TECHNOLOGICAL ENVIRONMENTAL ANALYSIS MODEL

FOR SMALL BUSINESS INSTITUTE PROGRAMS

Eddie Sanders, Jr., Chicago State
University and
Robert N. Allen, Oklahoma State
Regents for Higher Education

ABSTRACT
Managers and owners of privately held firms must give the same level of attention to the
technological factors impinging upon their enterprises as they give to the financial,
managerial, and marketing factors. If the firm is to survive, grow, and prosper, then a
technological audit of the firm's condition should be conducted on the same routine basis
that the manager conducts an accounting audit of the firm's financial status.

Small privately owned firms are frequently the progenitors of many significant societal
innovations. However, these firms may loose market control of their innovation. A model
TV Conduct Technological Environmental Analysis is discussed.

INTRODUCTION
"U.S. factors must innovate as fast as labs invent."(1)

The quotation from a recent Business Week article on the topic of American
competitiveness was one of many proposed solutions to the problems of increasing
foreign competition. Indeed, during this Bicentennial year of the U.S. Constitution, it is
disquieting to read articles with titles and subtitles such as" Is the U.S. Going the Way of
Britain?"(2) As the nation begins its third century as a democracy under a strong
Constitution, it must seek to maintain and strengthen the economic underpinnings
of the society. Private enterprise, with its capacity for innovation and freedom from
bureaucratic structures offers one of the best hopes for the nation to meet competitive
economic challenges.

Managers and owners of privately held firms must give the same level of attention to the
technological factors impinging upon their enterprises as they give to the financial,
managerial, and marketing factors. If the firm is to survive, grow, and prosper, then a
technological audit of the firm's condition should be conducted on the routine basis that
the manager conducts an accounting audit of the firm's financial status.

Small privately owned firms are frequently the progenitors of many significant societal
innovations. However, these firms may loose market control of their innovations. In the
1970's, Bowmar lost the market for pocket calculators to Texas Instruments and many
foreign competitors. Recently, IBM announced a new personal computer, the Personal
System 2. This product will cause some makers of IBM compatible equipment to
experience financial difficulties. Clearly, attention to the rapidly changing pact of
technology is of paramount importance to the owners of private enterprise.
This paper will provide a basic format for conducting an audit of an enterprise's
technological environment and operations. The resulting audit is designed to be utilized
by owner/managers information and revision of the firm's operating strategy. Many
of the considerations outlined in this paper have been utilized by the authors in their
consulting engagements and by their student consultants as participants in the Small
Business Institute program. The proposed analytical procedures are designed to be
relatively easy to execute by the privately operated business because many of the firms
do not have the staff or manpower necessary to devote full time to conducting
evaluations of the firm's technological status.

Overview of Technological Analysis

The proposed normative model of Technological Environmental Analysis consists of four
central components: 1. clarification of the enterprises' strategic purpose; 2. analysis of the
firm's external technological environment; 3. analysis of integrating variables for linking
technology and strategy; and 4. the development of an overall technological profile of the
enterprise. These four components of the audit are designed to be prepared by the firms
which have limited staff resources.

Strategic Purpose
The first component of the audit focuses on clarification of the firm's strategic purpose.
For many privately held firms, this strategic purpose exists only in the mind of the
owners. Many fortunes have been created only through an inspired strategic purpose
existing in an entrepreneurial mind. For the business to survive, prosper, and meet the
challenges imposed upon it by changing external environments, this purpose must be
committed to writing and dissected for analysis of its inherent strengths and weaknesses.
One must closely examine the privately held firm's strategic model for its ability to adjust
to changes in the technological environment.

Technology has become so pervasive in society and business institutions today, that
many managers fail to understand or to appreciate the impact that it has upon the overall
viability of the firm. Although technology permeates the strategies and structures of most
business organizations management must not lose sight of the fact that technology is a
product of human thoughts and endeavors, and as such, can be controlled or, at least, the
negative impacts of technology upon the organization moderated, and the positive aspects
accentuated.

James Bright states that technological change is the most powerful factor in the business
environment today and its power seems to be growing. Bright sees technological change
as impressive not only for its variety, but also for its "chain reaction" of effects on
industry and society. If one accepts Bright's premises, then it can also be asseted that
business strategies which neglect to adequately consider the firm's technological
environment will not be adequate to guide managers in accomplishing the objectives of
the firm.

In order to explore the relationships between the firm's technological environment and its
strategy, one must have an understanding of the concept of business strategy. In recent
years, several definitions of strategy have been introduced by business policy scholars.
Some of these concepts will be briefly examined.

Ansoff has defined the strategic decision area as that class of management decision
making concerned with establishing the relationship between the firm and its
environments. Business, according to Ansoff, are defined by a common thread which
links a product/service mix. This common thread could be any factor or group of factors
which run throughout a specified group of product items or lines or services offered by
the firm. His concept of strategy also focused on the distinction of threshold objectives
and goals from business strategy; the product/market scope; the firm's growth vector, and
the business firm's competitive advantage and synergy.(5)

Learned defines strategy as a pattern of goals and major policies for achieving these
goals, stated in such way as to define what business the company it is to be. He states that
the pattern of goals should be such as to reflect four components: 1. environmental
opportunity, 2. corporate competence and resources,3. top management's personal values
and aspirations (emphasis supplied), and acknowledged obligations to society.(6)
Recent efforts in the study of business strategy have focused on the development of a
contingency theory of business strategy. The pioneering works on contingency theory
have been, in part, an attempt to redress some of the limitations of earlier studies of
strategic behavior. In Hofer's concept of a contingency theory of business strategy, three
major steps are involved. "The first is to identify those variables and sets of variables
which are important to the firm. The second is to specify those variables which are
strategically significant. The third is to identify those types of strategies which are
economically feasible for each strategically set of environmental conditions." These
factors are closely related to the different stages of the product life cycle.

Steiner introduces a novel approach to the strategic planning which he defines as "WOTS
UP analysis" this is an acronym for weaknesses, opportunities, threads, and strengths
underlying planning.

The strategic profile of a firm provides the basic data for use in preparation of the
technological audit. Several approaches for preparing strategic profiles have been
described in managerial literature. One such example is the model developed by Steiner.
Steiner's profile included the following six areas:

1. Identify and measure dominant product/market concentrations;

2. Identify and measure units and/or activities receiving the greatest deployment of
company resources;
3. Identify and measure major competitive advantages by comparisons with major
competitors;
4. Identify financial strategies;
5. Determine personal strategies of key executives; and
6. Determine analytical profiles of strategies.

As the technology audit progresses, the strategic profile of the firm may require revision.
External Technological Environment
A firm's external technological environment includes the
following:

Technologies utilized by competitors;

Technologies utilized in related industries;
Technologies utilized in non-related industries;
Quality of scientific, engineering, and technical manpower available to the firm;
Customer attitudes toward technological innovations

Understanding the technological capabilities of a firm's competitors is a crucial factor in

the overall technological audit. For Porter, "Technology affects competitive advantage if
it has a significant role in determining" relative cost position or differentiation. His
research yields the following propositions on technological change and sustainable
competitive advantage under the following conditions:

The technological change itself lower cost or enhances differentiation and a

technological lead is sustainable: "The technological change shifts cost or
uniqueness drivers
in favor of a firm;
Pioneering the technological change translates into first-mover advantages besides
those inherent in the technology itself; and
The technological change improves overall industry structure."(11)

The business should have a defined program for obtaining competitive intelligence.
Traditional methods of gathering intelligence include: trade shows, trade publications,
and information obtained from customers. Fortune magazine described several techniques
for gathering competitive intelligence; some of the methods were reverse-engineering and
buying competitors' garbage.

Privately owned firms must also determine whether they want to be technological leaders
or followers. Technologies utilized by industries related to the business must also be
carefully monitored. Both vendors and customers have the potential to become
competitors by vertical integration.

Crucial mistakes are often made when businesses fail to analyze the technologies utilized
by non-related industries. For example, the airlines industry closely monitors progress in
the telecommunications industry because the airlines industry expects that
videoconferences will become a competitor for the business travel dollar by the end of
the century.

Analysis of the overall environment must be conducted by the owners of the private
enterprise and key staff personnel.
Integrating Variables for Linking Technology and Strategy
Some of the variable for integrating a duct reached the maturity stage; at this point,
emphasis would be technological improvements in process design.

The firm's learning curve or the experience curve is also an important part of evaluating
its situation vis-a-vis the product life cycle. Hofer sees the experience curve as very
important during the saturation phase of the product life cycle. The experience curve is
simply a way of stating that as a firm's output doubles its manufacturing costs decrease
by a fixed percentage. Although there are limits to this concept, managers strategy
formulation processes must include considerations of ways to use technology to increase
the slope of this experiencecurve.

Organizational Structure
As the policy makers prepare the firm's strategies, they must also consider what impact
technology will have on the design of the organizational structure.

In pioneering work by Joan Woodward, significant relationships were found between the
firm's (production technology and its structure. (17) Ms. Woodward classified the
production technologies as "unit, mass and continuous." Ms. Woodward's studies
indicated that there appears to be a consensus that organizations with stable operations
need structures different from those with a changing technology. "The highly structured,
bureaucratic organization with a mechanistic management system is most appropriate for
stable operations, where as the innovative organization with changing technology
requires a more adaptive `organic' system."(18)

In summary, the likelihood of success of a given strategy will be increase if attention is

given to the organization's structure during the strategy formulation process.

Technology Transfer
Any business unit, regardless of size, consists of a finite amount of resources, including
technological resources. A successful organization will, therefore, develop mechanisms
for obtaining new technologies from its external environment and from other units within
the same organization, such as between division.

In attempting to transfer technology from the external environments, the organization

runs into many problems: patents and proprietary information being only two obvious
barriers.

Managers must also insure that mechanisms exist to effectuate the transfer of
technologies which exist with the organization. Managers should be reluctant to create
strategies which inhibit internal technology transfer except in situations where antitrust or
similar issues may arise.

The overall strategy formulation process must incorporate mechanisms for allowing the
organization to have as much access as possible to the latest technologies.
Technological Profile
The final stage of the technological audit involves the preparation of a technological
profile. Components of the technological profile include:

Statement of Corporate or Business Objectives

Nature of Technology Required in Present
Product Mix
Nature of Industry
Actual and Potential Legal and Regulatory Problems
Technical Manpower of the Business State of the Art
Suppliers
Customers
International Considerations

The firm's technological profile should be prepared for general management to use in a
manner similar to that in which it uses sales report summaries and financial statements.
However, unlike the financial statements and sales reports, the technological profile
would not primarily emphasize results of a specific period, but would serve as a
statement or description of the firm's present and near-term, that is from six months to
three years,(19) technological status. The profile would also contain a statement of the
firm's long range technological objectives.

Statement of Corporate or Business Objectives

The first section of the profile would outline and specify the corporate or business
objectives of the firm. This section would simply state the specific objectives of the
business entity in measurable terms. Although these objectives would probably have been
previously developed by the firm's general management, a restatement of the objectives
in the firm's technological profile would serve as a point of reference for evaluating other
items in the profile.

Nature of Technology Required in Present Product Mix

The analysis should clearly specify the degree of technological sophistication which is
required in the firm's present product mix. The analysis should center upon the various
product lines and, in some cases, specific product items. For each product line or item
analyzed, the analysis should specify whether low, medium, or high technology is
required for the relevant manufacturing processes. The analysis should also specify the
degree to which the products represents product refinement along a simple to advanced
technological continuum; for example, Timex's primary product line of watches would
represent an advanced technology, LCD display and a digital integrated circuit timing
mechanism.

Innovations, proprietary manufacturing processes, and overall status of product patents

should also be specified in the firm's technological profile.
Nature of Industry
In analyzing the nature of the industry where the firm is operating, attention must be
focused on the structure, conduct, performance, and barriers to entry within the industry
as these factors relate to technology.

Actual and Potential Legal and Regulatory Problems

The profile should also summarize by product lines and, in some cases, specific items,
the basic actual and potential legal and regulatory problems which relate to the product's
technology.

Technical Manpower of the Business

The firm's technical manpower, scientists, engineers, and technicians should be evaluated
in terms of quantity, quality, and by category. The quantity and professional
classifications can simply be obtained from personnel department files. Estimating the
quality of the manpower is somewhat more difficult. For this purpose, surrogates for
quality such as level of education, number of patents obtained, publications, reputation
among peers, and useful products or research developed, will have to serve as a basis of
evaluation.

Some mention should also be made of the firm's ability to shift technically trained
manpower from one business sector to another; this would serve as one source of
estimating the ability of the firm to take advantage of new opportunities.

State of the Art

The profile should also assess each major product or product line terms of its relationship
to the "state of the art".

Management and staff involved in preparation of the profile should give careful attention
to defining the firm's boundary distance from the state of the art. The profile should also
carefully consider the type of environmental factors or changes which are likely to cause
a shift in the firm's boundary distance. The profile should also discuss the rate of change
of the state of the art itself vis-a-vis the business.

Suppliers
Reference should also be made to those factors in the technological environment which
may affect the firm's suppliers. Thus, changes such as improvements in production
machinery result in a firm reconsidering some make-vs-buy decisions which it had
previously resolved in favor of the external suppliers.

Customers
Impacts of the technological environment on customers are also very important
considerations for business strategists. The firm should ascertain what important
customer needs are likely to be monitored for early warnings of technological advances
which might facilities the customer's plans for vertical integration. Advances in
technology which would assist the firm in acquiring new customers or in entering new
markets should be carefully evaluated.
International Considerations
The profile should also focus on relevant events which are occurring internationally in
the technological environment. Thus foreign research and development as well as
inventions and product introductions should be monitored. The firm may be able
to license foreign technology when advantageous.

Summary Comments
1. Technological audits for privately held firms should be conducted on a periodic basis.
2. The entrepreneurial owner/manager must be actively involved in all aspects of the
audit.
3. The audit should begin with a clarification of the enterprise's strategy. This analysis
should be written.
4. The second step of the audit centers upon a comprehensive analysis of the firm's
external technological environment.
5. The audit will be strengthened if a detailed analysis is conducted which includes:
technological forecasting, product life cycle analysis, technology transfer analysis, and
organizational structure analysis.
6. Finally, the auditors should prepare a comprehensive technological profile of the firm
under study.

Although this paper has focused specifically on the firm's technological environment,
there is no implication intended to suggest that the firm's technological environment is
more important in the strategy formation process than any of the firm's other
environments: political, legal, social, cultural, economic, competitive, and physical. The
technological environment analysis should not be done as though technology was an
isolated variable, but should be related to other environment.

REFERENCES
(1) "Making Brawn Work With Brains," Business Week, April 20, 1987, p.56.

(2) "Can American Compete?" Business Week, April 20, 1987, p. 45.

(3) James R. Bright, "Opportunity and Threat in Technological Change," Harvard

Business Review, November-December, 1963, pp. 76-86.

(4) H.I. Ansoff, "Toward a Strategic Theory of the Firm", in H. Igor Ansoff (ed.),
Business Strategy, Penguin Books, Inc., Baltimore, Maryland, November-December,
1963, p.14.

(5) H. Igor Ansoff, Corporate Strategy, McGraw-Hill Book Company, New York, 1965

(6) Edmund P. Learned, et al., Business Policy: Text and Cases, Richard D. Irwin, Inc.,
Homewood, Illinois, 1961, p. 17.

(7) Charles W. Hofer, "Toward A Contingency Theory of Business Strategy," Academy

of Management Journal, December, 1973.
(8) George A. Steiner, Strategic Planning: What Every Manager Must Know, The Free
Press, New York, 1979, p. 19.

(9) Ibid, p. 179.

(10) Michael E. Porter, "Technology and Competitive Advantage", Journal of Business

Strategy Winter, 1985, p. 63.

(11) Ibid, p. 179.

(12) "How to Snoop On Your Competitors," Fortune, May 14, 1984, pp. 28-33.

(13) H.W. Lanford, Technological Forecasting Methodologies: A Synthesis, American

Management Association, Inc, 1972, p.2.

(14) For the reader interested in a description of the various technological forecasting
techniques, the following articles are recommended:

(15) Jib Fowles, "On Chronocentrism," Futures, February, 1974, p.65.

(16) William J. Abernathy and Kenneth Wayne, "Limits of the Learning Curve," Harvard
Business Review, September-October, 1974, p. 110.

(17) Joan Woodward Industrial Organization: Theory and Practice, Oxford University
Press, Fair Lawn, New Jersey, 1965. p. 51.

(18) Ibid.

(19) The precise time period for "near-term" planning would depend upon the firm's type
of business.