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Journal of Business Strategy

STRATEGIC MANAGEMENT OF TECHNOLOGY


H. Igor Ansoff
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H. Igor Ansoff, (1987),"STRATEGIC MANAGEMENT OF TECHNOLOGY", Journal of Business Strategy, Vol. 7 Iss 3 pp. 28 -
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STRATEGIC MANAGEMENT OF
TECHNOLOGY
H. Igor Ansoff

The high-tech companies that will succeed in this environment will fundamentally
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revise their strategies from the historical technology-driven product proliferation to


strategies that control the rate of technological advances, segment markets
according to distinctive customer needs, and design products to respond to those
needs.

Business Week has eulogized the wonders of through a temporary recession and reemerge on a
the next generation of the data processing tech­ path of accelerating growth. But there are two
nology [4]. But the daily press reports profit de­ reasons why retrenchment measures will not
clines or losses by Apple, Wang, CDC, Commo­ suffice. One reason is that the nature of the Sec­
dore, and the demise of Mostek. Despite all of the ond Industrial Revolution is different from the
historical success stories in the industry, even the First Industrial Revolution, and another reason is
mighty IBM reports a shortfall in what is still an that the economic/social/political/competitive
impressive performance [5, 6, 12, 15]. environment of the Second Revolution is more
The data processing industry is one of many complex, less predictable, more surpriseful, and
offsprings of the Second Industrial Revolution. faster-developing than was the environment of
This Second Industrial Revolution was spawned the First Revolution.
by a long list of novel technologies: solid state, Although it is tempting to treat the computer
microminiaturization, electronic information pro­ and semiconductor industries as unique cases
cessing, electro-optics, biochemistry, biogenet­ that have no similarities to other technology-
ics, plasma physics, etc. driven industries, this is not the case. Very simi­
It is tempting to draw an analogy with the First lar problems have been encountered and will be
Industrial Revolution and argue that the current encountered again in other technology-based in­
malaise in the industry is a transient turbulence dustries.
that occurs whenever a new industry is born, and
to predict that beyond the turbulence lies stabili­
zation and a long period of growth. If such were
the case, the retrenchment measures being re­ Differences Between the Two
ported by the computer and semiconductor com­ Technological Revolutions
panies, such as cost reductions and layoffs of Most of the great technological innovations of the
personnel, should enable firms to "hibernate" First Industrial Revolution were flashes of inven­
tive genius. The inventions were pragmatic. If the
H. Igor Ansoff is Distinguished Professor of Strategic Manage-
first product or process failed to work, it was
ment, School of Business & Management, United States Interna- modified and tried again until a successful
tional University. configuration was achieved. There was little by
28
THE JOURNAL OF BUSINESS STRATEGY 29

way of scientific theory to guide the process or to inventors of the production-driven firm, was in­
explain why the final product worked. formed by his sales manager that the competition
Once the technological breakthrough was was beginning to offer differentiated products, he
made, the technology was "standardized" and replied, "Give it to them in any color so long as it
remained stable, for as long as 100 years, as hap­ is black." His reason was that a standardized,
pened in the automotive, electrical equipment, undifferentiated mass-manufactured product
machinery, steel, cement, and other industries. minimizes unit production costs, and minimum
The Second Industrial Revolution is science- cost maximizes the firm's profits.
based. The great inventions, such as penicillin or
the transistor, are still products of individual
genius. But today, science guides the invention
process, provides explanations of why the inven­ One of the most important variables is
tions work, and shows the way to further inven­
tions. As a result, every major technological management control of the firm's
breakthrough triggers off a competitive race in technological evolution.
which technology is continuously improved and
applied to uses other than those for which it was
originally intended.
During the second half of the century, two dif­
ferent types of orientation began to replace the
production focus. Some firms, typically in pro­
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Success Patterns in Business ducer goods industries, became product driven by


"sticking to their knitting"—seeking to improve
Behavior and perpetuate the historical products of the firm.
Another distinctive aspect of the Second Revolu­ In consumer goods industries, firms typically be­
tion is that it is occurring in an environment in came market driven, letting the marketing func­
which behavior of successful firms must be more tion take over power from production and dictate
complex and environment-sensitive than the be­ what the firm will develop and produce.
haviors that have succeeded in the past. The technology-driven firm is a recent
Changes in the orientation of industries and phenomenon—a child of the Second Industrial
companies have occurred on four different occa­ Revolution. Early in this century, technology-
sions: driven firms were a minority. The great Du Pont
Company committed itself to a growth strategy
• At the turn of the century, from the entrepre­ based on proprietory technologies as far back as
neurial orientation of the industry creators to 1918 [7], and General Electric and American Tele­
the production orientation of the builders of phone & Telegraph established large and ad­
mass-production firms. vanced research and development laboratories
• Starting in the 1930s, from the production orien­ early on. But it wasn't until after World War II
tation to either product or market orientation. that the proliferating technologies spawned a
• From the 1960s on, the single-function orienta­ plethora of technology-driven firms.
tions to the strategic orientation in low-tech and Typically founded by a technologist-entrepre­
medium-tech industries. neur, a technology-driven firm lets its research
• From the mid-1980s on, a predicted trend from and development function, staffed by creative
the technology orientation to the strategic engineers, develop a succession of technolog­
orientation in an increasing number of high-tech ically advanced products. The frequency of prod­
industries. uct substitution is limited only by advances in
During the first sixty years of this century, technology. As in other function-driven firms,
firms succeeded by optimizing the performance of production and marketing play supporting roles
one of the functional areas. Success came to firms as manufacturers and sellers of products that are
that optimized their production efficiency. Such initiated and developed by the research and
firms became known as production oriented. development function.
They have also been called production driven, Exhibit 1 summarizes in a flow chart the evolu­
because the power within the firm was focused in tion of the respective functional orientations. It
the production function and all other functions shows that in the 1960s, just as the technology-
were subservient to the needs of production. driven firms were becoming the darlings of Wall
Thus, when Henry Ford I, who was one of the Street, firms in industries born during the First
30 THE JOURNAL OF BUSINESS STRATEGY

ketplace was becoming progressively more com­


plex and turbulent1:
• Product and technology substitution became
more frequent.
• Demand began to reach saturation in many
first-generation industries.
• New industries were born, thanks to new tech­
nology and to an increased standard of living.
• Demand in new industries reached saturation
more rapidly than it did in the first-generation
industries.
• Many traditional industries were invaded by
novel technologies.
• Competition became global and more intense.
• Foreign competitors enjoyed distinctive com­
petitive advantages, derived from their national
economic and political settings (e.g., low
domestic labor costs, cooperative business/
Industrial Revolution began to shift to a different government relationships, government sponsor­
and more complex type of behavior. In the next ship of foreign trade, or protectionism).
section, the reasons for this shift will be explored.
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• Environmentalism, consumerism, and govern­


ment legislation forced business to curb its en­
vironment-polluting tendencies.
• Customers increasingly demanded "best buy"
Convergence of the Functional products that responded to their needs, offered
Orientations advanced performance, and were cost-effec­
The respective single-function orientations had tive.
succeeded because they were responsive to the As a result of this increase in the complexity
demands of the marketplace. Thus, production and dynamism of the environment, single-func­
orientation was responsive to the market demand tion orientations became unresponsive to the de­
for inexpensive, reliable, standardized products. mands of the marketplace. A reader with a scien­
Market orientation took over when the demand tific background will find ready support for the
for basic products reached saturation and differ­ preceding statement in the theorem of requisite
ent classes of customers demanded products re­ variety, advanced by Cyberneticist Roy Ashby.
sponsive to their different wants, needs, and eco­ Translated into business terminology, the
nomic and social status. Product orientation was theorem states: "To assure success, the complex­
responsive to the demand by industrial customers ity and the dynamism of a firm's behavior must
for progressive improvements in product perform­ match the complexity and the dynamism of the
ance, reliability, and cost-effectiveness. marketplace" [l:ch. 7.1].
Technology orientation is the key to success in
markets that eagerly await significant advances in Strategic Orientation
product performance and are prepared to pay a
high price to get it. This has historically been the As a consequence of the increasingly turbulent
case in the markets for military equipment. Since marketplace, the different single-function orienta­
the advent of "miracle drugs," the pharmaceuti­ tions began to converge to a multifunction orien­
cal industry has been technology driven; and so tation, which can be called strategic orientation.
were the data processing industries, which of­ In strategic orientation:
fered a previously incredible improvement in the • The influence of a single dominant function is
speed and volume of information processing. replaced by a balance of functional influences.
As Exhibit 1 shows, in the 1960s, the single- • The power center shifts from the dominant
function orientation of the first-generation indus­ function to the general management.
tries began to converge toward a multifunction • The key decision criterion is no longer optimi­
strategic orientation. Success could no longer be zation of a key function's performance but op-
assured by optimizing performance of a single 1
For further discussion of environmental turbulence, see [l:chs.
functional area, and the reason was that the mar­ 1.1, 1.21.
THE JOURNAL OF BUSINESS STRATEGY 31

timization of the return on the firm's investment ogy-based industries, the most visible being the
in the marketplace. computer and semiconductor industries, began to
It would be equally appropriate to name strategic call attention to the need for a shift to the
orientation the ROI orientation, as shown in Ex­ strategic orientation.
hibit 1. Because strategic orientation is still new and
Strategic orientation has been brilliantly de­ poorly understood, there is evidence that certain
scribed by Alfred P. Sloan, former chairman of computer firms, impressed by the historical suc­
the General Motors Company. Sloan's descrip­ cess of the market orientation [9:50], are shifting
tion can be paraphrased as follows [14]: to the single-function market orientation. This is
unfortunate, because the swing from technology
• If the future markets will no longer want a his­ drive to market pull could occur at a time when
torically successful product line of the firm, the the market demands a skillful blending of the two.
product line should be discontinued. A safer course is for each firm to diagnose the
• Whenever the key market success factors are complexity and turbulence of its future environ­
expected to shift and change, the balance of the ment and to develop a response that has the
functional influences in the firm's behavior requisite variety.2 In the next two sections, the
should be adjusted accordingly and the firm's personal computer industry is used to illustrate
strategy should be reformulated. the type of response that may be needed.
• If historically profitable growth markets are ex­
pected to become unprofitable, the firm must
foresightfully abandon them and reposition its Evolution of the Personal Computer
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resources in more promising markets. Industry


• If, for reasons beyond the firm's control (e.g., a
breakthrough technology that will obsolete the The personal computer industry, pioneered by
firm's technology; lower production costs indig­ the invention of the Apple computer by Messrs.
enous to the country of a new competitor), the Jobs and Wozniak, appeared, at the outset, as a
firm expects to lose its competitive position in a technologist's dream. The market for computer-
profitable market, it must foresightfully con­ assisted personal data processing appeared unlim­
sider abandoning the market, or find ways to ited, and the rapid development of technology
overcome its impending loss of the competitive held the prospect of many succeeding generations
edge. (The bankruptcy of Mostek, which failed of computers of greater power and speed.
to recognize that its semiconductors were no The Apple was followed by numerous com­
longer competitive with low-price imports, is petitors developed by gifted engineers who joined
traceable directly to this case.) the battle of producing faster and more powerful
• A key feature of strategic orientation—and a machines. The development was guided by tech­
difficult one to introduce into a firm—is the nological advances, and little attention was paid
dispassionate view of the firm's historical suc­ to the needs of the market. Both marketing and
cesses: a preparedness to abandon "sticking to production were subsidiary downstream func­
our knitting" in favor of "being where the ac­ tions. One produced what the engineers invented
tion is." and the other sold the output.
The respective products remained essentially
Exhibit 2 compares the conditions under which undifferentiated. Each competitor offered the
strategic orientation and the single-function same computer to the businessman, the profes­
orientations are responsive to the key success sional, the head of the household, the wife, and
factors in the marketplace. As shown in the ex­ the child in the family. The concept of "user
hibit, strategic orientation becomes necessary friendliness" was invented to make the standard
when the marketplace demands a balanced com­ computer more usable by a computer-ignorant
bination of functional responses as well as inclu­ customer. This was done through software, not
sion of social/political/cultural factors in strategic hardware design.
decisions. It is no surprise that marketers had to resort to
As Exhibit 1 shows, when strategic orientation Madison Avenue imagery to differentiate their
began to penetrate the first generation industries, products from the competition's. In fact, a com­
the "high tech" industries were still enjoying mercial would, for example, promote a highly
growth and profitability by retaining their tech­
nology orientation. It was not until the mid-1980s
that difficulties experienced in several technol­ 2
For a diagnostic technique, see [l:ch. 3.4].
32 THE JOURNAL OF BUSINESS STRATEGY

EXHIBIT 2
Firm's Orientation and Key Success Factors

Firm's Orientation
Driving Function Variables Optimized Relevant Key Success Factors In the Marketplace
Production Cost and price Price/reliability/durability/undifferentiated product
Marketing Sales volume Differentiated responsiveness to wants/needs/buying
power/social aspirations
R&D (Product Orientation) Incremental product improvement Cost-effectiveness/progressive product
improvement
R&D (Technology Orientation) Product incorporating advanced Advanced technology/state-of-the-art performance
technology
General Management (Profitability Firm's return on investment • Responsiveness to needs
Orientation) • Advanced cost/effective performance
• Knowing when to quit a market
• Responsiveness to technology substitution
• Responsiveness to socio-political
trends/opportunities/threats
• Responsiveness to international cultural
differences
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sophisticated $3,000 product through the image of The other scenario can be built on computer
a little girl pecking on the keyboard while sitting users' predictions reported in the same survey.
in her daddy's lap. Among the users, only 13 percent of the senior
The initial response to this technology-driven corporate managers' predicted a rebound. Simi­
approach to the market was overwhelmingly larly, only 34 percent of the business information
favorable. A significant number of customers systems managers predicted a rebound.
found the computer to be an answer to their If demand remains chronically sluggish, a shift
prayers for more effective data processing. These toward the strategic orientation is likely, accom­
were the business users, the scientists, and the panied by a shift of power from dedicated
researchers. A substantial group of computer technologists to ROI-seeking general managers.
aficionados sprang up. Another market segment This author's scenario for this shift is offered
was lured by the glamour of the computer and the merely as an illustration of what strategic orienta­
promise that it would revolutionize the running of tion may mean for the personal computer indus­
the household, a promise that is yet to be fulfilled. try. It will increasingly be recognized by the per­
The demand grew and the number of computers sonal computer manufacturers that:
proliferated. IBM made a belated but forceful and
rapid entry into the market with the IBM PC.
1. The present computer generation has more
Then two phenomena occurred. The first was computing power and capacity than will be
the financial difficulties and even bankruptcies by needed for some time by a large percentage of
some of the erstwhile promising competitors. The the potential buyers.
second was a drastic slowdown in growth, and 2. If product evolution continues to be dictated
heavy pressures on prices, caused by the excess by technology, there is a danger of "profitless
of supply over demand. prosperity" in which there will be growth, but
little or no profitability to the suppliers.
3. There is a major difference between the pres­
Scenarios for the Future ent meaning of software "user friendliness"
At the moment, at least two scenarios can be and products designed to be responsive to cus­
constructed for the future. The first scenario can tomer needs and wants.
be based on a survey by Decision Research Cor­ 4. A major obstacle to developing market re­
poration in which 400 equipment manufacturers sponsiveness lies in the present distribution
predicted that the demand will "bounce back" in system, which interposes an independent
the next twelve months. If this happens, growth technically incompetent and market-ignorant
will resume and the evolution of the industry will distribution system between the product de­
continue to be guided by dedicated technologists. signer and the market.
THE JOURNAL OF BUSINESS STRATEGY 33

5. Another major obstacle is the independent


status of the hardware and software manufac­
turers.
6. There is opportunity in the convergence of the
two present roles of the personal computer (as
a data processor and as an environment man­
ager).
7. Impressive and profitable growth will result in
the newly defined personal computer industry
when:
• Technological advances are brought under
control of general management;
• Product design is focused on market needs
and wants;
• Markets and products are segmented; and
• An integrated software/hardware system is
offered to the market.

Problems of Managing the


Technology Drive
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As the preceding discussion shows, a transition to


the strategic orientation significantly changes the
set of variables that determines the success of the
firm. One of the most important variables is man­
agement control of the firm's technological evolu­
tion. In this section, strategic control of technol­
ogy is discussed as an illustration of the kind of
problems posed by the strategic orientation.3
Exhibit 3 illustrates the evolution of demand
and of sales for three different types of industry.
The top curve on all three graphs depicts the
evolution of the aggregate demand, which fol­
lows the familiar industry demand life cycle from
the emergence state to maturity, when demand
becomes saturated and, at best, grows slowly.
(See Exhibit 3A.) The curve immediately below
the demand life cycle shows the proportion of the and product substitution is infrequent (Exhibit
market demand served by a particular technol­ 3A).
ogy. In Exhibits 3A and 3B, the technology that 2. "Medium tech" industries, in which the basic
gave birth to the industry continues to serve the technology remains the same but products pro­
demand throughout the life cycle, but in Exhibit liferate (Exhibit 3B).
3C, one or more basic technology substitutions 3. "High tech" industries, in which both tech­
(e.g., from vacuum tube to transistor technology nology substitutions and product proliferation
to microminiaturization) take place within the take place (Exhibit 3C).
demand life cycle (T 1 -T 3 ).
The problem of technology control does not
Exhibits 3B and 3C depict the sales by succes­ arise in low-tech industries, but it does arise in
sive generation of products (P 1 -P 4 ). both medium- and high-tech ones. Both medium-
Exhibit 3 illustrates three types of industry: and high-tech industries share the problem of
1. "Low tech" industries, in which the original product proliferation. In high-tech ones, there is
technology lasts through the demand life cycle the additional problem of technology substitu­
tion.
The problem of product proliferation is illus­
3
For analysis of other variables, see [l:ch. 2.4]. trated graphically on Exhibit 4, which plots cash
34 THE JOURNAL OF BUSINESS STRATEGY

torically this has occurred in mature oligopolistic


industries in which a small number of experi­
enced competitors share an implicit understand­
ing that "rocking the technological boat" would
be to the disadvantage of all the competitors.
However, if the industry is immature or over-
populated by aggressive technology-driven com­
petitors, and if the customers are eager for tech­
nologically advanced products, profitless pros­
perity becomes almost inevitable. In such situa­
tions, a firm that unilaterally controls technolog­
ical advances in its products is in danger of losing
its market share and having even higher losses
than its competitors.
It is at this time that Alfred P. Sloan's princi­
ples of strategic orientation must be applied for
management. The following questions must be
answered4:
1. In the near future, can any of the competitors
remain profitable, or is everyone in the indus­
try moving into a period of profitless prosper­
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ity?
2. If there is profit to be made, what will be the
success strategy, and will the firm be able to
develop such strategy in a timely manner?
3. If there are no near-term profits to be made,
what are the long-term prospects for the indus­
try?
4. If the prospects are promising, does the firm
have the resources to weather the near term
and become one of the successful long-term
survivors?
The answers to these questions enable the firm
to make two fundamental strategic decisions: (1)
the decision to stay or to leave the industry and-
(2) if the decision is to stay, the decision to com­
flows for succeeding generations of products. The mit to a strategy that will give the firm the best
part of each cash flow curve lying below the hori­ chance of success in both the near and the long
zontal axis represents the expenditures incurred term. There is substantial evidence to suggest
during product development and launching; the that the sooner U.S. semiconductor manufactur­
upper part is the positive cash flow from sales of ers leave markets in which they cannot possibly
the product. For a product to be profitable over be price competitive, the less likely they are to
its lifetime, the area above the curve must be share the unfortunate fate of Mostek.
larger than the area below. Exhibit 4A shows the
danger of uncontrolled product innovation. If the
rate of innovation is not controlled, and is so
frequent that new products are brought to the Managing Product Proliferation
market before a satisfactory return on the in­
vestment has been accumulated, the result will be One success strategy presents itself when, as ap­
chronic financial losses. This condition has previ­ pears to be the case in the personal computer
ously been referred to as "profitless prosperity." industry, an industry reaches the stage at which
Exhibit 4B illustrates management control of demand for the highest-tech products begins to
the rate of innovation by delaying new product
introduction until a positive return has been
earned on the previous product generation. His­ 4
For analysis of these questions, see [l:ch. 2.2].
THE JOURNAL OF BUSINESS STRATEGY 35

shift to a demand for responsiveness to other


customer needs. When such a shift occurs, a
promising strategy is to reduce the frequency of
technological product innovation and fill the
interim period between technology advances with
other types of product improvements that are
more responsive to market needs. The alterna­
tives are illustrated in Exhibit 5. They range from
cosmetic repackaging to incremental perform­
ance improvements, to new design concepts,
and finally to introduction of the latest technolog­
ical advances into the product line (such as the
leap from the Apple to the Macintosh).
As the curve in Exhibit 5 illustrates, the costs
of the respective product improvements differ
very significantly. The consequences of the strat­
egy of controlled technology are illustrated in
Exhibit 4C. As a comparison of the above- and
below-axis curves of income and investment
shows, the firm's product line becomes profitable
and, at the same time, more responsive to the
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needs of the market than technology-driven


products of the competition.
A firm that pioneers the strategy of controlled
technology is likely to become the competitive products of the firm become obsolete, but the firm
leader. Firms that eventually follow will bring the itself becomes obsolete.
industry back to "sanity," where most com­ From the vantage point of the strategic orienta­
petitors make a profit. Firms that do not follow tion, the strategy for dealing with technology sub­
become candidates for extinction as they con­ stitution is easy to formulate.
tinue to proliferate technological advances. 1. Firms in high-technology industries must con­
duct a continuous search for sources from
which new technologies are likely to come.
2. As new technologies surface, the firm must
make a timely commitment either to acquire
Managing Technology Substitution the technology or to prepare itself for an or­
derly withdrawal from the marketplace. The
As mentioned previously, the product prolifera­ timing of the shift to the new technology is a
tion problem is shared by medium-tech and high- high-risk decision: premature commitment to
tech industries. A return to Exhibit 3C shows that technologies that never materialize can be just
high-tech firms have to deal with another and as harmful as a belated attempt to join a tech­
even more difficult problem. This is the problem nological bandwagon. Thus, technology sub­
of technology substitution. When a novel tech­ stitution is an entrepreneur's game.
nology enters an industry, it threatens the sur­ 3. If the firm decides to stay in the market, in­
vival of the historical leaders. Examples of tech­ vestment into historical products must be cur­
nology substitution are numerous and well- tailed and resources increasingly reallocated
known: synthetic fibers for natural fibers, transis­ to the new technology as the new technology
tors for vacuum tubes, lasers for electromagnetic approaches commercial realization.
information storage, aluminum for steel, plastics
for metals, biogenetics for chemistry, etc. Typi­ The above prescription has the sound of com-
cally, the new technology offers major improve­ monsense logic, yet experience has shown that
ments in performance and begins to displace firms have repeatedly missed the "new techno­
products based on the old technology from the logical boat" and either lost their leadership or
marketplace. The capabilities, knowledge, skills, were forced to withdraw from the industry. The
facilities, and even management of the histori­ more successful the firm, the more likely it is to
cally successful firms are typically not transfer­ miss the boat! This phenomenon has been so fre­
able to the new technology. Thus, not only do the quent that it was named "strategic myopia."
36 THE JOURNAL OF BUSINESS STRATEGY

The next three sections of this article explore scenarios. Under one scenario, other powerful
the reasons and the means for dealing with managers within the firm or on the board who see
strategic myopia. the need for change act to replace the manager
who has become obsolete. The process is con­
flict-laden and can acquire tragic overtones when
Managers' Mentality and a great entrepreneur such as Jobs is forced to
Organizational Culture leave the company he founded. Under the second
scenario, the historical leader refuses to recog­
As discussed earlier, changes in orientation oc­ nize the changes in the marketplace until losses of
curred on four different occasions. (See Exhibit market share and profitability reach crisis propor­
1.) All of these experiences have shown that the tions. At that point, key management is changed
transition is very difficult and its path is strewn but the change is likely to be too late to prevent a
with obstacles. The major obstacle has typically permanent loss of leadership or even the demise
been the top manager(s) who brought success to of the firm [2:ch. 9].
the firm under the preceding orientation. In the
1930s, Ford gained immortality with his dictum
"Give it to them in any color so long as it is
black," and thus lost leadership to General The success model becomes an obstacle
Motors, which "gave it to them in many colors
and models." In 1985, Jobs became an obstacle to to the firm's progress when changes in the
Apple's adaption to the new market realities environment make it obsolete.
through his single-minded commitment to the
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Macintosh [8].
An explanation for the resistance to change is
offered by the concept of a success model, which The second major source of resistance to a new
every successful manager carries in his head and orientation is the management hierarchy below
uses to make decisions. The model is a set of the level of the controlling managers. The phe­
beliefs about what succeeds and what fails in the nomenon is the same: a refusal to accept a new
firm's marketplace [l:ch. 5.2]. The success model success model [l:ch. 6.1]. In recent management
is typically built over years through trial and error literature, the commonly held organizational be­
and successes and failures experienced in the lief about what produces success in the mar­
marketplace. The model is a source of con­ ketplace is popularly called "culture." Thus,
fidence, decisiveness, and preparedness to take when the great AT&T was dismembered, it was
risks which are indispensable to all successful necessary for the company to develop a market­
leaders. However, the model becomes an obsta­ ing culture. Unlike the personal model of the key
cle to the firm's progress when changes in the manager, culture is shared and experienced by
environment make it obsolete, while the key many managers and groups within the firm. This
managers persist in guiding the firm according to makes culture even more difficult to change than
their historical model. the mentality at the top. Certainly, the change is
Not all managers are stubborn adherents to likely to be a more prolonged and indirect pro­
historical success models. Some managers are cess, than the act of replacing the key man­
keen and foresightful observers of environmental ager's).
changes. When discontinuous changes occur, There is no simple way to change culture.
such managers quickly revise their model, and Ample evidence shows that the popular prescrip­
lead the firm toward new successes. One recent tion of "letting the people know" about the new
success story is that of Walter Wriston of culture, at best, has a marginal effect. Experience
Citicorp, who moved the historically product-ori­ also shows that culture and mentality have to be
ented bank toward strategic orientation by bring­ changed over a period of at least five years
ing in strategically minded managers from other through a series of complementary measures.
industries diversifying the traditional banking Some of the measures are direct and are ad­
service, and reorganizing the bank to face the dressed specifically to producing cultural and
newly turbulent environment. mentality changes. Some are indirect. Although
Such managers are a minority. Many other they are addressed to changing the competence of
managers dig in their heels and persist in manag­ the firm for solving new strategic problems, such
ing according to the historically successful model. measures indirectly but forcefully contribute to
When this occurs, there are two observable the cultural transformations.
THE JOURNAL OF BUSINESS STRATEGY 37

The key direct measures that have been iden­ □ Forecasting and information system. To start
tified through experience and research are [l:ch. with, the firm must broaden its forecasting and
6.1]: information system from a focus on the histor­
□ Exemplary behavior by the key managers. ical technology and financial performance to
This means convincing the organizations of include:
the new orientation through consistent per­ • The future competitive climate;
sonal behavior and not by speeches and • Other technologies that will enter the firm's
memoranda. For technology-driven com­ industry;
panies, this means refocusing management • Structural changes in the economic condi­
meetings, agendas, and interpersonal contacts tions;
from preoccupation with product development • Future foreign competitors; and
to identification of a combination of activities • Sociopolitical climate.
that will optimize the future profitability of the
firm. All of this input data has to be translated and
□ Realignment of power within the firm in favor focused on answering two questions:
of managers whose success models are rele­
vant for the future and who have the knowl­ • What will be the opportunities and threats
edge, talents, and skills for applying the model for future growth and profitability?
to practice. This also means focusing respon­ • What will be the key factors that will deter­
sibility for major strategic decisions at general mine success in the marketplace?
management levels where the future interplay
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□ Strategic thinking and analysis. Given the in­


of technology, demand, competition, etc., is formation, managers will need skills in
clearly visible. strategic thinking and analysis. They include
□ Change in rewards and incentives (both for­ [l:ch. 2.3]:
mal and informal). This means a change from
rewards for technological creativity to re­ • Analysis of the firm's likely success in envi­
wards for a combination of all types of creativ­ ronments that will be significantly different
ity (technological, marketing, purchasing, from those of the past.
management), which will optimize the profit • Selection of the optional future strategy,
potential for the firm. capability, and investment level for such en­
□ Confronting managers with the realities of the vironments.
future environment in a way that helps them • Balancing the firm's strategic portfolio of
rethink and revise their success models. Ex­ businesses in a way that will ensure con­
perience has shown that this can be accom­ tinuity of growth and profitability.
plished through properly organized participa­ □ Resources. These should be provided to make-
tive planning exercises. the new behavior possible. For technology-
driven firms, this means enlarging research
and development budgets to strategic budgets,
Competence for Strategic which include all costs from the inception of
an innovative idea to the launching of the
Management product on the market plan.
A new success model of the future reality, shared □ Strategic planning system. Except in small
by the key managers and the organization, is a firms, strategic activity involves many indi­
vital prerequisite to the firm's ability to shift its vidual and organizational units of the firm.
orientation from technology to strategy. Beyond Therefore, medium-size and large firms need a
the personally and organizationally held convic­ strategic planning system, which organizes
tions about the future, management also needs a and guides the communal strategic thinking
competence to act in a way that will be respon­ and planning. An important lesson learned
sive to the new challenges. from experience is that strategy formulation
Presented below is a series of competence-en­ must include individuals who will be responsi­
hancing measures. As discussed in the preceding ble tor managing its implementation.
section, by changing the problem-solving behav­ □ Project management system. In shifting to the
ior of the firm, such measures also help transform strategic orientation, successful technology-
the culture and mentality of the managers [l:ch. driven firms usually have one significant ad­
6.2]. vantage, which is typically missing in low-tech
38 THE JOURNAL OF BUSINESS STRATEGY

ducted coercively or" in anticipation, both experi­


EXHIBIT 6 ence and research show that resistance is inevita­
Capability Profile for Strategic Orientation ble; the difference will be only in its intensity.
Fortunately, much has been learned in recent
Key Manager(s) Entrepreneur
years about managing resistance in a way that
Success Model Position the firm in future
opportunity areas minimizes the organizational dysfunctions. The
Power Focus • General management
final section of the article discusses briefly how
• E&P resistance can be managed.
• Market development
Rewards For development of future
profit potential
Information Anticipation of future Managing Resistance to Change
opportunity/threat
Observation of the historical transitions from one
Planning • Strategic posture planning
• Issue management
orientation to another shows that, if left unman-
• Strategic control aged, the process becomes conflict-laden, pro­
Implementation System Project management longed, and costly in both human and financial
Structure • Fluid terms. Management of resistance involves, in the
• Problem-focused first place, anticipating the focus of resistance and
• Change-enabling
its intensity. Second, it involves eliminating un­
necessary resistance, caused by the very com­
mon misperceptions and insecurities induced by
the prospects of unfamiliar change. Third, it in­
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and medium-tech firms. This is the project


management system, which guides the im­ volves mustering the power base necessary to
plementation of strategic decisions. assure support for the change. Fourth, it involves
□ Organizational structure. This must be planning the process of change. And, finally, it
changed to provide for flexible response to involves monitoring and controlling resistance
challenges as well as focal points for key during the process of change.5
strategic decisions below the level of the cor­
porate office. The recent reorganization of Summary
Apple appears to be a move in this direction.
[8]. History shows that during the first fifty years of
this century, successful firms focused their ener­
The discussion in this and the preceding section gies on optimizing the performance of one of the
identifies ten complementary measures that can principal functions: production, R&D, or market­
help transform the firm's management from a sin­ ing. Since the mid-1950s, due to the growing
gle-function orientation to a strategic one. An complexity and dynamism of the environment,
examination of the measures will readily show that success increasingly depended on a judicious
practically every aspect of management capabil­ combination of several functional influences. This
ity has to undergo a significant and typically dis­ transition from a single-function focus to a mul­
continuous change. The new profile of manage­ tifunction focus occurred first in the industries
ment is described in Exhibit 6. that were born during the First Industrial Revolu­
A managed transition to the new orientation is tion.
a massive and time-consuming process. Ideally, Until the mid-1980s, the high-tech industries of
the need for the new orientation should be antici­ the Second Industrial Revolution remained typi­
pated and carried out in advance, before profits cally technology-driven: They were focused on
plunge and sales slow down. If, as is the case in incorporating the latest technological advances in
many semiconductor and computer firms in 1985, their products. In the mid-1980s, the technology
it is almost too late, management must move orientation began to shift to the multifunctional
forcefully to change the behavior of the firm orientation. A major step in this shift is the gen­
without waiting for organizational transformation eral management's assumption of control over
to take place. the rate of technology proliferation.
Of necessity, such a change of behavior must Transition to the multifunction orientation re­
be made coercively, through application of power quires a transformation of the management of the
to overcome the inevitable organizational resis­ firm: changes in the mentality, personality, and
tance to compensate for the unskilled responses
to the problem. But whether the change is con­ 5
Management of resistance is discussed in detail in [I:pt. 6].
THE JOURNAL OF BUSINESS STRATEGY 39

skills of the key managers; in the organizational ers of the firm and the rest of the organization.
culture and power structure; in the information History shows that transitions in orientation
system, rewards, and incentives; and in deci­ have been conflict-laden, prolonged, and costly.
sion-making systems and organizational struc­ The pains and the costs of the transition can be
ture. Typically the transition to the multifunction minimized by foresightful identification and man­
orientation is resisted by both the historical lead­ agement of resistance during the change process.

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