The S-Curve Model: A guide for Homeworkers, Business Leaders, Managers, and Entrepreneurs

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. Foster's 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 over 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 product is not understood.
The knowledge generated is not fully developed by the 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 a deeper understanding of the knowledge base starts to yield many improvements at a lower level of R&D investment.
The focus is now on 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 halfway stage up the S-Curve, the rate of development 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 output.
The easy and cost-effective improvements were made in the middle, phase.
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 the last phase or an early phase in technological development depending on 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 requiring 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 of improvement begins 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 in 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 were 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 the home or even prove and create ice closer to the marketplace for home-used ice.

The reason that 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:

Defenders have choices.
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 their 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, and the previous investment in current technology.
The nature of a new technology may require new skill 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 examples 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 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.
The 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 firm's 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, and Fujitsu are all examples of firms that have made this attack and succeeded.
A current example is Huawei Technologies which have made inroads in attacking Cisco’s’ position
as a technological leader in the enterprise telecoms space. Luckily for Cisco, Politics saved them in the developed Western World.

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 and 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 steamship 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 steamships 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 could make a better decision 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 steamships 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 technology and the choices that a business must make.

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