Companies, particularly those in the technology sector, used to invest a substantial amount of time, effort, and cash to innovate and establish a Competitive Advantage based on their design and engineering.
Integration of design and technical expertise via the development of high-tech manufacturing and design tools has simplified the Innovation and Production processes. Consequently, new entrants may now exploit readily and affordably accessible technical knowledge and resources to expedite the creation of their own technology-intensive goods with much greater ease. This phenomenon is known as Technology Commoditization.
This increase in Technology Commoditization has 3 key causes:
- Open infringement of Intellectual Property (IP).
- Governments requiring companies to exchange technology in order to obtain permits for conducting business.
- Regular knowledge transfer as a result of multinational staff transferring to local businesses.
Due to Technology Commoditization, there are some situations where new, unknown firms are catching up to long-established companies and becoming highly formidable competitors.
There are additional, less recognized elements at play that are driving commoditization and making it more difficult to maintain product distinctiveness.
On the plus side, Technology Commoditization has spawned new global rivals and provided customers with more options. In addition, it has created serious and maybe existential issues for existing industry leaders.
Market leaders must now consider countermeasure strategies to this grave threat. These pressures can be countered by incumbent firms by employing the following 4 strategies:
- Instead of focusing on the commoditized portions of the Value Chain, emphasis should be on complex systems design and defendable areas.
- Differentiation should be based on pushing the design envelope and scaling rapidly in areas where embedded knowledge in tools is high.
- Noticeable IP should be the point of differentiation and should be uncompromisingly safeguarded.
- Process knowledge should be guarded in indiscernible areas.
Let's examine some of the strategies in further detail.
Instead of focusing on the commoditized portions of the Value Chain, emphasis should be on complex systems design and defendable areas.
Numerous businesses have used this strategy, especially in sectors where the product may be divided into commodity and proprietary components.
GE is an example of a company that purchases a lot of its components, such as easily replicable parts for its commercial jet engines, from lower-cost geographic regions.
GE manufactures what it considers to be essential components itself, such as ceramic matrix composite blades and combustors, and carries out final assembly in its own plants.
Differentiation should be based on pushing the design envelope and scaling rapidly in areas where embedded knowledge in tools is high.
To keep competitors at bay while relying only on high-tech tools, it appears reasonable to exceed the limits of the equipment.
Leading chip manufacturers, for instance, employ this method by aiming to stay on the cutting edge of tool capabilities by driving advancements that draw on interdisciplinary knowledge and skills.
Noticeable IP should be the point of differentiation and should be uncompromisingly safeguarded.
Such a method is only rational when dealing with Innovations where the fundamental innovation is evident.
Companies can produce difficult-to-manufacture unique items and then vigorously protect their patents.
Interested in learning more about Technology Commoditization? You can download an editable PowerPoint on Technology Commoditization here on the Flevy documents marketplace.
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