Technology as a Driver and Enabler of Innovation
Technology is a powerful driver of both the evolution and proliferation of innovation.
Examine the role of technology as a driver of competitive advantage and innovation in the business framework
- Innovation is a primary source of competitive advantage for companies in essentially all industries and environments and drives efficiency, productivity, and differentiation to fill a higher variety of needs.
- Technology builds upon itself, enabling innovative approaches within the evolution of technology.
- Technological hubs such as California's Silicon Valley provide powerful resources that entrepreneurs and businesses can leverage in pursuing innovation.
- Technological advances, particularly in communication and transportation, further innovation.
- India, China, and the United States are all strong representations of how embracing technology leads to innovation, which in turn leads to economic growth.
- proliferate: To increase in number or spread rapidly.
- innovation: The introduction of something new; the development of an original idea.
- Scalable: Able to change in size or to scale up.
Innovation is a primary source of competitive advantage for companies in essentially all industries and environments, and drives forward efficiency, higher productivity, and differentiation to fill a wide variety of needs. One particular perspective on economics isolates innovation as a core driving force, alongside knowledge, technology, and entrepreneurship. This theory of innovation economics notes that the neoclassical approach (monetary accumulation driving growth) overlooks the critical aspect of the appropriate knowledge and technological capabilities.
Technology in particular is a powerful driving force in innovative capacity, particularly as it pertains to both the evolution of innovations and the way they proliferate. Technology is innately scalable, demonstrating a consistent trend toward new innovations as a result of improving upon current ones. Product life cycles shows how economic returns go through a steep exponential growth phase and an eventual evening out, which motivates businesses to leverage technology to produce new innovations.
Technological Innovation Chart: This chart demonstrates the pattern of innovation over time. Note the overlapping trajectories of technologies: one product may dominate the market and grow at a high rate; the next ("emerging") product may start low while the other product is dominant but in turn grow to dominate the market even more thoroughly than the first, as technology and production are refined and improved.
The proliferation of innovation pertains to two important factors of technology driving innovation: the creation of geographic hubs for technology and empowerment of knowledge exchange through communication and transportation. Places like California's Silicon Valleya and Baden-Wurttenberg, Germany are strong examples of the value of technological hubs. The close proximity of various resources and collaborators in each hub stimulates a higher degree of innovative capacity.
Communication and cumulative knowledge in these technology hubs allows for these innovations to spread via technology to be implemented across the globe with relative immediacy. This spread of ideas can be built upon quickly and universally, creating the ability for innovation to be further expanded upon by different parties across the globe. Collaboration on a global scale as a result of technological progress has allowed for exponential levels of innovation.
Correlations Between Technology, Innovation, and Growth
Empirical evidence generates a positive correlation between technological innovation and economic performance. Between 1981 and 2004, India and China, developed a National Innovation System designed to invest heavily in R&D with a particular focus on patents and high-tech and service exports. During this timeframe, both countries experienced extremely high levels of GDP growth by linking the science sector with the business sector, importing technology, and creating incentives for innovation.
Additionally, the Council of Foreign Relations asserted that the U.S.' s large share of the global market in the 1970s was likely a result of its aggressive investment in new technologies. These technological innovations generated are hypothesized to be a central driving force in the steady economic expansion of the U.S., allowing it to maintain it's place as the world's largest economy.
The Technology Life Cycle
The technology life cycle describes the costs and profits of a product from technological development to market maturity to decline.
Categorize the four distinct stages in the technology life cycle and apply the five demographic consumer groups in the context of these stages
- The technology life cycle seeks to predict the adoption, acceptance, and eventual decline of new technological innovations.
- Understanding and effectively estimating technology life cycle allows for a more accurate reading of whether and when research and development costs will be offset by profits.
- The technology life cycle has four distinct stages: research and development, ascent, maturity, and decline.
- The adoption of these technologies also has a life cycle with five chronological demographics: innovators, early adopters, early majority, late majority, and laggards.
- By leveraging these models, businesses and institutions can exercise some foresight in ascertaining return on investment as their technologies mature.
- Foresight: The ability to accurately estimate future outcomes.
- demographic: A characteristic used to identify people within a statistical framework.
- competitive advantage: Something that places a company or a person above the competition.
The technology life cycle (TLC) describes the costs and profits of a product from technological development phase to market maturity to eventual decline. Research and development (R&D) costs must be offset by profits once a product comes to market. Varying product lifespans mean that businesses must understand and accurately project returns on their R&D investments based on potential product longevity in the market.
Due to rapidly increasing rates of innovation, products such as electronics and pharmaceuticals in particular are vulnerable to shorter life cycles (when considered against such benchmarks as steel or paper). Thus TLC is focused primarily on the time and cost of development as it relates to the projected profits. TLC can be described as having four distinct stages:
Technology life cycle chart: This chart illustrates the stages in the technological life cycle.
- Research and Development - During this stage, risks are taken to invest in technological innovations. By strategically directing R&D towards the most promising projects, companies and research institutions slowly work their way toward beta versions of new technologies.
- Ascent Phase - This phase covers the timeframe from product invention to the point at which out-of-pocket costs are fully recovered. At this junction the goal is to see to the rapid growth and distribution of the invention and leverage the competitive advantage of having the newest and most effective product.
- Maturity Stage - As the new innovation becomes accepted by the general population and competitors enter the market, supply begins to outstrip demand. During this stage, returns begin to slow as the concept becomes normalized.
- Decline (or Decay) Phase - The final phase is when the utility and potential value to be captured in producing and selling the product begins dipping. This decline eventually reaches the point of a zero-sum game, where margins are no longer procured.
Product development and capitalizing on the new invention covers the business side of these R&D investments in technology. The other important consideration is the differentiation in consumer adoption of new technological innovations. These have also been distributed into phases which effectively summarize the demographic groups presented during each stage of TLC:
Technology adoption life cycle: This adoption chart highlights the way in which consumers embrace new products and services.
- Innovators - These are risk-oriented, leading-edge minded individuals who are extremely interested in technological developments (often within a particular industry). Innovators are a fractional segment of the overall consumer population.
- Early Adopters - A larger but still relatively small demographic, these individuals are generally risk-oriented and highly adaptable to new technology. Early adopters follow the innovators in embracing new products, and tend to be young and well-educated.
- Early Majority - Much larger and more careful than the previous two groups, the early majority are open to new ideas but generally wait to see how they are received before investing.
- Late Majority - Slightly conservative and risk-averse, the late majority is a large group of potential customers who need convincing before investing in something new.
- Laggards - Extremely frugal, conservative, and often technology-averse, laggards are a small population of usually older and uneducated individuals who avoid risks and only invest in new ideas once they are extremely well-established.
Taking these two models into consideration, a business unit with a new product or service must consider the scale of investment in R&D, the projected life cycle the technology will likely maintain, and the way in which customers will adopt this product. By leveraging these models, businesses and institutions can exercise some foresight in ascertaining the returns on investment as their technologies mature.
Assessing an Organization's Technological Needs
Assessing the internal technological assets and future needs of an organization prepares management for successful technology integration.
Apply the four strategies of information gathering and introspection that allow for effective assessment of technology needs in an organization
- Companies must prioritize their ability to assess their technological needs, particularly as they may relate to achieving optimal efficiency and productivity.
- Companies looking to stay ahead of the competition should gather data internally and externally to facilitate forecasting and the crafting of implementation technology strategies.
- In addition to noting new technological advances, the assessment process is also heavily internal and necessitates that companies isolate their technological strengths and weaknesses.
- introspection: Self-assessment, or an individual or company looking inward to measure certain strengths and weaknesses.
- forecasting: To estimate how a condition will be in the future.
- productivity: The rate at which products and services are produced relative to a particular workforce.
Remaining competitive and remaining technologically vigilant are virtually synonymous at this point in business development. Companies must prioritize their ability to assess their technological needs, particularly as they may relate to achieving optimal efficiency and productivity. There are various concepts that are typical of this managerial technology assessment strategy:
- Technology Strategy - identifying the logic or role of technology within the company.
- Technology Forecasting - identifying applicable technologies for the company, potentially through scouting.
- Technology Roadmapping - ascertaining the trajectories of technological advancement and applying business or market needs to this assessment.
- Technology Portfolios - accumulating all technologies relevant to products or operations to determine which are ideal for internal implementation.
All four of these strategies revolve both around information gathering and introspection into business operations and processes. All four can be improved upon through technological advances. Integrated planning in pursuit of optimization through new technologies keeps efficiency at or above competitive levels. This internal technology assessment also includes noting when and whether it is necessary to construct employee training programs for new technology.
Technology and Market Share: As successive groups of consumers adopt new technology a bell curve emerges - this is referred to as the innovation adoption life cycle (the blue bell curve on the above graphic). The percentages on the x-axis indicate the size of the populations (relative to the entire consumer group for a given good) in each segment. By keeping pace with technological innovation, and offering products early enough to capture the majority of the market, businesses can gain competitive advantage. If a business is too late to enter a newly emerged technological market, it can be quite difficult to attain a high percentage of the market share, as represented on the y-axis (which has often been claimed by other incumbents, as the intersecting yellow line on the graph indicates).
Understanding Current Trends in Technology
Understanding current technologies and trends allows a company to align and synchronize operations to optimize returns on innovation.
Recognize the importance of keeping pace with current technologies and trends to retain competitive capacity and identify the four specific dimensions of business technology management (BTM)
- Business technology management (BTM) provides a bridge between previously established tools and standards within a business environment and the newer, more operationally efficient tools and standards technological progress provides.
- Aligning technologies with current business initiatives and strategies is the most basic way for a business to remain competitive in the current technological climate.
- Companies that can improve on alignment to synchronize the technological landscape internally (often through researching and developing innovations in-house) can achieve foresight and long-term benefits through forecasting future technological necessities.
- BTM has four dimensions: process, organization, information, and technology.
- Effectively employing these four dimensions of BTM provides companies the potential to project technological trends, and synchronize them with their strategies.
- Alignment: The process of adjusting a mechanism (or business) so that its parts act in concert.
- Synchronization: The process of aligning all inputs to optimize output.
- SBUs: Strategic Business Units; separate elements of a company, organized by similarity of processes and objectives.
Businesses are tasked with the ongoing responsibility of keeping up with evolving technology trends to stay competitive. Trends in technology extend out like the branches of a tree: each new innovation creates the possibility for multiple new innovations. The field of business technology management (BTM) arose to provide businesses with the best approaches for assessing and implementing these varying technological advances into their strategies.
BTM provides a bridge between previously established tools and standards within a business environment and newer, more operationally efficient tools and standards in technology. BTM does this by creating a set of principles and guidelines for companies to follow as they pursue alignment. Alignment, in this respect, can be defined as how an institution's technology supports and enables technology while avoiding constraints in direct relation to company strategies, objectives, and competition. When companies accomplish this in any given technological environment, they have attained BTM maturity relative to that time frame and industry.
Alignment is only the first step: the next step is synchronization. Like alignment, synchronization enables execution, but it also helps companies develop the capacity to anticipate and adapt future business models and strategies. This is generally accomplished by investing in research and development and staying ahead of the standard technologies by anticipating or even innovating past them. This business technology leadership role is long-term oriented and very effective in maintaining competitive advantages in any given industry, but it is particularly important for industries in the tech sectors.
Cycle of Research and Development: The Cycle of Research and Development moves through theorizing, to hypothesizing, to design, to implementation, to study, and back to theorizing to begin the cycle again.
Companies use four specific dimensions of BTM to achieve this understanding of current technologies and trends:
- Process - Companies must execute a set of fluid and repeatable processes that can be consistently scaled up through evaluation.
- Organization - Utilizing an organized business structure or corporate framework, often through strategic business units ( SBUs ), provides substantial value in centralizing processes and assessing needs.
- Information - Scouting and assessing the current technological environment through extensive research teams is necessary to make the appropriate decisions (see "Sourcing Technology" and "Assessing Needs in Technology" within this Boundless segment).
- Technology - Finally, improving upon these processes within SBUs via leveraging the appropriate data and information will drive strategic acquisition of beneficial technological improvements based upon current trends.
Taken together, these four dimensions applied to alignment and synchronization of new technology can help businesses keep up with or ever stay ahead of current technologies and trends. Companies can benefit from the intrinsic opportunities technological progress provides while offsetting the intrinsic risks of external technological development.
Technology sourcing involves isolating and implementing new innovations within an existing business framework.
Illustrate the varying cost structures, licensing, and scouting procedures involved with technology sourcing
- Sourcing new technology involves the scouting and researching of new technological potential and the eventual transfer of these technologies to a company.
- Technology scouting is based around identifying new technologies, organizing and channeling data on these technologies, and assessing the ease and value of implementing them.
- Companies capitalize on the successful scouting of a new technology by sourcing it from the appropriate party for their own use.
- Tech transfer drawbacks primarily involve the cost of licensing patents and training employees to effectively use the new technology.
- Some organizations, such as Sourceforge, Wikipedia, and Boundless, provide knowledge and technology for free in an open source strategy.
- patent: A legal right to a particular innovation, protecting it from being copied or employed by another without consent or license.
- Sourcing: The supply of resources needed by a particular company or individual.
- Scouting: The act of seeking or searching.
Technology Sourcing Strategies
Technology sourcing, or the pursuit of implementing new technologies within a businesses strategic framework, involves isolating and applying new technologies to current models. Technology can be developed internally or isolated through technology scouting and then implemented through technology transfer. In deciding which approach is optimal for them, organizations must consider such factors as the advantage of being first to market, research and developments costs and capabilities, and market research and data gathering costs. Therefore the strategies behind sourcing technology can be complex, varying by industry, company size, economic strength, and the availability of easily implemented technology.
Stages in technology development: Technology develops through a series of stages: basic technology research, research to prove feasibility, technology development, technology demonstration, system/subsystem development, and system test, launch & operations.
Technology scouting is essentially forecasting technological developments through information gathering. Technology scouts can either be internal employees or external consultants specifically designated to the task of researching developments in a particular technological field. This can be loosely referred to as a three-step process:
- Identify emerging technologies.
- Channel and organize new technological data within an organization.
- Provide a corporate context to support or refute the acquisition of said technology.
When technology scouting isolates new developments that could potentially provide advantages for an incumbent, strategies to acquire or source this technology become a focal point. Technology transfer, and the commercialization of technological abilities, is an enormous market both in the U.S. and abroad. Though governments, universities, and open source websites (such as Sourceforge, Wikipedia, and Boundless) often provide knowledge and technological know-how free of charge, most often technology is not free.
Technology Sourcing Pros and Cons
In the Information Age knowledge is power, and more than ever companies are trying to protect their knowledge from competitors or freeloaders by using patents and trade secrets. Transfer of technology is therefore expensive, from licensing the patented technology to requesting training in new technological advances for staff. Despite the distinct advantages of staying ahead of the curve relative to technological capabilities, there are some drawbacks to tech transfer. One strong example of the drawbacks in technological transfer and sourcing can be illustrated by the image below.
The first five levels of innovation, from basic research to technology demonstration, are often where investment begins pouring in, alongside the attempt to implement in order to stay competitive. As you may note, this is prior to the testing phases and therefore investors at this stage must accept the inherent risk of the new technology presenting significant hurdles to optimizing perceived potential or effective implementation. Early adopters and innovators suffer the risk of employing a new technology that has not been fully debugged, minimizing what should have been strong returns on investment (ROI). Technology scouts should therefore be highly circumspect and meticulous in their research processes, ensuring that new technological innovations will indeed provide what they promise.
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