MB 08-01 : STRATEGIC TECHNOLOGY MANAGEMENT 1.3

5. What are the reasons behind product obsolescence? Explain with examples
Obsolete products have little or no monetary value. They may be recycled, placed as antiques or kept as rare items in museums, if they possess aesthetic or appealing characteristics.
When a scientific and engineering advance leads to the introduction of new technology, turbulence is created in existing systems. New products emerge in the embryonic phase of a technology and many product innovations occur. As the rate of product innovation reaches its peak and starts to decline, a dominant product design emerges and the industry standard is defined accordingly. Process innovation follows new product designs. It continues throughout the technology lifecycle in support of both radical and incremental product innovations. Process innovations are important for the different generations of products. Process innovation increase a product ‘s lifecycle and help maintain competitiveness until a substitute technology creates a discontinuity in the system and a new life cycle emerges. For e.g.switching from steam powered engines to diesel powered engines creates turbulence in the diesel technology and discontinuity of the steam technology. The diesel technology will have its own products, which go through different designs until an industry standard emerges and dominates the market. Process innovation continues to create improvements in the performance of dominant design until a new technological discontinuity occurs, such as electric-power engine. The electric technology may render the diesel technology obsolete. The product and process innovation of electric products will run their cycles until another discontinuity occurs. Perhaps
Hydrogen powered engines.
For a single product, technology life cycle and product life cycle coincide. Technological discontinuity ends on product’s life cycle and starts a new product life cycle. Technological discontinues used to be few and far between in the technology are this is no longer the case. The digital age, for e.g. has created very rapid rates of innovation for components and products. A microprocessor’s design and manufacturing process change almost on a yearly basis. Product life cycles are shrinking in the present marketplace.
REASONS FOR FINITE LIFETIMES:
There are five principal reasons why products have finite lifetimes:
1. Technical performance obsolescence
2. Technical feature obsolescence
3. Cost obsolescence
4. Safety obsolescence
5. Fashion changes
Performance or feature obsolescence in a product occurs when its performance and/or features are markedly less at the same price as those of a competing product. Cost obsolescence occurs in a product when the same performance can be obtained in a competing product at a lower price and the product cannot be produced at a cost to meet that lower price. Safety obsolescence occurs in a product when a competing product offers similar performance and price with improved safety of operation or when government regulations require safer features or operation or when government regulations require safer features or operation in a product line. Finally, products in which technology, costs and safety features are relatively stable can still become obsolete as a result of fashion changes. Fashion obsolescence occurs in a product in which product competition
is undifferentiable in performance and price but is differentiable in lifestyle.


6A. What are the components of a technology system? Based on this how can technology be forecasted?
The concept of a technology system provides general principles by means of which a technology can be varied and improved.
Progress in a technical system will occur by improving points within the system that limit. The system that limit the overall system performance-technical bottlenecks. Anticipating these bottlenecks allows one to know where progress must be made if the overall system is to be improved. Any technology is a mapping of a functional logic to a physical structure. The analysis of a technology as a system will require two descriptions, a logic scheme and a corresponding morphology.
For eg.. consider the automobile as a technology as a system. The functional transformation of the automobile is intended to provide land transportation for moving passengers and goods from one location on land to another, so the basic functional scheme requires powered movement over land. In logical order, an automobile must be fueled entered, started, directed, and stopped. The technology system of the automobile must provide the sub-functions of fueling, starting & stopping, control and direction, and comfort and safety.
All functional open system, such as a technology system, must be described with two levels mapped to each other:
1. Logic schematic-logical scheme of the functional transformation.
2. Physical morphology-constructed physical structure whose processes map in a one to one manner with the logic scheme.
The general way of identifying potential or actual opportunities for technological advances lies in either progress in the logic schematic or progress in the morphology. Technology advance may occur by
• Extending the logic schematic
• Alternating physical morphologies for a given schematic or
• Improving performance of a given morphology for a given schematic by improving parts of the system
Technical progress can occur from changes in any aspect of the system:
1. Critical system elements
2. Components of the system
3. Connections of components within the system
4. Control subsystems of the system
5. Material bases within the system
6. Power bases of the system or
7. System boundary
A technology system cannot be innovated until all the critical elements for the system components, connections, control, materials, and power already exist technologically. Technical progress in a system may occur from further progress in the components of the system or in connections of the system.
Complex technology systems;
A complex technological system may be constructed of parallel subsystems or of a hierarchy of subsystems or both parallel and hierarchical subsystems. Parallel subsystems are component system’s transformation function. Hierarchical subsystems are functionally lower level systems whose operations determine the operation of the system at a synthetic at a upper level
Product systems, production systems and service systems:
Technology systems can assume three different manifestations: Product systems, production systems and service systems
 A product system is a completed and connected transformational technology used by a customer
 A production system is a completed and connected set of transformational technology systems used in producing a product
 A service system is a completed and connected set of transformational technology systems used in communication and transacting operations within and between producer/customer/supplier networks.
Application systems:
Product, production and service system technologies can be used together or individually in the applications systems of a customer. An application is a generic class of productive or procedural activities defined by a purpose. Productive applications are activities focused on the outcome , or product, of the activities. Procedural applications are activities focused on the process during the application and not on the output.
Forecasting applications:
Technology systems become embedded in both product/production/service (combination) systems and applications systems, for the applications systems will incorporate combinations of product, process, or service systems as subsystems and as components and connections in the applications system. To understand the requirements for technical progress as viewed from the applications system, one should ask the following questions:
1.what level performances in a combination or individual system is minimally acceptable for an application, and what increments in performance would be clearly noticeable in the application?
2.what features of the combination or individual system are used in the applications or would be used, and how are they used?
3. What peripheral devices to combination or individual system are essential or very helpful for an application?
4. What aspects of the combination or individual system cause glitches and breakdown and require frequent maintenance in an application?
5. What aspect of the combination or individual system of the environment within which the systems are applied create safety or pollution risks?
6. How does the current cost of the combination system or of peripherals limit the number of applications or duration of applications?
7. What factors in the applications system determine the combination of individual system replacement rates?
8. What factors in the combination or individual systems inhibit or facilitate brand loyalty in replacement purchase?
A technology system from the perspective of an applications system anticipates the market requirements for technical change. The most frequent reason that new high-tech products fail commercially has been their incompleteness for use in an application system.

6B. What is exploratory forecasting or normative forecasting? Explain
Exploratory forecasting:
Exploratory forecasting involves starting from the present and advancing step by step the future and it mainly involves extrapolation of current trends into the future. Two methods under this are, Delphi method or subjective or the expert opinion method and the technology s-curve or objective or quantitative method. In history , there are examples of notoriously wrong predictions based on exploratory-subjective methods. For example, the scientists lord Kelvin asserted in 1985 that heavier than air flying machines are impossible. this was based on extrapolating what was known then. Only in the year 1904 ‘flying machine’ was invented.
Normative forecasting:
Normative forecasting involves inventing some future and identifying the actions needed to bring that future into existence. Two methods under normative forecasting are analysis and planning. Normative analysis looks at the underlying structures of current trends; they do not merely extrapolate trends. Normative planning involves actual formulation of technology strategy and research programs to implement such strategy. One should try both to anticipate the future and to make the future that one desire happens. This is the essence of all action, particularly the essence of technology forecasting and technology planning.

MB 08-01 : STRATEGIC TECHNOLOGY MANAGEMENT 1.2

3. What are the types of innovation? Explain. Give an example in each case?

Innovation involves the creation of a product, service, or process that is new to an organization. It is the introduction into the marketplace, either by utilization or by commercialization, of a new product, service, or process. It does not have to be New World: rather it is viewed as the first use of an idea within an organization, whether or not the idea has been adopted by other organizations already. The technology need not be novel or ground breaking .An innovation may be a change in industrial practice, which improves productivity .The innovation process involves integration of existing technology and inventions to create a new or improved product, process, or system.

TYPES OF INNOVATION
Innovations can influence a product, a process, or a system. Technological innovation in service is as important as it in products. It includes enhancing existing service by introducing a good idea or developing a new technological agent such as software. System innovations may involve the development of different components that are integrated into a system. To gain marketplace acceptance, an innovation must contribute to the creation of value.
Innovations may be classified as:
 Radical or fundamentally new innovation
 Architecture or configurational innovation and
 Incremental or evolutionary innovation
Radical breakthrough innovations are usually based on an invention for example: the transistor. They change or create new industries. They are relatively rare and start outside the boundaries of a firm.
Architectural or configurational innovation involves simply reconfiguring existing components, for example: miniaturizing a hearing aid.
Incremental, or evolutionary, innovations are small but important improvements in a product, process, or service. They are relatively common and are created within the firms of an industry, for example: thinner mechanical watches.
By actively managing the above streams of innovation, firms will be able to shape industry’s standards (through incremental innovation), take advantage of fundamentally new markets for existing technology (through architectural innovation) and proactively introduce substitute products with radically new technology which cannibalize existing products, create new products, markets and competitive rules (through radical innovation).

4.What are the steps involved in assets approach to strategic technology management?
ASSETS process is a systematic process to develop and implement a technology strategy.
ASSETS are designed to be an ongoing process. New ideas or technical areas should be added continuously and out-dated ones dropped as needed. The first three steps in this process represent the strategy development or formation stage; the last three steps represent the strategy implementation stage. A variety of tools are available to facilitate the conduct of each of the steps. The steps in the process are:
Step1: Assess current situation
A full understanding of the company’s performance and current position is the intended outcome. Since goals are usually expressed in the form of business performance a review of fundamental company goals is also important to establish the proper basis for all other aspects of the business.
It is also essential to develop a full understanding of the future business environment; that is, the customers, suppliers, competitors, demand for product, industry financial ratios and economic trends. At the same time it is also important to develop a similar understanding of the technology environment, including items such as patents, key technologies, centers of research excellence and capability, levels of funding, the potential for breakthroughs and barriers to technology deployment. The convergence of business and technology planning begins to occur as the environment for each is established and relationships between the two environments are drawn.
An important element of the self-examination process is to review the firm’s Strategic Technology Areas (STAs). These are the areas of functional technology expertise in the firm’s operations, which give the firm an advantage in the market place for serving particular customer needs. The firm’s current and desired STAs are the basic building blocks, which form the targets of technology investments. Documentation of the company’s situation is completed and a description of the future business and technological environment is included. This forms an input to step2 while the ideas for the specific investment portfolio go to step3

Step2: Specify Technology Strategy
Specifying a ‘game plan’ for technology development and use is important because it deals with the conversion of the information and concepts developed in step1 into realistic plans and actions. This game plan is technology strategy : customers, competitive approach, investments and organizational culture. The strategy should provide guidelines or criteria for selecting and implementing specific actions or tactics. This involves the simple act of answering questions such as:
 What technologies to develop, license, or buy
 Whether to seek technology leadership
 How to protect property rights
 How to capture economic returns.
Technology strategy must be a consistent part of overall business strategies. The following are fundamental business strategies that have important technology components:
 Market competence: what value to offer the customer?
1. Product differentiation
2. Low cost producer
 Market scope: which market boundaries to target?
1. Largest market share
2. Specialized niche player
 Market timing: when to introduce innovations?
1. First mover or leader
2. Wait and improve
Ultimately, strategy must break down to action and actions must be assignable in such a way that the responsible individual can be held accountable for whether there is success or not. These actions must also be expressed in such a way that they can actually be accomplished. Thus the definition of decision criteria regarding future customers, product markets capabilities and resources are essential for this step.
This step technology strategy provides approaches to gain product-market advantage, decision criteria for the next step of selecting a technology investment portfolio and areas of technical concentration for target applications. It also implies use of selected organizational practices, such as ‘innovation teams’ and systems, as well as some attention to contingency planning.
Step3: Select Technology Portfolio
Before selecting technical areas for research, it is necessary, it is necessary to identify suitable candidates. The identification process can begin with the output from step1: a routine scanning of literature; observing the technical environment, monitoring competitors, suppliers and customers; attending conferences, symposia and other meetings on technical subjects. Sometimes it is useful to make assignments to particular technical areas for review and consideration .In addition to the simple process of observation it is necessary to connect what is happening, or may happen, in a technical area and the implications for the company or organization.
Having identified, creatively a series of potential candidates for future development, a process of evaluation and selection of a mix of activities supporting company goals and consistent with company business and technological risk preference is necessary. If the screening process is difficult or expensive, there is a tendency to limit the list of candidates. This raises doubt regarding the adequacy of the subjects being considered. The development of the efficient, thorough screening process encourages consideration of all ideas that are discovered. Thus, it is very important for confidence building to have a screening process that is comprehensive and decisive.
A few criteria for this step include: pay back-cost benefit ratio, market or spin off potential, business sector priority, continuing availability of funding, technological risk, potential, business sector priority, continuing availability of funding, technological risk, potential for high innovation and the like. The main result prioritized list of attractive technology investment projects.
Step4: Execute Technology Investments
Resource commitments to technology investments are made is step 4 and the utilization of the resources to conduct the planned project work is undertaken. The basic approach is embodied in the project management knowledge base and includes the following functions:
Organizing the work team
• Planning the details of the work
• Staffing the work activities
• Directing and leading the effort
• Controlling the activities to ensure compliance with plans and needs

Generally, considerable effort is required to keep programs moving along rapidly. There is a strong tendency for time frames to be extended and for decisions to be prolonged. Milestones for success are established and periodic review of expectations compared with what actually take place. The results of effectively completing this task will be to produce well-developed prototypes and technical products that are satisfactory for pushing through the next stage transferring results of actions.
Step 5:Transfer Results for Deployment
Ultimately, the efforts of technology acquisition and development must have a pay-off. The utilization of the results in production process and products is the ultimate goal. The following activities are needed: prototype development, scale-up, production or purchase, distribution or installation. These latter steps are very expensive in comparison with the cost of the technology acquisition. In addition this is frequently a long and difficult path because of the internal objections and resistance by those who stand to lose as a result of the adoption of a new technology.
The results of this step should complete the innovation process and should bring the new technology to use in beneficial application such as production process or products.

Step6: Secure Long Term Position
The final step is a monitoring, review and feedback activity. In managing technology in a rapidly changing environment it is vital to monitor continually the activities of others, and business and technical trends. Such monitoring is needed to provide long term insurance against unpredictable changes in technology, markets or institutions that can unseat even a well-conceived plan f action.
Moreover, because environments and goals change, business and technology strategies will also change. Thus, step6 includes activities to acquire routine data on performance and trends modifications and to communicate to relevant users in the firm, particularly where in investments (step3) are required. This step also provides information inputs back to step1 to initiate the process in future technology efforts.
The principal output of step5 is information, which is stored for the future use and which provides inputs to the current situation assessment in the first step. In general, the information needs are tied to how the firm monitors the environment and revises its plans and programs.

MB 08-01 : STRATEGIC TECHNOLOGY MANAGEMENT

3. What are the types of innovation? Explain. Give an example in each case?

Innovation involves the creation of a product, service, or process that is new to an organization. It is the introduction into the marketplace, either by utilization or by commercialization, of a new product, service, or process. It does not have to be New World: rather it is viewed as the first use of an idea within an organization, whether or not the idea has been adopted by other organizations already. The technology need not be novel or ground breaking .An innovation may be a change in industrial practice, which improves productivity .The innovation process involves integration of existing technology and inventions to create a new or improved product, process, or system.

TYPES OF INNOVATION
Innovations can influence a product, a process, or a system. Technological innovation in service is as important as it in products. It includes enhancing existing service by introducing a good idea or developing a new technological agent such as software. System innovations may involve the development of different components that are integrated into a system. To gain marketplace acceptance, an innovation must contribute to the creation of value.
Innovations may be classified as:
 Radical or fundamentally new innovation
 Architecture or configurational innovation and
 Incremental or evolutionary innovation
Radical breakthrough innovations are usually based on an invention for example: the transistor. They change or create new industries. They are relatively rare and start outside the boundaries of a firm.
Architectural or configurational innovation involves simply reconfiguring existing components, for example: miniaturizing a hearing aid.
Incremental, or evolutionary, innovations are small but important improvements in a product, process, or service. They are relatively common and are created within the firms of an industry, for example: thinner mechanical watches.
By actively managing the above streams of innovation, firms will be able to shape industry’s standards (through incremental innovation), take advantage of fundamentally new markets for existing technology (through architectural innovation) and proactively introduce substitute products with radically new technology which cannibalize existing products, create new products, markets and competitive rules (through radical innovation).

4.What are the steps involved in assets approach to strategic technology management?
ASSETS process is a systematic process to develop and implement a technology strategy.
ASSETS are designed to be an ongoing process. New ideas or technical areas should be added continuously and out-dated ones dropped as needed. The first three steps in this process represent the strategy development or formation stage; the last three steps represent the strategy implementation stage. A variety of tools are available to facilitate the conduct of each of the steps. The steps in the process are:
Step1: Assess current situation
A full understanding of the company’s performance and current position is the intended outcome. Since goals are usually expressed in the form of business performance a review of fundamental company goals is also important to establish the proper basis for all other aspects of the business.
It is also essential to develop a full understanding of the future business environment; that is, the customers, suppliers, competitors, demand for product, industry financial ratios and economic trends. At the same time it is also important to develop a similar understanding of the technology environment, including items such as patents, key technologies, centers of research excellence and capability, levels of funding, the potential for breakthroughs and barriers to technology deployment. The convergence of business and technology planning begins to occur as the environment for each is established and relationships between the two environments are drawn.
An important element of the self-examination process is to review the firm’s Strategic Technology Areas (STAs). These are the areas of functional technology expertise in the firm’s operations, which give the firm an advantage in the market place for serving particular customer needs. The firm’s current and desired STAs are the basic building blocks, which form the targets of technology investments. Documentation of the company’s situation is completed and a description of the future business and technological environment is included. This forms an input to step2 while the ideas for the specific investment portfolio go to step3

Step2: Specify Technology Strategy
Specifying a ‘game plan’ for technology development and use is important because it deals with the conversion of the information and concepts developed in step1 into realistic plans and actions. This game plan is technology strategy : customers, competitive approach, investments and organizational culture. The strategy should provide guidelines or criteria for selecting and implementing specific actions or tactics. This involves the simple act of answering questions such as:
 What technologies to develop, license, or buy
 Whether to seek technology leadership
 How to protect property rights
 How to capture economic returns.
Technology strategy must be a consistent part of overall business strategies. The following are fundamental business strategies that have important technology components:
 Market competence: what value to offer the customer?
1. Product differentiation
2. Low cost producer
 Market scope: which market boundaries to target?
1. Largest market share
2. Specialized niche player
 Market timing: when to introduce innovations?
1. First mover or leader
2. Wait and improve
Ultimately, strategy must break down to action and actions must be assignable in such a way that the responsible individual can be held accountable for whether there is success or not. These actions must also be expressed in such a way that they can actually be accomplished. Thus the definition of decision criteria regarding future customers, product markets capabilities and resources are essential for this step.
This step technology strategy provides approaches to gain product-market advantage, decision criteria for the next step of selecting a technology investment portfolio and areas of technical concentration for target applications. It also implies use of selected organizational practices, such as ‘innovation teams’ and systems, as well as some attention to contingency planning.
Step3: Select Technology Portfolio
Before selecting technical areas for research, it is necessary, it is necessary to identify suitable candidates. The identification process can begin with the output from step1: a routine scanning of literature; observing the technical environment, monitoring competitors, suppliers and customers; attending conferences, symposia and other meetings on technical subjects. Sometimes it is useful to make assignments to particular technical areas for review and consideration .In addition to the simple process of observation it is necessary to connect what is happening, or may happen, in a technical area and the implications for the company or organization.
Having identified, creatively a series of potential candidates for future development, a process of evaluation and selection of a mix of activities supporting company goals and consistent with company business and technological risk preference is necessary. If the screening process is difficult or expensive, there is a tendency to limit the list of candidates. This raises doubt regarding the adequacy of the subjects being considered. The development of the efficient, thorough screening process encourages consideration of all ideas that are discovered. Thus, it is very important for confidence building to have a screening process that is comprehensive and decisive.
A few criteria for this step include: pay back-cost benefit ratio, market or spin off potential, business sector priority, continuing availability of funding, technological risk, potential, business sector priority, continuing availability of funding, technological risk, potential for high innovation and the like. The main result prioritized list of attractive technology investment projects.
Step4: Execute Technology Investments
Resource commitments to technology investments are made is step 4 and the utilization of the resources to conduct the planned project work is undertaken. The basic approach is embodied in the project management knowledge base and includes the following functions:
Organizing the work team
• Planning the details of the work
• Staffing the work activities
• Directing and leading the effort
• Controlling the activities to ensure compliance with plans and needs

Generally, considerable effort is required to keep programs moving along rapidly. There is a strong tendency for time frames to be extended and for decisions to be prolonged. Milestones for success are established and periodic review of expectations compared with what actually take place. The results of effectively completing this task will be to produce well-developed prototypes and technical products that are satisfactory for pushing through the next stage transferring results of actions.
Step 5:Transfer Results for Deployment
Ultimately, the efforts of technology acquisition and development must have a pay-off. The utilization of the results in production process and products is the ultimate goal. The following activities are needed: prototype development, scale-up, production or purchase, distribution or installation. These latter steps are very expensive in comparison with the cost of the technology acquisition. In addition this is frequently a long and difficult path because of the internal objections and resistance by those who stand to lose as a result of the adoption of a new technology.
The results of this step should complete the innovation process and should bring the new technology to use in beneficial application such as production process or products.

Step6: Secure Long Term Position
The final step is a monitoring, review and feedback activity. In managing technology in a rapidly changing environment it is vital to monitor continually the activities of others, and business and technical trends. Such monitoring is needed to provide long term insurance against unpredictable changes in technology, markets or institutions that can unseat even a well-conceived plan f action.
Moreover, because environments and goals change, business and technology strategies will also change. Thus, step6 includes activities to acquire routine data on performance and trends modifications and to communicate to relevant users in the firm, particularly where in investments (step3) are required. This step also provides information inputs back to step1 to initiate the process in future technology efforts.
The principal output of step5 is information, which is stored for the future use and which provides inputs to the current situation assessment in the first step. In general, the information needs are tied to how the firm monitors the environment and revises its plans and programs.

MB 08-01 : STRATEGIC TECHNOLOGY MANAGEMENT

1A. What are the components of technology?

Technology can be defined as all the knowledge, products, processes, tools, methods, and systems employed in the creation of goods or in providing services. In other words, technology is the way we do things. It is the means by which we accomplish objectives. Technology is the practical implementation of knowledge, a means of aiding human endeavor.
It is common to think of technology in terms of hardware, such as machines, computers, or highly advanced electronic gadgets. However, technology involves a lot more than just machines. There are several technological entities besides hardware, including software, and human skills. According to Zeleny, technology consists of three components:
Hardware: The physical structure and logical layout of the equipment or machinery that is to be used to carry out the required tasks.
Software: The knowledge of how to use the hardware in order to carry out the required tasks.
Brainware: The reasons for using the technology in a particular way. This may also be referred to as the know why.
In addition to these one must also consider know-how, the learned or acquired knowledge of or technical skill how to do things well. Know- how may be a result of experience, transfer of knowledge, or hands-on practice. People acquire technical know-how by receiving formal or informal education or training or by working closely with an expert in a certain fold.

1B. What are the two principal economic goals for managing strategic technology?
Technological change is a major factor in long term commercial failure or success. New technologies create new markets or substitute the existing markets by making obsolete the affected current technologies and any of the products, services or production processes in which these technologies are embedded. In a firm , there are two economic goals for managing strategic technologies:
- To innovate new markets
- To dominate and keep existing markets
Technology forecasting is difficult, for the future is never predictable. Yet clear trends of technical change often can be identified. Certainly, goals for improving existing technologies can be formulated and technically focused research can be planned, funded and managed.
Forecasting market development and competitive conditions under technological change is also difficult. However, general patterns can be identified in most histories of new markets created by new technologies and in the competitive conditions as these markets evolved. These patterns can assist the formulation of marketing and competitive strategies as technologies change.
Technology planning and implementation are even more difficult activities than forecasting, for then resources are staked and futures risked. Yet, even here practice and studies have formulated and identified useful approaches. There are techniques and procedures,which facilitate proper market attention for research efforts and which facilitate the proper transfer r of technical advances into competitive products, production and services.
An important problem in technology strategy arises from the fact that most large firms are diversified and since different businesses use many different technologies to a diversified firm can be complicated. Despite these complications, however, planning even for diversified firms still should be based on all the strategic bases of the business enterprise: technology, market, capital, production and organization.
Strategic technologies are the rapidly changing core technical competencies that provide competitive edge to the businesses of the corporation.

2. Explain the aspect of core competence hierarchy. How does it relate to technology management?

Core competencies are collective sets of knowledge, skills and technologies that a company applies to add value for its customers. This is what determines the company’s competitiveness. A Company can improve its competitive abilities by becoming a learning organization.



Hierarchy of competencies:
All organization contain a large and diverse array of discrete activities, skills and disciplines. These elements-termed primary capabilities- are the building blocks of core competencies. The development and operation of most primary capabilities are the responsibility of individual functions of a company.
Certain capabilities are distinct from other primary capabilities in that they have a direct and significant effect on competitiveness in their own right. These capabilities, termed critical capabilities, can provide reduced cost, improved product or service differentiation, increased speed to market to large barriers to competition. The development of critical capabilities is often a key element of strategies at the strategic business unit (SBU) level.
Primary capabilities may be usefully divided into different categories, as follows:
• Market interface capabilities- capabilities that are used in the marketplace or that are clearly visible to it: selling, advertising, consulting, invoicing or customer satisfaction monitoring are generic examples of these capabilities.
• Infrastructure capabilities- capabilities that concern the internal operations of the company and that are invisible externally: for example, management information systems or internal training.
• Technological capabilities-technical capabilities providing direct support to the product or service portfolio.
When a corporation owns or has control over all or most of the technologies that contribute to producing and marketing a product, is known as a vertically integrated corporation. This could be the case whether the technology is a product, process, marketing, or integrative type of technology. If a automobile manufacturing plant owns plants that manufacture the chassis, the transmission train, the engine, and most of the other components of automobiles and trucks then it is considered a vertically integrated corporation. It also exercises strong control over distribution and marketing arms of the business. Vertical integration of a company can be defined at any point on a continuum, with one end designating total ownership of the technology (making the product) and the other end showing no ownership i.e., having to buy everything, as opposed to owning the technology or making the product within the company.
Decisions as to whether technology should be owned or not, or whether products should be made or bought, must be guided by the company’s standing in technology. Therefore a company must be able to:
1. Identify its distinctive technologies and choose areas in which to build competence in technology.
2. Do all it can acquire or keep itself at the top of these technology areas.
3. Decide on the level of integration needed for its operation, based on realistic technology and business decision-making criteria.
4. Be aware of emerging technology that may impact its business.
5. Modify its business strategy to support its technology strategy.
A company’s strategy to integrate is made according to the direction of integration desired. Backward integration occurs when the company seeks ownership or control of its suppliers. Horizontal integration involves increased control over production competitors. Forward integration occurs when a company seeks to control distribution, retailing, and post manufacturing activities. Vertical integration may combine backward, horizontal, and forward integration. It involves ownership or control of activities over the entire value chain. Many companies achieve integration through mergers, acquisitions, and takeovers.