Reviewing the environment approach to technology strategic planning consists of looking both inside and outside the company for patterns that affect the technology project portfolio. What follows is a mix of methodologies from various sources. They allow a corporation to see clearly the environment in which they are operating. Although many of the graphs and tables may seem indirectly relevant to the company, they are best used when the company and competitive products/services are put on the same map.
The examples are provided in the sense of being illustrative. When picking the method(s) that are right for a particular company, it is important to use some common sense as to which are applicable and which aren’t. Much of knowing what it is good and most appropriate involves discussions with technical, marketing, sales, manufacturing, and general managers. What is most important is to understand what is distinctive about a company and how to best “see” that distinctiveness in a way that allows insight into what to what to do next.
The first “view” is one that relates R&D strategy to the relative investment opportunity (a combination of the product or industry segment sales growth rate and percent market share). This graphic is best used when both the company’s and its competitor’s products are placed on the same matrix. It is not uncommon to find that when company’s use the “R&D Strategy related to Relative Investment Opportunity” figure they often find projects underway where the R&D strategy was mismatched to what the market growth rates and company vs. competitors positions indicated would be a wise approach.
Because this matrix is so helpful, each element in this will be reviewed. In the upper right area the R&D strategy is to conduct “maverick” (synonymous with breakthrough) research or “don’t play”. In this case where you have low market share and a high growth rate the only way to take customers away from companies which have done things right or in a manner to gain large market share vs. yourself, is to offer customers a truly distinctive reason to switch. R&D has to have a breakthrough for the company to compete in this business area. For R&D to work on incremental or next-generation products in this area of relative investment opportunities is typically a waste of time and money.
In the upper left quadrant “supporting offense long-range R&D” is the most appropriate strategy. Another way to say this is “this is where next-generation R&D should be funded”. This is the area wherein a company enjoys large market share and wishes to maintain this position. There is no reason for a company in this environment to take on the risk of breakthrough R&D, but by the same token it cannot rest on its laurels doing only incremental work.
In the lower left quadrant were the growth rate in the industry is low (typically associated with its maturity), and market share is high, then since the company has a leading position, strong incremental R&D is rewarded. In mature markets, customers and product managers within a company both know what’s needed next. It is mature and won’t support a business return for next-generation or breakthrough efforts. The approach when in this quadrant is to do work only if needed, and that’s especially true in areas where the market growth rate for the industry is low. An important element to remember is that in this environment, the intellectual property usually generating the most value for the corporation is a trademark or brand names and not patents.
In the upper portion of the lower right quadrant defensive R&D that is incremental should be continuously conducted to maintain market share position. Here a company could be in real danger of losing market share because the growth rate is still high enough to attract competition or aggressive behavior from large competitors. As a smaller player in the industry, competing by offering slightly better features sooner than the larger competition is a good strategy. As such incremental R&D should be supported to deliver products of this nature.
In the lower half of the lower right quadrant the words are to ‘Withhold R&D”. This approach is because in this area one has both a very low growth rate and market share. The wisest choice in this area is likely to withdraw from the business. If the business is a successful “cash cow” the company is probably living off of their brand, service and/or customer intimacy. They are not likely to be holding this position by means of innovative new products. Such is the logic for withholding all R&D.
Remember that these are guidelines. The lines drawn through the matrix are indefinite and use of this “R&D Strategy related to Relative Investment Opportunity” figure requires business wisdom from an entire management team comprised of technical, marketing, sales, and general manager to make the best choice.
The next matrix has to do with appropriate new business development strategies. The matrix helps determine a best path forward. The 3 x 3 grid of the “Strategies For Corporate New Business Development” figure has on the vertical axis market factors and on the horizontal axis technology factors.
Base market factors are those that are embedded by way of business practices, branding, and product features into products and services of the business segment under study. New-Familiar market factors are those that are new in this specific business area of the company but they’re familiar in the sense that there exist adjacent or tangential markets that are offering similar products and services using similar business models. The top column has to do with New-Unfamiliar market factors. This is where the factors are both new to this market and also unavailable elsewhere in the world from other markets. This environment requires creating a new business model for which there is no precedent. Projects with this attribute are offering a new product feature into a market for which there is no documented precedent.
The technologies definitions are much of the same ilk. Base technologies are those that are known and well used within the industry. New-Familiar are those which are related to or used in other tangential industries but not yet used by the company at present. New-Unfamiliar is of course technologies that are unknown both to the corporation and to the world at large.
The guidance provided by this matrix focuses on where the technology can be created or accessed with the highest business probability of success. In the left and lower part of the matrix internal development is favored. This is because the company is likely to have both the market and technical knowledge/competence within the company capable of creating the new product or feature being sought. It will be faster to “just do it yourself” than to spend the time looking for outside help. As one moves to New-Familiar columns and rows it makes more sense to start looking outside. On the technology side this help is typically accessed via a license and on the marketing side it is typically a business acquisition. For the New-Unfamiliar rows and columns it is time to look outside and leverage the company’s resources via University joint-ventures, other company joint-ventures or strategic alliances. These approaches carry the most risk because the technology or business partnership relationships typically under-perform due to cultural differences between the entities. Clearly the far upper right and top areas are the most risky in this regard so many entities utilize venture capital funds to lead the developmental efforts, and then if those are successful, acquire the business only after the concepts from a technical or market standpoint have been shown to be sound.
Another way is assessing the environment is to look at the technology portfolio from the standpoint of Importance versus Position. This is shown in the “Technology Portfolio Imperatives” figure.
This particular matrix can be used either early on or late in the portfolio planning process. It’s a check to see how much the project should be resourced (going into a strategic planning exercise or at the end of a portfolio selection process to determine whether the project will be resourced in a way that will generate business success). The technology importance on the vertical scale has to do with the technology content of the offering. The technology content is rated high when there is a very unique product function that can be achieved through a specific technology, and this product function is highly sought after by customers/consumers. Contrasting on the horizontal axis is the company’s relative technology position. It’s strong when a company has good scientists and engineers who understand and have protected the technology with intellectual property. It is weak where in a company does not have the people with the background and experience to deliver a technical solution in a timely manner. As will be discussed more in the human resource section, company scientists and engineers should be rated on their ability to create incremental, next-generation, or breakthrough work. There are times when breakthroughs are needed and yet when one looks critically at the staff, a big risk is being taken in assuming that that particular group of individuals has a high likelihood of generating a differentiated result.
From the “Technology Portfolio Imperatives” figure the upper right-hand box environment recommends a strategy to invest heavily to succeed or get out of the business. A half-hearted approach is the least effective. In the upper left-hand box it’s more of a defensive mode. From an organizational standpoint the upper right requires more breakthrough efforts whereas the upper left is looking for more of a strong next-generation offering. Along the bottom part of the matrix the recommendation is to cut back and used resources in other places or drop the efforts altogether.
Experience shows that in mature industries marketing and product management individuals are typically looking for technical change, and the Desirability Functions related to those changes shows the importance of making the changes is going to be minimal with respect to changing market share and profitability of the corporation. When such is the case were the technology importance is low, it’s better to use resources in a way that will generate higher returns for the corporation. This is especially true where a company also has a weak relative technology position. Putting the time and energy into building personnel’s skill base and then use it on a project for which there would be marginal return makes little sense.
These foregoing examples have looked at how different technology strategies and approaches are aligned with the environment surrounding the company. They are however a bit high-level. It is also useful to look more closely at technologies specific product functionality in detail. For example, the “Step change in Performance and Convertibility/Cost” figure shows the first of such visualizations. This example shows how pressure sensitive adhesives attributes (Performance and Convertibility/Cost ) have changed over time and reflects systems rather than just an adhesive based approach. Graphs such as this are often the best way to visualize technology changes over time. The x-axis is year developed or commercialized and the y-axis is some form of performance or product functionality.
In this case the bubbles are divided into two halves. The left half reflects the view of performance, and the right half shows convertibility. White areas of the pie show consumer desired needs that are yet unfilled. Over time there is a drift towards more and more of the consumer attributes being filled and the performance increasing as a function of cost. The reason such graphs are powerful is that there are times when new projects are proposed in which the performance is actually staying flat or decreasing rather than increasing over time. Charts such as this quickly spot that type of trend.
One of the most powerful ways to show a technology’s attractiveness is to look at relative cost of one technology versus other technologies on the x-axis versus relative performance of one technology versus the others on a vertical axis. An example of this is shown in the “Value Map of Relative Performance versus Relative Cost” figure. This first example is fairly simple showing the relationship in cost and performance going from low-end office label adhesives, to those that are used in marketing and promotions, to those further up the ladder used in tapes and labels for structural applications. Later in this book this performance versus cost graph is also used for evaluating markets, technologies and intellectual property. In fact when all three are shown on the same graph we will see that it will be a very powerful visual tool.
The “Value Map of Relative Performance versus Relative Cost” figure shows how project work in one area can impact favorably or unfavorably work in another area. It highlights potential overlap in projects (typically a problem in larger, multi-divisional corporations). Of importance here are the arrows representing technical project improvements being undertaken for various business lines. In this example they show different pressure sensitive label adhesive projects being undertaken in one application can create an adhesive with such improved performance that it can be used in another market segment. This illustrates for upper management how next-generation products in one area can also become a next-generation or breakthrough adhesive in another marketing area as well. In the example shown one can see how the solvent-based adhesive label “oak” will end up being useful not only marketing and promotion films but also for interior and exterior mounting tapes. The performance versus cost matrix makes it readily apparent that there will be a significant improvement in performance and cost for interior mounting and a cost reduction for external mounting tape alternatives. Since humans remember pictures much better than words, graphs such as this capture the strategic direction and next-generation environments in decision-makers minds as they undertake portfolio selection.
Building upon the same concept of relative performance versus relative cost is an example having to do with microwave technology that was available in the early 1990s. This is shown in the “Performance versus Cost of Microwave Technologies” figure. The x-axis in this example is relative cost and the vertical axis plots relative performance of four general areas of technology: magnetic / electric, coatings, foils, and metallized films.
Instructive in this example is the fact that metallized films are a better cost performance alternative than any of the other options available. Metallized films can be produced at a lower cost than electromagnetic applications or organic materials used as coatings. Metallized films have the same cost as laminating foils but offer much superior performance especially with respect to arc resistance that can occur sometimes when microwave materials are heated for long periods of time. When constructing such charts it’s often useful to color code them by major competitor or by type the technology being undertaken. Again looking at the external environment through this frame of reference allows strategic planning with the right bias (towards technologies that will bring the most value).
The focus of the above material is heavily on matrices. Many senior management teams look at business this way, but as an alternative oftentimes visual pictures such as trees can convey the same understanding in a more vivid manner. The “An Example Technology Market Bonsai” figure is such an example. In this case it is a tree that has the generic technologies of the corporation as roots supporting the markets and products growth shown as branches and leaves.
This example works particularly well when multiple technologies are required to generate any single product for a company (usually true in large multinationals). Here basic chemicals, processing technology, packaging technology, software, and distribution technologies are all combined to create products that serve various industry segments and markets. Especially in times when cost cutting becomes a driving force for a corporation, senior management is looking for ways to understand why it is that basic technologies in so many different areas should receive continued support. Trees such as this help them understand the interactive nature of the generic technology and differentiated capabilities technologies to create product functionality that serves many different product lines. Trying to do this with a ball and stick diagram (in a one-to-one map) oftentimes creates nothing other than confusion. But showing it is a living object such as a tree or bush oftentimes creates a feeling in senior management how it is that the technologies come together and then disperse to generate products. This results in support for an organization’s technical, marketing, manufacturing, and intellectual property functions.
In summary, it’s important to review the environment before embarking on a strategic planning process. Above are but a few examples of ways to visualize the situation. It’s important for companies’ strategic planning teams undertaking this process to look at each of these options quickly by spending just a few minutes mapping out what each visual display might look like (with their current level of understanding) just to see whether the resulting picture is likely to add value and insight. Too often what is found is that companies get wedded to a particular picture, or develop a particular picture in more detail, that doesn’t really add true value to the planning process. This stalls out their process rather than adding the insight they’re looking for. The 80/20 rule can’t be overstressed. It’s important to put 20% of the effort into these visualizations to produce 80% of the value. It really doesn’t matter if a particular point is exactly where it should be, it’s just the correct overall pattern that has value.