Technology Strategy

Nigel Walton, Neil Pyper

• Publisher: Bloomsbury Academic
• Year: 2019
• Print ISBN: 9781137605344
• eBook ISBN: 9781350305472
• Edition: 1
• Topic: Business
• Subtopic: Management
• Index: Business

This dynamic and beautifully written textbook takes a modern and innovative approach to strategy by placing technology at its heart, bridging the gap between general strategy texts and specialist technology and innovation literature. It addresses the challenges and opportunities presented to organisations by disruptive technological change and takes into account the navigation of uncertain business environments. In addition to examining more established concepts and theories, the text also explores new disruptive business models and non-traditional approaches to strategy development such as effectuation, the Business Model Canvas and prediction logic. This comprehensive and critical approach is supported by a rich assortment of practical examples and cases drawn from different sectors and a range of exciting companies from all over the world, helping students and practitioners to apply theory to practice. This will be an essential core text for modules on technology strategy and innovation at upper undergraduate, postgraduate and MBA levels, and invaluable reading for senior executives and aspiring managers who seek to understand how to implement strategy in a volatile disruptive environment.

1 INTRODUCTION

Sir Walter Raleigh, the great English explorer, once famously said that whoever commanded the sea commanded the trade and whoever commanded the trade of the world commanded the riches of the world and therefore the world itself. As we approach the third decade of the twenty-first century, a new type of war is taking place that doesn’t involve ships or the trading of physical goods. It is a battle for control of the internet as a technology platform and control of the data and information that it generates leading to vast revenues and profits.

Therefore an alternative modern-day equivalent of Sir Walter Raleigh’s original quotation might read something like:

Whoever commands the Internet commands the data and the information of the world, whoever commands the data and the information of the world also commands the riches of the world. (Walton: 2019)

It is therefore the purpose of this book to explore how a new source of competitive advantage and a new factor of production – data and information – has emerged that is radically transforming the competitive dynamics of businesses, markets and industries. Land was the crucial raw material and source of competitive advantage in the agrarian age (agrarian revolution), iron ore was the crucial raw material and source of competitive advantage in the industrial age (industrial revolution) and data has now become the crucial raw material and source of competitive advantage in the knowledge and information age. By leveraging this new raw material, disruptive forces have occurred due to the rise of key general purpose technologies (GPTs) such as the internet, digitisation, smartphones, apps, GPS and cloud computing etc.

A new type of multisided platform company has also risen to prominence that is uniquely different to the traditional one-sided industrial era company. These internet-based platforms (Google, Amazon, Facebook, Alibaba and Tencent to name just a few) are now becoming pervasive across a broad range of industries and markets where they are having a highly disruptive impact. Initially it was only the information-intensive media industries that were being threatened but this has now broadened out to include hospitality, transportation, high street retail and even the automotive sector. These threats are also being exacerbated by the failure of leading institutions to adopt new ways of formulating and implementing strategy and adopting new perspectives and paradigms to deal with this existential crisis.

The book therefore explores new perspectives relating to data as a new form of capital and the importance of Big Data analytics as the new source of competitive advantage. It critically analyses the relevance of the neoclassical approaches to strategy in the twenty-first century and offers plausible alternative tools and methodologies. It provides detailed analysis of the different approaches to innovation and why continuous reinvention is critical to survival in complex and chaotic environments.

The book also explains what is meant by a platform and an ecosystem and how these new configurations evolve and the strategies required to compete against them. There is also a chapter dedicated to understanding ecosystem-based approaches to strategy and how to manage a balanced co-existence between an old and a new ecosystem during periods of disruption. The need for dynamic capabilities and appropriate corporate architectures is also covered in some depth. The chapter concludes with an analysis of the relevance of strategy in the twenty-first century and how this must be adapted to remain relevant in the future.

The purpose of the book is therefore to explore the rise of the new technology firms and the impact of data and digital technologies on traditional brick and mortar industries and how this is changing competitive dynamics and strategy. It does not focus on defending or supporting traditional strategic approaches and methodologies.

A full overview of the remaining chapters (Chapters 2–13) is provided below:

Chapter 2 starts with an analysis of the concept of megatrends and technological trajectories and provides a timeline relating to the four major industrial revolutions that have occurred over the last 250 years, with particular emphasis on the third and fourth phases of disruption relating to ICT and the new age economy (Schwab: 2017; 2018).

The analysis also highlights how the speed of technological development and its pervasiveness have accelerated at exponential rates during the third and fourth industrial revolutions and how developments in earlier periods of change provided the foundations for new technological trajectories. This has been particularly apparent as the third and fourth industrial revolutions have also merged into one as a result of recombinant innovation (Brynjolffson and McAfee: 2014).

The chapter then considers the failure of modern strategy to keep pace with the exponential growth rates in technological development driven by Moore’s Law (Moore: 1965) and how these trends have not been accompanied by a change in the way mainstream companies manage their resources and plan and implement strategies. The chapter analyses why decision making tools and metrics being used today still belong to the early or mid-twentieth century.

In Chapter 3 there is an in-depth analysis of the neoclassical approach to strategy (McMillan: 2003; 2008) and the extent to which the planning, design and positioning schools (Mintzberg et al.: 2008), developed more than a half century ago, are now struggling to add value to the strategic decision making process. The permanent state of complexity that now exists in the business environment (Hitt et al.: 2003) has rendered the formal planning approach (developed in the 1950s and 1960s) largely redundant. However, the ‘prescriptive’ school associated with the classical paradigm no longer operates in autonomous isolation but has been complemented by a newer post-modernist ‘descriptive’ school (Mintzberg et al.: 1998). The descriptive school is emergent and inverts the traditional approach to strategic decision making by placing action before planning.

Techniques involving effectuation, prediction logic, logical incrementalism, probing and concept testing (Quinn: 1980; Sarasvathy: 2001; Fixson and Rao: 2011) are undertaken before scaling up future projects and ventures based on positive feedback from the market (Ries: 2011). If the feedback is negative then resources are rapidly redeployed elsewhere. This has resulted in an iterative strategy cycle where action precedes planning rather than following it or replacing it. This approach is far more appropriate in complex, chaotic systems because learning and innovation are essential core competencies required for survival in technology markets due to the high levels of bounded and explosive instability (Pascale: 1999). The process is also iterative and continuous due to the threats of equilibrium and entropy. This means that these new techniques are essential to keep pace with the new competitive environment as strategy is now being delivered on the ‘edge of chaos’ (Brown and Eisenhardt: 1998).

In Chapter 4 the book analyses the extent to which data, information, knowledge and innovation have become the new source of competitive advantage with data becoming a new factor of production and one of the world’s most valuable resources. This explores new concepts and technologies such as datafication, data capital and Big Data analytics (Brynjolfsson: 2016). These methodologies have emerged in response to the data deluge created by technological developments including the internet, digitisation, smartphones, apps and the commoditisation of computing power driven by Moore’s Law (Moore: 1965). This is a trend that will continue as the Internet-of-Things (IOT) and artificial intelligence (AI) gather momentum.

The chapter also considers the unique characteristics of the internet firms, particularly their technologies and platform configurations. It also analyses the inability of the traditional firms to replicate the characteristics and performance levels of the large internet platforms. This has led to Schumpeterian style disruption in many markets and industries. The implications of these developments for strategy and information driven sense-making are also considered and how the new factor endowments of data and information create high levels of strategic intelligence (high strategic IQs) for leading technology companies (Wells: 2012) over more traditional one-sided businesses.

The new data-driven sources of competitive advantage emanating from AI and the IOT are also analysed based on new developments in connected cars and homes that are most likely to change competitive strategy as companies move from product-based approaches towards strategies designed to exploit smart services with data forming the foundation for AI and new sources of competitive advantage.

Chapter 5 provides a detailed analysis of the technology trends that have led to the establishment of the internet as a pervasive platform and ecosystem upon which other platforms and ecosystems depend for their survival and growth. In addition to explaining the three waves of innovation, the chapter also identifies a broad range of technologies that are currently visible and likely to impact upon the competitive environment over the next few years (Walton: 2017). It is considered that these will result in the growth of new markets and industries as well as seeing the convergence and disruption of many other sectors.

This is followed by a critique of the inadequacy of traditional, neoclassical approaches to the analysis of markets and industries in the current competitive environment (McMillan: 2008). Two frameworks tailored specifically for the technology sector, developed by Gartner’s (2008) research, are analysed and critiqued (the Gartner Hype Curve and the Gartner Magic Quadrant). This is followed by a detailed evaluation of Adner and Kapoor’s (2016) ‘Framework for Analysing the Pace of Technology Substitution’ concept. This ecosystem-based approach emphasises the importance of understanding the strengths of opposing ecosystems (the old and the new technology ecosystems) rather than focusing primarily on the technology alone.

Finally, the chapter explores the ability of the established platform companies to overcome emergence challenges and the difficulties faced by incumbent firms in extending their own ecosystem advantages, revealing high potential for creative destruction (Adner and Kapoor: 2016. The chapter concludes that as new technologies are due to come on-stream, such as the IOT and AI, future ecosystem wars will be inevitable and intelligent ecosystem positioning strategies will be crucial to future survival and growth.

Chapter 6 starts with a definition and explanation of the ecosystem and platform concepts and how these have resulted in the emergence of a new form of platform ecosystem company and business model. The chapter analyses how this new type of firm is configured differently to the traditional linear one-sided product-based firm of the earlier industrial era. This includes details relating to the platform ecosystem company’s asset light structure and how it leverages modern internet technologies and an external ecosystem community to achieve new forms of competitive advantage. The implications for traditional strategic approaches, which have become inverted and turned inside-out, are also considered.

The chapter also considers how new strategies have emerged based on platform envelopment (Eisenmann et al.: 2010) and the acquisition of overlapping communities. These new approaches include building out the three layers of Choudary’s (2015) platform stack (data, infrastructure and the network community) to develop strengths in data ownership, infrastructure and the curation of large network communities involving keystone and niche strategies (Iansiti and Levien: 2004).

The chapter explores how the platform ecosystem companies have developed a range of unique competitive advantages including low transactions costs, an ability to undertake data analytics and data driven decision making (DDD) plus the capability to develop new revenue streams through monetising digital data and dematerialised products (Brynjolffson: 2016). The chapter also analyses how new technologies such as the IOT and AI are starting to unfold and how the power and size of the platform ecosystem companies are likely to rise further as they permeate more and more markets and industries due to their ability to connect and share information causing further disintermediation and disruption.

Chapter 7 of the book analyses the relevance and appropriateness of Grant’s (2013) resource-based view (RBV) in relation to both the one-sided and the two-sided business models. It also draws upon a range of related concepts including the value chain (Porter: 1985) and value network approaches (Peppard and Rylander: 2006), dynamic capabilities (Teece et al.: 1997) and second order competencies (Danneels: 2008; 2012), core competencies (Prahalad and Hamel: 1990) and the knowledge-based view (KBV) before considering more contemporary and transformational models such as the RCOV (Demil and Lecocq: 2010) and the Wheel of Business Model Reinvention (Voelpel et al.: 2004) frameworks.

It is evident from the analysis that two-sided business models, as a result of their unique configurations, superior technologies and Big Data capabilities, are able to innovate on a broad range of dimensions that could not be replicated by established single-sided businesses. Their superior data, information, knowledge and strategic IQ (Wells: 2012), plus their dynamic capabilities, enable them to re-invent and innovate on a continuous basis achieving higher economic rents than incumbent one-sided firms in the industries that they are disrupting.

Chapter 8 provides an in-depth analysis of the reasons why an understanding of business model innovation is important to the success of companies in the twenty-first century. A definition of the business model concept is provided (Osterwalder et al.: 2005) as well as an explanation of why the business model is different from strategy although the two are highly complementary and related. The dynamic school of business model innovation is also used to highlight the need for innovation to be part of a continuous (non-static) process due to the high levels of environmental volatility (Casadesus-Masanell and Ricart: 2010). The fact that the term business model was almost synonymous with the rise of the internet in the 1990s was also highlighted as being very significant in developing new ways of creating value.

The chapter then analyses the core components of a typical business model (Afua and Tucci: 2003) before considering the different types of business model innovation (Abernathy and Clark: 1985) and how these may impact upon a firm’s products, services and resources and capabilities, rendering these obsolete in many cases. The chapter concludes with an overview of how leading companies have used business model innovation to create and shape new environments and how this has driven the need for continuous business model innovation and re-invention as firm-level competitive advantages have been reduced in terms of their overall longevity (D’Aveni: 1994; McGrath: 2013).

Chapter 9 undertakes a detailed analysis of the important topic of open innovation (Chesbrough: 2003). It explores how a new knowledge landscape has emerged from the exponential growth of new technologies and how a new venture capital-driven entrepreneurial culture has transformed the innovation processes used by modern firms in the twenty-first century. It explains how the twentieth-century closed innovation paradigm has been superseded by an open innovation approach which harnesses ideas from multiple sources.

The major differences between the old innovation paradigm and the new approach are analysed and the role that the lead user now plays in the innovation process is considered (von Hippel: 2005). Open source innovation and the concept of the ‘information commons’ are discussed and the ways in which innovators share and adapt existing innovations using open access internet platforms are explored in detail. The challenges to established paradigms regarding the practice of innovation and the suitability of existing intellectual property regulation are also debated.

The chapter also considers how the anticipated continuation of the data deluge and nascent technologies, such as AI and the IOT, will add further momentum to the current open innovation trajectory and user-generated innovation trends. The chapter concludes by discussing the need for firms to fully maximise the returns to innovation by ensuring that they have appropriate business models in place in order to create and retain value for both the consumer and the innovating company in order to gain appropriate economic rents (Grant: 2013).

Chapter 10 explores the important area of scenario planning. The chapter focuses on some of the tools that are available to help understand and respond to uncertainty. Traditionally, many firms plan for the future using forecasts, which are projections that use mathematical modelling to project what has happened in the past into the future. The chapter considers the limitations of these methodologies and looks at alternatives. In particular it explores the field of strategic foresight and looks at some of the qualitative tools that are available to facilitate creative thinking and conversations about future uncertainties. It also focuses on the best known and most widely used of these techniques, which is scenario anal...

Table of contents

• Cover
• Title Page
• Copyright
• Brief Contents
• Table of Contents
• List of Figures
• List of Tables
• List of Case Studies
• 1 Introduction
• 2 Technological Change and the Relevance of Strategy in the 21st Century
• 3 The Strategy Process in Chaotic and Complex Environments
• 4 Data, Information, Knowledge and Innovation: The New Source of Competitive Advantage
• 5 Strategies for Converging Industries
• 6 The Rise of the Platform Ecosystem Company
• 7 Dynamic Resources and Capabilities and the Innovation Advantage of the Platform Company
• 8 Business Model Innovation
• 9 Open Innovation: Reinventing the Way We Innovate
• 10 Dealing with Uncertain Business Environments: Strategic Foresight and Scenario Analysis
• 11 Entrepreneurial Structures in High Innovation Environments
• 12 Born Global Firms: The Changing Nature of International Business
• 13 Where Next for Strategy?
• 14 Conclusion
• Glossary of Terms
• References
• Index