Instructors’ Manual to Accompany Contemporary Strategy Analysis (9th edn. Wiley, 2016)
CHAPTER 9. TECHNOLOGY-BASED INDUSTRIES AND THE
MANAGEMENT OF INNOVATION
Introduction
For analyzing the sources of competitive advantage, industries subject to rapid technological change
where innovation is a key strategy variable are particularly interesting. These industries are predominantly
The principal topics I cover are:
• The linkage between innovation and competitive advantage and the determinants of the
profitability of innovation.
Class Outline
I typically begin this topic with a case that explores issues in managing innovation. Cases I have used
include: the Chris Bartlett classic, EMI and the CT Scanner and my own Raisio and the Benecol Launch
and Tesla Motors: Disrupting the Automobile Industry. These cases cover many of the same issues
regarding formulating and implementing a strategy to exploit an innovation.
I use these cases to develop several key themes, notably:
• Strategy alternatives for exploiting an innovation (licensing vs. alliances and joint ventures vs.
internal development within a wholly owned subsidiary).
The key issues I explore here are:
• Managing hardware–software complementarities. In most hardware–software systems, the
primary profit source is the software. But who appropriates this profit? In the case of personal
computers, it was the software suppliers (notably Microsoft); in video games it has been the
hardware suppliers.
• Standards and network externalities. Video games consoles appears to be a “winner-takes-all”
market—although there have been three major players in recent years, only the market leader has
made profits in this market. The tendency for convergence around a single platform can be
For a case that is target specifically on the issues of standards wars, my case on The DVD War of
2005–2008: Blu-Ray vs. HD-DVD allows in-depth consideration of the implications of network
externalities and the dynamics of competition between rival standards. This illustrates a number
of key features of standards wars—notably the use of alliances to build a “bandwagon”, the
importance of managing expectations, the difficulties of achieving coordinated investments among
different companies to support a new technology, and the speed of convergence once a “tipping
point” has been reached.
Cases
As I observed in relation to Chapter 8, cases that explore the competitive advantage and strategy making
in technology-based industries can also be used to address issues of industry evolution and firm
Tesla Motors: Disrupting the Automobile Industry (R. M. Grant, Contemporary Strategy Analysis: Text
and Cases, 9th edn., Wiley, 2016)
and environmental sustainability. In doing so it would link with his plan to simultaneously revolutionize
the generation and storage of electrical power.
Raisio, a grain milling and vegetable oil company based in Finland, has developed a patented process for
the production of stanol ester and its use as cholesterol-lowering food additive. Its first product to
incorporate stanol ester has been a huge market success in Finland and Raisio’s share price has increased
tenfold. The company is anxious to exploit the worldwide potential for Benecol and is considering
alternative strategies for exploiting its innovation. The A case focuses upon strategy alternatives to exploit
the innovation. Key issues here are (a) the strength of Raisio’s patent position and (b) whether Raisio has
the resources and capabilities needed to develop a worldwide market for Benecol and other products
containing stanol ester.
The case traces the development of the video games industry through its major eras of market dominance:
from Atari, to Nintendo, to Sega, to the three-way battle for leadership between Microsoft, Sony, and
Nintendo during the most recent generation of consoles. The case outlines the strategies of the different
players and the dynamics of competition. This provides a basis for analyzing key success factors in the
industry – including the role of network externalities.
A key feature of the most recent round of competition (the 7th generation of video game consoles) was the
profound changes that were occurring in the industry. Not only had Nintendo defied industry wisdom to
become worldwide market leader with its Wii console, but profound shifts were occurring in the
relationships between console makers and the developers and publishers of games. As the three firms
prepare for the next round of competition their strategies need to take account of the profound changed in
their industry environment.
The B case takes up the situation four years later. The market has matured considerably, new competitors
have appeared (General Electric in particular), and EMI must (a) assess the emerging competitive
situation—particularly with regard to its comparative weaknesses in complementary resources and (b)
develop an organizational structure and management systems to deal with the internal conflicts and
inefficiencies it suffers.
DVD War of 2005–8: Blu-Ray versus HD DVD (R. M. Grant, Cases to Accompany Contemporary