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Technology Strategy and Entrepreneurship -From Implicit to Explicit Technologies Harry NYSTROM Center for Research in Entrepreneurship and Innovation Institute of Economics Box 7013 S-750 07 Uppsala SWEDEN Phone: +46 18 671714 Fax: +46 18 673502 ABSTRACT Technology strategies are viewed as the driving forces in product and company development and marketing as the realization of technological potential. While marketing strategies mainly promote specific offers and establish buyer relationships, technology strategy basically works towards transforming underlying company conditions and competencies into viable concepts for new products or services. Instead of merely focusing on product or company lifecycles -- as is normally the case in the general management literature -- we need to also consider technological lifecycles. Such lifecycles essentially imply that technologies develop from being highly implicit to relatively explicit. There are two basic strategies which both large and small companies may use in the strategic management of technology. In this paper they are referred to as the a priori planning approach and the entrepreneurial approach. Introduction This paper discusses the strategic management of technology against the background of a model of technological development, which focuses on how companies may creatively handle their knowledge base for developing new market offers. Technology is defined as knowledge that is potentially useful for product and company development (Nystrom, 1990), rather than as physical methods or techniques for producing existing products or services (Skinner, 1982), which is the meaning usually given to the term in the management literature. Creativity is viewed as the mechanism for achieving technological breakthroughs and transforming them into innovation, that is constructive change. It is the balanced intellectual unfolding and converging of experience. (Nystrom, 1990) The early stages of the creative process are mainly concerned with developing new knowledge and thereby broadening the knowledge base of the company, its major asset in adapting to and exploiting future change. This
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is the main function of technology strategy. The later stages are more concerned with focusing this knowledge and the mechanism for doing this is marketing strategy. The creative management of technology thus depends on how companies can handle the transformation of implicit experience and intuitive insight into systematic, explicit knowledge, which may be communicated within the organization and to the outside world and turned into marketable products or know-how, such as services or licences. Company creativity (Nystrom, 1979, Ekvall and Arvonen, 1984) and technology strategies (Ford, 1988, Clark, Ford and Saren, 1989) are the driving forces in innovative development and marketing is the realization of technological potential. While marketing strategies mainly promote specific offers and relationships, technology strategy basically works towards transforming underlying general company conditions and competencies to stimulate technological change and innovative development. Instead of merely focusing on product or company lifecycles, we therefore need to employ the more basic concept of a technological lifecycle, in order to understand the fundamental process of transforming emerging ideas and insight on how to handle novel situations into established knowledge. When combined in constructive ways these competencies (Prahalad and Hamel, 1990) may lead to new kinds of customer satisfaction. Such a life cycle basically implies that technologies develop from being highly implicit to relatively explicit and that companies need to use different ways of managing technology at different stages of this life cycle. The early embryotic knowledge packages we will call implicit technologies, while we will refer to the later, more established ones as explicit technologies. Products are usually based on a number of technologies combined together to achieve a certain end result. This we may call synergistic technology use (Nystrom, 1979), if their joint effect is necessary to achieve the desired outcome. Some of these technologies are company specific and highly critical from a development point of view, while others are more supportive and generally available. By their very nature implicit technologies are likely to belong to the former category, since they are being developed by individual companies to address specific development needs, which they have not been able to successfully handle before. Their contents are not yet firmly fixed in established and conceptually captured form and they are based on individual intuition more than analysis and interpersonal communication. In
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other words they reflect the early stages of the creative process. While implicit technologies in Weick's words are 'open-ended artifacts that accommodate to interactions', explicit technologies are 'self evident artifacts to which people accommodate' (1990, p.21). There are several reasons for making implicit technologies more explicit, for instance the need to communicate results within companies or to the outside world. This may be for instance for training and testing purposes to facilitate technological cooperation and joint ventures, or to achieve patent protection. There may also be reasons for delaying this process, for instance to prevent the leakage of confidential information and imitation by competitors, which is a major reason why many large companies do not seek patent protection. Especially in the case of small companies the cost of seeking and maintaining patent protection may be prohibitive. The nature of the creative process itself is based on the transition from implicit to explicit knowledge. While this process may be delayed intentionally or inadvertently, the basic tendency, brought out by the history of science and technology (Kuhn, 1963), would appear to be that specific technological paradigms (Freeman and Perez 1988, Dosi, 1988, Clark and Staunton, 1989) tend to converge over time and become more formalized and explicit, before they are replaced by or integrated into new bodies of knowledge. For our purpose, and in the research underlying the development of the present framework, explicit technologies are defined as specialized areas of knowledge -- usually separate disciplines at universities -- which define and delimit the areas of competence of most researchers. Within such technologies we usually find specialization in for instance terminology, research instruments, technical facilities and procedures (Nystrom 1979, Granstrand and Sjolander 1990). This creates barriers to interdisciplinary research and to the development of new technologies based on synergistic technology use -- the merging and intermingling of existing technologies. There are two basic strategies which companies may use to manage technology. In this paper these are referred to as the a priori planning approach and the entrepreneurial approach, in the Schumpeterian sense of this word. More open and searching entrepreneurial approaches to technology management, it will be argued, are more appropriate at earlier stages of this life cycle, while more closed and directed planning approaches are better suited at later stages. Small and growing venture companies will usually find it necessary to emphasize
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more entrepreneurial strategies while large and established companies will need more of a planning approach. All companies, however, need to establish a balance between the two based on their own development needs, which is what the creative process implies. The distinctions between more open and closed technological strategies and between more implicit or explicit technologies are useful for understanding and handling these two approaches to the management of technology. These will be the main issues addressed in the rest of this paper, against the background of the research which has been used to develop the framework. Empirical background The empirical results and conceptual framework presented in this paper are based on research (Nystrom 1979, 1990, Nystrom et al, 1992) carried out since the mid-1970s with a large number of Swedish companies in different industries working within a broad variety of products and technologies. The range is from highly research intensive companies working in rapidly advancing technology areas, such as micro-electronics, pharmaceuticals, medical diagnosis and industrial chemicals to very low research intensive firms working in more mature and established technologies, such as food and wood processing. Many of Sweden's oldest and most established, technology based multinational companies, such as Aga, Asea, Alfa Laval, Astra, Perstorp and Pharmacia are included in the data. But also companies that have been founded fairly recently, eg Tetrapak and Interinnovation, which have rapidly become large internationally leading companies in their areas of technology, in the case of these two companies liquid food packaging and cash handling equipment for banks. While some of the companies are among the largest and best known in Sweden others are very small family based concerns, for instance manufacturing and selling farm machines or food products. One of the main results of these studies is that essentially the same factors contribute to success regardless of company size. While the level of technological, market and commercial success varies between companies and industries the more successful small and medium-sized companies in our data by and large seem to employ the same basic strategies as the more successful large companies. The differences in success are more closely related to strategic orientation and technology use than to company size, with a clear tendency for more open strategies to be linked to greater technological and market success. While the restrictions on entrepreneurship and the potential for success thus may vary between companies as a function of for instance company size and market dominance, the basic requirements for success appear to be
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similar. The same framework, then, would seem to be valid for studying a wide range of companies and industries, which is one of the major implications of our studies. The focus of this research has been development strategies and the main purpose has been to construct an empirically based, integrated framework for studying technological, marketing and organizational strategies for product and company development. In the present paper technology strategy is emphasized, but it should be noted that the ideas have been developed in an integrated context (Nystrom, 1985), stressing the interaction between technology and other elements of strategy, such as marketing and organizational development. Methodology and general results The research has mainly been based on personal interviews with leading company representatives, directly involved with formulating and implementing strategy. In the case of technology strategy, the Technical Director, or other top official responsible for R and D, were usually interviewed and also research personal who had directly been involved in specific research projects. In smaller companies one person was usually responsible for the company's overall strategy and therefore was chosen as the main interview person. These projects were selected to give a balanced picture of how companies had actually developed and marketed major new products over an extended time period, usually 10 years. A number of strategic dimensions, such as technology use and orientation (relating to the extent to which companies had achieved new technological combinations or used network interaction and external cooperation in their technological development work) were formulated on the basis of this data and related to technological marketing and commercial success for the resulting new products. Basically the results were that more open technological strategies (combining and recombining technologies and using external cooperation to find and develop new ideas) were associated with greater technological success than more closed strategies (refining existing technologies by mainly using internal in-house competencies). More open strategies also tended to be associated with greater market and commercial success -- as defined in the studies -- but this relationship was not as clear. This is to be expected, since the link between technological strategy and market success or commercial success is more indirect and difficult to estimate, than the link with technological success which is the direct
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outcome of technology strategy. Technological success was defined as the degree of originality and ingenuity the company had successfully used to solve the critical problems in a specific development project, as judged on a scale from 1-5 by the interviewers, after intensive discussions with the people who had carried out the development work. Essentially this measures patentability, but since many companies do not apply for patents for competitive or financial reasons, it is a better and more complete indicator of technological success, than patent data. Such data was also collected, when patents had been applied for, and showed a strong correlation with our measure of technological success, which gives us confidence in our more valid, but less operational measure. Market success was measured as the degree of market uniqueness achieved, in relation to the closest competing product on the market at market introduction, which was used as an indicator of market potential. Commercial success, when the product had been on the market long enough to make this measure meaningful, was measured as profitability over the life cycle, as estimated by company executives. Some examples of technology development The idea for distinguishing between different types of technology use came from our first interview in the research program, carried out in 1972 with a leading representative for Aga, a Swedish company now specializing in gas and gas equipment, but then interested in a wide range of technologies, with a history as one of Swedens leading invention companies. He stated that it was company policy to ensure that new products were based on a combination of at least two of the company's than leading areas of technology, mechanical engineering, optical measurement and micro electronics. In essense this means that the company when developing new products was using firm specific technologies, which at the time were to a large extent what we call implicit technologies, but in many instances have today become more explicit ones. Examples of this are "optronics", the combination between optical measurement and microelectronics and "mecatronics", the combination between mechanics and electronics. Often these new technologies do not have completely agreed upon names, but they tend to fulfill many of the requirements we have stated for explicit technologies, such as separate university courses, specialized instruments and designated experts.
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In our research companies were asked to list and name the technologies they used for development purposes. In the case of implicit technologies this was often difficult for them to do, since they had not been officially named inside the company and did not exist as technologies outside of it. Such difficulties in naming technologies can be used as one indication that technologies really are to a large extent implicit, and have not been highly formalized and institutionalized internally or externally. At the same time to be called implicit technologies they must not be so vague that they cannot be clearly separated from other bodies of knowledge or explained in some detail. A useful way to identify these technologies is, from our experience, to focus on specific new products and inquire what technologies had been involved in their development and then have them described by those actually developing them. An example of such a new product from our data is for instance Pharmacia's Healon, a semi-liquid substance used to facilitate eye operations, which is based on an implicit "Healon technology". This deals, for instance, with how to extract the basic substance from rooster combs, which has made necessary cooperation with the Agricultural University in Uppsala to breed roosters with enormous combs. Another example is Interinnovation's cash dispensing machines for banks, based on a highly unique new implicit technology, which we may call "separation of paper money". This refers to the mechanical separation and dispersal of paper bills to cashiers in exactly the right amounts, which was a highly complex and novel technical problem to solve. It is interesting that these new implicit technologies usually emerge as the result of previously unrelated combinations of existing technologies, what in this paper is called synergistic technology use. At the same time they superficially, at least to the layman, may seem to be based on almost completely new knowledge. They thus appear to be the result of more discontinuous development than is actually the case, but it is a type of continuity which is difficult to capture in conventional economic models based on one dimensional continuity. To study radical innovative development we therefore need to employ a concept of multidimensional continuity, dealing with the evolvement of combinations of elements, which has quite different implications both for theory and practice. This type of technological development makes it difficult to use traditional a priori planning approaches, based for instance on extrapolation techniques, for forecasting technological change. As we shall see in the following, more adaptive entrepreneurial approaches to managing technology, emphasizing experimentation and learning by
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doing, would appear better suited for handling such relatively open technological trajectories (Nelson and Winter, 1982) than a priori planning approaches. More explorative and flexible technology strategies should therefore increase the likelihood of finding and successfully commercializing implicit technologies, which usually depend on combining disparate inputs from many sources within and outside the company. As our empirical data indicates, more open strategies based on combining previously unrelated knowledge and on technological cooperation to find necessary inputs missing from the company's own knowledge base, are often required for technological breakthroughs resulting in unique and highly profitable new products. A priori planning versus entrepreneurial approach to technology management In our framework an a priori planning approach to the management of technology is mainly concerned with the refinement of existing explicit technologies. This means that you start with what you know and know where you are going. Necessary technological developments may then be carried out in relatively straight-forward ways, by traditionally trained and recruited experts within their areas of expertise. If this expertise is part of the technological specialization of the company, this development may take place without any major broadening or reshuffling of its knowledge base. In the area of paper making, for instance, this type of development may be concerned with the more efficient production of pulp, without using new mechanical or chemical mechanisms for the conversion process or new basic or filling material to achieve better quality or economy. Technology is then usually embodied in products and technological development is closely linked to the development of existing products. This means that only modifications of existing products, not the development of radically new products, is dealt with and the role of technology for creating new market needs for as yet unconceived new products is not considered. Economic theory and marketing theory is mainly concerned with this type of planned technology development, reflecting past requirements more than presaging future needs and possibilities. In some companies with slowly changing technological and market needs a skillfully executed a priori planning approach to the management of technology may of course be quite successful, as our data show, for instance for companies in the Swedish food and forest industry. In other companies working under rapidly evolving and changing conditions, where technological change is much more of
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a strategic issue (Mc Gee and Thomas, 1989), more entrepreneurial strategies will be needed. In the areas of medical diagnostics or genetic engineering, for instance, stressing a priori planning in managing technology, based mainly on the development of explicit strategies, may rapidly lead to a lack of competitive new products. The a priori planning approach may be contrasted with an entrepreneurial approach (Nystrom, 1993) to the management of technology, focusing on the development and commercialization of implicit technologies, by using highly open and flexible strategies in an enactive, rather than proactive way. This is particularly necessary during the early stages of the creative and entrepreneurial process. It is then unclear, even intuitively, what knowledge elements belong to the relevant domain of technology and there is little basis to decide the issue by a priori judgement. Instead a high degree of genuine uncertainty prevails (Schackle, 1958) which may be resolved only by direct experimentation, rapid reevaluations and learning by trial and error. This was how Interinnovation developed its new cash handling equipment for banks, utilizing a new critical implicit technology the mechanical separation of paper money. Only after the technology was developed was it possible to know what crucial knowledge was needed. Thus -- as in the case of all radically new products -- it would have been highly unlikely that the company could have achieved this result by using an a priori planning approach to technology development, stating the relevant technological requirements in advance and the means for acquiring this knowledge. Other examples of entrepreneurial technological strategies from our data, are Pharmacia's development of a number of world unique new products, for instance Healon, and Eka Kemi's development of, Compozyl, a radical new chemical system for paper making. This latter instance shows that in the area of paper making, where in our data we usually find firms using quite pronounced a priori planning approaches to the management of technology, we also find the use of a more entrepreneurial strategy by a more innovative company. In practice, of course, all management of technology has some elements of planning and some elements of entrepreneurship, as we have defined these terms. While small evolving firms may find it easier and more necessary to focus on entrepreneurship and large established firms by definition need to rely more on planning, both types of companies need to be aware of the implications of stressing one or the other and to vary the balance over time to reflect different development needs. The purpose of the distinction -- as
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in the case of implicit versus explicit technology -- is to point out a basic difference in how technology may develop and direct attention to the fact that these different mechanisms have different development implications, which all companies need to be aware of when planning and enacting their strategies. REFERENCES Clarke, K., Ford, D. and Saren, M. (1989) "Company Technology Strategy" R & D Management 19. pp. 215-229. Clarke, P. and Staunton, N. (1989) Innovation in Technology and Organization. London, Routledge. Dosi, G. (1988) "The Nature of the Innovative Process" Dosi, G., Freeman, C., Nelson, R., Silverman, G. and Soete, L. , Technical Change and Economic Theory. London, Pinter Publishers. pp. 221-238. Ekvall, G. and Arvonen, J. (1984) Leadership Styles and Organizational Climates for Creativity. Some Findings in One Company. Stockholm, Swedish Council for Management and Work Life Issues. Ford, D., 1988, "Develop Your Technology Strategy" Long Range Planning, no.22. pp. 85-95. Freeman, C. and Perez, C. (1988) "Structural Crises of Adjustment: Business Cycles and Investment Behaviour" Dosi. G., Freeman, C., Nelson, R. Silverman, G. and Soete, L., Technical Change and Economic Theory. London, Pinter Publishers. pp. 38-66. Granstrand, O. and Sjolander, S. (1990) "Managing Innovation in Multi-technology Corporations." Research Policy 19. pp. 35-60. Kuhn, T.S. (1963) The Structure of Scientific Revolutions. Chicago. University of Chicago Press McGee, J. and Thomas, H. (1989) "Technology and Strategic Management. Progress and Future Directions". R & D Management no. 19. pp. 205-213. Nelson, R.R. and Winter, S.G. (1982) An Evolutionary Theory of Economic Change, Boston, Harvard University Press. Nystrom, H. (1979) Creativity and Innovation, Chichester, John Wiley. Nystrom, H. (1985) "Product Development Strategy: An Integration of Technology and Marketing." Journal of Product Innovation Management no. 2, pp. 25-33.
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Nystrom, H. (1990) Technological and Market Innovation. Chichester, John Wiley. Nystrom, H., Liljedahl, S., Mark-Herbert, C: and Wahlgren K. (1992) Teknologiutveckling i 14 svenska bioteknik och livsmedelsforetagstrategisk beskrivning och teoretisk modell. Rapport 51. Uppsala. Institutionen for Ekonomi, SLU. Nystrom, H. (1993) "Creativity and Entrepreneurship" Creativity and Innovation Management, vol. 2, no. 4. pp. 237-242. Prahalad, C.K. and Hemel, G. (1990) "The Core Competence of the Corporation". Harvard Business Review, May-June. pp. 79-91. Shackle, G.L.S. (1958) Time in Economics, Amsterdam, North Holland Publishing Company. Skinner, W. (1982) "Technology and the Manager" Tushman, M.L. and Moore, W.L. (eds), Readings in the Management of Innovation, pp.464-475, Boston, Pitman. Weick, K.E. (1990) "Technology as Equivoque", Goodman, P.S., Sproull, L.S. and Associates. Technology and Organizations, San Fransisco, Jossey Bass. pp. 1-44.
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