Sustainable Growth:

Innovation Strategy

Formulation of a Technology Strategy

Guidelines on Technology Management for Small and Medium-scale Enterprises (SMEs)

Partially adapted from "Guidelines on Technology Management by SMEs", by International Centre for Science and High Technology (ICS)

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2.    Technology Selection

The technology selection aims at identifying the critical technologies which the enterprise should concentrate its interest on, and thus prioritize its investments.

On the basis of the analysis, the importance-strength matrix can be constructed.

The rows of the matrix show the critical technologies identified above.

The columns show a scale from 1 to 5 where the strength in each technology is reported. This mirrors the evaluation of the enterprise's capability in that technology given in the previous step.

In the matrix, the current and desired position of each critical technology is assessed. This provides the basis for formulating the technology strategy, i.e. identifying the effort needed to achieve the desired competitive position. To this end, the technology capability assessment also allows identification of the areas in which a certain technology needs to be improved (equipment, human resources and level of expenses).

The importance-strength matrix also reveals whether a technological leadership strategy (being first on the market, developing new technologies, keeping a position on the leading edge) or a follower strategy (imitate leaders, bring new products on the market later) should be adopted. If in the most important technologies the enterprise appears to be weaker than competitors, a leadership strategy is not viable. However, as the enterprise accumulates resources in a certain technological area and covers the gap with competitors, the situation may change.

Since this is the key matrix according to which decisions are taken, it should be constructed and used by top management with the support of the enterprise's technical managers.

TABLE 4. Importance/strength matrix

 

Critical technologies

Strength scale (1-5)

1

2

3

4

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The output of this stage is the list of priorities in technological actions.

3.    Definition of Portfolio of Technological Projects

 

List of technology innovation projects    Selection of the R&D projects    Definition of the form of acquisition

Technology projects can be classified in two main types:

  • R&D&E projects (research, development and engineering related to product and process). Process should be understood in a broad sense, involving the production chain as a whole and not only manufacturing. Raw materials and components development, suppliers development and customer services should be included.

  • Capital investment projects (purchasing of manufacturing and laboratory equipment).

This guide shows how this can be carried out for R&D&E projects. Additional comments are made at the end of each topic in terms of adjustments needed to apply the concepts to investment projects.

The definition of a technology R&D project portfolio has three phases: list of the technological innovation projects; selection of the R&D projects; and definition of the form of acquisition (internal development vs. external sourcing).

3.1.    List of technology innovation projects

Technological project generation is both a strategy pull and technology push process, the result of two processes. On the one hand, projects can be generated under the pressure of the strategic analysis that has indicated that a certain technology to be relevant to support the firm's strategy. Technical personnel submitting their project proposals can also generate technology projects.

For each technological project (investment or R&D), a short form should be completed, giving:

  • project objectives,

  • relevance,

  • impact if successful (quantity if possible),

  • cost (estimate of human resources and other costs, and

  • deadline.

Table 5 shows the technology projects (investment projects and R&D projects), the related critical technology, and the costs and benefits for each projects.

TABLE 5. Critical technologies, R&D projects, costs and benefits

 

Critical technologies

R&D projects

Costs*

Benefits*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* Total cost of the project, including materials, infrastructure, personnel, and R&D contracts

** Expected benefits for next five years, considering increase of sales (present sales minus future sales)

3.2.    Selection of R&D projects

 

At this stage, selection of R&D projects may be necessary, since the funds available may be less than those required for the whole set of projects generated.

Benefits and costs should not be limited to financial aspects but should include subjective and non-quantitative factors:

  • probability of technical success: chance of technical success estimated by the technical personnel

  • probability of commercial success: chance of commercial success estimated by the marketing personnel

  • return for the firm, considering the cost of the project: estimated financial revenue dividend by project cost. This criterion includes the duration of the advantage generated by the project (if successful)

  • strategic fit: level of consistency with the overall firm's strategy estimated by the board of directors or strategic planning group (if there is one)

  • consistency with core technologies: importance of the project in strengthening the firm's capabilities in the CTs.

  • extent to which the technology can be patented: an R&D project becomes more attractive when the results can be protected by a patent

  • consistency with technological threats and opportunities: extent to which the project responds to a particular threat or opportunity.

By assigning a weight to each criterion, a merit table for each project can be constructed (as shown by Table 6), evaluating each project against each criterion, and multiplying weights by scores. Projects are thus prioritized according to the merit table obtained.

The projects are undertaken until the budget is used up, starting from the top of the list. At this stage, the portfolio obtained is revised to check the balance against parameters such as risk, reward and time horizon. This procedure ensures a balanced portfolio as regards a certain variable. For example, projects are all highly promising but very risky or long term.

If the portfolio is not satisfactory i.e. unbalanced in certain parameters, projects are redefined and the process repeated. Redefinition of a project means that for example two projects might be combined and the objectives modified slightly to exploit the synergies and common areas of the projects. Alternatively, a project may be assigned a larger amount of funding to reduce the time to completion, and so on. The final project portfolio definition is the result of this iterative process.

TABLE 6. R&D project selection matrix

 

Criteria for selection

Weight

Projects

A

B

C

D

E

F

G

H

probability of technical success

 

 

 

 

 

 

 

 

 

probability of commercial success

 

 

 

 

 

 

 

 

 

return on investment

 

 

 

 

 

 

 

 

 

strategic fit

 

 

 

 

 

 

 

 

 

consistency with core competencies

 

 

 

 

 

 

 

 

 

extent to which the technology can be patented

 

 

 

 

 

 

 

 

 

consistency with technological threats and opportunities

 

 

 

 

 

 

 

 

 

High - 5 and Low - 1 with  the exception of criterion number 3. In this case, the actual values would be more adequate when available. The weight reflects the relevance of the criterion.

When investment projects are evaluated, the same criteria can be used but the weights will be different. Emphasis is given to benefit and cost factors. Probability of technical and commercial success tends to have lower importance.

3.3.    Internal versus external sources for R&D

At this stage, once the technological project priorities are defined, the implementation strategy for each should be defined. These guidelines deal mainly with identification of technology needs, but some comments regarding the strategies for project implementation are useful.

For R&D&E projects, this essentiality means deciding whether to develop internally or resort to external sources. There are various ways of acquiring technology from external sources. Pros and cons should be evaluated.

The main alternatives are the following:

  • internal development (i.e. acquiring competence through internal R&D projects),

  • research consortia,

  • contract research with a research institute or university

  • acquisition of firms with the required competences,

  • licensing

  • internal ventures, i.e. creating internal groups separated from the rest of the organization: these will be devoted to development of new businesses based on technologies available,

  • joint ventures or other forms of alliances, and

  • hiring human resources with the required capability.

The variables usually considered for choosing a certain mode of acquisition are:

 
  • availability of external sources (indicated in the competitive impact analysis for each technology)

  • availability of the technology for acquisition at a price that allows adequate return for the company.

  • demands and restrictions imposed by the licenser,

  • time-frame demanded by the company strategy: forms of technology acquisition such as firm acquisition or licensing clearly allow certain technology to be acquired very quickly,

  • appropriability (i.e. extent to which a certain technological knowledge needs to e kept proprietary and made difficult to imitate): where there are strong appropriability problems, internal development is safer that resorting to external sources.

  • degree of familiarity of the firm holding the technology: a low familiarity with technological competences required to develop a certain technology forces acquisition from external sources, and degree of familiarity of the firm with the market (if the investment into a new technology implies new product line creation): again, a low familiarity with the activities suggests going external.

Table 7 shows the results of the R&D&E selection process, including the technology sources for each case.

TABLE 7. R&D projects and sources

 

Projects

Internal development

External R&D contracts

Joint venture alliances

Licensing

Hiring specialized personnel

Project 1

 

 

 

 

 

Project 2

 

 

 

 

 

Project 3

 

 

 

 

 

Project 4

 

 

 

 

 

Project 5