Topic 15: Technology Life Cycles

Primary Learning Point:

The performance of a technology has a recognized pattern over time that, if properly understood, can be of great use in strategic planning.

Neglecting the pattern as a key factor in the planning process may prove very costly to the competitive position of a corporation.

The S-Curve Of Technological Progress

Show Figure 5.1 in Khalil

A technology's improvement of performance follows the S-curve. When a technology performance parameter (y axis) is plotted against time (x axis), the result resembles a s-shaped diagram called the S-curve.

Technological performance can be expressed in terms of any attribute, such as density in the electronics industry (number of transistor per chip) or aircraft speed in miles per hour.

Technology progresses through a three-stage technology life cycle (TLC):

1. The new invention period, also known as the embryonic stage

2. The technology improvement period, also known as the growth stage

3. The mature-technology period. The technology becomes vulnerable to substitution or obsolescence when a new or better-performing technology emerges.

New Invention Period

The new invention period is characterized by a period of slow initial growth. This is the time when experimentation and initial bugs are worked out of the system.

Technology Improvement Period

The technology improvement period is characterized by rapid and sustained growth.

Mature Technology Period

The mature technology period starts when the upper limit of the technology is approached and progress in performance slows down. This is when the technology reaches its natural limits as dictated by factors such as physical limits.

What are some examples of technologies that have followed this path?

Example

The vacuum tube technology was limited by the tube's size and the power consumption of the heated filament. Both of these factors were natural barriers to electron conduction in a vacuum tube. Electronic engineers could not overcome these limitations. The arrival of the solid-state technology, or transistor, which permitted electron conduction in solid material, changed the physical barriers of size and power. The transistor technology started a new technology life cycle and rendered the vacuum-tube technology obsolete.

Learning Point from S-Curve of Technological Progress:

When a technology reaches its natural limits it becomes a mature technology vulnerable to substitution or obsolescence.

What are some examples of technologies that have reached their natural limits?

A technology's rate of performance improvement is dependent on the effort devoted to its development.

Show Figure 5.2 in Khalil

What are some examples of technologies that have been delayed based on the amount of effort devoted to its development?

An example is ceramics, which have higher operating temperatures and substitute for metals used in internal combustion engines; the newer technology permits better performance of the engines. The performance of the engines can continue to improve as a result of a sequence of newer technologies, each with a higher limit of the performance parameter of interest.

The Technology Life Cycle and Market Growth

As technology develops, following the recognized technology life cycle, market penetration occurs and so does market growth, expressed as market volume.

Show Figure 5.3 in Khalil

The market-growth changes at different phases of the technology life cycle.

Six technology phases:

1. Technology development phase

2. Application launch phase

3. Application growth phase

4. Mature-technology phase

5. Technology substitution phase

6. Technology obsolescence phase.

Technology development phase

During the technology development phase the market does not recognize the technology at all; it has zero response. However, this is the important period in which scientists and engineers are spending significant amounts of effort and money to create the technology, develop prototypes, and test the new technology. The goal of any R&D manager should be to reduce this time period as much as possible, since it is very expensive and does not produce revenue.

Application launch phase

Once the first wave of the new technology application is launched into the market, the market volume follows the path of technological progress. This is characterized by slow initial growth during the launching period, followed by rapid growth.

Application growth phase

During the growth phase of the technology, penetration into the market will depend on the rate of innovation and the market needs for the new technology.

Mature-technology phase

The growth rate slows down as the technology approaches its maturity.

Technology substitution phase

At some point, the market volume will peak and then start to decline. This will happen when the technology matures and enters its substitution phase. Companies that continue to use the old technology in this phase will be faced with a shrinking market share and a fall in revenues.

Technology obsolescence phase

The final phase is technology obsolescence, during which the technology has little or no value.

When technology reaches the market, it generates income. Technology under development has no real income-producing value. Technology on the shelf (i.e., not being marketed) provides no return.

Multiple-Generation Technologies

Technology, like all systems, has a hierarchy. A system can consist of a number of sub-systems, and each subsystem may have a number of components.

Technology can consist of multiple technologies and derive from different generations of innovation.

What are some examples of multiple-generation technologies?

Example: Computer Production

The personal computer is a technology and has a technology life cycle. It consists of several sub-technologies.

One such sub-technology is the micro-processor, which can also be defined as a technology with a technology life cycle all its own. In turn the microprocessor has its own multiple-generation technologies or sub- technologies.

The microprocessor technology developed by a company such as Intel has undergone several generations of changes (8088, 286, 386, 486, and Pentium I, II, III). Each of these generations of innovation helped boost the technology life cycle of the microprocessor and, in turn, that of the PC. (See Figure 5-4.)

Example: Software Production

Any software developed for a major application undergoes several generations of change. The changes improve the software and extend its useful life.

If a company developing software stops its development after one generation and another company continues to develop new generations, the former will find itself unable to compete with the latter's newer-generation technology.

Example: Software

Consider a company that is making an acquisition investment in the software. If it buys one generation of software and an update is introduced, the new version has more capabilities and extends the application of the software. The company may have to invest to update its software in order to extend the life cycle of its software technology.

Technology And Market Interaction

A very strong dynamic relationship exists between technological innovation and the marketplace.

The presence of a market or the creation of a new market represents the reward for technological development.

It is only when technological developments find a market that scientific research pays off and the development cost is reimbursed in economic or social terms.

Science-Technology Push

Most of the recent technological breakthroughs are based on earlier scientific discoveries. Science provides the base for technological development, which in turn creates new markets.

Examples

Bayraktar (1990) cites several examples of technologies that owe their bases to scientific discoveries:

1. The field of electronics is based on Maxwell's theory of electromagnetism

2. Nuclear energy is based on Einstein's 1905 paper, which established the famous E = MC2 equation

3. The transistors are based on A. H. Wilson's 1931 paper on the theory of semiconductors;

4. Genetic engineering followed the discovery of the structure of DNA by Watson and Crick in 1952.

Science provides the base for the technological push.

Innovations that ensued from technologies cause major industry upheavals and totally changed the markets. They bring major economic growth.

Radical innovations of products within a technology area create similar effects.

Example:

A radical innovation that created a major change in the way we do business is xerography. When the Xerox machine was developed, it was dubbed an invention with little promise and a product concept without a market (Mort, 1990). Observe where this copying industry is today. Radical innovations create new markets and expand existing markets.

Market Pull

Technological development is also stimulated by market pull. Technology is often developed to meet a market need or demand. This is the most effective way to connect technology with the market.

Market pull is stimulated by consumers

However, in the majority of cases, market pull is stimulated by consumers. Consumers may or may not know whether a new technology exists or is being developed, or if they do, they may not understand the technology.

Market pull Technologies are incremental improvements

Most of the technological developments stimulated by market pull are of an Incremental nature, or represent improvements to existing technologies. Incremental technological improvements have a cumulative effect, and they can have a tremendous impact on productivity and competitiveness.

Market pull (with strong collective demand) may provoke major breakthroughs

When there is a strong collective demand for a solution to a specific problem (such as a vaccine for AIDS), market pull may provoke major breakthroughs.

Integrate push and pull

Both mechanisms, push and pull, contribute to stimulating innovation and technological change. Integrating them accelerates the change. Munro and Noori (1988) proposed that commitment to technology adoption is dependent on an integrative approach to technology push and market pull combined with management's attitude toward technology and the firm's technical and financial resources.

Competition At Different Phases Of The Technology Life Cycle

1. Technology Development

In the early stage of the technology life cycle, also known as the embryonic or emerging- technology stage, competition is based on innovation.

In this stage, the technology is still developing and has not been fully accepted.

Companies depend on their innovation to add value to products and services they bring to their customers. The introduced technology has not yet demonstrated its potential for changing the basis of competition.

2. Application Launch Phase

In the early phase of the growth stage of the technology life cycle, the introduced technology helps expand the market size for the product or service offered.

The technology becomes a pacing technology in that it has the potential for changing the basis of the competition.

In this stage a company must be able to balance its growth strategies with its marketing strategies. Attention to growth must not distract the company from continuing innovation.

3. Application Growth Phase

Once the innovation has proved itself in the market, it permits its owner to take a patented position or to define the industry standard. A dominant design of the product emerges, and the technology has a major impact on the value-added stream of performance, cost, and quality. Technology in this phase of the growth stage is known as key technology, and a company should increase its capabilities in this area to compete.

4. Mature-technology phase

When the technology reaches a stage of maturity and the rate of innovation declines, it becomes a commodity, available to all competitors. Technologies in this category are also recognized as base technologies and have little ability to give a company a strong competitive edge.

Competition Product and Process Innovation

The rate of product and process innovations follow a general pattern.

Show Figure 5.10.

This pattern can be used to formulate policies and procedures to better manage the process of technological innovation.

When a new product or process is introduced to the market, it creates certain energy within the innovation community, triggering a series of changes to the product or process. Over time, the rate of innovation of new products or processes increases, reaches a plateau, and then decreases, creating the inverted U-shaped curve.

At the early stages of product development, competition in innovation and improvement delays agreement on a standard design. A leader in innovation has the opportunity to set the standard.

A company should strive to be in such a position because once a dominant design is established in the market by another company, it will be too late for the company to set a different industry standard based on its own product. It may have to settle for being a follower, in which case it will have to develop another strategy to obtain a leading position in the marketplace.

Strategies for obtaining a leadership position in the market without setting the standard for the technology:

1. Rely on process innovation to reduce cost.

2. Rely on complementary assets, such as name recognition, to increase market share.

3. Use marketing innovation and improve customer service to lure customers away from competitors.

Competition in Mature Technology

How do you think the competition changes for a mature technology?

As the technology approaches the maturity stage, the rules for competition change, as follows:

1. The competition switches from being based on innovation to being based on price and quality.

2. Process innovations tend to dominate, and they assume greater importance in achieving a competitive edge.

3. Companies compete by introducing product lines into segmented markets.

4. Companies rely on economy of scale to reduce price.

5. Specialization and production efficiency within companies assume greater importance.

6. Only firms with dominant markets tend to survive. This favors large companies. Mergers and acquisitions of companies assume greater importance in companies' strategies.

7. Large organizations with mature technology tend to be rigid, bureaucratic, and multi-layered. Such a structure often impedes innovation and is a threat to sustainable success.

8. Companies with mature technology become subject to increased competition by those who have lower production costs, lower labor rates, or lower overheads. This introduces international competition as a major factor.

9. Mature technology is continuously threatened by substitution of newer technology. Management must be alert to emerging or competing technologies.

A company's success in introducing a product innovation gives it a leading edge but does not guarantee sustained competitive advantage. A company that leads with product innovation, establishes the industry standards, and follows through with incremental and process innovation can sustain success.

It is important to maintain control over products and their domination of the market throughout the product life cycle. It is also important to take a proactive approach to developing or dealing with technological disturbances.

Migrating to the emerging technology in a timely manner keeps a company's products competitive.

Managing technological innovation requires that an organization continue to introduce incremental innovations and forecast future changes in order to ensure continued existence in the face of discontinuous innovation. Companies that have been able to do this successfully are 3M, General Electric, Sony, and Microsoft. These companies compete with innovation and work hard to be leaders in technology (case studies are presented in later chapters).

Diffusion Of Technology

A technological innovation, a new idea, or a new system is considered to be successful when it is adopted by users and diffused through the user population.

Diffusion is the process by which an innovation is communicated, over time, through certain channels to members of a social system (Rogers, 1995).

The term "innovation" is frequently used in the diffusion literature as being synonymous with "technology." Adoption of a certain type of technology is usually based on the possible efficacy of that technology in solving a perceived problem.

Information about an innovation reaches a potential adopter through communication channels. There are many channels for communicating new ideas to potential users, including interpersonal channels and mass media.

What factors influence the rate of adoption of a new technology?

The rate of adoption of an innovation by members of a social system is dependent on the following factors:

1. The degree to which the innovation is perceived to be offering better advantage than does existing practice: An example is an innovation that offers a less expensive method of producing a product.

2. The degree to which the innovation is compatible with the values and needs of the users: An example of an incompatible innovation is a new product that may produce pollution in an environmentally sensitive community.

3. The degree to which the innovation is considered complex and difficult to use: An example is a new process that requires a great deal of effort in retraining employees and has a high cost of implementation.

4. The degree to which the innovation can be introduced on a trial basis before users must fully commit to its adoption: An example is a new drug that physicians can use on a limited trial basis before prescribing it to all patients. Free samples of drugs given to physicians permit them to do so.

5. The degree to which the innovation is seen, and its results are observed, by potential adopters: An example is a small satellite dish for television viewing. As people see it in use and observe their neighbors' satisfaction with its performance, they are more likely to be willing to use it.

Innovations that are perceived by individuals as having greater relative advantage, compatibility, and less complexity and that can be tried and observed will be adopted more rapidly than other innovations (Rogers, 1995).

The Diffusion-Communication-Channel Relationship

Mahajan et al. (1990) suggest that adopters of an innovation are influenced by two types of communication channels: interpersonal word of mouth and mass media channels.

Mass media influence is greatest in the early phase of diffusion but occurs continually throughout the diffusion process.

In contrast, the number of users who adopt a new innovation as a result of interpersonal communication expands during the early phase of the diffusion process and declines during the second half of the process.

The decision to adopt an innovation by an individual or an organization takes a certain period of time and consists of several stages:

1. Gaining knowledge of the innovation

2. Forming a favorable opinion about it

3. Making the decision to adopt it

4. Implementing the innovation

5. Following up on its performance.

Innovative organizations that are considered technology leaders require a shorter time period than others to go through the innovation-decision process.

Followers take longer to effect the same process, and laggards take much longer to make a decision for technology adoption.

What are the indicators of the technology life cycle?

At what levels of these indicators will decisions be made regarding technology?