Introduction
The S-Curve Model of technological innovation was developed
by Richard Foster of McKinsey Consultants. The model describes the progress of
technological improvements via innovation along an S-Curve.
The S-Curve has been used in science, mathematics, and economics
to describe many topics prior to Foster’s use. Fosters development was using
this simple principle to explain most modern technological developments.
The ‘S-Curve’ Model
The S-Curve model follows the improvement and progress of a
technology overs its lifetime. The model plots the increased performance versus
time/investment on a simple graph as demonstrated below.
The S-Curve demonstrates the growth of performance and innovation of a product over a given period. Every technology has three phases on the S-Curve: Early, Middle & Late.
The Early Phase
During the Early Phase, the growth of performance is slow compared to the effort, time and investment needed.
This phase is characterised by the development of a knowledge base around the new technology.
The basic knowledge required to turn the technology into a produce is not understood.
Knowledge generated is not fully developed by research staff.
Great effort and investment in R&D may yield little in returns due to the many blind alleyways of endeavour during the research process.
By the end of the early phase the knowledge base is developed, and technical improvements are beginning to increase rapidly.
·The S-Curve will slowly rise and will begin to rise faster as it moves into the middle period.
The Middle Phase
The middle phase is characterised by the growth of technological performance as the deeper understanding of the knowledge base starts to yield many improvements at a lower level of R&D investme
The focus is now on the easy improvements so the rate of technological development increases rapidly.
Commercialisation at this stage will be high as the technology becomes adapted in the marketplace and this ends up yielding increased potential investment spend.
Normally, around the half-way stage up the S-Curve the rate of developments will begin to slow down.
When the S-Curve begins to slow down, the technological development will move into the Late Phase.
The Late phase
The late Phase is characterised by diminishing returns for every dollar invested into R&D, in terms of technological progress and technological out.
The easy and cost-effective improvements were made in the middle please.
The limitation of the technology is becoming apparent because of the lower growth in improvements.
The S-Curve late lase forms the end of the S, and in time the curve will reach the limits of the technology and the line will platen out.
Progress will very slow, indeed if it happens at all.
Discontinuous Technologies and the S-Curve: The Discontinuity phase
Disruptive and discontinuous technologies are those are
fulfilling a similar market need but rely on a new knowledge base to exploit
and develop new product solutions. Discontinuity forms a last phase or an early
phase in the technological development depending from which technology your
view from.
The new emergent technology can unleash Schumpeter’s forces
of creative destruction, changing the technology and business model of the
industry whilst the S-Curve of technological innovation is progressed. This
discontinuous technology will follow its own separate S-Curve as outlined
below.
A discontinuous technology in the case of the graph is Technology B. Technology B is a new technology that fulfils the same (or similar) market need by requires the creation of a new knowledge base. Initially its performance is limited in comparison to its rival technology. IN many ways the technology will be limited and cruder than its rival.
The market for the product will be niche compared to the
mainstream marketplace.
Both technology A and Technology B will be following their
own respective S-Curves. However, as Technology B begins to “take off” and
enters the middle phase improvement begin to come at a faster pace relative to
R&D investment just as diminishing returns are affecting the progress of
Technology A.
Once the performance of Technology B increases above Technology A, the Market for A will rapidly disappear. As both performance and price will push it out of the marketplace via increased costs or outright obsolesce.
Business Example: The Melting Ice Industry.
The Melting Ice Industry of North America flourished tin the
19th century. The industry brought ice from the wilds of the north
American continent to the growing cities of America, western Europe and even as
far afield as Hong Kong and Rio.
Then in 1873 Carl Von Linde patented commercial
refrigeration. The new industry slowly killed off the melting ice industry
after both technologies simultaneously developed over a period.
Early refrigerators where expensive, unreliable and very,
very large. However, as the technology improved, more commercially focused use
came into normal patterns for example the use of refrigerators to cool meat
from export from countries like Argentina or Australia to markets in Europe and
North America.
This early use created a market for further commercial
research that brought down the cost and improved the reliability of
refrigerators. Although the Melting Ice Industry found ways to improve, it
could not compete with a better product that in the end could disrupt in the
home or even prove and create ice closer to the marketplace for home used ice.
The reason that the reason that the melting ice industry missed the chance to harness Refrigeration was technological myopia, misleading market signals and cultural reasons. It could have used refrigeration to enhance its product and to replace it whilst harnessing both revenue streams. As with many technological developments, the willingness to kill the ‘golden goose’ ended up killing the golden goose.
Business Choices Presented by the S-Curve
Simultaneous S-Curve Development presents three key issues
for business leaders:
1) Defenders
have choices.
2) Attached
have an advantage.
Defenders Choice
Defenders must make very difficult and timely business
choices in relation to any technology that they own and develop when new
technologies emerge.
·
They can abandon current technology and, over
time, move into the new technology.
·
They can continue with the present technology
and develop its own capacity further.
·
Try and develop both at the same time.
·
These business choices are clouded with many
decisions, limiting problems like, the unknown limits of the new technology,
the previous investment in current technology.
·
The nature of a new technology may require new
skills sets for the employer to hire, train, develop and manage.
·
There can be several competing technologies that
can potentially replace older technologies so investing in the wrong technology
can be (in some cases) fatal.
Business history is littered with example of companies
choosing the wrong option. Hindsight is a wonderful thing when it comes to
innovation.
Attackers Advantage
The advantage that an attacker enjoys comes from the core areas of management
focus, talent and customer relationships as the attacker is normally a new
start-up or new market entrant it will not have the problems of established
management thinking or investment in an old technology base. Its survival is
dependent on the success of the technology they are developing, so will be more
willing to both take risks, look after customers, and follow trends.
·
New
technology can also be advantageous as it can also attract the best talent as
it offers something new and fresh.
·
The new
firm can also miss out on the problems of misleading market signals these are
generally avoided since they have few customers at the beginning of its journey
up the S curve.
·
Attacker
seeks to move up the S curve until performance outdoes the technology, meaning
that R&D budgets can be higher or more focused on outcomes that will
improve the firms core competencies.
·
The
attacker’s advantage is well documented in the business world, there are
numerous examples who have had the attacker’s advantage and have succeeded
these include Microsoft, EasyJet, Intel, Toyota, Fujitsu are all examples of
firms that have made this attack and succeeded.
· A current example is Huawei technologies who have made inroads in attacking Cisco’s’ position as a technological leader in the enterprise telecoms space.
Business Example: Steamships V Sailing Ships
The development of steamship’s impact on the sailing
industry is a very good example of the process that discontinuity has and the
decisions that businesses have in the face of new technologies.
When commercial steamships were launched, they presented a
threat to the traditional sailing ship industry building industry, presented
new options for maritime freight companies, and for traders who sent goods via
sea transportation.
As we can see this presented a multifaceted range of
decisions that would affect the development of steam powered ships. We will
focus on a tea trader to explain this.
In the early phase if you were a trader in tea, using a
steam ship in the early days could be a risk as you could not be sure of the
reliability and speed of the new ship form, as speed was one of the key inputs
to higher prices.
However, by the middle phase, as more shipping lines took on
steam ships for bulky and less time dependant products and commodities the
amount of sail ships would have reduced. This would force up the price of sail
shipping v steam shipping. Additionally, steam shipping would develop a track
record so traders you could make a better decisions on what type of shipping to
use.
By the late phase sending tea via sail ship becomes almost non-existent as the force of cheaper costs for maritime shipping lines means they stop investing in new sailing ships. This means tea traders have to use steam ships as there is very little choice.
Limits to The S Curve Model
The S curve has limits to its usefulness as a decision-making tool for
business, the physical limitations of any technological innovation are unknown
at the start or even at the middle of the S curve.
This makes the decision to stay on an S curve or move to another S curve
or follow both S curves simultaneously difficult. The S curve model is also no
indication of how long a growth phase can last.
There are several indicators that can show that maturity is nearing from
apparent loss of productivity, a shift to process improvements over
technological improvements and trends towards missed deadlines.
The S-Curve cannot foresee how all technological developments play out.
It, however, can be used as a tool to understand the position of a technology
and the choices that a business must make.
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