Value Creation: Linking Information Technology and Business Strategy

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If the option is not pursued, the potential does not exist.

Receptor modeling technology is now a recognized key technology in pharmaceuticals. An effective research and development program must include some investment to build a core of competence in pacing technologies and some effort to gain intelligence from sources such as customers, universities, and scientific literature to help identify and evaluate these technologies.

At the same time, disciplined judgments about commitments to pacing technologies are necessary; enthusiastic overspending on advanced technology can undercut essential support of key technologies. Technologies mature, just as industries and product lines do. The younger the technology, the greater the potential for further development, but the less certain the benefits. However, a mature technology can often be a key technology.

Many Japanese firms use mature technologies as a major competitive weapon. The Sony Walkman, for example, was a wildly successful new product based on comparatively mature technologies. The Walkman fortuitously combined Sony's work on the miniaturization of its tape recorder line and its work on lightweight headphones. Sony engineers were trying to make a miniature stereo tape player-recorder, but they could not fit the recording mechanism into the target package size. A senior officer realized that combining headphones with a non-recording tape "player" would eliminate the need for speakers, reduce battery requirements, and result in a small stereo tape player with outstanding sound.

Sometimes a mature technology becomes a key technology when it is applied in a new context. Empire Pencil gained a major cost and quality advantage by using mature plastic extrusion technology as the basis of a new way to manufacture lead pencils. Conventional lead pencil manufacturing requires the use of fine-grained, high-quality wood, such as cedar, and a good deal of hand labor for assembly.

Materials are becoming more expensive, and damage to the graphite core during the assembly process causes quality problems. A development team was confronted with this question: How can we improve quality and cut costs? The team realized that wood powder in a plastic binder could simulate the fine-grained wood. From there it was a straightforward step to produce pencil stock in a continuous extrusion process, with wood powder and a core of graphite powder in a plastic binder. Other mature technologies may be protected for example, by patents or proprietary treatment and thus give their owners a key competitive advantage.

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A Japanese grinding machine manufacturer successfully diversified into the manufacture of integrated circuit wafer equipment. A critical factor in its success was its proprietary mature machine technology. Examples like the latter one may tempt a firm in a mature line of business to diversify into new products and markets where its proprietary but mature technology could have a key competitive impact, but this sector D strategy is risky.

The better alternative is to look, as Empire Pencil did, for new technology to invigorate a mature or aging product line. A business or product line whose key technologies are mature faces a serious threat of being blind-sided by a competitor employing new key technologies. This is what Xerox did to the established copier manufacturers and what word processing did to the typewriter industry. As an industry or product sector matures, the key technologies often become manufacturing process technologies rather than product feature technologies.

This is the case in many mature industries, including chemicals, machine tools, consumer appliances, and food products.

Managing Technology as a Business Strategy

The technological strength of a business reflects the degree to which it has competence in, or proprietary control of, key product and process technologies. It also reflects the level of investment to sustain key technologies and to invest in pacing technologies. An objective analysis of the competitive technical strength of each of the firm's strategic business units helps to answer three questions: Do we have the technological capacity to support our product and market strategy in each business?

Are our strategies realistic? What do we need to accomplish to build the technological strength our strategies require? The answers to the questions posed at the beginning of this article need to be reviewed regularly if they are to remain relevant to the business strategy. Managing technology effectively means setting and communicating strategic priorities, managing projects to get timely results, and effectively using linkage inside and outside the firm. With the globalization of technology, links with the outside have become imperative. These include links with customers and vendors, as well as with other sources of technology, such as universities.

While outside connections can help a firm identify new opportunities and avoid unpleasant competitive surprises, links within the firm must also be carefully managed.

Principles

Nayak and J. Ketteringham, Breakthroughs! New York: Rawson, , pp. First time here? Five sets of questions are useful in systematically examining the relationship of a company's program of managing technology to its business strategy: Does the company have a clear product and market strategy? What markets does it want to attack? What markets does it intend to defend? What product and service attributes will accomplish these goals?

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What technologies support the product and market strategy? Which ones produce competitive advantage in existing markets by adding value or lowering costs? Which ones promise to support new market initiatives or to define a new plateau of product performance? What technological successes can the company support or exploit? Are options for technology acquisition in-house development, licensing, academic support, etc.

Does the company have the means to answer, and keep reviewing the answers to, these questions? Approaches to Managing Technology The meaning of technology is straightforward: knowing how to do something well. Linking Technology Management to Strategy We believe that a firm's development and use of technology can be managed so that it effectively supports the firm's business strategy.

We find it useful to examine a firm's technologies in light of two questions: What is the significance of the technologies in the firm's portfolio, as measured by their competitive impact and maturity? In each product area or business, how strong is the firm's technological competitive position? Classification of Technologies by Competitive Impact We identify three broad classes of technologies in a typical firm's technological portfolio. Base Technologies. Key Technologies. Pacing Technologies. Exploiting Mature Technologies Technologies mature, just as industries and product lines do.

Measuring Technological Strength The technological strength of a business reflects the degree to which it has competence in, or proprietary control of, key product and process technologies. Competitive technological strength can be characterized as follows: Dominant.

The business is a technological leader and recognized as such. It has a demonstrable commitment to technology and to creativity. The level of technological support and effectiveness in managing technology allows the business to set independent technical directions. The business has the technological capacity to remain competitive. It can manage continued improvement in technology to sustain its position, but it does not have the capability to take technological leadership on a sustained basis.

The business is a technological follower. It must frequently catch up with stronger competitors. The technical competence of the business is comparatively low, and most technical efforts are short-term, firefighting efforts to improve products or processes. Incremental Research and Development. These programs have well-defined commercial objectives.

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The likelihood of technical success is relatively high. Thus, the costs and benefits of the program can be defined rather explicitly. Modifying temperature and pressure settings to improve yields of a chemical process is an example. Most technologies used in these programs are key technologies; the remainder are base technologies. Radical Research.


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These programs take bold steps forward in applying particular, often pacing, technologies. A new technology may be brought to bear in a product: for example, a grammar-correcting routine in word-processing software. Established technology may be used in a radically different way: plastic extrusion technology used to manufacture "conventional" lead pencils, or electronic sensing and control technologies in a cooking device.

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Fundamental Research. These programs are designed to build a new dimension of competence or to investigate the potential usefulness of an area of scientific knowledge. The development of ceramic materials suitable for high-temperature applications might be investigated, for example. Such programs must pass two important screens: First, are the results potentially relevant to the company's product and market strategy—that is, could a successful result help the firm get where it wants to go? Second, is an internal project the most effective way to acquire the potential technology?

Keeping Technology Relevant The answers to the questions posed at the beginning of this article need to be reviewed regularly if they are to remain relevant to the business strategy. Joint teams help assure that product and process developments can move into implementation smoothly and on schedule. Hold to time commitments and schedules. If a development cannot be completed in a timely fashion, it probably is not worth pursuing. Avoid fads. These become distractions. Also avoid nurturing "white elephant" programs—often yesterday's fads. Understand the reason for outside linkages.