4 Technological Environment

7/28/2019 4 Technological Environment

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Technological Environment

Environment for Business


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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.


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Innovation

Important factor that provides competitive advantage andconsequently 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 thetechnical, industrial & commercial steps which lead to themarketing of new manufactured products and to commercial useof new technical processes and equipment.


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Classifying innovation

Radical innovation

Basic technological innovation that establishes a new functionality

Incremental innovation

A change in existing technology system that does not alter functionality but

incrementally improves performance, features, safety or quality or lowers

cost.

Next-generation technology innovation

A change in existing technology system that does not alter functionality but

dramatically improves performance, features, safety, or quality or lowerscost and opens up new applications.


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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


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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.


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Product & Process Innovation

Product

Innovations Process Innovations

Design

Standardization

Time

Ra

teofInnovations


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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.

TechnologyP

erformanceParameter

New Innovation

Period

Technology

Improvement

Period

Mature

Technology

Period

Nature of Limits


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Technological Leadership and Followership

Technological leadership

A firm seeks to be the first to introduce technological changes that support

its generic strategy.

Technological followership

A conscious and active strategy in which a firm explicitly chooses not to be

first on innovation.

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


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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.


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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


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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.


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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.


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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-in-time production.

Changes the basis of competition and industry structure.

Provides mechanisms through groupware for coordinating workcreating a knowledge base of organizational intelligence.

Contributes to the productivity and flexibility of knowledge workers.

Provides the manger with electronic alternatives to face-to-facecommunications & supervisions.


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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.


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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.


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ICT & Marketing

Advances in ICT are revolutionizing the modus operandi ofmarketing & 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


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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.


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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.


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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.

Duplicate level Includes investment capabilities needed to expand capacity and to

purchase and integrate foreign technologies.

Adaptive level At this technological self-reliant level, imported technologies are adapted

and improved and design skills for more complex engineering learned. Innovative level

Based on formal R&D


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Channels of Technology Flow

Foreign investment

Technology licence agreements & joint ventures


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Methods of Technology Transfer

Training or employment of technical expert

Contracts for supply of machinery & equipment

Licensing agreements

Turnkey contracts


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Issues in Transfer of Technology

In many cases, developing countries obtain foreign technology atunreasonably high prices.

In number of cases of FDI associated with TT, the net outflow ofcapital 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 technologicaldependence.

Unfavourable to the promotion of domestic technological capacitiesand discouraging for local scientists & technicians.

Tendency to transfer outdated technology to the developingcountries.


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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


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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 oftechnology transfers.

4 Technological Environment

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