Wednesday, March 18, 2015

Technology Forecasting & Strategic Technology Planning

For this post, I am going to build on our recent series of articles on technology forecasting and technology scouting elsewhere on this blog (see here, here, and here) and speak about how to incorporate the results of your technology forecasting and scouting efforts in the organization’s strategic technology planning efforts.

Recognizing that technological change is a principal driver of competition, an important concern of corporate CEOs and Chief Technology Officers (CTO) is managing the firm's technology development or acquisition effort to support overall company objec­tives.  Given the accelerating pace of technological progress, managing this effort is becoming increasingly difficult but also increas­ingly important. Not too long ago, much of this discussion centered on the question of whether a firm's technology strategy should be predominantly market-pull or technology push.  But, it is more than that.  It is as basic as deciding what business(es) the firm is in now and determining those in which it should participate in the future. 

The most radical such decision I know of occurred several years ago when Boulder, Colorado based Cell Technolo­gy exited the biotech field and reinvented itself as an air ambulance company.  A more interesting example today might be Big Oil.  Are they oil companies?  Energy companies?  Or, recognizing that over 70% of petroleum is destined for use as fuel – and over 90% of transportation fuel is derived from petroleum – are they really transportation companies?  How you see yourself now and in the future impacts the current and future technology portfolio and the skill set that your business must have.  If I were an oil company and concerned about my long term business, it isn’t just oil markets that I would be concerned with.  Nor would staking out a position in electric vehicles or electrical power generation necessarily be where I would focus. 

But, before we get there let’s start with the basics.  Webster's New Collegiate Dictionary defines technology as "the totality of the means employed to provide objects necessary for human sustenance and comfort."  Fair enough, but in this context, we must define "objects" to include both services and goods. Going further, Martino notes that technology may also include "know-how" and software [1]. I like that better, but would extend it even further to include systemic technologies such as management processes and systems. Thus, when referring to a given technology we really mean an entire family of technical approaches that have some major characteris­tic in common or that perform the same function.  For example, internal combustion engine vehicles represent a class of transportation technologies as distinguished from electric vehicles or fuel cell vehicles. Each can be further aggregated or disaggregated according to our needs. 

Essential to making strategic decisions concerning technolo­gy is an understanding of the dynamics of techno­logical change.  Histori­cal data from many fields demon­strate that progress is not random and discontinu­ous, but follows a fairly regular pattern when some performance attribute is tracked over time.  Just as products and processes follow a life cycle, so do technologies.  The resulting Technology S-curve (figure 1) is similar in form to product or process life cycle curves and is at the heart of our earlier discussions on technology trend analysis mentioned earlier.  As we noted then, utilizing various fore­casting tech­niques, a firm can do more than simply monitor tech­nology – it can estimate where the Technology S-curve will lead it and what the likely impact will be on its future lines of business. 



Figure 1 - Technology s-curve.


As shown in figure 1, technology begins with an invention or discovery and initially grows rather slowly as shown by the flat initial portion of the S-curve.  As the diffusion of technology proceeds and the potential for its use becomes known, continued work leads to increasing levels of performance, shown by the steep part of the curve.  Beyond the inflection point, increases in the technology's performance come harder.  Of particular importance is the recog­nition that no technology can be advanced without limit.  There has always been found to be some natural upper limit beyond which a technology cannot progress – though we may not necessarily know what that is at first.  Increases in performance beyond this point require shifting to a new S-curve associated with a new technology or a breakthrough associated with the old one.  More on that in a moment.

Eschenbach and Geistauts defined strategy as a "... fundamen­tal approach for gaining long-term advantage over both competitors and [the] environment ..."  They note that "strategy explicitly considers and tries to control the impact of uncertainty."[3] In this context, technology can be viewed as either an opportunity or a threat. The aggressive, technology‑oriented firm they conclude will wield its technology as a competitive weapon to offer unique or superior products or services, significantly lower production costs, or make substantive improvements in manage­ment processes.

A firm's technological skills, although difficult to invento­ry, are some of its most important assets, even though they don't appear on the bean counter’s balance sheet. Given that technology is a corporate resource, the idea of a technological audit has been proposed to assess a firm's ability to compete on the strength of its techno­logical assets [2].  To aid in this endeavor, table 1 shows the various stages in a tech­nology's life cycle and the importance of each stage to a firm's competitive advantage.

Table 1 - Technology life cycle and competitive advantage [2].
Technology Life Cycle Stage
Importance to Competitive Advantage
I Emerging Technologies
Have not yet demonstrated potential for changing the basis of competition.
II Pacing Technologies
Have demonstrated their potential for changing the basis of competition.
III Key Technologies
Are embedded in and enable product/ process.  Have a major impact on value added stream (cost, performance, quality). Allow proprietary/patented positions.
IV Base Technologies
Minor impact on value added stream.  Common to all competitors – commodity.


By determining the level of the technologies that it relies upon, and doing the same for its competition, a firm can assess its competitive standing vis-a-vis its competitors.  Such is the foundation of science & technology intelligence.  A firm that wishes to adopt an offensive technological strategy should have strong positions in pacing and key technologies while being at the forefront of emerging technologies.  One that finds itself dependent primarily on base technologies is by default going to be a follower in the market place.

A critical determinant in establishing technology strategy is to select the right technology and the right time to pursue it [4].  Returning to figure 1, since the slope of the S‑curve represents technological progress per given level of input, it can also be considered to be a measure of R&D productivity.  Richard Foster, formerly of McKinsey, notes that "you cannot improve the performance of one laboratory over another by a factor of twenty through better organization and project management.  You can only do it by picking the right technologies."[4]

The position of a technology on the S-curve determines the potential that remains to be developed in that technology.  If performance improvement, which may be considered a measure of R&D productivity, has been stag­nating after having reached a previous high, the only way to improve it is to get onto a new S-curve where the rate of produc­tivity growth (i.e. performance improvement) will be higher (see figure 2).  Faced with the technological discontinuity shown here, management must then decide whether to exploit the potential remaining in the present technology or shift to a new technology and, if so, when to make that move [4].


Figure 2 - Transitioning from an old technology (declining growth rate) to a new technology (increasing growth rate).


In deciding which technology to exploit, firms must exercise some foresight as it will take some time after shifting to the new technology to travel down a new learning curve to the point where the new technology becomes profitable.  Considering development lead times, this often means thinking about switching to a new technology just as the current technology is maturing and business is going well.  Foster notes that:

         "The time to begin exploring technological alternatives is when roughly half of the full potential of the present technology has yet to be exploited. Yet this is pre­cisely the time when it is most difficult to get manage­ment to think about new technologies. ....conventional management systems, with their emphasis on short term measurements and rewards, work against the correct diagnosis of the technologi­cal situation."[4]

Here is where some capability at opposite ends of the same coin can be important.  Forecasting both technological trends and market trends is a skill that is – or should be – instrumental to strategic technology planning.  How well do you do this?  In spite of our best efforts, no firm can be right 100% of the time.  This is where flexibility and the ability to respond rapidly to a changing environment can help create and sustain a competitive advantage, especial­ly for the entrepre­neurial firm that must compete against better endowed competi­tors.

Finally, a well thought out strategic technology planning effort will include both near and far term components.  Strategic plans, although forward looking, must be grounded in the present.  In this regard, a quote from Peter Drucker concerning long range planning seems especial­ly apropos to strategic technolo­gy planning:
         "Decisions exist only in the present.  The question that faces the long-range [technology] planner is not what we should do tomorrow, it is: What do we have to do today to be ready for an uncertain tomorrow?"


References

1. Martino, J.P., 1983, Technological Forecasting for Decision Making, 2nd ed.; Elsevier, 1983, 385p.
2. Burgelman, R.A., and Maidique, M.A., 1988, Strategic Management of Technology and Innovation; Irwin, 1988, 604p.
3. Eschenbach, T.G., and Geistauts, G.A., 1987, Role of technology in strategic management: Engineering Mgmt Int'l, v.4, p.307-318.
4. Wolff, M.F., 1981, Picking the right technology should be first priority: Research Mg­mt., July 1981, p.7-8.



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**** Dear Readers, I hope you enjoyed reading this article. On April 23-24, 2015, I will be teaching a workshop on Technological Forecasting for Science & Technology Intelligence in Golden, Colorado.  We’ll discuss both trend analysis and the proper application of expert opinion in formulating strategic technology plans.  We would love it if you would join us for this unique and valuable course.  Details and registration can be found on the TEMI website here – RM

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