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Technological Change
Technological change consists of two closely linked processes:
Innovation Diffusion
Figure 6-2
Innovation dynamics Technology 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
2. What is Innovation?
a) Definition b) Process and Output: Innovation c) Components of innovation
b) Process of innovation
Market pull Technology push
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. 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. 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
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
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.
b) Process of innovation
Market pull Technology push
3. a) Drivers of innovation
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) Market Pull
Market pull is stimulated by the consumers Most of the technological developments stimulated by the market pull are of Incremental in nature
Innovation
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) Classification of Innovations
Product
Process
Innovation
The process of innovation
Long term vs. short term, inside vs. outside the organization
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
Rapid improvement when the performance characteristic Declining improvement when the pace of improvement Maturity when further improvements become very difficult to
Takeoff
Time
Technology Limits
Technology is constrained by physical limits Improvements beyond physical (technology) limits are harder to come by
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
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
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
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
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.
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.
nt ( p qN t )( M N t )
New adopters Proportion who will adopt on their own Proportion who will immitate Cummulative adopters
Trialability Observability
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
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)
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