IEMS - Thought Leadership Brief #72

SPRING 2023 NO.72 / THOUGHT LEADERSHIP BRIEF 2 To tackle this challenge, managers can adopt two strategies. The first is a flexibility strategy, where companies allocate resources across multiple competing technologies and exploit the most promising ones when uncertainty is reduced. The second strategy is a commitment strategy, where companies select and concentrate on a single emerging technology. Adopting a flexible approach helps companies develop absorptive capacity, enables them to adapt to ongoing uncertainty, and opens up opportunities for knowledge integration from other fields. However, companies may be hesitant to adopt a flexibility strategy due to the managerial costs of maintaining multiple competitive options within the company, such as investment ambiguity, redundant use of financial resources, and dispersion of managerial focus. Additionally, executives may worry about the costs associated with switching between different options. Companies pursuing multiple technological paths tend to have a lower learning rate and smaller market share in a particular technology domain, compared to companies that specialize in that technology. This disadvantage may impede the company's transition to that technology. Despite this, some executives believe that by selecting an eventual winning technology and focusing their resources on becoming the first mover, they will benefit from dominance in the winning technology. However, the fall of Sharp Corporation serves as an example that this logic may not always hold true. Sharp correctly selected liquid crystal displays (LCDs) as the winning technology for flat panel displays (FPDs) and pioneered the technology, but was eventually acquired by Foxconn in 2016. In this study, we emphasize the benefits of a dual investment strategy and highlight three factors that may determine its effectiveness by examining the Sharp's experience and the history of the FPD industry. Our findings provide valuable insights for other cases across different industries. OUR RESEARCH With the support of the Institute for Emerging Market Studies (IEMS), we conducted a quantitative study that analyzed all patents related to flat panel displays (FPDs) from 1970 to 2010. The FPD industry is highly technology-intensive and characterized by competition between two alternative technologies, liquid crystal display (LCD) and plasma display panel (PDP). The data was obtained from Clarivate's Derwent Innovation Index, which is a widely used database in previous research. WHEN TO SPREAD TECHNOLOGICAL BETS? Investment decisions are inherently uncertain, and this risk is compounded by the unpredictable trajectory of technology substitution. Despite a technology appearing to have established dominance, its position can still be threatened as the emerging market evolves in an unforeseen direction. A technology that initially dominated the market may ultimately fail, while a technology that appeared to be inferior may eventually become the winner. To mitigate the risk of path dependency, where a suboptimal solution persists due to its historical legacy, it is important for firms to adopt a flexibility strategy by maintaining a portfolio of alternative technologies. However, executing a flexibility strategy presents a significant challenge for firms due to limited resources and a complex external environment. The challenge lies in effectively coordinating multiple technological options and determining the conditions that will maximize the benefits of this strategy. Photo by Albaregiya on Freepik