightforward enough, in business practice the ability to distinguish between necessary and sufficient technologies is surprisingly rare.

    Even this ability is not enough, however. Which technologies are sufficient and which are merely necessary are functions of time and will most assuredly change. Prolonged fine tuning of today's "sufficient technology" is a recipe for strategic disaster. The importance of understanding the dynamics of change is made clear by looking at the microelectronics and computer industries.

    After World War II, the computer manufacturers were, for the most part, vertically integrated businesses. In the early stages of the industry, competitive advantage came from product differentiation of the systems' components-logic circuits, storage devices, software. As the industry matured, the nature of competitive advantage changed. In the 1960s, a lively OEM business in magnetic core storage existed. Many computer manufacturers bought rather than built these memory devices for their computers. By the time semi-conductor memories became standard in the 1970s, almost all manufacturers (IBM was a notable exception) met their needs by buying these standard components from merchant semi-conductor companies.

    By the 1980s, the logic chip-the component most valued in the earlier decades as competitive differentiator-was no longer the industry's focal point. Many older, larger computer companies resisted and failed to change. They continued to spend-at increasing rates as the technology advanced-on research and development to produce proprietary logic chips (which, with the exception of certain niche markets, had become merely a necessary technology). They failed to switch the focus of their technology to software and systems integration know-how (now the sufficient technologies of competitive differentiation). New entrants, such as Apple, bought logic chips from merchant semi-conductor companies (e.g., Motorola) and concentrated their efforts on other technologies, such as human interface technology, that would yield competitive advantage. It was the continued focus on technologies no longer sufficient for competitive advantage, rather than technological change per se, that inexorably took its toll on those older companies that failed to adapt.

    Today, while it is still necessary for systems companies to have state-of-theart system components, competitive advantage must come from a higher-order skill. Moreover, the mere task of maintaining "state-of-the-art" in any given component has become increasingly R&D-intensive and the need for economies of scale begins to dominate. Whereas the industry once consisted of vertically integrated competitors, it now consists of competitors in logic (e.g., Intel, Motorola), memory (e.g., Hitachi, Fujitsu, Micron Technologies), operating systems (e.g., Microsoft, IBM, Apple, Novell), and in specific applications software. The need for the systems integration task, which was supplied by the vertically integrated computer companies in the 1960s, still exists. But it is no longer possible for any one company to supply all the necessary technologies that are to be integrated. Rather, those technologies are, to one degree or another, supplied by the specialist firms, and technology sufficient for competitive advantage to the "systems" company must come from integration skills.5 As the industry continues to mature, integration skills will tend to further focus along increasingly fragmented market segment lines.

    The period since 1985 in the microelectronics and computer industries has been aptly described as chaotic. The rapid rate of technological change in these industries was and still is obvious to all participants. Mere awareness of that rate of change, however, was of little help in understanding the coming structural change in the industry, nor is it now of much help in devising strategies for the future. What was not at all obvious to many was that industry evolution inevitably would change "sufficient" technologies into merely "necessary" ones. What also was not obvious was that this change would restructure the industry from one composed of vertically integrated systems houses to a horizontally structured one composed of firms producing various parts of the computer system.

    This process of maturation is not unique to the computer industry. The dynamics of change can and do vary greatly from industry to industry. However, successful strategy always must be built on a clear understanding of the necessary technologies (to be obtained as economically and efficiently as possible) as well as the sufficient technologies (the intense focus of proprietary effort) that underpin that strategy.

 Neglect of Process Technologies

    A second common failing in strategy and technology management is to focus on product technologies and neglect process technologies.6 This failing is further compounded by thinking of process technologies as meaning only manufacturing or production processes. Services businesses are less prone to this shortcoming because services are inherently process oriented. People in service businesses have nowhere else to look for competitive advantage. In general, however, process technology is hardly considered equal to product technology in terms of achieving competitive advantage.

    The example of Pilkington Bros. PLC7 illustrates how process technologies can revolutionize an industry just as decidedly as a new or substitute product. It also shows that "mature" industries are not immune to technological innovation. In 1958, after seven years of effort, Alastair Pilkington perfected a new process for the manufacture of plate glass. At that time, plate glass was manufactured by a cumbersome, capital- and labor-intensive process of pouring plates of glass that were then ground and polished until both surfaces were smooth and parallel. The process had remained unchanged for over a century, except for refinements and incremental improvements in the grinding and polishing steps. Pilkington's new product process-in which glass was "fire finished" by floating on a bath of molten tin-cut energy and labor requirements in half, saved the 15-25% of glass ground away by the earlier process, reduced capital investment by one-third, and reduced space requirements by one-half. It also propelled Pilkington from an industry leader within the U.K. glass-making industry to a global industry leader. The new process transformed the competitive economics and structure of a centuries old-industry.

    By any measure this was a breakthrough technology. It yielded a competitive advantage to its originator as decidedly as any new substitute product could have. One only needs to look at what information technologies have done in package delivery (e.g., Federal Express) or retailing (e.g., WalMart) to see that process technology is a fruitful source of competitive advantage.

    Development of new and superior processes can also be a means of market entry when there are already well-established competitors. The market for dynamic random access memory (DRAM) chips is a case in point. In the late seventies, the DRAM market was dominated by U.S. semi-conductor manufacturers. In 1975, five Japanese electronics manufacturers (Fujitsu, Hitachi, Mitsubishi Electric, NEC, Toshiba) and MITI began a technological collaboration, the "VLSI" consortium, aimed at developing superior technologies for producing very large scale integrated circuits by 1980. As a result of this five-year focused effort, these companies were shipping 64000-bit chips well before their U.S. competitors, and by 1985 they had come to dominate the DRAM market. By then, most U.S. companies, including Intel, had left that segment of the semiconductor market.

    Competitive advantage results from a clear understanding of the technological state of the industry. This understanding allows resources to be focused on those technologies that will lead to differentiation, whether they be process technologies or product technologies. But as we have seen in the example of the computer industry, what constitutes a "sufficient" technology not only changes over time, it can change very rapidly. Moreover, as in the case of the glass industry, it can change dramatically long after an industry is considered mature.

 Technology Push versus Market Pull

    A third strategic pitfall is an inadequate understanding of technology "push" (technological feasibility) and market "pull" (market demand). Not that "push" and "pull" aren't familiar terms. Most any article on technology transfer, collaborative R&D consortia, or the issue of how best to capitalize on the capabilities of the national laboratories will talk about market pull and technology push. Generally implicit in those analyses, however, is the notion that a kind of match-making process is involved that somehow will find a need to match to a technology. Market need, however is not the same as market demand. (Equally, the need for new technology in product development is by no means the same as the willingness of product developers to use new technologies. Failure to appreciate this common sense statement is the root cause of much of the failure in "transferring" technology.)8

    The problem lies in the fact that business people are trained, formally and by experience, to look at established, well-defined markets where "need" and "demand" are practically synonymous. Thus, competitive advantage is seen as some sort of differentiation in satisfying a well-quantified demand. The need/ demand for toothpaste is a simple example. Strategy becomes simply a matter of features (product and/or market-niche differentiation) or low cost (process differentiation). The management of technology certainly requires understanding these simplistic strategies. But it requires that we go further. It requires understanding how to bridge the often huge gap between a perceived market need and actual market demand. It requires understanding what is necessary to generate demand for technologies that have the potential to restructure entire markets or for technologies that meet inchoate needs and have the potential to create new markets.

    This is not just a phenomenon of today's world. One dramatic example is the use of printing press technology in education. It took more than two hundred years from the introduction of the moveable type printing press in the midfifteenth century before the textbook was commonly used in education. The difficulty lay not with the technology, but rather with the inability of the system to change to use the technology effectively. That problem still plagues education. Advanced electronic education technologies are now almost thirty years old. Use of simulators in training is even older (e.g., flight simulators). Yet computers, telecommunication and simulators are still not basic tools of mainstream education. While the slowness of education to adopt new technologies (i.e., create demand for them), may be extreme, it is by no means an exception.

    The development of the microelectronics industry again provides an example. Fairchild and Texas Instruments filed patents for the integrated circuit in 1958-59. By 1961, three years later, there was still no U.S. commercial market for integrated circuits. In 1961, however, President John F. Kennedy announced the famous "man-on-the-moon" goal, and in a single stroke a market pull for integrated circuits was generated. The government remained the sole market for integrated circuits until 1964 and the primary one until 1968. By 1968, much had been learned about both the integrated circuit manufacturing process and product applications. It still took a leap of entrepreneurship for Bob Noyce, Gordon Moore, and their colleagues to found Intel in 1968. It had taken ten years to generate sufficient market pull to begin commercialization of one of the most dramatic technology developments in history. In this case, government's pursuit of a critical new mission provided the necessary initial impetus to create market demand.

    The computer industry offers many further examples of the market creation that takes place as new technologies develop and mature. As early as the late 1960s, Control Data, perceiving the long-term difficulty in achieving the economics of scale and process expertise to compete in computer hardware, began a strategic move into computer and information services. The company's true competence, even in developing large scientific computers, was understanding and solving difficult applications of computers. By concentrating on the greater value-added of computer and information services, it began a process of differentiation from its mainframe competitors. The potential need for computer-based processing services, for networking, groupware, computer managed and mediated learning, and for information data bases was clear. But the process of generating viable businesses was to be a long and arduous process spanning two decades. Basically, what was required was market education and the slow process of modifying patterns of human behavior.9

    New technologies often are faced with undefined or poorly defined markets and thus with weak market pull. It takes awareness, changes in people's habits and systemic changes to convert "need" into "pull." In short, it takes not only persistence and determination, but time and money. If this concept seems straightforward enough, why is it that management so frequently underestimates the task? At the root of this is the very nature of human behavior. One must start with the proposition that in a basic sense every need is being met in some fashion. It may be met poorly, very slowly, or at great cost, but we attempt to meet needs and solve problems with the technologies that are available to us, whether it involves clothing ourselves or doing engineering design. For example, the widespread use of electronic technologies in education requires behavior change-in the way teachers teach and the way courses are organized. Such behavioral changes come slowly no matter how obvious the advantages. For example, recall the trauma of introducing word-processing systems into the office twenty years ago when most secretaries vigorously resisted the change. Those concerned with "technology transfer" and "technology commercialization" need to focus on barriers that stand between the existence of a need and the creation of genuine market pull. Furthermore, it is frequently the case that generations must change before new technologies are fully embraced.

    Managers need something to help them understand the evolutionary nature of technologies and industries; something to help them understand at any given time which technologies are necessary and which are sufficient to secure competitive advantage; and something to help them understand industry structure, its technology underpinnings, and barriers to creating demand for new technologies. The concept of the Technology Food Chain is a practical strategic tool that helps to meet that need.

 Technology Food Chain

    The Technology Food Chain uses the food chain metaphor to explain the role of value-added know-how (technology) as one moves from basic science, to products, to systems, and finally to services. A simplified food chain for the computer and information services industry is shown in Figure 3. Also shown is an analogous chain for the simpler matter of fish, fishing, and eating fish.10 At each stage of the chain, beyond basic science, know-how is applied to pre-existing technology in the form of products, processes, and tools to fashion a new class of products that meet a higher order need. Thus, each step in this food chain "feeds on" the technology that has been employed to create the predecessor products, processes, and tools. Services utilizing products represent the final step in this food chain.

    The Technology Food Chain metaphor is helpful in several ways. It makes clear basic forces at work in an industry and how they change as an industry matures. It also shows clearly the potential sources of competitive advantage at all stages of industry development. Knowing where your business is on the food chain clarifies which technologies are the sources of competitive advantage (sufficient technology), and which technologies are required but do not yield competitive advantage (necessary technologies). For emerging technologies, the Technology Food Chain makes clear the absence of market pull. For mature industries, it offers a reminder that technological change at earlier stages in the chain can dramatically alter industry structure and economics. For mature industries, the Technology Food Chain also highlights the critical importances of process technologies and the importance of economies of scale and scope.

    In the early stages of any industry, engineering design is the primary determinant of competitive advantage. The "better mouse trap" mode of thinking predominates. While products at this stage may potentially have market pull from many applications farther up the chain, initially those applications-if they exist at all-are performed in a completely different way based on completely different technologies. The example of computer-aided design illustrates this situation. While engineering design was certainly an activity being performed long before computers came on the scene, it took more than a quarter of century after computers were developed before computer-aided engineering design provided significant market pull. This delay was due, in part, to the need for the evolution of complementary technological capabilities such as graphics and software, but it was largely due to an established system of engineering design that rested on massive amounts of data in the form of old engineering drawings. In short, if a technology depends on market pull from points up the food chain, we must recognize that those needs are currently being met in some totally different way and that replacing existing technology will be time consuming and expensive. The Technology Food Chain also helps clarify how sources of competitive advantage change as industries mature.

    As knowledge about basic technologies increases, more and more uses are found, creating new applications up the food chain and increasing demand for the businesses down the food chain supplying basic technologies. Since knowledge of these basic technologies has become widely diffused, competitive differentiation is hard to achieve. Thus economies of scale become important, not just in production, but in R&D costs.

 (Chart Omitted)

    Responsiveness and flexibility as well as scale become the competitive determinants. Process technologies-not just in production, but in development, marketing, and administration-become increasingly important. Some of the original competitors will make the transition to being dominated by process technology; some will move up the food chain to seek survival through valueadded application of the technology; and some will die or be absorbed by others. The final stage in the industry maturation process involves services based on the basic technologies as well as the products and systems developed using them. Services have-in the context of the total economy-the greatest value-added. That is, as we proceed up the food chain there is value-added at each stage. It is the precedent investment in value-added products and systems that makes a service possible. Most of this value-added is purchased by service companies in the component products and systems on which their services are based. The service firm's proprietary value-added becomes more narrowly focused than that of firms lower down the chain. Finally, this quest for competitive advantage causes the service end of the food chain to become more and more market segmented.

    Market segmentation is inevitable as the technologies diffuse. Thus the competitive appeal of a service cannot rest solely on the technological features of the products used to perform it. Suppose one is offering a remote information service based on computerized database management. In the early stages of the industry, the competitive advantage of the service might rest entirely on the speed of the computer and/or the features of the database manager. But when those product technologies mature and become widely available, a firm can only distinguish its service by appealing to a more specific customer type, i.e., market segment. Otherwise one simply competes on price.

    It is important to note, however, that as industries mature and product differentiation becomes more difficult to achieve, products do not necessarily become less R&D-intensive. Nor do products necessarily become less capitalintensive. One only need look at the semi-conductor industry, where the R&D and capital investment increased some 10-fold over the course of the 1980s. Economies of scale and scope become increasingly necessary as industry maturation proceeds.

    The classic response to the need for scale and scope has been vertical integration. But that response also produced companies less flexible and less responsive to rapid technological change. As industries mature, growing R&D and capital intensity may make vertical integration less appealing, if not downright impossible. Instead, firms seek out technological collaborations and strategic alliances. The rapid proliferation of alliances in the micro-electronics and computer industries in recent years is in large part the result of such rapidly escalating resource demands.11

    In considering technological collaboration, the participants usually think about what value-added each of them brings to the collaboration. The Technology Food Chain makes very clear, however, that it is equally important that each participant have a very clear understanding of the value-added each participant will apply to the results (the output) of the collaboration. Said another way, the output of technological collaboration should not be viewed as in and of itself a marketable product, for without unique value-added by each participant in the collaboration they will all end up marketing the same thing. The result will clearly be a mutually destructive price war. The only other alternative is worse, at least from the consumer's view, and that is that the collaborators will collude to divide up the market. It is obviously much easier for competitors to collaborate with regard to technologies involved in areas of the food chain that precede their own position, since while both require such necessary technologies, they are free to add their own unique value-added.

    The Technology Food Chain also illustrates why there will likely be problems in technological collaboration among companies who are at different points in the chain. What is competitive advantage for one may simply be building block technology for another. Thus, the collaborators may have sharply different views on a widespread sharing of the technology. The semi-conductor and computer systems companies who collaborated on creating the MicroElectronics and Computer Technology Corp. (M.C.C.) struggled with this problem. One example was in the computer-aided design (CAD) project. The computer systems companies (e.g., Control Data) viewed CAD as merely a necessary tool; the semi-conductor companies (e.g,Motorola), viewed CAD as a desirable proprietary technology. There were also significant differences in need between system and chip-level CAD systems. Partially due to the time and effort that went into resolving these issues, the CAD project never achieved the success of projects such as Data Management and Packaging, where the partners viewed the collaboration from the same point on the Technology Food Chain.

    The Technology Food Chain, then, helps us to understand that in a world of increasing technological complexity, the old "make or buy" strategic crossroads has become "make, buy, or collaborate." Firms can obtain necessary technologies by being vertically integrated, by buying those technologies (license or component purchase), or through sharing development and/or production risk and cost for such necessary technology with others. This collaboration option has been called "virtual vertical integration."

 Congruence of Strategy and Structure

    The foregoing observations have highlighted the strategic aspects of the management of technology so as to illustrate its far-reaching nature. It is necessary, however, before concluding to touch on one essential operational and structural aspect of the management of technology. Strategic Space and Technology Food Chain are useful conceptual frameworks. Filling in the framework requires an organizational structure and corporate policies that induce a climate of continuous innovation-in things large and small and at all levels of the organization. Without this, the potential winning strategies that the framework provides will not be realized. David Nadler and Michael Tushman deal extensively with this essential match of strategy and organization in their "Congruence Model of Organization Behavior."12

    An example that illustrates the importance of a corporate climate that encourages continuous improvement is Nucor, Inc., which is now the sixth largest U.S. steel company.13 Its growth from just another small company was the result of its ability to capitalize on a new technology for making sheet steel. In the mid-1980s, the German firm SMS Schloemann-Semag, A.G. demonstrated the technical feasibility of its compact-strip-production steel casting machine. Continuous strip casting had been an elusive goal of the steel industry since the mid-nineteenth century. Each new approach had ended in failure or rejection. One hundred companies visited SMS to assess its technology. Only one company, NUCOR, took the risk of adopting it. Other companies, even the U.S.'s "big steel" companies, clearly understood the importance of process technologies for realizing cost reduction and thus greater competitiveness. Additionally, large U.S. steel companies were being hammered by international competition, thus they were surely motivated to seek out competitive advantage. But for Nucor it was not a staff research person who visited SMS. It was its president, David Aycock, who, at Chairman Ken Iverson's request, traveled to Germany to personally inspect the SMS pilot plant. Nucor had no research staff. It was not a staff team that negotiated with SMS, but Iverson, Aycock, and Samuel Siegel (the chief financial officer) who personally did so. Every aspect of Nucor-from organization (e.g., direct reporting of plant managers to the president) to wage structure (which was heavily weighted toward production bonuses)-focused on individual initiative and innovation.

    The resulting culture was one in which there was a willingness to accept risk and take on new challenges. This was the essential ingredient in the successful deployment of the unproven compact-strip-production technology. In short, a corporate climate conducive to innovation and risk-taking, as well as persistence in creating market pull to go with technology push, are concomitant necessities to competitive success in today's global marketplace.

 Implications for Management

These strategic skills are essential for successful management of technology:

Successful strategy must start with a clear conception of where the firm intends to operate with respect to the "market dimension" of strategic space. Successful management of technology begins with highly developed market segmentation skills.

It is essential to correctly assess both the status and rate of change of technology in one's industry. The Technology Food Chain provides a conceptual framework for approaching this task.

The "push-pull" dynamics of technological feasibility and market demand, especially for new or emerging technologies, jointly determine strategic success or failure.

Successful management of technology requires not only the ability to differentiate between necessary and sufficient technologies, but also the ability to assess the rate at which sufficient technologies will be reduced to necessary ones.

Technological collaboration is a basic means of providing necessary technologies and complementary capabilities.

Assessing social, economic, and demographic change and anticipating technological response to such changes is an essential ingredient of the management of technology.

Government policies at all levels of government tend to be reactive and inadequately anticipate technological change. Effective management of technology includes proactively influencing public policy.

Any successful strategy must be implemented in an environment of continuous innovation and improvement.

Summary

    Superior utilization of technology is the most important ingredient of economic success. The concepts and issues encompass both macro-economic policy and individual firm-level strategy and operations. The necessary response to improving performance in managing technology must involve business, academia, and government, but especially business. There is a lot of existing knowledge and a lot of action. However, without a well-defined conceptual framework, the knowledge cannot effectively be brought to bear and much of the action is unproductive. Understanding the concepts and framework presented here is an essential first step in improving the competitive performance of business.

 Footnote: Notes

 1. This definition is a slightly expanded and reworded version of the definition presented in the 1987 National Research Council report Management of Technology: The Hidden Competitive Advantage (Washington, D.C.: National Academy Press, 1987).

2. Michael E. Porter, Competitive Advantage of Nations (New York, NY: The Free Press, 1990).

3. Richard R. Nelson and Sidney G. Winter, An Evolutionary Theory of Economic Changes (Cambridge, MA: Belknap Press of Harvard University Press, 1982).

4. Here and throughout this article, the terms "necessary" and "sufficient" are used in a mathematical sense, not colloquially. That is, "necessary" is not used in the sense of "ought to have" or even "obligatory," rather it means to be prerequisite; in short, necessary technologies are the ticket to play the game. Similarly, sufficient does not mean "enough" or even "plenty" as in "I have had sufficient to eat." Rather, it means a condition whose existence or truth assures the existence or truth of another condition; in short, a sufficient technology (or combination of technologies) will allow one to win the game.

5. This is not, however, just a matter of "playing the same old tune" in a variety of settings. In fact, systems integration will simultaneously take on a higher order of complexity than that realized thus far in the information industry. In his op-ed piece PC's Trudge out of the Valley of Death" [Wall Street Journal, January 18, 1993], Intel Corporation CEO Andrew Grove gives some insight into the importance of this with regard to future strategy and success.

6. Since process technologies as a source of competitive advantage are neglected to begin with, it is hardly surprising that their evolutionary dynamics are even less well understood. Clearly processes-and not just manufacturing ones-change as well, and process technologies once sufficient for competitive advantage become merely necessary. The information technologies at WalMart are an example.

7. Excerpted from the case write up by James Brian Quinn, "Pilkington Bros. PLC," in H. Mintzberg and J.B. Quinn, eds., The Strategy Process, 2nd edition (Englewood Cliffs, NJ: Prentice Hall, 1991).

 8. The problem is actually even deeper. The very term "technology transfer" implies that technology is a physical entity which like a desk or a computer can be transported from position (or person) A to position (or person) B. Instead, so-called technology transfer is actually a process of sharing how to utilize technology. So "technology utilization" is a more appropriate term. This sharing is very personal-person-to-person-and results in increased knowledge of both parties. The fact that we even use the term "transfer" indicates a lack of understanding, and not surprisingly, frequently leads to failure of the process.

9. By 1990, Control Data completed its transition to a services company, renamed itself Ceridian, and spun off its systems integration business, also essentially a services business, as Control Data Systems, Inc.

10. "Simple" it may be, but even a casual look around your local tackle store, not to mention a pollack fish-processing vessel out in the northern Pacific Ocean, will reveal how technology-intensive the fish "food chain" is!

11. As of October 1992, 124 R&D consortia in the micro-electronics and telecommunications industry alone were registered with the U.S. Justice Department. There were 179 in other industries, ranging from building and construction to biotechnology. D. V. Gibson and E. M. Rogers, R-D Collaboration on Trial (Boston, MA: Harvard Business School Press, 1994), pp. 21-22. With regard to one new technology, so called "flash" memories, the February 6, 1992, Wall Street Journal reported a new alliance between Intel and Sharp. "Intel," the article said, "is trading its advanced flash knowledge to Sharp in part simply to spread the huge financial burden of developing and producing future generations of such memories." The article goes on to quote Intel Senior Vice President Robert Reed, who says, "[Without Sharp] we would not be able to come up with the manufacturing capacity we would need."

12. D.A. Nadler and M.L. Tushman, 'A Congruence Model for Diagnosing Organization Behavior," in D. Kolk, I Rubin, and J. McIntyre, eds., Organizational Psychology: A Book of Readings, 3rd edition (Englewood Cliffs, NJ: Prentice Hall, 1979).

 13. The story of Nucor and its implementations of CSP are graphically related by Richard Preston, "Annals of Enterprise, Hot Metal," The New Yorker, [two parts] February 25, 1991, and March 4, 1991. There is also a Harvard Business School case study on Nucor.