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Instructor’s Manual
CHAPTER 3
Types and Patterns of Innovation
SYNOPSIS OF CHAPTER
The focus of this chapter is helping students to understand the ‘typical’ patterns of technological
innovation in order to provide a foundation for the formulation of a technology strategy.
The chapter begins by reviewing the different dimensions that are used to distinguish between
types of innovation (e.g. product versus process; radical versus incremental; competence
enhancing versus competence destroying; and architectural versus component innovation).
The chapter moves on to describing the general patterns characterizing technology performance
improvement and rate of diffusion. Emphasis is placed on identifying the predictable phases of
technology performance improvement and diffusion (S-curves; eras of ferment, followed by
periods of incremental change) while cautioning students that relying on these patterns to make
predictions or decisions regarding whether or when to adopt a new technology is not advisable.
In this section a typology of innovation adopters (innovators, early adopters, early majority, late
majority and laggards) is also described.
The chapter concludes by reviewing research suggesting that technological change is cyclical
and is comprised of identifiable and reliably occurring phases. Generally, each cycle begins with
a period of rapid improvement, is followed by a period of diminishing returns to improvement
efforts, and finally the technology is displaced by a new technological discontinuity. Utterback &
Abernathy identify three phases: Fluid, Dominant Design and Specific. Tushman & Anderson
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Instructor’s Manual
also identify three phases in the technology cycle: Era of Ferment, Dominant Design and Era of
Incremental Change
TEACHING OBJECTIVES
1. Provide students with the basic information needed to formulate technology strategies.
2. Identify differences in the types of innovation and the general patterns that characterize
technology improvement trajectories and technology diffusion rates (including s-curves
and technological discontinuities).
3. Identify the differences in individuals that adopt an innovation early and those that adopt
and innovation later in the technology cycle.
4. Identify why some firms will adopt a new technology quickly while others adopt much
later or not at all.
LECTURE OUTLINE
I. Overview
a. There is no single agreed-upon taxonomy used to describe different kinds of
technological innovations.
b. The performance improvement rate of a technology through time is referred to as its
trajectory and the trajectory usually takes on an S-curve pattern. The diffusion pattern of a
technology also conforms to an s-curve pattern.
II. Types of Innovation
a. Four of the dimensions most commonly used to categorize innovations are: product
versus process innovation, radical versus incremental, competence enhancing versus
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Instructor’s Manual
competence destroying, and architectural versus component. It is important to
emphasize that these dimensions are not independent and do not offer a straightforward
system for categorizing innovations in a precise and consistent manner.
i. New product innovations and process innovations often occur in tandem. When
not in tandem product innovation can be preceded by process innovation and vice
versa. Finally, a product innovation for one firm may simultaneously be a process
innovation for another (you may want to reference the UPS example here).
ii. A number of criteria have been posed to distinguish between radical and
incremental innovation. Most of these criteria turn on the degree of newness and
differentness of the innovation and the amount of risk associated with the
innovation. Innovation is often risky because of uncertainty in both technology
(e.g., will the technology perform as expected?) and customer requirements (e.g.,
what features will customers ultimately value?).
iii. An innovation is considered to be competence enhancing if it builds on the firm's
existing knowledge base (e.g., the 286, 386, 486, Pentium, Pentium II, Pentium III,
Pentium 4 platforms each built on Intel’s existing competencies) and competence
destroying if it does not build on existing competencies or renders them obsolete
(the hand-held calculator’s replacement of the slide rule is a good example of
competence-destroying innovation).
iv. An innovation is considered to be a component innovation (or "modular
innovation") if it entails changes to one or more components, but does not
significantly affect the overall configuration of the system (such as the
incorporation of gell-filled material for additional cushioning in a bicycle seat that
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Instructor’s Manual
does not require any changes in the rest of the bicycle architecture). An
architectural innovation entails changing the overall design of the system or the
way that components interact (in the bicycle example the transition from the
"high-wheel bicycle" to the "safety bicycle" was an architectural innovation).
Architectural innovations are often considered more radical and competence
destroying.
III. Patterns Of Innovation (Technology Performance & Diffusion, S-Curves)
a. S-curves are used to map the performance of a technology and its diffusion rate.
b. S-curves in Technological Improvement: When the performance of a technology is
plotted against the amount of effort and money invested in the technology, it typically
shows slow initial improvement (due to poor understanding of the technology, and a lack
of legitimacy of the technology), then accelerated improvement (due to a deeper
understanding of the technology), then diminishing improvement (as the technology
reaches its inherent limits).
Show Figure 3.1
c. A technology's s-curve can be misleading if the effort invested is not constant over time.
For example, the curve representing transistor density in the Intel example shows a
sharply increasing performance, as shown in the second figure.
Show Figure 3.2
d. Looking at the Intel example another way, plotting Intel's cumulative research and
development expense against transistor density, we can see that the big gains in
transistor density have come at high cost. Though the curve does not yet resemble the
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traditional s-curve, its rate of increase is not as sharp as when the curve is plotted against
years.
Show Figure 3.3
e. Discontinuous technologies build on an entirely new knowledge base and can prevent
existing technologies from reaching their limits by fulfilling a similar market need in a
better way.
i. Initially, the technological discontinuity may have lower performance and lower
returns than the incumbent technology. These two factors make incumbent firms
reluctant to switch.
ii. When a disruptive technology has a steeper s-curve and/or a higher performance
limit the returns to effort invested in the new technology may become much higher
than effort invested in the incumbent technology. The new disruptive technology is
likely to displace the incumbent technology under these conditions.
Show Figure 3.4
f. S-curves in technology diffusion are obtained by plotting the cumulative number of
adopters of the technology against time.
g. S-curves in technology diffusion are often explained as a process of different categories of
people adopting the technology at different times (e.g. electronic calculators were first
adopted by scientists and engineers and ultimately became a mass market product).
i. Everett M. Rogers proposed one of the most prominent typologies of innovation
adopters. He divided adopters into the following categories beginning with those
adopting an innovation first: Innovators (2.5%), Early Adopters (13.5%), Early
Majority (34%), Late Majority (34%) and Laggards (16%).
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Show Figure 3.7
ii. Innovators are extremely adventurous in their purchasing behavior, comfortable
with a high degree of complexity and uncertainty and generally have access to
substantial financial resources, and are not always well integrated into a particular
social system but they bring new ideas to the social system.
iii. Early adopters are respected and well integrated members of their social system,
and have the greatest potential for opinion leadership. Early adopters are often
excellent "missionaries" for new products or processes.
iv. Members of the early majority adopt innovations slightly before the average
member of a social system. They are typically not opinion leaders, but they interact
frequently with their peers.
v. The late majority approach innovation with a skeptical air (and often scarce
resources), and may not adopt the innovation until they feel pressure from their
peers.
vi. Laggards may base their decisions primarily upon past experience rather than
influence from the social network, and they possess almost no opinion leadership.
h. Technology diffusion takes far more time than information diffusion and some firms
adopt innovations more quickly than others. Two factors play a role in explaining the
variance in the timing of innovation adoption: 1) The tacit nature of the knowledge
underlying new technologies, and 2) the need for the firm to develop complementary
resources required to make those technologies useful.
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i. S-curves of diffusion are in part due to s-curves in improvement: as technologies are
better developed, they become more useful to customers, and their costs may decrease.
Both of these outcomes can accelerate adoption.
j. S-curves as a Prescriptive Tool: Several authors have argued that managers can use the
s-curve model as a means by which to predict when a technology will reach its limits, and
as a guide for determining whether and when the firm should adopt a new technology.
Though this sounds very desirable (what firm wouldn’t want to know when to shift to a
new technology) the s-curve model has some severe limitations as a prescriptive tool.
i. It is rare that the true limits of a technology can be known and technological limits
are hotly debated.
ii. The lifecycle of a technology can change (shortened or lengthened) if there are
changes in the market, component technologies, or complementary technologies.
iii. Most importantly, firms can take steps to change a technologies trajectory
through their own R&D activities (IBM’s experience with disk drives as described
by Christensen is a good example to use here).
iv. With regard to whether and when a firm should adopt an innovation the answer
rests on several interdependent criteria: 1) the advantages offered by the new
technology; 2) the amount of effort required to switch (develop new competencies
if necessary); 3) the technology’s fit with the firm’s current abilities (and thus the
amount of effort that would be required to develop new competencies); 4) whether
or not the firm possesses the complementary resources needed to implement the
innovation; and 5) the innovations affect on competitive dynamics (e.g. the rate at
which competitors will adopt the innovation).
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j. Often technology improvement trajectories are steeper than the trajectory of
customer demands. Why would firms provide higher performance than that required by
the bulk of their customers? This phenomenon occurs when 1) firms try to shift their sales
into higher price tiers to maintain their margins; 2) as the price of the technology rises,
the mass market may feel it is overpaying features it does not value; and 3) the time
needed for customers to learn about and assimilate new features may be greater than the
time needed to develop new performance features.
Show Figures 3.8 and 3.9
i. For example, Intel identified "segment zero" as the demand for low-end personal
computers (those less than $1000) that had been neglected. Why should firms
like Intel be concerned with segment zero? Because it can become the breeding
ground for companies that provide lower-end versions of the technology. As
Grove notes, " the overlooked, underserved, and seemingly unprofitable end of
the market can provide fertile ground for massive competitive change." (This is
a good place to talk about the effect of the iPhone and tablet computers on the PC
industry).
IV. Technology Cycles
a. Technological change is cyclical.
i. Each cycle begins with a period of rapid improvement. This initial phase is
followed by a period of diminishing returns to efforts made to improve the
technology. The third and final phase occurs when the technology is displaced by a
new technology (often referred to as a technological discontinuity).
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ii. A new technological discontinuity or a period of “creative destruction” can result
in significant changes in the competitive structure of an industry, including the
creation of new leaders and new losers.
b. Technology cycles have also been divided into phases based on the degree to
uncertainty experienced in each phase. Utterback & Abernathy proposed the following:
i. Phase I (Fluid Phase), is characterized by considerable uncertainty about both the
technology and its market. Firms are not yet sure which factors or product features
will get the best response from the market so they experiment to get feedback and
make changes accordingly (e.g., the production of solar, wind, and hydrogen).
ii. Phase II (Dominant Design), is characterized by the adoption of a dominant design
based on a consensus about the desired product features.
iii. Phase III (Specific Phase), is characterized by the concentration of firm effort on
process innovations. In this phase firms capitalize on the now stable architecture for
the technology by focusing their innovation efforts on the products, materials, and
manufacturing processes that are specific to the dominant design (e.g. the
production of oil and coal).
c. Anderson and Tushman built on the Utterback & Abernathy model in their study of the
U.S. minicomputer, cement, and glass industries through several cycles of technological
change. They characterized the phases of the technology cycle as follows:
i. Phase I (Era of Ferment), is characterized by turbulence and uncertainty and
begins with the introduction of a new technological discontinuity. In this phase the
new technology displaces the incumbent technology (Anderson and Tushman refer
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to this as substitution) but there is considerable design competition as firms
experiment with different forms of the technology.
ii. Phase II (Dominant Design)―a dominant design will emerge as long as a new
technological discontinuity doesn’t arrive too soon. Anderson and Tushman’s key
insight is that the dominant design was never in the same form as the original
discontinuity and also is never on the leading edge of the technology.
Show Figure 3.10
iii. Phase III (Era of Incremental Change), is characterized by a shift in firm focus to
efficiency and market penetration (e.g. by offering different models and price
points). This period continues until the next technological discontinuity.
d. So why do incumbent firms resist the transition to a new technology? Many firms
focus on refining their current competencies and cease investing in learning about
alternative design architectures. The more a firm focuses on its current capabilities and
processes the less the firm is able to identify and respond to a major architectural
innovation.
e. Not all industries follow these models. When heterogeneity in products and/or
processes is valued the emergence of a dominant design is undesirable (e.g. art and
cuisine).
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