Theories of Innovation

Chapter 3

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 Objectives
When you have completed this class you will be able
to:
• Distinguish and analyse the concepts of technological
paradigms and technological change;
• Analyse the long wave theory of innovation;
• Identify and analyse innovation theories;
• Evaluate the most appropriate theories for the
analysis of innovations;
• Demonstrate practical benefits that can be derived
from the application of innovation.
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 Definition of technology
“knowledge that is stored in millions of books, in
hundreds or billions of human heads, and to an
important extent, in the artefacts themselves”

Simon (1972)

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Kuhn’s scientific paradigm

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 Technological paradigm
“the technological domain” within which
technological advances take place
Von Tunzelmann (1995)

“a strong interrelated constellation of technological

innovations”
Perez (2002)

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 Paradigm shifts
• Internal combustion engine
• Jet engine
• Microchip
• Antibiotics
• Electric vehicles

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 Creative destruction
• Introduced by Joseph Schumpeter
• Dramatic changes associated with a new technology
• i.e. a paradigm shift
• Re-configuration of the economy
• New industries arise/emerge
• Old industries decline
• Examples: steamship, car, aeroplane, computer

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The Long Wave cycle

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4 Phases of the Long Wave Cycle
• Recovery
• Increased innovation; new products/services; competing
designs; high novelty value; premium prices
• Prosperity
• Diffusion stage - spread of innovations; new technology
spreads to other industries; new industries emerge; standards
emerge; expansion & prosperity
• Recession
• Risky investments; spectacular collapses
• Depression
• Consolidation; new industries mature; intense price
competition; inventions & discoveries of next phase

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Kondratiev’s long wave cycles

Date Cycle/wave Leading Sector/Technology

1780–1830 First Cotton, iron, water power

1830–1880 Second Railways, steam power, steamship

1880–1930 Third Electricity, chemicals, steel

1930–1980 Fourth Cars, electronics, oil, aerospace

Computers, telecommunications and the

1980–2030 Fifth Internet
2030- Sixth Nanotechnology, biotechnology ?
onwards

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 Theories of innovation
1. Technology S-curve
2. Punctuated equilibrium
3. Dominant design
4. Absorptive capacity

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Technology S-curve

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Punctuated equilibrium

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 Punctuated Equilibrium
• Technological discontinuities/breakthroughs in technology
occur from time-to-time
• i.e. new technology, radical innovations, etc.
• Technological discontinuities/breakthroughs trigger periods
of ferment
• i.e. lots of new competing designs/configurations
• Eventually one design configuration becomes dominant &
leads to stability and incremental change
• Period of stability
• Only incremental innovations
• In time another discontinuity/breakthrough occurs and cycle
is repeated

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Dominant design

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 Dominant Design
• Not necessarily the most innovative
• Often a combination of features
• May create a standard
• May create a “mindset”
• Existing users may have a big investment in dominant
design

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Absorptive capacity

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 Organisation’s Capacity to Learn
Absorptive capacity maintains that ability to assimilate and
apply new ideas depends on three factors:
1. Exposure to relevant knowledge
• i.e. use of appropriate networks
2. Presence of prior related knowledge
• Needed in order to evaluate external knowledge
acquired through networks
3. Diversity of experience
• The value of outsiders – they add to diversity

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