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Strategic Management
, Sixth Edition
Charles W. L. Hill, University of Washington
Gareth R. Jones, Texas A&M University
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Chapter Summaries
Chapter 7: Strategy in High-Technology Industries
- Technical standards are important in many high-tech industries: they guarantee
compatibility, reduce confusion in the minds of customers, allow for mass
production and lower costs, and reduce the risks associated with supplying complementary products.
- Network effects and positive feedback loops often determine which standard
comes to dominate a market.
- Owning a standard can be a source of sustained competitive advantage.
- Establishing a proprietary standard as the industry standard may require
the company to win a format war against a competing and incompatible standard.
Strategies for doing this include producing complementary products, leveraging killer applications,
aggressive pricing and marketing, licensing the technology, and cooperating
with competitors.
- Many high-tech products are characterized by high fixed costs of development but very low or zero marginal costs of producing
one extra unit of output. These cost economics create a presumption in favor
of strategies that emphasize aggressive pricing to increase volume and drive
down average total costs.
- Many digital products suffer from very high piracy rates due to the low marginal
costs of copying and distributing such products. Piracy can be reduced by
the appropriate combination of strategy, encryption software, and vigorous defense of intellectual property rights.
- It is very important for a first mover to develop a strategy to capitalize
on first-mover advantages. A company can choose from three strategies: develop
and market the technology itself, to do so jointly with another company, and license the
technology to existing companies. The choice depends on the complementary
assets required to capture a first-mover advantage, the height of barriers
to imitation, and the capability of competitors.
- Technological paradigm shifts occur when new technologies come along that
revolutionize the structure of the industry, dramatically alter the nature
of competition, and require companies to adopt new strategies in order to survive.
- Technological paradigm shifts are more likely to occur when progress in improving
the established technology is slowing due to diminishing returns and a new
disruptive technology is taking root in a market niche.
- Established companies can deal with paradigm shifts by hedging their bets
with regard to technology or setting up a stand-alone division to exploit
the technology.
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