Since technological change has such a powerful role in competi tion, forecasting the path of technological evolution is extremely impor tant to allow a firm to anticipate technological changes and thereby improve its position. Most research on how technology evolves in an industry has grown out of the product life cycle concept. According to the life cycle model, technological change early in the life cycle is focused on product innovations, while the manufacturing process re mains flexible. As an industry matures, product designs begin to change more slowly and mass production techniques are introduced. Process innovation takes over from product innovation as the primary form of technological activity, with the aim of reducing the cost of an increas ingly standardized product. Finally, all innovation slows down in later maturity and declines as investments in the various technologies in the industry reach the point of diminishing returns.
The product life cycle model has been refined by the work of Abernathy and Utterback.7 Initially, in their framework, product de sign is fluid and substantial product variety is present. Product innova tion is the dominant mode of innovation, and aims primarily at improving product performance instead of lowering cost. Successive product innovations ultimately yield a “ dominant design” where the optimal product configuration is reached. As product design stabilizes, however, increasingly automated production methods are employed, and process innovation takes over as the dom inant innovative mode to lower costs. Ultimately, innovation of both types begins to slow down. Recently, the concept of “dem aturity” has been added to the Abernathy8 framework to recognize the possibility that m ajor techno logical changes can throw an industry back into a fluid state.
While these hypotheses about the evolution of technology in an industry are an accurate portrayal of the process in some industries, the pattern does not apply in every industry. In industries with undiffer entiated products (e.g., minerals, many chemicals), the sequence of product innovations culminating in a dominant design does not take place at all or takes place very quickly. In other industries (e.g., military and commercial aircraft, large turbine generators), automated mass production is never achieved and most innovation is product-oriented. Technology evolves differently in every industry, just as other industry characteristics do.9 The pattern of technological evolution is the result of a number of characteristics of an industry, and must be understood in the context of overall industry structural evolution. Innovation is both a response to incentives created by the overall industry structure and a shaper of that structure.
Technological evolution in an industry results from the interaction of a number of forces:
- Scale change. As firm and industry scale increase, new product and process technologies may become feasible.
- Learning. Firms learn about product design and how to perform various value activities over time with resulting changes in the technology employed.
- Uncertainty reduction and imitation. There are natural pres sures for standardization as firms learn more about what buyers want and imitate each other.
- Technology diffusion. Technology is diffused through a variety of mechanisms described earlier.
- Diminishing returns to technological innovation in value activi- ties. Technologies may reach limits beyond which further im provement is difficult.
The product life cycle pattern of technological evolution would result if these forces interacted in the following way. Through succes sive product innovation and imitation, the uncertainty about appropri ate product characteristics is reduced and a dominant design emerges. Growing scale makes mass production feasible, reinforced by the grow ing product standardization. Technological diffusion eliminates prod uct differences and compels process innovation by firms in order to remain cost competitive. Ultimately, diminishing returns to process innovation set in, reducing innovative activity altogether.
W hether the life cycle pattern of technological innovation or some other pattern will occur in a particular industry will depend on some particular industry characteristics:
Intrinsic Ability to Physically Differentiate. A product that can be physically differentiated, such as an automobile or machine tool, allows many possible designs and features. A less differentiable product will standardize quickly and other forms of technological activity will be dominant.
Segmentation of Buyer Needs. Where buyer needs differ substan tially, competitors may introduce more and more specialized designs over time to serve different segments.
Scale and Learning Sensitivity. The extent to which the industry technologies are scale- or learning-sensitive relative to industry size will influence the pressure for standardization. High scale economies will create pressure over time for standardization despite segmented buyer needs, while low scale economies will promote the flowering of product varieties.
Technological Linkage Among Value Activities. The technologies in the product and in value activities are often linked. Changing one subtechnology in the product often requires changing others, for exam ple, while changing the production process alters the needs in inbound and outbound logistics. Technological linkages among value activities will imply that changes in one activity will beget or be affected by technology changes in others, affecting the pattern of technological change.
Substitution Logic. The pressure from substitutes (Chapter 8) is an important determinant of the pattern of technological evolution. W hether substitutes are threatening based on cost or differentiation will lead to a corresponding emphasis in technological change. For example, the initial challenge for disposable diapers was to bring their cost into proximity with those of cloth diapers and diaper services. A great deal of early innovation was in m anufacturing methods.
Technological Limits. Some technologies offer much richer pos sibilities for cost or performance improvement than others. In products like commercial aircraft and semiconductors, for example, diminishing returns from efforts at product innovation come relatively slowly. The technological limits in the various technologies and subtechnologies in the value chain will thus affect the path of technological change.
Sources o f Technology. A final industry characteristic that shapes the pattern of technological change is the source of the technolo gies employed in the industry. The path of technological change is usually more predictable when industry-specific technologies are domi nant, and the impact of technologies emanating from outside the indus try is small.
1. Continuous Versus Discontinuous Technological Evolution
The pattern of technological evolution differs widely among indus tries based on whether technological change is incremental or subject to discontinuity. Where there is incremental technological change, the process is more likely to be determined by actions of industry participants or spinoffs from these participants. External sources of technology are likely to be existing suppliers to an industry.
Where there is technological discontinuity, the sources of technol ogy are much more likely to be outside the industry. Entirely new competitors or new suppliers to the industry are more likely to have an important role. Technological discontinuity also tends to decouple the pattern of technological innovation from the state of industry m atu rity, because outside sources of technology are less responsive to indus try circumstances than the R& D departments of industry participants. Technological discontinuity creates the maximum opportunity for shifts in relative competitive position. It tends to nullify many first- mover advantages and mobility barriers built on the old technology. Discontinuity also may require wholesale changes in the value chain rather than changes in one activity. Hence a period of technological discontinuity makes market positions more fluid, and is a time during which market shares can fluctuate greatly.
2. Forecasting Technological Evolution
A firm can use this framework to forecast the likely path of technological evolution in its industry. In commercial aircraft, for example, the product is highly differentiable. However, there are large scale economies in product design which limit the number of product varieties that are developed. The flexibility of production means that the production process is no barrier to continuous and long-lasting efforts at product innovation. Thus the aircraft industry is one where we would expect continuous product R& D. The flexibility of the pro duction process would also allow us to expect a continuous search for new materials and components that would be much less likely in an industry with heavy automation.
With some insight into the likely pattern of technological evolu tion, a firm may be able to anticipate changes and move early to reap competitive advantage. However, there will always be uncertainty wherever technology is involved. Uncertainty over future technological evolution is a m ajor reason why a firm may want to employ industry scenarios in considering its choice of strategies. Industry scenarios are discussed in detail in Chapter 13.
Source: Porter Michael E. (1998), Competitive Advantage: Creating and Sustaining Superior Performance, Free Press; Illustrated edition.