Strategic Technology Management
Technological innovation is an important strategic issue today. Recently, ACG conducted extensive analyses of automotive suppliers and industrial manufacturers. The findings suggest there are considerable strategic risks associated with the management of new technologies.
Patented technologies and the ability to create value-added features using those technologies are valuable differentiators which contribute to high profit margins. However, technology that remains static can not maintain a premium position in the marketplace. As seen with anti-lock brake systems and airbags, even the most advanced technologies will eventually become commodity items.
The window of opportunity for a new technology is considered to be about 10 years, depending on the technology. Within this ten year window, there are three product phases, namely:
Phase 1 - Market Entry phase - rapid market penetration to gain economies of scale
Phase 2 - Innovation phase - technological change to drive down cost while adding features
Phase 3 - Commodity phase - process driven phase where manufacturing cost control is essential for survival
Within the market entry phase, new-technology suppliers should reinvest profits from the current technology into the next-generation technologies. In the innovation phase, suppliers should strategically reposition the current technology to focus on the emerging low-cost commodity phase. Those who fail to recognize the different phases and adjust their management approach over time will suffer the consequences. Some of the low performing automotive suppliers today were highly profitable, advanced-technology suppliers only a few years ago. Those suppliers failed to manage the transition of technology generations.
Over the last decade, some well-known suppliers sold or spun-off their automotive business units in the face of general under-performance, compared to non-automotive operations. Among them are Rockwell, Allied-Signal, ITT, United Technologies and Cooper Industries. For conglomerates, divestiture of an unprofitable business is a luxury that other suppliers do not have. These suppliers have no alternative but to improve or to die.
If the first decade of the twenty first century was the decade of turmoil in the automotive industry, the second decade will be one of survival. This is not a doomsday prophecy but simply a stricter application of the Darwinian theory. As the competition extends and intensifies globally, automotive suppliers should be more aware of the changes in the environment in which they operate; accurately assess the implications of those changes; and position themselves accordingly.