The dynamics of technology strategy: an ... - Wiley Online Library

The dynamics of technology strategy: an exploratory study Sally Davenport1, Colin Campbell-Hunt2 and Julia Solomon1 1

Victoria Management School, Victoria University of Wellington, PO Box 600, Wellington, New Zealand. [email protected] 2 School of Business, University of Otago, PO Box 56, Dunedin, New Zealand. [email protected]

A study of the evolution of competitive capabilities in exemplar New Zealand firms identified that technology strategy played the key role in motivating the firms’ transition to positions of global prominence. Adequate description of these transitions required a view of technology strategy that is more dynamic than those typically available. We use complexity theory to identify, first, a number of positive feedback loops that have driven the technological progression of these firms, second to identify the complex webs of strategic development within which technology has progressed, and finally to explain why these trajectories carry firms to positions of distinctive advantage. These loops come together to impel firms through a radical transition from broad technology dabblers to focussed technology specialists. We view the study as exploratory to a class of studies aimed at understanding the evolution of technology strategy over time.

1. Introduction

K

nowledge was key, passion wasn’t enough (Marketing Manager, Bprod) [We] were the best in the world but didn’t know it (CEO, Etech) Only geniuses can develop things by themselves (CEO, Bprod)

A large-scale, long-term study1 of the evolution of competitive capabilities in exemplar New Zealand firms has established a prime role for firms’ product innovation and technology strategy in motivating and permitting the rapid internationalisation of these firms to positions of leadership in significant global markets (Chetty and Campbell-Hunt, 2003). To better understand the contribution of

technology strategy to these transformations, the present study examines in detail the origins of these firms’ technological capabilities, and the dynamic processes that have fostered their development. To try to understand the resources and capabilities behind these exemplary technological companies we began by developing a framework of what currently appears to be the consensus of the make-up of a technology strategy, so that we could recognize whether a well developed technology strategy, or components of one, was key to such success. We begin this paper with a brief description of that framework which we believe to be fairly representative of discussions in the literature of technology strategy that show it to be quite a complex entity. However, using this technology strategy framework as a basis for analysis of the histories of

R&D Management 33, 5, 2003. r Blackwell Publishing Ltd. 2003, Published by Blackwell Publishing Ltd. 2003, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.

481

Sally Davenport, Colin Campbell-Hunt and Julia Solomon these firms did not satisfy the researchers that we were capturing the intricacies of the technological and organisational evolutionary processes that had emerged in these firms over time. It was generally considered too static and compartmentalised. Thus we turned to a different theoretical base in an attempt to provide a better explanatory framework for what we were observing. This new framework evolved out of the basic tenets of complexity theory, so this paper proceeds to describe our interpretation of complexity theory as it might apply to these firms. We then outline our resulting framework, which is primarily based upon feedback loops and linkages, and illustrate how we have used this as an explanatory tool for our observations of the evolution of what could be described as an evolving dynamic technology strategy, with critical path dependencies. Like others (Chiesa and Manzini, 1998), we therefore see our study as an early attempt to extend the domain of technology strategy, from the static description of strategy at a point in time, to the dynamic study of the co-evolution of technology strategy within the firm’s overall competitive development.

2. The fundamentals of technology strategy The concept of technology strategy has been a part of the technology management literature since the late 1970s (Adler, 1989), but did not become a distinctive and pervasive area of managerial and academic interest until the 1980s (Dodgson, 1991; Drejer, 1996; Friar and Horwitch, 1985; Jones and Smith, 1997; Kantrow, 1980; Pavitt, 1990). There is still much debate about how to define the concept of technology strategy (Reick and Dickson, 1993; Clarke et al., 1995). Existing definitions range from quite specifically focusing on technology development to very broad knowledge-based definitions. Some earlier definitions were quite specific about framing the content of technology strategy as a set of choices that needed to be made about technology development, that is, broad versus specialized, product versus process and whether to be a market leader or follower (Pavitt, 1990, Jones et al., 1994). Mirroring the move in organisational studies to conceptualising the firm as a knowledge system and the resource-based view of the firm, knowledge-based definitions of technology strategy 482

R&D Management 33, 5, 2003

evolved, which also emphasized the external aspects of technology strategy: A good starting point to understanding technology strategy is to affirm that the core of the company is what it knows and what it can do, rather than the products that it has or the market it serves. Technology Strategy centres on this knowledge and these abilities. It consists of policies, plans and procedures for acquiring knowledge and ability, managing that knowledge and ability and exploiting them for profit. (Ford, 1988) However, there appears to be some confusion in the literature between technology strategy and knowledge strategy. In fact in some discussions there is little to distinguish between the two and they are almost used interchangeably. For example, there is little difference between Ford’s definition above and that given by Zack (1999) that a knowledge strategy ‘describes the overall approach an organisation intends to take to align its knowledge resources and capabilities to the intellectual requirements of its strategy’. Whilst Clarke, for example, argues that ‘knowledge strategy is a natural extension of technology strategy and requires similar approaches in its formation’ (Clarke, 1998), we prefer to think of technological knowledge as a subset of a firm’s organizational knowledge, as many non-technological processes and routines would not be a part of a technology strategy. Conversely there are many physical aspects of a firm’s technology, such as standard manufacturing equipment, that would not necessarily be regarded as part of the organization’s competitive knowledge-base, as such, given that such technology is generically available. To describe the contribution of technology strategy to the evolution of these firms adequately, we found it necessary to be more specific about the technological underpinnings of the knowledge and resources that technology strategy should focus upon, as well as the fact that technology strategy is not the same as competitive strategy (although the two may be very close in high technology organizations). In particular, we wished to retain March’s distinction between exploration and exploitation of learning (March, 1991). Further we found that we needed to understand how the firm’s management processes shaped the role that technology has played in the firms’ development. We accordingly adapted Ford’s (1988) definition: r Blackwell Publishing Ltd. 2003

Dynamics of technology strategy Technology strategy encompasses the acquisition, management and exploitation of technological knowledge and resources by the organisation to achieve its business and technological goals. (Solomon, 2001) Technology strategy, therefore, has three major active drivers, namely acquisition (or exploration), management and exploitation, respectively, of technology and technological knowledge. However, within each of these three aspects of technology strategy are a myriad of other contributing components. While the details of those that have or have not been included and definitional aspects could be debated, we have summarized those that we see as the major components discussed in the literature in the framework described in Figure 1 (Solomon, 2001). The acquisition of technology and technological knowledge can come in many guises, from generation of new knowledge through to the purchase of existing knowledge from other sources (see, for example, Tidd and Trewalla, 1997; James and Barker, 1998; Johnston et al., 1994). The main contenders for contributing to the acquisition of technology knowledge appear to be through networks and alliances (Mowery et al., 1996), mergers and acquisitions (James and Barker, 1998), in-house research and development (R&D), lead users amongst the customer base (Von Hippel, 1989), technology licensing and the contracting of external sources such as

Sustainable technology-based competitive advantage

Exploitation Technological lock-in

Intellectual property

Continuous innovation

Management Technological competencies and capabilities Absorptive capacity

Acquisition

Knowledge

Learning

Networks and alliances

Contract R&D/ consultants Technology licensing

Mergers and Acquisitions In-house R&D

Lead users

Figure 1. Technology strategy framework (adapted from Solomon, 2001).

r Blackwell Publishing Ltd. 2003

researchers and consultants (Johnston et al., 1994). In recent years, networks and alliances have received particular attention as sources of knowledge (for example, Hagedoorn, 1996; Powell et al., 1996; Mowery et al., 1996), so much so that a network definition of technology strategy has been proposed. ‘In other words, the firm is characterized not only by the configuration of its own technology, but in addition, by its relationships with and linkages to the systems – or discrete technologies – of others’ such that ‘a meaningful technology strategy is inevitably a network strategy’ (Ford and Thomas, 1997). There is no doubt that the network of an organisation’s relationships is often key to its ability to learn and to exploit its capabilities. This is embodied in the term ‘social capital’ (Nahapiet and Goshal, 1998) in order to recognize that relationships are an asset, even if their value is difficult to quantify. Thus a technology strategy has gained a more recent emphasis on managing technological knowledge through social capital generated through collaboration, alliances and networks. Networks are not static but need constant effort to maintain the trusting relationships upon which they are based. Nor are all relationships useful. It is not the quantity but the quality of the relationships in a firm’s network that is critical to unlocking their potential to contribute to competitive advantage (Walker et al., 1997). The deepest and most productive relationships between firms take time to evolve, and often entail both firms growing in parallel with strong interdependencies. The term ‘co-evolution’ has been borrowed from biology to capture this intertwining of firms’ strategic trajectories over time (Eisenhardt and Galunic, 2000). For a firm to acquire, make use of and learn from technological knowledge, however, it must contain prepared ground, or ‘absorptive capacity’ (Cohen and Levinthal, 1990). Absorptive capacity is built up through prior experience and having related knowledge within the firm. In other words, a firm must have a certain level of existing technological knowledge in order to be able to recognize the potential of new information or technology to enhance its knowledge base. We have represented the cycle of absorptive capacity, learning and knowledge in Figure 1 as spanning the acquisition and management components of technology strategy in that absorptive capacity has to be actively built in order to R&D Management 33, 5, 2003

483

Sally Davenport, Colin Campbell-Hunt and Julia Solomon maximize both the appropriate quantity and quality of technological knowledge acquisition and learning. The management of technological resources, such as resource allocation and technological human resource management, is inherently a part of the management of all of a firm’s resources and we have not attempted to try to convey the complexity of such organizational features. For the purposes of representing the technology strategy aspects of management, we have simplified the managerial needs down to nurturing technological competencies and capabilities,2 which, on the one hand, are essential for maintaining adequate absorptive capacity, and, on the other hand, underpin the exploitation component of technology strategy. Again, there are many aspects that could be included in exploitation but we have highlighted three that are particularly relevant to technology strategy as opposed to say marketing strategy. Intellectual property (IP) protection is a decision that will feature more or less strongly in technology strategy depending on the attributes of the market and the origin of anticipated infringement (Zahra and Bogner, 2000). If speed to market and time to obsolescence are both short then IP may not be a strong plank of a technology strategy. Nor will IP protection necessarily be a sensible strategy if the innovating firm is small with large competitors such that the resources to fight infringement proceedings are greatly out of balance. In such cases, technological lock-in (Arthur, 1996), in which the product becomes the de facto standard for the market and complementary aspects lock in customers and competition to the firm’s vision of the technological opportunity, may be a more satisfactory way of securing exploitation and competitive advantage based on technology. Coupled with this, the sustainability of such advantage is probably dependent on continuous innovation in which first mover advantages are locked into place by a succession of new generations of product or service. This brief survey of technology strategy issues is represented in the framework in Figure 1. The connecting arrows indicate where we would expect to see connections and, in many cases, it could be argued for the arrows to be in both directions, given that, for example, as much knowledge can flow out of many of the acquisition routes described as can be absorbed by the firm. However, our purposes here are not to 484

R&D Management 33, 5, 2003

chart the knowledge flows but to highlight the potential acquisition conduits that may be observed to be implicitly or explicitly employed as part of a technology strategy in our sample of firms.

3. Complexity theory The second body of theory that contributed to this research project is generally termed complexity theory. The dynamic properties of complex systems offer a promising route to an understanding of the dynamics of technology strategy. Complexity science offers an extensive body of theory on the behaviour of complex adaptive systems, whose application to organization and strategy has been reviewed by Stacey (1995), Levy (1994), Thietart and Forgues (1995), and Lengnick-Hall and Wolff (1999). Three propositions from complexity theory played salient roles in our interpretation of the dynamic processes that emerged in this study. The first two of these concern attributes of a system that are required for complex dynamic processes to emerge. First, complexity concerns itself with ‘activities within and between nested sub-systems’ (Lengnick-Hall and Wolff, 1999) in which the behaviour of a part is always a function of the whole with which it interacts, and the behaviour of the whole is itself a product of interaction between its parts. In this study, the development of a firm’s technology strategy and capabilities exhibited extensive inter-dependencies with other aspects of the firm’s development. Beyond that, the firm’s overall strategic evolution, including its technology, could only be interpreted in the context of relationships with customers, business partners, suppliers, and the wider environment. Complexity theory encouraged us to see the development of a firm’s technology as a process of co-evolution with these other entities. Second, the dynamics of complex systems must contain non-linear processes of positive feedback in which an initial change is reinforced over repeated cycles of experience (Levy, 1994). It is the presence of positive feedback loops embedded in the system which endogenously produces change, mutation and growth in the system. Arthur (1996) has argued that these processes are particularly important in knowledge-intensive industries of the type represented in this study. An appreciation of these processes is crucial to firms seeking to adapt and prosper in such r Blackwell Publishing Ltd. 2003

Dynamics of technology strategy systems (Lengnick-Hall and Wolff, 1999). The development experience of the firms in this study included several of these loops, the description of which is the primary objective of this paper. The third proposition concerns the nature of complex systems in a state of dynamic equilibrium (Prigogine and Stengers, 1984) when processes of positive and negative (dampening) feedback operating within the system produce ‘edge of chaos’ behaviour through which the system endogenously adapts to its environment (Stacey, 1995). In this state the evolution of the system is very sensitive to starting conditions and to the system’s previous trajectory. At any time, its current state will be dependent on its previous path (Levy, 1994). These trajectories are nonreversible (Prigogine and Stengers, 1984), and cannot be predicted ex ante (Levy, 1994), but nonetheless are constrained to develop within boundaries (a ‘phase space’) set by an ‘attractor’ or web of positive and negative feedbacks operating within the system (Capra, 1996, chapter 6). The result is patterns of imperfectly repeated behaviour, which can be observed ex post (Capra, 1996) and thus permit study and learning. In the case of this study, the attractor is the web of influences that operate on small firms internationalising from a small and isolated economy on the basis of distinctive technological innovation. This attractor has produced the patterns we have observed in this study of New Zealand firms, and exhibits considerable commonalities with the high-technology internationalisation patterns observed in other small and isolated economies, for example Portugal (Fontes and Coombs, 1997). The path dependency, causal complexity and temporal irreversibility of edge-of-chaos dynamics produce trajectories that are ultimately unique to each system or sub-system. Firm trajectories with these characteristics will be hard for competitors to copy (Dierickx and Cool, 1989), and a product of the organization as a whole rather than any of its members. As such they are capable of carrying firms to positions of sustainable competitive advantage (Barney, 1991). Their effect is to differentiate the system from others, even when sharing the same environment (Teece et al., 1997). For example, in a study of the competitive evolution of two US railroads, Noda and Bower (1996) found that the firms’ responses to the environmental stimuli they shared was importantly influenced by subtle differences in their starting positions, and that the two firms consequently developed in quite distinct ways. r Blackwell Publishing Ltd. 2003

4. Research method The study is part of a large-scale, longitudinal, multi-disciplinary, multi-investigator, research programme into the evolution of competitive capability in selected New Zealand firms (Campbell-Hunt et al., 2001). The objectives of the programme are to develop theory on these evolutionary processes, based on a purposive sample of a few in depth case histories (Eisenhardt, 1989). A small number of firms was selected, with the advice of an advisory panel of business leaders, to be exemplars of firms with a long history of sustained competitive success. Our interest in the long term development of these firms encouraged us to use historiographic methods of investigation (Goodman and Kruger, 1988), and to assemble rich contextual material on the environmental conditions in which the development of the firms occurred (Pettigrew, 1990). Twenty-four companies were suggested to us as exemplars, of which 12 agreed to participate in the study. This number fell to ten after a few months due to changes in chief executive. With two exceptions, all are small-to-medium sized enterprises, employing between 100 and 200 people; two employ over 1,000. Eight of these firms were selected for detailed study here because of their particular strengths in technology, innovation and design. Company names are disguised in this paper, but a general description of each firm’s strategic characteristics are given in Table 1. Narrative histories of the development of each firm were written, based on extended interviews with owners and chief executives. All of these had extensive experience of the firm in senior positions, stretching back several decades. The limitations of data derived from participants’ recollected accounts are discussed by Huber and Power (1985). We followed many of the procedures they recommend to minimize the motivational, perceptual and informational limitations they identify. For example, we sought factual information relating to past events, in addition to their construction of them, in an attempt to improve our respondents’ recall. Interviews were attended by a case writer and at least two of the research team, drawn from different disciplines. In this way, we acquired multiple-researcher, multi-disciplinary perspectives on each interview (Eisenhardt, 1989). Drafts of the histories were corrected and commented on by our sources. Interpretive work produced by the project has been fed back to participating executives in drafts, and to participating firms in management R&D Management 33, 5, 2003

485

Sally Davenport, Colin Campbell-Hunt and Julia Solomon Table 1. Strategic characteristics of the eight sample firms. Firm

Atech

Electronic products $50 million 80% 250

Bprod

Beverages $200 million (est) 60% 600 Industrial chemicals $420 million N/A (now manufactures in NZ and off-shore) 150 Electronic products $39 million (1998) 80% 120 Industrial furniture $40 million 60% 110 Industrial machinery $30 million 98% 95

Ctech

Etech

Ftech

Mtech

Description

Industry Total sales ($NZ)* % sales exported Employees

Stech

General furniture $50 million N/A (now manufactures mostly off-shore) 140

Ttech

Communication products $150 million 90% 750

Manufactures and sells electronic-based products in all major global markets. It is a global leader in its core product. Competitive strategy is based on product innovation and quality reputation. It has been owner-managed within the same family since its inception in the 1940s. Manufactures and sells a focused range of consumer beverages through concentrated distribution channels in selected global markets. Competitive strategy is built on quality reputation and marketing. Is the dominant player in its industry in New Zealand, and has built a similar position in Australia on the basis of customized products for niche industrial markets, the steady development of R&D capability, and quality reputation. It has been a public stock corporation since the 1950s, but was majority-owned by offshore corporations until the 1990s. Manufactures and sells electronics-based products to industrial buyers in all Southern Hemisphere markets, with some exposure beyond. Traditionally based on innovation and quality reputation, competitive strategy has been extended to marketing. Manufactures and sells a range of products to the property market. It has operations in Australia as well as New Zealand. Competitive strategy stresses quality of service and product, based particularly on innovation and design. Is a global leader in its industrial product class. Its competitive advantage stems from high-quality after-sales service and high standards of product quality. It was owner-managed until the 1990s when it was acquired by a leading multi-national corporation in the same industry. Manufactures and sells under its own brand a product category widely used in office and home environments. It offers a wide range and is the leasing competitor of its types in both Australia and New Zealand. Until the late 1980s, the firm was a leading provider of a more focused product line into the US market but changes in taste saw that market collapse and required the company to create a new strategy. Is a leader in electronics-based communication products in most major global markets. Competitive advantage derives from the company’s world-class reputation and its speed to market with major new designs in a standards-dominated industry. It has been owner-managed since its foundation in the 1950s.

*2002 unless stated, NZ$ ¼ 0.5EU, est ¼ estimate due to new/private ownership. N/A ¼ not applicable.

seminars, and account taken of their comments on these drafts. By producing narrative histories of each firm prior to any attempt to undertake cross-case analysis and to develop propositions on evolutionary processes, we sought to maintain the distinctive value of both forms of historical research (Dray, 1985), and lessen the study’s exposure to problems of self-selecting sources and interpretations (Fischer, 1970). 486

R&D Management 33, 5, 2003

5. Identifying the loops In our research we identified several processes of differentiation which have distinguished a firm’s technological trajectory from those of its competitors, and have contributed to the firm’s competitive success. Many of these processes involved the elements that we outlined in our traditional technology strategy framework, but there was also a rich layer of dynamic linkages and r Blackwell Publishing Ltd. 2003

Dynamics of technology strategy feedback loops which are not possible to capture in a description based upon the static and compartmentalized framework given in Figure 1. In this paper we have tried to combine the language of technology strategy with the descriptive power of complexity theory to provide better explanatory power of the evolution of technology strategy in these firms. We isolate seven of these dynamic processes. Each is based on a positive feedback loop which acts to strengthen the firm’s technological capabilities progressively, and most recognize that the firm’s technological development is nested within other aspects of the firm’s competitive evolution. We describe these seven loops in turn. Not all of the histories contained all of the loops and nor is the order in which we describe them necessarily followed in each firm. However, for each firm there was observable a unique trajectory in which the sum of these loops inevitably drove the firm’s evolutionary path.

Loop 1: vintage plough back The first loop set describes the process whereby each firm has almost single-mindedly driven itself through several ‘vintages’ of technology and product, rising to the challenge of exploring and learning through innovation. The first vintage of products for many of the firms usually marked an exploratory phase. The products were not always particularly innovative but did satisfy a local demand and allowed the firm to establish itself. The choice of technology in the first generation of products often reflected the passion and experience of the original entrepreneur. Ttech’s founder, for example, had experience of radar technology during the war and brought this interest to his fledgling firm. Bprod began with grape plantings by an immigrant Yugoslav family that had 300 years of tradition in winemaking. In three of the eight firms, initial products were produced under license or, when the firm was unable to obtain a license, were imitations of those available overseas. The firms learnt from the experience of producing this first ‘vintage’ of products and particularly from adapting them to New Zealand conditions. The CEO of Ctech describes his firm’s experiences with licenses: We started off [thinking that] anything that was invented overseas was much better than we had here obviously, but every now and again r Blackwell Publishing Ltd. 2003

there seemed to be little things that weren’t quite right with the technology so we’ve gradually learnt some expertise in slightly modifying it to suit New Zealand conditions y So we take the basic [product] and adapt it and we got better and better at that. In some cases, a government department or large firm played the role of a demanding lead user by commissioning the first generation product on a scale that far outstripped the firm’s production capacity. Satisfying this order stretched the capacity of the organization but enabled it to learn and grow to a stage where it could consider developing the next vintage of products. High demand for the first products generated the cash flow that gave the firms the opportunity to experiment with new ideas and technologies. This sometimes risky but creative phase of dabbling with new ideas is regarded with satisfied irreverence as a fun, playful time in the evolution of the firms’ products. Ttech’s founder described his firm’s efforts to tame the transistor: I had guys playing with a few transistors and we were getting a feel for the technology and it was actually a terribly difficult technology. In developing their second vintage of products the study firms displayed several different strategies. In some cases the firms recognized that the modifications made to a licensed product for the New Zealand environment had generated sufficient added value to warrant separation into new proprietary products. From its first license Ctech took 20 years to develop the confidence to export its own product. Now, after a further 20 years, 50% of its products are based on Ctech’s own technology. The CEO explained the transition: We got to the stage where we would chase around for the technology and we just couldn’t get it anywhere. Some people might have it and but weren’t prepared to license it, so let’s have a go at doing it ourselves y So where we couldn’t licence technology we started to develop it. A second approach to product development involved gaining experience with the new technologies by choosing an application that was seen as relatively low risk. Etech, for example, decided that introducing microprocessors into its core product for a market segment with particular potential would provide a lower risk trial market R&D Management 33, 5, 2003

487

Sally Davenport, Colin Campbell-Hunt and Julia Solomon than extending to all installations from the outset. The learning acquired from the trial technology application often led to a radically new product. Etech for example, chose access control as a medium for learning about reading magnetic swipe cards. Combined with their knowledge of microprocessors, Etech was able to develop a radically different security system, launching a whole new business for them. This period of product exploration can be viewed as analogous to the ‘sow and reap’ strategy used to explore new markets, both in these New Zealand firms (Chetty and CampbellHunt, 2003) and elsewhere (Sorenson, 2000). We thus observe these companies to have made use of many of the sources of technology that have received attention in the literature on technology acquisition: lead users, licensing, and internal R&D. These have clearly added to the technological competence of the firms. When seen as part of a dynamic process, however, it is further revealed that these successive vintages represent reinforcing cycles of technology development within the firm which not only enhance its stock of knowledge, but also its capacity for further absorption of new knowledge in a repeating loop of positive feedback. The firms’ use of these sources is thus not just a vehicle for exploring new technology, but also of exploiting it in sustained cycles of continuous innovation. We identify several processes of positive feedback in these experiences that have carried these firms to successively stronger product offerings. These are illustrated in Figure 2. First a successful product offering generates cash flow which these firms have ‘ploughed back’ into the next vintage of innovation. Cash flow plays a particularly important role in financing the growth of these firms, the majority of which are privately-owned. Second, a successful product has required these firms to increase production capacity. Expanding scale typically drives these firms to extend their mastery of production technology, and also extends the scope of markets and products that the next vintage of innovation can target. Finally, development of each vintage has presented opportunities to firms to learn more about consumer needs, to discover bases for market segmentation, to refine both product and manufacturing technology, and to improve organizational processes. Knowledge gained in each vintage is fed back into the next generation, so that each vintage is launched from a higher stock of technological and market knowledge. 488

R&D Management 33, 5, 2003

Successful innovation Vintages A, B etc.

Cash flow

Knowledge of market, technology and organization

Production capacity and scale Figure 2. Loop 1: vintage plough back.

Repeated cycles through successive vintages have also differentiated these firms from their competitors. Bprod, based in the wine industry (from which the label of this loop is appropriated), offers a salient example of these processes at work. Although cash flow and, to a lesser extent, production capacity are not distinctive assets, the learning which this firm has done from each vintage has been distinctive to its own emerging understanding of market tastes and the unique characteristics of wine-making in New Zealand. It is evident that the quality of learning on each vintage also determines how powerful will be the positive feedback effect of the ‘vintage loop’. Following sections explore the learning strategies evident in these firms.

Loop 2: market leverage Successive vintages of product innovation in these firms proceeded in parallel with successive entries to new markets and market segments. This process of leveraging knowledge of one market segment to the next has been central to the exploration phase of technological capability we have observed in these firms. Product modifications for the local market later stood firms in good stead on the internationalization road. In order to fill the gaps left by other suppliers, many of the firms either supplied a greater breadth of products to the same customer or developed a large number of product variants for different customers. In some cases they used both strategies. Thus products were customized for many different situations, and this gave the companies a very wide product range. In tandem, the firms licensed or developed a range of related products in order to make r Blackwell Publishing Ltd. 2003

Dynamics of technology strategy optimum use of plant capacity that was employed mainly for small runs. The CEO of Ctech explains: We will make anything that is required for the markets we service and we will try to sell anything which can be made in the units we’ve got y Every expansion of an existing business gave us a touch into a new area and we have branched from that. It was the distinctive competitive environment of the protected New Zealand post-war economy that supported this product branching. The result was an economy characterized by many small, isolated niche markets – a ‘rugged landscape’ (Campbell-Hunt et al., 2000).3 The firms were supplying only small local markets that were hidden in the ‘valleys’ of the rugged landscape. Close and frequent contact with these few customers enabled the firms to develop expertise in a wide range of products and in multiple technologies. Unrecognized by most at the time, this particular expertise profile stood the firms in good stead when they embarked on global expansion. It is symptomatic of the edge-of-chaos dynamics of these firms that these idiosyncrasies in initial conditions should retain importance to the differentiation of these firms decades later. We characterize these developmental processes in the feedback loop shown in Figure 3. In these firms, experience with customers in one market has been used to gain knowledge of customers’ other needs, giving the firm an entre´e into a new market. This repeated cycle of leveraging from one market into another runs in parallel with cycles of product learning from one vintage to the next. It is through successive product vintages that the landscape of the market is explored. Our representation of these processes is the same as Hamel and Prahalad’s (1991) ‘expeditionary

Firm knowledge of market segments

Figure 3. Loop 2: market leverage.

r Blackwell Publishing Ltd. 2003

Firm ability to identify segments new to it

marketing’. Among these firms, Ctech in particular has been an active user of the market leverage loop. The differentiating power of this process has arisen from the accumulation of the firm’s distinctive choices of market development, each of which is influenced by the firm’s prior history of market entry. Ctech now has a portfolio of market coverage which is unique, and is used by the firm to distinguish itself from its offshore competitors. In such a process, firms beginning in the same market segment will progressively be differentiated from each other as any small variation in initial market choice becomes amplified by repeated cycles of market specialization.

Loop 3: co-evolution with customers All eight of these firms made use of lead customers as a source of ideas to guide the development of their technology strategy. As part of the ‘learning from each vintage’ product development strategy, customer feedback was naturally very important but, as the CEO of Atech explains, care was taken in searching out the most valuable customer from which to learn: My definition of the customer is the end user. Of course my staff’s definition of a customer is the person we sell to who is not the end user and you’ve got to be very careful. I know we’re getting our product information through a pretty heavy filter. Filter being the dealer and the distributor. y We do get our R&D guys in and usually they are there a few days afterwards and they get out to dealers and get out [to end users]. In searching for learning opportunities firms were not self-conscious about how they learnt or from whom. For example, when assessing a trial of a new product introduction Etech was equally interested in talking to machine operators as to their managers. This lack of status consciousness is seen by these firms as an embodiment of New Zealand culture; New Zealanders are comfortable interacting with most people irrespective of rank and status, a trait which, in the view of these firms, allowed them to derive special value from their lead customers. For high technology products, the key to market success often lies in sharing some of the firm’s knowledge with customers. In the Netherlands, for example, Atech runs a very well R&D Management 33, 5, 2003

489

Sally Davenport, Colin Campbell-Hunt and Julia Solomon subscribed hotline on New Zealand’s unique practices in low-cost controlled grazing. The company is, in effect, selling its grazing knowledge as part of the fencing package. This knowledge is taken for granted in New Zealand, but the willingness to share it helps to differentiate the product in the marketplace. In the USA, Bprod’s strategy is to educate about New Zealand as much as it is to sell wine; the marketing manager explains:

Increasing customer knowledge of product capabilities

Increasing firm knowledge of customer preferences

Figure 4. Loop 3: co-evolution with customers.

We must never assume that people will buy our wine just because we think it is good wine y Our first task in selling wine into the USA was to inform our potential customers about New Zealand y We had to sell what New Zealand is and what the attributes and values of New Zealand are. Thus another core part of the firms’ technology strategies has been to educate the customer about the product and, in some cases, educate the customer’s customer. Bprod, for example, runs wine education courses for many of its distributors and also supports a wine college for the general public. This knowledge sharing has the added benefits of contributing to the development of strong trusting relationships with distributors, and encouraging customer loyalty to the product and company. Close customer contact, and the careful servicing of distinctive customer needs has also been one of the principal ways in which the advantages of an initial innovation have been locked-in, and rendered difficult for imitators to copy. At Mtech, for example, the company’s innovative technology has proved attractive to pirated copiers; but these pirates represent only a limited threat to the business because pirates are unable to match the company’s excellent on-site servicing throughout the world. The positive feedback between a firm’s growing knowledge of customer preferences and customers’ knowledge of product possibilities is shown in Figure 4. In companies like Bprod, the mutual reliance of customer and firm for their improvement means that the firm’s technological development and absorptive capacity and the customers’ sophistication progress together in a process of co-evolution. In this way, the relationship with customers becomes a source of continuous innovation to the firm, and a strategy not just for exploring technological opportunities, but also for exploiting them. Exemplar firms in this study have taken advantage of this dynamic 490

R&D Management 33, 5, 2003

potential by actively fostering learning in their customers, as well as internally.

Loop 4: R&D plough back For every one of these eight firms, substantial investment in R&D is their major source of new knowledge and innovations. At first R&D investments were fairly small, and often in time rather than cost. Government funding of technology projects helped several of the firms lift their level of R&D performance, both in quantity and quality. CEO of Atech describes the founder’s (the CEO’s father) early R&D efforts: At that time R&D was really knife and fork on the kitchen table kind of stuff y We never measured the amount of money. It was sort of every night and weekends y What really took us from the kitchen table knife and fork was an R&D grant when we got paid 50% of the increased expenditure on R&D y That made sure you were doing it properly, not doing it on a shoe-string and that really made quite a difference. Over several decades, these firms have built substantial R&D capabilities in a range of disciplines. These add both to the technical competence of the firms and to their ability to absorb technology from other sources. These capabilities embody a priceless reservoir of historical learning and tacit know-how. Ploughing profits back into the firm, at a rate of up to 10% of revenue, was a given for many firms. The importance of investing in R&D was taken for granted; it was part of each firm’s ethos. Patents have played an important role in these firms’ attempts to exploit their proprietary technology. Seven of the eight have protected r Blackwell Publishing Ltd. 2003

Dynamics of technology strategy their product innovations with patents, and four of the eight have patents over process technologies. The firms were very aware that to perform effective R&D they must recruit and retain technically skilled people. This became even more important as the complexity of their product technology increased and as production methods were streamlined. The CEO of Ttech, a company that now employs over 160 engineers and software designers in the largest electronic R&D facility in Australasia, explains the transition: In those days [30 years ago], a radio was designed by one person and it took hundreds of people to manufacture it. Nowadays, you almost need no-one to manufacture it, but it takes hundreds of people to design it y So right now we are looking at what we have to do to give highly creative engineering people and software people an environment y which enables them to be creative y We have done a lot of work on a career path for technical people. Whether the technical skills were obtained through education or experience, they were highly valued by the firms’ managers. The self-confidence of these firms is evidenced by their willingness to recognize when and where they had skill deficiencies, and to rectify their knowledge gaps. In turn this emphasis on skills and learning is attractive and some firms found that potential recruits from all parts of the globe were targeting them. A simple philosophy, if you don’t know, get somebody who does, or if you don’t want to do it, get somebody who will do it for you (Founder of Ttech). We are quite prepared to admit that we don’t have all the answers, and we are even more prepared to go out and ask the questions of those that do have the answers (Marketing Manager, Bprod). The skill base was not necessarily brought inhouse. For two of the eight firms, skills were also accessed through specialists as contractors. The CEO of Ftech explains how his firm approached its R&D capacity needs: We’ve always worked on the premise that you don’t want to be constrained in design and therefore the more technical knowledge you have the better and some of that knowledge can r Blackwell Publishing Ltd. 2003

be built by what you do internally and other development is dependent on working with expert contractors. In many cases, these experts became significant mentors for the organizations, providing guidance and vision about future technological directions. Etech’s critical early move into solid state electronics arose because of strong relationships developed with an electronic engineering and strategy consultant, and a technical manager,4 who predicted the potential of the microprocessor. We show the positive feedback loops we observe in the R&D strategies of these firms in Figure 5. Firms in this study that have produced world-leading proprietary technology typically enjoy higher margins and plough back these higher profits into further R&D, extending the firm’s mastery of its technology, and allowing it to extend into new technologies. With each cycle, the firm approaches innovation with a greater legacy of accumulated R&D capability. As the firm’s reputation in the technology grows, it also becomes more attractive to world-class R&D staff on a global scale. Ttech is a particularly salient example of these processes in our study. Repeated cycles of accumulating R&D staff and expertise act to differentiate the firm over time as the firm makes its own distinctive choices, both of product innovations to develop, and of staff to hire or consult, and as R&D staff form their own networks, influenced by the firm’s distinctive structure and culture.

Loop 5: co-evolution with technology partners Four of these eight firms have also used relationships with partners to grow their technological R&D capacity Innovation

Reinvestment flows in R&D High margins Attract world-class R&D staff

Global reputation in technology Figure 5. Loop 4: R&D plough back.

R&D Management 33, 5, 2003

491

Sally Davenport, Colin Campbell-Hunt and Julia Solomon capabilities. For example, Bprod recognized its need to move into new techniques and developed technological partnerships with two highly regarded European wine houses, enabling the company to learn more about producing high quality sparkling wine and Bordeaux style red wines respectively. Over time, knowledge sharing became more evenly balanced in many of the firms’ relationships. Finding its own knowledge to be highly desirable, the New Zealand partner has been able to improve upon its junior status in the alliance. Bprod’s Marketing Manager describes the relationships: They are as much people relationships as they are technology relationships. We have technical discussion and it’s not all the information flowing into New Zealand but a lot flowing out. By developing a range of these types of alliances, the firms find themselves to be part of a large knowledge-sharing network, usually global in scope. For many of the firms, these international networks are core in their efforts to maintain regional or global leadership (Chetty CampbellHunt, 2003). Often these networks have evolved as natural extensions of the professional contacts maintained by their specialist staff such that the firms have established a network of ‘peer’ firms. One of the most extensive examples of a peer network has been developed by Ctech, which has specialist knowledge-sharing alliances with its ‘technology associates’, resin companies around the world. Ctech’s network has some added benefits as the CEO explains: Our technology relationships are now really a networking set-up where we exchange ideas, we might even agree to work on a joint project together with somebody overseas. It’s fairly broad reaching, because there are a lot of medium size resin manufacturers around the world like us who feel a little exposed in today’s economy, and they are appreciating the opportunity to be able to globalise without the investment. The international knowledge-sharing peer networks of these firms is often a substitute for capable local partners.5 The CEO describes Bprod’s need for such relationships: Most people are only as good as the peer group that they work with y To be successful you really need good peers. And in New Zealand 492

R&D Management 33, 5, 2003

[Bprod] is more advanced than any of the other local companies y So it really needed to look for peers who are more international to approach. The networks of technology partnerships created in these firms vary in their scope (number of partners) and strength (closeness of ties to each partner). Both of these attributes are subject to positive feedback processes, as shown in Figure 6. It is apparent from the experience of firms like Ctech and Bprod that the technological knowledge and capability of these firms has been enhanced by these partnerships. As the firm’s knowledge of the technology and its global sources develops, it becomes better able to extend the scope of its network by selecting partners offering mutual technological advantage. Firms in our study that have made use of these partnerships have been presented with opportunities for specialization as they discover a lack of capability in their partners that they are better placed to meet themselves. The same effect of partner specialization over time has been observed in a study of the packaging machine industry by Lorenzoni and Lipparini (1999). For a firm like Ctech, what started out as a one-way relationship of technological dependency evolved into a two-way relationship of mutual benefit. With both parties gaining, the strength of the relationship is increased. As relationships within the firm become ones of mutual benefit, the development of member firm’s technology becomes the product of their joint co-evolution. We suggest that two types of choices embedded in this loop increasingly differentiate the firm from its competitors. First, the choice of partners is unique to each firm, influenced as it is by the particular configuration of partners accumulated to date. Second, the choice of technologies in which to specialize is uniquely shaped by the firm’s own technological evolution and the

Scope and strength of ties with (offshore) technology partners (Strength) (Scope)

Firm technical specialization

Firm knowledge of technology and technical capabilities of potential partners and itself

Figure 6. Loop 5: co-evolution with technology partners.

r Blackwell Publishing Ltd. 2003

Dynamics of technology strategy unique set of capabilities present in the firm’s partnering network. Ctech today represents a configuration of technological capability whose uniqueness is the result of a long period of coevolution of its own capabilities in interaction with those of its partners.

Loop 6: co-evolution with suppliers Despite the fact that these firms look offshore for their knowledge networks, their growth and success has often had a profound effect on local capability. Many of the firms have used local suppliers where they could, or where there was a tradition of doing so, and often these suppliers ‘lifted their game’ to deliver at the required capacity and quality. Several of the core firms intentionally guided the supplier to the level required, such that both firms grew in tandem. Bprod, for example, has a 30-year supply relationship with a printer, a firm that has grown and become more sophisticated to meet BProd’s demands for high quality process and design standards. We consider our key suppliers as business partners in every sense. We share a lot of information with them and we expect them to do likewise. Sharing knowledge and expectations enhances the value of the partnership for we seek innovation and quality improvement in everything we do. (Marketing Manager, BProd). Ttech’s founder is very aware of the firm’s role in co-evolution in its home city: We don’t build anything mechanically, it’s all done outside. But when we first went out to the local tinsmith, he wasn’t accustomed to building things to the type of tolerances that we were wanting. We had to grow his ability. We didn’t have to persuade him but he bought the better machinery because he saw industry growing around it y The growing of support services is something that you do both consciously and it happens subconsciously because other people are seeing the company grow and you’re placing increasing demands, tighter and tighter demands, in terms of quality, time, availability, back up and resources. We’ve got enough now to say, that’s good, this guy is great, we’ll buy another bit of plant to support them. As the firms co-evolve, a clustering effect begins to occur. The core firms are likely to initiate this r Blackwell Publishing Ltd. 2003

effect by supporting the co-evolution of several suppliers, who in turn will influence their own suppliers. When this is also extended to other related industry sectors, such as educational suppliers, an embryo cluster begins to develop. Ttech’s founder continues: [The city] has a lot of infrastructural people who produce plastic bits, people who cut and fold metal and they make metal shapes and they paint it and plate it. There’s this infrastructure that has grown and this is all part of the business covering about 45 years. The pattern of co-evolution of technical capability between firm and supplier networks is shown in Figure 7. In the experience of a firm like Ftech, both firm and suppliers grow in sophistication, quality standard and technical capability as rising demands from firms are met by suppliers, which in turn loosens constraints on firms for further improvement. Repeated cycles through this loop act to differentiate the firm from its competitors as the firm and its suppliers develop co-specialized assets (Teece, 1986), including mutually consistent expertise in successive stages of the value chain.

Loop 7: international focus and surviving the gusher For about half of the firms in the study, an innovation of global potential caused the transformation of the business to one of global scope. These firms have achieved leading shares in major geographic markets around the world, and are active in scores of countries. Some of them have the leading share in the global (niche) markets that they serve. In every case, these transformations have been made possible by the

Increasing supplier knowledge of firm requirements

Increasing firm knowledge of supplier capabilities

Figure 7. Loop 6: co-evolution with suppliers.

R&D Management 33, 5, 2003

493

Sally Davenport, Colin Campbell-Hunt and Julia Solomon firm’s technology-based product innovation. At this stage in the development of these firms, technology strategy shifts clearly from exploration to exploitation. For some of the firms, the fact that they had regional or world leading technology was not immediately obvious. While a few had the intuition that their products, designed to be the best in New Zealand, might also be successful further afield, others needed to be persuaded by international experts that their products were indeed highly valuable. Finding out the market value of their technology and products lifted the self-confidence of these firms, enabling them to take the ‘going global’ leap.6 We always believed that we could produce some outstanding wine and it has been an evolutionary process. The time came for us to believe what other people were telling us, which was that our wine was unique. It had a much stronger bouquet, was more flavoursome, fruity and aromatic, with fresh acidity. We came to appreciate that we really did have something different to overseas equivalents (Marketing Manager, Bprod). In the early 1970s you wouldn’t expect something you designed in New Zealand to be the best in the world. We were told by people who travelled around the world that it was far ahead of anything and we were lucky to learn at an early stage of our development (Managing Director, Etech). [The product was] well resolved and we were really fussy. But when we finally got there, it was a great product and as soon as one or two of our retailers saw this product they said this is a great product. Within a year we knew it was a great product (Managing Director, Ftech). What often has made these firms distinctive in their chosen international markets has been their ability to differentiate their products from their global competitors. Where the large players provided a standard product, the New Zealand firms carefully assessed what functionality would distinguish their product and make it particularly valuable to their target customers. The broad scope of their product and technological knowledge (built up during their rugged landscape days) has allowed these firms to recognize and then develop connections in technology and 494

R&D Management 33, 5, 2003

markets; these insights have been hidden from their more specialist competitors. Thanks to their flexible production facilities, these firms have carved valuable market niches by producing small runs of highly customized product, earning them considerable loyalty from their international customers. The CEO of Ctech describes how his firm survived in Asia once Asian manufacturers entered the markets:

We lost the ability to sell large volumes y because that was being made locally but we did pick on a few niche areas that the local manufacturers were not interested in making y they were a bit more complex so y we developed some specialist technology that needed niches. The experience of often sudden international success had several consequences for these firms. All of the firms in this study reached a point at which they discovered an international potential for one or more of the products they had developed in the New Zealand market. For many of these firms, the result has been an intense period of very rapid growth we have dubbed ‘the gusher’ (Chetty and Campbell-Hunt, 2003), which is produced by rapidly growing demand in markets many times larger than the New Zealand home market. For example, the first offshore order for Stech’s innovative production lines was 20 times larger than their largest previous installation. During these periods, firms have experienced a doubling in size every year for a period of 3–4 years, resulting in a ten-fold growth of the business over a very short time. The stresses placed on companies by the gusher are intense and several firms have experienced severe problems with quality control, delivery, and staff training that have threatened to undermine their credibility in the markets they sought to enter. The feedback loops that have been salient in the internationalization experience of these companies are set out in Figure 8. In every case, the development of offshore markets has been based on a product or products in which the New Zealand firm offered attributes distinctive from current competitors. While courting the gusher might be perceived as a risky strategy, the alternative path was, for some firms, more risky. Etech made a conscious decision to phase its global aspirations, which constrained its rate of growth. Mtech tried to diversify to spread the risk, but was unsuccessful. r Blackwell Publishing Ltd. 2003

Dynamics of technology strategy Offshore consumer experience of distinctive value of NZ product

Appeal to potential distributors

Reputation, word-of-mouth dissemination

Involvement with setting standards in national markets Figure 8. Loop 7: international focus: surviving the gusher.

Another consequence of being first to the international markets with these products has been the ability to influence and, in some cases, set the standards surrounding the products. Considerable lobbying was needed to do this for several of the products, but the advantage of ‘locking-in’ (Arthur, 1996) the new market niches to the New Zealand product specifications established the firms in their markets and, in some cases, enabled the firms to ‘lock-out’ (Schilling, 1998) many of the encroaching rivals. Ttech, for example, played an important role in establishing the popular open standard for trunked radio known as MPT7 1327, and supplied some of the first MPT 1327 systems. The firm was therefore able to exploit the advantages of being one of the first to market with a system that became the de facto world standard. The CEO of Atech describes some of these standard-lobbying efforts as part of a strategy to ‘put tacks on the tracks of followers’. The most salient effect of the gusher’s manyfold increase in demand for firms’ internationally successful products has been to virtually force them to focus their limited resources and production capacity on these products. Firms such as Atech and Bprod have discontinued portfolios of products developed over many years for the domestic market as they struggle to keep up with offshore growth. We call this process ‘focus and grow’. As these firms’ growth becomes increasingly devoted to the internationalizing product, so their capacity to extend their efforts into new offshore markets is increased, and the cycle of demand growth begins again. The strength of this ‘focussing’ loop varies between the companies we have studied. Where a product has strong distinctive appeal in offshore markets, and where the company has resolved to r Blackwell Publishing Ltd. 2003

capitalize on that appeal, the loop has been very powerful, quickly transforming a New Zealandcentred company with a broad product range into a leading competitor in many international markets within a tightly focussed product niche. The transformation radically alters the firm’s product scope (inwards) and market scope (outwards), in a period of just a handful of years. For other firms where the offshore appeal has been less compelling, or where the firm has chosen not to risk the dangers of the gusher, the result has been less dramatic. Firms such as Ctech retain a broad product portfolio and have extended their offshore operations primarily within the Australasian region.

6. Conclusion: leveraging the loops In Figure 9 we bring together the various processes of positive feedback evident in the technological development of these firms. The loops as described are obviously not independent of each other. Knowledge of markets appears in several loops, as do networks of various kinds. The loops connect and interact with one another in a number of ways as is illustrated in their depictions in Figures 2–8. Taken together, these cycles of positive reinforcement have produced transformations in the strategic capabilities of these firms. Three key ‘sets’ of interactions can be identified as having been particularly salient in the overall transformations. First, the product scope of these firms has followed trajectories that initially broadened the firms’ knowledge of diverse products and market segments in processes of exploration (loops 1 and 2), and later focussed them when the firm internationalized and exploited the technology capabilities it had by then acquired (loop 7). For firms realizing product potential on a global scale, the focussing process has been particularly strong. Second, the technological expertise of these firms has been steadily enhanced by processes of ploughing back gains to finance further growth (loops 1 and 4), and of mutual learning and coevolution with customers (loop 3), technology partners (loop 5), and suppliers (loop 6). These have been relatively slow processes. Ctech, for example took 20 years before it began significant development of its own proprietary technologies. These processes have steadily transformed companies that began by ‘dabbling’ with technologies licensed from offshore, or developed ‘on the R&D Management 33, 5, 2003

495

Sally Davenport, Colin Campbell-Hunt and Julia Solomon

4 R&D plough back

6 Co-evolution with suppliers

From broad dabbler

1 Vintage plough back

3 Co-evolution with customers

5 Co-evolution with technology partners

To international focussed technology specialist

7 International focus: surviving the gusher , ,

2 Market leverage

Figure 9. Going global by leveraging the loop.

kitchen table’, into companies with world class technological capabilities. Third, the geographic scope of these small New Zealand firms has been transformed from startups focussed on the domestic market to positions of competitive leadership on a regional or even global scale. Building on the first two ‘sets’ of interactions, the move offshore occurred in an intense period of a few short years we have called ‘the gusher’ (loop 7). But any impression that the product innovations that have motivated the international expansion of these firms have been a brief process would be quite misplaced. Our study has shown that internationalization is only the last and briefest of the several processes of technological development summarized in Figure 9, all of which have contributed to the differentiation of the firm as an internationally capable competitor. We have emphasized that many of these processes have acted to differentiate these firms from their competitors, in successive cycles of selection of products, customers, market segments, and technology partners. They have combined together to produce competitors with innovative products derived from a unique and path-dependent set of experiences, relationships and capabilities, which others could not readily duplicate. We have also seen that these differentiating processes of positive feedback have acted upon an initial legacy that these firms have acquired from their distinctive origins in a small isolated economy. These distinctive attributes (for example, a breadth of product and market knowledge) have been the basis from which distinctive advantage has been leveraged by the feedback loops described in this paper. The result of these combinations of evolutionary processes has resulted in a collection of organizations that can be described as having transformed from domestic ‘broad dabblers’ in a range of technol496

R&D Management 33, 5, 2003

ogies and products (as described for loop 1) into a set of ‘international focused technology specialists’ with global leadership or strong positions in small specialist niche markets based upon proprietary technology (as described in loop 7). The feedback loops we have described also make clear that the evolution of technical competence must be examined within the context of the firm’s overall competitive development. While a distinctive focus on technology strategy is helpful for the static description of a firm’s strategic choices – and even for a comparative static description of changes in these choices – a truly dynamic view of technology strategy requires that we recognize the embededness of a firm’s developing technology within the web of other strategic choices with which it co-evolves. In this study, we have pointed to the firm’s developing market coverage, internationalization, and supplier relationships, in addition to the product development and alliancing strategies that have already attracted attention in the literature on technology strategy. Figure 9 is a composite of the full array of dynamic processes we have isolated in this study but no one firm has experienced all of these processes. The order of presentation is also chosen to be generally representative of the experience of these firms, but has been subject to variation from firm to firm. Whether there are any distinct patterns to this variation, for example why particular loops are emphasized by particular firms or whether certain combinations of loops are found in one industry but not another, is not obvious from the results in this study. The sample size of organizations was too small, with little overlap in terms of sectors or industries. Thus analyzing the loop patterns at a finer grain was not possible in this exploratory study, but would be an interesting question for a more elaborate study of such dynamics. r Blackwell Publishing Ltd. 2003

Dynamics of technology strategy It is interesting to consider what part of these processes could be characterized as exploration, and what part as exploitation of the firm’s distinctive technology (March, 1991). At the broad level depicted in Figure 9, it is quite possible to see loops 1–6 as being primarily concerned with a firm exploring its environment and its own developing capabilities. The expanding scope of product portfolios, market segments, customers, technologies, and suppliers produced by these processes is symptomatic of the exploratory nature of these loops. The process of internationalization (loop 7) might then be seen as the international exploitation of the firm’s distinctive product advantages. So strong is the need to resource the rapid growth of the gusher that several firms have cut back R&D budgets in this phase, despite it being a core plank of each firm’s ethos as earlier discussed, suggesting that exploitation is the primary objective here. We believe this is only a partial answer however, for each of the feedback processes shown in Figure 9 includes, we suggest, elements of both exploration and exploitation. The essence of these processes is that they involve repeated cycles through sets of mutually reinforcing behaviours, in which what is learned in one cycle is applied to guide choices in the next. Each cycle is thus both an exploration of what is possible, and an exploitation of what has been learned on previous cycles. The path taken by these trajectories could not have been planned in advance, and is only partly under the control of the firm that rides it. Instead, its direction is the product of interactions between the firm and many others with which it interacts and co-evolves. In following such a trajectory, the firm must be prepared to accept that many of the dynamic forces that shape its destiny are in the hands of others. Like others (Pascale, 1999), we find the analogy of surfing to offer a good representation of the manager’s role in these trajectories. Although the end-point of the trajectory cannot be known in advance, a (practical) knowledge of the dynamic processes that drive the trajectory will improve managers’ ability to position their firm to advantage. For example, a manager sensitive to the loops summarized in Figure 9 might take particular care in the selection of technology partners, might foster customer learning, or might jealously guard the firm’s global reputation for technology, and so on. As an epilogue, a further overarching loop can also be discerned. For some firms, the process r Blackwell Publishing Ltd. 2003

illustrated in Figure 9 appears to begin all over again as the firm embarks on a new dabbling phase with the next leap ahead of technologies or products, which may involve an order-of-magnitude increase in investment and subsequent growth. Ttech, for example, is agonizing over whether to make the transition to digital technologies. It could be expected that surviving one gusher and consequent evolution into a technology specialist will have prepared and emboldened the firms as they seek the challenge of their next evolutionary phase. In conclusion then, this exploratory study has attempted to reconceptualize technology strategy as the sum of a number of far more dynamic processes than have previously been described. While reiterating that none of these dynamic processes is new in itself, we argue that it is the evolutionary trajectory of how various combinations of the processes, as represented by the loops, interact and build upon each other, that is key to understanding how sustained competitive advantage based on technology might be achieved. It is the connections and links between the relatively static components of traditional research and technology management that underpin a more dynamic view of technology strategy.

References Adler, P. (1989) Technology strategy: a guide to the literatures. Research in Technological Innovation, Management and Policy, 4, 25–151. Arthur, B. (1996) Increasing returns and the new world of business. Harvard Business Review, July/August, 100–109. Barney, J. (1991) Firm resources and sustained competitive advantage. Journal of Management, 17, 99–120. Burgelman, R., Maidique, M. and Wheelwright, S. (2001) Strategic Management of Technology & Innovation. Boston: McGraw-Hill, 3rd edition. Campbell-Hunt, C., Brocklesby, J., Chetty, S., Corbett, L., Davenport, S., Jones, D. and Walsh, P. (2001) World Famous in New Zealand: How New Zealand’s Leading Firms became World-class Competitors. Auckland: Auckland University Press. Campbell-Hunt, C., Chetty, S. and Corbett, L. (2000) World famous in New Zealand: growing worldcompetitive firms from a New Zealand base. Victoria Economic Commentaries, March, 1–10. Capra, F. (1996) The Web of Life. New York: Harper Collins. Chetty, S. and Campbell-Hunt, C. (2003) Explosive international growth and problems of success R&D Management 33, 5, 2003

497

Sally Davenport, Colin Campbell-Hunt and Julia Solomon amongst small to medium sized firms. International Small Business Journal, 21, 5–27. Chiesa, V. and Manzini, R. (1998) Towards a framework for dynamic technology strategy. Technology Analysis and Strategic Management, 10, 111–129. Clarke, K., Ford, D., Saren, M. and Thomas, R. (1995) Technology strategy in UK firms. Technology Analysis and Strategic Management, 7, 169–190. Clarke, P. (1998) Implementing a knowledge strategy for your firm. Research, Technology Management, 41, 28–31. Cohen, W. and Levinthal, D. (1990) Absorptive capacity: a new perspective on learning and innovation. Administrative Science Quarterly, 35, 128–152. Dierickx, I. and Cool, K. (1989) Asset stock accumulation and sustainability of competitive advantage. Management Science, 35, 1504–1514. Dodgson, M. (1991) Managing corporate technology strategy. International Journal of Technology Management, Special Publication on the Role of Technology in Corporate Policy, 95–102. Dray, W. (1985) Narrative versus Analysis in History. Philosophy of the Social Sciences, 15. Drejer, A. (1996) Frameworks for the management of technology: Towards a contingent approach. Technology Analysis and Strategic Management, 8, 9–20. Eisenhardt, K. (1989) Building theories from case study research. Academy of Management Review, 14, 532–550. Eisenhardt, K. and Galunic, D. (2000) Co-evolving: at last, a way to make synergies work. Harvard Business Review, January/February, 91–101. Fischer, D. (1970) Historians’ Fallacies: toward a Logic of Historical Thought. New York: Harper and Row. Fontes, M. and Coombs, R. (1997) The coincidence of technology and market objectives in the internationalisation of new technology-based firms. International Small Business Journal, 15, 14–35. Ford, D. (1988) Develop your technology strategy. Long Range Planning, 21, 85–95. Ford, D. and Thomas, R. (1997) Technology strategy in networks. International Journal of Technology Management, 14, 596–612. Friar, J. and Horwitch, M. (1985) The emergence of technology strategy: a new dimension of strategic management. Technology in Society, 7, 143–178. Goodman, R. and Kruger, E. (1988) Data dredging or legitimate research method? Historiography and its potential for management research. Academy of Management Review, 13, 315–325. Hamel, G. and Prahalad, C. (1991) Corporate imagination and expeditionary marketing. Harvard Business Review, July/August, 81–92. Hagedoorn, J. (1996) Trends and patterns in strategic technology partnering since the early seventies. Review of Industrial Organization, 11, 601–616. Huber, G. and Power, D. (1985) Retrospective reports of strategy-level managers: guidelines for increasing

498

R&D Management 33, 5, 2003

their accuracy. Strategic Management Journal, 6, 171–180. James, A. and Barker, K. (1998) Comparing technology management issues in technology-oriented mergers and acquisition and joint ventures. Proceedings of the R&D Management Conference, Avila, Spain, 360–370. Johnston, R., Davenport, S., Dunford, R., Gilbertson, D. and Mabin, V. (1994) Technology strategy in Australian and New Zealand industry. In A. Kouzmin, L. Still, and P. Clarke (eds), New Directions in Management. Australia: McGraw-Hill, 464–477. Jones, O., Green, K. and Coombs, R. (1994) Technology management: developing a critical perspective. International Journal of Technology Management, 9, 156–171. Jones, O. and Smith, D. (1997) Strategic technology management in a mid-corporate firm: the case of otter controls. Journal of Management Studies, 34, 511–536. Kantrow, A. (1980) The strategy-technology connection. Harvard Business Review, July/August, 6–21. Lengnick-Hall, C. and Wolff, J. (1999) Similarities and contradictions in the core logic of three strategy research streams. Strategic Management Journal, 20, 1109–1132. Levinthal, D. (1995) Strategic management and the exploration of diversity. In C.A. Montgomery (ed.), Resource-based and Evolutionary Theories of the Firm. Amsterdam: Kluwer. Levy, D. (1994) Chaos theory and strategy: theory, application, and managerial implications. Strategic Management Journal, 15, Summer, 167–178. Lorenzoni, G. and Lipparini, A. (1999) The leveraging of interfirm relationships as a distinctive organisational capability: a longitudinal study. Strategic Management Journal, 20, 317–338. March, J. (1991) Exploration and exploitation in organizational learning. Organization Science, 2, 71–87. Mowery, D., Oxley, J. and Silverman, B. (1996) Strategic alliances and interfirm knowledge transfer. Strategic Management Journal, 17, 77–91. Nahapiet, J. and Ghoshal, S. (1998) Social capital, intellectual capital and the organizational advantage. Academy of Management Review, 23, 242–266. Noda, T. and Bower, J. (1996) Strategy making as iterated processes of resource allocation. Strategic Management Journal, 17, Summer, 159–192. Pascale, R. (1999) Surfing the edge of chaos. Sloan Management Review, Spring, 83–94. Pavitt, K. (1990) What we know about the strategic management of technology. California Management Review, Spring, 17–26. Pettigrew, A. (1990) Longitudinal field research on change: theory and practice. Organisation Science, 1, 265–292. Powell, W., Koput, K. and Smith-Doerr, L. (1996) Interorganizational collaboration and the locus of

r Blackwell Publishing Ltd. 2003

Dynamics of technology strategy innovation: networks of learning in biotechnology. Administrative Science Quarterly, 41, 116–145. Prigogine, I. and Stengers, I. (1984) Order out of Chaos, Man’s New Dialogue with Nature. New York: Bantam. Reick, R. and Dickson, K. (1993) A model of technology strategy. Technology Analysis and Strategic Management, 5, 397–412. Schilling, M. (1998) Technological lockout: an integrative model of economic and strategic factors driving technology success and failure. Academy of Management Review, 23, 267–284. Solomon, J. (2001) The Role of Technology Strategy in the Evolution of Competitive Advantage in Successful New Zealand Firms. Master of Management Studies Research Project, Victoria University of Wellington, New Zealand. Sorenson, O. (2000) Letting the market work for you: an evolutionary perspective on product strategy. Strategic Management Journal, 21, 577–592. Stacey, R. (1995) The science of complexity: an alternative perspective for strategic change processes. Strategic Management Journal, 16, 477–495. Teece, D. (1986) Profiting from technological innovation: implications for integration, collaboration, licensing and public policy. In D. Teece (ed.), The Competitive Challenge. New York: Harper and Row. Teece, D., Pisano, G. and Shuen, A. (1997) Dynamic capabilities and strategic management. Strategic Management Journal, 18, 509–533. Thietart, R. and Forgues, B. (1995) Chaos theory and organizations. Organisation Science, 56, 19–31. Tidd, J. and Trewalla, M. (1997) Organizational and technological antecedents for knowledge acquisition and learning. R&D Management, 27, 359–375. Von Hippel, E. (1989) New product ideas from ‘lead users’. Research Technology Management, MayJune, 24–28.

r Blackwell Publishing Ltd. 2003

Walker, G., Koput, B. and Shan, W. (1997) Social capital, structural holes and the formation of an industry network. Organization Science, 8, 109–125. Zack, M. (1999) Developing a knowledge strategy. California Management Review, 41, 125–145. Zahra, S. and Bogner, W. (2000) Technology strategy and software new ventures’ performance: exploring the moderating effect of the competitive environment. Journal of Business Venturing, 15, 135–173.

Notes 1. This work is part of the Competitive Advantage New Zealand (CANZ) research programme funded by the New Zealand Foundation for Research, Science and Technology, contract no. VIC806. 2. We have used both the terms competencies and capabilities on purpose to be as inclusive as possible of the discussion of these concepts in the literature (e.g. Burgelman et al., 2001). However, in practice the differences between these terms are probably not obvious. 3. The term is borrowed from the evolutionary biologist, Stuart Kaufmann. See Levinthal, 1995. 4. This consultant later joined ETech as its technical leader. 5. The lack of local partners initiating global networks has also been noted for other small countries, e.g. Portugal. See Fontes and Coombs, 1997. 6. Not all of the firms necessarily took the leap, or did so in a smaller scale than they might have done, as they felt they were constrained by resources. 7. MPT is an acronym for Ministry of Post and Telecoms.

R&D Management 33, 5, 2003

499