Competitiveness through innovation in the technology industry

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More and more technology companies become aware of the strategy they need to employ to stay in business: gaining competitiveness through innovation. The pace and spread of innovative IT solutions is unprecedented; some explanations reside in the network externalities created by the new economy.

As specialists and analysts agree, the laws of economics have not changed in this new context of information age. Those companies quicker to understand that will survive and will promote innovation and platforms for others to develop further complements.


1. Network effects – as more and more people become users of the same technology product/service they form the network needed to spread exponentially the product/service and to set (industry) standards

2. Positive feedback – the same network is the perfect means of collecting signals from users. Adopting the right strategy, the technology provider will then shape new versions, features, products, etc.

3. Versioning – having the advantage of getting information from their networks of users, companies personalize offers and prices

4. Complements – as a byproduct of innovation, industry leaders also create the need and niches for other companies to produce complements that add value to the core products


1. Switching costs – a new technology stays or fails depending on its producer/provider ability to make it through the takeoff phase of market adoption

2. Negative feedback – the bigger the network of users, the higher the risk of spreading negative reactions on a massive scale

3. Lock-in – market leaders sell to individual and organizational users packages and complements; in doing so, powerful companies will delay new substitutes, due to high switching-costs

4. Standardization and compatibility – companies fight to get their products recognized as standards in order to lock-in and to boost profits

5. Information policy – access fees have negative impact on the pace networks grow and new products/technologies penetrate the market


Old – few players existed in the technology industry and competitiveness was gained through price differentiation and lock-in

New – more and more entrants tap into the technology industry, while the powerful old players make extensive use of networks to spread innovation at an unprecedented pace


Carl Shapiro,

Hal Varian,

Annabelle Gawer,

Michael A. Cusumano,


Web Resources:

--Lucia 12:35, 2 Dec 2004 (MST)