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Process of Technology Change

Innovation Role played by developers

Technological Change
Technological change consists of two closely linked processes:
Innovation Diffusion

Figure 6-2
Innovation dynamics Technology level

Innovation dynamics firm level

Technology evolution

Scope of discussion
1. 2. 3. 4. Dynamics of the technological change What is innovation? Innovation dynamics at the firm level Technology evolution

1. Dynamics of Technological change


a) Firm level b) Technology level c) Implications for the management of technology
Innovation, imitation, and adoption The role of technology and market factors The centrality of learning

2. What is Innovation?
a) Definition b) Process and Output: Innovation c) Components of innovation

3. Innovation dynamics at the firm level


a) Drivers of innovation
Market factors and input factors

b) Process of innovation
Market pull Technology push

c) Types of innovation outputs

4. Technology evolution
a) b) c) d) e) S-curve of technology evolution Technology progression Levels of technology development Technology change agents Uncertainty and technological insularity

1. Dynamics of Technological change


a) Firm level b) Technology level c) Implications for the management of technology
Innovation, imitation, and adoption The role of technology and market factors The centrality of learning

1. a) Firm Level
Technological change may be described as a process of problem solving. Four stages in the process of problem solving 1.Problem Recognition 2.Technology Selection 3.Solution Development 4.Commercialization / implementation

1. a) A model of problem solving

1. b) Technology Level
Technological change displays evolutionary dynamics that are not controlled by a single firm Actors of these changes 1.Technology developers, which typically are firms involved in innovation in their pursuit of competitive advantage 2.Technology facilitators, who may provide the resources for financing and executing the innovation efforts 3.Customers who are interested in the fruits of technology development and who will shape the direction of development 4.Regulatory agents, the governmental bodies and others who shape the form of products and processes by establishing standards or specifications and 5.Other stakeholders, who may be the beneficiaries or victims of the technology change

1. c) Implications for the MOT


A) Innovation, imitation and adoption B) The role of technology and market factors
C) The centrality of learning

A) Innovation, Imitation and Adoption


When a firm innovates, two different groups of players respond to the innovation Customers makes decisions to adopt or not to adopt the innovation Competitors may decide to copy the innovation. This is referred as imitation

Innovation and Imitation are supply-side concepts Diffusion is a demand-side concept

B) The role of technology and market factors


For a technological change to be successful the firm has to manage two related processes Finding effective solutions to a problem and Gaining acceptance of the solution in the market place

C) The centrality of learning


Three major mechanisms of learning
Environmental surveillance through technical and market intelligence. Experimentation within firms whereby firms can learn problem solving by simulation and by trial and error. Imitation through competitive intelligence.

Multifaceted Learning lies at the core of Technological change

2. What is Innovation?
a) Definition b) Process and Output : Innovation c) Components of innovation

2.a) Definition
Innovation includes both:
A technological change new to both enterprise and the economy. A change that has diffused into the economy and is adopted by the firm
Innovation refer both to the output and the process of arriving at a technologically feasible solution to a problem triggered by a technological opportunity or customer need

2. b) Process and Output: Innovation


Process
Innovation refers to the process by which individuals or organizations arrive at a technical solution.

Output
Innovation to refer to a product or service i.e. the output of the innovation process

2. c) Components of Innovation
As outputs all technological innovations have three components: A hardware component consisting of the material or physical aspects of the innovation A software component consisting of the information base that is needed to use the innovation An evaluation information component consisting of the information that is useful for decisions related to the adoption of the innovation

2. c) Components of Innovation
The components form a system.
If any component of a specific innovation is changed, other components will need to be changed also so as to render the innovation user friendly.

The hardware and software components are intrinsic to the technological innovation. Domination of the component: Hardware dominant/ Software Dominant Third component is not intrinsic and refers to the information accompanying an innovation that enables firms or individuals to evaluate its usefulness.

3. Innovation dynamics at the firm level


a) Drivers of innovation
Market factors and input factors

b) Process of innovation
Market pull Technology push

c) Types of innovation outputs

3. a) Drivers of innovation

Input factors Market factors Autonomous innovation

Market Pull Technology Push

Incremental Modular Architectural Radical Innovations

3. a) Drivers of Innovation
Environmental Factors
Market factors
Appears to have a primary influence on innovation.

Input factors
Rising costs of inputs, trigger innovations aimed at reducing the use of the expensive inputs

Autonomous factors
Intellectual curiosity Technological possibility

3. b) Science technology push


Technology Nuclear energy Transistors Electronics Genetic engineering Scientific discovery Based on Einstens 1905 paper, which established the equivalence of mass and energy Based on A.H. Wilsons 1931 theory of semiconductors Based on Maxwells theory of electromagnetism, developed in the 1880s Followed Watson and Cricks 1952 discovery of the structure of DNA

3. b) Market Pull
Market pull is stimulated by the consumers Most of the technological developments stimulated by the market pull are of Incremental in nature

3.b) Integrating Technology Push and Market pull to Stimulate Innovation

Opportunities for Technology Push

Innovation

Opportunities for Market Pull

Scientific discoveries Applied Knowledge Recognized needs Intellectual capital (scientists and engineers)

Market demand Proliferation of application areas Recognized needs Opportunities for increased profitability, quality, productivity Entrepreneurs

3. c) Types of Innovation outputs


Two dimensions to classify an innovation 1.Degree to which specific technologies in an innovation depart from earlier ones, or what we will call component knowledge 2.Degree to which configurations among technologies in an innovation depart from earlier one, or what we will call component configuration

3. c) Four major types of innovation


Incremental innovations: Requires only minor improvements to the
existing system

Modular innovations: refer to significant changes in elements of


products. The implementation requires would require an understanding of the new components of the system

Architectural innovations: It requires the new knowledge on how


existing components can be configured into a new system. No significant knowledge is required concerning the components themselves

Radical innovations: They are non-aligned with organizational skills


and capabilities of the firm

3. c) Classification of Innovations
Product

Process

3. c) Classification of Innovations for Products, process and services

Innovation
The process of innovation
Long term vs. short term, inside vs. outside the organization

The economic impact of innovation


Potential for wealth creation

The role of a manager in the Innovation process


Long term technological vision vs. planned and managed

4. Technology evolution
a) b) c) d) e) S-curve of technology evolution Technology progression Levels of technology development Technology change agents Uncertainty and technological insularity

4. a) S Curve of technology evolution


Technology evolution refers to the changes in the performance characteristics of a specific technology over time Phases of S-curve
Emergence when the technology has come into existence but
shows little improvement in its performance characteristic improves at an accelerating pace declines achieve

Rapid improvement when the performance characteristic Declining improvement when the pace of improvement Maturity when further improvements become very difficult to

The Industry Life Cycle as an S curve


Performance Maturity

Takeoff

Time

4. a) Why S-curve for evolution?


Learning Processes
In the first stage, the learning generates a more or less reliable design and production process In the second stage, the learning curve effects produce rapid improvement in the performance characteristics

Technology Limits
Technology is constrained by physical limits Improvements beyond physical (technology) limits are harder to come by

The S-curve Maps Major Transitions


Maturity

Performance

Discontinuity

Takeoff

Ferment

Time

4. b) Technology Progression
Technology progression describes the process by which new technologies emerge to make existing technologies obsolete. Technology evolution represents the incremental evolution of technology over time. Technology progression represents the radical breakthroughs that significantly replace current technology Technology progression may be described using a series of S-curves

Technology Progression

4. c) Levels of Technology Management


Basic research conducted without a practical application or a problem at hand Applied research basic research result have to age before they can be packaged into a useful innovation
Development Major technological advances required a cluster of innovations

4. d) Technology change agents


Innumerable Vary significantly across the levels of technological change

4. e) Evolutionary characteristics of technical change


Simultaneous development of innovations at multiple levels by numerous change agent present evolutionary characteristics on technological development
Those who are involved in technology development the so called radical changes will be seen as an accumulations of incremental innovations

4 . e) Uncertainty and technological insularity


Great degree of uncertainty They cope with this uncertainty by engaging in a process of learning, gathering information, experimentation and imitation. Innovation development requires information concerning:
The performance of innovation they are seeking to create or adopt Materials and components they are fabricating into the innovation Competitors innovations, the nature of existing patents, and government policies affecting their proposed innovation; and The problems faced by consumers in the market and how the proposed innovation might solved certain of these perceived problems

Innovation process is driven by the exchange of technological, market and other environmental information in the face of high uncertainty

Technical Insularity
The search for or dissemination of technical information embedded in an innovation is governed by the principle of technological insularity The principle of technological insularity suggest that a characteristic feature of technical know-how is that it is not easily transmitted

Reasons for Technical Insularity


Technology evolves evolves because of accumulated experience of the individuals. Thus first hand knowledge is crucial to the evolution of performance characteristics. Knowledge is not easily transferred Technical know-how is not easily accepted by individuals not involved in its production. Such know-how requires abandoning of old concepts or concepts that have not been proved useful

Uncertainty and technological insularity


Technology insularity leads to Spatial clustering
Temporal clustering

Factors influencing the process of innovation in organizations

Summary of factors stimulating innovation

Process of Technology Change


Diffusion Role played by adoptors

1. What is diffusion? 2. Dynamics of diffusion


S-curve of diffusion Reinvention Mechanism of diffusion
Technology substitution Bandwagon effect

3. A model of innovation adoption


Shifting characteristics of adopters over time

4. Factors that drive the process of diffusion


Attributes of an innovation Components of an innovation Community effects and network externalaties

Adoption of Hybrid corn

1. What is diffusion

Diffusion is the process by which an innovation is propagated through certain channels over time among the units of a system.

Diffusion Vs Imitation

2. Dynamics of Diffusion
S-curve of diffusion
Rate of diffusion Potential set of adopters

Reinvention during diffusion Mechanisms of diffusion


Technology substitution Bandwagon effect

Four Phases of diffusion


1.Emergence characterized by a slow advance in the beginning, suggesting that adoption proceeds slowly at first when there are few adopters. 2.A rapid growth phase, when adoption rate accelerates until half of the individuals in the system have adopted. 3.A slow growth phase, where the rate of growth declines, but adoption continues. 4.Maturity, the final stage, where the diffusion almost comes to a halt, either as a result of market saturation or the introduction of a new product, process, or service into the market that replaces the existing innovation.

Differences in diffusion speed

S-curve diffusion

Reinvention
Reinvention refers to the dynamics by which an innovation is changed or modified by the users as they adopt and use it. Four ways in which reinvention occurs:
Improvement in the design and performance characteristics of an innovation may be necessity for its further adoption by adopters (dominant design) As an innovation diffuses, a standard model may emerge and speed the adoption process (standard process) Requirement for complementary products/process for widespread diffusion Possible new applications: adoption beyond the originally conceived scope of its application

Mechanisms of Diffusion
Two mechanisms by which an innovation propagates through an adopter population
Technology substitution Bandwagon effect

Technology Substitution
Explains why an innovation is adopted Technology substitution is key that unlocks the doors of an adopter population for the propagation of an innovation. Technology substitution refers to actual substitution of a new technique for the old. A new technology or an innovation displaces an already existing technology during the process of being adopted

Bandwagon Effect (BE)


BE explains the speed of diffusion BE refers to the strategy of information collection employed by adopters It focuses on the dynamics by which later adopters, in their decision to adopt an innovation, imitate the behavior of earlier adopters.

Mechanisms of Diffusion
Technology Substitution and Bandwagon effect underscore the roles of
Knowledge and learning in the diffusion process Uncertainty and information

Tech Substitution and Bandwagon effect refers to the different facets of learning

Process of adoption
The decisions of farmers to use hybrid corn were also influenced by economic considerations. Griliches concluded that farmers evaluated the potential profitability of making the switch to hybrid corn by calculating the increase in yield per acre due to using hybrid corn minus the cost differences in the seed. Griliches' research demonstrated that the adoption of new technologies like hybrid corn was not a single event, but was instead a series of developments that occurred at different rates across geographical space. His study shed light on the numerous individual decisions and economic calculations that drove new hybrid corn technology forward.

The Bass Diffusion Model


There is a pool of M potential adopters Some of them adopt the new product on their own (innovators) with probability p Others are imitators, and their adoption probability depends on
the imitation rate q multiplied by how many people already use the product N.

nt ( p qN t )( M N t )
New adopters Proportion who will adopt on their own Proportion who will immitate Cummulative adopters

There is a pool of M potential adopters Some of them adopt the new product on their own (innovators) with probability p Others are imitators, and their adoption probability depends on
the imitation rate q multiplied by how many people already use the product N.

The Bass Diffusion Model

nt ( p qN t )( M N t )
New adopters Proportion who will adopt on their own Proportion who will immitate Cummulative adopters

3. A Model of Innovation adoption


Awareness : Firm or individual is exposed to an innovations existence and understand how it functions Attitude formation: Firm or individual forms a opinion Decision: Actions that lead to the acceptance or otherwise of an innovation Confirmation: Seeks the reinforcement of an innovation that has already been made, but may reverse the decision if exposed to conflicting messages Implementation: When the firm puts the innovation into use

Stages in decision to adopt

Trialability Observability

Requisite Information over the stages of Adoption Decision

Shifting characteristics of adopters over time


Adopters categories depending on their speed of adoption: prevaricator 1.Innovators: very eager to try new ideas 2.Early adopters: Opinion leadership 3.Early majority: deliberate in its decision to adopt new ideas 4.Late majority: adopts new ideas just after the average member of a system 5.Laggards: last among a population to adopt an innovation

Selected differences among adopter categories

Relative importance of decision stage


Adoption is difficult in organizations
A number of individuals are usually involved in the innovation-decision process, and the implementers are often a different set of people from the decision makers. The organization structure that gives stability and continuity to an organization often resists the implementation of an innovation.

4. Factors that drive the process of diffusion


1. Attributes of an innovation 2. Community effects and network externalities 3. Characteristics of the population

1. Attributes of an innovation
Five attributes of an innovation that influence the process of diffusion i. Relative advantage is the degree to which an innovation is
perceived as being better than the idea that it supercedes

ii. Compatibility is the degree to which an innovation is perceived as


being consistent with existing values or past experiences and needs of potential adopters

iii. Complexity is the degree to which an innovation is perceived as


being difficult to understand and use

iv. Trialability is the degree to which an innovation may be


experimented with on a limited basis

v. Observability is the degree to which the results of an innovation are


available to others

1. Components and Attributes of an innovation

2. Community Effects
Benefits of adopting an innovation largely depend on the community of other adopters
Positive externalities (network benefits) the immediate benefits of use are a direct function of the number of current adopters. (e.g. the use of telephone, fax) Technological interrelatedness refers to a large base of compatible products needed to make the technology worthwhile (e.g. windows based software)

2. Factors driving community effects


Prior technology drag Irreversibility of investments Sponsorship Positive Expectations
Favors existing technologies Overcoming the above forces

3. Characteristics of the Population


Communications Opinion Leaders Cultural norms

Managerial Implications
Significant attention should be devoted to obtaining market feedback over the course of diffusion in the case of new product or process introduction In the case of firms adopting an innovation, implementation is a challenging task Product design and marketing strategy should reinforce each other Managers should line up sponsors and create expectations of a technology success