Article

Choosing the right technology: a framework for success

any of todays new products employ new technologies. But its often hard for companies to decide which technology will work best or be most successful for these products in the future. Yet the success of the product may depend on choosing the right technology. No wonder there is a huge race in technologydriven markets.

This race is particularly visible in the automotive field. Companies around the globe are vying to build a new, less polluting automobile engine that does not run on gasoline. In the US, for instance, General Motors (GM) spent over US$1 billion on developing an electric car that runs on a hydrogen fuel cell. It originally chose hydrogen fuel as the basis for the engine. Yet mass production of an electric car for sales to the public is not expected until 2013.

In contrast, Tesla Motors1, spent about US$105 million on developing a new electric automobile. Its electric motor uses a radical configuration of 6831 lithium-ion batteries. The car can be recharged at home from a regular electric socket. This is a much simpler solution than the one originally developed by GM, which required the costly storage and transportation of corrosive hydrogen fuel. A new Tesla car was launched in early 2008.

1 Tesla Motors Inc. is a Silicon Valley startup that engages in the design, manufacture, and sale of electric vehicles based on lithium-ion batteries. At present Telsa produces around 15 cars per week mostly custom-ordered vehicles manufactured to owners' specifications. Adapted from Wikipedia, 22 August 2010.

Choosing the right technology

The core question which technology is best?

This raises the question, Which is a better technology for the automobile engine: hydrogen, lithium-ion, methanol, ethanol or any one of the other options in the market? And secondly, How should firms choose in a timely way? This is probably the main challenge facing companies in technology-driven markets because technological change is such a powerful force in todays markets. New technologies can merge old markets (e.g., music and voice), create new growth markets (e.g., online networking) and destroy established ones (e.g., travel agencies). Moreover, technological change transforms the market power of firms in these markets. It fuels the growth of new brands (e.g., iPod), brings down incumbents that fail to innovate (e.g., Walkman), and transforms small outsiders into industry leaders (e.g., Google). Companies need to understand technological evolution to shape and master competition and thrive in contemporary markets (Sood and Tellis 20092). Figure 1. Seven markets studied
1 External lighting 3 Display monitors 6 Analgesics 4 Desktop printers 7 2 Desktop memory 5 Data transfer technologies

To understand how firms flourish in the new environment, we studied technological evolution in seven markets: external lighting, desktop memory, display monitors, desktop printing, data transfer, analgesics and energy storage devices (see Figure 1). We covered these markets over quite a varied time period, from almost 200 years for analgesics to 30 years for desktop printers. From our in-depth analysis, we identified four challenges that firms need to confront to master technological change (see Figure 2). Figure 2. Four questions to ask when confronting technological evolution
On which level to innovate? What is the pattern of evolution? Which is the appropriate dimension of performance? Which technology to back?

Authors Gerard J. Tellis, Professor of Marketing, Neely Chair of American Enterprise and Professor of Marketing, Director of Center for Global Innovation, Marshall School of Business, University of Southern California, U.S. Ashish Sood, Professor of Marketing, Goizueta School of Business, Emory University, U.S. Notes: This research benefited from a grant by Don Murray to the USC Marshall Center for Global Innovation.

In this case, as in others before, a small outsider Tesla Motors seems to have jumped ahead of an incumbent industry giant to develop a radical new technology for an ongoing product. The outcome is still to be decided. However, at this point in time, the lithium-ion battery seems to have an edge over the hydrogen fuel cell because it is more efficient, cheaper, safer, more widely available and more easily recharged. Indeed, after observing Teslas success, GM has abandoned the hydrogen cell in favor of a lithium-ion cell for its new electric car due to be launched in 2013.

For companies in technology-driven markets, these challenges are a good point to start from when thinking about developing a growth strategy. Each challenge can be considered as a question. Even if a firm cannot fully answer each of these questions, just grappling with them can reveal the dilemmas it faces and help it define a coherent strategy. We now discuss the issues involved in each of these challenges.

Energy storage devices

Sood, Ashish and Gerard J. Tellis (2009), Do Innovations Really Payoff? Total Stock Market Returns to Innovation, Marketing Science, May/Jun 2009. Vol. 28, Iss. 3; p. 442. 13

On which level to innovate?

We identified three key levels of technology innovation: platform, design or component (Figure 3). A platform innovation is an underlying technological level that relies on a unique scientific principle, distinctly different from other principles, to achieve some function. For example, in the display monitor category, we identified four different technologies: CRT, LCD, plasma, and OLED. Each of these uses a distinct scientific principle for forming an image on a screen. For any technology, firms can use a variety of design innovations.

Companies have a tough time keeping up with technological A design innovation is a layout or linkage of parts to achieve some function. For change and example, a flash drive stores data as a charge in a capacitor to compact its size selecting the right relative to a hard drive, though both are based on the principle of magnetic technologies for memory. At the same time, a variety of component innovations may be used on their products. any platform or design.

Innovation occurs almost constantly at the level of designs and components. Indeed, day-to-day competition often occurs at these two levels. Platform innovations are less frequent, but when they do occur, they have the potential to transform markets and cause upheaval among firms. The great danger to firms is to be so immersed in design and component innovation as to miss the change in a technological platform. For example, Sonys pre-occupation with improving its CRT television sets with Trinitron technology perhaps led it to miss the oncoming revolution in flat screen LCD televisions. Samsung invested heavily in the latter technology so that Sony had to license technology from Samsung and enter into an alliance in order not to miss out on the new generation televisions. This discussion suggests that companies have a tough time keeping up with technological change and selecting the right technologies for their products. That is one reason we have used our data to develop a more systematic framework of analysis for these decisions. Our framework has the advantage of not using after-thefact definitions of technologies based on their effects, as do the terms radical or disruptive technologies.

A component innovation is one that uses new parts or materials to achieve some function. For example, a fuel cell could use hydrogen or methanol to generate electricity. Figure 3. Three key levels of technology innovations Level of technology innovation Platform Design Component Definition Unique scientific principle Linkage or layout within same scientific principle Material or content within same scientific principle Examples in display monitor technologies CRT, LCD, plasma, OLED 5, 25, 45 size in LCDs Glass, plastic in LCDs

Choosing the right technology

For example, we do not know whether lithium-ion battery, the hydrogen fuel cell, or the methanol fuel cell will disrupt the automobile market. Anyway, once such disruption occurs, the answer is no longer relevant. But we do know they constitute different levels of innovation. A further advantage of this framework is that we provide a method and metrics to analyze technological change to make informed decisions. How can a firm choose among such platform technologies? A firm can do so by evaluating the pattern of evolution on various dimensions of performance, as we describe next. A dimension is a measure of performance such as resolution (dots-perinc) of printers or brightness (lumens-perwatt) for lighting.

Figure 4a. Technological S-curve

Performance

Inection

Time/effort

For example, in 1980, gas discharge shows its biggest jump in performance and surpasses arc discharge in brightness after a period of flat performance for almost 20 years (see Figure 5a). Third, some technologies show a steady trajectory of performance. For example, dot matrix improves in performance over time but at a steady, lower rate relative to other technologies (see Figure 5d). Most importantly, these curves cross multiple times. This pattern implies that superiority, when attained, is never permanent. A case in point is the competition in performance between inkjet and laser in the printer market (see Figure 5d). In the mid 1980s and again in the mid 1990s, laser was superior to inkjet in resolution. Indeed, inkjet got a reputation for being a cheap and low-level printing technology. However, that was no reason to abandon inkjet. Wisely, HP did not so, because in 1997, inkjet surpassed laser in resolution and has stayed above laser. But that again is no reason to now abandon laser technology. To HPs credit, it has supported both technologies simultaneously. An important implication of our findings is that firms should consider investing in or at least monitoring a portfolio of technologies so they are neither blindsided nor overly enthralled by the sudden growth of a new technology.

Figure 4b. Theory of S-curve

Performance Single crossing New

What is the pattern of evolution?

The received wisdom is that technological performance evolves along an S-shaped curve (see Figure 4a). The S-curve arises because the performance is initially low for a new technology, then improves rapidly after some breakthrough and ultimately levels out in maturity. A new technologys performance supposedly starts a new S-curve below that of the old technology, crosses it once and then reaches a superior level of performance (see Figure 4b). Managers were supposed to jump to a new technology before its S-curve of performance crossed that of the old one. However, our analysis of these six markets shows that technological evolution violates this simple S-shape pattern. Figure 5a-f shows what we found. It illustrates the evolution of performance in the six markets we considered.
Old 1 2 Time/effort

A review of Figure 5 reveals several novel aspects about the pattern of technological evolution. First, where a new technology enters the market provides no evidence of its future trajectory. For example, in Figure 5d, laser enters the printer market above dot matrix while inkjet enters below dot matrix. Second, once it enters, the performance path of each technology is typically neither linear nor S-shaped but rather a series of step-functions. Importantly, a big spurt in performance can come after a period of apparent stagnation.

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Figure 5. Technological evolution in six markets

5a) External lighting 5b) Desktop memory

Year Incandescent LED 5c) Display monitors Arc discharge MED 5d) Desktop printers Gas discharge Magnetic Optical

Areal density (MBPSI)

Lighting efcacy

Year Magneto-optical

Resolution

Resolution

Year CRT LCD PDP OLED Laser Ink jet

Year Thermal Dot matrix

5e) Data transfer

5f) Analgesics

Year Cu/Al wires Fiber optics Wireless

Efcacy (1/NNT)

Bits per sec

Year Acupuncture Opiods (Narcotics) Non-opiods Non-anti-inammatory NSAIDs

Note: The values for all graphs have been kept confidential

 Good decisions require careful analysis of all data. It is critical to consider the appropriate dimension of performance.
The S-curve is definitely a simple and appealing rule of thumb for evaluating technological evolution. However, in-depth analysis of all technologies in numerous markets shows that it can be seriously misleading. Unfortunately, the real world is quite messy. Good decisions require careful analysis of all data. Such analyses do reveal patterns that can help make informed decisions about investing in technologies and the potential payoff. Figure 5 shows the performance in various markets, each on only one dimension of performance. It is critical to consider the appropriate dimension of performance. flux. This change is neither random nor one driven primarily by consumer demand. Rather it is change driven by the emergence and evolution of new platform technologies. When a new platform technology enters the market, it often introduces one or more new dimensions of performance. The new technology is sometimes (but not always) superior to the old technologies on those new dimensions. The new entry sensitizes consumers to the new dimensions and changes the configuration of consumer demand. For example in displays, in the 1970s and in early 1980s, when the cathode ray tube (CRT) display monitor was the sole platform, consumer interest focused on resolution, especially as that dimension improved rapidly till about mid 1980 (see Figure 5c). When the liquid crystal display monitor (LCD) came on the scene, it created excitement and interest in two new dimensions, thinness and lightness. Consumers had the option to trade off lower resolution (at least initially) for lighter, thinner displays. In the 1990s, when plasma came on the scene, it introduced two more dimensions, brightness and large screen size. Now, the organic light emitting diode (OLED) display monitor has come with foldable screens, introducing the new dimension of convenience. Table 4 shows how dimensions changed in the other markers we studied.

Choosing the right technology

Is evolution of dimensions driven by consumer demand or technological evolution?

Its a philosophical issue whether desire for these dimensions is inherent in human nature or created by the emerging technologies. In our opinion, technological evolution is what brings dimensions into play, makes them salient to consumers and shapes consumer demand. As technologies improve on these dimensions, they also target new applications in new, promising environments or markets. The new market may redefine selection criteria, performance thresholds and price/ performance trade-offs3,4. These factors, together with the abundance of opportunities in the new market, enable rapid growth in performance of the new technology. For example, wireless communication technology was initially applied to wireless telegraphy, then to broadcast radio and recently to voice communications over cellular telephone markets. In some cases, the new technologies may not even compete directly in the same market because of low performance. For example, LCD did not compete directly with CRT for many years as the technology did not offer high resolution. The technology was initially used for pocket calculators,

What is the appropriate dimension of performance?

A dimension is a measure of performance such as resolution (dots-per-inch) of printers or brightness (lumens-per-watt) for lighting. The received wisdom is that the dimension or performance is primarily a demand issue, determined by consumer tastes. Some authors go so far as to assert that tastes are genetically wired within human nature. However, our analysis of seven markets shows that at any point in time, a dimension may stand out as the one on which firms compete most and which consumers value the most. That is by no means the only dimension of performance. Actually, at any point in time, multiple dimensions are at play. What makes the world particularly interesting is that these dimensions are in a state of constant

3 Romanelli, E. and Tushman, M. (1994), Organizational Transformation as Punctuated Equilibrium: An Empirical Test, Academy of Management Journal, 37(5), 1141-1166. 4 Levinthal D. (1998), The slow pace of rapid technological change: gradualism and punctuation in technological change, Industrial and Corporate Change, 7, 217247.

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digital watches and other portable display applications before being considered for notebook and desktop computer monitors. Yet today, the demand for LCD monitors outstrips the demand for CRT monitors. Hence, the incumbent technology can be taken by surprise as the competitive technology improves at a faster rate than the incumbent technology and enters new markets. The three critical issues for managers to keep in mind are that a) new dimensions are constantly emerging, b) their importance is in a state of constant flux, and c) this state is driven primarily by technological evolution not innate consumer tastes. To understand the nature of competition on these dimensions, managers need to analyze the range of current and potential platforms, on current and emerging dimensions, over time, along the lines shown in Figure 1. They also need to monitor related markets that use the new technologies to identify progress and opportunities posed by the new technologies.

Which technology should a company back?

This discussion brings us back to the key question that managers face. Which technology to back? In GMs case, it turned out to be a billion-dollar question. How can our framework help managers to identify the most promising technology to back? We argue that the multidimensional analysis of multi-technology dynamics provides a rich and insightful picture of a firms options.

An example of how to use the new framework

Lets consider the automobile battery market shown in Figure 6. In this market, we can identify three platform technologies: galvanic cells, fuel cells and flow cells. An important dimension to evaluate the choice of a technology is its effectiveness in miles per kilowatt. Figure 6a shows the evolution of these

technologies on this dimension. Within each of these platform technologies, there are numerous design and component technologies that were commercialized in the auto-battery market. For example, within galvanic cells, lead-acid, nickelmetal-hydride (NiMH) and lithium-ion technologies are all alternate component technologies. Similarly, the proton exchange membrane fuel cell (PEMFC) and zinc-air are alternate component technologies based on fuel cell and flow cell platforms respectively. Zinc-air was better in performance prior to 2005 and the other technologies had comparable performance to each other. Lithium-ion began showing a sharp increase in effectiveness soon after its introduction in 1997 (see Figure 6b). By 1999, lithium-ion crossed fuels cells and NiMH. In 2006, it crossed lead-acid and zinc-air as well. It has stayed on top ever since.

Figure 6. An example of using the new framework 6a. Evolution of platform innovations in the auto-battery market

Efciency (miles/kW)

Year Flow cell Galvanic cell Fuel cell

Choosing the right technology

6b. Component innovations in portable storage market

Efciency (miles/kW)

as part of their portfolio of investment choice for the auto battery. Lithium-ion also performs well on other dimensions such as safety, availability and cost. Our framework can alert firms of such opportunities before rivals take advantage of them. GM invested heavily in the hydrogen fuel cell, probably at the cost of alternate technologies. Our analysis shows that such decisions need not be left to gut feelings or undefined creativity. Rather, they can emerge from a careful, scientific evaluation of technology dynamics on multiple dimensions. For years, GM argued that fuel cells were the only long-term alternative to the internal-combustion engine yet ignored improvements in lithium-ion technology. However, both fuel cells and flow cells have serious disadvantages to lithium-ion on other dimensions of safety, portability, cost and infrastructure. The following quote explains the firms focus on fuel cells while competitors were experimenting with alternate technologies using lead-acid, NiMH, and lithium-ion batteries. GM had the technology to do hybrids back when Toyota was launching the first Prius, but we opted not to ask the board to approve a product program thatd be destined to lose hundreds of millions of dollars, said GM Vice Chairman Mr. Bob Lutz, in a blog post5. In the end, it cost us much more than that; it cost us our reputation for technology leadership and innovation. Recently, GM seems to have belatedly reversed its strategy and adopted a more multi-technology approach. We made that mistake once, GM Vice Chairman Mr. Bob Lutz said. We won't make it again. However, he did not specify how or why he would avoid such mistakes. This paper offers a framework to do so.

Year Lead Acid PEMFC NiMH Zinc-air Lithium Ion

6c. Component innovations in auto-battery market

Specic energy (w-hr/kg)

Year Lead-acid NiMH Lithium Ion Ni-Cd NaS (ZEBRA)

Many firms were taken by surprise by the sudden dominance of lithium-ion. Managers could have predicted the promise of success of lithium-ion in the auto-battery market much before 2006 by using our framework. Lithium-ion batteries were initially used in portable electronic products (e.g., laptop computers, cellular phones or cordless power tools). The demands of performance and power are less stringent in these markets than in the auto-battery
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market. The key dimension to evaluate performance in these markets is specific energy in watt-hr/kg. Figure 6c shows the dynamics of technological evolution of batteries on this dimension. Performance of lithium-ion batteries improved drastically in portable electronic markets even though similar improvements were not evident in auto-battery markets (see Figure 6b). Thus, as early as 1997 and certainly after 1999, firms should have considered lithium-ion

Lutz, Bob, (2008), Thank You, Citizens of Volt Nation, retrieved 8 June 2008, http://fastlane.gmblogs.com/?s=Thank+You%2C+Citizens+of+Volt+Nation

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Use discipline to select technologies

For firms facing rapid technological change, knowing which technology to back need not be a guessing game or a purely creative exercise. We provide a framework for informed decisions as shown in Figure 7. The framework consists of identifying the levels of innovation, the competing technologies at each level, the dimensions of performance on which to compare them and the patterns of evolution on each dimension.

Our study has shown that some prior beliefs about technology evolution and selection are wrong. It refutes the confirmed wisdom that technology evolution patterns follow simple successive S-shaped curves. Rather, patterns of evolution are complex, on multiple dimensions and only partly predictable. Importantly, firms need to invest in, or at least monitor, a portfolio of technologies in order to appreciate which technology to back.

Figure 7. Suggested tellis/sood framework for technology selection 1. 2. 3. 4. 5. 6. 7. Do not rely on simplistic models such as the S-curve. Identify the different levels of innovation (platform, design, or component?). Identify the competing technologies at each level. Identify the dimensions of performance on which to compare them. Follow the patterns of evolution on each dimension. Continuously monitor a portfolio of technologies in order to appreciate which technology to back. Be ready to change technologies if one seems to be improving faster than others.

Note: The tellis/sood framework for technology evaluation study examined the evolution of all the technologies in seven markets. The study used data from as early as 1879 to 2001.

Choosing the right technology

For firms facing rapid technological change, knowing which technology to back need not be a guessing game or a purely creative exercise.

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