1
Topics in the
Management of Technology and Innovation:
A Synopsis of Major Findings
Bedrijfseconomische Verhandeling
March 1997
Koenraad Debackere
Department of Applied Economics,K.U.Leuven
Naamsestraat 69
B-3000 Leuven
Topics in the Management of Technology and Innovation:
A Synopsis of Major Findings
Koenraad Debackere, Department of Applied Economics,K.U.Leuven
0. Abstract
In this review paper, major findings on ‘best practices’ in technology and innovation management are summarised and discussed. These ‘best practices’ are situated at the strategic level as well as at the operational level in the organisation. They highlight the strategic (portfolio-level) and operational (project-level) determinants of innovation performance. The economic origins of innovation management theory are also briefly introduced and discussed.
1. Introduction
Technology is a major stimulus for change in society. We have come to look to technological innovation to rescue us from the consequences of exhausting natural resources; to abate inflation through productivity increases; to eliminate famine; to cure cancer; and to maintain the competitive position of our nations’ industrial bases. Indeed, technological change has become a major driver of competition: it propels new firms to the forefront of the competitive arena while it destroys the competitive advantage of even well-entrenched firms. Achievements such as electronic computers, test tube babies, supersonic aircraft, and manned space flights have bolstered our faith in technical advance. We no longer ask if something is possible, but how soon it can be done and at what price.
There is little doubt that the rapid technological progress we have witnessed during the last decades will come to an end soon. Today, researchers around the globe are working intently on developing ideas that may create new branches of technological practice and could ultimately transform industry in ways which are hard for most of us to imagine. As a consequence, the ability of managers and policy makers to comprehend the pace and the direction of technological advancement will largely determine a firm’s or nation’s competitive performance in world markets into the next century. This is no small task, however. Historical accounts of industrial evolution and innovation, such as with the development of semiconductors (Braun and Macdonald, 1978), videocassette recorders (Rosenbloom and Cusumano, 1987), and personal computers (Smith and Alexander, 1988), show the immense difficulties some firms encounter when confronted by new technologies. The inertia, introduced by a firm’s existing technological base, often is a powerful barrier to internalise new technological trajectories (Utterback, 1994). Hence, there is an obvious need to harness the process of technological innovation effectively. To do this, technological innovations cannot be isolated from the complex economic, social and political systems within which they operate.
As a consequence, an extensive research agenda into the nature of the technological innovation process started in the 1950s. This brought a recognition that innovation is an activity which needs careful ‘managerial’ attention and actions. But, before there can be effective management, there must be a detailed understanding of the process of innovation, its characteristics and its specific problems.
Therefore, the first part of this paper will focus on the major characteristics of the innovation process as they have emerged over the last three decades. The models to be discussed are chosen for the complementary insights they offer into the complex nature of the innovation process. We start with the theories on technical change developed by Schumpeter. Although the study of technical advance as an economic phenomenon is a relatively recent event, it was Schumpeter who in three books, The Theory of Economic Development (1934), Business Cycles (1939), and Capitalism, Socialism and Democracy (1942), portrayed most fully the active role played by economic agents in technical advance. From these studies, technological innovation emerges as a non-linear, dynamic, interactive and complex process.
In addition, models of the innovation process were developed to support managerial actions. Whereas the theories by Schumpeter attempt to gain a fundamental insight into the nature and the causes of technological evolution, the three models discussed subsequently focus on the innovation process within the firm. The first model, by Roberts and Frohman (1978), depicts technological innovation as a process of uncertainty reduction. This process necessitates three important activities within the firm. Ideas have to be generated. Once generated, these ideas have to be turned into good currency. And, finally, appropriate organisational structures have to be implemented to manage the transition from what first seems to be an abstract ‘idea’ into a ‘product’ desired by customers. As a consequence, an important focus of this model is on managing people and their innovative ideas.
The second model explicitly makes the link between technological innovation on the one hand and organisational strategy and structure on the other hand. The Abernathy-Utterback model (1975 & 1978) describes how product and process innovations evolve during the technological life cycle of a ‘productive unit’ or ‘business unit’ and, still more important, how competitive strategy, production facilities, and organisation structure ‘co-adapt’ during this evolution.
Finally, the technological S-curve model (Roussel, 1984; Foster, 1986) enables managers to better estimate the strategic importance of the different technologies in a firm’s technology portfolio. To this end, the S-curve model is used to develop a technological typology. A distinction is made between emerging, pacing, key, and base technologies. The competitive implications of this typology are highlighted. A link is made with Wheelwright and Clark’s definitions of breakthrough, platform and derivative projects (1992).
Once we have obtained a basic understanding on the nature of the innovation process, we will turn our attention to the management of technological innovation. This will be the theme of the second part of this paper. From the previous discussions, we know that ‘managing’ the innovative capabilities of the organisation involves different levels of attention: (1) attention to the relationship between technology and strategy; (2) attention to an appropriate organisation structure in which innovative activity can flourish; and (3) attention to the management of innovative professionals. It is hence necessary to discuss the management implications associated with each level of attention. The integration of these three levels of attention leads to the development of a partnership model on organising technology and innovation, as discussed by Roussel and his colleagues in their influential book Third Generation R&D (1991).
Finally, the third part of the paper brings together the major issues raised in the previous sections and ends with a ‘checklist’ of focal activities that are to be considered when managing a firm’s innovation efforts.
Before embarking upon a detailed discussion of these topics, though, there is an obvious need to clarify two major concepts used throughout this paper, i.e. what is meant by ‘technology’ and how do we define ‘technological innovation’?
1.1. Technology: what’s in a name?
Throughout the decades of research on the management of technology and innovation, a host of definitions has surfaced, attempting to describe what is meant by a ‘technology.’ According to the Oxford Dictionary, technology is “the science of industrial arts.” This definition, despite its brevity, combines two concepts that are essential to fully grasp the meaning of ‘technology’: science and arts. Of course, we do not imply that technology is the same as science, not even that it always has to be based on scientific principles or developments. Indeed, examples exist where the technology was in place before the underlying scientific principles were known or clarified. One of the most notable examples undoubtedly is the steam-engine. It was developed before the science of thermodynamics had originated. However, the Oxford definition does imply that technology has an important ‘knowledge’ component. Thus, a major input into technological activities is knowledge about why things work the way they do. This is the know-how versus the know-why question. This knowledge can be derived from scientific developments, but also, from previous technological experience.
The Oxford definition also points to the fact that technology has to do with arts. The products of human art are artefacts. Artefacts are tangible products and processes created by human skill. Thus, contrary to scientific activity, the major output of technological activity is embodied in hardware, i.e. products and processes. Technological output is tangible. It is not mere knowledge. Figure 1 (adapted from Allen, 1977) highlights this important contrast between technological activity and scientific activity. The major inputs into any scientific activity are information and knowledge. The major outputs of scientific activity are, once again, information and knowledge. Oversimplified, scientists read papers (knowledge input), they think and experiment, and they write papers (knowledge output). The major inputs into technological activity are also information- and knowledge-related. However, the major outputs of technological activities are embodied in hardware, i.e. products (which are more and more frequently integrated with services, or vice versa) and processes.
— Insert Figure 1 about here —
Thus, technological activity can be defined as the processes by which knowledge (scientific and experiential) is transformed into artefacts, i.e. products and processes. As a consequence, technological activity is characterised by both a less-tangible knowledge component (i.e. the input-side of the equation) and a tangible product or process component (i.e. the output-side of the equation). Having defined ‘technology’, we still have to clarify the concept of ‘technological innovation.’
1.2. Technological innovation
Technological innovation is the successful commercial exploitation of inventions as they become embodied into new products and processes. The emphasis thus is on exploiting the results of technological activity. There are, of course, different opinions of what constitutes a new product or process. In the most general and pure sense, the product or process developed is new to the world. This need not be the case, however. Certain experts go as far as considering any product or process an ‘innovation’ as long as it is perceived as new to the organisations involved, even though it may appear to others to be an ‘imitation’ of something that exists elsewhere (Van de Ven, 1986).
Whereas the invention process may be hard to manage, the management of the innovation process (as a systematic approach to exploit inventions and reduce them to practice in a successful manner) has been well-embedded both in theory and practice over the last decades.
Before turning to these managerial issues, though, it is necessary to address the following question: What are the characteristics and the complexities involved along the innovation trajectory?
2. The process of technological innovation
In this section three different approaches to unravel the characteristics of the innovation process are discussed (the models by Roberts (1978)and by Abernathy & Utterback (1975), and the S-curve by Roussel and Foster (1984 & 1986)). The ‘economic’ origins of innovation theory are highlighted first. This economic debate has focused on the relationship between market structure and innovative activity.
2.1. The economic debate: market structure, technology-push and market-pull
Schumpeter was the first to fully portray the active role played by economic agents in technical advance. Schumpeter’s different books, though, reveal the many subtleties involved in explaining the origins of technological innovations. It is important to grasp those subtleties since they are essential to understand the more managerial oriented models of the innovation process to be discussed in the next sections. In his first two books (The Theory of Economic Development, 1934Business Cycles, 1939), the entrepreneur plays a central role. The entrepreneur is defined as the person who creates new combinations. He sees how to fulfil currently unsatisfied needs or he perceives more efficient ways of doing what is already done. These acts may, though need not, involve the presence of inventions. In some cases, it may only involve a new application of an existing technology. As a consequence, the act of invention and the act of entrepreneurship are separate: the inventor need not necessarily be the entrepreneur and vice versa. However, the entrepreneur plays a central role since he is the one who turns the invention into exploitation.
Given the importance attributed to the ‘entrepreneur,’ this theory has often been called Schumpeter’s theory of ‘heroic entrepreneurship’ or ‘creative destruction.’ Indeed, the logic of the theory is as follows (see Figure 2). There exists a pool of inventions related in an unspecified way to the state-of-the-art developments in scientific and technological knowledge. The important observation now is that this pool of inventions is largely exogenous to existing firms and market structures. Thus, they are unrelated to any specific and quantifiable type of market demand. Of course, this does not mean that they may not be influenced by an anticipated demand or shortage. We all know that, in an abstract manner, human needs are infinite. However, in the realm of Schumpeter’s theory of heroic entrepreneurship, there is no direct coupling between a measured market need (as we would detect from extensive market research, for example) on the one hand, and the efforts invested and the directions chosen in the pool of inventions, on the other hand.
The essential link between the ‘pool’ of inventions and the ‘market’ is made through the person of the entrepreneur. He is aware of the potential of certain inventions, and as a consequence, becomes prepared to take the risk and the commitment necessary to turn these inventions into innovations. Thus, innovating is more than inventing. As defined previously, it is the (successful) commercial exploitation of inventions. Schumpeter then remarks that such a hazardous activity would not be undertaken by an ordinary capitalist economic agent (such as an existing firm). Only the entrepreneur has the vision, the drive and the commitment to survive the turbulence and the uncertainty involved. If he succeeds, though, the rewards are enormous. The entrepreneur will realise exceptional (be it temporary) monopoly profits and he may be able to fundamentally alter existing market structures.
— Insert Figure 2 about here —
Examples of the successes of ‘heroic entrepreneurs’ abound. For instance, the advent of Texas Instruments as a major electronics firm can be seen as the result of heroic acts of technological entrepreneurship. The company did not actually invent the transistor, though it made judicious use of the new technology to create products that would meet hitherto unfulfilled customer needs. Other examples of heroic technical entrepreneurship are Edwin Land and the development of the Polaroid camera and Joe Wilson who turned the Haloid Company, a small photographic paper and supply firm, into today’s giant Rank Xerox through his vision and ideas about a revolutionary copying process. More recent examples of ‘heroic entrepreneurship’ can be found in the formation of new biotechnology firms such as Plant Genetic Systems, Genentech, Amgen, etc. They all symbolise the entrepreneurial vision that attempts to turn ‘knowledge’ into ‘commercial exploitation.’ In doing so, those firms are at the origin of what Schumpeter called “the eternal gale of creative destruction.”
In his third book, Capitalism, Socialism and Democracy (1942), Schumpeter’s focus on technical progress took on new directions (see Figure 3). Instead of focusing solely on the ‘heroic entrepreneur,’ Schumpeter now incorporates the importance of scientific and technological activities conducted by (mostly large) firms. In this additional model of the innovation process, the coupling between science, technology, innovative investment and the market, which was tenuous at best in the first model (see Figure 2), is much more intimate and continuous. Successful innovations generate profits leading to increased in-house innovative activity and R&D investments.
— Insert Figure 3 about here —
As a consequence, the heroic entrepreneur is not the only central agent linking invention to its subsequent exploitation. Whereas science and technology are largely exogenous in the first model depicted in Figure 2, they are at least partly endogenised in the model described in Figure 3. Thus, the link between invention and exploitation is internalised within existing economic agents, i.e. the firm (and preferably the large firm, as Schumpeter hypothesised). As a consequence, the role of the heroic entrepreneur who couples invention and exploitation, is complemented by intrapreneurial modes of invention exploitation. Still more important, Schumpeter’s paradigm on the economics of technical advance inspired the hypotheses that innovative activity would be proficient in (1) large firms and (2) in monopolistic industries.
Large firms were deemed more innovative than small firms because they can finance a larger research and development staff, leading to economies of scale in R&D; because large firms are better able to exploit unforeseen innovations given their more diversified product lines; and, because indivisibility in cost-reducing innovations makes them more profitable for large firms.
In the same vein, it was hypothesised that innovation would be greater in monopolistic industries than in competitive ones because a firm with monopoly power can prevent imitation and thereby can capture more profit from an innovation; and, because a firm with monopoly profits is better able to finance research and development (Kamien and Schwartz, 1982).
Although the hypotheses on the relationship (1) between firm size and innovative activity as well as (2) between monopoly power and innovative activity have only received limited support, the models described in Figures 2 and 3 further lead to the origins of a debate that has engaged students of the innovation process for quite some time, namely: what is the causal direction of the relationship between technological research and the market? In other words, is technological research the initiator of innovations that lead to the creation of new markets (i.e. the ‘technology-push’ hypothesis)? Or, on the contrary, is it the market that initiates innovations (i.e. the ‘market-pull’ hypothesis)?
Although the question on causality may seem superfluous, it has nevertheless important consequences, not in the least at the macro-level of economic policy-making. Indeed, if one adheres to the technology-push hypothesis, then one will recur to a supply-side oriented (neo-classic) macro-economic policy with respect to technological innovation. Enough money has to be invested in research facilities and R&D programs, and markets will ultimately follow suit. Oversimplified, a technology-push oriented policy will allocate considerable sums of money to R&D, hoping that heroic entrepreneurs will tap the pool of knowledge thus generated and create new products and processes that ultimately serve markets.