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Strategic Types and Technology Cycles in the Aerospace and Biotechnology Industries in U.K.
1
XIV Congreso Internacional de la
Academia de Ciencias Administrativas A.C. (ACACIA)
Strategic Types and Technology Cycles in the Aerospace and Biotechnology
Industries in U.K.
Mesa del trabajo: Innovación y Tecnología
Autor : Atoche-Kong, Carlos E., Candidato a Doctor
Director de la MBA (M. en Administración y Dirección de Empresas
EGADE, Campus Ciudad de México
Tecnológico de Monterrey
Instituciones de adscripción:
EGADE – CCM. Tecnológico de Monterrey
The Cambridge-MIT Institute. Cambridge, UK
Dirección : Calle del Puente Nº 222. Col. Ejidos de Huipulco
Deleg. Tlalpan. Mexico. D.F. C.P. 14380
Teléfono : (52) 5483-2376
Fax : (52) 5483-2337
Correo electrónico : [email protected]
Monterrey. 27-30 de Abril del 2010
Strategic Types and Technology Cycles in the Aerospace and Biotechnology Industries in U.K.
2
Strategic Types and Technology Cycles in the Aerospace and Biotechnology
Industries in U.K.
Abstract
How do UK firms respond to changes in their environments?, what are their strategic
orientation when perceiving and confronting changes in their environment and its impact
on innovation strategy? This research uses a multi case study method to analyze 7
aerospace corporations and 14 biotechnology firms. The Miles and Snow strategic
typology is used to identify the firms’ strategic types that can explain their strategic
behavior before these changes. I use secondary data between 2004 and 2006. These
findings are compared with previous research regarding strategic fit in similar
competitive environments.
Industry effects and the technology lifecycle are identified as drivers for explaining the
firm strategic responses. Aerospace, even a mature industry, because of its competitive
dynamism and innovative nature, responds mostly as Prospector. The apparent slow
decision taking is because of its competitive pace, and not because of the prevalence of
Defenders. Biotechnology, as a growing and innovative industry, responds rapidly and
immediately to environmental changes, and also biotech firms respond mostly as
Prospector, however some Defender players are found.
Firm specific effects are also identified as strategic decision making driver, as the
specific location of the firm in the industry value chain and resources and capabilities
stocks. Biotechnology is characterized by the presence of complex alliances: across its
value chain, co-development and licensing agreements, and involving international
players.
Cyclical lack of funding is identified as the most important environmental element in the
Biotechnology industry, and government intervention and global geopolitical phenomena
are main drivers for aerospace industry.
KEYWORDS: Technology Cycles; Biotechnology, Aerospace
Strategic Types and Technology Cycles in the Aerospace and Biotechnology Industries in U.K.
3
Strategic Types and Technology Cycles in the Aerospace and Biotechnology Industries in
U.K.
Abstract
How do UK firms respond to changes in their environments?, what are their strategic orientation
when perceiving and confronting changes in their environment and its impact on innovation
strategy? This research uses a multi case study method to analyze 7 aerospace corporations and
14 biotechnology firms. The Miles and Snow strategic typology is used to identify the firms’
strategic types that can explain their strategic behavior before these changes. I use secondary
data between 2004 and 2006. These findings are compared with previous research regarding
strategic fit in similar competitive environments.
Industry effects and the technology lifecycle are identified as drivers for explaining the firm
strategic responses. Aerospace, even a mature industry, because of its competitive dynamism and
innovative nature, responds mostly as Prospector. The apparent slow decision taking is because
of its competitive pace, and not because of the prevalence of Defenders. Biotechnology, as a
growing and innovative industry, responds rapidly and immediately to environmental changes,
and also biotech firms respond mostly as Prospector, however some Defender players are found.
Firm specific effects are also identified as strategic decision making driver, as the specific
location of the firm in the industry value chain and resources and capabilities stocks.
Biotechnology is characterized by the presence of complex alliances: across its value chain, co-
development and licensing agreements, and involving international players.
Cyclical lack of funding is identified as the most important environmental element in the
Biotechnology industry, and government intervention and global geopolitical phenomena are
main drivers for aerospace industry.
Strategic Types and Technology Cycles in the Aerospace and Biotechnology Industries in U.K.
4
Introduction
Kitson et.al. (2004) developed a real time multi case study analyzing organizations in the
aerospace and biotechnology industries in U.K., finding how macroeconomic changes between
2002 and 2004 could influence corporate and managerial behavior.
This study attempts to complement the original report, covering the corporate occurrences and
comparing them with macroeconomic changes in the 24 months after the original report was
published. Macroeconomic changes are called environmental changes in this paper.
Venkatraman and Prescott (1990) argue that a proper strategic fit has significant implications for
performance, and good performance can be understood not just as above average returns but also
as survival when firms confront extremely dynamic and competitive environments. In such
environments innovation becomes one of the most important sources of competitive advantage.
This study starts analyzing literature regarding strategic fit, and then it introduces Miles and
Snow strategic typology, the technology lifecycle, the relational perspective, and the resource-
based view of the firm. Then I analyze data covering firms in the aerospace and biotechnology
industries, identifying their strategic behavior.
Finally I discuss findings from this study compared with previous research, suggesting future
research in this area.
Literature Review
Strategic fit, also called strategic coalignment, consistency, or congruency, means the internal
consistency among strategic decisions or the fit between strategic choices and contingencies
posed by environmental or organizational contexts (Venkatraman, 1990).
This concept is fundamental to strategic management, and the idea of matching organizational
resources with environmental opportunities and threats has been present since the beginning of
strategic management studies (Chandler, 1962) becoming the first strategy paradigm. The most
traditional strategic management tools, as the SWOT analysis and the Five Forces Model (Porter,
1980), try to develop this match between the firm and its environment, in order to create
competitive advantage and to generate positive economical profit.
The study of strategic fit has been vast. Venkatraman and Camillus (1984) develops a complete
study regarding its concepts and how it has been used in different management theories, a critical
Strategic Types and Technology Cycles in the Aerospace and Biotechnology Industries in U.K.
5
analysis of its operationalization is found in Venkatraman (1989), and its implications on
performance are covered empirically in Venkatraman (1990) and Venkatraman and Prescott
(1990).
In order to identify alignment of organizational strategy as response to environment changes it is
required to analyze the same firms in two different time frames, as Verkatraman and Prescott
(1990) did, and it is not possible to do that in this study. This study develops the second of these
analyses. I identify the strategic options developed by each firms using their events in the period
2004-2006. This process should be developed again analyzing the same firms for 2002-2004, and
combining both results strategic changes in each firm can be identified and explained accordingly
to their environment changes.
There are two perspectives when studying strategic fit, the reductionistic and the holistic
perspectives. The former one views environment and strategy using one or few dimensions that
represent them and tries to find statistical correlation among them. The latter is based on the idea
that it is important to maintain the holistic nature of the relationship strategy-environment
(Venkatraman and Prescott, 1990). This study uses the second approach.
In order to retain a holistic approach I use a typology that takes in account all relevant and
interacting elements inside the firm “where entire organizations can be viewed as integrated
wholes in dynamic interaction with their environments” (Miles et. al. ,1978). This typology is
known as the Miles and Snow strategy typology.
The Miles and Snow strategy typology (Miles & Snow, 1978; Miles et. al, 1978) is used as
theoretical framework in order to understand the decision logic in each company. They stated that
“most organizations engage in an ongoing process of evaluating their purposes, questioning,
verifying, and redefining the manner of interaction with their environment”.
They define four strategic types adopted by all Strategic Business Unit (SBU):
• Prospectors: they are innovators and are looking for new products and markets. They
avoid long‐term commitments to a single technological process. They try to coordinate
diverse operations.
• Analyzers: they are laggers; they prefer to design the second but a better strategy than the
prospectors. They try to exploit new products and market opportunities, being efficient
Strategic Types and Technology Cycles in the Aerospace and Biotechnology Industries in U.K.
6
and flexible organizations. Their organizations are continuously trying to accommodate
stable and dynamic areas.
• Defenders: they are engineering‐oriented and try to maintain their niche. They try to lock
a portion of the market, creating a stable environment. Efficiency is their main objective,
and they establish strict controls through the organization.
• Reactors: they lack of a proper strategy and react to short‐term environment requirements.
Hambrick (2003) comments that this typology is still valid and generates academic interest in the
strategic management field despite this typology has been used for more than 30 years, since
1978. Zahra and Pearce (1990) can be referred for research evidence on the Miles and Snow
typology.
The industry effects on firm behavior and performance have been extensively analyzed in the
literature (Schmalensee, 1985; McGahan & Porter, 1997), as well as the prevalence of the firm
over the industry (Rumelt, 1991) This study analyzes companies competing in two different
industries (aerospace and biotechnology), and both perspectives will be quoted when necessary.
Utterback (1996) model regarding technology lifecycle is adopted in this study, as both industries
base their main source of competitive advantage on innovation. Utterback defines three phases
(or stages in a lifecycle) in the dynamics of technology evolution:
• Fluid phase: it is the stage where the highest rates of experimentation are developed, in
the product/service design. Product innovation is high, process innovation is low.
• Transitional phase: standards emerge, and the product/service innovation lowers, at the
same time the process innovation rises.
• Specific phase: the companies are focused on costs, volume and capacity. The innovation
at the product/service and process is low.
The technology lifecycle perspective explains many strategic options deployed by companies.
Inside each industry different converging lifecycle phases are also identified.
Biotechnology industry is located between the fluid and transitional phase, with players working
at different stages of the technology lifecycle. Even this industry is starting to commercialize
biotechnology products and services, different players are located in different stages of the
Strategic Types and Technology Cycles in the Aerospace and Biotechnology Industries in U.K.
7
industry value chain. Figure 01 illustrates the traditional stages that characterize the location of
biotechnology firms.
Figure 01 The lifecycle of a Biotechnology Company (Hamilton, 2005)
The location of a company in the lifecycle predetermines most of its strategic behavior, and its
competitive environment. Companies in this industry are competing even at initial technological
stages, where “potential companies” in other industries are still operating at the university labs or
in a research center.
Previous Studies Identifying Strategic Types using Miles and Snow Typology
There are many empirical researches that have used the Miles and Snow typology, some of them
identifying the distribution of strategic type among different environments and industries, and
others identifying specific features characterize the different strategic types.
Strategic Types Distribution Among Industries
Hambrick (1983), using the PIMS data base, identified the distribution of strategic types and
performance indicators in different environments (see Table 01).
Environment
# % ROI # % ROIGrowth - noninnovative 59 70% 28.5 25 30% 16Growth - Innovative 53 45% 26.8 66 55% 17.6Mature -Noninnovative 425 93% 22.8 31 7% 13.4Mature -Innovative 112 59% 21.1 79 41% 18.3
Defenders Prospectors
Table 01: Defenders and prospectors in different environments (Hambrick, 1983)
Strategic Types and Technology Cycles in the Aerospace and Biotechnology Industries in U.K.
8
Using these environments this study would cover aerospace and biotechnology industries. The
former industry is a mature one; however it remains as an innovative industry. The latter is a
growing and innovative industry. I expect to find similar results in this study. The growth
industries can be considered at the fluid or transitional phase, while mature industries are at the
specific phase, using Utterback’s technology lifecycle model.
Snow and Hrebiniak (1980) found distinct competences per each strategic type, and identified
another strategic type distribution in different environments using four industries (Table 02). The
environments are differenced according to uncertainty. It can be applied when discussing
aerospace and biotechnology industries.
Strategies Perceived by Top Managers, by Industry (N=247)
Industry Defender Prospector Analyzer ReactorDid not respond
Low uncertainty Automotive 22 (40%) 17 (31%) 5 (9 %) 9 (16%) 2 (4 %) Air transportation 36 (33 %) 32 (29 %) 9 (8 %) 26 (24 %) 7 (6 %)High uncertainty Plastics 19 (34 %) 18 (32 %) 8 (14 %) 8 (14 %) 3 (5%) Semiconductors 3 (12 %) 8 (3 %) 5 (19%) 7 (27 %) 3 (12 %)
Strategy
Table 02. Strategies perceived by top managers (Snow and Hrebiniak, 1980)
Even though this second study has two limitations compared with Hambrick (1983), both studies
obtained similar results. The Snow and Hrebiniak study used the four strategic types, while
Hambrick used just two.
Capabilities and Features per Strategic Type
O’Regan and Ghobadian (2006) studied 194 SME in the electronics and engineering industries in
UK. They used manager perception to classify the strategy type, and provided characteristics per
strategy type, as “that prospector firms emphasize creativity, external orientation and
departmental co-operation to a greater extent than defender type firms. Defenders appear true to
form by emphasizing internal capabilities and control to a higher degree than prospector firms”.
DeSarbo et. al. (2005) developed a quantitative-oriented analysis, which covered 709 companies
(216 American, 248 Japanese, and 245 Chinese firms) proposing numeric methods for identifying
strategic type (using the four Miles and Snow types), firm’s capabilities, environment, and
performance. Their statistical analysis generated four strategic groups (firms with similar
Strategic Types and Technology Cycles in the Aerospace and Biotechnology Industries in U.K.
9
capabilities and behavior), and each one had some tendency to specific Miles and Snow strategic
types. They also identified general characteristics for each strategic group. See Annex 01 for the
survey used in that study.
Table 03 summarizes the capabilities or distinctive competences that these studies identified per
strategy type.
Methodology
This study uses a cross‐sectional and multi case study method, using secondary data from
multiple sources of information, as corporate information, trade journals, business studies, and
major news media. This data triangulation reduces corporate information bias effects.
This study analyses organizations in the British Aerospace and the Biotechnology industries
using multiple units of analysis. The strategic decision elements differ among both industries, and
also because of the firm/corporation size, diversification, geographical scope, product lifecycle,
etc. In some cases the corporation is used as the unit of analysis, in other cases the unit is the
business unit, and, especially in the biotechnology industry, the product pipeline and inter‐firm
interactions (alliances, mergers and acquisitions) are analyzed.
Data Collection
The data was collected from different sources, according to its availability and the nature or the
organization. Annex 03 summarizes the reports and data sets collected per company. At least
three different data sets were collected per company.
The sources of data for public companies were Datamonitor databases, Mergent Online, Osiris
and Factiva (major news sources and trade journals). For private companies the sources were
Factiva (major news sources and trade journals), Fame and Amadeus databases1.
In order to collect enough information regarding each company I looked for the firm’s name in
the “full article” in all sources between 01/01/2004 and 31/12/2006. In case that too many articles
were found, I reduced the search scope, using just headline and leading paragraph, or using just
European, UK, and US major news. At least 100 and no more than 200 articles per firm were the
criteria to change the searching options among regional trade news.
1 FAME combines comprehensive information regarding UK firms, Amadeus is a similar one containing European companies data.
Strategic Types and Technology Cycles in the Aerospace and Biotechnology Industries in U.K.
10
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"Strategic type"
"Leadership type"
Table 03. Capabilities and Distinctive Competences per Strategic Type
Strategic Types and Technology Cycles in the Aerospace and Biotechnology Industries
in U.K.
11
Data Analysis
The Datamonitor’s “Company Profiles” and “SWOT analysis” were the initial
information sources, if available. The annual reports were reviewed in order to identify
strategic directions and relevant decisions taken in the analyzed period.
The Amadeus and Fame general reports provide some financial information of UK
companies, as well as their dynamism, as mergers and acquisitions (M&A), dissolutions
and patent information.
The media news were used intensively in the biotechnology firms, as they lack of
formal and public information. The news were “skimmed” and news logs were created
for each company, with the most relevant paragraphs that commented companies
changes and features, and provided some strategic insights. With this method most of
the recent company history was recreated.
Strategic Type Identification
I identified the strategic orientation for each firm using the criteria used in the
questionnaire provided by Snow and Hrebianiak (1980) (see Annex 02). I used also the
distinct competences and some characteristics per type as identified by O’Regan and
Ghobadian (2006), and specific capabilities per strategic type as identified by DeSarbo
et.al. (2005)2.
When a firm had combined features of different strategic types, I chose its type taking in
account what strategic type was more recalled by these features.
The Macroeconomic Environment
The macroeconomic environment was analyzed at two different levels: at the country
and at the industry level later, identifying the most important factors that affected
organizational strategic decisions.
U.K. Competitive Environment3
The United Kingdom is the second largest European economy, and the fourth largest
economy in the world. During the twentieth century UK has been declining
economically, but in the last decade its economic performance was steady, with a GDP
2 I summarize these criteria in Table 03. 3 See Datamonitor (2005b) and EIU (2005)
Strategic Types and Technology Cycles in the Aerospace and Biotechnology Industries
in U.K.
12
growth of 2.5% during 1999-2004 (55 continuous quarters of growth), creating a
favorable business environment.
Despite its complicated and high tax structure, U.K. has remained as one of the world
largest recipients of FDI (1st in 2005, UNCTAD, 2006).
U.K.’s economic growth hidden that U.K has structural inefficiencies, such as lack of
innovation (compared to the U.S. and European leader players) that will cause a decline
in its growth forecasts in next years. An interesting issue is that foreign innovation
developed in U.K. is growing: inward investors now account for one-third of business
research and development spending (R&D). It can generate technology appropriation
problems.
The manufacturing sector is declining, accounting for just 15% of UK GDP, but
remains some strong sectors, as pharmaceuticals, electrical and optical equipment. The
strength of sterling is another obstacle for its development, as most of goods produced
are exported. Manufacturing sectors have lost 1 million jobs in the last years. In the
other side services is growing at an impressive pace, having created 4 million jobs in the
same years.
As a summary, the U.K. economic environment is contradictory, even though a
sustained growth is observed; manufacturing sectors are declining, as well as innovation
and technological competitiveness, but at the same time receiving strong funds from
foreign companies in innovative activities. Services sectors are supporting U.K.
economic growth.
The Aerospace Industry
Aerospace is a mature, global and concentrated industry4, and bases its revenues on
manufacturing civil and military aerospace, and defense equipment and parts
(Datamonitor,2005a).
This industry has some peculiar characteristics:
- Expensive and time consuming product development: the development of a new
airplane model costs billions of dollars, and it can take up to 10 years
- The demand can not be forecasted
4 Civil and military aircraft production is in the hands of few players: Boeing and Lockhead Martin in the U.S., and BAE Systems and EADS in Europe.
Strategic Types and Technology Cycles in the Aerospace and Biotechnology Industries
in U.K.
13
- Government support, especially in Europe
- Importance of State Defense and Security Departments in the industry (the
industry is sensible to spending cuts, or the emergence of unexpected
requirements).
The global aerospace market is divided 86.4% in the defense sector and 13.6% in the
civil sector. In UK defense accounts for 75% and civil sector for 25%.
The global aerospace industry has growth 4.3% per year in the 2000-2004 period, its
European division grew just 0.7% per year in the same period, and the U.K. division
juts 0.1% per year. The U.S. industry is the one that benefited most of the global market
growth, and the U.K. industry remains as the largest one in Europe. The European
market is valued in USD 249.9 billions, and the UK market in USD 50.9 billions
(20.11% of the European market).
The “9/11 event” has changed the dynamism of this industry, and because of its global
nature, it has affected to American and European players. In the civil sector it caused a
plumb in civil aircraft demand; however in the defense sector it started an increase in
demand. This resulted in a net increase in the global, European and U.K. market, but
with differenced effects on each large player (according to their market mix).
It is expected that the UK market will grow to 59 billion to 2009 (3.5% annual), with
the highest rate in Europe, recovering part of market share that has lost in the last years.
The Biotechnology Industry
Biotechnology is defined as “the manipulation (as through genetic engineering) of
living organisms or their components to produce useful and usually commercial
products” (Merrian-Webster online dictionary). Biotechnology market consists of the
development, manufacturing and marketing of products based on advanced
biotechnology research (Datamonitor, 2006). These markets include pharmaceuticals,
agriculture, food, chemicals, and pollution controls. This study is limited to
pharmaceutical biotechnology. Revenues in this industry consist on product sales,
licensing fees, royalties and research funding.
This industry is in its fluid and transitional stages, characterized by large R&D
investments (over 500 million USD per approved drug), long new product development
cycles (up to 10 years, Datamonitor, 2006), close links with university and research
Strategic Types and Technology Cycles in the Aerospace and Biotechnology Industries
in U.K.
14
centers (as a science-based industry), and complex regulatory for drug approval. These
elements create high risk-perception in the market, but also high potential pay off that
creates sensitive competitive environment.
Hamilton (2005) identifies some drivers and resistors for this industry, as seen in Table
04. Innovation gap in pharmaceutical industries is one of the most important drivers in
this industry. Pharmaceutical’s response to this weakness is the acquisition of
biotechnology firms, as I found in this study, even with the acquisition of very large
biotech companies. In the resistor side, the emergence of bio-generics and regulations
are two of the most important obstacles for the industry development. Funding is a
cyclic phenomenon: before 2001 funds were available for almost any biotech initiative,
until the bursting of the high-tech bubble. In 2004 funds again started to increase, and
some analysts expect that this trend will create another bubble. In this moment funding
is a resistor for the industry, especially in Europe.
Drivers Resistors
Innovation gap in pharma R&D Government costs
Patent expiries of traditional blockbuster
drugs
Generics in biotechnology industry
(biogenerics)
Higher approval rates in biotechnology Sales and marketing capabilities
Diagnostic innovation Regulations
Fulfilling unmet ideas Funding resources and analyst perception
Enabling technologies Ethics and public concerns
Investors confidence
Table 04. Biotechnology industry drivers and resistors (Hamilton, 2005)
Despite the bursting of the high-tech bubble, the global biotechnology market has
grown at 12.8% per year in the period 2001-2005, with total revenues of 126.3 billion
USD in 2005 (77.7 billion USD in medical segment). UK market was 7.7 billion USD,
with 5.4 billion USD in medical segment. It is expected to grow at 12.3% per year at the
global level (226 billion USD in 2010), and in U.K. its growth could be 10.1 % (12.5
billion USD), increasing the industry gap between US and UK.
The industry is also highly concentrated: ten top biotechnology players have 80% of
total revenues. However small and medium enterprises (SME) proliferate in the industry
in the initial stages.
Strategic Types and Technology Cycles in the Aerospace and Biotechnology Industries
in U.K.
15
UK is the European leader: 49% of products in pipeline, and 62% of biotechnology
drugs in phase III in Europe are from UK (Sainsbury, 2003)
This industry is in its fluid phase, as most of the investment is directed to develop new
products instead of manufacturing them. However there are some players that have
jumped to the transition phase, and they are operating at commercialization stage.
Figure 01 identifies the different maturity levels of firms in this industry. Thus firms can
be classified as technology providers and developers, as early-stage drug developers, as
late-stage drug developers, and as fully integrated players.
Government intervention is high as regulator, as well as with taxation and funding
policy. Sainsbury (2003) reported that R&D tax credits in U.K. represented a
government investment of 500 million pounds (Aprox. 900 million USD).
The industry requires more funding than available, causing a lower growth rate than it
could do. This is one of the differences between the UK and US biotechnology markets.
Another relevant characteristic of the industry is the importance of the R&D and
technological collaboration among players, including the big pharmaceutical
corporations, and public and private research centers. The industry creates regional
clusters in specific locations, as the Cambridge and the East London Biotechnology
Clusters in U.K.
Company Analysis
Aerospace Industry
Aerospace industry is highly concentrated, and technology innovation is a common
competitive feature that every player must own, and it does not mean that the company
should be a Prospector organisation.
According to Hambrick (1983) this industry there should be more Defenders than
Prospectors, however this report identified five Prospector companies, and just two
Defender ones. The strategic type identification can be seen in Table 05.
Airbus is a typical Prospector-type company. Airbus developed first-mover advantage
strategy with its A380 design, the international R&D joint-ventures is also another
innovation initiative that provides more first-mover advantages. Fuel reduction projects
are other activities that strengths technological capabilities, thus providing more support
Strategic Types and Technology Cycles in the Aerospace and Biotechnology Industries
in U.K.
16
for the Prospector-type strategy. Rapid response to B787 threat, with the design of A350
supports Analyzer features, but as a whole I classify Airbus as a Prospector company.
BAE Systems, even though is Airbus’ owner, develops a different strategy. I found
high R&D intensity (Prospector feature), but BAE Systems’ main strategies are directed
to secure its current competitive position, to create barriers to entry, and to reduce costs,
becoming a profit driven company. Thus BAE Systems is a Defender competitor in
aerospace industry.
Complete company analysis of all seven players are available upon request.
Biotechnology Industry
Biotechnology is a science-based industry, then it is expected that most of the firms
were prospector companies, especially firms located in the lowest maturity levels (see
Figure 01).
Table 06 summarizes the strategy type identification process. I found 9 Prospector, 1
Defender, and 1 Analyzer firms. There are three companies that were dissolved
(Adprotech, Cellfactors, and Iceni) and they did not have enough information.
M&A processes are also quite common in this industry. Almost all firms in this sample
were involved in this activity: acquiring other firms, or being acquired.
Strategic alliances are also common, creating complex collaboration networks. Every
company is aware that lacks the sufficient resources to compete successfully in this
market, thus it complements them using collaboration agreements. These alliances are
not just along the value chain (technology, trials, commercialization), but also involving
players from different parts of the world.
An interesting example of these alliances was Domantis alliance agreements: In these
agreements Domantis remained as technology generator (first maturity level), as it lacks
of experience and funds to rise to the next maturity level (trial phases), signed an
agreement with Peptech, so Peptech develops pre-clinical activities. In a similar way,
Peptech, even with some commercialization capabilities required additional support at
this level, and signed an additional agreement with Biosceptre to co-develop
commercialization activities.
.
Strategic Types and Technology Cycles in the Aerospace and Biotechnology Industries in U.K.
17
Pro
sp
ecto
rD
efe
nd
er
An
aly
zer
Reacto
r
Airbus
- F
irst
mover
with A
380
√-
Rapid
resp
onse
with A
350 t
o 7
87
√√
- In
novative f
uel consu
mption r
eduction
√-
Str
ate
gic
alli
ances
for
co-d
esi
gn a
nd c
o-d
evelo
pm
ent
with C
hin
a,
Japan,
and
Russ
ia (
firs
t m
over
in inte
rnational te
chnolo
gy t
ransf
er
in c
lose
d a
ero
space R
&D
opera
tions)
√
BAE Systems
- H
igh R
&D
expenditure
s (1
2.8
- 1
3.6
%)
√-
Div
ers
ifie
d m
ark
ets
√
- C
ash
genera
tor
√
- F
inancia
l m
anagem
ent
stre
ngth
√
- It
is
reest
ructu
ring e
uro
pean o
pera
tions
(cost
reduction)
√
- A
pro
fita
ble
ori
ente
d o
rganiz
ation
√
GKN Plc
- T
echnolo
gy leaders
hip
√
- D
evelo
pin
g innovative c
om
posi
te s
tructu
res
√
- M
ark
et
leaders
hip
tro
ugh t
echnolo
gic
al in
novations
√
- T
echnolo
gy d
riven a
cquis
itio
ns
(rein
forc
ing t
echnolo
gic
al capabili
ties)
√
Goodrich Corporation
- Leader
develo
pin
g a
nd im
pro
vin
g t
echnolo
gy a
nd p
rocess
es
(lean p
roduction)
√
- A
pply
ing innovative t
echnolo
gie
s w
ith c
ust
om
ers
√
- O
pera
tional excelle
nce:
pro
cess
innovations
√
- F
irst
cost
eff
icie
nt,
fully
inte
gra
ted b
reakin
g s
yst
em
√
- C
ontr
acts
to c
olla
bora
te w
ith m
ost
modern
air
pla
ne m
odels
: B
787,
A350,
A380
√
- S
pin
off
s fr
om
opera
tions
√
- H
igh R
&D
inte
nsi
ty levels
√
Rolls Royce
- R
olls
Royce is
the b
enchm
ark
for
every
engin
e t
echnolo
gy p
layer
√
- S
trate
gy:
long t
erm
gro
wth
base
d o
n t
echnolo
gic
al in
novations
√
- H
igh R
&D
inte
nsi
ty√
- P
ioneer
in U
niv
ers
ity T
echnolo
gy C
ente
r N
etw
ork
s (U
.K.,
Norw
ay,
Germ
any)
√
- 306 p
ate
nts
per
year
√
Smiths Group Plc
- F
ocuse
d R
&D
√
- T
echnolo
gy d
riven a
cquis
itio
ns
(rein
forc
ing t
echnolo
gic
al capabili
ties)
√
- H
igh R
&D
inte
nsi
ty (
Apro
x.
10%
revenues)
√
- 20%
of
pro
ducts
were
develo
ped in t
he last
3 y
ears
in m
edic
al se
cto
r√
Thales
- P
roduct
div
ers
ific
ation s
trate
gy
√
- G
eogra
phic
al m
ark
et:
geogra
phic
al div
ers
ific
ation
√-
Covers
entire
suply
chain
(vert
ical in
tegra
tion,
cost
reduction)
√
Str
ate
gic
ori
en
tati
on
Co
mp
an
yS
ign
ific
an
t fe
atu
res,
eve
nts
Assig
ne
d
Str
ate
gic
T
yp
e
Pro
sp
ec
tor
Pro
sp
ec
tor
De
fen
de
r
Pro
sp
ec
tor
De
fen
de
r
Pro
sp
ec
tor
Pro
sp
ec
tor
Table 05. Aerospace Companies: Strategic Type Identification.
Strategic Types and Technology Cycles in the Aerospace and Biotechnology Industries
in U.K.
18
I identified also pipeline portfolio as an important strategic asset. Many M&A or
funding decisions were based on pipeline potential, especially if the firm had advanced
candidates in its pipeline. In this case it became a good candidate to receive funding or
to be acquired. I explain three cases, the rest of cases are available upon request.
Arakis is not an orthodox biotech company. It has strong technology scanning
capabilities that permits it to identify useful existing and, if possible, available
technologies, or off-patent drugs. This way Arakis identifies low risk opportunities that
allow it to develop its drugs in a quite rapid pace. Using this “Analyzer” approach,
Arakis could have 7 products in pipeline, 5 of them in advanced stages, in just 4 years.
A typical Prospector company is Biowisdom. It became market leader because of the
quality of its technology offer. Biowisdom is committed to develop and launch new
products continuously, increasing its technological capabilities, with high R&D
investment, or via M&A activities (as LION bioscience acquisition to incorporate bio-
informatics capabilities).
Mature biotech companies use to perform as Defenders, as CAT and Celltech Group,
because of their commercialization activities. Perhaps, as public companies (early-stage
firms use to be private companies), their commitment with shareholders forces them to
become profit-driven firms, adopting Defender tactics.
Celltech Group is a special case. When it was working as an independent company it
started to create barrier to entry (vertical integration), its alliances and M&A were
oriented to this purpose and to complement resources in an effort to optimize its
processes, acquiring mature products (requiring stronger production and engineering
capabilities) that could generate cash, and creating a specific division oriented to
generate profit. This is a Defender structure.
When Celltech Group was acquired by UCB (May 2004), Celltech Group’s strategy
changed dramatically, as UCB required a different approach in order to align Celltech
activities to its corporate strategies. Celltech Group became the “Technology
Generator” for UCB Corporation. UCB decided to cancel many licensing agreements
that could difficult Celltech’s technology developments, adopting as strategy for
Celltech the development of new products, and rising its R&D intensity. Thus, Celltech
Group changed its strategy from Defender to Prospector. This was the only case of
dramatic strategic change identified in this study.
Strategic Types and Technology Cycles in the Aerospace and Biotechnology Industries
in U.K.
19
Prospector Defender Analyzer Reactor
Adprotech - It had Phase I and II in advance (entry stage in drug development)- It was acquired by Inflazyme on april 2004 There is not enough information-Inflazyme decided to close its operations
Arakis - Products in Phase Iia and IIb (Late-stage drug development) √- Strategy: to identify useful existing technology √- Another source of opportunities: off-patent drugs √- Arakis looks for low risk and rapid development opportunities √- In 4 years it has 7 products in development, 5 of them in advanced stages! √ √- It was acquired by Sosei (Japan), at 106.5 million pounds
Astex - Multiple pipelines in development √- Complementary technologies (x-ray) √ √- Management capabilities √ √ √- Alliances to strenght technological capabilities √
Biowisdom - Market leader in delivering biological intelligence to pharmaceutical industry √ √- Strength of technological capabilities √- Launch of new developments √
- It acquired LION bioscience, a bioinformatics company (technol. Capabil. Strength) √
CAT - CAT covers all the lifecycle (trials, commercialization and internationalization) √ √- CAT's specific technologies (barriers to entry) √ √- Library (technological capability and barriers to entry) √ √- Multiple technology offers (TC and barrier to entry) √ √- Continuous capability formation √- Everything is about antibodies
Cellfactor - It provided service to other companies to identify new technologies √ √- It entered to administration There is not enough information
Celltech Group
- Celltech Groupcovers all the lifecycle (trials, commercialization, and internationalization) √ √
(as independent firm) - Alliances with other biotech and pharma (complementary capabilities) √ √- Mature products (engineering and production) √- One division focused on profit (financial management) √
Celltech Group - UCB acquired celltech Group in May 2004(UCB's subsidiary) - UCB-Celltech cancelled many licensing agreements √
- New strategy: to develop new products √
- Higher R&D intensity √
CeNeS Pharmaceuticals - Phase II and III (Late-stage drug development) √
-Patents grants √
- Alliances with biotec (Xention) and pharma (GlaxoSmithKlein) √
- Strong presence in scientific events and journals √
Domantis - Late-stage drug development √
- Patents granted √
- Novell Technology √
- Alliances with bio (Argenta) and pharma (Abbot): reinforce techn. Capabilities √
- Domantis: Technology generator, Peptech: preclinical, Peptech/Biosceptre: commerc. √Iceni - Phase II (early-stage drug development)
- Disolved There is not enough information
Ionix - Phase II (V1003, IX-1003) (Early-stage drug development) √
- R&D driven activities √
- Alliance with Achimedes: technol. Capabilities acquisition √
- Alliance with Rockitt Benckiser Healthcare (development and commercialization) √ √- It was acquired by Versalis
Lorantis - Phase II (Hepvax) √
- Alliances with bio (Coriza corp, Althea Technol., and Power Med) √
- It was acquired by Celldex
solexa - Provides services (commercialization) √
- R&D intensity √
Vernalis - Vernalis covers all the lifecycle (trials, commercialization and internationalization) √ √- Strategy: profitability and sustainability √
- Strategy: to build a leading R&D-based specialty bio-pharmaceutical comp. √
- Alliances √
Prospector
Prospector
Defender
Prospector
Prospector
Defender
Prospector
Analizer
Prospector
Prospector
Prospector
Prospector
Strategic orientationCompany Significant features, eventsAssigned Strategic
Type
Table 06. Biotechnology Companies. Strategic Type Identification.
Strategic Types and Technology Cycles in the Aerospace and Biotechnology Industries
in U.K.
20
Discussion and Conclusions
This study analyses the effects of environment changes on organization strategic
decisions in the Aerospace and Biotechnology industries. Firms’ reactions to
environmental conditions and changes typify the strategy orientation that each one of
these firms has adopted.
Findings in this study contradict Hambrick’s strategic composition in similar
environments (Aerospace has a mature and innovative environment, and Biotechnology
a growth and innovative environment). Schmalensee (1985) provides an explanation
when suggesting that industry affects firms’ behavior and performance. Hambrick
(1983) studied 649 companies in PIMS database, locating many industries together
under the label “mature-innovative” environment. I think that particular features of
Biotechnology and Aerospace industry, and temporal context effects have determined
the different strategic choices in each firm in those industries.
A common characteristic that I found in both industries is the high levels of R&D
investments, however at different intensity in each industry. This characteristic tells us
that even Defenders will have strong innovation capabilities, as it is necessary to acquire
competitive parity in their industries, and it is not any more the specific feature to
identify Prospector firms in these industries. It made it a bit more difficult the
identification process in the study.
There are large differences among both industries: Aerospace is a high concentrated and
vertical integrated industry that causes the existence of multinational corporations
(MNC) at the integrator level as well as at the supplier level (e.g. Rolls Royce is a MNC
supplier). There are not small firms in this industry.
Biotechnology is quite different. Even tough biotechnology is a consolidated industry at
commercialization level (top 10 players generate 80% of industry revenues), at the
technological and trial stages it is crowded by small and micro companies. Most of
companies analyzed in this industry have less than 50 employees. A common issue is
the necessity to develop alliances in order to gain competitive parity and to complement
resources and to acquire the minimum number of drug pipelines in order to survive.
Another interesting finding is the importance of management in this novel industry.
Competitive management teams provide trust to financial sector, and funding is the
most important survival factor for firms working in this industry.
Strategic Types and Technology Cycles in the Aerospace and Biotechnology Industries
in U.K.
21
Further Research
It was not possible to identify changes in strategic orientation to confront changes in the
environment, as it was proposed in the initial research question, but companies’
strategic actions to accommodate to new circumstances gave the necessary insights to
identify their “strategic orientation”.
In order to answer the original question it is required to develop this study in another
period of time to compare the strategic types that same firms were using. Identifying
changes in environment and strategic types in these firms will be useful to conduct
interviews to find causalities in these decisions.
I also suggest developing a classification of firms according to their strategic type using
the provided surveys.
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Strategic Types and Technology Cycles in the Aerospace and Biotechnology Industries
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24
Annex 01: Roadmap of Scale, Measurement Items, and Sources.
Miles and Snow Typology Items
(From DeSarbo et. al., 2005; adapted from Conant et. al., 1990)
The following statements describe some characteristics of this selected strategic
business unit/division. Please circle the description that best describes
this selected business unit.
1. In comparison to our competitors, the products which we provide to our customers
are best described as: (Entrepreneurial—product market domain)
a. Products that are more innovative, and continually changing.
b. Products that are fairly stable in certain markets while innovative in other
markets.
c. Products that are stable and consistently defined throughout the market.
d. Products that are in a state of transition, and largely respond to opportunities
and threats in the marketplace.
2. In contrast to our competitors, we have an image in the marketplace that:
(Entrepreneurial— success posture)
a. Offers fewer, select products which are high in quality.
b. Adopts new ideas and innovations, but only after careful analysis.
c. Reacts to opportunities or threats in the marketplace to maintain or enhance our
position.
d. Has a reputation for being innovative and creative.
3. The amount of time our business unit spends on monitoring changes and trends in
the marketplace can best be described as: (Entrepreneurial—surveillance)
a. Lengthy: We are continuously monitoring the marketplace.
b. Minimal: We really don’t spend much time monitoring the marketplace.
c. Average: We spend a reasonable amount of time monitoring the marketplace.
d. Sporadic: We sometimes spend a great deal of time and at other times spend
little time monitoring the marketplace.
4. In comparison to our competitors, the increases or losses in demand that we have
experienced are due most probably to: (Entrepreneurial— growth)
a. Our practice of concentrating on more fully developing those markets which we
currently serve.
b. Our practice of responding to the pressures of the marketplace by taking few
risks.
c. Our practice of aggressively entering into new markets with new types of
products.
Strategic Types and Technology Cycles in the Aerospace and Biotechnology Industries
in U.K.
25
d. Our practice of assertively penetrating more deeply into markets we currently
serve, while adopting new products after a very careful review of their potential.
5. One of the most important goals in these business units in comparison to our
competitors is our dedication and commitment to: (Engineering—technological goal)
a. Keep our costs under control.
b. Analyze our costs and revenues carefully, to keep costs under control and to
selectively generate new products or enter new markets.
c. Insure that the people, resources and equipment required to develop new
products and new markets are available and accessible.
d. Make sure we guard against critical threats by taking any action necessary.
6. In contrast to our competitors, the competencies (skills) which our managerial
employees possess can best be characterized as: (Engineering—technological
breadth)
a. Analytical: their skills enable them to both identify trends and then develop new
products or markets.
b. Specialized: their skills are concentrated into one, or a few, specific areas.
c. Broad and entrepreneurial: their skills are diverse, flexible, and enable change
to be created.
d. Fluid: their skills are related to the near term demands of the marketplace.
7. The one thing that protects us from its competitors is that we: (Engineering—
technological buffers)
a. Are able to carefully analyze emerging trends and adopt only those which have
proven potential.
b. Are able to do a limited number of things exceptionally well.
c. Are able to respond to trends even though they may possess only moderate
potential as they arise.
d. Are able to consistently develop new products and new markets.
8. More so than many of our competitors, our management staff in this business unit
tends to concentrate on: (Administrative—dominant coalition)
a. Maintaining a secure financial position through cost and quality control.
b. Analyzing opportunities in the marketplace and selecting only those
opportunities with proven potential, while protecting a secure financial position.
c. Activities or business functions which most need attention given the
opportunities or problems we currently confront.
d. Developing new products and expanding into new markets or market segments.
9. In contrast to many of our competitors, this business unit prepares for the future by:
(Administrative—planning)
Strategic Types and Technology Cycles in the Aerospace and Biotechnology Industries
in U.K.
26
a. Identifying the best possible solutions to those problems or challenges which
require immediate attention.
b. Identifying trends and opportunities in the marketplace which can result in the
creation of product offerings which are new to the industry or reach new
markets.
c. Identifying those problems which, if solved, will maintain and then improve our
current product offerings and market position.
d. Identifying those trends in the industry which our competitors have proven
possess long-term potential while also solving problems related to our current
product offerings and our current customers’ needs.
10. In comparison to our competitors, our organization structure is: (Administrative—
structure)
a. Functional in nature (i.e., organized by department—marketing, accounting,
personnel, etc.).
b. Product or market oriented.
c. Primarily functional (departmental) in nature; however, a product- or market
oriented structure does exist in newer or larger product offering areas.
d. Continually changing to enable us to meet opportunities and solve problems as
they arise.
11. Unlike our competitors, the procedures we use to evaluate performance are best
described as:
a. Decentralized and participatory encouraging many organizational members to
be involved.
b. Heavily oriented toward those reporting requirements which demand immediate
attention.
c. Highly centralized and primarily the responsibility of senior management.
d. Centralized in more established product areas and more participatory in new
product areas.
Strategic Types and Technology Cycles in the Aerospace and Biotechnology Industries
in U.K.
27
Annex 02: Strategy Types Identification
(From Snow and Hrebiniak, 1980)
Strategic Types and Technology Cycles in the Aerospace and Biotechnology Industries in U.K.
28
An
nex
03.
Co
llec
ted
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a p
er C
om
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y
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d R
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file
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1‐A
03
‐P(I
ncl
ud
ed
)1
2‐A
03
‐P1
3‐A
03
‐D1
4‐A
03
‐D1
5‐A
03
‐D1
6‐A
03
‐D1
7‐A
03
‐D
A0
4G
oo
dri
ch2
57
18
‐A0
4‐P
(In
clu
de
d)
19
‐A0
4‐P
20
‐A0
4‐D
21
‐A0
4‐D
22
‐A0
4‐D
23
‐A0
4‐D
24
‐A0
4‐D
A0
5R
oll
s R
oy
ce4
48
25
‐A0
5‐P
26
‐A0
5‐P
27
‐A0
5‐P
28
‐A0
5‐P
29
‐A0
5‐D
30
‐A0
5‐D
31
‐A0
5‐D
32
‐A0
5‐D
A0
6Sm
ith
s A
ero
spa
ce3
36
33
‐A0
6‐P
(In
clu
de
d)
34
‐A0
6‐P
35
‐A0
6‐P
36
‐A0
6‐D
37
‐A0
6‐D
38
‐A0
6‐D
No
A0
7T
ha
les
Av
ion
ics
44
83
9‐A
07
‐P4
0‐A
07
‐P4
1‐A
07
‐P4
2‐A
07
‐P4
3‐A
07
‐D4
4‐A
07
‐D4
5‐A
07
‐D4
6‐A
07
‐D
B0
1A
dp
rote
ch3
14
47
‐B0
1‐P
48
‐B0
1‐D
49
‐B0
1‐P
50
‐B0
1‐P
B0
2A
rak
is3
14
51
‐B0
2‐P
52
‐B0
2‐D
53
‐B0
2‐P
54
‐B0
2‐P
B0
3A
ste
x3
14
55
‐B0
3‐P
56
‐B0
3‐D
57
‐B0
3‐P
58
‐B0
3‐P
B0
4B
iow
isd
om
31
45
9‐B
04
‐P6
0‐B
04
‐D6
1‐B
04
‐P6
2‐B
04
‐P
B0
5C
AT
74
11
63
‐B0
5‐P
64
‐B0
5‐P
65
‐B0
5‐P
66
‐B0
5‐P
67
‐B0
5‐D
68
‐B0
5‐D
69
‐B0
5‐D
70
‐B0
5‐D
71
‐B0
5‐P
No
No
72
‐B0
5‐P
73
‐B0
5‐P
B0
6C
ell
Fa
cto
rs3
14
74
‐B0
6‐P
75
‐B0
6‐D
76
‐B0
6‐P
77
‐B0
6‐P
B0
7C
ell
Te
ch6
17
78
‐B0
7‐P
79
‐B0
7‐P
No
No
No
No
No
No
80
‐B0
7‐P
81
‐B0
7‐P
82
‐B0
7‐D
83
‐B0
7‐P
84
‐B0
7‐P
B0
8C
eN
eS
75
12
85
‐B0
8‐P
86
‐B0
8‐P
87
‐B0
8‐P
88
‐B0
8‐D
89
‐B0
8‐D
No
90
‐B0
8‐D
91
‐B0
8‐D
92
‐B0
8‐P
93
‐B0
8‐P
94
‐B0
8‐D
95
‐B0
8‐P
96
‐B0
8‐P
B0
9D
om
an
tis
31
49
7‐B
09
‐P9
8‐B
09
‐D9
9‐B
09
‐P1
00
‐B0
9‐P
B1
0Ic
en
i3
14
10
1‐B
10
‐P1
02
‐B1
0‐D
10
3‐B
10
‐P1
04
‐B1
0‐P
B1
1Io
nix
31
41
05
‐B1
1‐P
10
6‐B
11
‐D1
07
‐B1
0‐P
10
8‐B
10
‐P
B1
2Lo
ran
tis
31
41
09
‐B1
2‐P
11
0‐B
12
‐D1
11
‐B1
1‐P
11
2‐B
11
‐P
B1
3So
lexa
62
81
13
‐B1
3‐P
No
11
4‐B
13
‐PN
oN
o1
15
‐B1
3‐P
11
6‐B
13
‐D1
17
‐B1
3‐D
11
8‐B
13
‐PN
oN
o1
19
‐B1
3‐P
12
0‐B
13
‐P
B1
4V
ern
ali
s7
41
11
21
‐B1
4‐P
12
2‐B
14
‐P1
23
‐B1
4‐P
12
4‐B
14
‐P1
25
‐B1
4‐D
12
6‐B
14
‐D1
27
‐B1
4‐D
12
8‐B
14
‐D1
29
‐B1
4‐P
No
No
13
0‐B
14
‐P1
31
‐B1
4‐P
To
tal
Co
rpo
rate
re
po
rts
81
50
13
1
Ind
ust
ry a
nd
Ma
cro
-le
ve
l R
ep
ort
s
C0
1C
ou
ntr
y A
na
lysi
s1
12
13
2‐C
01
‐P1
33
‐C0
1‐P
I01
Ind
ust
ry A
na
lysi
s‐A
ero
spa
ce2
02
13
4‐I
01
‐P1
35
‐I0
1‐P
I02
Ind
ust
ry A
na
lysi
s‐B
iote
cho
log
y3
14
13
6‐I
02
‐P1
37
‐I0
2‐D
13
8‐I
02
‐D1
39
‐I0
2‐D
14
0‐I
02
‐P
# R
ep
ort
s8
75
21
39
Da
ta m
on
ito
r re
po
rts
Me
rge
nt-
on
lin
e r
ep
ort
s#
Re
po
rts
Fa
me
Fa
ctiv
a-M
ed
ia n
ew
s