PERF RMANCE 04 - The Performance Portal - Ernst & Young

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.
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