Strategy

Professor Rebecca Henderson Speaks on Technology Strategy

July 30, 1999

Rebecca Henderson, Eastman Kodak Leaders for Manufacturing Associate Professor of Management in MIT’s Sloan School, recently gave a presentation on developing and managing a successful technology and product strategy as part of SDM students’ Spring Business Trip. The title of Dr. Henderson’s presentation was "Technology Strategy."

Henderson received her SB degree in mechanical engineering from MIT and her Ph.D. in business economics from Harvard University, the year she joined the MIT faculty as assistant professor. MIT awarded her tenure in 1995.

Henderson began by saying, "I have been asked to present the contents of a 26-week course in an hour-and-a-half. I will try to give you a sense of what the course is about and focus on two goals: how to ask the right questions, so you can formulate the best possible technology and product strategy and how to use tools to make choices, in order to focus, communicate, and get things done."

First Henderson outlined the elements of a successful strategy. "Effective strategies rest on three foundations," she explained: "value creation in markets and technologies, organizational capability, and competitive understanding."

She encouraged students to re-phrase these three elements as questions: How will we create value in markets and technologies? How will we build the organizational capabilities necessary to deliver that value? How will we capture that value in the face of competition?

Executives must also ask: What is our central source of competitive advantage? Three important concepts apply here. First, the balance of power among five forces: the threat of entrants, the presence of substitutes, the strength of buyers and suppliers, and the intensity of rivalry within the industry. The second and third concepts are tools for building power: "appropriability," or controlling knowledge generated by innovation, and "complementary assets," or controlling the assets necessary to exploit the knowledge generated by innovation.

Henderson emphasized the importance of appropriability. "If a particular innovation, or the knowledge on which it rests, can be completely appropriated," she said, "it means that no one else can use it or copy it. This is a tremendous source of bargaining power."

She defined complementary assets as those assets necessary to translate an innovation into commercial returns. "Complementary assets can be things you own, like a brand name, distribution channels, or customer relationships, or things you can do, like manufacturing capabilities or sales and service expertise," she explained.

"These tools are easy to describe, but difficult to use," Henderson admitted.

Henderson proceeded to explain how to use tools for making choices that lead to organizational competence. Henderson gave insight into organizational competence by explaining the evolution of competition. Technological innovations first go through an "era of ferment" until a "dominant design" emerges. Next is the "era of incremental innovation" in which technological activity focuses on exploiting the possibilities of the dominant design. Activity centers around process, delivery, and service as the innovation reaches its final phase of maturity.

Discontinuous organizational change is vitally important if an organization wants to rise to new levels of competence and value-creation. Organizational change is brutally difficult, however, because it involves changing local culture and mental models.

Henderson explained that two kinds of knowledge emerge in the era of incremental innovation: "component" knowledge, or knowledge about pieces, and "architectural" knowledge, which is knowledge about the relationship between pieces. Architectural knowledge becomes deeply embedded in mental models and in the structure of the organization, making change harder and harder as performance improves.

What can be done to effect change in organizations caught in the "competency trap" of highly specialized, deeply-embedded architectural knowledge? Four concurrent actions guide transition to new technological endeavor.

  • Leading: communicating the vision and allocating resources.
  • Structuring: exploring transitional and intermediate forms.
  • Incenting: explaining "just what’s in this for me?"
  • Building: laying the foundation for a new culture, new expectations.

Henderson concluded by asserting, "Managing this transition is the key to technology strategy."