Lecture –12
Managing Technology
Topics Covered:
·
Meaning
of Technology
·
Primary
areas of Technology
·
Technology
and the Manager
·
Technology
Choice
·
Model Questions
MEANING OF TECHNOLOGY
There
are two definitions of technology. A very broad definition is that technology
is the application of knowledge to solve human problems. A narrower definition
is that technology is a set of
know-how, processes, tools, methods and equipment used to produce goods
and services. Know-how is the knowledge and judgment of how, when and why to
employ equipment and procedures.
We
must become managers of technology, as Peter Drucker argues, not only users of
technology. For example, the
PRIMARY AREAS OF TECHNOLOGY
Within
an organization, technologies reflect what people are working on and what they
are using to do that work. There are three primary areas of technology.
Operations managers are interested in all three aspects of technology:
·
Product Technology
·
Process Technology &
·
Information Technology
Product Technology:
Developed
within the organization, Product technology translates ideas into new products
and services. Product technology is developed primarily by engineers and
researchers. They develop new knowledge and ways of doing things, merge them
with and extend conventional capabilities and translate them into specific
products and services with features that customers value. Developing new
Product technologies requires close cooperation with marketing to find out what
customers really want and with operations to determine how goods or services
can be produced effectively.
Process Technology:
The
methods by which an organization does things rely on the application of process
technology. Some of the large numbers of process technologies used by an
organization are unique to a functional area; others are used more universally.
Information Technology:
Managers
use information technology to acquire process and transmit information with
which to make more effective decisions. Information technology pervades every
functional area in the workplace. Office technology includes various types of
telecommunication systems, word-processing, computer spreadsheets, computer
graphics, email online databases, the internet and the intranet.
TECHNOLOGY AND THE MANAGER
What should a manager
know about technology? After all, shouldn’t the choice of technology be left to
the scientists and engineers who have spent their lifetime considering technology? How can a manager master the intricacies of
technology and make a proper decision?
We all make
technological decisions in everyday life when we buy appliances, automobiles
and electronics for our homes. For example, when we buy a refrigerator, we are
interested in the arrangement of its interior shelves, how long it will last
and how much electrical power it uses. We are not interested in the BTU cooling
rating of the compressor and the frequency of the defrost cycle. In other
words, we concentrate on the performance characteristics of the technology, not
its technical details. While these attributes affect the performance of the
technology, it is the performance itself, not the details, that is of interest
to managers.
Technology
choice is an extremely important decision and one that is of interest to
managers in all functions. These decisions not only are technical in nature,
they affect capital, human resources and information systems. Thus all managers
should be interested in the choice of technology
and how it affects the business as a whole.
TECHNOLOGY
CHOICE
Aversion to capital investment is a common problem
in industry. This problem is apparent in worn‑out factories, antiquated
offices, and lack of integrated information systems, which are no longer
competitive. Management seems to be more aware of the dangers of too much
capital investment than too little.
What is needed is a technology strategy to obtain
the right amount and type of technological investment. A technology strategy
begins with a business strategy and operations strategy that describes the
vision and mission of the firm. For example, if the mission is to be a low‑cost
producer, the technology strategy should be aimed at developing technologies
that enable low cost, and new technologies should be evaluated on their ability
to lower costs. On the other hand, differentiated products, the technology
strategy, the technologies developed, and the evaluation criteria should be
oriented toward product differentiation.
A technology strategy sets an overall framework for
development of new technology to support the mission. It ensures that
technologies are not merely developed and justified one at a time, but
implemented as part of a coherent strategy over time. As a result, the
technology is integrated and provides a competitive advantage not easily
imitated. Many firms justify their technology one proposal at a time and do not
have a comprehensive technology development strategy.
Lack of investment in industry can sometimes be
traced to improper use of capital‑budgeting techniques. Frequently, hurdle
rates4 are set beyond the true cost of capital in order to keep out the so
called bad proposals, to manage risk, or to reduce the capital required. For
example, the hurdle rate may be set at 30 percent for new investments when the
true cost of capital, including risk adjustment, is only 20 percent. As a
result, the firm will not make new investments and gradually its technology can
become inferior to competitors. While the problems with low hurdle rates are
well understood, the corresponding problems with high hurdle rates are not
nearly as well recognized.
When technological alternatives are evaluated, they
should be considered with respect to the do‑nothing alternative. In other
words, what happens if no investment is made and the competitors make the
investment instead? The loss in cash flow as a result of not making the
investment should be credited to the investment, since it is a direct result of
the decision being made. Frequently, companies do not consider the loss of cash
flow; thus they tend to under evaluate new investments.
Finally, capital investment often does not consider
the revenue effect of new investments, since it is difficult to estimate and
results in "soft numbers." Revenue effects can result from increases
in quality, faster delivery, or more flexibility, which the customer may be
willing to pay for or which may attract new customers. Revenue effects should
be credited to the new‑technology proposal even though they may be difficult to
estimate. Ignoring revenue effects is to assume they are zero, when in fact
they may exceed the cost savings from the investment being considered.
As students of finance and accounting know,
improper use of capital‑budgeting techniques can lead to a systematic
disinvestment by the firm when the investments are not credited with the proper
cash flows or when hurdle rates are too high. It is important to use net
present value techniques correctly so that the right amount of new investment
is made, not too much and not too little. The three most difficult areas to
address are proper hurdle rates, crediting the do‑nothing alternative, and
revenue effects.
Furthermore, investments should support a comprehensive
technology strategy aimed at achieving or maintaining a competitive advantage.
Managers in all functions should work to develop a technology strategy that
considers not only operations issues but human resource effects, financial
considerations, and market impacts. Developing a technology strategy on a cross‑functional
basis will ensure that all of these factors are properly considered.
Model Questions
1.
What do you mean by Technology?
2.
What are the Primary areas of Technology? Discuss.
3.
Show relationship between Technology and the Manager.
4.
What should be considered regarding Technology Choice? Evaluate.
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