Journal of Business Strategy

STRATEGIC MANAGEMENT OF TECHNOLOGY

H. Igor Ansoff
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H. Igor Ansoff, (1987),"STRATEGIC MANAGEMENT OF TECHNOLOGY", Journal of Business Strategy, Vol. 7 Iss 3 pp. 28 -
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 STRATEGIC MANAGEMENT OF
TECHNOLOGY
H. Igor Ansoff
The high-tech companies that will succeed in this environment will fundamentally
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revise their strategies from the historical technology-driven product proliferation to
strategies that control the rate of technological advances, segment markets
according to distinctive customer needs, and design products to respond to those
needs.
Business Week has eulogized the wonders of
the next generation of the data processing tech­
nology [4]. But the daily press reports profit de­
clines or losses by Apple, Wang, CDC, Commo­
dore, and the demise of Mostek. Despite all of the
historical success stories in the industry, even the
mighty IBM reports a shortfall in what is still an
impressive performance [5, 6, 12, 15].
The data processing industry is one of many
offsprings of the Second Industrial Revolution.
This Second Industrial Revolution was spawned
by a long list of novel technologies: solid state,
microminiaturization, electronic information pro­
cessing, electro-optics, biochemistry, biogenet­
ics, plasma physics, etc.
It is tempting to draw an analogy with the First
Industrial Revolution and argue that the current
malaise in the industry is a transient turbulence
that occurs whenever a new industry is born, and
to predict that beyond the turbulence lies stabili­
zation and a long period of growth. If such were
the case, the retrenchment measures being re­
ported by the computer and semiconductor com­
panies, such as cost reductions and layoffs of
personnel, should enable firms to "hibernate"
H. Igor Ansoff is Distinguished Professor of Strategic Manage-
ment, School of Business & Management, United States Interna-
tional University.
28
through a temporary recession and reemerge on a
path of accelerating growth. But there are two
reasons why retrenchment measures will not
suffice. One reason is that the nature of the Sec­
ond Industrial Revolution is different from the
First Industrial Revolution, and another reason is
that the economic/social/political/competitive
environment of the Second Revolution is more
complex, less predictable, more surpriseful, and
faster-developing than was the environment of
the First Revolution.
Although it is tempting to treat the computer
and semiconductor industries as unique cases
that have no similarities to other technology-
driven industries, this is not the case. Very simi­
lar problems have been encountered and will be
encountered again in other technology-based in­
dustries.
Differences Between the Two
Technological Revolutions
Most of the great technological innovations of the
First Industrial Revolution were flashes of inven­
tive genius. The inventions were pragmatic. If the
first product or process failed to work, it was
modified and tried again until a successful
configuration was achieved. There was little by
 THE JOURNAL OF BUSINESS STRATEGY
way of scientific theory to guide the process or to
explain why the final product worked.
Once the technological breakthrough was
made, the technology was "standardized" and
remained stable, for as long as 100 years, as hap­
pened in the automotive, electrical equipment,
machinery, steel, cement, and other industries.
The Second Industrial Revolution is science-
based. The great inventions, such as penicillin or
the transistor, are still products of individual
genius. But today, science guides the invention
process, provides explanations of why the inven­
tions work, and shows the way to further inven­
tions. As a result, every major technological
breakthrough triggers off a competitive race in
which technology is continuously improved and
applied to uses other than those for which it was
originally intended.
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Success Patterns in Business
Behavior
Another distinctive aspect of the Second Revolu­
tion is that it is occurring in an environment in
which behavior of successful firms must be more
complex and environment-sensitive than the be­
haviors that have succeeded in the past.
Changes in the orientation of industries and
companies have occurred on four different occa­
sions:
• At the turn of the century, from the entrepre­
neurial orientation of the industry creators to
the production orientation of the builders of
mass-production firms.
• Starting in the 1930s, from the production orien­
tation to either product or market orientation.
• From the 1960s on, the single-function orienta­
tions to the strategic orientation in low-tech and
medium-tech industries.
• From the mid-1980s on, a predicted trend from
the technology orientation to the strategic
orientation in an increasing number of high-tech
industries.
During the first sixty years of this century,
firms succeeded by optimizing the performance of
one of the functional areas. Success came to firms
that optimized their production efficiency. Such
firms became known as production oriented.
They have also been called production driven,
because the power within the firm was focused in
the production function and all other functions
were subservient to the needs of production.
Thus, when Henry Ford I, who was one of the
29
inventors of the production-driven firm, was in­
formed by his sales manager that the competition
was beginning to offer differentiated products, he
replied, "Give it to them in any color so long as it
is black." His reason was that a standardized,
undifferentiated mass-manufactured product
minimizes unit production costs, and minimum
cost maximizes the firm's profits.
One of the most important variables is
management control of the firm's
technological evolution.
During the second half of the century, two dif­
ferent types of orientation began to replace the
production focus. Some firms, typically in pro­
ducer goods industries, became product driven by
"sticking to their knitting"—seeking to improve
and perpetuate the historical products of the firm.
In consumer goods industries, firms typically be­
came market driven, letting the marketing func­
tion take over power from production and dictate
what the firm will develop and produce.
The technology-driven firm is a recent
phenomenon—a child of the Second Industrial
Revolution. Early in this century, technology-
driven firms were a minority. The great Du Pont
Company committed itself to a growth strategy
based on proprietory technologies as far back as
1918 [7], and General Electric and American Tele­
phone & Telegraph established large and ad­
vanced research and development laboratories
early on. But it wasn't until after World War II
that the proliferating technologies spawned a
plethora of technology-driven firms.
Typically founded by a technologist-entrepre­
neur, a technology-driven firm lets its research
and development function, staffed by creative
engineers, develop a succession of technolog­
ically advanced products. The frequency of prod­
uct substitution is limited only by advances in
technology. As in other function-driven firms,
production and marketing play supporting roles
as manufacturers and sellers of products that are
initiated and developed by the research and
development function.
Exhibit 1 summarizes in a flow chart the evolu­
tion of the respective functional orientations. It
shows that in the 1960s, just as the technology-
driven firms were becoming the darlings of Wall
Street, firms in industries born during the First
 30 THE JOURNAL OF BUSINESS STRATEGY
Industrial Revolution began to shift to a different
and more complex type of behavior. In the next
section, the reasons for this shift will be explored.
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Convergence of the Functional
Orientations
The respective single-function orientations had
succeeded because they were responsive to the
demands of the marketplace. Thus, production
orientation was responsive to the market demand
for inexpensive, reliable, standardized products.
Market orientation took over when the demand
for basic products reached saturation and differ­
ent classes of customers demanded products re­
sponsive to their different wants, needs, and eco­
nomic and social status. Product orientation was
responsive to the demand by industrial customers
for progressive improvements in product perform­
ance, reliability, and cost-effectiveness.
Technology orientation is the key to success in
markets that eagerly await significant advances in
product performance and are prepared to pay a
high price to get it. This has historically been the
case in the markets for military equipment. Since
the advent of "miracle drugs," the pharmaceuti­
cal industry has been technology driven; and so
were the data processing industries, which of­
fered a previously incredible improvement in the
speed and volume of information processing.
As Exhibit 1 shows, in the 1960s, the single-
function orientation of the first-generation indus­
tries began to converge toward a multifunction
strategic orientation. Success could no longer be
assured by optimizing performance of a single
functional area, and the reason was that the mar­
ketplace was becoming progressively more com­
plex and turbulent1:
• Product and technology substitution became
more frequent.
• Demand began to reach saturation in many
first-generation industries.
• New industries were born, thanks to new tech­
nology and to an increased standard of living.
• Demand in new industries reached saturation
more rapidly than it did in the first-generation
industries.
• Many traditional industries were invaded by
novel technologies.
• Competition became global and more intense.
• Foreign competitors enjoyed distinctive com­
petitive advantages, derived from their national
economic and political settings (e.g., low
domestic labor costs, cooperative business/
government relationships, government sponsor­
ship of foreign trade, or protectionism).
• Environmentalism, consumerism, and govern­
ment legislation forced business to curb its en­
vironment-polluting tendencies.
• Customers increasingly demanded "best buy"
products that responded to their needs, offered
advanced performance, and were cost-effec­
tive.
As a result of this increase in the complexity
and dynamism of the environment, single-func­
tion orientations became unresponsive to the de­
mands of the marketplace. A reader with a scien­
tific background will find ready support for the
preceding statement in the theorem of requisite
variety, advanced by Cyberneticist Roy Ashby.
Translated into business terminology, the
theorem states: "To assure success, the complex­
ity and the dynamism of a firm's behavior must
match the complexity and the dynamism of the
marketplace" [l:ch. 7.1].
Strategic Orientation
As a consequence of the increasingly turbulent
marketplace, the different single-function orienta­
tions began to converge to a multifunction orien­
tation, which can be called strategic orientation.
In strategic orientation:
• The influence of a single dominant function is
replaced by a balance of functional influences.
• The power center shifts from the dominant
function to the general management.
• The key decision criterion is no longer optimi­
zation of a key function's performance but op-
1
For further discussion of environmental turbulence, see [l:chs.
1.1, 1.21.
 THE JOURNAL OF BUSINESS STRATEGY
timization of the return on the firm's investment
in the marketplace.
It would be equally appropriate to name strategic
orientation the ROI orientation, as shown in Ex­
hibit 1.
Strategic orientation has been brilliantly de­
scribed by Alfred P. Sloan, former chairman of
the General Motors Company. Sloan's descrip­
tion can be paraphrased as follows [14]:
• If the future markets will no longer want a his­
torically successful product line of the firm, the
product line should be discontinued.
• Whenever the key market success factors are
expected to shift and change, the balance of the
functional influences in the firm's behavior
should be adjusted accordingly and the firm's
strategy should be reformulated.
• If historically profitable growth markets are ex­
pected to become unprofitable, the firm must
foresightfully abandon them and reposition its
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resources in more promising markets.
• If, for reasons beyond the firm's control (e.g., a
breakthrough technology that will obsolete the
firm's technology; lower production costs indig­
enous to the country of a new competitor), the
firm expects to lose its competitive position in a
profitable market, it must foresightfully con­
sider abandoning the market, or find ways to
overcome its impending loss of the competitive
edge. (The bankruptcy of Mostek, which failed
to recognize that its semiconductors were no
longer competitive with low-price imports, is
traceable directly to this case.)
• A key feature of strategic orientation—and a
difficult one to introduce into a firm—is the
dispassionate view of the firm's historical suc­
cesses: a preparedness to abandon "sticking to
our knitting" in favor of "being where the ac­
tion is."
Exhibit 2 compares the conditions under which
strategic orientation and the single-function
orientations are responsive to the key success
factors in the marketplace. As shown in the ex­
hibit, strategic orientation becomes necessary
when the marketplace demands a balanced com­
bination of functional responses as well as inclu­
sion of social/political/cultural factors in strategic
decisions.
As Exhibit 1 shows, when strategic orientation
began to penetrate the first generation industries,
the "high tech" industries were still enjoying
growth and profitability by retaining their tech­
nology orientation. It was not until the mid-1980s
that difficulties experienced in several technol­
31
ogy-based industries, the most visible being the
computer and semiconductor industries, began to
call attention to the need for a shift to the
strategic orientation.
Because strategic orientation is still new and
poorly understood, there is evidence that certain
computer firms, impressed by the historical suc­
cess of the market orientation [9:50], are shifting
to the single-function market orientation. This is
unfortunate, because the swing from technology
drive to market pull could occur at a time when
the market demands a skillful blending of the two.
A safer course is for each firm to diagnose the
complexity and turbulence of its future environ­
ment and to develop a response that has the
requisite variety.2 In the next two sections, the
personal computer industry is used to illustrate
the type of response that may be needed.
Evolution of the Personal Computer
Industry
The personal computer industry, pioneered by
the invention of the Apple computer by Messrs.
Jobs and Wozniak, appeared, at the outset, as a
technologist's dream. The market for computer-
assisted personal data processing appeared unlim­
ited, and the rapid development of technology
held the prospect of many succeeding generations
of computers of greater power and speed.
The Apple was followed by numerous com­
petitors developed by gifted engineers who joined
the battle of producing faster and more powerful
machines. The development was guided by tech­
nological advances, and little attention was paid
to the needs of the market. Both marketing and
production were subsidiary downstream func­
tions. One produced what the engineers invented
and the other sold the output.
The respective products remained essentially
undifferentiated. Each competitor offered the
same computer to the businessman, the profes­
sional, the head of the household, the wife, and
the child in the family. The concept of "user
friendliness" was invented to make the standard
computer more usable by a computer-ignorant
customer. This was done through software, not
hardware design.
It is no surprise that marketers had to resort to
Madison Avenue imagery to differentiate their
products from the competition's. In fact, a com­
mercial would, for example, promote a highly
2
For a diagnostic technique, see [l:ch. 3.4].
 32 THE JOURNAL OF BUSINESS STRATEGY
EXHIBIT 2
Firm's Orientation and Key Success Factors
Firm's Orientation
Driving Function Variables Optimized
Production Cost and price
Marketing Sales volume
R&D (Product Orientation) Incremental product improvement
R&D (Technology Orientation) Product incorporating advanced
technology
General Management (Profitability Firm's return on investment
Orientation)
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sophisticated $3,000 product through the image of
a little girl pecking on the keyboard while sitting
in her daddy's lap.
The initial response to this technology-driven
approach to the market was overwhelmingly
favorable. A significant number of customers
found the computer to be an answer to their
prayers for more effective data processing. These
were the business users, the scientists, and the
researchers. A substantial group of computer
aficionados sprang up. Another market segment
was lured by the glamour of the computer and the
promise that it would revolutionize the running of
the household, a promise that is yet to be fulfilled.
The demand grew and the number of computers
proliferated. IBM made a belated but forceful and
rapid entry into the market with the IBM PC.
Then two phenomena occurred. The first was
the financial difficulties and even bankruptcies by
some of the erstwhile promising competitors. The
second was a drastic slowdown in growth, and
heavy pressures on prices, caused by the excess
of supply over demand.
Scenarios for the Future
At the moment, at least two scenarios can be
constructed for the future. The first scenario can
be based on a survey by Decision Research Cor­
poration in which 400 equipment manufacturers
predicted that the demand will "bounce back" in
the next twelve months. If this happens, growth
will resume and the evolution of the industry will
continue to be guided by dedicated technologists.
Relevant Key Success Factors In the Marketplace
Price/reliability/durability/undifferentiated product
Differentiated responsiveness to wants/needs/buying
power/social aspirations
Cost-effectiveness/progressive product
improvement
Advanced technology/state-of-the-art performance
• Responsiveness to needs
• Advanced cost/effective performance
• Knowing when to quit a market
• Responsiveness to technology substitution
• Responsiveness to socio-political
trends/opportunities/threats
• Responsiveness to international cultural
differences
The other scenario can be built on computer
users' predictions reported in the same survey.
Among the users, only 13 percent of the senior
corporate managers' predicted a rebound. Simi­
larly, only 34 percent of the business information
systems managers predicted a rebound.
If demand remains chronically sluggish, a shift
toward the strategic orientation is likely, accom­
panied by a shift of power from dedicated
technologists to ROI-seeking general managers.
This author's scenario for this shift is offered
merely as an illustration of what strategic orienta­
tion may mean for the personal computer indus­
try. It will increasingly be recognized by the per­
sonal computer manufacturers that:
1. The present computer generation has more
computing power and capacity than will be
needed for some time by a large percentage of
the potential buyers.
2. If product evolution continues to be dictated
by technology, there is a danger of "profitless
prosperity" in which there will be growth, but
little or no profitability to the suppliers.
3. There is a major difference between the pres­
ent meaning of software "user friendliness"
and products designed to be responsive to cus­
tomer needs and wants.
4. A major obstacle to developing market re­
sponsiveness lies in the present distribution
system, which interposes an independent
technically incompetent and market-ignorant
distribution system between the product de­
signer and the market.
 THE JOURNAL OF BUSINESS STRATEGY 33

5. Another major obstacle is the independent

status of the hardware and software manufac­
turers.
6. There is opportunity in the convergence of the
two present roles of the personal computer (as
a data processor and as an environment man­
ager).
7. Impressive and profitable growth will result in
the newly defined personal computer industry
when:
• Technological advances are brought under
control of general management;
• Product design is focused on market needs
and wants;
• Markets and products are segmented; and
• An integrated software/hardware system is
offered to the market.

Problems of Managing the

Technology Drive
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As the preceding discussion shows, a transition to

the strategic orientation significantly changes the
set of variables that determines the success of the
firm. One of the most important variables is man­
agement control of the firm's technological evolu­
tion. In this section, strategic control of technol­
ogy is discussed as an illustration of the kind of
problems posed by the strategic orientation.3
Exhibit 3 illustrates the evolution of demand
and of sales for three different types of industry.
The top curve on all three graphs depicts the
evolution of the aggregate demand, which fol­
lows the familiar industry demand life cycle from
the emergence state to maturity, when demand
becomes saturated and, at best, grows slowly.
(See Exhibit 3A.) The curve immediately below
the demand life cycle shows the proportion of the and product substitution is infrequent (Exhibit
market demand served by a particular technol­ 3A).
ogy. In Exhibits 3A and 3B, the technology that 2. "Medium tech" industries, in which the basic
gave birth to the industry continues to serve the technology remains the same but products pro­
demand throughout the life cycle, but in Exhibit liferate (Exhibit 3B).
3C, one or more basic technology substitutions 3. "High tech" industries, in which both tech­
(e.g., from vacuum tube to transistor technology nology substitutions and product proliferation
to microminiaturization) take place within the take place (Exhibit 3C).
demand life cycle (T 1 -T 3 ).
The problem of technology control does not
Exhibits 3B and 3C depict the sales by succes­ arise in low-tech industries, but it does arise in
sive generation of products (P 1 -P 4 ). both medium- and high-tech ones. Both medium-
Exhibit 3 illustrates three types of industry: and high-tech industries share the problem of
1. "Low tech" industries, in which the original product proliferation. In high-tech ones, there is
technology lasts through the demand life cycle the additional problem of technology substitu­
tion.
The problem of product proliferation is illus­
3
For analysis of other variables, see [l:ch. 2.4]. trated graphically on Exhibit 4, which plots cash
 34 THE JOURNAL OF BUSINESS STRATEGY
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flows for succeeding generations of products. The
part of each cash flow curve lying below the hori­
zontal axis represents the expenditures incurred
during product development and launching; the
upper part is the positive cash flow from sales of
the product. For a product to be profitable over
its lifetime, the area above the curve must be
larger than the area below. Exhibit 4A shows the
danger of uncontrolled product innovation. If the
rate of innovation is not controlled, and is so
frequent that new products are brought to the
market before a satisfactory return on the in­
vestment has been accumulated, the result will be
chronic financial losses. This condition has previ­
ously been referred to as "profitless prosperity."
Exhibit 4B illustrates management control of
the rate of innovation by delaying new product
introduction until a positive return has been
earned on the previous product generation. His­
torically this has occurred in mature oligopolistic
industries in which a small number of experi­
enced competitors share an implicit understand­
ing that "rocking the technological boat" would
be to the disadvantage of all the competitors.
However, if the industry is immature or over-
populated by aggressive technology-driven com­
petitors, and if the customers are eager for tech­
nologically advanced products, profitless pros­
perity becomes almost inevitable. In such situa­
tions, a firm that unilaterally controls technolog­
ical advances in its products is in danger of losing
its market share and having even higher losses
than its competitors.
It is at this time that Alfred P. Sloan's princi­
ples of strategic orientation must be applied for
management. The following questions must be
answered4:
1. In the near future, can any of the competitors
remain profitable, or is everyone in the indus­
try moving into a period of profitless prosper­
ity?
2. If there is profit to be made, what will be the
success strategy, and will the firm be able to
develop such strategy in a timely manner?
3. If there are no near-term profits to be made,
what are the long-term prospects for the indus­
try?
4. If the prospects are promising, does the firm
have the resources to weather the near term
and become one of the successful long-term
survivors?
The answers to these questions enable the firm
to make two fundamental strategic decisions: (1)
the decision to stay or to leave the industry and-
(2) if the decision is to stay, the decision to com­
mit to a strategy that will give the firm the best
chance of success in both the near and the long
term. There is substantial evidence to suggest
that the sooner U.S. semiconductor manufactur­
ers leave markets in which they cannot possibly
be price competitive, the less likely they are to
share the unfortunate fate of Mostek.
Managing Product Proliferation
One success strategy presents itself when, as ap­
pears to be the case in the personal computer
industry, an industry reaches the stage at which
demand for the highest-tech products begins to
4
For analysis of these questions, see [l:ch. 2.2].
 THE JOURNAL OF BUSINESS STRATEGY 35

shift to a demand for responsiveness to other

customer needs. When such a shift occurs, a
promising strategy is to reduce the frequency of
technological product innovation and fill the
interim period between technology advances with
other types of product improvements that are
more responsive to market needs. The alterna­
tives are illustrated in Exhibit 5. They range from
cosmetic repackaging to incremental perform­
ance improvements, to new design concepts,
and finally to introduction of the latest technolog­
ical advances into the product line (such as the
leap from the Apple to the Macintosh).
As the curve in Exhibit 5 illustrates, the costs
of the respective product improvements differ
very significantly. The consequences of the strat­
egy of controlled technology are illustrated in
Exhibit 4C. As a comparison of the above- and
below-axis curves of income and investment
shows, the firm's product line becomes profitable
and, at the same time, more responsive to the
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needs of the market than technology-driven

products of the competition.
A firm that pioneers the strategy of controlled
technology is likely to become the competitive
leader. Firms that eventually follow will bring the
industry back to "sanity," where most com­
petitors make a profit. Firms that do not follow
become candidates for extinction as they con­
tinue to proliferate technological advances.
Managing Technology Substitution
As mentioned previously, the product prolifera­
tion problem is shared by medium-tech and high-
tech industries. A return to Exhibit 3C shows that
high-tech firms have to deal with another and
even more difficult problem. This is the problem
of technology substitution. When a novel tech­
nology enters an industry, it threatens the sur­
vival of the historical leaders. Examples of tech­
nology substitution are numerous and well-
known: synthetic fibers for natural fibers, transis­
tors for vacuum tubes, lasers for electromagnetic
information storage, aluminum for steel, plastics
for metals, biogenetics for chemistry, etc. Typi­
cally, the new technology offers major improve­
ments in performance and begins to displace
products based on the old technology from the
marketplace. The capabilities, knowledge, skills,
facilities, and even management of the histori­
cally successful firms are typically not transfer­
able to the new technology. Thus, not only do the
products of the firm become obsolete, but the firm
itself becomes obsolete.
From the vantage point of the strategic orienta­
tion, the strategy for dealing with technology sub­
stitution is easy to formulate.
1. Firms in high-technology industries must con­
duct a continuous search for sources from
which new technologies are likely to come.
2. As new technologies surface, the firm must
make a timely commitment either to acquire
the technology or to prepare itself for an or­
derly withdrawal from the marketplace. The
timing of the shift to the new technology is a
high-risk decision: premature commitment to
technologies that never materialize can be just
as harmful as a belated attempt to join a tech­
nological bandwagon. Thus, technology sub­
stitution is an entrepreneur's game.
3. If the firm decides to stay in the market, in­
vestment into historical products must be cur­
tailed and resources increasingly reallocated
to the new technology as the new technology
approaches commercial realization.
The above prescription has the sound of com-
monsense logic, yet experience has shown that
firms have repeatedly missed the "new techno­
logical boat" and either lost their leadership or
were forced to withdraw from the industry. The
more successful the firm, the more likely it is to
miss the boat! This phenomenon has been so fre­
quent that it was named "strategic myopia."
 36 THE JOURNAL OF BUSINESS STRATEGY
The next three sections of this article explore
the reasons and the means for dealing with
strategic myopia.
Managers' Mentality and
Organizational Culture
As discussed earlier, changes in orientation oc­
curred on four different occasions. (See Exhibit
1.) All of these experiences have shown that the
transition is very difficult and its path is strewn
with obstacles. The major obstacle has typically
been the top manager(s) who brought success to
the firm under the preceding orientation. In the
1930s, Ford gained immortality with his dictum
"Give it to them in any color so long as it is
black," and thus lost leadership to General
Motors, which "gave it to them in many colors
and models." In 1985, Jobs became an obstacle to
Apple's adaption to the new market realities
through his single-minded commitment to the
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Macintosh [8].
An explanation for the resistance to change is
offered by the concept of a success model, which
every successful manager carries in his head and
uses to make decisions. The model is a set of
beliefs about what succeeds and what fails in the
firm's marketplace [l:ch. 5.2]. The success model
is typically built over years through trial and error
and successes and failures experienced in the
marketplace. The model is a source of con­
fidence, decisiveness, and preparedness to take
risks which are indispensable to all successful
leaders. However, the model becomes an obsta­
cle to the firm's progress when changes in the
environment make it obsolete, while the key
managers persist in guiding the firm according to
their historical model.
Not all managers are stubborn adherents to
historical success models. Some managers are
keen and foresightful observers of environmental
changes. When discontinuous changes occur,
such managers quickly revise their model, and
lead the firm toward new successes. One recent
success story is that of Walter Wriston of
Citicorp, who moved the historically product-ori­
ented bank toward strategic orientation by bring­
ing in strategically minded managers from other
industries diversifying the traditional banking
service, and reorganizing the bank to face the
newly turbulent environment.
Such managers are a minority. Many other
managers dig in their heels and persist in manag­
ing according to the historically successful model.
When this occurs, there are two observable
scenarios. Under one scenario, other powerful
managers within the firm or on the board who see
the need for change act to replace the manager
who has become obsolete. The process is con­
flict-laden and can acquire tragic overtones when
a great entrepreneur such as Jobs is forced to
leave the company he founded. Under the second
scenario, the historical leader refuses to recog­
nize the changes in the marketplace until losses of
market share and profitability reach crisis propor­
tions. At that point, key management is changed
but the change is likely to be too late to prevent a
permanent loss of leadership or even the demise
of the firm [2:ch. 9].
The success model becomes an obstacle
to the firm's progress when changes in the
environment make it obsolete.
The second major source of resistance to a new
orientation is the management hierarchy below
the level of the controlling managers. The phe­
nomenon is the same: a refusal to accept a new
success model [l:ch. 6.1]. In recent management
literature, the commonly held organizational be­
lief about what produces success in the mar­
ketplace is popularly called "culture." Thus,
when the great AT&T was dismembered, it was
necessary for the company to develop a market­
ing culture. Unlike the personal model of the key
manager, culture is shared and experienced by
many managers and groups within the firm. This
makes culture even more difficult to change than
the mentality at the top. Certainly, the change is
likely to be a more prolonged and indirect pro­
cess, than the act of replacing the key man­
ager's).
There is no simple way to change culture.
Ample evidence shows that the popular prescrip­
tion of "letting the people know" about the new
culture, at best, has a marginal effect. Experience
also shows that culture and mentality have to be
changed over a period of at least five years
through a series of complementary measures.
Some of the measures are direct and are ad­
dressed specifically to producing cultural and
mentality changes. Some are indirect. Although
they are addressed to changing the competence of
the firm for solving new strategic problems, such
measures indirectly but forcefully contribute to
the cultural transformations.
 THE JOURNAL OF BUSINESS STRATEGY
The key direct measures that have been iden­
tified through experience and research are [l:ch.
6.1]:
□ Exemplary behavior by the key managers.
This means convincing the organizations of
the new orientation through consistent per­
sonal behavior and not by speeches and
memoranda. For technology-driven com­
panies, this means refocusing management
meetings, agendas, and interpersonal contacts
from preoccupation with product development
to identification of a combination of activities
that will optimize the future profitability of the
firm.
□ Realignment of power within the firm in favor
of managers whose success models are rele­
vant for the future and who have the knowl­
edge, talents, and skills for applying the model
to practice. This also means focusing respon­
sibility for major strategic decisions at general
management levels where the future interplay
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of technology, demand, competition, etc., is
clearly visible.
□ Change in rewards and incentives (both for­
mal and informal). This means a change from
rewards for technological creativity to re­
wards for a combination of all types of creativ­
ity (technological, marketing, purchasing,
management), which will optimize the profit
potential for the firm.
□ Confronting managers with the realities of the
future environment in a way that helps them
rethink and revise their success models. Ex­
perience has shown that this can be accom­
plished through properly organized participa­
tive planning exercises.
Competence for Strategic
Management
A new success model of the future reality, shared
by the key managers and the organization, is a
vital prerequisite to the firm's ability to shift its
orientation from technology to strategy. Beyond
the personally and organizationally held convic­
tions about the future, management also needs a
competence to act in a way that will be respon­
sive to the new challenges.
Presented below is a series of competence-en­
hancing measures. As discussed in the preceding
section, by changing the problem-solving behav­
ior of the firm, such measures also help transform
the culture and mentality of the managers [l:ch.
6.2].
37
□ Forecasting and information system. To start
with, the firm must broaden its forecasting and
information system from a focus on the histor­
ical technology and financial performance to
include:
• The future competitive climate;
• Other technologies that will enter the firm's
industry;
• Structural changes in the economic condi­
tions;
• Future foreign competitors; and
• Sociopolitical climate.
All of this input data has to be translated and
focused on answering two questions:
• What will be the opportunities and threats
for future growth and profitability?
• What will be the key factors that will deter­
mine success in the marketplace?
□ Strategic thinking and analysis. Given the in­
formation, managers will need skills in
strategic thinking and analysis. They include
[l:ch. 2.3]:
• Analysis of the firm's likely success in envi­
ronments that will be significantly different
from those of the past.
• Selection of the optional future strategy,
capability, and investment level for such en­
vironments.
• Balancing the firm's strategic portfolio of
businesses in a way that will ensure con­
tinuity of growth and profitability.
□ Resources. These should be provided to make-
the new behavior possible. For technology-
driven firms, this means enlarging research
and development budgets to strategic budgets,
which include all costs from the inception of
an innovative idea to the launching of the
product on the market plan.
□ Strategic planning system. Except in small
firms, strategic activity involves many indi­
vidual and organizational units of the firm.
Therefore, medium-size and large firms need a
strategic planning system, which organizes
and guides the communal strategic thinking
and planning. An important lesson learned
from experience is that strategy formulation
must include individuals who will be responsi­
ble tor managing its implementation.
□ Project management system. In shifting to the
strategic orientation, successful technology-
driven firms usually have one significant ad­
vantage, which is typically missing in low-tech
 38 THE JOURNAL OF BUSINESS STRATEGY
EXHIBIT 6
Capability Profile for Strategic Orientation
Key Manager(s) Entrepreneur
Success Model Position the firm in future
opportunity areas
Power Focus • General management
• E&P
• Market development
Rewards For development of future
profit potential
Information Anticipation of future
opportunity/threat
Planning • Strategic posture planning
• Issue management
• Strategic control
Implementation System Project management
Structure • Fluid
• Problem-focused
• Change-enabling
Downloaded by MAHIDOL UNIVERSITY At 09:43 24 February 2015 (PT)
and medium-tech firms. This is the project
management system, which guides the im­
plementation of strategic decisions.
□ Organizational structure. This must be
changed to provide for flexible response to
challenges as well as focal points for key
strategic decisions below the level of the cor­
porate office. The recent reorganization of
Apple appears to be a move in this direction.
[8].
The discussion in this and the preceding section
identifies ten complementary measures that can
help transform the firm's management from a sin­
gle-function orientation to a strategic one. An
examination of the measures will readily show that
practically every aspect of management capabil­
ity has to undergo a significant and typically dis­
continuous change. The new profile of manage­
ment is described in Exhibit 6.
A managed transition to the new orientation is
a massive and time-consuming process. Ideally,
the need for the new orientation should be antici­
pated and carried out in advance, before profits
plunge and sales slow down. If, as is the case in
many semiconductor and computer firms in 1985,
it is almost too late, management must move
forcefully to change the behavior of the firm
without waiting for organizational transformation
to take place.
Of necessity, such a change of behavior must
be made coercively, through application of power
to overcome the inevitable organizational resis­
tance to compensate for the unskilled responses
to the problem. But whether the change is con­
ducted coercively or" in anticipation, both experi­
ence and research show that resistance is inevita­
ble; the difference will be only in its intensity.
Fortunately, much has been learned in recent
years about managing resistance in a way that
minimizes the organizational dysfunctions. The
final section of the article discusses briefly how
resistance can be managed.
Managing Resistance to Change
Observation of the historical transitions from one
orientation to another shows that, if left unman-
aged, the process becomes conflict-laden, pro­
longed, and costly in both human and financial
terms. Management of resistance involves, in the
first place, anticipating the focus of resistance and
its intensity. Second, it involves eliminating un­
necessary resistance, caused by the very com­
mon misperceptions and insecurities induced by
the prospects of unfamiliar change. Third, it in­
volves mustering the power base necessary to
assure support for the change. Fourth, it involves
planning the process of change. And, finally, it
involves monitoring and controlling resistance
during the process of change.5
Summary
History shows that during the first fifty years of
this century, successful firms focused their ener­
gies on optimizing the performance of one of the
principal functions: production, R&D, or market­
ing. Since the mid-1950s, due to the growing
complexity and dynamism of the environment,
success increasingly depended on a judicious
combination of several functional influences. This
transition from a single-function focus to a mul­
tifunction focus occurred first in the industries
that were born during the First Industrial Revolu­
tion.
Until the mid-1980s, the high-tech industries of
the Second Industrial Revolution remained typi­
cally technology-driven: They were focused on
incorporating the latest technological advances in
their products. In the mid-1980s, the technology
orientation began to shift to the multifunctional
orientation. A major step in this shift is the gen­
eral management's assumption of control over
the rate of technology proliferation.
Transition to the multifunction orientation re­
quires a transformation of the management of the
firm: changes in the mentality, personality, and
5
Management of resistance is discussed in detail in [I:pt. 6].
 THE JOURNAL OF BUSINESS STRATEGY 39

skills of the key managers; in the organizational
culture and power structure; in the information
system, rewards, and incentives; and in deci­
sion-making systems and organizational struc­
ture. Typically the transition to the multifunction
orientation is resisted by both the historical lead­
ers of the firm and the rest of the organization.
History shows that transitions in orientation
have been conflict-laden, prolonged, and costly.
The pains and the costs of the transition can be
minimized by foresightful identification and man­
agement of resistance during the change process.

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