Keywords: technological discontinuity example
Jump to: Definition of Technological Discontinuity | Motivations for Corporate Alliance | Lifecycle and Alliance Motivations | Discussion | Conclusion
When a major move in technology occurs, it poses a significant challenge for the firms working in the affected industry. The technology which forms the foundation of these products and marketplaces may have been influenced and the competition begins to find a way to adapt to the new technology. In other to maintain competitive standing up, the organization must discover a way to exploit the new technology's competencies (Christensen, Suarez, & Utterback, 1998; Tushman & Anderson 1986; Henderson & Clark, 1990). Because of technological discontinuity, matured organizations have three options to explore in order to acquire the new technology: merger or acquisition, develop the technology or an alliance. Utterback (1975) in his technology life cycle model said that we now have three phases in technology life circuit and that for each phase there can be an appropriate way of aligning with a partner. (He later added a fourth phase). However because of the time and market stresses as well as Moore's rules on technology changing every 18 months, alliances appears to be the more attractive option. Rothaermel (2002) contends that alliances between mature businesses and new entrants have been recommended as techniques mature firms may use to adjust to radical scientific change. Specifically, the newspaper is thinking about seeking to explore why scientific discontinuity motivates businesses to enter alliance.
1. Introduction
Technological discontinuities often create remarkable difficulties for incumbent companies. The most recent exemplory case of a scientific discontinuity is seen in the training video rentals industry, the change in content delivery methods has led to the individual bankruptcy of Blockbuster and ascendancy of companies like Netflix. A couple of many other types of such discontinuities: The use of the internet in publication retailing is resulting in Amazon eclipsing the likes of Barnes and Nobles and Edges, the music industry is also looking for a way to benefit from new technologies that happen to be obsoleting its more aged business models. The fact is that discontinuous inventions often initiate a process of creative devastation that frequently contributes to the replacement of the technology of mature firms and sometimes lead to the new entrants' ascendancy. Nonetheless, some empirical research suggests that adult firms might be able to effectively commercialize a discontinuous technology if such companies have the required financial and managerial resources and capabilities to master such an adaptation. Abernathy & Clark (1985) in their review of U. S. auto industry confirmed that mature firms have the ability to gain even from radical technological change that disrupts the businesses existing technical competence, provided that the technical change concurrently entrenches the incumbent's existing market customer linkages.
Christensen (1997) also found empirical data for his claim that organizations will generally flourish in adapting even to discontinuous scientific change so long as the new technology is critical to the their existing value network. Further, Rothaermel (2002) travelled further by expressing that organizations that possess complementary assets essential to benefit from a fresh technology might be able to leverage their complementary possessions via alliances and assistance with new entrants and complete a successful move to the new technology. Organizational alliances have been advised as one way for mature organizations to adjust to radical technical change (Rothaermel 2002). In this particular newspaper, the question then is: What is the drive behind the alliance?
Accelerating technological discontinuity as well as decreasing technology cycles inevitably intensifies competition (Quinn, 1992). The amount of doubt is contingent on the kind of technological discontinuity in which competence-destroying advancement will exercise the best level of doubt (Tushman & Rosenkopi 1992). On top of that, the sort of discontinuity organizations face also impacts the requirements for alliance partner selections. If exterior scientific discontinuity is a competence-destroying one, the worthiness of professional complementary assets owned by dominant industry players could be demolished (Tripsas, 1997, Rothaermel, 2002; Shan & Hamilton, 1991), making them an unfavorable choice.
2. Technological Discontinuity Definition
Schumpeter (1942) discovered discontinuous technical change and related improvements as the resources of the 'creative destruction' in industries. A technological discontinuity might be defined as a "breakthrough inventions that advances by an order of magnitude the technological state-of-art, which characterize a business. Technological discontinuities derive from new systems whose technical limits are inherently greater than those of the prior dominating technology along economically relevant sizes of merit (Anderson & Tushman 1997). Anderson & Tushman (1991) said that organizations are now managed through a period of discontinuity because of ground-breaking technological changes leading to what they called "creative devastation": where existing methods are altered in favor of new and better methods. Each technical discontinuity results in a technological cycle. Some discontinuous improvements are competence destroying, while others are competence boosting. Competence boosting is whenever a breakthrough pushes frontward a new express because they build on a preexisting knowledge, while competence destroying totally obsoletes the old technology and knowledge and replaces them with new products and results in new learning curve.
Usually competency-destroying discontinuities require new skills, capabilities, and knowledge in either process or product design. New skills are necessary for the new technology and this can cause electric power and structure shifts in organizations. Competence-enhancing discontinuities are enhancements that improve the current technology and structure of the organization. These discontinuities have a tendency to consolidate industry leadership. Competency-enhancing changes may cause lower entry-to-exit proportion as smaller businesses are squeezed out. Competence-destroying changes will increase entry-to-exit ratios as new organizations capitalize on changes set up businesses can't quickly adjust to.
3. Technological Discontinuity and Motivations for Corporate Alliances
Strategic global alliances within the last twenty years have increased by over 20 percent per 12 months, and are currently estimated to take into account just as much as 25 percent of the full total profits of participating companies (Anderson et al. , 2006). This growing commercial partnering is therefore of the knowledge-based character of global competition (Narula, 2004). Freeman (1991) said there is a positive correlation between your technological sophistication associated with an commercial sector and the amount of collaborative partnerships carried out by site companies.
Since technical discontinuity dramatically changes the industry where it occurs, its effect on mature organizations is serious. Technological discontinuity sometimes deliver better product performance, attract a host of new opponents and also requires technology that is not part of an established firm's key competence. It then becomes incumbent on old and matured businesses to find ways to include this skill to their key competence (Hamel & Prahalad, 1994; Utterback, 1994).
Cellular technology can be an example of a technical discontinuity that is posing a threat to the traditional land series. On-line orders are another example rendering most brick and mortal institutions less important than they were a year or two ago. Many of these deals including on-line banking can be done through cellular phone. Some adult organizations have embraced this discontinuity by encouraging customers to look on-line in addition to getting into the stores. They may have found that it will save you them money because they want less people and less space to use. This scientific development has put the consumer business from brick and mortar perspective "shared. " As a result, most retail organizations are expanding on-line competencies to provide on-line software that will assist them reap the benefits of this new technology (Lambe & Spekman, 1997).
In a broad sense, such critical technology can be acquired in three ways: merger/acquisition, internal development, or alliance. When a technical discontinuity occurs, alliances are more and more being chosen to source such technology because of urgency and industry doubt (Rothaermel, 2002). Product life-cycles are getting shorter and increasing customer needs are exerting pressure on firms to be as current as it can be and this is starting to become a more critical determinant of the firm's success or failing. Organizations that can quickly expose their products to the market and set up a substantial business lead in market share may use this share to gain both relative and enduring cost advantages through economies of level. More importantly, these firms can use their market share lead to determine their product as the industry dominating product, permitting them to develop a differentiation advantage, catch customers, and greatly restrict competition (Hamel & Prahalad, 1994). Although businesses change in their ability to develop and sustain such advantages, and although such advantages can be tenuous early on in a scientific discontinuity life-cycle, one cannot refuse the tremendous opportunity presented with a technical discontinuity.
Nokia, the Finnish telephone giant and its own GSM technology is an example of a firm that took extensive advantage of a scientific discontinuity. The GSM was discontinuous to the gear suppliers compared to previous cellular phone standards, thereby disrupting the industry. Prior to the development of GSM, Nokia was known and Nokia Information Systems was doing business with the old cellular technology. The first analogous mobile systems were based on national benchmarks such as NMT in Scandinavia, TACS in the united kingdom, AMPS in america, Netz-C in Germany and RTS in Italy. Pan-European flexibility goal motivated the introduction of the normal digital cellular standard, later called as the GSM system. The first initiatives towards expanding competencies for the GSM were taken by Mobira in 1982, as the GSM standard requirements became available. Hence, the radiotelephone pioneer Mobira began to probe various choices and an alliance which led to small size to collaborative R&D task with Nokia Information System were only available in 1985. This important role of Mobira related to the strong market position which it had obtained, first in the Nordic radiotelephone market, and consequently searching for mobile terminals and base channels for the NMT. In 1988, Nokia CELL PHONES was founded, based on Nokia-Mobira. Similar alliance has occurred between Microsoft and Intel. Early in the development of the Laptop or computer market, both businesses were able to gain a prominent market talk about and create themselves as the defacto industry standard. Today, both still control about 80% of the marketplace in addition to setting the industry standard. Apple with its Macintosh PC comes in a faraway second.
The dependence on rapid intro of new product to the marketplace often tips out interior development thereby making attractive external technology acquisition through such methods such as an alliance. Alliances allow organizations that lack new product development technology to leverage associates' existing technical capabilities to speed new product development (Roberts, 1987). Sunshine and Google got into into an alliance to market and deliver each other's technology, under the arrangement Sun can make the Yahoo Toolbar--Google's browser-based search software--available as a choice for consumers who download its Java Runtime Environment. This will significantly expand the quantity of folks using Google's search software. Sun has Java Runtime Environment which most programmers and servers use, Google gets an avenue to disperse its web browser and other products and go face to face with Microsoft's Web browser. This is a competence Google doesn't have and gets based on the alliance with Sun. Sunlight on the other palm get to sell its various machines to Google who is expanding its services and will need more machines. Google also focused on explore opportunities to promote and enhance Sunshine solutions, like the Java Runtime Environment and the OpenOffice. org output suite. The open up office productivity collection is intended to look head to head with Microsoft Office.
The dependence on fast development of new product is not the only reason alliances are chosen over internal development or merger/acquisitions. The second technological discontinuity related variable is the doubt on the market which also help clarifies the decision of alliance against other choices available. Acquiring technology through merger/acquisition may become more expensive than through an alliance because with merger/acquisition the acquiring company pays for the entire acquired company, both what's needed and what is not needed irrespective of the fact that the organization has more control over the property of the purchased company. An alliance, on the other side, allows a firm to avoid acquiring what's not needed (Hamel & Prahalad 1994). Minimal alliance cost becomes more helpful if the firm needs technology or other products from various sources.
Rather than buying or merging with all the several firms have the technologies needed to Organizations like Renault and Nissan are using alliances to gain specific critical technologies. In 2003 Renault a French car maker made an alliance Nissan a Japanese car maker. Carlos Gosen the CEO of both companies said that there surely is extensive synergies between the Renault and Nissan and feels that he the transfer of knowledge between the engineering teams would only take place within a platform of equality. The benefits of the alliance include many joint projects including the gasoline container, the steering-wheel stabilization system. Since Renault and Nissan have effectively become companions in a fresh equity joint venture by merging their knowledge, they have got reinforced their positions as leading automakers.
Segrestin (2003) said that the introduction of a joint system is a way of establishing common organizational regimens and synchronization mechanisms that produce possible the effective transfer of knowledge. Both companies have borne the price of technology gained through alliance together. A merger would have come with problems of merging both companies and which product or technology to keep or discards, and the industry doubt may not spend the money for merger firm plenty of time to work through all these issues. While some firms are willing to pay for the excess control provided by the merger/acquisition over an alliance, the status of the industry sometimes makes an alliance more appealing. Industry doubt drives firms to make use of alliances to obtain technology when confronted with technological discontinuity, since it can elevate the actual costs of the merger/acquisition to the unacceptable level. For instance, the merger of American Online and Time Warner in 2000 was dissolved 2009 with the spinoff of AOL.
4. Technological Discontinuity Life Cycle and Alliance Motivations
Technological discontinuities may initially necessitate an alliance, however many other conditions may change. In particular, fluctuations in the degrees of technology acquisition urgency and industry uncertainty throughout the scientific discontinuity life-cycle impact the attractiveness of your alliance for sourcing needed technology. Understanding the role of scientific discontinuities in alliances begins with understanding cycle's four stages: the fluid stage, the transitional phase, mature stage and discontinuous phase. Utterback (1970) determined the first three stages, but later added the discontinuous period.
4. 1. Motivations through the Fluid Phase
In this stage, the initial pioneering products go into the market for your technology amid a high level of market and product uncertainty with the technology in circumstances of flux, organizations will refuse to place a guess on what they are not sure of (Utterback & Tushman). This stage is seen as a high market demand. Accessibility barriers are low, companies with proprietary technology can go into with little ease. Competition between companies is low. To allow products achieving customers quickly businesses in this liquid phase may form alliances with the other person in areas of sales, marketing etc. Sometimes, alliances are also formed to establish criteria. In 1999, some computer companies made an alliance called Trusted Computing Platform Alliance (TCPA) to determine security solutions benchmarks. Sometimes older organizations disregard the possibilities presented by the scientific discontinuity. Such organizations could see the new technology as an overhyped technology and therefore fail to recognize the effect. Furthermore, there may be very little consumer knowledge of, or demand for, new products.
This not only suggests to organizations that there is little revenue probable, but it also mean that it might be expensive to develop such market. As a result, relatively few organizations spend money on and test out new products predicated on the new technology caused through scientific discontinuity. For example, When Amazon started selling books online Barnes and Nobles and other brick and mortar booksellers discounted the new technology model and today Barnes and Nobles may be on the brink of bankruptcy. Barnes and Nobles, Edges and other bookseller also believe not many catalogs would want to buy catalogs online. How can you buy what you have never seen?
The bank industry is also another example. Although on-line technology has been around for quite a while, until lately on-line product advancement in the bank industry has been poor in coming. One cause has been the issue in adapting banking to on-line technology. Banking institutions have to build up user software program, terminal equipment, and complex communications facilities to mesh the technology into a product that consumers could easily use and also have the ability to have sufficient security built into the applications to safeguard users and bank's advantage. Banking institutions probably also thought that consumers will need personal contact with a human being banker, because of the relative intricacy and risk associated with financial loans. This can be true of banking products like home loan however, not for debris and withdrawals. Lambe & Spekman (1997) quoted a standard bank official as saying that it will not be in his lifetime that individuals have a personal relationship using their computer and feel safe doing banking on the Internet.
VMware is a technology companies that handles virtualization software. Virtualization is a catalyst for allowing the change to secure cloud processing.
VMware groups with industry-leading software companies to jointly develop solution stacks that provide value and cost benefits to customers. By working mutually, customers experience more rapid deployment of their applications, scalability, high availability and security. The lovers in alliance include AMD, BMC, CA, Cisco, Dell, EMC, Fujitsu, Hitachi, Horsepower, IBM, Intel, NEC, Novell, redhat, SAP, Stratus, Symantec, Pattern Micro, and Unisys. Virtualization is a new technology that is probable heading to cause some discontinuity in the industry especially for PC's and Sever Storage manufacturers.
Lambe & Spekman (1997) said that more alliances are consummated when urgency and uncertainty are high. Alliances are steady when uncertainty is high and urgency is low the computer/server storage space industry, hence the lot of users of the alliance.
4. 2. Motivations through the Transition Stage
The transition stage of the life cycle begins with the introduction of a dominating design. As product and market doubt lessens efforts is manufactured on enhancing the dominant technology. During this stage the manifestation of the dominant product design noticeably reduces the urgency of technology acquisition and industry uncertainty, also lessens. In this phase industry demand grows quickly with customers demanding quality product and well-timed delivery. Entry barrier becomes lower with availability of prominent design. Companies realign themselves to the new standard and go after aggressive expansion strategy (R. M Henderson). In this period companies form alliances to enhance the prominent design and develop new technological extension.
Organizations begin to reduce the volume of product tests and start to rationalize the production process as a dominating product design emerges. Process issues such as bare minimum efficient scale gain importance, and frequently a shakeout on the market occurs. This design of major process creativity, coupled with incremental product creativity, ends when few major process improvements remain (Abernathy & Utterback, 1978; Moore & Pessemier, 19933).
Once the road of scientific discontinuity becomes clearer, organizations appear more likely to consider significant investments in internal development or outright acquisitions of other businesses, including their present alliance partner, to get technology. Under any of these two options the benefit of vertical integration of technology includes the overall economy of integration and the cost reductions made possible by superior coordination and control of activities. Owners share their alliances' outputs until a prominent product design becomes relatively visible. These businesses then began to construct their own vertically included facilities and/or turn off their alliances (Harrigan 1986). The "Blu-ray Disk group" made up Apple Inc. , Dell Inc. , Hewlett-Packard, Hitachi, Ltd. , Intel Corporation, LG Consumer electronics, Mitsubishi Electric, Panasonic Corporation, Pioneer Company, Royal Philips Consumer electronics, Samsung Electronics, Clear Corporation, Sony Organization, Sunshine Microsystems, TDK Organization, Technicolor SA, 20th Century Fox, Walt Disney Motion Pictures Group, Warner Bros. Entertainment, was were only available in 2004 and disbanded this year 2010 after blu-ray was implemented as the dominant design for Disc.
4. 3. Motivations during the Mature Phase
In this period products built throughout the dominant design begin to dominate the marketplace. The target of further research shifts from product to process development. However as a result of high cost of process invention organizations tends to enter into alliance to share cost and risk. The high cost and risk associated with inside research make technology acquisition more appealing than alliance. Another reason an acquisition is more attractive than alliance is that the associates' maybe competitors and has identical usage of the technology. Symantec formed in 1984 has made 69 acquisitions between 1984 and 2010 at the price tag on $20 billion. These acquisitions freed Symantec to focus its internal work at expanding its center competence which is internet and computer security.
Incremental product and process advancement persists until another technical discontinuity occurs. Because both urgency of technology acquisition and industry uncertainty are in their lowest points, you might expect that technological discontinuity motivated alliances to acquire to be at their minimum. Alliances found during this stage may actually occur for reasons linked to non-technical advantages, such as market gain access to or economies of range. During this stage of technology's life routine the growth of market demand slows but overall size expands. Competition may lead to price wars and reductions in revenue. Because of scientific and capital requirements, the entry hurdle is high. Company wide advancements in efficiency and success are necessary for survival. A method to lessen cost is developing alliances perhaps with a dealer or even a competitor. There are several such alliances in the Air travel industry, the three most significant passenger alliances will be the Star Alliance, SkyTeam and Oneworld. Air cargo industry also offers its own alliances such as WOW Alliance, SkyTeam Cargo and ANA/UPS Alliance. These alliances give a network of connectivity and convenience for international people and international packages. The alliances provide convenient marketing branding to aid travelers making inter-airline codeshare links within countries.
Also during this level some companies actually divest their non -core business. In 2000, UPS divested the noncore the passenger charter business.
4. 4. Motivations during the Discontinuous Phase
The existing and current technology can be rendered obsolete by the new technology. In this phase the marketplace is volatile. This contributes to a fresh market sucking away demand from the old market. The probability of new entrants is high. The technology converts gradually back again to the fluid stage of a new technology, and the technical process evolution starts off yet again. Since technological discontinuities can be competence-destroying, and so provide an organization's competitive edge irrelevant, organizations must modify to this new threat (Tushman & Anderson, 1986). The reaction usually changes organizational strategy and fiscally reasonable matured companies will just go out and purchase the new companies with this new technology. Novartis a Swiss company has purchased many smaller and nimble biotech companies in other to expand its business since its development in 1996.
5. Discussion
Sometimes your choice to enter an alliance does not wholly belong to the organization, the development available on the market; the organizations position relative to the competition play some part in this decision. The structure of the industry and market interplay change as the underlying technology evolves over its life routine. Companies have the tendency to form alliances as the technology become more stable so that competitive pressure boosts. The amount of alliances goes down in the discontinuities phase because consolidation diminishes the total quantity of companies within the industry.
During the changeover stage merger and acquisition is usually high because mature companies acquire startup to improve their technology, so when dominating design emerges older companies intensify acquisition so they can stay forward.
When a technical discontinuity occurs, industry conditions are conducive to the use of alliances to acquire critical technology needed for new product development. As a product evolves toward a prominent product design, motivations for an alliance as a system to gain technology will weaken due to reduced conditions of urgency and uncertainty within the industry. Together with the emergence of any dominant design, initial alliance motivations will become irrelevant, making alliances less attractive for critical technology acquisition than mergers/acquisitions or in-house development. There are essential implications for managers and practitioners who may decide to enhance the effectiveness of alliances to source needed technology during amount of technological discontinuity: The organization should have a strategy that encompasses an infrastructure that facilitates the introduction of an alliance competence, prospective alliance applicant should be properly scanned for the needed technology, technology received through alliances should be outside of the existing competence of the business, and professionals should anticipate and plan for uncertain effects of the technology.
Organization should have a corporate technology insurance policy that both encourages and supports managers to utilize alliances to attain proper goals. In other to produce a highly effective alliance infrastructure, there has to be commitment from the organization's top management to build up such infrastructure. The top management's commitment to alliances can help in the development of a culture that embraces collaboration and alliance key competence. Without such a committed action a corporate-wide alliance infrastructure is extremely hard. Organizations also needs to have the inherent skills and resources necessary to absorb the attained technology. Absorptive capacity appears to be positively related to how big is the firm, its marketing skill, and its own production skills (Atuahene-Gima, 1993). These acquiring organizations should have the competence to leverage the received technology efficiently.
Perhaps an important building block of the alliance infrastructure is a firm's experience with technology acquisition alliances. Due to the complexity involved with creating alliances and the higher rate of alliance inability, firms must have considerable alliance experience before attempting highly important and complex technology partnerships. Ideally, companies that lack alliance experience should experiment and improve their alliance competencies with less complicated and less important technology acquisition alliances before trying more complex and critical ones. You can envision a series of escalating alliance encounters when a firm hones its alliance management skills. Each experience plays a part in the skills/competencies required for greater more significant alliances.
6. Conclusions and Areas for Future Research
Rapid know-how has often made alliances a prerequisite for business success, but sometimes many of these alliances fail to meet objectives. An enhanced understanding of the result of the scientific discontinuity and scientific lifecycle on alliances would be of assistance to professionals and other experts as they attempt to structure and control such alliances. The paper has attemptedto shed some light on this concern by demonstrating how the progression of the discontinuity and technological lifecycle impacts the motivations for alliances.
Future scholars may want to take this issue a lttle bit further by doing some empirical research of the effects of scientific discontinuity and technological lifecycle on company motivations to work with alliances for technology acquisition. Also, it might be interesting to see if in the process of creating alliances companies acquire capabilities which exist outside established center competencies. In a world of speedily changing technology and shortened product life-cycles, sustainable competitive advantage is becoming less of a destination plus more of a quest. Gains tend to be short-lived and imitable. As firms respond to this obstacle, alliances are ever more being used to acquire resources and pursue opportunities that lead to new sources of competitive advantage. Given this, how much does indeed an alliance competence lend to a firm's potential to develop lasting competitive advantage? It really is hoped that this article has attemptedto answer this question and presents ideas that others are asked to improve and stretch.
