Home Computer Science Technological Entrepreneurship: Technology-Driven vs Market-Driven Innovation
In many industries there are long periods where there is little change other than incremental technical improvement. However, there can be periods when discontinuities emerge which are fundamentally different and are reflected in order-of-magnitude improvements in the cost or quality of the product (Anderson and Tushman 1990). These product discontinuities are fundamentally different product forms that provide the basis for entrepreneurial technological change. Examples include the jet versus piston engines, diesel versus steam locomotives, CT scanners versus x-rays and integrated circuits versus discrete transistors.
Tushman and Anderson (1986) characterised technological discontinuities as competence enhancing or competence destroying. A competence- destroying discontinuity renders obsolete the expertise required to master the technology that it replaces. For example, the skills of vacuum-tube producers were rendered irrelevant by the development of integrated circuits. A competence-enhancing discontinuity builds on know-how already embodied in the technology that it replaces. An example is the development of the turbofan for powering jet engines which was achieved by building on prior technological competence in the aerospace industry.
The impact of a discontinuity is greatest when there is a radical advance in technology. In many cases the early forms of radical innovation are crude, but nevertheless will result in technological uncertainty. This period of uncertainty is characterised by two selection processes: competition (1) between existing and new technical regimes, and (2) within the new technical regime. This period of substantial uncertainty eventually ends with the emergence of a dominant design.
Competition between old and new technologies can be fierce. The new technologies may be criticised because they frequently perform poorly and/or demand new competencies inconsistent with existing established technologies. This criticism is often accompanied by an increase in the level of innovativeness among firms committed to an existing technology. Competition between old and new technologies is accompanied by competition between the supporters of the new technology. This is reflected in the emergence of a number of entrepreneurial versions of the new technology, which is not well understood, and each pioneering firm has an incentive to differentiate their variant from their rivals. This latter type of competition often results in initial designs rapidly improving as the innovators gain understanding of the new technology and the nature of market demand (Schiavone 2014). For example, in the early years of power generation at the end of the nineteenth century, AC systems competed with DC systems and within AC systems there was competition over which generation frequency was most effective. Similarly, once the first personal computer appeared in 1976, this was followed by a host of different models with different, usually incompatible, microprocessors, disc formats and operating systems.
Anderson and Tushman concluded that the length of the era of competition is contingent on the nature of the technological discontinuity. When a technology generates a completely new knowledge base, many rival designs appear and it will take longer for the market to choose the winner. Furthermore, firms confronted with the choice of abandoning existing know-how in the face of competence-destroying technical change will defend older technology more stubbornly, prolonging uncertainty about whether the new technology will become dominant. The process of convergence over the adoption of a new industry standard will be hampered by a lack of common understanding among entrepreneurs about the exact nature of the opportunities created by the new technology. However, once a new dominant design emerges, future technological progress will tend to be based upon incremental improvements to what is now the accepted industry standard. For example, in the early years of the automobile and airplane industries, technological variation between different product designs remained high until industry standards emerged. The emergence of a dominant design enabled firms to design standardised interchangeable parts and to optimise organisational processes to achieve higher volumes and efficiency. The standard leads to more stable and reliable relations with suppliers, vendors and customers, and dominant designs reduce confusion for customers and usually result in lower product costs (David and Bunn 1988).
During the rapid technological innovation phase, potential customers are confronted with several different versions of the new technology. Choosing any variant in the absence of a standard is risky. This is because if another variant becomes dominant, the customer may incur switching costs or forego the benefits of adopting the standard which eventually will be available at a lower cost or offer superior performance. Hence the majority of potential adopters will await the emergence of an industry standard before purchasing a new product or installing a new process technology. This scenario led Anderson and Tushman to argue that the emergence of a standard is a prerequisite to mass adoption and volume production of a new generation of technology.
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