فناوری لقاح متقابل و مدل کسب و کار : مورد یکپارچه سازی فناوری اطلاعات و ارتباطات در محصولات مهندسی مکانیک

This paper investigates the increasing interdependency among different bodies of knowledge in products, from the technology opportunities arising from ‘cross-fertilizing’, and how firms try to appropriate economic value from their technical potential. The study is based on three multi-national corporations, and their integration of information and communication technologies into established mechanical engineering products. The case studies show how technology cross-fertilization needs to be accompanied by business model changes in order to achieve increased economic value. While much attention has been given to the input dimension of multi-technology products, the economic and commercial domains have been rather ignored in previous literature. This work contributes to the management literature by linking the input resources with the market output for creating and appropriating value from technology cross-fertilization.

It has long been recognized that diversification is a key strategic variable in firm growth1 (e.g. Ansoff, 1957, Penrose, 1959, Rumelt, 1974, Montgomery, 1994 and Markides and Williamson, 1994). Within this perspective, diversification of output markets, i.e., new product lines, businesses and geographical markets (internationalization), by utilizing economies of scope and resource sharing, has been the main focus. More recently, a new stream of literature on diversification has emphasized the importance of diversification of firms’ input technologies in their output markets, for the growth of the firm (Kodama, 1986, Pavitt et al., 1989, Granstrand and Sjölander, 1990, Patel and Pavitt, 1994 and Granstrand et al., 1997). This literature on technology diversification has made major advances in showing that large firms make use of, and develop, competencies in many different technological fields. The literature argues that the major driving forces of technology diversification are the opportunity to introduce new technologies into products by cross-fertilizing technologies, and the pressure to support a given product line to maintain its relevance (Granstrand et al., 1997). In so doing the literature emphasizes that products have to incorporate an increasing range of technologies (Pavitt, 2001). Much of the existing research on technology diversification focuses on the breadth of firm's technological competencies, often measured by the distribution of patents across technological classes (see e.g. Pavitt et al., 1989, Granstrand et al., 1997, Patel and Pavitt, 1997, Gambardella and Torrisi, 1998 and Garcia-Vega, 2006), but downplaying the links with integration of new technologies into products, to value creation and value appropriation. Creating and appropriating value from diversification in the technology base of products, i.e. technology cross-fertilization, is not automatic; innovative management is needed for their realization. Hence, from a managerial or firm perspective, a crucial aspect is how firms create value for their customers and how firms appropriate economic value. Technology cross-fertilization does not inherently lead to improved customer or user value. Nor does increased user value inherently lead to increased value appropriated by the integrating firm. Thus, creating and appropriating value from diversifying the technology base of products clearly needs to be managed. The cross-fertilization may create a potential value for some users, but to realize that value, and also to appropriate a part of that value, are potential management problems, arguably closely associated with the activities in the business model employed. This paper focuses on these areas with the aim of adding to the current limited empirical understanding. This paper explores how the integration of Information and Communication Technologies (ICTs) into the technology base of a product can open up new sub-spaces in the existing technical performance and functionality space. The rapid and persistent improvement in the performance and cost of ICTs provides abundant opportunities for products to capture, control, process, store and communicate information in a way that was not possible before. In other words, old mechanical engineering products increasingly have the potential to become more ‘intelligent’. We investigate this technology cross-fertilization and look at how firms try to appropriate economic value. We conduct in-depth analyses of attempts to integrate ICT components into existing mechanical engineering products, undertaken by three different multi-national, multi-product and multi-technology corporations (MNCs/MPCs/MTCs): (1) for decanters in the area of wastewater treatment plants; (2) for industrial compressors; and (3) for ball bearing housings. The paper is structured as follows. The first part provides the empirical and theoretical background. This is followed by a description of the methods and an investigation of three corporations that diversified the technology bases of their products by integrating ICTs. The paper investigates their attempts to create and appropriate economic value from these efforts. The paper concludes with a discussion of the findings and some managerial implications.

This paper examined how manufacturing companies integrate ICTs into mechanical engineering products and how they went on to appropriate economic value from their technology investments. The cases showed that in order to create and appropriate economic value from technology cross-fertilization firms were required to accompany it with changes to their business models. Although it is common knowledge that products go through changes as a result of new technologies, much less research has focused on how firms change the business models their products. Several studies have shown the importance of the business model for creating and appropriating value (e.g. Amit and Zott, 2001, Chesbrough and Rosenbloom, 2002, Magretta, 2002, Markides and Charitou, 2004 and Morris et al., 2005). However, these studies have focused on early stage technologies, firms’ business concepts and have most often been based at firm level. The cases in this study focus on diversifying the technology base of products through technology cross-fertilization, rather than the firm as a whole or on a completely new product. The purpose with this technology cross-fertilization is to open up new sub-spaces in the technical performance and functionality space and, by so doing, to create value for users from the technical potential. However, it is a huge leap from firms’ creation of value for their users to appropriation of economic value. The three cases in the study have provided some findings regarding the importance of changing the business model in order to appropriate economic value from the technology investments. Although the incorporation of ICTs into established products may provide benefits, it appears that it is difficult to both create and appropriate economic value from the cross-fertilization, using existing business models. All three companies experienced difficulty in appropriating economic value based on their established business models, and whether they were able to obtain any economic value was dependent on the changes made (or not) to their business models. Alfa Laval and Beta, which both changed their business models substantially, were able to create economic value; SKF, which did not change its business model, failed to do so. However, it was shown that creating value for customers was not enough to ensure success for the firm. Firms recognized the difficulties involved in appropriating economic value at different stages in their developments, and their search processes for a viable business model differed substantially. In Alfa Laval the search for a new business model had begun before commercialization of the new product as the firm recognized that it would not be possible to appropriate economic value based on its established business model. This led to changes in the distribution, organization, selling, and revenue models and in the target segment. Moreover, in order to have the freedom to make changes to its business model, the firm established an autonomous venture organization because senior management envisaged difficulties if the business remained within the line organization. Beta, on the other hand, did not initially consider using anything other than its current business model. However, the search for a new model became important following commercialization when it was recognized that the current business model was only going to provide small returns for the company despite creating substantial economic value for its customers. The business model needed to provide the user with an attractive value proposition and appropriate economic rents for the firm. Finally, SKF reverted to using the same business model it used for other products, which thwarted its aims to create and appropriate value. And, despite it was becoming clear that the existing business model did not lead to satisfying economic performance, the company continued to pursue it. Initially, two of the companies in the study did not realize that it would be necessary to change their business models. This shows that there is inertia in corporations in terms of making changes to their business models. The companies did not link the potential of the technology with economic output, which, for this type of technology cross-fertilization, would seem crucial. Instead, SKF and Beta were focused on the technological potential rather than its potential to produce a viable business, which seems something of a mismatch in the successful realization of economic value. It is clear that even if a technology is of value to some users the value for the innovating company will remain latent if it cannot find the right business model. It can be inferred that if Alfa Laval and Beta had not have changed their business models, they would not have been able to profit from their technology cross-fertilization. Importantly, this is a view shared by the managers of these firms. SKF's management believed that the company could have created a more attractive value proposition and higher return on its investments if it had changed its business model. This corroborates Chesbrough and Rosenbloom's (2002) argument that companies need not only to experiment around technology, but also to experiment with in alternative business models, when technological change requires this. The three companies in the study acknowledged that the main challenge was not to make their offering work from a technological point of view, but to find an appropriate business model in order to profit from the cross-fertilization. This raises the issue that management may need to increasingly focus on the business model. These cases show that creating value from technology cross-fertilization is not simply related to the inherent value of the technology. I would argue, therefore, that the rates of success of, and the unlocking of the value inherent in a new technology, are highly dependent on the business model. In fact, the cases show that diversifying the technology bases of products lead to improvements in technical performance and functionality, which lead to improvements in utility and/or costs to the customer providing increased economic value for customers. However, to create value and appropriate a portion of the customer value the technology cross-fertilization development needs to be accompanied by changes in the business model (see Table 4). This study therefore reinforces the importance of the business model to create and appropriate value. Clearly, the external environment sets limits to what extent different firms can change their business models. This study showed that Alfa Laval and Beta were the first companies integrating ICT components into decanters and compressors, something which enabled these companies to decide how they best could use their solutions to create and appropriate value. Management in these companies argues that there are first mover advantages in changing the business models. In fact, the whole license structure was made possible by the fact that there was no similar solution on the market—otherwise it would have been much more difficult for the companies to introduce new value-capture mechanisms. At the same time, if other firms will provide similar offerings using the traditional business model adopted within their industries and perhaps even ‘give away’ the increased value to the customer for free, it might be difficult to stick to the new business model and at the same time appropriate a higher value from the customer. However, the situation can also be that competitors adopt a similar business model as Alfa Laval and Beta. Hence, the sustainability of the new business models for the firms and the competitive advantages they give Alfa Laval and Beta might be temporary, and are highly dependent on external factors, in particular competition. Given that a new business model in the beginning is not tested and involves uncertainty about customers’ reaction, there is a large risk with abandoning the old business model. The two companies that introduced a new business model retained the old one for their older offerings. Hence, this specific type of technology cross-fertilization where firms add new technologies to the technology base in order to provide the user with new and added value, resulted in a business model diversification (i.e. an extension of the different activities for creating, delivering and appropriating value). The technology cross-fertilization therefore increased the complexity in both the technology and the economic domains. Given the case study based research design, the extent to which the findings are generally applicable is not known. Further research is needed to examine how common it is for firms to appropriate value if they continue with their existing business models in selling capital goods that integrate ICTs. Moreover, there are limits to what can be said about the relation between product innovations, new business models and the boundaries of the firm. Thus, more work is needed to clarify this aspect, in particular in relation to how changes in the technology base of products can result in downstream movements into services, where the firms may take over customer activities.