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“Through the Looking Glass: On Reasserting the Strategic Role of Technology”

John W. PetersonLucent Technologies Inc.

May 1998

Conventional wisdom has all but written off the moderate-to-large size technology intensive corporation. Such firms are characterized as too slow, ponderous, and unresponsive to compete effectively for increasing shares of changing markets. In the face of market globalization, intensifying competition, ever shortening cycle times accelerating technology change-out, and highly uncertain futures, such companies have been struggling to leverage two distinct capabilities; strategic thinking and intellectual capital administration (product and process design, technology management, and intellectual property protection). Historically, such leverage has been problematic because in the traditional model of the firm, the domains of strategic planning and application of technology have been as mutually exclusive as the domains of free speech and strict military discipline.

Strategic thinking is both a macro level ‘art’ and a prerequisite for long term success. When present, such thinking has direct links into successful micro level practices of operational planning and product evolution management. Both operational planning and product evolution management are means for leveraging innovation and other intellectual capital. Neither approach, macro or micro, has, by itself, adequately bridged the challenges and complexities of the volatile environments of today’s high growth, fast paced, knowledge based industries. This paper proposes a revision to the traditional business value chain model of the corporation and offers some insights into selected ‘management of technology’ related constructs and tools that can help lower the hurdles for the mid to large size technology intensive company. The constructs and tools reflect real time lessons being learned from a consortium of major US firms collaborating in an in-depth analysis of the strategic management of technology and related organizational processes (Management of Accelerated Technology Insertion - MATI). This work is being conducted under the auspices of the National Center for Manufacturing Sciences. The reader should note that the MATI project is still underway and these are early constructs based on initial interviews and process scans and are not yet project team conclusions.

INTRODUCTION

“Cheshire Puss” she [Alice] began, “would you please tell me which way I ought to go from here?”

“That depends on where you want to get,” said the cat. Lewis Carroll

There are, at least, five types and levels of critical management skills -- cognitive, advanced, systems integration, creative, and intuitive. Unfortunately, it is a rare management team that is diverse enough to include and genuinely value all five. However, it is only by incorporating these five levels into the appropriate value chain activities that the firm’s ‘dominant1’ management team can create, renew, or sustain strategic advantage. As a team, their skill types must encompass technology innovation and alignment, business process improvement, designing teams and organizations, establishing deliverables and appropriate metrics, and mentoring the professional development of the next generation of leaders.

1 The dominant management team may include players not necessarily part of the senior hierarchy but who have been empowered by their ability to engage and achieve desired outcomes.

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Once beyond the critical skills of the dominant management team, technological innovation, knowledge building, and business process improvement become the critical prerequisites for successful strategic management. Unfortunately, most managers lack a clear understanding of how such prerequisites can be leveraged within the context of the business strategy. This has often led to “poor-to-mediocre business performance.” [Quinn, Baruch and Zien 1997] Knowledge-building processes, especially in the technology intensive enterprise, tend to be complex and nonlinear. They frequently, but not always, require high levels of interaction between the formal and informal organizational networks. They also require constructive confrontation without generating either gridlock or functional discontinuity.

Quinn, Baruch, and Zien argue that effective strategic management must leverage the firm’s intellectual capital. That is achieved by creating pride and identity, allowing delegation, and promoting effective interaction, opportunism, and value creation. The dominant management team must create a clear, exciting, and challenging vision that the entire organization understands and embraces. They must create an integrated core business strategy that leverages both technology and business value chain activities to enable significant competitive advantage. They must also establish a conscious portfolio of innovation that balances the company's long-term, short-term, geographical, defensive, and growth needs in a way that allows all the stakeholders to define their roles clearly. Frequently this extends well beyond the immediate bounds of a specific technical focus. The core strategy and associated strategic thrusts must create the focus, the congruency and the excitement that drives business innovation, while supporting the independence, interaction and chaos that are among its essential elements.

The detailed implementation of such strategy typically falls to middle managers who must achieve a balance of the requirements of the longer-term strategy against the pragmatic realities of achieving near term business unit commitments. They must also deal with internal resistance to change and get different specialized organizations to cooperate. They too must create for their teams, congruent yet appealing visions, challenging goals and objectives, and a portfolio of investments and programs. They must also make a real commitment to achieving the metrics that define winning.

In addition, the firm’s managers and technologists must have a similar understanding of their customers’ business environments, processes and objectives. They must actively monitor the external environment for signals of pending change. They must also closely engage with industry and customer mavens. They must use “quick and rough” working models that help focus the customers’ thinking as well as help to visualize each element of the product or application for the development of prototypes. The resulting technology portfolio defines the types [Peterson 1996] of technological skills and innovations:

Incremental innovation -- which reflects the “natural” evolution of particular systems and or technologies (typically a shorter term minimal threat to an established product unless it establishes an intellectual property position that reads on an industry standard)

Niche innovation -- focused solutions that address a very specific need with limited promise of larger markets or additional applications (typically not a systems level threat)

Revolutionary innovation -- breakthrough technology with much promise but typically a long diffusion horizon (as a result it represents a longer term threat but includes sufficient response time to adopt or design around it)

Architectural innovation -- application of existing or emerging technology in a new way or to solve a problem for which it was not originally considered (typically architectural innovation represents an immediate strategic threat)

Most opportunities for incremental, architectural and niche innovation exist at the customer interface. They stimulate the creation of new solutions for both existing and emerging customer problems. As a result, alignment with customer solution space becomes the most important single dimension in business




unit commercialization of innovation. Such alignment translates very quickly into the cash investment needed for development and for “returns” projected in the business cases. Unfortunately, the ease of financial measurement may undercut more appropriate growth, positioning, or service strategies that generate greater but longer term returns. Quinn, Baruch, and Zien warn that other appropriate strategies must not be allowed to be undercut by “mechanistic use of accounting or present value tools.” There is more possible value to the firm than simply cash generated. Unfortunately, the value of such intellectual capital is not as easily quantified or as easily explained to the dominant management team as “bottom line” numbers.

Strategy - Managing the Present from the Future

Product Roadmaps

Competitive Landscape

Performance vs.Growth

Strategic Balance Strategic Intent

Desired FuturePositions

Voices of the Customers

MarketOpportunities

CustomerNeeds

ChangingRules

Technology Roadmaps

Technology Positioning

IntellectualProperty

Life Cycle Sourcing

Product Positioning

Platform Product Line Expansion/Evolution

Competitive Positioning

Differentiation/Quality (ISO)

Pricing Timing &Globalization

CompetitivePositioning

Gaps &Imperatives

Execution

Temporary Advantages

Root Cause

ExperienceCurves

R&D - Innovation & Efficiency

CriticalSuccessFactors

Competitive Style

ValueChains

Market Segmentation

Scenarios

CustomerNeeds

Competencies & Capabilities

TechnologyTool Box

Strategy

Assessment

Figure 1: The MATI Project has already identified six strategic analytical parameters and some technology focused management tools

Pressure on stock price, earnings, and operating efficiencies will limit the firm’s ability to provide continual innovation at the customer interface. The dominant management team must recognize and communicate the need for both corporate and business unit innovation. This should be integrated into both the vision statement and the strategy programs. Unfortunately for some of the technical dreamers, the timing of the cash generated must also align with the pragmatic reality of established deliverables. A simplified model of the firm will be used to help explain the means of aligning technologies with specific strategy thrusts. In this construct, the continuing relevance of the business system, i.e., the enterprise, will be assumed to be determined by the six sets of parameters illustrated above in Figure 1:

Strategic intent, i.e., the vision of the firm and the boundary conditions for achieving competitive advantage




Strategic balance, i.e., identifying an overarching goal and the prioritization of the objectives of the firm (particularly the tradeoff between growth and near term financial performance)

Voices of the customers, i.e., the driving forces in the firm’s markets, geography and the opportunities related to each

Competitive strategies, i.e., the leveraging of the competencies and differentiating capabilities of business and technology value chains

Product strategies, i.e. relative positioning of the firm’s products and their attributes Technology strategies, i.e., the balancing and prioritization of intellectual property positions

and the priorities for investment in innovation, enabling technology development and sourcing

Strategic goals and business objectives can then be achieved by leveraging the appropriate business and technology value chain activities to achieve a unique position, and then aligning to deliver to the customer maximum value (within the constraints of the customer’s willingness to pay). This will establish competitive positioning. Strategic competitors will then respond. Their response can be neutralized by further “tweaking” of other business and technology value chain activities. Each “tweak” will establish new or additional sources of advantage and again force the competition to respond. It is incumbent on the firm to precipitate those market discontinuities that allow it to play to its strengths. It the firm does not act, the competitors will.

PART 1: CONCEPT AND APPROACH

CONTEXT

“Everything is in a state of flux, including the status quo” Robert Byrne

The relevance and behavior of the technology intensive enterprise and its competitors are reflected in the core businesses of the firms. Core businesses are typically built around a cluster of customers. The equipment systems, that is, the platforms and products sold, provide the customers with unique value or advantage with their end users. The inter-workings of the hardware and software subsystems and routines combine to define the systems’ capabilities and performance. The resulting complex system can then be further defined as a group of interacting components and subsystems that form a more comprehensive system for a specific purpose. The complexity of the system architecture translates into a lack of trivial solutions for complex technological decisions. The drivers and considerations for such decisions include resource requirements, investments (i.e., time, intellectual capital, and financial), the development of “right” solution, the “right” architectures, and the timing to exploit the “right” market windows. Add to that, the complexity of the subsystem, its useful life, longer term maintenance requirements, and replacement of enabling technologies over the life of the system, and a basic understanding of “The Innovators Dilemma: Why Big Companies Fail” [Christensen 1997] begins to form.

ON REENGINEERING THE VALUE CHAIN CONCEPT

The value chain, as suggested by Michael Porter [Hax & Majluf 1993] is illustrated in on the left side of Figure 2. It has five primary activities, namely inbound logistics, operations, outbound logistics, marketing and sales, and service. They represent the functional activities of creating the product or service and transferring it, both in title and physically, to the buyer, together with any necessary installation and after-sale service. Those functional activities are linked to four “support” activities: procurement, technology




development, human resource management, and the firm’s infrastructure The support activities are cross functional, they each support more than one of the primary activities.

An Evolved Value Chain Concept

Margin

Margin

Firm Infrastructure

Human Resources Management

Technology Management

Procurement

Inbound Logistics

Assembly/Operations

Sales &Marketing

Outbound Logistics

Installation& Service

Business Value Chain

Value Added Steps

Val

ue A

dded

Am

ount

RawMaterials Research Design Engineering Assembly Marketing Distribution Service

Technology Intensive Business

Business Strategy Pull:

Technology Push:

•Growth•Contribution••

•Resource Allocations•Market shares•••

•Cross Company Investments•Core Products•Development Priorities••

•(Micro) ElectronicTechnologies

•Device Packaging•••••••

•SystemsArchitectures

•Platform Design•••••.

Internal:•Business Units•Research•Other

External•Partners•Alliances•Customers•Suppliers•Consultants•Competitors•Universities

Systems LevelTechnologies &Competencies

StrategicInvestments,Offers, andPlatforms

Device LevelTechnologies &Competencies

Sources ofTechnology

StrategyElements

StrategicObjectives

Technology Value ChainCorporate Domain Business Unit Domain

Figure 2: The evolved value chain concept reasserts the strategic role of technology and helps integrate it with the pull of business strategy

The firm’s infrastructure, processes and structure, support the whole value chain. All the activities should add value to the product or service (generate cash) and incur costs (use cash). Survival depends on generating cash in excess of the value chain costs. As a result, senior management and operational management are constantly seeking ways to increase cash generated while minimizing cash used. In well-managed firms, there is an emphasis on reducing costs sensibly. Cost reductions should not be at the expense of quality or in other areas demanded by the targeted customer sets. In a similar fashion, costs can be added to the extent that they reflect additional attributes or functionality ‘demanded’ by the customer. In this case, 'demanded’ implies customer's willingness to share in the risks and costs associated with the changes. The difference between the total system’s costs and the price at time of sale is the margin. Margin is “grown” by widening the gap between price and total system’s costs.

Within the MATI project, the project team is exploring the possibility of redefining the strategic management framework for the technology intensive corporation. One approach is to move technology out of Porter’s value chain (redefined as the business value chain) and adding a parallel ‘technology value chain.’ The ‘technology value chain’ concept (see Figure 3) proposes that the vision and strategic thrusts of the firm be aligned with business and development investment priorities, specific technologies, systems skills and competencies, enabling technologies, and appropriate sources of technology.




Technology Value Chain Illustration

Technology Push

Corporate Domain Business Unit Domain

Strategy TechnologyArchitecture

• Attributes• Partnering• Licensing

• Resource Allocations• Volume

Allocations• Priorities

• SystemsArchitectures

• Platform Design

• Systems’Engineering

• Software• Project/Risk

Management• Process Quality• Manufacturing• Etc.

• (Micro) ElectronicTechnologies

• Device Packaging

• Simulation andModeling

• Software Control and Instructions• Interconnection• High Speed

Electronics• Etc.

Internal:• Business Units• Research

External• Partners• Alliances• Customers• Suppliers• Consultants• Competitors

• ValueCreation

• Growth

• Returns• Priorities• Timing

• Cross CompanyInvestments

• Core Products

• Core Platforms• Development

Priorities• Research Funding

Levels

Systems LevelTechnologies

& Competencies


Device LevelTechnologies

& Competencies


StrategyElements

StrategicObjectives

• Growth• Long Distance• Local Access• Globalization

• PNS Digital Switch - CM (ATM) - ORM, RSM, SM

• Optical Interconnect• Optical Fabric

• Teflon Back- planes • VLSI Modules

• Research • JPL• U of C

Strategy Pull

Figure 3: The Technology Value Chain.

In Figure 3, the technology value chain, the growth objective has been highlighted. This Hypothetical Company intends to position its products to accelerate growth globally, leveraging both local and long distance capabilities of its public access networks digital switch. The switch is being further evolved to provide lower cost of throughput. This is achieved by using optical technologies at the systems level. Among the technologies at the device level are very high speed VLSI modules and Teflon backplanes. The Hypothetical Company intends to source the technology internally from research and from government laboratories and public universities.

In the technology value chain, the firm links its unique competencies and dominant skills to add value to basic and enabling technologies. This provides products and systems that align very closely with specific corporate strategy elements and objectives. The chain can be used by the management team to identify the common cross product technologies and skills required to support current and future products and offers. The firm can then identify relative industry positions in these areas, comparing itself to its strategic competitors. It’s skills and competencies can then be assessed in context of the targeted markets. Those skills and competencies needed to support evolution of the enterprise can be flagged and compared to in-house competencies and capabilities. Those required can be retained, gaps can be filled by way of education or recruitment, and those no longer needed can be phased-out. The technology value chain serves effectively to account for the 60-80% of the firm's sales related to the established “core business.”

1.0 ON STRATEGIC INTENT:




“Victory smiles upon those who anticipate the changes in the characterof war, not upon those who wait to adapt themselves after they occur.

General Giulio Douhet (1921)

Firms frequently fail to fully communicate their expectations for the longer term. A failure to define those expectations can cause the firm’s management teams to err in the formulation of group, business unit and product family objectives. In some firms, senior management is unable to clearly describe the vision. Instead of tackling the political problem of driving to a consensus and creating a real vision, such firms typically generate a surrogate2. The surrogate, something prepared for public relations purposes, tends to describe the future firm in “warm and fuzzy” terms. Such “warm and fuzzies” frequently lack material information that is prerequisite for the successful focusing of the firm's resources and activities. In the Innovation Explosion, Quinn, Baruch and Zien describe vision as something the dominant management team supports constantly and clearly. This is done in their lives, in their communications, and by repeating stories and anecdotes that grow, add substance, and develop a reality of their own. “Such visions are not the pap of most mission statements but stirring, practical dreams through which people can connect their work-life to their life-work.”

Raison d’être is not the firm’s vision. For the commercial manufacturing enterprise, the raison d’être of the firm is to defend and grow the value of the owners' investments in the enterprise. The ultimate mission is to create an “ecstatic customer.” Vision is not strategy, but the logical longer term outcome of effective implementation of an appropriate strategy. Strategy is the means to get to the vision. Strategy is as expressed as an “organizational purpose in terms of its long-term objectives, action programs, and resource allocation priorities.” [Hax & Majluf 1996 p.2]. The path to the vision is not always easy, there are outsiders who attempt to intervene and insiders and other stakeholders that do not always share the vision. There are also some boundaries to what the firm can undertake. Boundaries include the vision, the firm’s average weighted cost of capital, the customer value propositions, and the capabilities of the firm in terms of both the business value chain and the technology value chain activities. [Radnor and Peterson 1997]

2 A vision surrogate should not be confused with different versions of the vision that have been generated to more effectively communicate with different constituencies.




Vision - Pragmatic Working Boundaries

Longer TermVision

EconomicValue Added

CapitalInfusion

Risk &Inflation

Capital:

Quality

Price

Support

Functionality

Customer Value Proposition:

Corporate Discount Rate

CurrentIndustry

FutureIndustry

Technology Push:

•Growth•Contribution••

•Resource Allocations•Market shares•••

•Cross Company Investments•Core Products•Development Priorities••

•(Micro) ElectronicTechnologies

•Device Packaging•••••••

•SystemsArchitectures

•Platform Design•••••.

Internal:•Business Units•Research•Other

External•Partners•Alliances•Customers•Suppliers•Consultants•Competitors•Universities

Systems LevelTechnologies &Competencies


Device LevelTechnologies &Competencies


StrategyElements

StrategicObjectives

Technology Value ChainCorporate Domain Business Unit Domain Business Value Chain

Value Added Steps

Val

ue A

dded

Am

ount

RawMaterials Research Design Engineering Assembly Marketing Distribution Service

Technology Intensive Business

Business Strategy Pull:

Figure 4: Vision implies managing the present from the future

2.0 ON STRATEGIC BALANCE

“Adherence to one principle frequently demands violation of another. Any leader who adheres inflexibly to one set of commandments

is inviting disastrous defeat from a resourceful opponent.”Admiral C. R. Brown (1949)

Strategy is a military term that has been adapted for use in the business environment3. It's necessary to recognize that the context differs between the national war (corporate) strategy and the battle (business unit) strategy. The vision and the survival of the enterprise are both dependent upon achieving an appropriate balance in these domain relationships. Of course, business unit (battle) strategy must be played out within the context of the corporate (war) strategy [Quinn 1992, Peterson 1996]

Business strategies for the enterprise exist at least two levels, both of which must be addressed simultaneously. The first level is macro. It reflects the directions and intentions of the Board of Directors. This is corporate strategy. It consists of the vision, an overarching objective and a small set of “strategic thrusts.” It will define, at a macro level, the priorities and resources to be committed to the elements within the portfolio of business units. At this level, the primary business “battlespace” considerations

3 hence the preponderance of sectional subtitles are military quotes.Part 1: ISMOT ‘98/PICMET ’99, Part 2: To BeRevised for Research Technology Management

Approved for Public Disclosure BL 98.00663 --- Page 8



include appropriate market segmentation and primary drivers that affect those global, national, regional and local segments. The drivers include politics, economics, societal (cultural) and technological considerations. At the macro level, the enterprise’s leadership team is faced with the equivalent of a horribly complex non-linear optimization problem. It has a wide range of short lived, time dependent, potential solution sets, none of which is optimal due to the conflicting objectives and interests of multiple external but very influential constituencies. Enterprise strategy is a long term high stakes play. Outcomes are decisive. . [Peterson 1996] At the corporate level, the innovation engine [Levin, Radnor & Thouati, 1997] becomes the key functional driver of future capability. In this arena, because of the power and capabilities of the other players, advantage is fleeting. Influence is frequently more attainable than control

At a second or micro level, military strategy reflects the directions and intentions for an individual campaign or battle. In business, battle strategy translates into a business unit operational strategy. At this level, the commander (or management team) attempts to win and maintain share of mind (and assets) from the next higher level of command (management). This is done while the business unit leadership teams are engaged with the competition on a regulated field of play. They are fighting to gain customers’ acknowledgment that the firm provides the best relative performing product at price points the customer is willing to entertain. This too, represents a very complex optimization problem, but tends to be more linear. Although significant, because of the multipliers involved, business unit operational strategy is somewhat less decisive. [Peterson 1996]

The Corporate “Battlespace”

Within the Context of the Corporate Strategy: • High Impact - Low Internal Influence: Cumulative influence of governments, regulators and competitors far exceeds that of the business. It is here that the LONGER TERM FUTURE is determined.

• High Impact - High Internal Influence : Day to day commitment of resources to new and emerging opportunities. GROWTH and CURRENT PROFITABILITY are determined here

• Low Impact - Low Internal Influence: Domain of economists, external affairs and attorneys. Economic planning assumptions and DEFENSE of the enterprise from litigation and adverse regulatory intervention. • Low Impact - High Internal Influence: Domain of legacy products. CORE PROFIT generation. Bureaucracy’s infrastructure. Training ground for next generation of managers.

High

Impa

ct o

n C

orpo

rate

St

rate

gy

Internal Control/ InfluenceLow High

Monitor, Anticipate, Precipitate, and Respond

Low Impact - High Internal Influence

High Impact - High Internal InfluenceHigh Impact - Low Internal Influence

Low Impact - Low Internal Influence

Manage for Growth and Share

Monitor, Advise, Counsel, and Defend

Manage for Efficiencyand Profit

Generic Objectives and Major Players

• Lobbyists• Attorneys• Economist

• Bureaucracy• Functional Support

• Regulators• Competitors

• Customers

External Pressures

Enterprise Positions

Figure 5: The corporate battle space and the generic strategy thrustsStrategies must be driven by capabilities and competencies. Functional technical competencies, as well as core competencies, can hold keys to future competitive advantage. [Snyder & Ebeling 1992] What is




important is that an appropriate longer term vision for the enterprise be set and understood and embraced by the entire organization. [Radnor and Peterson 1997] The strategies and structures necessary to achieve that vision must then be pursued vigorously. The enterprise must align its information and communication processes to its strategies, align its value chains with its strategies and information processes, and match all the structural components with the value chains and with each other [Eriksen, Peterson, & Wofford 1998].

For better or worse, finance is the current universal language of business. Senior management is incented based on their ability to produced results that can be measured in financial terms. As a result, a successful strategy must be able to be translated directly into a projected impact on the firm’s financial performance. As organizations and senior managers pursue multiple objectives some of which may not be focused to achieve the vision or other single overarching goal, it may become necessary to excise some activities and refocus others. Figure 5 illustrates the “Corporate Battlespace. These is the field of play upon which the firm’s management teams must engage and defeat the competition under s series of rules that evolve and change during play. The key players and the generic strategies for each quadrant are outlined. These provide the context for winning.

3.0 THE VOICES OF THE CUSTOMERS

“Preconceived notions, especially in war, are dangerous, because they give their own particular colour to all information that comes in;

and ... stifle any real understanding of the actual situation...”General Aleksei A. Brumsilov (1915)

Globalization and emerging “hypercompetion” [D’Aveni 1995] have changed the marketing demand function. Decades ago, demand was considered a function of supply. That has changed with a vengeance. Typically, supply is now a function of demand. Globally, multiple sources of competent and competitive supply exist for most products. Both markets and individual customers have become sophisticated enough to provide measurable feedback concerning if and how well the supplier is meeting or exceeding customer needs. That feedback, in the language of the dominant management team, is called “revenue growth,” “shares of market,” and “contribution.” In those terms, it’s not difficult to measure customer feedback over time and determine the firm’s real performance against the expectations of the customer.

At both the corporate and the business unit levels, to excel, a firm must distinguish itself. It must fully understand the benefit the customer receives from its product or service, and take into account those instances, both positive and negative, that shape that customer's perception of the company. Understanding the customers and becoming sensitive to their needs helps the firm innovate in terms of developing products and delivering services that have more value to a customer than those of the competition. In addition such understanding also enables the firm to begin to influence the strategic alternatives available to strategic and other competitors. Efforts should be channeled into at least three areas:

Assessing "value-in-use" of the firm’s solutions Analyzing customers' purchasing patterns and expectations Measuring critical incidents (both failures and those that far exceed expectations)

The more complex problem is that customers’ needs are changing faster than solution (product) cycle times. Customer expectations are increasing faster than their “willingness-to-pay.” When the firm first meets the initial expectation threshold for a particular customer, there are two immediate reactions. First, the customer recognizes the firm’s capability and it becomes a prerequisite for future sales. Second, competitors recognize that the performance bar has been raised and they commit to improve their




performance to regain a share of the customer's business. [Webster 1994] Webster also describes “three forces that drive customer expectations upward":

The customer's dynamic needs and wants. The company's promise and delivery of` superior performance. Competitors' promises that they can do even better.

Continuous innovation goes hand-in-hand with responding to the voice of the customer. Firms that attempt to make customers satisfied with only what the firm currently has to offer are doomed to failure in the global marketplace [Webster 1994, Christensen 1997]. Those that are committed to continuous innovation and improvement in products and processes, and that are able to offer better solutions to customer problems, have the greatest potential for success. [Webster 1994 p.68]

4.0 ON COMPETITIVE POSITIONING

“...no operation plan extends with any certainty beyond the first encounter with the main body of the enemy”

Field Marshal Helmuth Graf von Molke (1800-1891)

Creatively defining the market in terms of segments, customer preferences and technology can identify new opportunities for creating short term competitive advantage. Unfortunately, the firm can not afford to take advantage of every opportunity identified. The decision to exploit an opportunity should be related to the firm’s vision and the fit of the opportunity to the five or six strategic thrusts of the firm’s overarching strategy. The specific competencies of the firm and the match between those competencies, the needs of the identified market segment (clustered voices of a customer set) and the attributes of the offer must all align closely. The firm must leverage its distinctive competencies (both technology value chain and business value chain) to achieve the best relative perceived values.

Better, relative to the competition As perceived by the customer Value to both the firm and the customer(s).

The firm is faced with intensifying global competition, ever shortening cycle times, accelerating technology change-out, significant market globalization, and highly uncertain futures. It must position its product or service as providing a clearly differentiated solution to the customers it is targeting. The firm’s solution must be perceived as a better solution than the way the customer is currently addressing the situation and relatively more profitable to the customer than the solutions offered by competitors. This is the value-in-use relationship. [E.I. du Pont de Neumours & Co 1971]

When a number of complex systems solutions compete with each other, and when the market perceives them as essentially cross elastic substitutes, the positioning of an individual offering will depend upon it’s quality and it's pricing relative to the potential alternatives. Customers typically will attempt to position themselves to create a perceived monopsody situation (one customer selecting from commodity products), where price and delivery are the only relevant decision variables. However, the manufacturers of the product or service solution will attempt to position their offering as a differentiated solution with the highest reliability and lowest life cycle cost, thereby justifying a premium price. Successful closure of the “gap” depends on the management team fully understanding the values and costs within the value chains and on the creative skills (sales, negotiations, and customer management), resident within the sales team.




Competitive positioning includes understanding the business and value chains of the competition. The objective is to be able to channel competitors into competing in an area where the competitor has no current advantage and the firm has a strength. By so doing, the number of strategic alternatives for each competitor can be minimized. Over time, they will have to redirect resources (financial and intellectual capital) to reposition themselves in the eyes of the customers. Diversion of resources from their strategic intent to play catch-up will weaken their ability to be a strategic player. Over time, they will be relegated to being a niche player fighting local low cost producers for limited “commodity” opportunities.

5.0 PRODUCT POSITIONING

“Always remember, however sure you are that you can easily win, there would not be a war if the other man did not think he also had a chance”

Sir Winston Churchill (1930)

Product positioning must be based on a careful effort to segment the market, understand the needs of the customers and the end-users, and an understanding of how the technology intensive firm’s value proposition addresses the specific needs and concerns of the customers. Product positioning must be implemented through an effective marketing communications plan, not only with promotional materials but also in all the firm’s on-going contacts with the customer. Such contacts include support and development personnel as well as the sales team. The value proposition must be understood and accepted as the basis for all marketing considerations concerning the product. Such considerations range from sales force targeting and pitch content to what the brochures say. [Dovel 1990] The value proposition reflects the quality, functionality, bundled support and pricing positions of the offer. The value proposition is generated by:

A quick reality check to ensure the product is congruent with and will be supported by the business strategy

Understanding the business environmental influences of importance to the customer (customer set)

Understanding the attributes the customers in the targeted segment use to differentiate and judge products

Understanding the positions of the competitors’ offers in this segment Perceptual mapping of the firm’s product against those of the competition Selecting a unique position and delivering maximum value to the customer Use of value chain competencies to pre-empt competitors’ responses

6.0 TECHNOLOGY POSITIONING

“The past had its inventions and, when they coincided with a man who staked his shirt on them, the face of the world changed ...”

“...The future is pregnant with inventions.” General Sir Ian Hamilton (1921)

Technology advances continue to improve systems capabilities. Lasers double in speed every three-and-a-half years, silicon doubles speed every two years and in the last five years, storage space requirements have dropped from 30:1. This makes systems level and enabling hardware technology decisions particularly critical. For example, public networking equipment like the class five central office switch has a useful life (depreciation) of ~15 years [Quinn 1993]. The system’s critical enabling technologies achieve order of magnitude improvements every three to five years. In order to deliver full life cycle value to the system’s




purchaser, the manufacturer must make correct decisions concerning hardware technologies, product features and attributes, i.e., reliability, quality, and costs.

Relative Value to the Business Customer:

Software Technology Trajectories

Source ofAdvantage

Source of Parity

Survival Prerequisite

Real TimeTransaction Processing

Real TimeDecision Support

Systems

BusinessFunctionAutomation

Generation of System

1st 2nd 3rd

3 GL DBMS

Code Generators

4 GL

>4 GLs

ClientServer

Imaging BroadbandData

Code and RepairSkills Barrier caused byFailure to Maintain Pace

GUI

ObjectOriented

CASETools

Figure 6: Complex system architectures must anticipate technology trajectories and allow for periodic software upgrades during the system’s useful life

This must be done with much more than a twelve or twenty-four months planning horizon in mind. Functionality and other competitive attributes are, in many instances, enabled over time in software. As illustrated in Figure 6, appropriate positioning on the software technology curve becomes one of the more critical early architectural considerations. Periodic software upgrades illustrate that an appropriate technology decision can simultaneously provide new applications and revenue potential for the customer, extend the competitive life of the hardware platform, and raise the entry barriers for competitors. Failure to anticipate and allow for upgrades may create technology impedance and require earlier than planned retirement and replacement by, and at additional costs and heartburn to, the customer.

THINKING ABOUT THE UNTHINKABLE: Technological Discontinuities

Technological change-out can alter the fundamental nature of the business. The failure to adapt to technological discontinuity can significantly affect its market share and even destroy the firm. [Christensen 1997] Such a demise transfers resources out of the control of the (former) dominant management team that has demonstrated a lack of competence. The resources are given into the control of a new team whose challenge is to demonstrate their competence. Senior leadership-not-with-standing, the strategic




retrenchment or demise of a firm brings hardship to local and regional economies, to say nothing of the damage to its longer term employees. [Radnor and Peterson 1997] Engines of economic growth can be created by new leadership and when firms adapt to new technology. The art of technology forecasting is fast becoming critical business prerequisite. It’s required to prevent damage to firms by allowing them to anticipate technological change while they can still adapt easily. By forecasting and monitoring critical technological threats and opportunities as they occur, the firm can counter threats and capitalize on opportunities. Its managers thereby demonstrate their competence and justify their continued control of the corporation’s resources. They fulfill their responsibility to protect and grow the value and interests of their stockholders, workers, and suppliers, all of whom might otherwise be hurt by an unanticipated technological discontinuity.

SUMMARY:

On average, over a year’s time, and depending upon the state of the capital markets, somewhere between 10% and 40% of a technology intensive firm’s stock price is directly tied to current operating results. The complement to that, between 60% and 90% of a stock’s price, is based upon the perceived strategic posture of the firm and the markets in which it participates. [Topor 1991] No large body of empirical evidence exists that planning itself will increase share of new market capitalization or increase either profitability or market share. However, it logically follows that alignment of appropriate capabilities, technology and support to address specific needs of a strategic customer set, will improve the probability of the technology intensive firm’s mission success. Add to that, the necessary follow-through and commitment to ensure customer delight with the platforms and support provided, and only factors beyond the influence of the dominant management team can adversely affect the firm. The skills of the firm’s management teams in anticipating and addressing opportunities and performance gaps, identifying the need for and pursuing a viable program of strategic price positioning, and considering and preparing for significant contingencies will help position the enterprise in the eyes of the investment community. In addition, such skills will positively impact stock price and market capitalization (and incentives for the dominant management team).

At the strategic level there are two common denominators to mission success. The first is a focus on the needs of specifically segmented customer sets, and the other is commitment to deliver technologies capable of providing strategic customers with unique advantage and support. Because technology and corporate strategy alignment span analysis, planning, implementation and follow-through, it represents an opportunity to establish a core niche of excellence. It expands the concept of core competence by offering that, as a core capability of the management team, its enterprise specific implementation is unique and differentiated from those of its competitors. Such alignment contributes directly to enterprise “share of mind” in the financial investment community.

Technology and corporate strategy alignment both defend and add value to the stakeholders’ investments in the enterprise. Corporate success is dependent upon establishing strategic intent, balancing near and longer term objectives, responding to the voice of the customer, positioning the firm and its offers against those of the competition, leveraging technology evolution for competitive advantage, and committing to the corporate strategy at every level of the organization. Unfortunately, such success is not an endpoint, but a beginning. The management teams must think about and plan for the unthinkable. Technology, by its nature is not continuous. The next disruptive technology is even now being invented.




PART 2: PRAGMATIC APPLICATION -- TEST OF THE CONCEPTS

CONTEXT

“Nothing bears out in practice what it promises incipiently” Thomas Hardy

The technology intensive enterprise has its raison d’être in providing increased value to its constituency base. That base includes “owners,” customers, supply chain members, the communities, its employees, etc. Within the enterprise, there are also multiple groups with goals, objectives, responsibilities and capabilities that vary widely. As a result, the enterprise senior management team must solve the complex non-linear optimization problem of simultaneously defending and growing the value of the enterprise for this multitude of constituencies. This must be accomplished while dealing with the constant acceleration of industry change, competitive pressures from global players, and more frequent market discontinuities. Unfortunately, there is no simple or easy solution set. There is only a wide range of short lived, temporary, time dependent potential solution sets, none of which is truly optimal. As illustrated in Figure 1 of Part 1 (Page 3), the firm must work through the six sets of analytical parameters to align and implement its strategy.

Part Two of this paper will focus on how technologies align with specific strategies, and how successful management of those alignments enhances the firm’s performance. But first, a brief introduction to the Lucent Technologies 5ESS 2000TM Switch will be provided. The Hypo-Millennium switch, based on the Lucent 5ESS 2000TM will serve as a golden thread to tie together, at a very high level, the framework of a real world company and a real world product family. However, Lucent’s 5ESS 2000TM Switch is a real and vital product in the Lucent portfolio. Reader beware, the applicable data, while somewhat directionally correct, have been adjusted to illustrate the points without providing precision strategic intelligence to Lucent Technologies’ competitors.

But first, a brief introduction to Public Network Switching4: Lucent’s first generation 5ESStm Switch was conceived at a time when the then “state-of-the-art” solid-state technology was rapidly nearing maturity. That first 5ESStm Switch, which in 1984 the International Switching Symposium (Montreal) described as “a world class second-generation digital switch,” [Dubosz 1997] incorporated an innovative distributed architecture that was based on microprocessor technology. It was designed from the ground up as an international platform capable of being adapted to the world’s different telephone systems. That original 5ESStm Switch was also purposely designed to allow regular upgrades or infusions of improved microelectronic and software technologies to enhance capabilities and performance in both local and long distance networks. The original architecture provided customers, the communications services providers, with significant network design flexibility. It also allowed the graceful adoption of enabling technologies emerging after its original design. As a result, the service providers (customers) could routinely add new network services and applications on the original switch. It also enabled a performance reliability level that has not only become the industry standard, but that other digital switch manufacturers are still attempting to emulate.

Local public voice network switches primarily deal with analog line inputs from telephone subscribers and thus provide extensive A/D (analog to digital) and D/A (digital to analog) conversions for interfacing with a digital switching fabric. By digitizing the voice and assigning a fixed synchronized time slot to each conversation, multiple connections can be supported cost effectively on a given transmission medium, such

4 More than the typical reader really cares to know, but necessary because the tools illustrated in Part 2 link directly back to specific elements of the switch architecture.




as wire pairs, radio channels, or fiber optics. A high level architecture for a “5ESS tm like” digital switch is illustrated in Figure 7. It shows how lines, signaling links and service circuits for interoffice transmissions can be connected to time slot interchangers (TSI) within a switching module (SM). Switch modules and groupings of subscriber lines can be remoted either over fiber-optic links or digital T1 facilities. Lines can enter the SM directly or by way of a remote access interface unit (AIU). Analog trunks are also terminated, but semiconductor A/D (analog to digital) and D/A (digital to analog) converters are used to multiplex and demultiplex the signals into and out of the TSI.

The “Hypo-Millennium” Switch Architecture

• Multi-Module RSM• Stand-Alone

Remote Switch Module (RSM)

Switch Module-2000 (SM-2000)

Switch Module

(SM)

Communications Module (CM)

• Time Multiplex Switch• Message Switch• Network Clock Interface

OS Interfaces

lines

trunks SignalingDataLinks

lines

trunks

•Module Processor•Time Slot Interchange •Line/Trunk Units•Service Circuits

Administrative Module (AM)

•Maintenance Control Center•I/O Processor•Disks

SignalingDataLinks

trunksRemoteAccess Interface

Unit (AIU)

lines

SignalingNetwork

lines

SignalingDataLinks

SignalingNetwork

lines

Fiber

Optical Remote Module(ORM)

Figure 7: Architecture for the “Hypo-Millennium” Switch [cloned, under license, from the Lucent Technologies 5ESS 2000TM digital switch]

The 5ESStm Switch also supports termination and switching of Integrated Services Digital Network (ISDN) lines and trunks. Each ISDN line includes two voice or data channels (basic rate interface -- BRI) and a signaling or data channel (primary rate interface-PRI). Each trunk supports 24/30 voice/data channels (BRI) and a signaling channel (PRI.) The packet switching unit (PSU) is resident in the SM. It is used for ISDN control and data switching. The PSU also provides support for wireless functions (for both TDMA and CDMA protocols) and it provides the basis for signal transfer point (STP) functionality. In addition, the PSU provides the packet switching functionality required to support signaling system 7 (SS7) for inter office signaling. Instead of depending on a large central processor, the architecture uses a switching module processor in each SM that acts as a microprocessor-based call aggregating computer. The switch modules are interconnected into a switching system by means of fiber-optic connections to a time multiplexed switch (TMS) in the communications module (CM). The CM incorporates control channels to a message switch




and a network clock interface that synchronizes the timing between the message streams. Overall administration and maintenance functionality is provided by a special-purpose computer called the administrative module (AM). The AM includes the maintenance control processor, and input/output processor and memory. Operating systems interfaces are managed in the AM. Using this modular approach, 5ESS 2000TM systems can be designed to serve small local offices of less than 2000-line capacity to larger offices of up to 45,000 trunks and 200,000 lines simultaneously.

In the early 1990s, as the original 5ESStm Switch began to approach mid-life, Lucent’s second generation class five switching system, the 5ESS 2000TM was introduced. It continues to leverage the original distributed architecture, advances and innovations in enabling hardware and software technologies, and breakthroughs in algorithms. It uses the new technologies to provide even more advanced services and applications at lower price points without forcing customers to abandoned investments in the original 5ESStm Switch . Figure 7 actually depicts both an original SM and an updated “Hypo-Millennium” SM, Hypo’s clone of the Lucent SM-2000TM coexisting in the same architecture. The 5ESS-2000TM leverages state of the art semiconductor, microprocessor, fiber-optic and other enabling technologies including (but not necessarily limited to):

Processors and microprocessors for control Semiconductor memories and logic circuits for switching DSPs for tone generation. touch-tone dialing, Voice announcement systems, echo

cancellation, and subscriber line functions Light emitting diodes for fiber-optic interfaces and displays Semiconductors for subscriber-line and interoffice trunk interfaces, as well as power

supply integration and control

Lucent’s 5ESS-2000TM switch is unique, largely because of its distributed architecture. Regular infusions of new enabling technologies allow multiple applications to be supported on the same switch simultaneously. Such applications include local and toll call switching, operator and directory services, ISDN, intelligent network, international gateway, as well as wireless TDMA, CDMA, and GSM switching. The Packet Switching Unit (PSU) has played a key role in supporting ISDN and common channel signaling (CCS), as well as DSPs for wireless applications using compressed voice. The increasing capacity of the microprocessor-based call processing computers have allowed for the support of the millions of lines of software code required to manage and control these multiple applications.

Although its application to hierarchical voice networks is still the primary use that service provider customers leverage, the evolution of the 5ESS 2000TM digital switching system is continuing. It has the future capability to support the interconnectivity of a full range of multimedia capabilities including data, image, and video applications. Because of these attributes, Hypo is thought to have paid Lucent substantial technology transfer and licensing fees for access to the 5ESS 2000TM technologies. Other central office digital switches are available and provide access, call process and routing, (they help connect subscriber lines to local and long distance voice communications networks.) Digital COs that compete with Hypo’s Hypo-Millennium product are marketed by such companies as Alcatel, Fujitsu, NEC, Nortel, Siemens and , of course, Lucent Technologies.

About the Hypothetical Company: Lucent Technologies Inc.5 which will serve as a real world reference for the hypothetical company that will be used to illustrate the tools and techniques advocated in the paper. In 1996, to improve returns to a very divergent set of share-owners, AT&T spun off its captive systems and technology manufacturing businesses. The computer systems operations were consolidated into NCR. The telecommunications systems operations were spun free as Lucent Technologies. With a different

5 as seen through the eyes of Hoover Business Profiles, March 19, 1998.Part 1: ISMOT ‘98/PICMET ’99, Part 2: To BeRevised for Research Technology Management




dominant management team than had existed under the AT&T ancestor, Lucent moved through a very public “birthing” process and established itself as an independent world class maker of communications equipment and software. That initial strategic objective was met when Lucent's 1996 initial public offering (IPO) earned $3 billion, the largest in US history. Lucent’s initial stock price was just under $30 a share. Sales in 1996 and 1997 reached historically high levels. In October of 1997, the public birthing process was pronounced as completed.

In early 1998 Lucent began a phased restructuring. It aligned its business units more directly with its customers and the customer support teams. Organization structures continue to evolve to align with and key on more rapid and efficient responsiveness to customer and market critical requirements. By the end of March of ‘98, revenue growth over the prior “record year” was at 66%. A stock split was declared and the stock price just before the April 1, 1998, two-for-one stock split, had reached more than $135 per share. The market value of the Company was more than $76 Billion. Having spun free, Lucent emerged from the birthing process as an independent world class competitor. Lucent has apparently recognized that communications infrastructure is one key to the new millennium6. Lucent is aggressively expanding its capabilities and competencies to meet the emerging opportunities. . It’s business focus remains on customers, quality and growth. And the senior management team’s vision of Lucent’s role in the next millennium is continuing to unfold. Another company, the Hypothetical Enterprise (Hypo), is very similar to Lucent Technologies.

1.0 THE HYPOTHETICAL FIRM’S STRATEGIC INTENT:

Never Yield Ground. It is cheaper to hold what you have than to retake what you have lost.George S. Patton, Jr.

Hypo participates in most of the same markets as Lucent. It too is a technology intensive company that attempts to compete based on market and product advantages enabled by its high tech approach to the market place. Hypo’s corporate ancestry also includes a ‘mega-communications’ services provider. Hypo’s vision is ‘soft’. It’s over arching objective is to become the preferred global ‘second supplier’ of communications infrastructure equipment. To that end, it has two strategic goals. The first is to reassert and maintain capital markets' credibility in order to secure access to capital to fund continued growth. The second is to achieve and maintain double digit sales growth equal to 15-20% more than the average of the sales growth of its strategic competitors. (In the markets in which Hypo currently participates, 60% of the global market share is distributed among five players.) Hypo is apparently satisfied with responding to the initiatives of its strategic competitors. It has broken its strategy into a subset of strategic thrusts that are illustrated in Figure 8.

6 Half the world’s population has never made a phone call. A three per cent increase in gross domestic product generally accompanies a one percent increase in teledensity. The potential for emerging economies to leverage (technology enabled emerging) communications capabilities and leapfrog mid-to-upper tier industrialized nations appears to be a source of significant continuing growth opportunities for communications equipment suppliers.




Hypo’s Conceptual Business “Battlespace”

Internal Control/InfluenceLow High

Selected Strategic Thrusts:High

Impact on Corporate Strategy

1

2

4

3

HypotheticalEnterprise

1 - “Spin Free” and Establish Capital Markets Credibility2 - Establish Wireless Positioning for Hyper-growth3 - Globalize4 - Grow Market Shares in Public Access Networks Equipment5 - Leverage Intellectual Capital Portfolio

Com-petion

Regul-ators

5

Figure 8: The Hypothetical Enterprise’s strategic thrusts that support the overarching goals of Capital Markets Credibility and Growth.

2.0 THE HYPOTHETICAL ENTERPRISE’S STRATEGIC BALANCE

(Plans) only form a datum plane from which you build as necessity directs or opportunity offers. They should be kept by the people who are going to execute them.

“Never tell people how to do things. Tell them what to do and they will surprise you with their ingenuity.

General George S. Patton, Jr. (1944)

Having established a strategy of “quick follower” and having identified a handful of directional strategic thrusts to help Hypo surf the current industry growth wave precipitated by demands for domestic Internet access, the firm’s dominant management team has tasked the business units with specific activities. These taskings are expected to provide Hypo with necessary returns while still providing the growth, capital and expanded capabilities necessary to grow faster than most of the rest of the industry. Like Lucent, Hypo’s potential for success is pegged to sophisticated communication networks and network elements that provide significant value to equipment services providers.

Within Hypo, market segmentation has been based on geographic regional areas. Much revenue and profit responsibility has been moved into the channels that serve these geographical segments. The primary




consideration in the market segmentation scheme has been that the firm will compete most successfully in those segments where its competencies and strengths are highly valued by the targeted customers. Hypo provides higher than average quality at competitive prices in most of its offers. It is relatively quick to market, but only after someone else has made the breakthrough product available. Typically, this has precluded entry into many potentially attractive segments in which the sales, distribution or support infrastructures are nonexistent and brand recognition and identities have been lacking. In these areas, Hypo has been seeking alliances and partners. Additionally, Hypo has been aggressively working internally to create 'spotted puppies'.7 They can help evolve a new technology and potentially develop a new (for Hypo) market without incurring all the risks and costs of unilateral new market entry.

Hypo’s portfolio of business operations as illustrated in Figure 9 include: Research (and product development which includes contract development for other companies), Enterprise Networking (development, manufacture, sales, and service of enterprise voice networks), Communications Software (network management, Internet, and other communications applications software), Data Networks (development, manufacture, sales, and service of data networks), Global Support Services (marketing and sales, service and support, and facilities management), Intellectual Property (protection, acquisition and licensing of intellectual property), Microdesigns (design and manufacture of selected integrated circuits and optoelectronics), Global Media Products (development, manufacture, sales, and service of fiber and other network media), Spotted Puppies (creates ways to evolve and commercialize emerging technology quickly), Optical Networking (development, manufacture, sales, and service of optical networking equipment), Public Networking Systems (PNS) (development, manufacture, sales, and service of public wire-line networks), and Wireless Networks (development, manufacture, sales, and service of wireless products). Hypo is a complex enterprise.

A special comment about the boundary between corporate [War] strategy and business unit [Battle] strategy. There is none, just a dovetailing between CORPORATE objectives and BUSINESS UNIT plans!

Have been giving everyone a simplified directive of war.Use steamroller strategy; that is, make up your mind on course and direction of action,

and stick to it. But in tactics do not steamroller. Attack weakness.General George S. Patton, Jr. (1942)

Each business within the Hypo’s portfolio addresses a targeted market segment with a product and services portfolio of its own. These portfolios are expected to be managed to meet the vision and the strategy prerequisites, more specifically, the portfolios are expected to generate the returns and growth performance levels assigned by the dominant management team. The business unit portfolios include core products and platforms which help spread the risks and generate the returns for the business unit. A major core product within the Public Networking Systems (PNS) business unit portfolio is Hypo’s Hypo-Millennium (their attempt to clone, under license, Lucent Technologies’ 5ESS-2000TM )

7 The term spotted puppies refers to non-core technologies with promising growth and profit niches. Hypo’s strategy is to nurture them and later to cash in on the intellectual capital, either by venturing or sale, and reinvesting the proceeds in the core communications equipment business.




Spread:(ROE

divided byAverageWeighted

Costof Capital)

Negative

Share Growth/Strategic Competitor Growth

Positive

Growing Share

Hypo’s Strategic Resources (Business Operations) (Illustrative)

Losing Share Holding Share

1.0

PNS

Wireless

Figure 9: Hypo’s multiple businesses compete for resources to fuel both growth and contribution

The skills mix needed on the dominant management team needs to be different from the skill mix on the business unit leadership team. The focus of the dominant management team must be the needs and wants of the most powerful external constituencies (including stockholders, the investment community, and the executives of strategic customers and suppliers). [Radnor and Peterson 1997]. They must translate those needs and wants into levels of performance within the business units. They must then monitor, manage, and follow-up with intervention should the business unit's performance require it. However, they must not allow their attention to be diverted to the fun and pleasures of “managing a business unit for fun and profit.” Those operationally fun “activities” must remain the domain of the business leadership teams charged with achieving the assigned levels of performance. At the business unit levels, the skills mix on the leadership teams must be skewed toward operational efficiency and making the customers giddy with delight with the service and products delivered.

3.0 THE VOICES OF THE CUSTOMERS

Junior officers of reconnaissance forces must be very inquisitive. Their reports must be accurate and factual. Negative information is as important as positive information.

Information must be transmitted in the clear by radio and at once.General George S. Patton, Jr. (1944)




Having established a vision and been tasked with specific strategic objectives, the Hypothetical firm’s business units must understand the markets into which their products and services will be sold. Potential users of the core products and platforms must be identified. The markets then need to be broken into segments that represent groups wherein significant variation of need or specific product attributes can be identified. It’s imperative that in the generation of funding for innovation, market and price-point understanding precede the form of the product. This is a real but seemingly unachievable goal in the strategy cycle.

Hypo’s Public Networking Systems Markets

ILLUSTRATIVE DATA

Total Potential Market

0

N

N+5

N+10

N+!5

N+20

Mar

ket

Siz

e ($

B)

Served Markets

Related Products

0

5X

15X

25X

35X

45X

55X

65X

Rev

enu

e (

$M)

10%

20%

30%

40%

50%

Fra

cti

on

of

mar

ket

cap

ture

d

Switched Voice

Related Products

Internet Protocol,

ATM & ISDN

2000 2004 20052001 2002 2003 2000 2004 20052001 2002 20032000 2004 20052001 2002 2003

Internet Protocol,

ATM & ISDN

Switched Voice

Hypo’s Projected Penetration

0%

Related Products

Internet Protocol,

ATM & ISDN

Switched Voice

Figure 10: With Hypo’s business units, multiple offers provide share and growth alternatives

As illustrated above in Figure 10, Hypo’s PNS business unit’s analysis shows that there is still the potential for continued double digit growth in the global communications wire-lined infrastructure markets. Closer inspection reveals that opportunity reflected in the global potential market numbers are also reflected in the PNS served markets. Served markets include those markets in which PNS currently participates, that is sells offers, or has funded plans to participate in during the planning horizon. All opportunities are not equal. For example, 'ISDN and ATM and related opportunities' are expected to grow faster than the other offers. Switched Voice, however, represents very large numbers in absolute terms. This would seem to imply that the Hypo management teams are faced with some tough decisions. They have to set priorities and allocate resources between high growth segments (ISDN, ATM and related products) and large established and still growing segments like Switched Voice. One alternative represents the strategic objective of growth and the other represents proven technology, established customer relationships, and presumably higher margins due to its second generation life cycle position.




Having established where the opportunities for growth are, it becomes important to understand what the customers in those segments need. At the business unit level this is sometimes a difficult but necessary task. At the very least, in-market competitors should be identified and monitored on an annual basis. The compounded annual growth rates (CAGR) for each competitor (for example, those within a particular North American Industrial Classification class) for the last two years should be compared to their CAGR for the last five years. Those growing much faster than the industry as a whole should be analyzed to determine what they are offering to which markets and which customers. This should serve as a flag to identify growth markets and potential acquisitions or alliance mates. The heroic assumption is that growth implies opportunity. Customers are paying for the solutions the high growth companies are offering. Those are the markets the business units should be looking at and at least considering serving.

It then becomes a matter of creating a customer value proposition wherein the customer understands that the value-in-use of Hypo’s solution is greater than both the current solution and alternative solutions offered by competitors. Value-in-use includes the total package of benefit and support, including the channel relationship, that the customer realizes with the purchase of the product. The perceived value-in-use to the customer must be priced at less than or equal to the costs to the customer of accomplishing the same function over a specified period of time with the best alternative solution. As illustrated in Figure 11, customers tend to view markets differently than the suppliers. The customer “feels” a need to keep the supplier honest.

Hypothetical “Voices of Hypo’s Customers”

Illustrative Data

Cu

stom

er P

rice

Sen

siti

vity

Pressure to Provide Service/Feature AccessLow High

High

Commodity

Hybrids Custom

Types of Networks

Per

Sys

tem

Low High

High

Low Cost Positioning (What the Markets Are Saying)

Qu

alit

y: R

elat

ive

Per

ceiv

ed V

alu

e

Relative Perceived Functionality/FeaturesLow High

High

Offer Differentiation

TransitionalIslands

Pressure to Provide Service/Feature AccessLow High

Types of Networks

Price perSystem

Customer Willingness to Pay per system

Costper

System

Customer Willingness to Pay per system

Customer Desire to Pay per system

Relative Perceived Functionality/Features

Cu

stom

er P

rice

Sen

siti

vity

XX

XX

X

Figure 11. At Hypo, the form of the product is determined after the definition of the market opportunities




In the hypothetical customers’ minds, this can best be accomplished by keeping the supplier “hungry,” that is, by maximizing discounts on equipment and services purchases. In the “Types of Networks” matrices in Figure 11, the data illustrate that unless the communications services provider is under competitive pressure, they will tend to shy away from high priced custom networks. The bubbles on the right hand matrix illustrate, hypothetically, where the services providers tend to cluster. This serves to illustrate the customer monopsody mind-set.

The “Low Cost Positioning” matrix (lower left), serves to illustrate that for Hypo, the customer is not willing pay a price that would even cover the cost of manufacturing the ‘Hypo-Millennium Switch” as architected for use at the low-end. In this situation, (the shaded gray area where “customer willingness to pay per system” is lower than “the cost per system”) in order to address the low-end opportunities with those customers, Hypo needs to either provide a new product or provide some other alternative way to address the needs of the small switch size. The “Offer Differentiation” matrix (lower right) simply serves to illustrate that the customers’ willingness-to-pay is different from their desire-to-pay. Willingness-to-pay tends to increase with the reliability and functionality. Desire-to-pay stays pretty constant around the level of the lowest cost provider. One key to establishing real business advantage is to identify customer needs that even the customer cannot articulate or envision. Another key is to create need that the customer did not know they had. A third is to anticipate changes in customer needs before they occur. In each of these instances the opportunities are real, and the customers' desire-to-pay has not yet been formulated.

4.0 COMPETITIVE POSITIONING

There is no approved solution to any tactical situation.General George S. Patton, Jr. (1944)

“There are no absolutes in strategy. A company’s competitive position and the sustainability of its advantage are related to the moves of its competitors” [D’Aveni 1994]. As a result, it’s necessary to understand not only the competition’s play in served and opportunity markets, but in terms of the relative perceived value accorded them by the targeted customer set. The extent to which customers perceive unique value in the offerings by the competition directly impact the enterprise’s ability to gain market share. Hypo is creating a portfolio of current industry players. Models of the business and technology value chains for each of them will then be compared to Hypo’s value chains. For each of the steps, competitors are identified by the attributes that provide unique advantage in the eyes of the customers. The business unit management team then has an immediate visual assessment of where there may be strong plays with Hypo’s capabilities.

As illustrated below in Figure 12, in the current served markets, wire-lined access infrastructure, of PNS, five players have a cumulative 60% share of market. Only Hypo is a “me too” player. Each is actively engaged in working with the same set of customers to establish both “share of mind” [Peterson 1996] and perceived competitive advantage. None claim an absolute advantage in technology although three of the five are seen as having competencies in technology or engineering. In terms of customer perceptions, Hypo clearly has significant opportunities to improve its market penetration by making improvements in its business value chain activities. Improved market planning (aligning closer to the needs of the customers, especially during the planning processes), improved executive share of mind (that is, Hypo’s executives spending more time on the care and feeding of the customers’ executives), and of course, pricing just a little bit lower, are all areas where surveyed customers think Hypo should be spending more effort.




HYPO’s STRATEGIC COMPETITION

Illustrative Data

Strategic Players(Global Share-60%)

CompetitiveAdvantage

CriticalCompetency

OverridingObjectives

Value Proposition

HYPO(10 %)

Player 1(15 %)

Player 2(15 %)

Player 3(10 %)

Player 4(10 %)

- Low Cost- Quality- Third Supplier

- World Market Leader- Low Price

- Second Supplier - Competitive Price- Embedded Base

- Protected Home Market- Engineering

- Wireless- Distribution Channels

- Manufacturing- Single, evolveable, scaleable platform

- Local Presence- “Flexibility”

- “Share of Mind”- Advertising (Sales Budget)

- Engineering- Manufacturing

- RF Technology- Local Presence

- Share Growth - Competitive time to market

- Maintain Share while Returning to Profits

- Market Share

- Buy Share- Penetrate US Market

- Position Wireless

- Local Value Added - Product Quality

- Comparable Quality at Lower Price

- Give It Away --- After You Try It You’ll Like It

- Low Cost Customer Coverage

Executive& Political

Relationships

Product Quality

OverallCosts

Time to Market

Easy To Do Business With

Market DrivenPlanning

Sustainability

CUSTOMERS’ PERCEPTIONS: HYPO'S RELATIVE COMPETITIVE POSITIONING

CompetitiveParity

Worse

Better

- Features- Functionality

Figure 12: Hypo’s Public Networks Systems Competitive Positioning

5.0 PRODUCT POSITIONING

In battle, casualties vary directly with the time you are exposed to effective fire. Your own fires reduce the effectiveness and volume of enemy fire, while rapidity of attack shortens the time of exposure.

General George S. Patton, Jr. (1944)

Since Bob Rothberg’s 1975 book “Corporate Strategy and Product Innovation,” much has been written on “strategically” differentiating product. What is important to remember is that positioning based on differentiated functionality remains valuable but short lived. Easy access to local markets, global competition and the lean manufacturing model present opportunities where the only sustainable advantages are absolute quality and lead time (the time between the enterprise’s first commercial sale and the first commercial sale by an in-kind competitor). Even defensible “proprietary positions,” which connotes legal protection through patents or trade secrets, are so rare that exclusive market position for longer than twenty-four months would be a true exception. In some industries, such a proprietary position could be counter to multiple sourcing practices of the customers.

In the eyes of the business unit’s customer, value-in-use of Hypo’s PNS solutions change over time. This occurs because the long installed lives of the network equipment, the customers’ methods for addressing their end-users needs, and technology solutions available will change over time (as will the needs of their targeted end-users.) It is therefore necessary that the value/price relationship of Hypo’s solution sets be




perceived by the customer as greater than those of the competition. This is especially true for those solutions that lose their identity by becoming embedded in the service. This of course requires an understanding of the business unit’s current solution sets and their event horizons. The opening and closing of the solution advantage windows are dependent on time, technology and competitors' actions.

As illustrated in Figure 13, Hypo’s PNS business unit is caught in a dilemma of sorts. It’s main PNS switching business [Bubble 3] is growing and generating positive cash flows in spite of “relatively” low margins. Essentially, the traditional strategic customer base has adopted the distributed architecture of Hypo’s switching solution that allows the use of remote modules to expand area capacity rather than completely replacing the switch. Hypo’s next generation solution [CM-ATM - Bubble 2], although growing, is gobbling up large chunks of cash in development. Added to that dilemma is the historical policy of maintaining parts and software for analog equipment (still functioning customer solutions - Bubble 1) is also gobbling up large chunks of cash while rapidly losing market shares.

(CashGenerated)Divided by

(Cash Used)

Negative(Drain)

(Hypo Product Sales Growth Rate) Divided by (Growth Rate of Industry NAIC or Subset)

Positive(Source)

Growing Share

Portfolio Of Hypo’s PNS Product Clusters (Illustrative)

Losing Share Holding Share

1.0

RSMsSMs

ORMs

1.1

0.9

CMs

AM

2

1

3

45

Figure 13: Portfolio of systems offered to the PNS strategic customer set.

In the case of Hypo’s Public Networking Switching business unit, the business leadership team has looked at the mix of the strategic customers and determined that hyper-growth is real. They also concluded that monopsody is not the customers current end-game. Competition has fostered a “meta-mind-set”. Each strategic customer is thought to be seeking unique advantage with which to enter and capture significant shares of non-traditional markets. The industry solution has been to seek to provide higher performance, higher margin solutions to provide customers with more incremental innovation resulting in differentiated functionality. For this, the competitors expect to be able to charge high prices and generate higher




margins. From a business perspective, PNS appears to be approaching the horns of s dilemma. The core business is strong, growing and generating positive cash flows. Unfortunately, sustained cash generation is generally based on multipliers, not high margins. The strategic customer base is in a quandary as they evaluate non-traditional alternative opportunities for their significant cash investments. These are among the things that lead to what has been described as “the innovators dilemma.”8

Hypo’s PNS business leadership team has assessed the conflicting signals in the marketplace and accepted the competitive positioning information provided by their customers. They have determined to shun the standard industry practice of establishing strategy by adapting “management witch doctor” sound-byte. They also rejected the idea of product evolution presentations using “architectural vaporware” and “videos of potential futures.” Instead, Hypo’s PNS decided to share high level versions of their “core” product technology roadmaps with selected strategic customers.

Hypo’s Voice Switching Product Technology Roadmap

2000 2001 2002 2003 2004 VISIONCoreTechnologies

Customer drivers

ReliabilitySelf DiagnosisRemote MaintModular DesignRedundancy

Low CostPower ProcessorsMemories DSPs VLSIBuilt-In Self Tst

ProcessorTSIMessage SwitchPSUPHService Ckts

ArchitectureAdmin ModuleComm Module

SignalingUSInternational

Import.Compet.Position

Techn.M/B

L M H - 0 + C = Current F = Future

CFC

FC

FC

CF

CF

FCF

CFC

C

CFCF

CF

CF

CF

CF

FCCF

F

Funded

UnfundedDecisionRequired

M

B

?

M

B

M

MBMM

M

M?

B

BMM

M

M

Switching Core

Voice of the Customer

Enabling Technologies

Specific Device Change-Out

Relative Importance (Nowand in the Future)

Current Competitive Position (Now)

Make or Buy (Sourcing)RecommendationC F

F

C

F M

Figure 14: Product Technology Roadmaps map the planned changes in device technologies

Each product technology roadmap served to link the functional capability prerequisites for a core product adapted to the unique needs (and wants) of the each strategic customer. This allows the linking of the

8 Hypo, The Company, is dependent on customers and investors for resources. The new emerging markets are small and don’t solve their growth needs. Customers and markets are in transition and can’t be analyzed successfully. The supply technical solutions, i.e., is smaller than market demand as evidenced by the rapid growth of multiple alternative solution providers. By driving solutions to higher prices the current industry players are creating a vacuum at the lower price points, thereby allowing access for low priced, cross elastic solutions. This is, Christensen’s description of “the innovators dilemma.” [Christensen 1997]




products to the actual functional systems elements composed of the microelectronic devices and software that provide the functionality. By identifying the product subsystem requirement, the evolution of the device technologies can be identified over a specific event horizon. Changes in underlying devices can be mapped, and the relative strength of the enterprise regarding that particular technology can be flagged. That can then be used by the business manager to time the make/buy analyses necessary to support the product. The Roadmap is also used to communicate timing of evolutionary changes and to flag technology for intellectual property strategy purposes (protect, selective licensing, or broad licensing.) In turn, the technologies on each of the product technology roadmaps can be further analyzed for unique and common technologies and compared to available industry technology roadmaps. The technologies can then be analyzed by the roadmapping team based upon strategic fit, customer need, relative importance, and competitive industry position.

Clustering Technologies for Lower Cost(Illustrative)

CashSource

(>1)

Near Term(2 Yrs)

Cash Drain(<1)

Returns

Mid Term(2 - 4 Yrs)

Longer Term(>4 Yrs)

Cas

h G

ene

rate

d/C

ash

Use

d

Memories

Power

DSPs

Transmogrified System

In-A-Chip

1.0

Processors

Figure 15: Clustering technologies help visualize product positioning opportunities

It would appear from the Product Technology Roadmap illustrated in Figure 14, that there is an opportunity to address the customer desire for lower costs. This is illustrated in Figure 15, where two basic technologies that are draining cash fall below the line. This allows the management team visual perspective when evaluating recommendations and attempting to ask the hard questions about timing, alignment, the allocation of resources and realization of returns.In Figure 15, the basic technologies influencing selected component costs over time are identified. Hypo’s roadmapping team’s recommendation was to use (US) National Laboratories break-through technologies to combine multiple components in a single chip. Use of superconducting materials would be used to reduce the need for power and integrating processors, memories, and DSPs would reduce VLSI requirements to




purchase, integrate and maintain separate components. Assuming success, Hypo could then either make or license the technology for royalties. At the very least, Hypo would obtain most favorable terms for transmogrified systems-in-a-chip for Hypo’s own use. Depending on the inputs of the roadmapping team and the number and types of applications that the technology would be suitable to address, Hypo’s PNS business unit ‘s next steps would be to either make a concerted investment (recruiting technical skills and developing a competency), find a partner that has those capabilities and would be willing to align or team, or identify a source and secure a favorable supply relationship.

6.0 TECHNOLOGY POSITIONING

Never permit a unit to dig-in until the final objective is reached. Then dig, wire and mine.General George S. Patton, Jr. (1944)

Unfortunately, the flags identified on the Product Technology Roadmaps (Figure 14) do not necessarily register in the language of the dominant management team. Due to the on-going tyranny of the numbers, the roadmapping team must also attempt to translate the technologies flagged into financial terms and numbers. Few if any scientific means exist to accomplish this. The teams must therefore attempt to avoid the implication of precision..

Product Specific Technology Cluster Recommendations

Technologies (Key ed to ProductTechnology Roadmaps Figure 14): Defining Technologies (Importantin the future and current strength)

• Technology 1• Technology 2• Technology 3

Important Future Technologies that will be bought (Hypo must influence development)


Spotted Puppies (Current strength but not thought to be important in the future)


Pro

ject

ed G

row

th

Relative Strength

Joint Venture/ShareRisk, Leverage

Technology Transferand Associated In-

Feeding

Double Investment or

Find Partner

OutsourceFind more efficient

Partner - Seek Equity orRoyalties

Manage for Fun,Share, and

Contribution

Figure 16: Portfolio of product specific technologies

They must present the data visually, highlighting the expected order of magnitude of cash generated by clusters of similar technologies over the corporate event and planning horizons (there is possible positive




synergy by concentrating the development of clusters of similar technologies within a center of excellence, there is also potential cash leverage by selling off, as a group, products and developments that use the same or very similar technologies.) In figure 16, generic recommendations (opportunities) for product specific technologies. The format provides a display. The display allows visualization. Management can then view the portfolio of product technologies and identify product and technology clustering. Each bubble (technology) can be assessed in pragmatic business terms based on projected growth rates and relative industry strength. Opportunities for outsourcing and investment studies are readily identifiable

Thinking About the Unthinkable:

Both scenario building and "S" curve modeling are powerful conceptual tools that assist in understanding the evolution of technologies and their replacements. In creating either technology "S" curves or when building scenarios, exact values are not critical, the tools’ primary uses are to illustrate, to the non-technical community, that market and technology shifts may be occurring. It then becomes incumbent on the business leadership team to anticipate, define, and prepare for those anticipated shifts. The probability of such occurrences may be low. However, when they occur, some sort of contingency plan needs to be in place, otherwise the effects of the resulting stranded capital and human resources can be deadly to the firm.

The lag time from invention to commercial acceptance is approximately constant for any industry. [Martino 1993] The oral tradition in the telecommunications infrastructure equipment community is that revolutionary innovation occurs randomly but is realized only approximately every seventeen years, plus or minus five9,. This means that in this industry segment, for large public switching equipment, the historical time lag time from concept creation (time zero) to significant commercial acceptance is generally somewhere between twelve and twenty-two years. Or stated another way, given a cluster of revolutionary inventions made at about the same time, most will have a gestation period between twelve and twenty-two years before they achieve general market acceptance (achieve critical mass in displacement of the current industry’s top solutions). That gestation period, however, while reflective of the longer term experience in telecommunications sector, is not necessarily modal nor does it necessarily reflect the increasing convergence of telecommunications and information technology sectors (IT as it is known today, barely existed as knowledge based sector when the Sahal analysis was first completed). Many recent innovations, especially niche, incremental and architectural, actually appear to have much shorter gestation periods.

As a result, for the individual business firm, at any given point in time, it is neither possible nor desirable to “eliminate” those innovations that may appear to have the longest gestation period. They can’t reasonably or precisely be identified. The firm should back a mixed portfolio of several "revolutionary innovations,” eliminating or reducing support over time for those that turn out to be either complete laggards or only very near term and short lived winners. By identifying incremental, architectural and niche” innovations with acceptable gestation periods, the firm can obtain a more balanced payoff for its development efforts in either (or both) product and intellectual capital fees. This assessment seems contradictory to the ‘tyranny of the numbers’ dictate to avoid "duplication" in development. An options portfolio approach actually encourages duplication, at least up to the point where enough information is available to rationally assess the innovation.

The role of technological forecasting in strategy development is primarily to give advanced warning that a new technical approach will be required or will be available during a specific event horizon. Recent history would seem to indicate that when a new revolutionary innovation or technical approach arrives, it will

9 Apparently based on work done sometime in the late seventies, attempts to identify the specifics, i.e., “revolutionary innovation occurs randomly but is realized approximately every seventeen years, plus or minus five” have been unsuccessful. Randomness and clustering have been identified [Sahal 1983], but the 17 years plus or minus 5 are thought to have come from Joseph P. Martino or John or Lawrence Vanston but the author has been unable to confirm the data points.




almost certainly come from outside a particular industry. This is reflected in the convergence of information, communications, and consumer technologies and industries. It is resulting in new types of networks and new definitions of voice and data communications. Obviously the industries are facing significant technological discontinuity because the lag times from invention to commercial acceptance vary between and amongst the industries.

Conventional wisdom dictates that such technologies frequently follow "S" curve life cycles. For a given performance parameter, a technology evolves through predicable steps of initial commercialization, proliferation, standardization of design, and consolidation. The key to "S" curve forecasting is to jump to a replacement technology with a better performing "S" curve at the right point. Figure 17 illustrates the theoretical application of "S" curves to two generations of public networking switches that employ traditional evolutionary technology.

Thinking About the Unthinkable (S-Curve Displacement of Core Products)

AnalogVoice Networks

DigitalVoice and ISDN

Networks

Next Generation

Virtual PathNetworks(?)

If and WhenDisplacementMight Occur

Switching: Generation 1

?

Complementary or Potential Killer

“Network Switching” Technologies?

ATM

IP

Switching:Generation

Next (?)

Switching:Generation 2

Potential Stranded Investment and

Intellectual Capital

Figure 17: Technology S-Curve Displacement - Thinking about the unthinkable

As in the case of Hypo’s PNS, the business unit is dependent on customers and investors for resources. The new emerging markets are small and do not solve the growth strategy needs of Hypo. Some of the strategic customers elect not to engage in jointly reviewing, developing and (risk and return) sharing based on revisions to Hypo’s product technology roadmaps. Those customers and markets are in transition. They elect not to go with the traditional high quality networking solution but to “satisfice” demand for low cost plain old telephone service using Internet Protocol switching on the Internet. Using overlay networks, the services providers are able to provide very cheap voice and visual communications. Initial demand has been brisk and the supply of IP switching and routing equipment has proved significantly smaller than




market demand. This is evidenced by the rapid growth of Internet telephony solution providers and equipment makers. By ignoring functionality and focusing on the market for very low price points, what started as a relatively profitable market niche, has developed into an industry entry point for IP solution developers. (Most of these companies are coming out of the information processing industries.)

Fortunately, Hypo’s PNS unit used scenario techniques to enhance their operational planning. This approach was originally used in military area studies and strategy and contingency planning before being more generally applied to corporate strategy by the RAND corporation and the Global Business Network. The tool’s purpose is to highlight the implications of possible future systemic discontinuities, helping managers identify the nature, timing and implications of, and prepare a full range of possible alternatives. This is accomplished by developing proprietary snapshots of possible alternative futures and corresponding indicators, including current weak signals, which help a company recognize and respond to an emerging situation well before the competition.

Scenarios are typically derived from a future perspective rather than projecting from present situations and are congruent with both the corporate vision and the idea of managing the present from the future. This actually facilitates consideration of systemic change. Scenario planning can be properly viewed as a learning process, for the individuals involved and for the organization. In developing and analyzing scenarios, companies are encouraged to consider options beyond their traditional operational and conceptual comfort zones. Properly done, scenario planning forces companies to make explicit their tacit assumptions concerning product features, functions and price points, competition, market structure, regulation and cost curves. Often, this highlights significant, but perhaps unrecognized, underlying differences in perspective between and among business units, functions, teams, and managers. [Radnor, Strauss & Peterson 1998]

Finally, step-by-step strategies and contingency plans must be worked out that fit (or at least identified) the major potential changes, the company capabilities, its capacities and its weaknesses. The assessment enables the firm to prepare for and address a broad range of possible alternatives. In Hypo’s PNS business unit the golden thread remained unfrayed. PNS responded to the portfolio of IP products by investing in development to port some digital switching “software enabled value added services” to servers made by another manufacturer. Although both high growth and high margins, the critical mass of profitability was relatively small compared to the traditional digital switching and the CM-ATM offers. However, the PNS market positioning was strong and it is capturing nearly 30% of the emerging domestic opportunities. PNS is also capturing 40% of the Internet Protocol telecommunications equipment opportunities in the world’s other major economies (Brazil, China, India and Japan.)

Strategically, Hypo’s PNS denied those IP Switching opportunities to “new entrants” and positioned itself in new markets. They demonstrated to their strategic customers that PNS was willing to provide them with the means to meet their needs. Hypo’s hypothetical experience demonstrates that those leveraging the appropriate technologies and tools stand to benefit massively in the face of major market or product discontinuities. Not doing so can be very costly, even for large firms that understood change and discontinuities were about to occur but waited for a clear and resonant trigger event. One harsh reality is that changes occur at time zero and are frequently well underway by the time “trigger” events are discernible.

CONCLUSION:

You will not simply mimeograph this and call it a day. You are responsible that these usages become habitual in your command.

General George S. Patton, Jr. Part 1: ISMOT ‘98/PICMET ’99, Part 2: To BeRevised for Research Technology Management




The management of technology plays a critical role in both corporate and business unit strategic processes. The Hypothetical Company (based in part and very loosely on Lucent Technologies), Public Network Systems (loosely based on Lucent’s Global Public Networks), and the “Hypo Millennium Switch” (loosely based on Lucent’s 5 ESS-2000tm Switch) have all been used to illustrate that the appropriate capabilities and technologies can be aligned to address specific needs of a strategic customer set. With appropriate follow through to ensure customer delight with the platforms and support provided, the firm’s dominant management teams can improve the probability of the technology intensive firm’s mission success. It was further demonstrated that perceived planning skills of the enterprise management team in anticipating and addressing opportunities and performance gaps, identifying the need for and aligning opportunities, strategies, technologies, skills and supply chain activities can also help contribute to fulfilling the firm’s vision. Success can not, however, be guaranteed. There are simply too many variables and too many unknowns that create white space in the planning horizon. Some of that white space can be reduced using ‘management of technology’ tools and techniques, some of which have been introduced and described above.

At the strategic level there are two common denominators to mission success. The first is a focus on the needs of specific customer sets, and the other is commitment to specific “strategic” technologies capable of enabling unique advantage and capability for strategic customers. Because technology and corporate strategy alignment spans analysis, planning and implementation, it plays a strategic role in the establishment of the vision and strategic thrusts of the technology intensive enterprise. Technology management itself represents an opportunity to establish a new corporate core niche of excellence. It expands the concept of core competence by offering that, as a core capability of the management teams, enterprise specific implementations will be unique and differentiated from those of its competitors.

Alignment of technology and corporate strategy both defends and adds value to the stakeholders’ investments in the enterprise. It is only by establishing strategic intent, balancing near and longer term objectives, responding to the voice of the customer, positioning the firm and its offers against those of the competition, leveraging technology evolution for competitive advantage, and committing to the corporate strategy at every level of the organization, can the firm become successful in the eyes of all of its constituents. It must be noted that this is not an endpoint, but a beginning. The management teams must think about and plan for the unthinkable. Technology, by its nature is not continuous and the next disruptive technology is even now entering commercialization time zero.

Selected References

*Bell Labs Technical Journal, 1997. The 5ESS Switch , Autumn 1997 (page 142)

*Christensen, Clayton; 1997. The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail. Harvard Business School Press.

*Coates, J. F., Mahaffie, J. B. & Hines; A., 1997. 2025: Scenarios of US and Global Society Reshaped by Science and Technology; Oakhill Press, Greensboro, NC.

*Cochrane, J. I., Temple, J. E., Peterson, J. W., 1997. “Forecasting Technology” in Handbook for IS Managers (5th Ed.) Auerbach Publishers, Boston pp 117-129

*Cochrane, James, Temple, John, and Peterson, John, 1996. Shapes and Shadows of Things To Come, Information Strategy: The Executives Journal. (Spring )

*D’Aveni, R. A. 1994. Hypercompetition: Managing the Dynamics of Strategic Maneuvering. New York: The Free Press.

*Dovel, George P.,1990. "Stake It Out: Positioning Success, Step by Step" Business Marketing, July, pp. 43-51.




*Dubosz, 1997. 100 Million Lines Later, 5ESS Switches Any Media, Anywhere Lucent Magazine, October.

*E. I. du Pont de Nemours & Co. 1971 Guide To Venture Analysis.

*Hax, A. C., & Majluf, N. S. 1996. The Strategy Concept and Process: A Pragmatic Approach. New Jersey: Prentice Hall

*Hofer, C. W. 1975. Toward a Contingency Theory of Business Strategy. Academy of Management Journal, 18(4): 784-810.

* Eriksen, Lloyd; Peterson, John; Wofford, Kenneth, 1998. On Recreating the Technology Management Infrastructure. Management of Technology, Sustainable Development and Eco-efficiency. Lefebvre, L., Mason, R., Khalil, T., eds . Oxford (UK): Elsevier Science Ltd.

*Martino, Joseph P. 1993. Technological Forecasting for Decision Making. New York: McGraw-Hill, Inc..

*National Center for Manufacturing Science (NCMS), 1996. “Management of Technology Feasibility Study,” Ann Arbor, MI (Proprietary for Members)

*Porter, M. E. 1985. Competitive Advantage: Creating And Sustaining Superior Performance. New York: Free Press.

*Quinn, James Brian. 1992. Intelligent Enterprise. New York. The Free Press.

*Quinn, James Brian; Baruch, Jordan; Zien, Karen Anne. 1997. Innovation Explosion. New York. The Free Press.

*Radnor, Michael; and Peterson, John. (To be published in late 1998.) Strategic Diversification and the Technology Intensive Defense Firm: On the Conversion Illusion. in The Defense Industry in the Twenty-first Century: Corporate Strategy and Public Policy Perspectives. Gerald Susman and Sean O’Keefe, eds. Oxford (UK): Elsevier Science Ltd.

Sahal, D. 1983. “Invention, Innovation and Economic Evolution,” Technological Forecasting and Social Change, 23:213-235.

*Shank, John K. and Govindararajan, Vijay, 1993. Strategic Cost Management, The Free Press, New York.

*Snyder, A. V., & Ebeling, H. W., Jr. 1992. Targeting a Company's Real Core Competencies. The Journal of Business Strategy, 13(6): 26-32.

*Szakonyi, Robert, ed., 1997. Technology Management 1997 One Corporation’s Strategy and Technology Alignment: A Case Study, John Peterson. Auerbach Publications, Boston. 1997

*Topor, Fred.. 1992. AT&T Network Systems Manager’s Forum: Destination 2001. Internal Working Document.

*Tregoe, Benjamin; Zimmerman, John; Smith, Ronald; Tobia, Peter; 1990. Vision in Action, New York: Simon Shuster, A Fireside Book.

*Webster, Frederick, 1994. Market-Driven Management New York: John Wiley & Sons (Porable MBA Series

Additional Suggest Readings:

Avishai, B., & Taylor, W. 1989. Customers Drive a Technology-Driven Company: An interview with George Fisher. Harvard Business Review 67(6): 106-114.

Barney, J. B., 1986. Organizational culture: Can it be a source of sustained competitive advantage? Academy of Management Review, 11: 656-665.

Buzzell, R. D., & Gales, B. T., 1987. The PIMS Principles: Linking Strategy to Performance. New York: The Free Press.

Hall, R., 1993. A framework linking intangible resources and capabilities to sustainable competitive advantage. Strategic Management Journal, 14: 607 - 618.

Hamel, G., & Prahalad, C. K., 1989. Strategic Intent. Harvard Business Review, 67 (3): 63-76.




Hamel, G., & Prahalad, C. K., 1994. Competing For The Future. Harvard Business Review, 72(4): 122-128.

Hammer, J., & Champy, J., 1993. Reengineering: The Corporation: A Manifesto For Business Revolution. New York: Harper Collins.

Kotter, J. P. & Heskett; T. L., 1992. Corporate Culture and Performance. New York: Free Press.

Levin, D. Z., Radnor, M., & Thouati, M. G., 1997. Using a process view of organizations to understand the management of technology. Working paper, J.L.. Kellogg Graduate School of Management, Northwestern University.

Markides, C. C., & Williamson, P. J., 1994. Related Diversification, Core Competencies and Corporate Performance. Strategic Management Journal. 15(S1): 149-165.

Meyer, M. H., & Utterback, J. M., 1993. The Product Family and the Dynamics of Core Capability. Sloan Management Review, 34(3): 2947.

Mintzberg, H., 1994. The Fall and Rise of Strategic Planning. Harvard Business Review, 72(1): 107-114.

Porter, M. E. 1991. Towards a Dynamic Theory of Strategy. Strategic Management Journal, 12(S): 95-117.

Postman, N., 1992. Technoloply: The Surrender of Culture to Technology. New York: Alfred Knopf.

Prahalad, C. K., & Hamel, G., 1990. The Core Competence Of The Corporation. Harvard Business Review, 68(3): 79-91.

Roussel, P.A., Saad, K.N., & Erickson, T.J., 1991. Third Generation R&D: Managing The Link To Corporate Strategy. Boston: Harvard Business School Press.

Schoemaker, P. J. H., 1992. How To Link Strategic Vision to Core Capabilities. Sloan Management Review, 34(1): 67-81.

Senge, P. M., 1990. The Fifth Discipline: The Art and Practice of the Learning Organization New York: Currency Doubleday.

Stalk, G., Evans, P., & Shulman, L. E., 1992. Competing On Capabilities: The New Rules of Corporate Strategy. Harvard Business Review, 70(2): 57-69.

Steiner, George., 1979. Strategic Planning What Every Manager Must Know. New York, The Free Press.

Wernerfelt, B., 1984. A Resource-Based View of the Firm. Strategic Management Journal, 5: 171-180.

Williams, T. R., 1992. How Sustainable Is Your Competitive Advantage? California Management Review, 34(3): 29-51.

Wilson, I., 1992. Realizing the Power of Strategic Vision. Long Range Planning, 25(5): 18-28.

Yoshimura, N. and Anderson, P., 1997, Inside the Kaisha: Demystifying Japanese Business Behavior. Boston: Harvard Business School Press
