Patterns and Dynamics of

Technological Innovations

Lecture Note 2

Prof. Se-Joon Hong

 Lecture Note 2
 Types of innovations
 Product vs. Process innovations
 Radical vs. Incremental
 Other types of innovations
 Patterns of innovations
 S-curves, why S shapes?
 Segment zero
 What is it?
 How is it made? Why is it important?
 Technology cycles
 A Short Opening Story
 This story gives you a chance to think about
how innovations are generated
 Think about the collaboration, characteristics of
innovators… that we discussed in the lecture note 1
Camera Pills
 Given Imaging’s Camera Pill
 The Camera Pill: A capsule that is swallowed by
patient that broadcasts images of the small intestine
 Invented by Gavriel Iddan & team of scientists
 Iddan was a missile engineer – no medical background
 Project initiated by Dr. Scapa, a gastroenterologist
 Iddan applied guided missile concept to problem of viewing
the small intestine
 Developing the Camera Pill
 Many hurdles to overcome: size, image quality, battery life
 Formed partnership with Gavriel Meron (Investor) for capital
to commercialize
 Formed partnership with team of scientists lead by Dr. C. Paul
Swain to combine complementary knowledge
 Resulted in highly successful, revolutionary product
 Types of Innovation
 Product vs. Process
 Radical vs. Incremental
 Architectural vs. component
 However, each of the dimensions shares
relationships with others
 For example, architectural innovations are often more
radical than component innovations
 Product vs. Process
 Product innovation: A new hydrogen fuel car
 Process innovation: often oriented toward
improving the efficiency or effectiveness of
production (e.g., SCM enabled by RFID technology)
 Product innovations and process innovations often
occur in tandem
 New processes may enable the new products (a new bio-
chemical process can find a new drug)
 New products may enable the new processes (home 3D
printers enable new ways of manufacturing and
distribution)
 Radical vs. Incremental
 Hinge on the degree to which an innovation
represents a departure from existing practices
 Thus, the radicalness might be conceived as the
combination of newness and the degree of differentness
 Radical innovation
 An innovation that is very new and different from prior
solutions (quantum computing, driverless cars,..)
 Incremental innovation
 An innovation that makes a relatively minor change from
existing practices
 Radical vs. Incremental
 The radicalness of innovation is sometimes
defined in terms of risk
 A radical innovation usually entails several different
risks at higher levels
 The radicalness of an innovation is relative
 It may change over time
 It may change with respect to different observers
(e.g. a radical innovation in one industry may not be
radical in a different industry)
 Kaizen (改善)
 A Japanese word for “Improvement”
 Refers to activities that continuously improve
functions and processes
 A system of incremental innovation
 Typically involves all employees from the CEO
to the assembly line workers
 Example: Toyota production system
 Architectural vs. Component
 Component (modular) innovation: If it entails
changes to one or more components, but does
not significantly affect the overall configuration
of the system (e.g. bicycle seat technology)
 Architectural vs. Component
 Architectural: It entails changing the overall
design of the system or the way that
components interact with each other
 It often has far-reaching and complex influences on
industry competitors and users
 High-wheel bicycle  modern bicycle (gears, fine
chain, tires..)
 Patterns of Innovation
 Technology trajectory
 The path a technology follows through time
 Technology trajectories are most often used to
represent the technology’s rate of performance
improvement or its rate of adoption in the market
 Though many factors can influence technology
trajectories, some patterns have been consistently
identified in many industry contexts
 Technology S-Curves
 S-curves in technology improvement
 S-curves in technology diffusion
 Both the rate of a technology’s improvement,
and its rate of diffusion to the market typically
follow an s-shaped curve
 S-curves in
Technological Improvement

Technology improves
slowly at first because
it is poorly understood.
Then accelerates as
understanding
increases.
Then tapers off as
approaches limits.
 S-curves in
Technological Improvement
 Technologies do not always get to reach their
limits
 May be displaced by new, discontinuous (disruptive)
technology
 A disruptive technology fulfills a similar market need
by means of an entirely new knowledge base (e.g.
switch from carbon copying to photocopying, or
semi-automatic rifles to modern assault rifles)
 S-curves in
Technological Improvement
 Technological discontinuity may initially have
lower performance than incumbent technology
 For example, first automobiles were much slower
than horse-drawn carriages
 Firms may be reluctant to adopt new technology
because performance improvement is initially slow
and costly, and they may have significant investment
in incumbent technology
 In contrast, new firms entering the industry are
likely to choose the disruptive technology
 S-curves in Technology Diffusion
 S-curves in technology diffusion are obtained
by plotting the cumulative number of adopters
of the technology against time
 Adoption is initially slow because the
technology is unfamiliar
 It accelerates as technology becomes better
understood
 Eventually market is saturated and rate of new
adoptions declines
 S-curves in Technology Diffusion
 It typically takes a lot of time for many
technologies to become valuable to a wide
range of users
 Users need knowledge or experience necessary to
fully realize the potential of a technology
 Technology may require complementary resources
to make it valuable (e.g., E-book technology cannot
be valuable without proper digitized contents or
devices)
 S-curves in Technology Diffusion
 S-curves of diffusion are in part a function of s-
curves in technology improvement
 As technologies are enhanced, they become more certain
and useful to users, facilitating their adoption
 Higher user penetration often leads to price drops, which
accelerate diffusion
 S-Curves as a Predictive Tool
 Managers may use the s-curve model as a tool for
predicting when a technology will reach its limits and as
a prescriptive guide for whether and when the firm
should move to a new technology
 However, it has several limitations
 The true limits of a technology are not easily known
 Unexpected changes in the market, component technologies,
or complementary technologies can shorten or extend the life
cycle of a technology
 The shape of the s-curve may depend on the firms’
development activities
 If the amount of effort invested in a technology decreases or
increases over time, the curve could appear to flatten much
more quickly, or not flatten at all
 Technology Trajectories and
“Segment Zero”
 In many industries (e.g. microprocessors, S/W),
technologies often improve faster than
customer needs
 Why would firms provide higher performance than
that required by the mass market?  market
segmentation and pricing purposes
 As competition drives prices and margins lower,
firms try to shift sales into progressively higher tiers
of the market
 High performance and feature-rich products can
command higher margins
 Technology Trajectories and
“Segment Zero”
 Though customers also expect to have better
products over time (so, both the trajectory of
technology improvement and the trajectory of
customer demands are upward sloping), their
ability to fully utilize such improvements is slowed
by the need to learn how to use them (so, the
trajectory for technology improvement is steeper)
 The trajectory begins at a point where it provides
performance close to that demanded by the mass
market, but over time it surpasses the demands of the
mass market as the firm targets the high-end market
 Trajectories of Technology
Improvement and Customer Needs (A)

High-end market

Mass market
Performance
Low-end market

Time
 Technology Trajectories and
“Segment Zero”
 As the firm targets the high-end market (thus
the price rises), the mass market may feel it is
overpaying for features that it doesn’t value
 The low-end market is not served, so it either
pays far more for technology that it doesn’t
need, or it goes without  this market is
referred to “segment zero” (Andy Grove, Intel
CEO)
 For Intel, segment zero was the low-end PC market
 Trajectories of Technology
Improvement and Customer Needs (B)

High-end
High-end market
technology

Mass market
Performance

Low-end market

Low-end
technology

Time
 Technology Trajectories and
“Segment Zero”
 While segment zero may seem unattractive in
terms of margins, if it is neglected, it can
become the breeding ground for powerful
competitors that provide low-end technology
 These competitors ride up their own trajectories and
eventually meet the needs of the mass market, while
offering a much lower price than the high-end
technology
 At this point, the firm offering the high-end
technology may find it is losing its sales revenues to
industry contenders
 Segment Zero Examples
 Semi-conductor market
 Smart phones vs. feature phones
 Premium smart phones (Samsung, Apple) vs.
Low-priced smart phones (e.g. Xiaomi, Vivo,
OPPO)
 Tablet market (Apple vs. Others)
 Microsoft
 MS didn’t pay attention to the phone operating
system market….now what’s happening?
 Microsoft’s Segment Zero
 MS didn’t pay much attention to the phone
operating system market, why?
 People did not seem to spend much on the phone
applications
 The network carriers have too much bargaining power
 Perhaps MS could not properly understand the speed or
potential of mobile revolution
 Now, what’s happening?
 The smartphone operating systems quickly became tablet
operating systems, and tablets (and even smartphone)
are rapidly replacing fully functional PCs
 Technology Cycles
 Technological change tends to be cyclical
 Each discontinuity causes a period of turbulence and
uncertainty (era of ferment) and producers and
consumers explore the different possibilities enabled by
the new technology
 As they begin to converge on a consensus of the desired
technology configuration, a dominant design emerges
 The dominant design provides a stable benchmark for the
industry, enabling producers to turn their attention to
increasing production efficiency and incremental product
improvements (era of incremental change)
 Technology Cycles
Anderson and Tushman, 1990
 Technology Cycles
 The first design based on the initial
discontinuity rarely becomes the dominant
design
 There is usually a period in which firms produce a
variety of competing designs of the technology
before one design emerges as dominant (era of
ferment)
 The dominant design rarely embodies the most
advanced technological features
 Instead, it is the bundle of features that best meets
the needs of the majority of the market
 Art & Cuisine?
 While many industries appear to conform to the
model in which a dominant design emerges,
there are exceptions
 In some industries, heterogeneity of products
and production processes are a primary
determinant of value, and thus a dominant
design is undesirable
 Art and cuisine may be examples of industries in
which there is more pressure to do things differently