Technology Diversification: The Phenomenon, Its Causes and Effects
Doctoral thesis, 1993
In recent years the phenomenon of technology diversification has been noticed in Japan, Sweden and the UK. The patterns of technology diversification and its causes and effects in Japanese, European and US companies have been investigated in this thesis. The links between technology diversification, product diversification, market diversification, external technology sourcing, growth of RandD expenditures and sales growth have been examined.
The analysis was conducted at three levels; the industry (4-digit ISIC) level in Sweden, the corporate level in 57 large companies in the US, Japan, and Europe, and the product area level in three product areas - cellular phones, optical fiber systems and refrigerators. The data were collected from printed documents, data bases and more than 100 interviews in 24 corporations. Technological activities were assessed by three indicators. An analysis of patenting activities by companies was made, as well as a patent analysis of products. A new indicator of technological activity was introduced, educational statistics, which assessed the educational background of the main carriers of technology in the modern firm, namely the engineers. In addition, analyses of sub- technologies involved in products and processes were made. A methodology was also developed to link customer utilities to sub-technologies and patent classes.
The degree of technology diversification is shown to be increasing at the industry, company and product area levels. The emergence of "multi-technology" corporations, that is, corporations operating in many technologies, is demonstrated. It is also shown that external acquisition of technology is associated with technology diversification.
An explanatory model of growth and diversification is derived from the literature and previous research, and is tested. It is shown that sales growth is explained by growth in RandD expenditures, increased product diversification and increased market diversification. Increased technology diversification is shown to be a cause to increased RandD expenditures and increased product diversification, and therefore an important strongly significant underlying variable for corporate growth. Furthermore, the degree of technology diversification is shown to be increasing significantly in all regions - Japan, the US and in Europe. While Japanese companies increase their product diversification, European and US companies, on the average, decrease their product diversification. A "winning pattern" among the companies was also identified. The companies following a strategy of first diversifying their technology base and then diversifying their product and market, grew significantly faster, regardless of region or industry, than companies following other strategic diversification or specialization patterns.
Furthermore, the validity of the strategic implications drawn from the typology of generic strategies presented by Porter (1980, 1985) is examined. In one case it is shown that the existence of technologies which are simultaneously cost and performance-driving makes it not only possible but desirable to combine cost leadership and differentiation strategies.