Technology change can affect industry wide entry barriers and the mobility barriers protecting individual firms’ position in a variety of ways:
- Can raise or lower economies of scale in nearly every aspect of a firms’ operation.
- Can lead to absolute cost advantages in many other way as well.
- Can alter the capital requirements for competing in a business, both directly, through requiring firms to make R&D investment.
- Can enhance or eliminate opportunities for product differentiation, through proprietary product designs, reducing the need for after sale service.
- Can affect the access too distribution through facilitating the circumvention of conventional distribution channels.
- Can raise or lower switching costs, or buyer fixed costs of changing suppliers.
Whether technological change raises barriers industry wide or raises mobility barriers, protecting the strategic position of the innovation firms depends on the defensibility of technological changes from imitation by incumbent competitors. This analysis suggests that technological change can reduce entry barriers and hence reduce the attractiveness of industry structure.
A technological change that allows customer needs to be better met, for example, may reduce opportunities for product differentiation or lower the economies of scale in the business. A technological breakthrough can provide the cost or differentiation advantage to allow the firm to fund the cost of overcoming other entry barriers.
NEW COMPETITORS
EXISTING INDUSTRY
COMPETITORS
SUPPLIERS RIVALRY AMONG CUSTOMER
EXISTING FIRMS
TECHNOLOGY
FIGURE 1: Forces Driving Industry Competition
Technology and Buyer Power
Technological change can shift the bargain relationship between an industry and its buyers. It can change product differentiation or switching costs, which are both instrumental in determining buyer power. Also affect the ease of backward integration for the buyer and impact the relationship between the industry’s product and the buyer’s business, and hence the basis of buyer choice.
Technology and Supplier Power
Technological change can also shift the bargaining relationship between an industry and its suppliers:
- Eliminate the need to purchase from a powerful supplier group or, conversely
- Allow substitute inputs to be used in the firm’s product, which creates bargaining leverage against supplier.
- Allow the break up of purchased systems into components that can be source individually
Technology and Rivalry
Technology can alter the nature and basis of rivalry among existing competitors in an industry. Can raise or lower fixed costs and hence the pressure for cutting. This affects the likelihood of repeated outbreaks of rivalry.
Technology and Substitution
Technological changes create entirely new products or product uses that substitute for others. The battle to improve relative price/performance between industries producing close substitute is at the heart of the substitution process. A technological change that is not imitable can sometimes differentiate the firm’s product or improve it cost position, whereas the same technological change would destroy industry structure if it were widely imitated.
Technology and Industry Boundaries
Technology can widen industry boundaries in a variety of ways. It can reduce the transportation or logistical costs and thereby enlarge the geographic scope of the market. It must be stressed that technological change that creates new products established new industry boundaries where there were none previously.
IS Strategy
Is strategy is considered to be a long term in orientation. It is concerned with either supporting existing business strategies or developing new strategic IT choices. IS strategy should fall within the responsibilities of senior management. These managers are unlikely and not necessarily need to much technical expertise. Earl (1989) asserts that ‘Most large organisations today are formulating IS strategies’. He cites a study where 84% of companies claim to be ‘formulating plans of a long-term character’. If this is the case in 1989 the percentage of companies with IS strategies must be into the nineties.
The key objectives of formulating an IS strategy would be to utilise the information resource and more ambitiously, spawning new business. The strength of this type of strategy rests on it being demand-orientated where the managers of divisions, business units or departments communicate their IT need to the wider organisation.
IS strategies are intended to be directional and not detailed in scope and content. Earl (1989 p.68) asserts that, ‘too much detail soon loses strategic intent and often gets bogged down in technical debate and short-term resource allocation arguments’. He is concerned to point out that a single IS strategy formulation methodology does not currently exist and attempts to impose one should be avoided. He recognises that all-embracing methodologies are unsuitable given the diversity of businesses and their associated IT requirements.
Earl cites that that there are six key problems with IS planning they are as follows:
1, There are many companies that have failed to develop adequate business plans. This serves to confuse decision makers about the nature and scope of the IS plan.
2, Many companies fail to agree on priorities. This introduces a socio-political dimension to IS planning since it implies that competing values and objectives inhibit rather than support technological change.
3, New technology simply confuses managers since they demand new performance measurement criteria. In addition new vocabularies for management philosophies such JIT do not sit comfortably with traditional IS planning terminology.
4, The rapid rate of technical change tends to overwhelm IS planners since it offers them new conceptual challenges.
5, The organisational structure which divides the business functions is particularly unsuitable for the new ‘process orientated’ environment.
6, IS strategies may help to locate where competitive advantage may be gained.
IT strategy
It strategy according to Earl (1989) is ‘How’ IS strategies are going to Implemented. IT strategy is described as activity based, supply orientated and technology focused.
The four elements of IT architecture are interdependent. This means that each element influences and is influences by other elements. It is designed to create an infrastructure that more than the sum of its parts. Earl (1989, p95) contends that
‘The technology frameworks can contain four levels of guidance. The four levels for each architecture element may be called frames’. The set of frames make up the framework. The four levels consist of the following categories:
● Parameters – which are the major design parameters of each architecture element. They represent the essential needs, constraints and preferences that over time each element should attempt to satisfy.
● Schemas – logical, and perhaps physical, models of what is required of each architectural element and how they should work. Sometimes called blueprints or models they may be the visual, logical state of the frame as it exists now or an agreed, detailed model of what is being pursued.
● Policies – concrete, practical statements of how each technological element is going to be delivered. Included should be guidelines, procedures and standards.
● Plans – the firms plans and goals for each element. These may include project plans or performance goals.
Ten key problems with the strategic planning process
1, Top management’s assumption that it can delegate the planning function to a planner.
2, Top management becomes so engrossed in current problems that it spends insufficient time on long-range planning, and the process becomes discredited among other managers and staff.
3, Failure to develop company goals suitable as a basis for formulating long-range plans.
4, Failure to assume the necessary involvement in the planning process of major line personnel.
5, Failing to use plans as standards for measuring managerial performance.
6, Failure to create a climate in the company which is congenial and not resistant to planning.
7, Assuming that corporate comprehensive planning is something separate from the entire management process.
8, Injecting so much formality into the system that it lacks flexibility, looseness, and simplicity, and restraints creativity.
9, Failure of top management to review with departmental and divisional heads the long-range plans which they have developed.
10, Top management’s consistently rejecting the formal planning mechanism by making intuitive decision which conflict with formal plans.
The interesting point relating to Steiners (1979) study on corporate planning was that human resource problems were far more important than technical impediments to the process. Many of the failing to planning are attributable to top management failure, either through lack of support or through inability to create the right organisational environment for corporate planning to succeed.
Strategy formation is complex and highly uncertain activity. This is very well illustrated my mitzberg, who claims that
‘…..strategy making is an immensely complex process involving the most sophisticated, subtle, and at time subconscious of human cognitive and social processes. We know that it must draw on all kind of informational inputs, many of them nonquantifiable and accessible only to strategists who are connected to the details rather than detached from them. We know that the dynamics of the context have repeatedly defied any efforts to force the process into predetermined schedule or onto a predetermined track. Strategies inevitably exhibit some emergent qualities, and even when largely deliberate, often appear less formally planned than informally visionary. And learning, in the form of fits and starts as well as discoveries based on serendipitous events and the recognition of unexpected patterns, inevitably plays a key role, if not the key role, in the development of all strategies that are novel. Accordingly, we know that the process requires insight, creativity, and synthesis, the very things that formalisation discourages.’
Conclusion
The task of researching into IT strategy has been complex and challenging. Whilst formal-rational frameworks are useful for simplifying phenomena, operationalising them is filled with difficulties. Whilst the formal-rational approach to strategic formation has come under severe attack, it is undoubtedly attractive to practitioner as it enables then to organise and prioritise strategic aims and objectives. More research id clearly needed to discern the success rates of strategic planning, but differentiating between serendipity and the best practice is not easy.
