Paper to be presented at the DRUID Summer Conference 2007

on

APPROPRIABILITY, PROXIMITY, ROUTINES AND INNOVATIONCopenhagen, CBS, Denmark, June 18 - 20, 2007

CHALLENGING THE S-CURVE: PATTERNS OF TECHNOLOGICAL SUBSTITUTION

Brice DatteeTanaka Business School, Imperial College London

b.dattee@imperial.ac.uk

Abstract:This paper revisits the relevance of the S-curve representation of technological substitution. I argue that thesmooth S-curve does not properly account for the complexity of the phenomenon. First, I observe historicalcases with patterns of substitution more complex than what the classical S-curve suggests. Second, I show thata broadened theoretical framework at the system level is required to better understand the underlying dynamicsof technological substitutions. Third, I identify bifurcation points between generic substitution trajectories andshow how they can be combined into longitudinal sequences. Finally, the results are discussed and strategicimplications are drawn.

JEL - codes: O33, O32, M00

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Challenging the S-curve: Patterns of Technological Substitution

Abstract: This paper revisits the relevance of the S-curve representation of technological

substitution. I argue that the smooth S-curve does not properly account for the complexity of the phenomenon. First, I observe historical cases with patterns of substitution more complex than what the classical S-curve suggests. Second, I show that a broadened theoretical framework at the system level is required to better understand the underlying dynamics of technological substitutions. Third, I identify bifurcation points between generic substitution trajectories and show how they can be combined into longitudinal sequences. Finally, the results are discussed and strategic implications are drawn.

Keywords: S-curve, technological substitution, trajectories, bifurcation, system dynamics

1. Introduction

The S-curve has been at the core of many concepts in management science for over 50 years. In fact, the logistic shape may be viewed as the quintessence of pattern recognition in many social sciences. It results from the tension (and shifting dominance over time) between two forces: a potential for growth and a saturation effect. When it comes to strategic management, three phenomena are typically represented, discussed, and even modeled, sometimes forcingly, through a logistic framework: the diffusion of innovations, technological trajectories, and technological substitutions are all synoptically represented, as shown in figure 1, by S-shape curves. Respectively, these are graphical representations over time of the cumulative number of adopters of the innovation reaching market saturation, the improvements in the performance of a technology reaching an upper limit, and the

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substitution of a new technology for a former dominant technology. The S-curves ubiquity in the literature may actually be misleading as these three processes tend to be undifferentiated, and their interrelationships skimmed.

Phenomenon Underlying dynamics Graphical S-curve of the:

Diffusion

An innovation is

adopted through a social system

Cumulative adopters (reaching saturation)

Technology

Improvement in the

performance of a

technology

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trajectory (reaching upper limit)

Substitution Substitution of one for the other

Relative market share

(reaching dominance)

Figure 1: The classical S-curves: diffusion, technological trajectories, and substitution

Christensen (1992; 1992) explored the limits of the technology S-curve, i.e. the performance trajectory, and found it to be a firm specific rather than uniform industry phenomenon. Similarly, I here set to explore the interrelationships between these three phenomena and the limits of the substitution S-curve. While Pistorius and Utterback have discussed other modes of interaction such as predator-prey or symbiosis (Pistorius and Utterback, 1997), the focus of this paper is on the substitution dynamics between two or more technologies which interacts on a purely competitive mode. Along with the classical S-shape base case and other relatively well understood patterns, I have also identified non-trivial and surprising patterns: the classical base case (including the concatenation and overlapping generations cases), the long term feedbacks, the sailing ship effect, the intermediate hybrid, the path finder, and the double shift. I describe each of these generic patterns, show their normalized fractional rate of substitution as a function of time, and detail a historical example. I briefly discuss the underlying dynamics of these substitution patterns and present a broad theoretical framework obtained by aggregating many literature streams on

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technological change. Finally, by using the concept of substitution trajectories, I identify bifurcation points between these generic patterns and draw strategic implications.

2. Patterns of technological substitution

Many famous classification of technological innovation have already been developed. These typologies attempt to reduce the complexity of the phenomenon to a few graspable dimensions such as the type of innovation (product vs. process), the impact on organizational competencies (enhancing vs. destroying), the link with market (established vs. new) or the origin of the change (science based vs. supplier vs. clients, etc.). These typologies have been fundamental for the management of innovation. However, their main focus is on the industrial dynamics induced by technological change and especially on the survival of incumbents versus new entrants. Their conclusions relate to the entry and exit rate, the competitive advantage based on flexibility and know-how, and the effect of complementary assets. While it is important for a firm to understand why and how its survival is threatened, technological substitution is not a unified phenomenon. Thus, it is also important to know how much time the firm may have before being possibly erased from the industrial landscape. Tripsas highlighted that understanding the origins and timing of discontinuous technological change is extremely important for managers trying to better weather transitions (Tripsas, 2005).

When it comes to technological change, the classical models of diffusion (Bass, 1969) and substitution (Fisher and Pry, 1971) have been applied to a number of historical cases. The normalized fractional rate as a function of time is the classical presentation of technological substitutions. Despite its impressive statistical robustness, the smooth logistic shape of the substitution S-curve must be challenged, in a Popperian sense. I thus provide counterexamples, i.e. exceptions to the logistic generalization of technological substitutions. I collected secondary historical data for a cases of technological change, many of which were discussed in the literature. I show that the time-path of these substitutions did not follow the classical S-curve.

2.1 Base Case Description:

The base case is a binary substitution that occurs when an emerging technology N+1 substitutes for the current technology N which has reached maturity. This is where the S-curve is at its best. The classical Fisher-Pry model states that the rate of substitution of the

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new technology for the current one is proportional to the remaining amount of the old left to be substituted (Fisher and Pry, 1971). The log of the ratio of the market share of the succeeding technology to that of the first is a linear function of time. Fisher and Pry studied the substitution rate for seventeen cases of technological change. They normalized the time scale by use of the term 2(t-t0)/t, where t is the time from 10% to 90% takeover and t0 is the time of 50% takeover. This collapses all seventeen cases of substitution into the single curve presented by figure 2.

Figure 2: Normalized substitution pattern of 17 cases (Fisher and Pry, 1971) Generic pattern:

The generic pattern of a base case is presented by figure 3.

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Figure 3: Generic pattern of base case substitutions

Historical example: The transition from the Bessemer process to open-hearth in the steel making industry is one of the earliest examples of binary substitution which the classical model has been applied to (Fisher and Pry, 1971; Blackman, 1974). I collected historical data from the American Iron and Steel Institute annual reports1 to present this classical example. The first phase of technological change covers from 1880 to 1930. At the end of the 19th century, the dominant method of steel-making was the Bessemer process, invented by Sir Henry Bessemer in the late 1850s. The rapidly expanding railroad industry provided a stimulus for

1 Sources : The American Iron and Steel Institute ; Annual Statistical Reports : (AISI, 1912), (AISI, 1965),

(AISI, 1979), (AISI, 1985), (AISI, 1993) and (Hendriksen, 1978).

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heavy demand and the Bessemer converter was the foundation of the industry (Gold, Peirce et al., 1984). Yet, the process had technical difficulties in part because the reactions involved in a Bessemer blow were short and very violent. The open-hearth process, first proposed by C.W. Siemens in 1861, overcame many of these difficulties and began substituting for the Bessemer equipments.

The open-hearth uses the heat in the waste gases from the furnace itself to preheat air

and gas fuels and thus build up temperature. This enables the process to input scrap and other cold metal in addition to the hot metal. By 1930 in the United States, the Bessemer process accounted for only 12 percents of total output and was completely overshadowed by the open-hearth process. The historical substitution pattern of this binary substitution in the U.S. industry is shown on figure 4.

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Figure 4: A base case substitution Open-hearth for Bessemer (1878 1958)

2.2 Concatenation Description:

The base case relates to a binary technological substitution. But in an industry successive generations of technologies replace each other over time. When considering a sequence of technologies, the recurrence of the generic substitution pattern (emergence-growth-dominance) is expected to look like a concatenation of base cases.

Generic pattern:

The generic pattern of a concatenation of base cases is presented by figure 5.

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Figure 5: Generic pattern of a concatenation of base cases

Historical example: While the dominant steel making method throughout the postwar period was the open hearth furnace, the mid-1950s saw the beginning of an entirely new approach, the basic oxygen process (BOP). It was found that the introduction of oxygen into the furnace would greatly speed the refining process. The first BOP plant in the United States was built in 1954. By 1987, the basic oxygen accounted for 95% of the steel output from the chemical combustion processes. Figure 6 illustrates this concatenation effect.

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Figure 6: Concatenated generations - Steelmaking technologies (1878 1994)

2.3 Overlapping generations Description:

The case of concatenated generations implies that each technological generation actually reaches full dominance before being substituted for by the newer generation. However, in many cases the timing of the emergence of the new technology creates an

overlapping of base cases. In fact, this seems to be the most frequent case in almost all industries. In the diffusion literature, this is referred to as a multi-level substitution. A few authors have offered analytical models for this type of multi-level substitution (Norton and Bass, 1987; Mahajan and Muller, 1996; Sohn and Ahn, 2003).

Generic pattern:

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The generic pattern of overlapping is presented by figure 7.

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Figure 7: Generic pattern of overlapping substitutions

Historical example: One such example can be found with IBM mainframes computers. I rely on the data collected by Phister to describe the overlapping of the successive generations of IBM mainframes (Phister, 1979). The performance per price ratio of these generations can be estimated with a generic index of number of operations by seconds per dollar. The first generation of IBM mainframes started with the 650, first introduced in November 1954. It yielded an average of 77kops/$. In November 1959, the second generation of IBM mainframe was introduced with the IBM 7090 which already yielded 1472 kop/$. This second generation included six systems from the 7090 to the 707x series. In 1962, the 7094 system offered 6898kops/$. But already the 360 generation was introduced. Its performance characteristics set a new standard that its eleven models kept improving. By 1965, the 360/20 offered some 11232kop/$. Finally, a fourth generation of 370 systems started in February 1971 with the 370/150. It was already performing 28106kop/$. Historical data from Phister (1979, Table II.1.31.1 - table II.1.31.1a - table II.2.11.1.) for the substitutions of IBM mainframe systems illustrate, as shown in figure 8, that each of these overlapping generations had not reached complete dominance when the next generation started substituting.

Figure 8: Overlapping substitution - IBM Mainframe (1955 1974)

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2.4 Long term feedbacks Description:

In all the previous cases, it is the emergence of a technology which is better in some ways that triggers the substitution process. However, there are particular cases where a substitution can be triggered even in the absence of a newer alternative! Indeed, the socio-political view suggests that changes to any of the organizational or scientific or regulatory or

natural components of a technological system could also trigger a substitution [...] Therefore, existing artefacts can be socially reconstructed as a response to changes in other elements of the system of which they are part (Maguire, 2003). I here present the case of a technological substitution which reverted after negative long term feedbacks became evident.

Generic pattern:

The generic pattern of reverting long term feedbacks is presented by figure 9.

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Figure 9: Generic pattern of long term feedbacks substitutions

Historical example: The rise and fall of the organochlorine insecticides and especially DDT2 is a famous and extensively described example of a reverting substitution due to long term environmental feedbacks. DDT is an organochlorine that was first synthesized in 1874. Its effectiveness as an insecticide was only discovered in 1939. The U.S. began producing large quantities of DDT, especially during World War II to control insect-borne diseases such a typhus and malaria abroad. Shortly after 1945, DDT started to be used in agriculture. Recommended by the Department of Agriculture (USDA), its usage became widespread in the U.S. because it

2 Dichlorodiphenyltrichloroethane

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was effective, resilient, versatile available at a reasonable price3. During 30 years, it remained the top selling insecticide in the U.S. However, certain characteristics of DDT which initially contributed to its early popularity started to become the basis for public concern over environmental effects. The persistence of DDT which was a solution by 1945 became a problem in the 1960s! Toxicologists raised questions about DDTs chronic toxicity to humans; and increasing resistance to DDT was documented by economic entomologists. From 1964, many federal actions were taken and in 1972, U.S. Environmental Protection Agency (EPA) announced the final cancellation of all remaining crop uses of DDT in the U.S. But the EPA ban was not the sole or even most important cause for DDTs disadoption. Indeed, Maguire explains that insecticide efficacy and safety had different social meanings over the years, resulting from changes in the social construction of DDT and other insecticides (Bijker and Law, 1994). The use of DDT in cotton production went from 23.6 millions pounds in 1964, to 19.2 in 1966, to 13.2 in 1971 and was not used anymore after that.

Figure 10 shows that organochlorines fell steadily from 70 percent of synthetic organic pesticides use in 1966 to only 6 percent in 19824. This reverted the substitution dynamics and the other insecticides grew from 20 percent in 1966 back to almost 70 percent in 1982.

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Figure 10: Reverting long term feedbacks Organochlorines usage U.S. crops (1964 1982)

3 Excerpt from DDT, A Review of Scientific and Economic Aspects of the Decision To Ban Its Use as a

Pesticide, prepared for the Committee on Appropriations of the U.S. House of Representatives by EPA, July 1975, EPA-540/1-75-022 4 United States Department of Agriculture : Agricultural Economic Reports n622 and 717 (Osteen and

Szmedra., 1989), (Lin, Padgitt, Bull, Delvo, Shank and Taylor, 1995).

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2.5 Sailing Ship Description:

Rosenberg highlighted another dynamics whereby a dominant technology which is threatened by a new technology will often undergo a last gasp of innovation in an attempt to compete (Rosenberg, 1976). This refinement of the current technology allows it to maintain its performance advantage over the new technology. However, the usual effect of such advances is only to postpone the traditional technologys displacement (Smith, 1992). Famous examples of defensive surges include the last attempts of the ice harvesting techniques when mechanical refrigeration emerged (Utterback, 1994), the longer than expected survival of optical photo-lithography after the entrance of x-ray photo-lithography (Henderson, 1995), or the last gasp by the carburetor technology when Electronic Fuel Injection was first introduced (Snow, 2003). The sailing ship effect is indeed a well documented phenomenon but usually represented only from the perspective of technological trajectories as shown on figure 11. Therefore, I here present the resulting substitution pattern.

Delay N+1N

Perfo

rman

ce

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rman

ce

Figure 11: Sailing ship effect : a defensive surge of performance

Generic pattern:

The generic pattern of substitution induced by sailing ship is presented by figure 12.

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Figure 12: Generic pattern of a sailing ship substitution

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Historical example: A stereotypical and eponymic example of this pattern of defensive surge of

performance is the evolution of the sailing ship into fast Clippers as the steam engine

emerged (Blackman, 1974; Foster, 1986; Utterback, 1994; Snow, 2003). The delay induced in the substitution is often discussed, but never substantiated. I thus combine Grahams qualitative accounts of the defensive surge of sailing ships (Graham, 1956) with quantitative historical data provided by the U.S. Bureau of Census5.

At the beginning of the 19th century, sailing ships were reminiscent of warships and required gales of wind to move at a speed no greater than three to four miles per hour (Graham, 1956). The use of steam-engine for ocean navigation began in 1819 but the first boilers were pretty dangerous as they could not withstand pressures higher than three bars; they often exploded violently! On long routes such as tea trade with China, speed was a vital consideration and in the face of paddle-wheel and low-pressure boilers, sailing ships had to hold their supremacy as cargo carriers. They managed to do so at least until 1870. During the late 1840s in response to the arrival of steam power, the sailing ships

evolved to emphasize speed as the critical performance criteria of the time. New sailing ships were introduced with double the space for cargo in proportion to tonnage, and manned and navigated by about one-third the number of men (Graham, 1956). These clipper ships had completely new and original naval design characteristics, carried large amounts of sail relative to their displacement and were thus capable of remarkable speed (18mph). This was the beginning of the clippers era which ran roughly from 1845 to about 1870. Indeed, in the 1870s the lead of clipper ships became precarious. Improvements brought by the compound engine marked a notable advance in marine engineering. Moreover, the abovementioned open-hearth processes allowed the production of better steel which in turn enabled boiler plates and tubes to withstand higher pressures. While the early steam ships burned 30 to 40 tons of coal a day to carry 1400 tons cargo on a long journey, the newer and faster vessels burned only 14 tons of coal a day to carry 2000 tons cargo. By 1870, these improvements combined with lower rates for the Suez Canal effectively made tea trade with China profitable. Soon the traffic was completely stolen from sailing ships. Thereafter, only sailing ships capable of carrying large freight of cheap bulk commodities essentially coal could be operated profitably (Graham, 1956).

5 U.S. Bureau of the Census. (Carter, Gartner, Haines, Olmstead, Sutch and Wright, 2004).

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Figure 13 shows the historical data of the substitution of powered boats for sailing ships from 1797 to 1964. Figure 13 also shows a classical Fisher-Pry logistic curve fitted to the time period 1797-1845:

tm

m+=

*085.09.41

ln (1)

with t = 1797. One can easily imagine that by 1845, the binary substitution trajectory could have been expected to follow a classical logistic shape. By introducing a 31-year delay into the t time reference constant, we can clearly see the delay induced in substitution from 1845 by improved clipper ships until the 1870s where steam engines became an efficient and economical solution for marine trade.

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Figure 13: Sailing ship substitution Sailing ships vs. Power (1797 1964)

2.6 Hybrid intermediate Description:

In many cases, incumbents respond to the substitutive threat of N+1 not just by a defensive surge of technology N, but by developing an hybrid technology intermediate N+1/2. An hybrid technology can be defined when some parts of the old technological paradigm integrate some aspects of the new one. The hybrid is then often presented as a seemingly radically improved technology. In spite of this, technology N+1 eventually wins the whole market over. There are numerous examples of artefacts trying to combine the best of both paradigms. In rare cases, the hybrid technology may have a beneficial combination of traits which, as in evolutionary biology, allows it to succeed in a niche market (marginal habitat) where the two parent technologies (species) are disadvantaged. Some of the early steam boats were actually hybridized sailing ships with steam paddlewheels, or vice-versa paddlewheel steam ships with auxiliary sails! The only real

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benefits were realized for the army because, it enabled manoeuvring during battles even with no wind. However, it was never a real advantage for commercial applications because it was only combining the defaults of both technologies. They required sufficient equipage to manipulate the sails, but also enough operators for the engine and fuel; there was no more room for cargo. This cost structure was not profitable for merchant marine. In an other example, Christensen illustrates how one of the cable digger companies, Bucyrus Erie, responded to the emergence of hydraulic-cylinders diggers with a new product, introduced in 1951, called the Hydrohoe (Christensen, 2003). Instead of using three hydraulic cylinders, it used only two, one to curl the shovel into the earth and one to crowd or draw the shovel toward the cab; it used a cable mechanism to lift the shovel. As a steam boat with auxiliary sails illustrates, the hybrid technology often exhibits what Michel Foucault describes as convenientia (Foucault, 1966): it blends with both the end of the previous technology and the start of the new one. Thus, it may be difficult to identify the threshold of difference from which an hybrid technology can be considered as a intermediate generation per se. In any case, it is important to note that the hybrid technology is introduced after the emergence of N+1.

Generic pattern:

The generic pattern of an hybrid intermediate is presented by figure 14.

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Figure 14: Generic pattern of an hybrid intermediate substitution

Historical example: From 1950 to 1970, the aircraft industry moved from the piston-propeller to the turbo-jet engine via the turbo-propeller hybrid technology. Figure 156 shows how the propeller from the old paradigm is kept but the combustion engine is replaced by the main element of the

6 Source: Creative Commons under free license

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new paradigm, i.e. the turbine, to produce rotating shaft power. On the other hand, turbo-jets use the thrust from exhaust gazes.

Turbo-Propeller Turbo-JetPiston-Propeller Turbo-Propeller Turbo-JetTurbo-Propeller Turbo-JetPiston-Propeller

Figure 15: Piston-Propeller, Turbo-Propeller and Turbo-Jet

Since the early 1950s the success of an aircraft was viewed as being heavily dependent on the specifications of power output for its engines independently of what was precisely needed to fit the commercial and traffic requirements of the airline customers (Davies, 1964). Airline operations had steadily advanced towards commercial viability, especially thanks the incomparable DC-3 which probably introduced the dominant design of modern aircrafts. In 1953, the de Havilland Comet 1, the first turbojet, started service. It set the stage for a reappraisal of values in the industry. Despite being a dramatic technological progress, several factors delayed the substitution of jet engines. They were much louder and at landing required breaking distance much longer than propeller did by inverting the angle of their blades. On the other hand, jet engine could not yet change the direction of their air flow and the landing distances were still very important. Moreover, a crash of a Comet 1 in April 1954 created a major crisis in the industry and turbo-jet services were suspended. The first turbo-prop, the Vickers Viscount, was introduced the same year in 1954 and piston-propellers started being pushed out of service. Later versions of the Viscount with longer fuselage were developed and larger turbo-props like the Bristol Britannia were introduced and operated quite profitably until in October 1958, the jet services were flown again on the Boeing 707, the first big jet airliner. From 1959, jet airplanes started serving the important longer routes, whilst the turbo-props were allocated to many of the routes of secondary importance. Figure 167 illustrates these three generations of aircraft technologies. Figure 17 shows the evolution of cruising speed8 (Davies, 1964) and the substitution patterns for these three technologies (Linstone and Sahal, 1976).

7 From photos 30, 62 and 69 of (Davies, 1964)

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The Incomparable DC-3 Viscount, the First Turbo-Prop Boeing 707, the First Big JetThe Incomparable DC-3 Viscount, the First Turbo-Prop Boeing 707, the First Big Jet

Figure 16: Three generations of aircrafts Piston DC-3 / Turboprop Viscount / Turbojet 707

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Figure 17: Hybrid intermediate substitution: Piston-prop / Turbo-prop / Turbo-jet (1956 1973)

As a second example, figure 18 presents the hybrid intermediate substitution pattern which occurred in the tire industry when it moved from bias to belted-bias to radial tires (Sull, 1999, p. 441).

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Figure 18: Hybrid intermediate substitution: Bias Belted bias Radial tires (19611988)

8 Adapted from figure 86 of Ibid.

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2.7 Technological bursts Description:

In most cases, incumbents firms are right to be dismissive because the new technology just does not make it. In other cases, highly sophisticated products push the performance limits so far that they are expected to completely revolutionize the industry and become widely adopted. This complete revolution just does not happen and the overshooting performance only interests a small niche. This pattern highlights the importance of the

definition of what constitutes the potential market and the difficulty of the classical representation of substitution to account for market segmentation by technology. When planned and designed, the Concord Supersonic Transport Aircraft was viewed as a passenger jet that could fly at twice the speed of sound and whose commercial logic seemed ironclad (Gar, 2005). Indeed, since its debuts, the aviation market had been driven by what appeared to be the publics insatiable appetite for faster flights over longer distances (see figure 17). By the end of 1963, Pan Am, American Airlines, Continental and TWA had joined British Airways and Air France in taking options to purchase the planes. However, when Concorde was finally launched in 1976, it entered an aviation market that had changed drastically since the initial decision back in 1956. Only 16 Concordes were ever sold, all to British Airways and Air France. After this initial burst, the world market for Concorde was non existing.

Generic pattern:

The generic pattern of a technological burst is presented by figure 19.

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Figure 19: Generic pattern of a technological burst

Historical example: In the late 1980s, Motorola engaged in developing a satellite mobile phone system. The complete system was initially planned to include seventy-seven but it eventually ended up with sixty-six active satellites in Low Earth Orbit. A consortium, Iridium LLC was created

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and promised to allow communication "with anyone, anytime, virtually anywhere in the world". The Iridium system used Time Division Multiple Access (TDMA). TDMA equipments can only see one satellite signal at a time. Iridium and other TDMA systems compensate by using more power. But excess power means larger and heavier handsets. Moreover, Iridium satellite handsets were Line of Sight (i.e. requiring an unobstructed direct line between the satellites and the mobile handset) and thus could not be used indoor. Nevertheless, the system designers were persuaded that it would be a great success in the market. At the time, all the forecasts had been underestimating the actual growth of the mobile market. In 1991, there were only 11 millions mobile phones subscribers worldwide. Cellular service was very limited and there was virtually no international roaming. Motorola thus interpreted this as an indication that the market would enthusiastically carry their technology to the top. Motorola had been a technology leader for more than sixty years and was used to successfully bring radical technologies to the consumers. However, they believed that mobile phone users would be slow to move to GSM and their faith in the satellite paradigm was unshakable (Finkelstein and Sanford, 2000). By the late 1990s, relatively good quality cellular phone service from the GSM technology, which brought international roaming and equipment compatibility, was much more prevalent than the planning of Iridium had anticipated. It took 12 years, $5 billions, and more than 20 millions lines of computer code to build the system. Iridium communication service was launched on November 1st, 1998. Cumulative sales were expected to reach 1.6 millions subscribers by 2000 and 27 millions by 2007. By 2000, there were a mere 55 thousands subscribers. Given the explosive growth of the mobile industry, in 2005 the Iridium 150 thousands subscribers base9 only accounts, as shown in figure 20, for only 0.006 percent of worldwide mobile subscribers.

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Figure 20: Technological burst Iridium Satellite/worldwide mobiles (1998-2006)

9 Iridium Satellite LLC : First Quarter 2006 results and (ITU, 2002)

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A classical logistic model could properly be fitted to a technological burst. Indeed, it comes down to the estimation of the potential market. Nevertheless, the burst characteristic is often salient. This case also demonstrates the difficulty of the strategic planning for long-term development projects of radical technologies. In highly dynamic environments, things will have moved on by the time the technology is launched.

2.8 Path finder Description:

In some cases what initially appeared to be a technological burst eventually reaches the growth phase. Utterback describes the phase after the introduction of a disruptive technology as a fluid phase during which many product innovations occur. When the form factor and the dominant design, etc. are established, then the industry really moves on and the diffusion rate increases because of reduced uncertainty. In the case of a path finder, it seems that this fluid phase is abnormally long. Only a very few players, and for an unusually long time, are making attempts at the technology. But, then somehow the set of contextual conditions necessary for creating a mass market appears in the environment. A path finder is thus an initial burst stuck in a niche, which eventually reaches the growth phase a sleeping beauty that finally wakes up!

Generic pattern:

The generic pattern of a path finder substitution is presented by figure 21.

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Figure 21: Generic pattern of a path finder substitution

Historical example: The Laserdisc, as an optical video disc, was a path finder for the DVD. I thus collected10 secondary data on the diffusion of these technologies in the U.S. market. The

10 Consumer Electronics Association, May 2006: www.ce.org and (Taylor, 1998)

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home video market has experienced changes from the initial Video Cassette Recorder (VCR) of the 1980s based on analogue, to the Digital Video Disc (DVD) of the late 1990s based on digital optical laser disc. Laserdiscs (LD), introduced in the retail market in 1978, were the first commercial optical video discs. On LD, the video was recorded with very good image quality using frequency modulation of an analogue signal while audio was recorded digitally in separate tracks. Video resolution was at 425 lines. This should be compared to the 240 lines of magnetic tape (VHS). Laserdiscs could be encoded with chapters allowing random disc access. This meant that one could jump to any point on a given side very quickly (a functionality later highlighted for DVD). LD were 30 cm in diameter and made of two single-sided stamped aluminum discs sandwiched between two sheets of plastics. Because they had two sides of thirty minutes each, LD had to be flipped during projection and most movies were recorded on two discs. This was felt as one of the major drawbacks of this initial optical video system but many LD-players built after the mid-1980s could automatically rotate the optical system to the other side of the disc. Because of their superior image and sound quality, players and discs titles were kept at a fairly high price. MCA and Pioneer were the only two prominent industrial players. However, at the end of the 1990s, only about 15000 titles were available on the format. Moreover, VCR were diffusing at the same time and a strong emphasis was placed on recording capability. For these reasons, LD were not well accepted outside of the video enthusiasts niche.

Introduced in 1997, DVD format was in effect the digitalization of the optical format introduced by the Laserdiscs. Digital compression allowed storing a complete movie, audio and bonuses on one side of a small and practical disc. Taylor considers that the DVD format was a modest net advance over LD and a major advance over VHS (Taylor, 1998). Moreover, a whole set of conditions was suddenly, in place to allow the creation of the mass market for optical video discs. This favourable context was constructed along three dimensions: institutional influence, network externalities, and electronic commoditization. Indeed, the DVD format was really pushed by an unprecedented cooperation from the computer industry, music companies, Hollywood studios, and consumer electronic companies which had formed a consortium, the DVD Forum, and launched an institutional communication campaign to promote the format. The amazingly rapid commoditization of the DVD player, the rental infrastructure already in place, and the familiarity that consumers had developed with home video made adoption easier.

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By 1998, the U.S. installed base of VCR had reached 80 millions units. Laserdisc which were introduced in 1978 had, by 1990, only reached an installed base of 2 millions units. I collected monthly sales of DVD players in the U.S. from 1997 to 2006 from the Consumer Electronics Association. In May 2006, less than ten years after their introduction, the installed base of DVD players in the U.S. had reached 106 millions. Given that in 2004, DVD had a penetration rate of 70% of household11, I assume that this also illustrates the substitution of DVD for VCR. Figure 22 illustrate the path finder behaviour of Laserdisc for the optical disc paradigm of home video. Despite their high quality video experience, LD stayed an initial burst in a niche. For many years, the optical video system stayed dormant until the set of conditions made it possible for optical video DVD to explode into a mass market.

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Figure 22: Path finder: Laserdisc as path finder for DVD in optical video disc (1978-2006)

2.9 Double shift Description:

In the classical view of successive generations of technology the base case substitution dynamics occur when the previous technology is already in its mature phase and is the dominant technology. However, I have also identified a very impressive pattern in which the second generation substitution dynamics are cut short by a third generation of technology which ends up dominating the market. In a double shift, a binary substitution is started by the emergence of a radically new technology N+1. As it reaches the steep growth phase and appears to be on its way to completion, the substitution is completely cut short by the emergence of a third technology N+2.

Tushman and Andersen describe how minicomputers were successively based on vacuum tubes, transistors and then integrated circuits. The first shift to transistor in 1962

11 Ibid.

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resulted in minicomputers that were much faster than their vacuum-tube predecessors. However, this transistor architecture was replaced within two years by a second shift to integrated circuits with an even more astonishing performance improvement (Tushman and Anderson, 1986). Similarly, Durand and Stymne (1991) describe how public switches in the telecommunication industry moved away from electromechanical technologies and how analogue space division would most probably have become the next dominant technology if digital Time Division Multiplexing (TDM) had not become the new challenge.

Generic pattern:

The generic pattern of a double shift substitution is presented by figure 23.

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Figure 23: Generic pattern of a double shift substitution

Historical example: To substantiate this generic pattern of a double paradigmatic shift, I combine the longitudinal study of the typesetter industry conducted by Mary Tripsas (Tripsas, 1996; 1997; 2005) with other references on the chronology, evolution of techniques and economical aspects of this industry (Swann, 1969; Hutt, 1973; Solomon, 1986; Wallis, 1988). Typesetting is the process of arranging and outputting text and images. Text from a manuscript is entered into a typesetter machine [] the output of the typesetter, either paper or film is then used to create a printing plate that is used by a press for high-volume printing (Tripsas, 1997 p. 124). Typesetters customers include newspapers, commercial printers and some corporate in-house publishers. Typesetting started manually back with Gutenbergs invention of the movable type around 1440. At first, each individual letter was cast into a body of type using a mixture of lead, tin and antinomy (Solomon, 1986). All the foundry types were stored in large case drawers and the letters were then composed by hand to form lines of types. The first commercial typesetting system that automatically distributed letter types for reuse was

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introduced in 1886 with the Mergenthaler Linotype. An operator typed out individual letters on a keyboard. With each keystroke, a lever released an individual matrix (mold). After a line of type was composed and justified, the matrices were moved and the machine tapped a reservoir of molten lead to cast a slug from the matrix. This formed a line of type with raised letters. All the separate bars were assembled by a compositor to form the complete printing plate for the press. Each matrix had an individual code key was distributed back into its proper channel in the magazine. Because of the use of molten lead this generation of typesetter is referred to as hot metal. The speed of a typesetting technology can be measured in characters per second (cps). Until 1930, the speed of hot metal followed a very clear S-shape trajectory from around 1.5 cps to a limit of 3.5 cps already reached by 1910. When 1946, the first successful analogue phototypesetter was introduced, this induced a very noticeable sailing ship effect in the performance of the hot metal technology. By 1965 it had reached a new limit of 8 cps (Tripsas, 2005, p. 35), thus effectively doubling the old performance limit!

In analogue phototypesetters, the metal matrices were replaced with a photographic image of the character. Placed in front of a xenon light source, the image of each letter was flashed and projected onto a step-moving photographic film to form the line. The film was then developed and projected onto a metal plate chemically treated with light-sensitive emulsion to create a printing plate for high-volume press. The characters width, size and position were adjusted optically through a system of lenses. Among others, the introduction of phototypesetting considerably reduced the composing time and the safety issues associated with molten lead. By 1975, analogue phototypesetters had reached speeds of 80 cps. In 1965, the first cathode ray tube (CRT) typesetter was announced. CRT systems digitalized the previously analogue images of the types. Thus, the characters could be stored magnetically and instead of a xenon flash, a CRT display was used to write the characters onto the photographic film. The CRT generation eliminated most of the typesetters moving parts as electronics substituted for electro-mechanical technology (Tripsas, 2005). Speed from 500 to 2000 cps were commonly available, with particular models reaching more than 3000 cps. However, Tripsas notes that this technology had exceeded the speed requirements of most users. It was only interesting to print large telephone directories. The real take off occurred in 1977 with the introduction of Intel 8080 microprocessor that enabled greater connectivity with large electronic database and better control of the typesetting unit (Wallis, 1988).

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The third technological shift occurred with the laser technology. In 1976, Monotype International revealed the Lasercomp. The laser technology writes out text in a raster fashion by a spinning polygonal mirror across the breadth of a page at thousands of sweeps per inch. This raster stroke approach was a significant development for the imaging of pages complete with text and graphics. However, it requires a page description language. The first language, InterPress, was developed by John Warnock while at Xerox PARC, but Xerox did not commercialize it. John Warnock and Charles Geschke left Xerox and in 1982 they formed Adobe Systems. They then developed a simpler and high-level raster image processing software called PostScript which went on the market in 1984. PostScript specifies the curves that define the outline of a typeface in terms of straight lines and Bzier curves. By filling the outline it allows the typefaces to retain smooth contours when rotated or scaled to any size. PostScript offered flexibility, high-quality, and on-the-fly rasterizing. The inclusion of the PostScript language in 1985 in the Apple LaserWrite effectively sparked the desktop publishing revolution! It induced tremendous externalities and sudden improvement of utility for the laser technology which became the best option for the novel user needs of setting text and graphics in an integrated manner. From this point, laser imagesetters started dominating the market. Since the early 2000s, yet another technology, computer-to-plate (CTP), has revolutionized the printing industry because instead of striking a film (which must be developed and then projected on a plate), the laser beam is used directly on a special printing plate covered with light-sensitive emulsion (McCourt, 2002; Candille and Franois, 2004). Figure 24 illustrates these successive typesetting technologies from 1886 to 2006.

FilmFilm

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Figure 24: Successive generations of typesetting technologies (1886-2006)

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Since the introduction in 1977 of the Intel 8080 microprocessors, the CRT technology had really took off and by 1985, CRT had reached more than 65% market share. Incumbent firms were probably confident that their technological choice was strong and that they did not have anything to fear yet from the 15% share of the emerging laser technology. But the introduction of PostScript resulted in an explosive substitution and by 1988, laser imagesetters had themselves reached 65% of market share. In an industry which had so far experienced long technology cycles, such a double shift in less than three years was shattering.

Figure 25 gives a longitudinal view of the technological substitutions in the U.S. typesetter industry (Tripsas, 1997). We can clearly see the double shift whereby the substitution of the CRT technology for the analog phototypesetters is cut short by the emergence and rapid diffusion of the Laser technology enabled by PostScript. Finally, figure 26 offers a synoptic view of all these generic patterns of technological substitution. It demonstrates that substitution is not a unified phenomenon in the shape of a smooth S-curve; rather there are various patterns induced by complex underlying dynamics.

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Figure 25: Double shift: Typesetters Hot Metal Analog Photo CRT Laser CTP (1949-2006)

3. Underlying dynamics

As shown by an immense body of literature, many technological substitutions occur on a basic binary mode. Nevertheless, the above examples illustrate that substitution is neither a unified logistic phenomenon nor a passive process. As Christensen puts it, many authors simply report observations of S-curve phenomena, but a few examine the processes [] in considerable depth (Christensen, 1992). While being a very well plough academic ground, technological change has, according to Sahal, turned out to be one of the

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most vexing of all problems in the social sciences [] in particular, there remain all too many missing links in our knowledge of the subject (Sahal, 1981). More than a quarter of a century later, I believe her comment still holds. These generic patterns of substitution result from broad and complex underlying dynamics. The technological burst and path finder patterns include a combination of long term systemic interactions and social dynamics that greatly influence the creation of a mass market. The long term feedback illustrate how broad system changes can trigger a substitution. The defensive surge of the threatened technology, as with the sailing ship, and the intermediate hybrid technology can both induce a delay in the substitution trajectory. As shown in figure 1, the innovation and technology management literature classically represents technology trajectories with a new technology taking over when the existing technology has reached its technological limits (Linstone and Sahal, 1976; Sahal, 1981; Christensen, 2003; Durand, Granstrand et al., 2004 p. 108). The double shift, as an extreme case of overlapping, challenges this view of the disruption timing. The technology burst also illustrates the difficulty of strategic planning for long-term high technology projects that are embedded in highly dynamic contexts. Indeed, when Concorde was finally launched in 1976, it entered an aviation market that had changed drastically since the initial decision back in 1956. Similarly, by the time the Iridium satellite system was launched in 1998, GSM had really changed the dynamics and growth of the mobile telecommunication industry since the initial decision in the late 1980s. First or second-order technological externalities, i.e. changes induced by links with other technologies, greatly influence the substitution trajectory. Externalities have been discussed in the literature to occur in two forms. On one hand, network externalities increase the expected utility as the number of adopters increase. The underlying dynamics are economics. On the other hand, bandwagon effects result from strong social dynamics which generate a boom and burst behaviour. I argue that there is a third type of externalities, which I call technological externalities. By creating links between industries or practices, some innovations act as catalysts, and sometimes even triggers, to explosive technological change.

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Figure 26: Generic Patterns of Technological Substitutions

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The case of the sailing ship shows that the substitution of steam boats for sailing ships resumed thanks to improvements in steelmaking brought by open-hearth furnaces in the late 1870s. Their diffusion of allowed the production of better steel, which in turn enabled boiler plates and boiler tubes to withstand higher pressures; through a second-order feedback more efficient steam boats could then be operated profitably (see figure 4 and figure 13). The introduction of Intel 8080 microprocessors into the design of the digital CRT typesetter offers another example. It enabled greater connectivity with large electronic databases and greater control of the typesetting unit (Wallis, 1988); hence creating a step discontinuity in the utility of this generation of technology. Finally, the PostScript is certainly a radical example of such catalyst innovations. It created externalities with the growing installed base of desktop computers which led to the desktop publishing revolution and a double shift in the typesetter industry. Macromedia Flash and the USB port can also be thoughts of as catalysts innovations that led to explosive change in the multimedia and consumer electronics.

These generic patterns show that we need to broaden the scope of our analysis in order to better understand the underlying dynamics of technological substitution. A system approach to technological change should account for classical industrial dynamics (Utterback, 1994), but also regulatory changes, spillovers from science and academia (Henderson and Cockburn, 1996; Murmann, 2003), the availability of financing and technological development and externalities. A broader model should also recognize the critical role of social factors (Dattee and Weil, 2005). Without detailing its structure, figure 27 shows an aggregated theoretical framework (Dattee, 2006) which offers a synoptic view of the major concepts of technological change and the research traditions that have discussed them.

SocialDynamics Market Diffusion

TechnologicalEvolution

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Figure 27: A broad theoretical framework of technological change.

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4. Bifurcation analysis

The substitution time-paths, patterns, or trajectories are influenced by the dynamics taking place in the broad technical system described in figure 27. In this section, I identify bifurcation points between these trajectories and how the generic patterns can be combined into sequence to replicate the longitudinal view of technological substitution in an industry. Based on the life cycle theory, an emerging technology generation must go through a growth phase before reaching dominance. Figure 28 shows the three phases over time of the classical logistic pattern of technological substitution. Every technological change starts with a spark that ignites the substitution dynamics. Then, for a base case, the new technology smoothly enters a growth phase which Moore refers to as crossing the chasm (Moore, 2002) before reaching market dominance.

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Using a simulation model developed with the system dynamics methodology (Dattee, 2006), it is then possible to plot substitution trajectories under various scenarios. A base case scenario can be altered by changing the dynamics at the system level, as described in figure 27 e.g. changing the timing of emergence of the new technology, or accounting for specific

social dynamics, etc. This is illustrated by figure 29 which shows that there exist important bifurcation12 points in the substitution trajectory13 of a technology N+1. Indeed, while the

12 Pasquet in his study of technological transition defines points of technological bifurcation by analogy with

the physicochemical theory of dissipative structure (Pasquet, 2002). Around bifurcation points, macroscopic qualitative changes in the structure can be produced by the amplification of an infinitesimal internal fluctuation or by a small external perturbation, while the system is in an instable state. Nevertheless, Pasquet refers to bifurcations between two technological paradigms, i.e. moving from N to N+1. In my work, the bifurcations points are between types of substitution trajectories already started (after the paradigmatic bifurcation point in Pasquets meaning). 13

For clarity, the complementary fractions for technology N were omitted; i.e. fn+fn+1=1

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substitution is taking place along a given trajectory, changes at the system level may create a bifurcation towards another substitution trajectory. Ren Thom developed the catastrophe theory in order to understand sudden phenomena. In a system, these abrupt changes occur at points of tension between two variables. At a particular moment, there is a conflict between two attractors and the system is constrained to suddenly decide for one of them. The catastrophe theory emphasizes phenomenological discontinuities but also relate them to an underlying slow evolution (Thom, 1984).

Figure 29: Bifurcation graph of technological substitution trajectories

The initial spark is common to every cases of technological change because it is the initial disruption that ignites the substitution dynamics. However, a first bifurcation point is evident after this initial takeoff. In the classical S-curve view, the substitution continues on the left of this point as it is assumed that the technology smoothly enters the growth phase. The system is on a base case trajectory (1). If this substitution reach completion, the next spark (N+2) will generate a concatenated pattern. Nevertheless, in many cases, the next spark will create an overlapping pattern (2). These are the classical views of technological change between successive generations of technology. However, as I have discussed earlier when the generation N+1 is on its way to complete substitution, there is another potential bifurcation point because the system could suddenly bifurcate towards a double shift (3). The catastrophe theory states that at bifurcation points there is a tension between two attractors, a slower underlying dynamics and a quicker one (Thom, 1984). Figure 29 shows that a double shift can be considered as a particular case of overlapping, but the catastrophe theory also

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highlights that the sudden bifurcation that can be triggered by a specific N+2 spark (e.g. PostScript). These trajectories (1,2, and 3) are from an initial bifurcation towards mass market. But often the proponents of the previous technology react and respond either with a defensive surge or a hybrid intermediate. In both case the resulting pattern for N+1 is a delayed substitution; the substitution bifurcate towards the right. As in the case of steam boats or CRT typesetters, technological externalities can create a new point of bifurcation whereby the substitution dynamics eventually resume. The technology N+1 is back on track and enter the growth phase (4). The rest of the substitution trajectory will be determined by the emergence of N+2 (i.e. concatenation, overlapping, etc.). As an example, figure 29 actually indicates an overlapping case occurring after the system had followed a sailing ship pattern (5). At the initial bifurcation point, generation N+1 can actually become stuck in the burst scenario. This can happen because of the defensive surge of technology N was sufficient but this seems to be a rare case or broader dynamics (cf. Concord or Iridium). The new generation N+1 only appeals to a small elite. From this point, the perspective of entering the

phase of rapid growth (i.e. crossing the chasm) is greatly compromised and the system will most probably follow the very strong attractor of a burst pattern (6). However, the path finder pattern shows us that in some cases a last chance bifurcation is possible because the broader system change and the growth phase is finally reached (7). Nevertheless, either creating this point through institutional entrepreneurship or guessing the right timing to enter will be extremely difficult. It will demand a deep understanding of the emergence of bifurcation point. Munir and Philips show how Kodak fought for many decades using discursive strategies to make its roll-film an initial burst bifurcate towards a mass-market success (Munir and Phillips, 2005). However, figure 29 has us wondering how long can a sleeping beauty technology wait before it becomes a mummy?

This bifurcation analysis shows that strategic actions may be undertaken by change agents to influence the dynamics of substitution, increase the strength of an attractor and thus favor the occurrence of a preferred pattern. As an example, if a company is stuck in a burst it probably has four alternatives:

1. First, wait for the right system conditions to happen, 2. Second, undertake strategic actions to influence the discursive dynamics and change

the evaluation criteria of adopters in order to create those right conditions, 3. Third, create an alternative use for the technology,

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4. Fourth, withdraw from the business and admit failure. The institutional entrepreneurship of Kodak offers great lessons in changing the dynamics of a burst and make the system bifurcate towards a path finder trajectory. As many authors emphasize, the dynamics of substitution can be socially constructed through discursive actions that influence the decision criteria and market preferences (Van de Ven and Das, 2000; Maguire, 2003; Schilling, 2003; Munir and Phillips, 2005). Sometimes the entire technical system has so much inertia that its just too big to influence its trajectory. Nevertheless, Yoffie and Cusumano (1999) explain that like in judo whose strategy is based on rapid movement, flexibility, and leverage, there are strategic actions that one can take to turn these larger dynamics to ones advantage. Indeed, the essence of strategy is timing. Hence, identifying the emergence of a double shift might for example offer the opportunity to leapfrog the sandwiched generation without wasting time. This would also allow profiting from the momentum of change already initiated. By definition, a double shift occurs during the growth phase of the technology N+1 when major investments have just been made to increase volume, etc. Therefore, these commitments and limited financial capacity will make it extremely difficult for those engaged in the sandwiched generation N+1 to follow and switch to N+2.

Finally, this approach shows that the generic patterns of substitution that I have described can actually be combined to replicate more precisely the longitudinal view of technological change in an industry. For example, instead of a concatenation of base case S-shape substitution the typesetter industry, as discussed in section 2, went through a sailing ship from hot metal which delayed analogue, the CRT were stuck in a niche market until the introduction of the Intel 8080, but when the substitution resumed like for a path finder it was suddenly curt short by a double shift from a combination of laser and PostScript!

5. Conclusion

In this paper I started by challenging, in a Popperian sense, the smooth logistic shape of the substitution S-curve. I provided counterexamples, i.e. exceptions to the logistic generalization of technological substitutions by collecting secondary historical data for a series of examples used in the literature on technological change. I showed that the time-path of these substitutions did not follow the classical uniform S-curve but that rather more complex substitution trajectories. These were summarized in figure 26. This variety of patterns requires us to broaden the scope of our analyses and account for the dynamics

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occurring at the system level; I proposed an aggregated theoretical framework of technological change. Using the catastrophe theory, I then conducted a bifurcation analysis. This resulted in figure 29 which presents the bifurcation points between the generic patterns of substitution.

Contrary to the classical view of a concatenation of smooth logistic base cases where each successive generation reaches dominance, these generic patterns of substitution can actually be combined to replicate more precisely the longitudinal view of technological change in an industry. The combination of these analyses shows that a better understanding of the underlying dynamics of substitution could help identify the conditions of emergence of particular patterns. Hence, a company could for example undertake strategic actions to influence the bifurcation towards preferred patterns (e.g. engage in institutional entrepreneurship to change a technological burst into a path finder), or try to identify a double shift and to leapfrog the crushed generation.

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