Technological Environment

Environment for Business

Technological Environment
Technology is one of the important determinants of success of a firm as well as the economic and social development of a nation. It includes the tools both machines (hard technology) and ways of thinking (soft technology), available to solve problems and promote progress between & among societies. Systematic knowledge for the manufacture of a product, for the application of a process or for the rendering of a service and does not extend transactions involving mere sale or lease of goods. It includes not only knowledge or methods that are necessary to carry on or to improve the existing production and distribution of goods and services, but also entrepreneurial expertise and professional know how.

Innovation

Important factor that provides competitive advantage and consequently determines success. May take any of the following forms:

Introduction of a new product Use of new method of production The opening of new market The conquest of a new source of raw material supply Reorientation of an industry

In the business context, innovation can be defined as the technical, industrial & commercial steps which lead to the marketing of new manufactured products and to commercial use of new technical processes and equipment.

Classifying innovation

Radical innovation

Basic technological innovation that establishes a new functionality

A change in existing technology system that does not alter functionality but incrementally improves performance, features, safety or quality or lowers cost. A change in existing technology system that does not alter functionality but dramatically improves performance, features, safety, or quality or lowers cost and opens up new applications.

Incremental innovation

Next-generation technology innovation

Why new products fail?

Calantone & Cooper have identified 6 major reasons for the new product failure:

The better mousetrap no one wanted The me-too product meeting a competitive brick wall Competitive one-upmanship Environmental ignorance Technological dog products The price crunch

Product & Process Innovation

William Abernathy & James Utterback have pointed out that usually, the pattern of early innovations in a new technology based industry will be first, product innovations; later shifting to improving production process to make the product cheaper with better production quality.

Product & Process Innovation

Product Innovations
Process Innovations

Rate of Innovations

Design Standardization

Time

Technology S-Curve

Development of technology follows an S shaped curve, with an initial exponential rate, slowing to a linear line and turning toward a natural limit.
Nature of Limits
Technology Performance Parameter

New Innovation Period

Technology Improvement Period

Mature Technology Period

Technological Leadership and Followership

Technological leadership

A firm seeks to be the first to introduce technological changes that support its generic strategy.
A conscious and active strategy in which a firm explicitly chooses not to be first on innovation.

Technological followership

The choice of whether to be a technological leader or follower in an important technology is based upon following 3 factors:

Sustainability of the technological lead First mover advantages First mover disadvantages

Technology & Competitive Advantage

Technology can help influence all the five competitive forces viz., inter-firm rivalry, threats of new entrants and substitutes and bargaining power of suppliers & buyers. According to Porter technological change by a firm may lead to sustainable competitive advantage under following conditions:

It lowers cost or enhances differentiation and the firms technological lead is sustainable. The technological change shifts costs or uniqueness drivers in favour of a firm. Pioneering the technological change translates into first mover advantages besides those inherent in the technology itself. The technological change improves overall industry structure.

Sources of Technological Dynamics

Innovative drive of the company Customer needs / expectations Demand conditions Suppliers offerings Competitive dynamics Substitutes Social factors Research organizations / technical facilities Government policy

Time Lags in Technology Introduction / Absorption

Considerable time lags between countries in respect of introduction or absorption of technologies. This may result in some products not being able to reap the market. Many companies in advanced countries consider the developing countries as a market for their obsolete technology. Several developing countries even import second hand plant and machinery. Even among developed countries the technology absorption is not simultaneous and similar.

Appropriate Technology & Technology Adaptation

It needs to be ensured that the chosen technology is appropriate for the company/country in terms of factors such as topographical conditions, climatic/weather condition, soil conditions etc., difference in income levels, scale of operation, demand conditions, use facility characteristics, customer characteristics.

IT Revolution & Business Environment

IT provides new ways to design organizations. Creates new relationships between customer & suppliers who electronically link themselves together. Enables tremendous efficiencies in production and service industries through electronic data interchange to facilitate just-intime production. Changes the basis of competition and industry structure. Provides mechanisms through groupware for coordinating work creating a knowledge base of organizational intelligence. Contributes to the productivity and flexibility of knowledge workers. Provides the manger with electronic alternatives to face-to-face communications & supervisions.

Trends that altered the way technology is used

The use of technology to transform the organization. The use of information technology as a part of corporate strategy. Technology as a pervasive part of the work environment. The use of personal computers as managerial work stations. The evolution of computer from a computational device to a medium for communications.

Impact of Technology on Globalization

Technology has been a very important facilitating factor of globalization. Global sourcing was encouraged by technological developments apart from trade liberalization. Technology monopoly (patents etc.) encourage internationalization as the firm can exploit respective demand without any competition. Technological revolution in several spheres like transport & communication has reduced disadvantages of natural barriers like distance & cost.

ICT & Marketing

Advances in ICT are revolutionizing the modus operandi of marketing & business system. Effective use of ICT can help companies:

Reduce inventories Reduce delivery time/unproductive waiting time Reduce stock outs/lost sales Respond faster to market changes Reduce rush orders Cut down over production Reduce unnecessary movement (forwarding & backtracking) Reduce paperwork & wasteful processes Plan production better

Transfer of Technology

Technology transfer is the process by which commercial technology is disseminated. Types of transfer transactions (listed by Draft TOT Code by UNCTAD):

The assignment, sale & licensing of all forms of industrial property, except for trademarks, service marks & trade names when they are not part of transfer of technology transactions. The provisions of know-how and technical expertise in the form of feasibility studies, plans, diagrams, models, instructions, guides, formulae, basic or detailed engineering designs, specifications and equipment for training, services involving technical advisory and managerial personnel, and personnel training.

Types of transfer transactions (contd.)

The provision of technological knowledge necessary for the installation, operation and functioning of plant & equipment, and turnkey projects; The provision of technological knowledge necessary to acquire, install and use machinery, equipment, intermediate goods and/or raw materials which have been acquired by purchase, lease or other means; The provision of technological contents of industrial and technical cooperation arrangements.

Levels of TT

Operational level

Needed for operating a given plant: these involve basic manufacturing skills as well as more demanding troubleshooting, quality control, maintenance & procurement skills.
Includes investment capabilities needed to expand capacity and to purchase and integrate foreign technologies. At this technological self-reliant level, imported technologies are adapted and improved and design skills for more complex engineering learned. Based on formal R&D

Duplicate level

Adaptive level

Innovative level

Channels of Technology Flow

Foreign investment Technology licence agreements & joint ventures

Methods of Technology Transfer

Training or employment of technical expert Contracts for supply of machinery & equipment Licensing agreements Turnkey contracts

Issues in Transfer of Technology

In many cases, developing countries obtain foreign technology at unreasonably high prices. In number of cases of FDI associated with TT, the net outflow of capital by way of dividends, interest, royalties & technical fees has been higher than the corresponding inflow. Appropriateness of the foreign technology to the physical, economic & social conditions needs to be considered. Heavy reliance on foreign technology may lead to technological dependence. Unfavourable to the promotion of domestic technological capacities and discouraging for local scientists & technicians. Tendency to transfer outdated technology to the developing countries.

Areas of Regulation
The extent & terms of equity participation. Phasing of domestic manufacturing The appropriateness of the technology Payment terms and foreign exchange outflow Restrictive terms in the agreement

Promotional Measures

Assessing technological requirements of various sectors and identifying areas where foreign technology is required. Dissemination of information in foreign countries regarding foreign investment potentials and scope for technical collaboration in the domestic economy, government policy & regulation in respect of foreign capital & technology, institutional assistance and infrastructural and other facilities for industrial development. Provision of advisory services to Indian entrepreneurs in respect of foreign technology including the techniques and process of technology transfers.