Why is it one company may pursue a technological advance and later reap rewards in the marketplace while another may pump as many resources into a similar project and never make it to the marketplace? The author of this article has studied nine companies that have R&D investments to see how those that use technology successfully as part of their competitive strategies differ from those that do not or don’t do it successfully. The degree to which a company has a top management with a technical orientation, selection criteria that support and maintain technology, and systems and structures that reinforce the company’s technological orientation places that company on a continuum from high to low exploitation of technology. The author concludes that a strategy that stresses technology is not necessarily the best, but if a company decides to exploit technology as a competitive weapon, it had better do more than merely invest in R&D.
No one doubts anymore that to be more competitive with foreign companies U.S. manufacturers need to increase their investment in R&D. Indeed, technology can be a powerful weapon on the battlefield of economic enterprise. But increasing R&D investments alone does not ensure that companies will successfully exploit technology as a competitive weapon. In fact, some companies in fields such as optics, integrated circuits, software development, and chemistry have been leaders in technology development when their competitors had invested much more in the development of new technology.
For example, a major oil company invested roughly nine times more than a smaller competitor toward the development of a new butyl compound to be used in transportation. The giant oil company wrapped up its effort with the conclusion that the compound could not be successfully developed. Less than one year later, the smaller company introduced the compound to the market and is still reaping substantial profits from the product.
What accounts for the difference between the two companies’ experiences? If it is not the amount of R&D investment alone, other factors must either inhibit or encourage the successful exploitation of technology. Given the hue and cry to harness technology more effectively for the sakes of both the national economy and individual businesses, managers should understand these other factors.
Many aspects of an organization—from technical talent to reward systems, from climate to equipment—affect the payoff a company will receive from its investments in technology. In my experience, however, companies that exploit technology well have three conditions in common:
1. Top management orientation. A majority of the top managers responsible for running the company or business have technical education and work experience in their companies. They are comfortable with and fluent in technical topics.
2. Project selection criteria. Managers allocate funds among projects that will support and maintain their technological leadership in specified areas.
3. Systems and structure. The decision-making systems and structure of the company reinforce the priority given to technological matters in two ways: (a) the company’s systems provide a close connection between business and technological decision making; (b) the systems and structure for decision making on technological matters are consistent with the company’s other systems.
How well a company satisfies these three conditions will determine where it falls on a continuum from those that rely heavily and effectively on technology as a competitive weapon to those that either do not rely on it or don’t do it successfully. In this article, using nine companies as examples, I show how these three conditions are manifest at various points along the continuum. (See the sidebar for capsule descriptions of the nine companies.)
Company 1, at the right end of the continuum, is a more than $1-billion consumer products manufacturer. It relies heavily on a wide range of technologies, including chemistry, to maintain its competitive position. Its market is homemakers, who have little appreciation for the sophisticated technology that goes into the product that is so easy to use. It is number one in sales in the industry, has an excellent technical reputation, and attracts and maintains top technical performers. A strong, central R&D organization dominates its technical development effort. Over the years it has steadily increased its investment in R&D at a rate more consistent than sales growth. A long succession of top-level officers has come from technical divisions of the company.
Company 2 is a multibillion-dollar aerospace company. It relies on technology to form a competitive edge and enjoys a strong reputation for technological advances. Based on the West Coast, it attracts top-quality scientists and engineers from all over. Its products incorporate very sophisticated technologies that the customer does appreciate. It continues to invest substantially in R&D.
Company 3 has sales of $4 billion of computers and related equipment. Like companies 1 and 2, it supports a strong R&D effort and enjoys a good technical reputation. It has not, however, exploited its technological leadership into market leadership. Recently it has begun to trim its R&D budget in reaction to sluggish sales.
Company 4 is the smallest company in the survey, with sales of $600 million. Only ten years old, it is now a market leader in its niche of computer software products, although competition is cutting its edge in the marketplace. The company hires top technical people who now dominate all its top management positions; its founder is now chairman of the board. Its investment in R&D has grown steadily, though a sales slump resulted in a cutback in R&D funds for two of the last three years.
Company 5 produces a variety of electrical devices, which are rapidly becoming quite mature technologies. Its top managers came from different disciplines. The company is noted more for its high-quality products than for its technological leadership. It is, nonetheless, a steady innovator and a firm supporter of R&D. It is the second largest company in the survey, with sales of more than $25 billion.
Company 6, like number 3, makes computers and related equipment. It has relied on a strong sales and service staff to support its market position. While management has viewed technology as important to the company’s success, it has not emphasized new technology. Most top managers have excellent marketing backgrounds. It is the third largest company included in the sample.
Company 7 is a fast-growing chemicals company with sales of $3 billion. Over the last ten years it has focused its R&D efforts on short-range goals and has not added much to its technical capability. It has relied on a technically trained field staff and its R&D organization to support its technical service and sales organization.
Company 8, the largest company in the survey, produces transportation equipment. It has depended on a reliable product and a very motivated field sales organization to maintain its market position. Its R&D efforts, mostly divisionalized, are well managed but concentrate on putting out fires. A central R&D organization is struggling to forge a connection with the line organization.
Company 9, at the other end of the continuum, is a diversified $3-billion manufacturer of equipment. It relies mainly on cost competitiveness and a wide-ranging distribution network for its dominance in the marketplace. Its investments in technology have remained volatile, even though its business has grown remarkably well. Its recent top management appointments have come primarily from the financial ranks. Even though the overall technological content of its products is as great if not greater than that of company 1, it is not seen either inside or out as being as technologically innovative as that company. The product divisions control the technology and direct their attention toward solving customer problems.
To derive the companies’ positions on the continuum (see Exhibit I), I asked knowledgeable business people, some of whom work for the companies and some who do not, to rate them according to the emphasis each places on technology and according to their effectiveness in using it as a competitive weapon in maintaining and developing their businesses. These ratings are not performance measures or value judgments. The numbers represent the respondents’ ranking, with company 1 being rated as the most effective in using technology as a competitive weapon. That is, technology gives company 1 the greatest competitive advantage over its competition and company 9, the least. Each company is successful in its own market. Companies 1 and 9 are very respected on Wall Street and have shown strong sales and profit growth for a long time. While their strategies may be very different with respect to technology, each is effective in its particular markets and products.
Exhibit I Rating of companies in use of technology as a competitive weapon
But, if company 9 should decide to place more reliance on technology as a competitive weapon, in addition to examining the amount of resources directed toward technology, it would have to satisfy the three conditions I have listed and which I now discuss in greater detail. If it failed to meet those conditions, I predict that even with increased R&D investment that company would reap a disappointing return.
Condition 1: Technical Background of Managers
The majority of top managers in the companies that rely heavily on technology have strong technical backgrounds. Most of them have degrees in either science or engineering and a number have Ph.D.s, as well as experience in the technical organization of the company.
For example, company 2, the multimillion-dollar aerospace company, has drawn all of its top management from the ranks of its scientists and engineers. Its roster of top executives, as well as its board of directors, reads like a “Who’s Who in Aerospace Science.” Even its chief legal and financial officers have extensive technical backgrounds and, for the majority of their working lives, have worked in a technical organization.
In contrast, company 8, the large transportation equipment manufacturer, has drawn most of its top managers from the administrative side of the organization, usually from the financial divisions. Engineers in top management seats are in the minority and were selected because of their business experience rather than their technical backgrounds.
Industrial studies indicate that top management involvement is extremely important to the development of a successful technology strategy.1 In my sample, the companies that have managers with strong technological backgrounds put more emphasis on technology in their business decision making. The companies that place less reliance on technology find they are hampered by poor communication between technical and business managers.2 To meet this problem, the head of R&D in one company, with the help of a consultant, developed a three-day workshop to help nontechnical general managers responsible for the contribution of R&D to their bottom line learn how to participate in technological decision making. It dealt with topics on linking business and technical priorities, managing technological strategy, and planning technology.
Orientation & strategy
Over a nine-year period, one division in company 7, the fast-growing chemicals company, had three general managers. The division’s market was more or less stable and the technology nearing full maturity. In the course of the nine years, however, the managers made dramatic changes in the business strategy, reflecting their orientations.
The first manager had a manufacturing background and emphasized building production facilities on a worldwide basis. He did not include his technology manager in top-level decision making. When the second general manager, who previously had been the head of the technical organization for a sister division, took over, he dramatically increased the R&D budget. He instituted technical strategic reviews to parallel the business reviews that his predecessor had started. He had built several remote technical units and spent much time in travel visiting the technical organizations underneath him. He reorganized the technical service units, which had reported to manufacturing and sales, so they would report instead to the research organization.
Several years later the second general manager was promoted and replaced by a third general manager who had been in the planning and financial organization for the previous ten years. He kept the R&D investment steady but abandoned the technical reviews his predecessor had established. He delegated to a corporate staff officer the responsibility for developing technical strategy and coordinating the R&D facilities. This third general manager carefully reviewed and pruned the proliferation of R&D projects that the second general manager had started. Finally, he again split the technical service function between the manufacturing and sales organizations.
In this company, managers first treated technology as a secondary concern, then as a primary one, then as secondary again. The company might have been successful adopting either view, but only one manager would have successfully exploited technology. This example serves as a reminder that while “structure follows strategy,” strategy and structure may both follow, to some extent, the orientation of a strong leader.3 If top management is to invest more heavily in technology, it must place technology development in the hands of an administrator who is comfortable wielding it.
Pitfalls of a technically strong top management
The companies whose top managers possess a strong technical orientation have had difficulty avoiding two pitfalls. The first is emphasis on technology at the expense of other areas. The second is managers’ overinvolvement in technical decisions.
For example, in company 1, the consumer products manufacturer, top management’s first priority was technological innovation and the maintenance of a steady stream of new products. It did not, however, fully appreciate the financial consequences of its strategy. Because of rapid product turnover, manufacturing costs for each product never traveled down the well-known learning curve and the company never received the full benefit of its technological innovations.
Another aspect of this problem is the tendency of companies with a strong technical orientation to produce what they can make technically, which is not necessarily what customers will buy. In forming such a business strategy the companies sacrifice a healthy balance among their functions.4
Company 8, the transportation equipment producer, exemplified the second pitfall when its one top manager who had a technological orientation spent most of an afternoon designing an apparatus that was not important in a technological, aesthetic, or even functional sense. In several companies where top managers have strong technical backgrounds, the R&D managers complained that the managers spent too much time “engineering our projects”—that is, getting too involved in technical operations.
Condition 2: Criteria for the Technology Projects
Companies that exploit technology well do not just continually funnel more resources into that area; they sort out the tasks and set priorities using detailed criteria. In company 2, the aerospace manufacturer, the scientists and engineers in the technical organization allocate the available dollars to projects based on their determination of what will help the company stay abreast of the technology relevant to its business. The scientists and engineers regularly visit colleagues in their field at other companies and universities to get current information that will help them determine their annual budgets. Every two years, management reviews the budgets to ensure that dollars are well spent to maintain technological leadership.
In contrast, company 7 determines its technology budgets on a customer-by-customer basis. Its scientists and engineers spend much of their time visiting customers. While explaining proper use of the products, they discover the customers’ needs. They use this feedback when they return to their laboratories.
Clearly, either strategy can be carried to an extreme. A company where scientists and engineers communicate only with other research organizations runs the risk of isolating its technical efforts from its business needs. On the other hand, a company that encourages its scientists and engineers to be market oriented runs the risk of focusing on only short-term priorities and yesterday’s problems.
The criteria managers use to select projects are the central factors in determining the extent to which they actively support the development of technological leadership. In the companies surveyed, managers base decisions to start projects on five criteria: (1) supporting business goals, (2) maintaining and building technological leadership, (3) solving a customer’s problem, (4) developing a window on technology, and (5) pursuing a technological advance. While the criteria overlap each other, the focus and initiating factors are different.
Support business goals
In companies where technology is exploited well, the technology unit selects projects that support business goals. For example, scientists in company 3 determined that to give a product the desirable performance characteristics for entering a new market, they needed a new chip configuration. The technology unit undertook the project and the business manager funded it.
Other criteria embodied in business plans that underlie project selection are reducing costs, developing new products, developing improved products, reducing the energy content of products, or creating process improvements to reduce dependence on scarce raw materials. Essentially, the business strategy determines these criteria with a view to maintaining a desired market position.
As the product matures, these criteria are likely to change. A product at the beginning of a life cycle is likely to require performance-improvement projects, whereas a mature product is more likely to need process-improvement and cost-reduction projects to support it.
Protecting and establishing technological leadership is an important project selection criterion. For example, employees in company 1 have to work with certain lithium catalysts to ensure its products’ good performance. To keep its leadership in this field, the company undertakes projects that provide a continuous stream of information and experience in the handling of lithium catalysts.
Solving a customer’s problem
By solving a customer’s problem, usually by providing technical service, scientists and engineers can get ideas for new or improved products or process changes, especially if the customer is technically sophisticated, like the OEM customers of computer manufacturers. (A customer is broadly defined as the user of the product or process. It could be a manufacturing organization or a person who buys the product.)
A window on technology
Ten years ago, managers at company 6, a producer of computers and related equipment, decided that it was important to know how to work with nonsilver-based emulsions. Consequently, the company undertook a small research effort involving two people to develop a limited reservoir of experience with nonsilver-based emulsions, just in case the price of silver soared. Several years ago, when the price of silver started to rise, this effort provided a base for an expanded program within the company. The early building experience allowed the company to leap ahead in the field and to successfully exploit the new technology.
Pursuing a technological advance
Some projects, such as those leading to Land’s invention of instant photography and Carlson’s haloid (Xerography) process, are the result of technological push. The companies on the continuum provide evidence that managers still consider pursuit of a technological advance a good criterion for allocating money. For example, company 4 estimates that at least 50% of its R&D budget goes toward maintaining and developing technological leadership in areas that may have business payoffs.
On the other hand, company 7 estimates that 70% of its R&D dollars is invested in projects aimed at solving immediate customer needs. In this case R&D provides a technical service capability. Merely increasing the size of company 7’s R&D budget without applying different criteria for resource allocation probably would not make company 7 a technological leader.
Reinforcing technological leadership
Companies on the right-hand side of the continuum not only put a greater proportion of their dollars on projects to maintain and develop technological leadership than companies at the left-hand side, they also publicize their technological competence. Companies 1 through 5 make a practice of inviting esteemed professionals to company-sponsored national seminars on areas of technology in which they see themselves as leaders. On more than one occasion, the companies have presented awards to people—not all of them employees—who had made substantial technical contributions to their particular fields.
Condition 3: Systems & Structure
A company’s decision-making systems and structure reinforce the technology strategy in two ways. First, they connect the technology decision-making process with business decisions. Second, the decision-making systems and structure of the technology unit are compatible with those of the rest of the organization.
Linking business to technology In organizations that are leaders in technology, the involvement of the top business and technical managers in decision making, planning systems, the timing of decisions, and structuring the company itself all strengthen the link between technology and business goals.
Top management connection In companies that exploit technology effectively, the top business managers see themselves as responsible for making and approving technology decisions. In company 3, a manufacturer of computers and related equipment, the president reviews the technical plans and budget at regular intervals and is informed of major progress or delays with respect to key technological undertakings. He prides himself on his technological expertise and is the author of several articles in respected technical journals.
In company 8, in contrast, the top business managers communicate very little with heads of the technical unit. In company 6, the two groups communicate somewhat, but the top business managers do not really get involved in making technical decisions. One member of the company’s planning staff describes it this way.
“The meeting at which the technical plan and budget are reviewed is unlike the review of other groups. Rather than stating alternatives, costs, risks, and consistency with the business plan, the technical plan is a statement of past contributions and promises for the future. Our management resigns itself to a leap of faith uncharacteristic of how it manages its other vital assets.”
Planning systems In the companies where technology is a high priority, the planning systems incorporate the technology plan as an integral part of the business plan. For example, in company 2, all but the most fundamental R&D investments have to appear in the business plan of the businesses to which they are directed. The business manager is responsible for developing the technology effort and effectively integrating it into his plan.
In company 3, although no formal planning system exists, who participates in the strategy development meetings is evidence that the business and technical plans mesh. Heads of the technology units as well as business and other functional heads work together in a several-day session to develop the company strategy. The business plans and strategy statements for both companies 2 and 3 include assertions regarding technological priorities and steps for carrying out those priorities.
At the other end of the continuum, the technical plan exists as a document separate from the business plan. In company 9, scientists and engineers gather the data for the formal technology plan, which the vice president of research coordinates. Senior research management reviews the results but never formally presents them to senior business management, and the business managers do not incorporate them into their planning process.
Timing When the technology plan is presented can also reflect how important it is to the business plan. In company 5, top management reviews the business plan two months before it reviews the technical plan. In company 2, management reviews the business and technology plans at the same time.
In companies where the technology plan is presented first, management is likely to use it as an important factor in screening business ideas. Where the business plan is presented first, management might screen out promising technical ideas that seem inconsistent with it.
Of course, the two plans should be in balance. In company 1, the technical plan dominates and determines what goes into the business plan, so market research, financial assessments, and other elements are responsive to the end products of the R&D function. While this system maximizes the exploitation of the R&D organization, it does not necessarily produce optimal overall results.
In the companies that place little emphasis on technology’s contribution to the business, top managers often “run out of time” for reviewing the technical plan. In companies 7, 8, and 9, the technical plan is presented after the business plan. In all three companies it has become something of a joke when, time after time, top management finds that it is either too late in the day or too close to some important deadline for them to spend much time going over the technical plan. The running-out-of-time phenomenon clearly communicates to the rest of the company, especially the technical people, that management thinks little of technology’s contribution to the business.
Chief technical officer The fourth way companies have to tighten the connection between business and technology is to give the chief technical officer a major role in business and technological decision making. In company 9, the chief technology officer is not a member of the president’s executive staff. While he has the same rank as other members of the executive staff, he is not included in the business strategy meetings and consequently is considered to have lower status. Because his connection with the business decision-making process is remote, the function he represents is considered rather unimportant.
In company 2, on the other hand, the chief technical officer sits in on the important business and strategy meetings. Others see him as having great influence—even more than the business heads—on strategic business decisions.
Structural ties In the nine companies, the impact strategy has on the internal structure is clear. In companies that rely heavily on technology in their strategy, such as companies 1 and 2, the chief technical officers report directly to the president, connecting the central research effort to top management. In companies 8 and 9, the chief technical officers report to a level below the president.
Size alone cannot explain the difference in reporting relationships. Until recently, the management of company 7 had not given technology a high priority in its business plan. But a new president, who wanted to raise that priority, appointed a chief technology officer who reported directly to him.
Support of other systems The pay, promotion, and hiring processes are also important communicators of the priority management attaches to technology. For example, in the companies placing great emphasis on technology, recruiters go to the top technical schools and offer top salaries to attract the best talent available. These companies put a high priority on bringing in new technical blood regardless of the state of the business. The companies also operate a dual promotion ladder.
In other words, the culture of the companies at the right side of the continuum supports the priority attached to technology.
Compatibility of the system & organization
In the companies where technology is an important competitive weapon, the degree of formality, the influence of business managers over functional managers, and the decision-making systems of the technical organization are more consistent with the rest of the organization than when technology is not a competitive weapon.
Degree of formality
In company 1, business planning and decision making occur in frequent, one-on-one meetings between the president and his major officers. The chief technology officer and the president often meet in this way. In company 8, however, business unit decisions and planning are relayed through a system of paperwork. Managers take a tremendous amount of time preparing studies and reports for review in councils at the top.
Quite different from this is the planning function of company 8’s technology unit. It relies on informal meetings between the chief managers and the vice president for technology. People attending the meetings take few formal notes and form the final plan by briefly summarizing the presentations.
Influence of managers
In some companies, staff managers do little more than analysis; in others, staff managers in effect make the key decisions. Companies that rely heavily on technology as a competitive weapon either focus much of the responsibility for decision making on both technical and business managers or leave a lot to staff members on both sides.
In company 2, the staff rarely carries out major activities. The business manager is responsible for all decisions, including many activities—such as economic analysis, forecasting, and manpower planning—that other organizations usually assign to staff. The business managers are even expected to handle special projects by drawing on their line people. Consistent with this approach, company 2’s technology managers, not staff, conduct the special studies and analyses necessary for decision making. (Even though the technical chiefs recognize that their managers lack some of the skills and interest for carrying out these studies, they think it is prudent to spend time doing it rather than operate inconsistently with the rest of the company.)
In company 6, the staff managers are much more involved in decision making. The top business managers have large and competent staffs that not only generate important reports but also are in positions to make recommendations on or approve or veto most decisions. The staff that works for the chief technical management is equally strong and has similar responsibilities.
In company 7, the mismatch is evident: the business planning staff is strong and makes important contributions to the business, but the technical staff is weak. Rather than develop a technical staff function capable of communicating with this group or influence the business planning staff himself, the chief technical officer tried to work directly with the president of the company, but with little success. Now, because it has a new president, the company is changing and the technology planning capability of the business planning unit is becoming stronger.
Approach to decision making
Company 4 has a strong bottom-up approach to decision making: line managers make decisions, which then bubble up to the higher levels for a final decision. The technology planning occurs in the same way: the people below the technical chiefs review their own projects and make recommendations for resource allocations consistent with their goals.
In company 1, the approach is top-down: top managers of the separate businesses get very involved in all levels of decision making and set the priorities of activities below them. In the technical organizations, top managers also have great influence over what the R&D facilities undertake.
Company 8 operates its research facilities in bottom-up fashion, relying heavily on input from below for resource allocation and priority setting. This is inconsistent with the top-down fashion in which the rest of the company operates.
Obviously, different functions operate in different ways, but it is important that they link effectively with the rest of the organization. Communication between functional groups deteriorates when the systems are not consistent with each other. Where such systems are not consistent, someone who acts as an integrator can be a help.5
I am not suggesting that the technology unit should operate in the same way as the rest of the company. Business and technology units differ as to the amount of uncertainty, time delay for information, and orientation of the people that is appropriate for each. I suggest, however, that top managers carefully examine the differences to ensure that they are not hampering the exploitation of technology by the rest of the business.
The Three Conditions Working Together
As I noted earlier, company 7, the fast-growing chemicals company, is beginning to place more emphasis on technology in its business and as a result is moving toward the right-hand side of the continuum (see Exhibit II). With the appointment of a new president who puts greater emphasis on technology, in a few years one can expect to see more top managers who have technical backgrounds. Also, criteria for allocating R&D funds will reflect an emphasis on developing and protecting leadership in key areas of technology.
Exhibit II Where companies fall on the continuum vis-à-vis three conditions for companies that exploit technology well
I also expect that the systems and structure of the organization will change so that the technological systems and structure are more in line with the other processes of the organization. In company 7’s case, the shift in the line in the exhibit appears to reflect a company in transition.
In the case of company 4, however, the shift across the continuum indicates instability. The orientation of top management reflects the technical strategy that accounts for the company’s success. But as the company has grown, its strategy has shifted. It is now at the mid-range in its emphasis on technology in its business strategy. Because the top managers are oriented toward technology, the company is in an unstable situation. The orientation of top managers must change if the company is to continue with its new strategy most successfully. (The top managers are aware of this unstable situation and are working to change it.)
Company 1 has a stable pattern. It shows operating consistency among the three conditions that reflects the high priority it attaches to technology as a competitive weapon.
Company 9, the large equipment manufacturer, also shows a stable profile. It places little emphasis either on technology as a major element in doing business or on technical credentials in the selection of its top managers. It allocates few dollars toward projects furthering technological advances, and the technological decision making is only distantly connected with decision making in other areas of the business.
To promote stability, a company’s conditions of operations must be consistent not only with the priority attached to technology in the business strategy but also with each other.
All companies should not necessarily use technology more, or more effectively, as a part of their strategy. Rather, the profiles of the nine companies I studied suggest that a company’s decision to rely more heavily on technology should be coupled with a commitment to satisfy the conditions necessary to implement it. There is evidence that companies can effectively move from one point along a continuum to another, as company 7 is doing. To be sure, this will not be an easy task. But in these times of a rapidly changing environment, it is imperative that a company develop the ability to strategically manage itself along the continuum described as well as its business.
1. George Steiner, Top Management Planning (New York: Macmillan Press, 1978).
2. For an article addressing this topic see Frederick W. Gluck and Richard N. Foster, “Managing Technological Change: A Box of Cigars for Brad,” HBR September–October 1975, p. 139.
3. Kenneth R. Andrews, The Concept of Corporate Strategy (Homewood, Ill.: Dow-Jones-Irwin, 1971).
4. Michael E. Porter, “How Competitive Forces Shape Strategy,” HBR March–April 1979, p. 137.
5. Jay W. Lorsch and Paul R. Lawrence, “Organizing for Product Innovation,” HBR January–February 1965, p. 109; and Paul R. Lawrence and Jay W. Lorsch, Organization and Environment (Boston: Harvard Business School, Division of Research, 1967).
A version of this article appeared in the January 1982 issue of Harvard Business Review.