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Modeling the role of non-financial constraints in the development and adoption of new technologies (Working Paper Draft 11, 18 Dec 2011).

Modeling the role of non-financial constraints in the development and adoption of new technologies (Working Paper Draft 11, 18 Dec 2011).

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Published by Janne Korhonen
A draft working paper of a case study and simulation based research on the role of constraints in the development of new technologies. Key findings:

- constraints are not good at pushing firms to develop new technologies, but they do help the adoption of existing best practices
- in general, constraints are about as likely to harm as to help innovation
- competitive environment matters: tight competition makes it difficult for new technologies to enter the market.

Suggested key words: Technology adoption; Innovation; Constraints; Environmental innovation; Agent-based models; NK models; Copper mining
A draft working paper of a case study and simulation based research on the role of constraints in the development of new technologies. Key findings:

- constraints are not good at pushing firms to develop new technologies, but they do help the adoption of existing best practices
- in general, constraints are about as likely to harm as to help innovation
- competitive environment matters: tight competition makes it difficult for new technologies to enter the market.

Suggested key words: Technology adoption; Innovation; Constraints; Environmental innovation; Agent-based models; NK models; Copper mining

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Published by: Janne Korhonen on Feb 22, 2012
Copyright:Attribution Non-commercial

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Modeling the role of non-financial constraints in thedevelopment and adoption of new technologies
 Janne M. Korhonen (primary and corresponding author, responsible for background, theory,analyzing the results of simulations and writing the article) janne.m.korhonen@aalto.fi  Mikito Takada (responsible for coding the simulations)mikito.takada@aalto.fi Suggested key words: Technology adoption; Innovation; Constraints; Environmentalinnovation; Agent-based models; NK models; Copper miningEarlier versions of this paper have been presented at PREBEM 2011 conference in Rotterdamand accepted for presentation at Organization Science Winter Conference 2012 pre-conference event in Colorado Springs.
Abstract
This paper studies the effects of non-financial constraints (e.g. resource scarcities) on thedevelopment and adoption of technologies. We build a simulation model of technologydevelopment and adoption under constraints, and compare it to a case study from coppermining industry. Rather than focusing on “jury-rigged” temporary solutions, we areinterested in innovations that remain in use even after the constraint has been lifted. Theresults suggest that unexpected constraints only rarely lead to lasting innovations as such,but they drive firms to adopt previously developed, more efficient technologies andaccelerate convergence to a dominant design. The effects are moderated mostly bycompetitive intensity and the complexity of technologies. The results help to reconcile twoopposing viewpoints on the role of constraints and have public policy implications in e.g.the success measures of “green growth” initiatives.
Introduction
Does necessity give birth to new, improved technologies? A burst of recent researchsuggests that under certain circumstances, innovations (defined in this paper as theimplementation of ideas, procedures and structures that are novel to the organization; e.g.Amabile et al., 1996) can be facilitated by introduction of constraints (Garud and Karnoe,2003; Gibbert and Scranton, 2009; Gibbert and Välikangas, 2004; Gibbert et al. 2007;Goldenberg et al., 2001; Hoegl et al. 2008, 2010; Moreau and Dahl, 2005; Peck et al. 2010;Popp et al., 2011; Srinivas and Sutz, 2005; Starr and MacMillan, 1990; Välikangas andGibbert, 2005, Weiss et al., 2011). The conclusions of these studies broadly agree thatconstraints (discontinuities that force firms to unexpectedly change its accustomed workingpractices, e.g. tightening regulation, pollution limits, and resource shortages) may facilitateinnovation in some but not all conditions. For example, economic historians Rosenberg(1976) and Hughes (1983) have argued that innovations tend to be made in response to“bottlenecks” or technological “reverse salients,” and research on environmental innovationhas found that regulatory constraints are the primary driver of innovation (Popp, 2006; Poppet al., 2011). Although meeting tightening regulatory and other challenges will clearlyrequire firms to adopt new technologies, the question whether constraints, as a rule, either
 
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benefit or hinder technological development remains open. If we define technologicaldevelopment as a process towards increasingly efficient-for-purpose solutions to a givenproblem, do constraints lead to less or more efficient solutions? In addition, studies on therole of constraints potentially suffer from a selection bias, as only successful developmentstend to survive to be studied.In fact, examples of innovation that have been clearly motivated by constraints but haveremained in use afterwards remain relatively scarce. In many cases where an inventionseems to have originated from a specific constraint, an argument can be made that (a) itsorigins may be in development work done
 prior 
to constraint, even if the constraint wasunexpected (see e.g. Arthur, 2009; Schoenmakers and Duysters, 2010) and (b) its continuoususe may have been dependent on subsequent improvements and modifications that wouldhave not been possible under conditions of original constraints. Arguably, some constraintscan open previously blocked development paths and lead to overall higher performance.Equally arguably, other constraints may result to paths that lead to lower performance.This paper is positioned to extend the existing research on the role of constraints ininnovation (e.g. Hoegl et al., 2008, 2010; Gibbert and Scranton, 2009; Gibbert and Välikangas,2004; Gibbert et al. 2007; Weiss et al., 2011), on the origins of radical innovations (e.g.Schoenmakers and Duysters, 2010), and on regulation-driven innovation (e.g. Popp, 2006;Popp et al., 2011). The main contribution of this paper is in developing a model for assessingwhether constraints – as a rule – tend to have positive or negative influences on thedevelopment and adoption of novel technologies. The focus of this paper is on the mostinteresting cases of constrained innovation: those where the innovation remains in use evenafter the constraint is removed. A linked contribution is the assessment of the role ofconstraints in the emergence of new technological paradigms (Dosi, 1982).In addition, the micro-level dynamics of technology development and adoption as a result ofconstraints are not clear. If constraints spur innovation, the effect of constraints should be toincrease the variety of technologies in use, at least temporarily. The evolutionary model oftechnical change (e.g. Dosi, 1984; Nelson and Winter, 1982; Sahal, 1981) suggests that as oldpath dependencies are loosened and dominant designs suffer from discontinuities, theresulting “era of ferment” should bring about a period of technological experimentation (e.g.Van de Ven and Garud, 1993; Abernathy, 1978; Basalla, 1989). Research so far has attributedthis variety creation either to exogenous stochastic technological advances that “extend” thespace of possible solutions (Dosi, 1982; see also Kaplan and Tripsas, 2008) or to differences incognition guiding actor’s framing and interpretation of the technology (Kaplan and Tripsas,2008). The role of exogenous “limiting” discontinuities, i.e. constraints, is less studied. Onthe other hand, the extent of technological experimentation should be moderated by thecompanies’ need to quickly adopt workable solutions to their pressing problems. Therefore,this paper attempts to model the interaction of these effects and determine which of the twoopposing forces - the variety-increasing fermentation or the variety-decreasing competitivepressure – tend to be dominant in a discontinuity caused by the introduction of constraints.The paper is structured as follows: first, we discuss prior research into the nature ofconstraints and innovation. Second, we introduce a case study from copper manufacturingindustry. This study serves as a context and as an example for a simulation model of theeffects of constraints on innovation. We then compare the assumptions and the results in thesimulation to empirical observations. Finally, a discussion and conclusions is provided.
 
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The Nature of Constraints: some prior explorations
The role of constraints in innovation has been acknowledged for long in maxims such as“necessity is the mother of innovation,” but research remains surprisingly rare. Constraintsare usually lumped together with other exogenous events that alter the environment wherefirms operate. Explicit research on constraints has divided to two streams of research. The“resource slack” research, focusing mostly on financial constraints, tends to either seeconstraints as negative, limiting factors that bound individual and organizationalperformance and limit exploration (e.g. Amabile, 1996; Ancona, 1990; Camison-Zornoza etal. 2004; Damanpour, 1991; Gassman and von Zedtwitz, 2003; Nohria and Gulati, 1996). Thisresearch stream makes an argument that innovators’ access to financial resources – resourceslack - is a key determinant of its performance.The “breaking the barriers” research stream, on the other hand, sees constraints as “focusingdevices” (Bradshaw, 1992; Frenken, 2006) that help individuals and organizations focus theirattention and cognitive resources to overcome technological “bottlenecks” (Rosenberg, 1976)or “reverse salients” (Hughes, 1983) that hold up technological progress. According to thisview, constraints force otherwise complacent firms to rethink traditional practices and adoptnew ways of working (Arthur, 2009; Gibbert and Scranton, 2009; Gibbert and Välikangas,2004; Hoegl et al., 2008, 2010; Katila and Shane, 2005; Mone et al., 1998; Nonaka and Kenney,1991; Srinivas and Sutz, 2005; Välikangas and Gibbert, 2005; Weiss et al., 2011). In support ofthis view, research on environmental innovation has noted that regulatory constraints arethe key drivers of innovation in many industries (Popp, 2006; Popp et al., 2011).However, the research findings are far from conclusive: for example, empirical evidencesuggests that abundant financial resources can also lead to unhealthy complacency andfavor incremental adaptation and exploitation instead of exploration (Mishina et al., 2004;Tan and Peng, 2003). Similarly, the beneficial effect is tempered by e.g. increasedcomplexities introduced by additional design requirements (Arthur, 2009).The diverging views have caused commentators to explain that innovations can happen
because
of or
despite
constraints (Gibbert and Scranton, 2009; see also Weiss et al., 2011 andHoegl et al., 2010). A careful reading of literature suggests that these two, superficiallyincompatible views can be reconciled. Constraints come in different forms, and whileexogenous non-financial constraints may very well cause eras of ferment that spurinnovation, financial constraints may make exploitation of these explorations difficult. Muchof the rest of this paper will explore the assumption, focusing on the non-financialconstraints and competitive dynamics.
Historical case study: resource constraints and the development ofautogenous copper smelting 
In the first half of the 1900s, copper smelters used energy from coal, oil, gas or electricity tosmelt the ore. To improve the efficiency of the process, experiments in utilizing the latentenergy of sulfurous metal ores had been carried out since the 1870s, with first patents beingawarded in 1897 (Inco, 1955). In theory, by burning sulfur one might dispense with externalenergy altogether. Some pilot plants with simple sulfur-burning or “autogenous” furnaceswere in fact built in the early 1900s (Newton and Wilson, 1942; Särkikoski, 1999; Inco, 1955)but the technology’s limitations, uncertainties over recouping high fixed costs inherent inindustrial-scale trials, and a general lack of concern for energy efficiency prevented thetechnology from taking root in the industry. Largely for these reasons, technologicalprogress within copper smelters was limited to minor improvements on existing furnaces.

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