PERF RMANCE 04 - The Performance Portal - Ernst & Young

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Article Choosing the right technology: a framework for success Many of today’s new products employ new technologies. But it’s often hard for companies to decide which technology will work best or be most successful for these products in the future. Yet the success of the product may depend on choosing the right technology. No wonder there is a huge race in technologydriven markets. This race is particularly visible in the automotive field. Companies around the globe are vying to build a new, less polluting automobile engine that does not run on gasoline. In the US, for instance, General Motors (GM) spent over US$1 billion on developing an electric car that runs on a hydrogen fuel cell. It originally chose hydrogen fuel as the basis for the engine. Yet mass production of an electric car for sales to the public is not expected until 2013. In contrast, Tesla Motors 1 , spent about US$105 million on developing a new electric automobile. Its electric motor uses a radical configuration of 6831 lithium-ion batteries. The car can be recharged at home from a regular electric socket. This is a much simpler solution than the one originally developed by GM, which required the costly storage and transportation of corrosive hydrogen fuel. A new Tesla car was launched in early 2008. 1 Tesla Motors Inc. is a Silicon Valley startup that engages in the design, manufacture, and sale of electric vehicles based on lithium-ion batteries. At present Telsa produces around 15 cars per week — mostly custom-ordered vehicles manufactured to owners' specifications. Adapted from Wikipedia, 22 August 2010.
Choosing the right technology Authors Gerard J. Tellis, Professor of Marketing, Neely Chair of American Enterprise and Professor of Marketing, Director of Center for Global Innovation, Marshall School of Business, University of Southern California, U.S. Ashish Sood, Professor of Marketing, Goizueta School of Business, Emory University, U.S. Notes: This research benefited from a grant by Don Murray to the USC Marshall Center for Global Innovation. In this case, as in others before, a small outsider — Tesla Motors — seems to have jumped ahead of an incumbent industry giant to develop a radical new technology for an ongoing product. The outcome is still to be decided. However, at this point in time, the lithium-ion battery seems to have an edge over the hydrogen fuel cell because it is more efficient, cheaper, safer, more widely available and more easily recharged. Indeed, after observing Tesla’s success, GM has abandoned the hydrogen cell in favor of a lithium-ion cell for its new electric car due to be launched in 2013. The core question — which technology is best? This raises the question, “Which is a better technology for the automobile engine: hydrogen, lithium-ion, methanol, ethanol or any one of the other options in the market?” And secondly, “How should firms choose in a timely way?” This is probably the main challenge facing companies in technology-driven markets because technological change is such a powerful force in today’s markets. New technologies can merge old markets (e.g., music and voice), create new growth markets (e.g., online networking) and destroy established ones (e.g., travel agencies). Moreover, technological change transforms the market power of firms in these markets. It fuels the growth of new brands (e.g., iPod), brings down incumbents that fail to innovate (e.g., Walkman), and transforms small outsiders into industry leaders (e.g., Google). Companies need to understand technological evolution to shape and master competition and thrive in contemporary markets (Sood and Tellis 2009 2 ). Figure 1. Seven markets studied 1 Display monitors External lighting Analgesics Desktop printers 2 Desktop memory 3 4 5 6 7 Energy storage devices Data transfer technologies To understand how firms flourish in the new environment, we studied technological evolution in seven markets: external lighting, desktop memory, display monitors, desktop printing, data transfer, analgesics and energy storage devices (see Figure 1). We covered these markets over quite a varied time period, from almost 200 years for analgesics to 30 years for desktop printers. From our in-depth analysis, we identified four challenges that firms need to confront to master technological change (see Figure 2). Figure 2. Four questions to ask when confronting technological evolution On which level to innovate? What is the pattern of evolution? Which is the appropriate dimension of performance? Which technology to back? For companies in technology-driven markets, these challenges are a good point to start from when thinking about developing a growth strategy. Each challenge can be considered as a question. Even if a firm cannot fully answer each of these questions, just grappling with them can reveal the dilemmas it faces and help it define a coherent strategy. We now discuss the issues involved in each of these challenges. 2 Sood, Ashish and Gerard J. Tellis (2009), “Do Innovations Really Payoff? Total Stock Market Returns to Innovation,” Marketing Science, May/Jun 2009. Vol. 28, Iss. 3; p. 442. 13
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