Reference no: EM132241171

1. Introduction Innovation is a theme which is highly debated today, both in academia and in the business context. However, even with large investments in innovation, many companies are frequently surprised by often smaller competitors that take advantage of existing opportunities, launching new products that meet client needs. Just to cite one example, Microsoft, whose annual R&D budget exceeds US$ 9 billion, is constantly threatened by competitors or new technologies. This occurred with browsers when Netscape came out, with an Internet ad and search market which is now dominated by Google, and more recently with the growth of social network sites like Twitter and Facebook. Another issue is the increasing importance of developing country markets, especially those known as BRIC – Brazil, Russia, India and China. Multinational companies are realizing that such markets offer big opportunities, but also have specific needs. Many studies are confirming a tendency towards a more decentralized R&D structure, in which a more important role is being assigned to subsidiaries in the innovation process (Gassmann and Zedtwitz, 1998; Pearce, 1999; Blanc and Sierra, 1999; Chiesa, 1996). Thus, it´s not enough to invest in or possess innovation resources. In the current globalized market, companies competing in high technology industries should develop dynamic capabilities to coordinate expertise and match a complex and rapidly changing environment (Teece, Pisano and Shuen, 1997; Eisenhardt and Martin, 2000). In this context, the process of formulating the technology strategy is a very important capability for a company to have a competitive advantage. This process aims to map company expertise, to identify future opportunities and threats, and to support decision-making about the desired future (Bone and Saxon, 2000). It is hoped that this process will aid the company in formulating a vision of the future and identifying possible scenarios which may emerge, allowing the company to take advantage of opportunities and mitigate threats. The objective of the present paper is to analyze technology strategy formulation in Brazilian subsidiaries of multinational companies in a dynamic and innovative industry. We chose the telecom industry due to its innovative and competitive nature. The research question we address in this paper is: How do Brazilian subsidiaries of multinational companies in the telecom industry formulate their technological innovation strategy? Based on the literature review, two main aspects were investigated: whether technology strategy is derived from corporate strategy or whether both are formulated in conjunction, and a subsidiary´s involvement is in the process of formulating the technology strategy 2. Importance of technological innovation for competitiveness in the tele- com industry Telecommunications is a very dynamic and complex industry, involving many participants. 3. Frameworks for Formulating Technology Strategy The alignment of technology strategy (or that of R&D) and corporate strategy was and continues to be a challenge for many organizations. Even with large investments in innovation, it’s common for companies to develop products and/or services that never reach the market or else fail, and on the other hand, they don’t invest in the development of products and services that are important to remain competitive in the market. Thus, the identification of technological opportunities and threats is important for the company to be able to reevaluate its project and technological product portfolios (Vasconcellos et al., 2007). Roussel et. al. (1991) is known for the use of the expression “third generation R&D”. This generation is characterized by its concern with the strategic alignment of R&D and the measurement of its results. There is also an increased participation of senior managers in the process of formulating the R&D strategy. Another concern is the balance of projects according to the type of innovation (radical or incremental), so that the company can realize its long-term vision. Arasti and Packniat (2006) analyzed diverse technology strategy formulation frameworks. Such frameworks may adopt a rational or incremental process for formulating the technology strategy. In the rational process, companies are concerned with describing, understanding and analyzing the environment in order to determine a course of action and execute a plan. In the incremental process, the rapidly changing environment offers constraints to the rational process, and often companies make decisions and take actions in one direction, measure results and adjust goals, and finally define the next steps. According to Chiesa (1998), existing models for formulating the technology strategy 4. The Role of the Subsidiary in the Innovation Process The innovation process has become more and more globalized, with increasing participation of subsidiaries not only in adaptation, but also in creation of new products and services (Gassmann and Zedtwitz, 1998; Pearce, 1999; Blanc and Sierra, 1999; Chiesa, 1996). According to Ghoshal and Bartlett (1988), subsidiaries may carry out three types of activities in the innovation process of MNC companies. One task is “creation”, in which subsidiaries develop innovations locally for local use, generally with autonomy to define the local technology strategy. Another task is “adaptation”, in which subsidiaries adapt innovations developed in a parent company or central R&D facility, generally following a global technology strategy. Finally, there is a “diffusion” task, in which a subsidiary transfers its locally developed innovations to the parent company or to other subsidiaries. Nobel and Berkinshaw (1998) analyzed communication and control patterns in international R&D operations. They carried out a broad literature review and identified three different roles for subsidiaries in the R&D process: • Local Adaptor: in this case, the local R&D´s role is to adapt innovations developed by the parent company. • International Adaptor: local R&D not only adapts parent company´s innovations, but also develops some local innovations, giving support to local production. • International Creator: in this case, local R&D participates in the process of global innovations creation. Local R&D is subordinated to the headquarters R&D unit, and sometimes it doesn´t have a connection with local production. There is also some question as to whether the R&D internationalization generates results. Sing (2008) analyzed patents deposited in the US between 1986 and 1995 and concluded that R&D activities dispersion was associated with a negative effect on the quality of innovation. Several studies show that it is not enough to internationalize R&D activities. Mechanisms to integrate the dispersed knowledge among diverse units are necessary to improve the organization’s capacity to innovate (Ghoshal and Bartlett, 1988; Sing, 2008). Subramanian and Venkatraman (2001) studied transnational new product development and concluded that the transfer and deployment of worldwide subsidiaries’ knowledge is associated with greater transnational new product development capabilities. 6. Case Studies Presentation 6.1. EQUIPCOMPANY • Company presentation EQUIPCOMPANY is a global company with revenues of over US$ 15 billion. About 15% of this value is invested in R&D. It belongs to layer I of the Fransman (2002) model, developing equipment and network services for telecom service providers. It has about 60,000 employees, 16,000 of which are involved in research and development, including individuals from the customization team, responsible for adapting its solutions to specific customer needs. EQUIPCOMPANY has a matrix organizational structure. There are three business units, each responsible for a set of products and services. Moreover, the company is structured in seven global regions, each with a corresponding regional director. Therefore, it is very common that an employee reports to a regional head and also to a head of the business unit. Technology Strategy Formulation in EQUIPCOMPANY Each of the seven global regions has a Head of Technology who reports to the regional director. The Head of Technology for Latin America is based in Brazil and manages a team with eight people located in different countries in the region. Twice a year, EQUIPCOMPANY holds a workshop attended by about 300 people representing subsidiaries all around the world. The goal is to analyze tendencies and the company´s positioning, and to establish a future vision for the next five years. In the workshop, employees are organized in thematic groups, with specific tasks that are presented to other participants during the event. Both technology strategy and the corporate strategy are formulated jointly in this process. The head of Technology in EQUIPCOMPANY is responsible for visiting Chief Technology Officers (CTOs) in client companies in order to disseminate their future vision, checking to what extent it is aligned with clients´ evolution plans. These contacts with clients are also useful to identify future needs. There is a monthly meeting with the Heads of Technology to discuss technology strategy, taking into consideration the field information gathered from clients. Besides the group formed by the Heads of Technology and their respective teams, there is a research group involving about 160 people globally. Specifically in Latin America, 15 people belong to this group. This research group is responsible for technology intelligence, looking for opportunities and threats, as well as forecasting and planning future technology. Thus, they are responsible for the technology roadmap of the products developed by the company. They also adopt an innovation funnel model with five main phases encompassing idea generation, innovation proposal, acceleration of better ideas, and innovation project execution and launching. However, when a good idea or an unanticipated client need comes up, subsidiaries can request a faster process. In this case, the idea is presented to the regional director, who can submit the idea to the company´s board for approval, accelerating the whole process and avoiding the long route of a normal case. • Technology Strategy Formulation in NETCOMPANY Definitions and premises for technology research start from the future vision presented by the Marketing area in annual meetings involving Technology Evolution, Technology Reference Center, New Business Development and Engineering. In these meetings, Marketing presents its proposed roadmap for the products and services portfolio. In order to generate this roadmap and portfolio plans, Marketing is responsible for analyzing market tendencies, client demands, competitor analyses and suppliers´ new solutions. After that, the R&D areas use premises agreed upon in these meetings to look for technological solutions that can be used to reach Marketing demands. NETCOMPANY does not have a formal process for research and development. However, an informal process is followed, covering these steps and responsibilities: • Available technologies research – Technology Evolution Department; • Knowledge of the technology - Technology Evolution Department; • Technologies testing – Technological Reference Center; • Adherence to Marketing roadmap and products evaluation – Technology Evolution Department; • Installed network adaptation requirements – Engineering; • New product development – New Business Development. 6.3. Discussion The first proposition was confirmed only in EQUIPCOMPANY, in which strategic workshops with representatives from almost all subsidiaries and departments establish a five-year scenario and main technological and corporate strategies. On the other hand, in NETCOMPANY, the technological strategy is a consequence of the corporate strategy; more specifically, it is derived from the market vision of the future. The process of technology strategy formulation proposed by Chiesa (1998) better explains the way EQUIPCOMPANY establishes its strategy. NETCOMPANY, on the other hand, does not have a formal process. Developing dynamic capabilities (Teece et al., 1997) can seem especially important for equipment companies whose determined path creates path dependency (Barney, 1991; Dierickx and Cool, 1989), and therefore limiting its technological options in the future, and on the other hand, creating barriers to imitation. The companies in this layer deal with developments that demand a long time period to be completed. They also need to disseminate their vision of the future among clients (network companies) to convince them to adopt their technology. This phenomenon points to the increased importance of developing the capacity to identify future opportunities, thus blurring the dividing line between technology strategy and corporate strategy. The network layer, however, doesn’t develop, but applies new technologies developed by the equipment layer, which is simpler and less time-consuming. Because of this, they can wait and postpone the adoption of these new technologies until they have a clearer view of the dominant patterns emerging. Path dependency in the network layer appears to be less critical than in the equipment layer. Marketing, because it monitors market and consumer tendencies, appears to be the area that can best identify the ideal time to offer new products/services that will demand new technologies. The second proposition was confirmed only in EQUIPCOMPANY, in which subsidiaries have a role as global creators. In NETCOMPANY, however, subsidiaries have a role as international adaptors. As was discussed, we adopted Nobel and Birkinshaw’s (1998) classification typology on subsidiary involvement in the innovation process in order to discuss specifically their involvement in technology formulation strategy. The adopted typology is quite well adjusted to the context, but this research allowed us to identify another important dimension of the strategy formulation that has to do with decision-making power in the elaboration of strategy to be adopted. In the researched cases, EQUIPCOMPANY participated in the technology formulation strategy, as did NETCOMPANY, in a decentralized process. In addition to these two approaches, there may be cases of companies with an authoritarian process in which the headquarters dictates the technology guidelines to be adopted by the subsidiaries. Figure 2 illustrates this relationship between subsidiary and parent company in the process of formulating the technology strategy

Questions:

1- Review the case study and write a conclusion in your own words. Conclusion should include your opinion and suggestions regarding implementation of Technological Innovation Strategy in concerned companies. (250-300 Words)

2- Based on your case review; give some more ideas and possible approaches for improving the concurrent engineering process or new product development process (concerned to telecom industry). (200-250 Words)

3- Explain various methods and approaches for collecting facts and figures for evaluating risk in new product development process. Moreover, how companies use information technology as tactical resource for managing issues in organization. ( 300-350 Words)