In a high-tech industry like electronics, the ability to accurately forecast future demand as well as choose those technologies that match a firm's competitive strategy and position will significantly affect the firm's competitive advantage. However, forecasting and selecting advanced technologies are complicated decision processes. Many technology-valuation approaches have been published, including quality function deployment (1), analytical hierarchy process (2), Ackoff's interactive planning process (3,4), integrated process (5), multi-level evaluation framework (6), and discounted cash-flow methods (7,8). Kakati explained how strategic myopia might understate the benefits obtained from new technologies and presented a strategic evaluation method (9).
The aforementioned approaches contribute to understanding the problem and provide a framework for general technology selection and/or product design decisions; however, they are not quite suitable for industries/ technologies like semiconductors, optoelectronics and nanotechnology that exhibit a technology flow (the technological path from end products to raw materials) that is driven by constantly changing applications markets. These industries use a variety of sophisticated production technologies to serve many applications markets that can change constantly and swiftly. To be competitive in such an applications-driven environment, firms must have a strong marketing capability to forecast sophisticated technological trends and to identify many newly emerging applications markets and products. Strong technological and manufacturing capabilities are also required to develop and fabricate the products that can successfully compete in the market.
In this paper, I first describe an application-oriented methodology using strategic evaluation and tear-down analysis--analysis performed by tearing apart system products into components and then components into raw materials--to forecast technological trends and to select technologies for investment. The next section uses the semiconductor industry to illustrate the validity of the methodology for technology valuation. An application to the real world is then presented, followed by implications and limitations of the methodology.
The Application-Oriented Methodology
Similar to Salo's multicriteria methods (10), the proposed methodology is driven by goals, adopts scores and weights to compute overall performance measures of different options for investment, and deals with high uncertainties and complex interdependencies. To accommodate the complexities of technologies that are driven by rapidly and constantly changing application markets, the unique features of the proposed methodology are its application-oriented approach driven by tear-down analysis along the supply chain of the industry and the adoption of a technology prioritization method based on market attractiveness and competitive position.
The market attractiveness represents attractive opportunities for the organization, and the organization's competitive strategy/position indicates the organization's strengths and capabilities relative to the market segments' needs and competitive situation. The methodology places little emphasis on detailed manufacturing variables because they are often not well understood before the new technology is developed. Manufacturing (e.g., operational capability and efficiency) and financial (e.g., margins and costs) variables are simply treated as variables of the organization's competitive position.
The methodology consists of five major evaluation stages with complex interdependencies:
1. Formulate competitive strategies through a SWOT--strengths, weaknesses, opportunities, threats--analysis to achieve the organization's mission and goals.
2. Segment and target applications markets starting from end applications markets.
3. Perform tear-down analysis on target segments and along the supply chain of the industry. …