Strategic Information Technology Plan

In this book, we have discussed the strategic management of technology and how new technology is brought into the organization. We have emphasized two approaches for bringing technology into the organization: internal innovation and external acquisition. However, obtaining the technology is only part of what produces a firm's success. The firm must also have the administrative structures necessary, including the appropriate organizational structure, reward systems, and other managerial systems that support the product and process technologies of the firm. Additionally, the firm must have the right resources available at the right time in the right place to help the firm be successful using the technology.  Figure A3.1  summarizes the process leading to a technology plan and the activities necessary to implement the plan.

   Thus, a web of choices must be made in addition to how to obtain technology if it is going to be successful. This web of choices is typically more complex because the firm usually focuses on several technologies simultaneously, not a single technology. ( Figure A3.2  illustrates how the complexities for a firm increase as the diversity of technologies involved increases.) The success of the firm is greatest if the web of choices connect these technologies into a consistent set of actions. This appendix examines the way the firm'should construct its mix of products and processes to be successful in producing a consistent platform or portfolio.

COMPLEXITY AND MTI

The complexity a technology firm must address in its management process will vary widely. For example, Dell Computers builds custom computers for a worldwide market and has a great deal more complexity to address than does a small hometown business that builds custom computers for the community. The more complex the environment, the more complex the processes and structures the organization needs to have in place to be successful.

When the organization starts adapting responses to complexity in the environment, it generally tries to increase the complexity of its technologies and its products and systems.  Figure A3.2 indicates that the organization s approach toward technology—single product, platform, or portfolio—is a reflection of the complexity of technology and administration. The decisions about what approach to use depend on the firm's mission, goals/objectives, and strategy. Thus, as detailed in  Chapter 1 , a firm's approach to technology is a conscious choice by the firm about where it wants to go.

   Once the organization selects the strategy to use, it needs to map the complexity it faces and its opportunities relative to the environment so that it develops a technology plan that will enhance its chances for success. Key questions that need to be asked in this process are summarized in  Figure A3.3 . The answers to these questions depend on the level of complexity that affects the technology strategy of the firm ( Figure A3.2 ). Each of these broad technology strategies we will discuss next.

Single-Product Technology

The single-product technology strategy is the least complex approach a firm can take. Usually, firms using this strategy are small, and the market is local.

figure A3.2 How Administrative and Technological Complexity Relate

This is the domain of new entrepreneurial firms, and small family businesses. The simplicity of the administrative systems is because the firms are small and the internal processes are well understood by those involved. This does not mean the technology is not sophisticated or advanced; it means the product s technology is well understood by the firm. For example, Site-Specific Technology (SST) Development Group, Inc., is a software development firm creating geographic information systems (GIS) software for the precision farming industry. For example, one of this firm's products uses satellites to provide information processing and data analysis to support decision making in the agriculture industry. SST offers software that performs tasks such as spatial analysis, map generation, fertilizer recommendations, crop records, and field scouting. With this type of information, farmers from around the world can maximize efficiency and yield. While the product line and structure are simple, the technology developed and used by SST is very sophisticated and complex.

   There are several ways an organization maintains or enhances its performance using a single-product technology. Specifically, the options for the firm that chooses this approach to its technology strategy include:

· 1. Product-market exploitation: This is an attempt by the firm to increase its sales of current products through the development of other uses in the market or reaching the market in new ways. The product technology stays the same; however, the administrative support may need to change. Companies such as L. L. Bean and Barnes & Noble have not changed what they do; however, they have added web-based marketing.

figure A3.3 Key Questions for Determining the Level of Complexity to Pursue

· 2. Technology enhancement: This strategy aims at improving the systems and processes associated with the production and distribution of the product. Technology enhancement seeks to lower costs through increased efficiency. Typically, the product stays basically the same in this strategy. However, the increased efficiency offers a potential competitive advantage. For example, American Airlines can reduce customer time during ticket purchase and check in with its “remember me” enhancements. By registering with American, the customer can access flight and gate information by entering their phone number. 1

· 3. Market enhancement:When the organization sells its current products in new markets, it is pursuing this type of concentration strategy. The market enhancementmay be new geographical areas, or itmay be newmarket segments.

· 4. Product enhancement: This technology strategy is aimed at improving the product—“the new, improved” syndrome. The product remains essentially the same but the product is improved through the adding of new features, options, sizes, colors, and so forth. Apple has been at the cutting-edge of product enhancement in the wireless telephone market since it entered that market with the iPhone. 2  The iPhone has remained basically the same, although it has been enhanced since its introduction.

   The advantage of the single-product technology strategy is that the firm becomes proficient at what it does. The major drawback is that the firm is vulnerable to environmental shifts or competitive actions that usurp its competitive position.

Product Platforms

A second more complex strategy occurs when groups of products that are related by the way they are designed, manufactured, branded, distributed, or in some other way are said to be part of the same platform. For a platform to exist among a group of products there needs to be some type of relatedness. Technology is often the basis for the relatedness; both product and process technology within the firm can provide this base. Other factors can be the basis of relatedness and the focus of platform development. These can include resources such as people and location. Alternatively, the relatedness can be based on customers, branding, or global expansion demands. There are a number of potential benefits to platform thinking for a technology strategy. These include: 3

· • Speed: If a firm uses existing technology, components, logistics, or channels, then it is likely the firm can introduce “new” products more quickly. Also, there should be less product development time, and less training or retooling necessary in developing production systems.

· • Cost: New products that emerge from existing technologies can be cheaper to design, manufacture, and market. For automobiles, the ability of Honda to use the Accord sedan frame for its new hybrid car allowed it to cut costs.

· • Design quality: Because design problems typically are dealt with in earlier versions of the product that forms the foundation for the platform, using a platform for product development should result in better design quality. Any improvements in design should have repercussions in derivative products. For example, Hewlett Packard uses a converged infrastructure that ‘converges’ virtualized computers, storage, and networks with a firm's given facilities. This single shared-services environment optimizes the workload for the users of the HP products. This approach helps customers make a more efficient use of IT, facility, and staff resources. 4

· • Coherence: Good platform management should lead to better consistency in the makeup of the products and processes of the firm. In addition, where economies of scale and scope can be derived, good platform management will allow the firm to take advantage of such efficiencies. McDonalds has coherence in its products around the world. However, there are differences in the makeup and marketing of the products. For example, in Scandinavia, French fries are sold with mayonnaise, not ketchup, and dessert pie choices in Asia include red bean and corn. The product is essentially the same, but there are slight modifications to adapt to local settings.

· • Referenceability: Being platform oriented encourages satisfied customers to try new products the firm develops. Many customers buy their new faster and improved personal computers from the same company as they did their first computer because they know that firm. Other examples include companies like Toyota with its up-market car Lexus and its hybrids or Apple with its iPhones and iPads. In both cases the breadth of the firm's platforms resulted in satisfied customers in one domain becoming more likely to buy the firm's other products. Brand recognition can be very important in platform development. 5

· • Option value: Investment in the platform can help a firm further develop core technology, cultural understanding in new markets, new manufacturing processes, or build flexibility without committing totally to the newness. This option allows the firm to explore possibilities in a more controlled manner.

Complementary Platform

Another technology strategy is a complementary platform. The benefits listed in the product platform emerge from the operation of the platform for a single related product in which there are efficiencies. However, a platform can also be the foundation for new products and processes. The greatest power comes when the platform is not only the foundation for that firm's new products and processes but also is the foundation for other firms that rely on that product platform. For example, “Intel” inside is a widely recognized technical phrase indicating that Intel s microchips are in the given product that a consumer may buy. Thus, Intel is able not only to push its own products through the distribution channels, but it is also pulling its products through as other firms want to have Intel chips in their products.

   You will recall from  Chapter 2  the discussion of complementary forces with Porter's five-forces industry analysis model. These complementary forces are reflective of the strength of such platforms in an industry. The power of the platform increases dramatically as more ideas and innovation emerge from the platform. However, if the platform is displaced by another platform or other factors in an industry, it becomes more difficult for the firm to prosper.

There are four factors that influence platform leadership. 6

· 1. Scope of the firm: The firm's scope effects both internal innovation and obtaining technology from external sources. A key strategic decision in both cases is: What business are we in? The answer to this question will determine what platform of products and technologies to produce internal to the firm and what product and technological complementors will be encouraged outside the firm.

· 2. Product technology: This is an internally oriented decision for the firm. The power of a platform comes from the sharing of intellectual property, design of the architecture of the product, and the degree of modularity within the product design and production processes. The more the firm interfaces with others, the more likely unintentional technology transfer may take place. Thus, a firm needs to be alert for potential complementors (recall our discussion of this concept in  chapter 2 ) that may evolve into competitors. For example, Nike designs and markets sports shoes. The firm has a broad platform of different shoes (golf, baseball, running, walking, etc.) that Nike has developed. Independent firms manufacture Nike shoes exactly as directed by Nike. Because the manufacturers know how to make Nike shoes, Nike must be careful to ensure that they do not become competitors.

· 3. Relationships with external complementors: This reflects the degree of competition or potential competition for platform leadership by a firm that now complements the business. Because of the potential for conflict of interests and the potential desire of a competitor or complementor to leapfrog the product or technology of the platform leader, the relationships need to be managed and monitored. Intel and Microsoft are well-known complementors. They understand each other's strategies, goals, capabilities, etc. However, AMD has emerged as a problem for Intel and Microsoft as it has punctured the powerful hold Intel had on PC chip manufacturing.

· 4. Internal organization: The administrative support and the technical aspects of the organization allow the platform leader to manage potential conflicts more effectively. The well-managed firm is less susceptible to leapfrogging or to losing platform leadership. It is important that the internal organization allows debate, failure, and questioning of process to stay in a strong position relative to the market, complementors, and potential competitors. Platform leaders have to artfully build alliances and coalitions with internal and external groups with shared interests. It is easier to build these alliances if internal processes are in place to continuously reevaluate and modify the direction of the firm.

DEFINING PLATFORM STRATEGY

Product and complementary platforms can clearly be a successful technology strategy for a firm. However, if the firm is to employ either of these strategies certain steps must be taken to ensure success. These steps are similar to the discussion presented earlier in the text. They include building the appropriate team, understanding the general environment and competitive environment, and having specific operational competitive advantages. The concepts are the same as we have discussed previously, but here we are applying the concepts to this more complex setting. The specific steps to become a platform leader include: 7

· 1. Assemble a multidisciplinary team with engineering, marketing, and operations personnel. Too often, decisions about new product development or product renewal are left to one or two of these groups rather than including all three. Because each has a different view, the development of other products and processes is more likely with all three involved. At the very least, failure to recognize major potential problems is less likely.

· 2. Segment the markets into a grid of niches. These niches may be based on price/performance relationship or some other combination of two important aspects that should be considered. Determine where the firm has coverage in its product line, and where it does not. Then the platform development can be directed toward specific strategic goals to fill gaps or accentuate successes. For example, The Hershey Company began making non-chocolate-based candies when it realized that it was not addressing this attractive niche at all. They had the technology and the ability but no product. They were ignoring a large market segment and limiting their own growth.

· 3. Identify growth opportunities in those market niches. Hershey identified a range of potential niches in the non-chocolate candy and then determined there was room for it to compete in many of those niches. Today, Hershey has a platform in the confectionary industry that includes both chocolate and non-chocolate-related products.

· 4. Define and map current product platforms and where they fit in the grid. Defining the product platform is not always easy. For Hershey, if the definition of its product is chocolate-based candies, then it misses the opportunities in the non-chocolate candy industry. Many companies miss opportunities because they do not define the technologies and products they have in ways to open up potential areas of interest.

· 5. Take a fresh look at the market needs, product technologies, logistics, channel relationships, and manufacturing processes to formulate new ways of viewing the product and process technologies of the firm. This fresh look starts with a clean sheet with all types of interfaces examined. The crossfunctional team is looking to leverage new opportunities and new ways of doing things. Hershey found it could use its knowledge of the candy industry to enter the non-chocolate market. This made such entry less costly for Hershey than it would have been for a non-candy manufacturer.

· 6. Ask customers how to make the product better or to provide more value. If the product is global, then address the differences that exist across cultures. Can the application of a technical change or product change enhance the product? Hershey's approach to its introduction of a premium chocolate product, Bliss, was consumer driven from concept to launch. The consumer sought indulgence. Hershey combined R&D and their understanding of customers demands to deliver the ultimate personal indulgence—Bliss. 8

· 7. Analyze the products of competitors to determine how existing products and processes compare to the products of rivals and to potential substitute products. The analysis should be a breakdown of the other products. This is an area where reverse engineering skills are important to the firm. If the firm understands its products thoroughly, then it has the basis for a systematic, step-by-step comparison. This benchmarking can help the firm improve its products and realize where platform opportunities exist.

· 8. Examine all processes and distribution channels to be sure they are as good as they can be. Too often, firms assume that processes, suppliers, customers, and distribution systems should be a standard for the new platform products. Such assumptions can limit the ability of the firm to break through to new niches. Hershey began on-line ordering of customized Kisses with messages such as “I Love You” or “Congratulations”. As The Hershey Company develops its on-line presence, it will add more products that can be customized.

· 9. Understand how new product platforms relate to the core competencies of the firm. Before new product platforms can be built, the platform team must determine what needed abilities are found in the firm, which ones can be obtained externally, and which ones must be developed. The assessment of the firm's competencies defines what it can do well and what it needs to learn or acquire before it can renew a product or develop a new product platform.

· 10. Plan the project platform, develop a project platform implementation team, and make resources available. The innovation project process outlined in  Appendix 2  should serve the firm well in this process. Platform development is directed from inside the organization just as internal innovation is. The introduction of Bliss has been so successful, that Hershey's plans to follow this new process in future new product development efforts and product introductions. 9

   The mindset of product platform development is similar to the mindset of new product development. The process just outlined and the leveraging of resources are keys to success. However, sometimes the firm does not want to build new products around the same technology but instead it wants to diversify its efforts. This diversification requires a portfolio management approach as a part of the portfolio strategy because of the increased complexity in technology and organizational administration.

Portfolio Management

Portfolio management represents the most complex environment in the management of technology and innovation. A portfolio approach by a firm indicates that the firm has different technologies, products, processes, and/or other'strategic considerations. Thus, if a platform has some sense of unity to its operations, a portfolio is typically broader. Earlier, we defined a conglomerate as having multiple strategic business units (SBUs). Firms that use a portfolio approach to MTI often have multiple SBUs. At the very least, they have unique product lines that are not related on any of the factors defined as a basis for platforms.

   There are several characteristics in the portfolio management of technology and innovation. These include: 10

· • It is dynamic with uncertain information and changing conditions.

· • It is ongoing and must be constantly updated.

· • It requires evaluation, selection, and prioritization.

· • It demands that bad product and process technologies be eliminated.

· • It should be designed to review the total portfolio on a regular basis.

   Technology management in a portfolio can be viewed along five different processes. These processes are means that a firm can use to manage the complexity that occurs in a setting where the firm must manage a portfolio. 11

· 1. Identification of opportunities and threats in the external environment and the internal strengths and weaknesses of the firm.

· 2. Selection of technologies that the firm wants to develop and exploit. The firm needs to examine the potential outcomes for each technology area to determine the feasibility of success and development of competitive advantage.

· 3. Acquisition of new knowledge through the development of internal innovation or the obtaining of external technologies.

· 4. Exploitation of opportunities through the development of strong products and processes. Exploitation can also include the development of unrelated platforms in various business segments. For example, 3M is well known for its tape and Post-it Notes, but it also has strong product platforms in safety equipment, replacement joints for hips and knees and medical imaging, to name a few.

· 5. Protection is the last area to consider. Product and process ownership is an important issue. Once a firm decides to add a product or process technology to its portfolio, it must develop ways to protect the market share that is gained. Sometimes the best protection is an aggressive strategy of market penetration or platform leadership. Sometimes the decision is how to keep from being leapfrogged or beaten in the marketplace.

   Once the firm understands the portfolio issues and process, it must make decisions about internal and external knowledge development and capturing. Rather than trying to quantify risk, change, and uncertainty, portfolio management allows the organization to identify key elements and spread risk in an ordered, systematic manner.

Portfolio Balancing

As a part of the development of the portfolio strategy it is important to balance the portfolio based on the strategic goals of the firm. Lager defined four categories for portfolio consideration. 12

· 1.Optimization opportunities that use a proven technology in an existing environment. This may not be significant in the long run, but for shortterm refinement, it can extend the utility of a process or product. This is the lowest risk and lowest cost of the portfolio considerations.

· 2.Technology transfer of a proven technology in a new environment within the firm. This usually involves obtaining technology from the external environment. The risks of experiencing start-up problems are low; however, the risk of being too far behind the technology curve can be high (i.e., costs cannot be recovered before the technology becomes obsolete). Greeting cards are becoming more virtual; therefore firms like Hallmark need to find new products or ways to use their technology. Hallmark introduced musical cards and cards with small memory chips several years ago. Now, they are introducing recordable storybooks so grandparents or traveling parents can “read” to their kids. 13

· 3.Competitive and low-cost technologies developed internally. They require little new investment for the firm, but the newness to the marketplace makes them very attractive with a high potential for profitability. Viagra was an example of such a product when it was introduced as an erectile dysfunction medication. The development and testing of the product as a circulation medication had addressed the safety issues in human subjects. The change in marketing had little production cost or newness for the firm.

· 4.Radical and risky technologies that are new to the firm and to the marketplace. Usually, these are also internal innovations. Depending on the size and the needed resources, this type of innovation carries the most risk and the most potential to dominate the technological domain. The Kindle has been successful as a replacement for buying and carrying actual printed books. Because of eyestrain with computers as well as the fact that many readers like “the feel” of a book and the ability to make notes in books, many thought an “electronic book” would not be successful. The attention to detail in the screen clarity has proven otherwise. However, unlike a real book, it is hard to share with friends.

   The portfolio of the firm can be analyzed on two levels: technology and product. The technology may be new but the product may not, and vice versa. Once the firm analyzes its portfolio along one of these levels, it needs to break down each of the preceding four areas along the other level. Without conducting analysis along both dimensions, it is possible to analyze the situation inaccurately.

Key to Success in Portfolio Strategy

The key to success in a portfolio strategy is to manage the portfolio; too often, firms keep adding newness, and resources are still being occupied (wasted) on products and processes that are not competitive. The result is the firm gets into a resource scarcity mode and neglects the new development it needs to remain competitive. The underlying causes of this include: 14

· • Preoccupation with short-term financial performance

· • Reluctance to kill projects

· • Failure to focus efforts

· • Desire to get to market too fast—without proper preparation

MANAGEMENT PROCESS CHECKLIST

Figure A3.4  illustrates the process of determining the strategic approach the firm wishes to take in managing technology and innovation considerations for product platforms. The process is based on answering the two questions that we emphasized earlier:

· • Where are we now?

· • Where do we want to be? It is a continuous, ongoing process that involves:

· • Monitoring the firm's position relative to current successes and potential threats. The assessment of risk factors lets the firm know what the cost/time factors are as well as other parameters such as technology, competitive environment, and acceptability.

· • Examining risk factors relative to characteristics of technology and organizational processes. What alternatives are available, what life cycle stage is the technology/product in, and what resources are available to be allocated to the new product and process technologies?

· • Examining strategic options are the same as any evaluation process—stay the same or make a change. The options for change involve the strategies studied in Part Two and Part Three of the text: internal innovation and obtaining technology externally.

· • Determining the degree of change that is needed or desired. The position can shift to single-product/process technology, platform development, or portfolio management.

figure A3.4 Process for Determining the Level of Complexity to Pursue

SUMMARY

This appendix has discussed an important aspect of strategic management of technology and innovation: how to determine the product and market mix the firm will use in meeting its strategic goals. The internal innovation strategy requires determination of where the innovation will take place. The three most common areas are in the product, in processes, and in the market. When obtaining new technology externally, it is more likely the firm will look at related and unrelated products, related and unrelated processes, and related and unrelated markets in building a portfolio. Although both broad strategies are possible for the different levels of complexity, increasing complexity usually indicates the need for more complex activities; alliances and mergers/acquisitions are usually more complex. Too often, the firm finds itself with unplanned complexity in its technologies without the administrative systems to support it. The firm must balance complexity of technology with complexity of administrative systems.

EXERCISES

Audit Exercise

· 1. To develop a metric for analyzing the type of platform or portfolio needed, it is imperative that there be an understanding of the context of the firm. When we discussed the environment of the firm ( Chapter 2 ), we indicated there were four key areas: economic, political-legal, social-cultural, and technological. As top managers go about determining the strategic direction of the firm's technology:

· a. What key questions should they be asking in each of the four areas? Be specific and be sure the questions relate to MTI.

· b. What type of metrics would be most appropriate for answering the questions you developed?

· 2. How should the time frame to examine be determined? How does the time frame influence the questions being asked?

Process and Innovation Exercise

Toward the end of the chapter, we presented a process model (see  Figure A3.4 ). How would you relate these processes to internal innovation? To obtaining external technology?

· 1. What effect do you think each strategy will have on organization structure and processes?

· 2. How does your view of issues to be addressed in the process differ between being internally or externally focused?