Home Computer Science Technological Entrepreneurship: Technology-Driven vs Market-Driven Innovation
When the laser was invented, initially scientists had no idea to what practical use it could be put. Since that time, however, understanding of the technology’s attributes has produced numerous entrepreneurial applications across various industries in areas such as cutting, repairing and measurement, so that the laser has come to be seen as an important technological breakthrough (Klepper and Sleeper 2005).
It is often the case that initially a new scientific or technological breakthrough is intellectually exciting but may not provide a basis for immediate commercialisation (O’Connor and Rice 2013). Whether it is an extension of a well understood technology or the advent of a totally new one, technological change is either an opportunity or a threat to firms, depending upon whether the organisation successfully adopts the technology or ignores it while competitors gain an advantage by utilising it. Hence tracking technological change is a critically important activity, especially in high-tech industries. The activity becomes infinitely more difficult when the new technology originates from outside an industry sector because incumbent firms within the sector lack the capabilities to exploit it (Zahra and George 2002) and there is a need to identify the technology in sufficient time to respond to possible change. A classic example was the introduction of the microchip in the watch industry which severely impacted the majority of existing firms that continued to use the traditional mechanical clockwork movement in their products.
Incumbents may face a difficult choice about which innovations to focus upon to sustain performance (Tutut and Ofek 2013). When a radical entrepreneurial innovation opportunity arises, the incumbent must weigh the potential cost benefits against the risks. A radical innovation may offer the promise of superior performance, but development risks can be high in terms of the new technology being made to work, and market acceptance of the radical innovation may be lower than expected. Hence commercial returns can be difficult to predict (Chao and Kavadias 2008).
Hill and Rothaermel (2003) opined that for incumbents, the possibility of new entrepreneurial entry complicates the choice of future innovation pathways. This is because radical innovation may have the potential to supplant and eventually overtake existing products, making radical innovations especially appealing to entrepreneurial entrants, who are apt to be disadvantaged in the existing technology and need a drastic change to dislodge existing firms from their dominant industry position.
Hill and Rothaermel also suggested that if the incumbent forgoes or postpones plans to pursue the radical opportunity and instead focuses upon incremental innovation, a new entrepreneurial entrant may conclude the market potential for radical innovation is poor and be discouraged from entering. This pathway can be beneficial to the incumbent, who can sustain industry dominance via incremental improvement, generating a higher profit than if the market were shared with a new entrant.
Available evidence suggests that market uncertainty prompts firms to rely on rivals’ actions as a source of information about the market potential for radical innovations. One explanation for incumbents underinvesting or ignoring radical innovations is the lack of incentives to cannibalise revenues from existing products or to replace expensive capital assets associated with exploiting current technology (Chandy and Tellis 1998). Organisational inflexibility and rigidities among development teams and management have also been identified. There is also the possibility that incumbents have a bias against radical innovation on the basis of inputs from their current customers (Gatignon et al. 2002).
New technologies from outside a firm’s market system may present a competitive advantage from an unexpected direction. It is therefore important that technology planning decisions are taken with the support of as much relevant information as possible in order to minimise the risks of inappropriate technology investment or non-investment caused by misperceptions within the key developing technology areas (Arman and Foden 2010). It can prove difficult to capture the appropriate critical information on early-stage technological advances, both external and internal, and knowledge management can provide a process or structure for enhancing a company’s information base.
Traditional monitoring processes in non-entrepreneurial companies are largely arbitrary, dependent on what individuals in the company read, think and share informally with each other. A limited set of tools are regularly utilised to support strategic technology planning, but in today’s world, such an arbitrary process is inadequate (Patton 2005). To overcome this problem a number of new techniques have been developed under the umbrella of Technical Intelligence (or TI). Lichtenthaler (2004) presented TI as a process that depends mainly on scanning and monitoring activities. To support this type of approach to TI, knowledge management involvement is necessary in order to map, store, retrieve and prioritise relevant technological information. Kostoff et al. (2004) posited that the truly effective TI process develops the capability to predict potential technology-based threats and opportunities as well as connecting a company’s core competencies to relevant technological surroundings.
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