DBA1732

M B A(DISTANCE MODE)

DBA 1732

MANGING TECHNOLOGY CHANGE

III SEMESTER

COURSE MATERIAL

Centre for Distance EducationAnna University Chennai

Chennai – 600 025

Author

Prof. S. Ramanathan

Visiting Professor

Anna University Chennai

Chennai - 600 025

Reviewer

Dr. Hansa Lysander Manohar

Professor

Department of Business Administration

St. Marys School of Management Studies

Chennai - 600 119

Dr.T.V.Geetha

Professor

Department of Computer Science and Engineering


Chennai - 600 025

Dr.H.Peeru Mohamed

Professor

Department of Management Studies


Chennai - 600 025

Dr.C. Chellappan

Professor



Chennai - 600 025

Dr.A.Kannan

Professor



Chennai - 600 025

Copyrights Reserved(For Private Circulation only)

Editorial Board

ii

ACKNOWLEDGEMENT

The author has drawn inputs from several sources for the preparation of this course material, to meet the

requirements of the syllabus. The author gratefully acknowledges the following sources:

• Webs of Innovation, Alexander Loudon, FT. Com.

• The innovation Equation, Jacquline Byrd & Paul Lockwood Brown Jossey Bass, Petiffer.

• Competitive Innovation Management, James A Christiansen, Macmillan Business

• Innovation – Harnessing creativity for business growth, Consultant Editor: Adam Jolly, Kogan Page.

• Creating Break through products, Jonathan Cagan & Craig. M. Vogel, Financial Times – Prentice Hall –

NJ.

• Innovation Management and New product Development, Paul Trott, Financial Times – Prentice Hall.

• Management of Technology, Trarek Khalil, McGrew Hill

• Managing Technology and Innovation for competitive advantage, V.K. Narayanan, Pearson Education.

• Management of Technology and Innovation, Vijay Kumar Khurana, Ane Book India

• Managing Technological Change, Carol Joyce Haddad, Sage Publications.

• Managing Strategic Innovation and Change, Michael C. Tushman & Philip Anderson,

• Oxford University press.

• Handbook of technology management, Sza Konyi, Viva Books.

• Strategic Management of Technological innovation, Melissa A Schilling, Tata McGraw Hill.

• The Act of Innovation, Tan Kelley, Profile Books.

• Innovation Management, Shlomo Maifal and D.V.R. Seshadan, Response Book.

• Managing Innovation, Joe Tidd, John Bessant and Keith Pavitt, Jon Wiley and San Sans Ltd.

• Innovation and Entrepreneurship, Peter F Drucker, Harper Business.

Inspite of at most care taken to prepare the list of references any omission in the list is only accidental and

not purposeful.

S.Ramanathan

Author

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DBA 1732 MANAGING TECHNOLOGY CHANGE

UNIT I TECHNOLOGY AND INNOVATION

Interface between technology and innovation - Technology changes and macro, micro issues- Technology track

in select industries.

UNIT II VENTURING TECHNOLOGY

Technology Road mapping (TRM) - Internal and external technology venturing - Technology pioneering and

competitive advantages - Phases of Technology transition.

UNIT III TECHNOLOGY CYCLE

Technology cycle and understanding technologies change - Responding to technological changes - Adoption of

technology - Overcoming resistance - different approaches.

UNIT IV CREATIVITY AND TECHNOLOGY

Creativity techniques - Classification and description – Innovation process – Nurturing innovation - R & D

management within the firm – Multi-criteria considerations.

UNIT V TECHNOLOGY CHANGE

Technology change and Business Srategy – Organisational issues – Entrepreneurs opportunities and Technology

changes – Technolgy change and productivity.

REFERENCES

1. Managing Strategic Innovation and Change : A Collection of Readings, edited by Michael Tushman and

Philip Anderson (the second edition, 2004)Robbert Szakonyl, 2006 – Handbook of Technology

Management – viva books private, limited.

2. Managing technology for competitive advantage: Intergrating technological and organizational development

from strategy to action Twiss B & Goodridge, M.Pitman 1989.

3. Technology Transfer: Making the most of Your Intellectual Property By, SULLIVAN N. Cambridge

University Press 1995.

4. A Innovation Management, Strategies, Implementation and Profit by Afuah Oxford University Press 2nd

edition. 2003.

5. Mastering The Dynamics of Innovation by UTTERBACK, J. Harvard Business School Press 1994.

vii

CONTENT

UNIT I

TECHNOLOGY AND INNOVATION

1.1. INTRODUCTION 1

1.2. LEARNING OBJECTIVES 2

1.3. TECHNOLOGY AND INNOVATION 3

1.3.1. Definition of Technology 3

1.3.2. Attributes of Technology 3

1.3.3. Definition and Meaning for Innovation 3

1.3.4. Creativity and Innovation 4

1.3.5. Invention and Innovation 4

1.3.6. R&D and Innovation 5

1.3.7. Change in organisations due to innovation 5

1.3.8. Types of Innovation 6

1.3.9 Disruptive and sustained technology 8

1.3.10 Innovation for growth and profit 9

1.4. DISRUPTIVE INNOVATION 11

1.4.1. Factors that affect disruptive innovation 12

1.5. DESIGN AND INNOVATION 15

1.5.1 Form of Technology Change 19

1.5.2. Product Innovation and Process innovation 21

1.5.3. Punctuated Equilibrium 22

1.6. TECHNOLOGY CHANGE IN SOME INDUSTRIES 23

UNIT II

VENTURING TECHNOLOGY

2.1. INTRODUCTION 33


2.3. USES AND BENEFITS OF TECHNOLOGY ROAD MAPPING 35

ix

2.3.1. Technology Road mapping 36

2.3.2. Technology roadmap 36

2.3.3. Types of Technology Roadmaps 37

2.4. PLANNING AND BUSINESS DEVELOPMENT CONTEXT FOR

TECHNOLOGY ROAD MAPPING 39

2.4.1 Knowledge and skills required for technology 40

2.4.2. Technology road mapping process 40

2.5 TECHNOLOGY ROADMAP – AN ILLUSTRATION 48

2.6 LINKING TECHNOLOGY PIONEERING

AND COMPETITIVE ADVANTAGE 50

2.6.1 Production Costs and Advanced Manufacturing

Hardware Technology 51

2.6.2 Labor Cost 52

2.6.3 Materials Costs 53

2.7 FINACING A START-UP 60

2.8 VENTURE CAPITAL PROCESS 63

2.81 Financial projects in large firms 65

2.9 TECHNOLOGY VENTURING 66

2.9.1 Angel Investors 66

2.9.2. Venture capital 66

2.9.3. Corporate Venture capital 67

UNIT III

TECHNOLOGY CYCLE



3.3. TECHNOLOGY CYCLES 71

3.3.1. Characterizing the technology cycles 73

3.3.2. Pioneers of Discontinuous and Dominant designs 74

3.3.3. The technology cycle – another approach 77

3.4. APPROACH TO TECHNOLOGY ADOPTION 83

3.5. MEASURING CHANGE READINESS 91

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UNIT IV

CREATIVITY AND TECHNOLOGY



4.3. CREATIVITY TECHNOLOGIES 103

4.3.1. Classification of creativity techniques 103

4.3.2. Description of creativity techniques 104

4.4. DEVELOPING AN R&D STRATEGY AND

STRENGTHENING R&D ADMINISTRATION 116

4.4.1. Developing R&D strategy 116

4.4.2. Strengthening R&D administration 120

4.5. TYPES OF INNOVATION 125

4.5.1. Product innovation versus process innovation 125

4.5.2. Radical innovation versus incremental innovation 126

4.5.3. Competence enhancing innovation and

competition destroying innovation 127

4.5.4. Architectural versus component innovation 128

4.5.5. Technology S-curves 130

4.5.6. Diffusion of innovation and adopter categories 135

4.5.7. Stages in technology cycles 138

4.6. ORGANISATION CULTURE AND INNOVATION 140

4.6.1. Modes of innovation 149

4.6.2. Innovation as a management process 153

4.6.3. A frame work for management of innovation 154

4.6.4. Waves of innovation – an overview 161

4.6.5. Facilitation for innovation process 164

4.6.6. Industrial firms are different – a classification 165

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UNIT V

TECHNOLOGY CHANGE



5.3. CRITERIA FOR ORGANISATIONAL CHANGE 174

5.3.1. Implication for change management 177

5.3.2. Motivating constructing behaviour 180

5.3.3. Managing the transition 183

5.4. IMPACT OF TECHNOLOGICAL CHANGE

ON ORGANISATIONAL PRODUCTIVITY 185

5.4.1. Management of new technology in relation to

organisational productivity 187

5.4.2. Resistance to change 189

5.4.3. Building culture for change 186

5.5. CHANGE MANAGEMENT STRATEGIES 192

5.6. EFFECT OF TECHNOLOGICAL CHANGE ON THE

SKILL REQUIREMENTS OF THE WORK FORCE 195

5.7. INNOVATION AND ENTREPRENEURSHIP 197

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MANAGING TECHNOLOGY CHANGE

NOTES

1 ANNA UNIVERSITY CHENNAI

UNIT I

TECHNOLOGY AND INNOVATION

1.1 INTRODUCTION

It is not the strongest of the species who survive, not the most intelligent, but thosewho are the most adaptive to change.

- Charles Darwin

The future of business lies in technology. Management of Technology (MOT) linksmanagement with engineering and science to help organisations meet the challenge of fastchanging technology. It is an integration of technology and management.

“If management is about getting other people to do what you want, technologymanagement is about getting people and technology working together to do what youwant”.

The two words “management” and “technology” carry many different meanings.The combination of these two words present additional complexities. The word “technology”usually conjures up many different images and generally refers to what has been describedas ‘high tech’ industries. Technology cannot be limited to high tech industries such ascomputers, chips, super conductivity, genetic engineering and robotics.

Technology is the means for accomplishing a task – it includes whatever is neededto convert resources into products or services. It is the body of scientific and engineeringknowledge to be applied in the design of products and processes or in the search of newknowledge.

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Management of Technology involves many issues such as

• The process of innovation in the firm• The strategic management of R & D• The reduction of new product development times• The effective use of information system and technologies• The effect of new technologies on strategies of the firm• Moving into new technologies timing and choice• Internal technology venturing• Strategic alliances for technology acquisition and product development• High tech marketing• Risk management of technological projects• Development of new competencies

This subject, “Managing Technology Change” has two perpectives:

1) How to innovate changes in technology?

This is for exploring new techniques.

2) How an organisation can manage changes arising from technology changes?

This is exploiting or implementation of new technologies and managing theconsequential changes.

In this unit, we can see how technology and innovation are related or how innovationas a process results in technology change. We will also discuss about technologychange and the macro & micro issues involved.

1.2. LEARNING OBJECTIVES

i) To know the definitions of technology and innovationii) To know the types of innovationiii) To understood the environment needed for innovationiv) To understood the macro and micro issues involvedv) To track the technology changes in some industries


NOTES


1.3. TECHNOLOGY AND INNOVATION:

1.3.1. Definition for Technology:

The dictionary meaning for technology is “the application of scientific knowledgefor practical purposes” or “ the branch of knowledge concerned with applied sciences”.

1.3.2. Attributes of Technology:

i) What does the technological entity do?-Function

ii) How does it do?-Principle of organisation

iii) How well does it do?-Level of performance

iv) How does it look like?-structure

v) What is it made of from?-Material

vi) How big it is?-Size

1.3.3. Definition and meaning for Innovation:

“Innovation is evolutionary and is a response to an unsolved problem andunexploited opportunity”

- Praveen Gupta

“Innovation is the effort to create purposeful, focused change in an enterprise’s economicor social potential”

− Peter Drucker

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“We innovate, when a new project, technology, business model or service actuallychanges society.”

-IBM

“Innovation is applied creativity”.

“Innovation is the carrying out of new combinations”.

1.3.4. Creativity and Innovation:

At this point, we have to make a distinction between creativity and innovation. Itcan be said that creativity results in innovation. In other words, creativity is idea phase andinnovation is action phase. “The underlying element in all innovation is creativity”

According to American Heritage Dictionary (1994) “Innovation is the act ofintroducing something new”. In this definition, the word “new” relates to creativity and theterm “act of introducing’ relates to innovation. One author has noted:-

Innovation = Creativity x Risk Taking

CREATIVE:

Involving the use of the imagination or original ideas in order to create something.

INNOVATIVE:

Introducing new methods or ideas or products.

In this unit, the focus is on innovation and technology

1.3.5. Invention and Innovation:

The distinction between invention and innovation is very similar to the distinctionbetween creativity and innovation. While invention is a creation of new product or serviceor process, innovation is the introduction of new product or service or process into themarket place. Invention may have economic or non economic motives. Innovation hasalways economic motives. Invention precedes innovation or innovation follows invention.


NOTES


An invention is based on a new idea that is turned into some kind of conceptualmodel that demonstrates the feasibility of that idea. Innovation is concerned with thedevelopment and implementation of new systems, products or services and is typicallybased on invention.

1.3.6. R & D and innovation:

Innovation is broader than R & D. R & D is more an organizational effort either atmacro level (national) or at micro level (enterprise). Innovation can also come from customeror vendor.

The above discussions make it clear that creativity, invention and R & D are alldifferent dimensions of same type of activities, all leading to innovation.

1.3.7. Change in organisations due to innovation:

The next sep to innovation is taking the new product or service or process tomanufacturing and then to markets. This shift or transaction is the commercial use ofinnovation. The changes due to adoption of innovation embraces all the functional units ofan organisation. The anticipated changes are discussed below:

i) Changes due to innovation - production department:Change in MachineryChange in processNew inspection normsTraining EmployeesChange in tools

ii) Changes due to innovation - Marketing Deparment:Changes in Product mixChanges in Marketing strategiesChanges in sales forceChanges in market segmentsChanges in packaging

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iii) Changes due to innovation - HR Department:Changes in HR PlanningChanges in productivity normsChanges in compensation packagesChanges in training programs

iv) Changes due to innovation – Finance department:

Financial commitments to buy new machineryDisposal of old machineryChanges in working capital requirements

1.3.8. Types of Innovations:

Depending upon the impact they make, innovations can be broadly classified as:i) Incremental Innovationii) Modular Innovationiii) Architectural Innovationiv) Radical Innovation

1.3.8.1. Incremental Innovation:

These are small but important improvements in a product, process or service.Such innovations are associated with enhanced customer satisfaction.

Example: Intel Pentium III to Pentium IV LAN to WAN MIS to DSS

These innovations are evolutionary in nature.

1.3.8.2. Modular Innovation:

These innovation do not alter the overall product structure, but change can occurin the component technology.


NOTES


Example:

Change in a car engine technology will not change any other features.

1.3.8.3. Architectural Innovation:

These innovations take existing technologies and link new technologies in novelways; they are built not on new technological break through but on integrating competencies,i.e. Change of product structure with no important effect on component subsystems.

Example:Change of shape of a car with no change in engine.Honda’s smaller motor cycles.Disk drive technology from mainframe to PC.Canon’s smaller copiers.

1.3.8.4. Radical Innovation:

These innovations are revolutionary in nature. Railroads, electricity, computers,internet can be termed as break through innovations. Railroads changed the way in whichgoods and people were transported. Electricity totally changed the way people lived andused equipments. Computer changed the way in which organisations worked. Internetchanged the way in which people communicate, acquire knowledge and do business.

“One of the single biggest breakthrough innovations to shape our world has beenthe printing press. It took civilization from the realm of handwritten books that took priests20 years to write to printed paperbacks that are sold on the footpath. And one man waslargely responsible for this. Johannes Guttenberg put together a printing press in 1440”.

- Manu Parashar

According to him,

Content of information is knowledge;

Process of innovation is combination of knowledge.

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Guttenberg’s printing process was not entirely invented from scratch. He actuallycombined different types of knowledge that he had seen or heard of over the years. Hehad seen the block printed Chinese play cards or paper money in Europe and got the ideaof movable block printing from them. Guttenberg was a goldsmith, a metal worker butalso had the soul of an artist.

Radical innovations are also known as break through innovations and discontinuousinnovations.

Example:Digital imaging (Polaroid)Quartz movements (Watches)Radial tyres

Incremental, modular, stretchers and radical innovations require fundamentallydifferent organizational structures. To drive streams of innovations, contrasting structuresmust reside within a single business unit. Management challenge is to build into a singleorganisation, multiple internally consistent organizational structures. These will buildcapabilities to simultaneously explore and exploit.

Exploitation of knowledge extends existing knowledge resulting in predictable,positive returns. In contrast, exploration is inherently experimental and often inconsistentwith previous knowledge.

1.3.9. Disruptive and sustained technology:

These two terminologies were coined by Harward Business School professor,Clayton M. Christensen. A disruptive technology is one that unexpectedly displaces anestablished technology. He described that in contrast to disruptive technology, sustainedtechnology relies on incremental improvements to an already existing technology. This isthe result of incremental innovation.

He explains that disruptive technology lacks refinement, has often performanceproblems because it is new, appeals to a limited audience.

Large corporations are designed to work with sustaining technology. This is theresult of incremental innovation. They excel at knowing their market, staying close to thecustomer and having mechanism in place to develop existing technology.


NOTES


1.3.10. Innovation for growth and profit:

Companies that excel at innovation are also far more profitable than companiesthat do not. Boston Consulting Groups interviewed hundreds of senior executives to rankcompanies by their innovations. The top twenty companies always almost lead theirrespective industries in return on equity, total return to investors and profit margins. Thelink between successful innovations and profit is self evident. Innovation is one of the bestways to build market share. And, in turn, market share is directly related to return oninvestment.

TABLE - 1

The top 20 innovation companies in the world and their growth and profitability

Company % of executives who Profitability measures chose this company

1. Apple 14.8 201.4% total return to investors (TRI)in 2004, highest for any firm its size

2. 3M 11.8 28.8% return on shareholders’ equity(RoE), 2nd highest in its industry

3. Microsoft 8.5 23% annual TRI (1994-2004), $8.2 bprofit in 2004, highest in its industry

4. General Electric 8.5 $16.6 b profit in 2004, 3rd highest inFortum 500 (F500); 18% annualTRI, 1994-2004

5. Sony 5.9 __

6. Dell 5.6 52% TRI 1994-2004, 2nd highest in

Fortune 500 list; 47% RoE in 2004(16th highest in Fortune 500 companies)

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7. IBM 5.3 $8.4 b in profit in 2004, $147 b market value (#10 in F500), 19% TRI 1994-2004

8. Google 5.2 Sales more than doubled in 2004 to$3.2 b while profits nearly tripled

9. Procter & Gamble 4.2 $6.5 b profits in 2004, 38% RoE

10. Nokia 4.2 __

11. Virgin 4.2 __

12. Samsung 3.9 __

13. Wal-Mart 3.2 Leads world in revenues ($288 b),5th highest market value ($222b )

14. Toyota 3.0 __

15. EBay 2.9 80% TRI in 2004, #1 in industry,24% net margin, #1 in industry

16. Intel 2.7 $7.5 b profit (up 33%), #1 in itsindustry, and 19% RoE, #2 in itsindustry

17. Amazon 2.7 $588 m in profits, up 1,588% in 2004(second-biggest rise in its industry)

18. IDEO 2.2 __

19. Starbucks 2.1 36% RoE in 2004, highest in its industry,34% TRI in 2004, highest in its industry

20. BW 1.7 __

(Source Business week – 15, August 2005)


NOTES


Have you understood?

1.3 (a) Define technology.

1.3 (b) What are the various attributes of technology?

1.3 (c) Define innovation

1.3 (d) Define crativity.

1.3 (e) Distinguish between creativity and innovation.

1.3 (f) Differentiate invention and innovation.

1.3 (g) Compare R & D and Innovation.

1.3 (h) What are the changes in organizations due to innovation?

1.3 (i) Describe the various types of innovation with examples.

1.3 (j) What is disruptive technology?

1.4 DISRUPTIVE INNOVATION

When the best products in the market are offering technology that is far beyondwhat the customer needs, disruptive innovation involves introducing products that are notas good as those in use in established markets. The performance of these innovation productsis not good enough to be in mainstream markets. However, these products are simple andconvenient to use, and are less expensive. They are meant for customers from new, small,and initially unattractive segments. Disruptive innovation helps the customer meet his needs,but a far lower price and more conveniently.

When two products offer the same technology and match the customers'requirements, higher performance ceases to be the criterion on which the customer baseshis decision to buy. The prime criterion then becomes reliability. When both the productsare reliable, then the basis of product choice is convenience. When convenience is no

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longer a differentiating factor, price becomes the most important criterion. Here the productwith high technology is almost edged out of the competition since the combination of hightechnology and a lower price is not sustainable in the long run (because competitors willbenchmark the market leader's processes, practices and nullify the advantages they enjoy).When the larger company can no longer offer a technologically superior product at acheap price, through the economies of scale it derives, disruptive innovation is likely toreplace the product. This is how disruptive innovations enter an established market.

Disruptive innovations occur in small, new markets in which large companies arenot interested. Large companies prefer to take a wait-and-see approach when a newmarket is evolving, but this could be a mistake. A new market is often the ideal ground fordisruptive innovations. And a disruptive innovator gains significant first mover advantagesonce it enters and establishes itself in the new market.

Even seasoned market researchers and business planners find it difficult to measurenew markets created by disruptive innovations. Evidence from industries such as the diskdrive, motorcycle, and microprocessor markets shows that forecasts made about theevolution of new markets is unreliable. Hence, companies that rely on the analysis ofmarket sizes and financial returns before entering new markets are often wrong-footedwhen faced with disruptive innovations. In new markets there is hardly any market data,and the revenues and costs cannot be reliably estimated.

1.4.1 Factors that affect Disruptive Innovation

The general belief is that outcomes of innovation efforts are impossible to predict.But Clayton Christensen thinks that it is not so. According to him, even an undesirableoutcome has a cause. Outcomes appear random because all the variables that affectsuccessful innovation are not known. If these variables are understood and managed,innovation will be less risky. Christensen classifies the variables into four sets: taking root indisruption, the necessary scope to succeed, leveraging the right capabilities, and disruptingcompetitors, not customers.

1.4.1.1 Taking Root in Disruption

Many previously successful companies that fall from their dominant position in amarket are not badly managed. In fact, they are well managed. These companies listen to


NOTES


their best customers. They help them meet their needs. But they also commit themselves,willingly or unwillingly, to strategies that restrain their ability to unleash disruptive innovations:they concentrate on the most profitable segments of the market, and make significantinvestments in them.

By sticking to the principles of good management, leading firms create sustaininginnovations that bring better products to establish markets. These market leaders are thebest in their industries at adopting sustaining innovations. However, these firms face athreat from firms that create disruptive innovations.

Some new companies employ strategies to create sustaining innovations. Theycreate better products than those offered by incumbents in the market, and sell these to thecustomers of the incumbent firms. But Christensen’s research indicates that, this type ofcompany is likely to succeed in only 6 out of 100 times. If a company creates a productmeant for ignored customers, even when it is inferior in quality compared to the one in themarket, the company is likely to be successful, 33 out of 100 times. This disparity can beunderstood by looking at the motivation and position of leading firms. The leading firmshave more resources than entrants. When new entrants try to attract their customers,incumbent firms overwhelm them with their financial muscle or other resources. When newentrants are targeting ignored customers or customers who are unattractive for leadingfirms, they are relatively safe. In this segment, money power and proprietary technologydo not matter. Hence it is better for new entrants to take root in disruptive innovationrather than in sustaining innovation.

Example:

The Mac team inside Apple

Steve Jobs wanted to spearhead disruptive innovation. He understood quite wellthe type of environment necessary, the people needed and the work patterns necessary ina new team. He handpicked his design team. Then he posted the team to work many milesaway from the other divisions in Apple. He created a post-teenage work environment forthe young programmers, installing a stereo system and six-feet-high speakers in the officeswhere this team worked. Fresh fruit juice and mineral water were made available to theteam at a cost of $1,00,000 per year. A Bossendorfer grand piano worth $50,000 waskept in the lobby of the office. Expensive European cars such as BMWs and Saabs wereat the service of the team members.

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Jobs took utmost care to protect this team from the interference of other managersin the organisation. He used his status as a founder of Apple to ensure that all the funds andresources the team wanted, were at its disposal. Result: the magic called Macintosh.

Creating a Spin-off

If the values of the mainstream organisation are blocking resources meant for aninnovation project, a spin-off may be necessary to meet the challenges of disruptiveinnovation. Often, large organizations do not allot critical financial and human resourcesmeant for mainstream business to innovative projects. Assigning such resources to mainstreambusiness is more important to them than trying to create a strong position in small andemerging markets.

The cost-structure of these organizations is tuned to high-end markets and doesnot work for low-end markets. Hence, a new venture is more of a compulsion than achoice

Example:

A Spin-off at HP

Hewlett-Packard’s printer division based at Boise, Idaho, is a very successfuldivision. It has high profit margins and a reputation for superior product quality. This divisionalso housed an ink-jet project that was promising a disruptive innovation. But the managersat the division were unwilling to divert the resources necessary to the ink-jet project fromthe mainstream HP printer business line. The process involved in developing the two typesof printers was the same. Bu the managerial values necessary were different. To be successfulin the ink-jet market, managers would have to adjust to lower gross margins, a smallmarket, and lower performance standards that were characteristic of the ink-jet market.They were unwilling to adjust or change their values and as a result the project languished.

It succeeded only when it was transferred to a separate division in Vancouver,British Columbia.

When the project is relocated, there is no longer competition between the projectdeveloping a disruptive innovation, and those that are supporting the mainstream business


NOTES


Creating and nurturing such a new project is often difficult for the top management of arunning concern. They perceive the development of the disruptive new operation as bringingabout the death of old operations that are still doing well and are profitable. They hatedoing this. The managers at the top have to learn to be comfortable with two businesses, incases like this. The CEO of the organization has to take particular care to allot the necessaryresources, and ensure the freedom necessary to create new processes and values. Thenonly can the spin-off meet its intended purpose and address new challenge.


1.4 (a) What is disruptive innovation?

1.4 (b) What are the factors that affect innovation?

1.4 (c) Give an example and explain disruptive innovation?

1.5 DESIGN AND INNOVATION

Innovation is one of today’s hottest business topics. Globalisation, maturing markets,deregulation, new technology, ecological constraints and more knowledgeable customerscan put companies in unfavorable situations almost overnight. Continuous innovation is thekey to sustaining competitive advantage in today’s fact moving and global marketplace.

So, how does design fit into the innovation process? Design is everywhere –wherever you are, look around –everything that you see has been designed: a building,telephone, printer, light fitting, table or flower vase. The only thing that has not been putthrough some sort of design or innovation process is nature. Today, most successfulcompanies are using designs as a way to help them differentiate their products, servicesand customer experiences.

The role of design in the innovation process is as follows:

• Design research techniques can be used to help identify new product or marketopportunities.

• The design process is used to both generate ideas and to implement solutions foruseful, usable and delightful product, services and environments.

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• Design techniques can be used to communicate innovation and new idea throughprototyping and visualization.

Having good ideas is easy but actually getting them to market is a different matter.The following two case studies (Dyson and Linear Drives) provide examples of innovativecompanies that have used techniques common to designers and the design process, tohelp them achieve their business success.

Risk a little, gain a lot

Innovation by definition is about doing something new, and doing anything newimplies a level of risk. However, in today’s dynamic economic, not taking risk is the biggestrisk of all. Companies must innovate – but they must carefully manage their risk in order toavoid costly mistakes.

When Dyson started working on his new product, he was told that there was nota market for it. Thus it became even more important for him to mitigate the risk. One waythat Dyson did this was though prototyping and visualization – throughout every stage ofthe design process. Dyson and his team prototyped early and often – they tested andevaluated their ideas – continually learning, iterating and collecting feedback in order toinform their next move. The idea for Dyson’s DC03 product was actually generated byfeedback on earlier product models.

As design teams, we need to test ideas early in order to reduce risk. Prototypingand visualization techniques are extremely valuable as ways to minimise risk when developingnew product or service ideas. Prototyping serves as a way to bring ideas to life, to keepthem alive, make them tangible, and above all make them communicable. It can enableideas to be taken rapidly to a point where they can be reviewed and evaluated quickly bya variety of audiences – including management teams and end users.

Prototyping must start early, and there needs to be many prototypes made - andthrown away – as part of the development process. Dyson built his first models using basicmaterials such as cardboard and polystyrene – materials that are not too precious andrequire little financial investment.


NOTES


Visualisation techniques, including computer-based renderings, physical models,storyboard illustrations or video are used to portray life with future products or servicesbefore they even exist. Linear Drives Limited use video footage to help communicate theirproducts to a broad audience at exhibition and trade shows.

Prototyping and visualisation go hand in hand with innovation. They are ways oflearning and improving the quality of the ideas – and thus reducing risk.

Interdisciplinary teamwork and collaboration

Design consultants must generate compelling and inspiring ideas - they must alsosolve problems. The business of both generating inspiring ideas and solving problems isnot discipline specific but rather an experimental and collaborative process, and thus is itimportant to work in small interdisciplinary teams. At IDEO our interdisciplinary teamsinclude experts with a variety of backgrounds; industrial design, interaction design,prototyping, human factors and engineering, as well as people with MBAs and businessbackgrounds.

Teamwork is central to the working practices at Dyson. It is through cross functionalteamwork that people with different skills and expertise can contribute their diverseperspectives, views and experiences to challenge the problem at hand. Innovation leapsacross such different points of view. At Dyson, teams are flexible – they change in both sizeand mix of people as a response to each stage of the development process. Team membersrotate from project to project in order to cross-fertilise ideas and share know-how. Thedesign and innovation process is strengthened through the power of such collaborationand synergies.

Another core skill for innovation is the ability to manage external collaborationsand to form working partnerships or strategic alliances with other companies whose skillsare complementary to your own. Linear Drives Limited have demonstrated this by creatinga network of distributors around the world – such collaboration is helping them to establishthemselves in the market as a global player. It is worth mentioning that this approach alsoreduces risk – forming such a network is a useful way of testing or ‘prototyping’ themarket without having to incur significant costs.

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Connecting with customers and key stakeholders

Finding the right place to innovate can be challenging. As industries mature, it is nolonger possible to differentiate a product or service on the basis of technology or even onprice.

Some companies use market research to drive their next new product or servicedevelopment. Dyson and his team did not rely on market research when deciding to pursuetheir new product idea. In the early days, when the idea was still embryonic, they were toldthat there was no market for their product. James Dyson and his team decided to pursuetheir idea anyway, believing that it would address an untapped market need.

A common problem with trying to use traditional quantitative market research, tocreate radically different products, is that the customers’ ability to guide the developmentof new products and services is limited by their experience and their ability to imagine anddescribe possible innovations In other words, customers have difficulty articulatingunidentified, or latent needs.

To innovate from the perspective of the user or customer requires a deepunderstanding of the user’s explicit and, more importantly, their latent needs. Thisunderstanding of customers latent needs can be gained through the use of specialists designresearch methods – methods that look at the behaviours of real users in real environments.

At IDEO, design teams carry out observations of real people in real life situationsto find out what makes them tick and whether they have latent needs that are not being metthrough current products or services. The advantage in having the design teams collectthese insights first hand is that they have a high knowledge of various technologies and areskilled at interpreting the insights and translating them into design concepts.

Now that Dyson’s product is on the market, the company continues to improvetheir products by using feedback from a range of people – including end users as well asother important stakeholders such as repair experts and retailers.

This is also seen in the Linear Drives case – they work closely with their distributorsto understand and respond to feedback from international customers. Indeed, it wasconnecting with these customers that helped influence the company’s design and raise it tointernational industry standard.


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To innovate and to get a new idea to market requires risk management, teamworkand collaboration, lots and lots of prototyping, refinement and iteration. Innovation requiresconnecting with your customers and end users but also other key stake holders – likerepair experts and retailers.

Both Dyson and Linear Drivers Limited demonstrate how two very differentcompanies have proven that these activities are key to achieving innovation. It is not easy,but in today’s business climate, companies have little choice.

1.5.1 Forms of Technology Change

It is useful to distinguish between two types of the technological change: processand product.

Process technology pertains to the techniques of producing and marketing goodsand services. Process technology also includes work methods, equipments, distributionand logistics. Thus, it is embedded in a firm’s value chain. For example, Henry Ford’s ideaof assembly line manufacturing and the Japanese management concept of quality circlesare examples of process technologies in the automobile industry. Process technology changesare designed to produce and market goods and services faster, more efficiently, or ingreater volume. In a university, technological changes represent changes in techniques forteaching courses and, in recent years, have ranged from the traditional lecture format tomultimedia presentations and self-based learning methods. As a further example, manysupermarket chains have adopted laser scanning check out systems, which represent achange in the delivery process of a grocery store. Similarly, many firms trading in stockshave introduced artificial intelligence routines based on neural networks; this represents achange in the process of selecting stocks to buy and sell.

Product technology, on the other hand, refers to the elements of technologyembodied in the goods and services of a firm. For example, gasoline and electric carsrepresent different product technologies in the automobile industry. Changes in producttechnology could range from minor refinements (e.g., different styles of an automobile) toentirely new products (e.g., Wankel automobile engines). Changes in product technologyadd new features or provide superior substitutes for existing products.

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Thus, process technology refers to the way an organization conducts its business,whereas product technology refers to the output of an organization. It should be noted,however, that the distinction between process and product technology depends on thenature of the firm. What is often a product technology for one firm may very well be aprocess technology for another firm. Thus, laser scanning checkout systems represent aprocess change for the many supermarkets that have adopted these systems; but, theyalso represent product technology changes for the manufacturers that produce them.

The distinction between product and process technology is important for three reasons:

1. Relative to changes in products, process technology changes are much lessvisible in the marketplace. Such changes are much more difficult to detecteither by a firm’s customers or by its competitors: This means that a firm canbetter conceal some process improvements from the competitors.

2. Both process and product technology changes have ramifications for theeconomic performance of the firm. In many cases, process technology changesmake it feasible for the firm to reduce its cost or cycle time and improve thequality of its products. Japanese firms have often been credited with continualimprovements in process technology; this has led to lower costs and higherproduct quality.

3. Process and product technologies have different consequences for a firm.Product technology helps firms compete for customer; changes in producttechnology help firms to radically redefine their product/market scope. Processtechnology changes modify the way a firm conducts its business. Thus, changesin process technology may brings about changes in the organization, includingits human resources practices, logistics, and marketing functions.

So, both process and product technologies are important for the ultimate successof a firm. Indeed, in addition to developing technological capabilities, the deployment ofcapabilities in products, and processes is central to the value creation by firms.


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1.5.2 Product innovation and Process innovation:

In immature markets, innovations tend to be learning by doing. You start fromscratch with a vision and take it from there. The focus is on product innovation that iscreating your product or service. As the market matures, the focus moves to processinnovation. Improving the product or service and the process around it.

Usually the first version of the product is not perfect as you learn by doing inimmature markets. The example cited is Windows 3.0. It was far from perfect. Followingversions provided its uses with improvements. The first Palm Pilot was really basic butovertime the company released improved versions.

Geoff Moore, the silicon valley guru, in his book “Crossing the Chasm” explainsthe transition from immature markets to mature markets in the high tech area. His findingsis that the hardest part with growing a new product is changing a customer base from thenerds who want to have a newest cool product towards the average member of the publicwho simply buys the product because it makes their lives easier. A lot of products fails tosucceeds because of missing this transition, which Moore, calls as “the Chasm”. Examplesof companies that have successfully crossed the chasm are Microsoft, Nokia and Intel.

The variables of innovations in matured markets is known but the variables inimmature markets are unknown. Alexander Loudon says that, “Innovation is a linear processin mature markets, but it is not linear but interative and – learning by doing – in immaturemarkets”.

Many major players were made obsolete by losing sight of the needs for innovation.Although they remained market leader for a product, the product was replaced by anotherone making the leadership worthless. Again Alexander Loudon gives the following example.

In the late 1800, the Northeast of the U.S. had the successful ice industries. Iceblocks were cut from frozen lakes and ponds and sold around the world. Ships were usedto transport the ice. Though, generally, half of the shipment melted during the transport,the other half was enough to make a profit.

The companies that innovated mechanical ice makers put these ice harvesters outof business. Because of that innovation cutting and shipping of ice was no longer necessarysince it was possible to make ice anywhere and at anytime.

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While this ice making business started to boom, another radical innovations cameinto place - that of the refrigerator. People now could make ice and store it at home. Nowin turn, the ice- makers were put out of business.

Although places like Bell labs, IBM and GE become famous for their basic research,science alone did not make them great. It was their ability to bring together a wealth oftalents and view points – scientist with engineers, chemist with mathematician, deep thinkerswith practical minded. From that volatile combinations – rather than from basic researchitself – leaps this spark of discovery.

1.5.3 Punctuated Equilibrium

Tushman and Anderson argue,that technologies evolve through periods ofincremental change punctuated by breakthroughs that either enhance or destroyscompetencies of existing firms in an industry. They support this theory of punctuatedequilibrium with evidence from the minicomputer, cement, and airline industries and find,among other things that:

1. Newcomers initiate competence destroying technological changes, whereasexisting firms use competence enhancing technology.

2. Organisations that initiate major technological innovations have higher growthrates than other firms in that product class.

3. Until a dominant design emerges in the competition, there is considerablecompetitive turmoil, later reduced to relative calm when the current standardemerges in an industry and shake-out abates.

First, there is the large performance impact of a major, radical technologybreakthrough, for example the Boeing 247 and then the DC-2 and the DC-3, This periodis followed for a long time by only minor improvements in performance from incrementalinnovations (e.g., the DC-6 was similar to the DC-3, only larger). Then a breakthroughtechnology comes along, like the commercial jet engine, and there is another large spike inperformance; here it is the Boeing 707-120.


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Refinement and application of the model appears later and finds that comparisonsbetween veterans and newcomers depend upon whether we are discussing discontinuities(radical breakthroughs in technology) or dominant designs of actual products. Both areobviously important.

Newcomers only have the advantage for new products that undermine thecompetence of veterans. In all other cases, veterans have the edge, according to empiricalfindings in these three industries. It remains to be seen if these results hold up in othersettings, but the model does make clear predictions for these other contexts. The resultsare also quite consistent with the notion introduced earlier that managing for incrementalinnovation is quiet different than managing for radical innovation. Therefore, it is not surprisingthat successful management styles for start-up firms, especially in high technology industries,are usually quite different than successful management styles in mature firms and industries.


1.5 (a) What is the role of design in innovation?

1.5 (b) How design teams can reduce risk?

1.5 (c) Explain cross functional team work?

1.5 (d) Distinguish between process technology and product technology.

1.5 (e) Differentiate product innovation from process innovation.

1.5 (f) What is meant by punctuated equilibrium?

1.6 TECHNOLOGY CHANGES IN SOME INDUSTRIES

Genetic Engineering:

The process of defining and changing specific gene traits. Two current applicationsare recombinant DNA, the mapping, restructuring, and remodeling of gene codes, andanti-sense compounds that have the power to block the expression of specific genes.

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Advanced Biochemistry:

The use of advance biological techniques. Although significant commercialapplications do not yet exist, we can expect such things as new disease diagnostic systemsand highly effective “superdrugs” to evolve from these techniques.

Digital Electronics:

Digital devices translate signals into a form understandable by computers. In digitalform, information of all types such as data, text, sound, and images can be moved fromone device to another. Significant commercial applications that are currently emerging includedigital imaging, interactive television, cellular telephones and personal communicationnetworks.

Optical Data Storage:

Using lasers to read information stored in digital form. Current commercialapplication include advanced compact disks that contain large amounts of information.

Advanced Video Displays:

Current commercial applications include advanced flat-panel displays as used inmost laptop computers. High-definition television (HDTV), when commercialized, willalso be a product emerging from this core technology.

Advanced Computers:

Current examples emerging in the marketplace include electronic notepads,multimedia computers, parallel processing computers, and multi-sensory robotics.

Distributed Computing:

These devices permit the sharing of information across many individuals. Currentexamples include desktop videoconferencing and computer-integrated manufacturing.


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Artificial Intelligence:

This core technology represents computers that are able to learn, adapt, recognize,classify, reason, and correct. Commercial applications that have recently emerged includeadvanced expert systems, advanced simulations, object-oriented programming, and neutralnetwork.

Lasers:

These devices use highly coherent, high-intensity light. The most significant currentcommercial applications is in advanced compact disks. We might also expect to seecommercial applications of holographs in the near future.

Fiber Optics:

This core technology uses light to transmit digital information. Though fiber-optictelecommunications systems are currently used to transmit telephone data, in the futurethese systems can also be expected to carry television, radio, and computer data.

Microwaves:

Significant current applications include transmitting things as conduct electricity,dissolve in sunlight, carry light waves, and function as moving parts in automobiles. As thiscore technology advances, many new commercial applications should emerge

Advanced Satellites:

Satellites can be expected to play a continuing role in communications and inmapping and surveying the earth. Some expected future uses include low earth orbit satellitesthat would allow worldwide communication between digital cellular telephones and directbroadcast satellites designed to carry strong signals of higher frequency that will be neededfor super-VHS-quality pictures and HDTV signals.

Photovoltaic Cells:

These devices convert sunlight to electricity. Current commercial applications includepocket calculators, refrigerators, and portable communication devices. As technologicaladvances make these cells more efficient, many future uses can be anticipated.

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Micromechanics:

This core technology involves designing and building tiny mechanisms such as values,sensors, and surgical tools. In the future, these devices may be etched on silicon wafersand used for such applications as giving robots a sense of touch.

New Polymers:

Polymers are complex chemical structures that can be adapted to many uses.Chemists have currently produced over 60,000 different polymers that can do such thingsas conduct electricity, dissolve in sunlight, carry light waves, and function as moving partsin automobiles. As this core technology advances, many new commercial applicationsshould emerge.

High-Tech Ceramics:

Ceramics are hard, chemically inert substances that resist corrosion, wear, andhigh temperatures. Current commercial uses of this technology include engine components,ball bearings, heat shields and artificial bone implants. Again, future technological advanceshold the potential to span many new commercial applications.

Fiber-Reinforced Composites:

Composites are materials that have been reinforced with synthetic fibers. Thesematerials are lightweight and often stronger than steel. Current commercial applicationsinclude automobile and air-plane parts.

Superconductors:

These are materials that carry electricity without any loss of energy. Currently,these materials must be operated at well below room temperature: the technological pushis to create superconducting materials that can operate at higher temperatures. As thistechnology advances, it will have a great impact on all electrical devices.


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Thin-film Deposition:

This core technology allows specific materials as thin as one atom to be depositedon almost any surface. One commercial application that is currently emerging is diamondthin- film coating, a process that deposits a diamond film only several molecules thick onsurfaces such as razor blades and knives.

Molecular designing:

This core technology represents the process of designing new materials at themolecular level. Using lasers, atoms and molecules can be laid down in a precise manneron surfaces to create the desired material’s property.

• Nanotechnology• Bioinformatics• Convergence of Digital Technology• Cryptography• Quantum Computing• XML

These technologies alone and in combination with one another may generate manynew commercially viable technologies in the future.

Nanotechnology

Nanotechnology is an everybody’s hit parade of technologies of the future, and itwould seem a sure bet that this is the real thing. Nanotechnology allows configuration andmanufacturing at the molecular level by arranging atoms. For example, rearrange the atomsof a piece of coal and you have a diamond.

Applications of nanotechnology are almost endless so just a few are given here toillustrate. For example, we have reached the physical limits of silicon technology for chipmaking in computers, but nanotechnology promises to surpass those limits. What if youcould “weave” carbon atoms into working transistors? IBM is already doing this in the lab.

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Molecular imaging and treatment are also applications of nanotechnology, so themedical field will fell a big impact of this technology in the next five to 10 years. Forexample, sophisticated new radiation treatment systems provide targeted radiation therapythat matches the tumor shape, but protects surrounding tissue. The result: better successrates, quicker pain relief, and fewer complications.

There is no mystery about the central position that nanotechnology will play in thenext decades of R&D and innovation; the question of what commercial plays will resultfrom this applied research is somewhat confusing. One attempt to sort this out – the“harvesting” of nanotechnology research – was recently published by Bean et al. Whatthese experts are predicting is that companies will use at lest six different product approachesto capitalize on nano, based on a small survey(17 companies) of members of the IndustrialResearch Institute. Few companies as yet have a well-articulated strategy for nanotechnology,and most are in the monitoring mode, so scanning the data explosion becomes the firstchallenge, and assimilating and using this information is the second big hurdle. Add theglobal picture into the equation (30 nations have government-funded nano programs) andwe can see how this becomes one of the challenges of the decades to come.

Bioinformatics

Bioinformatics deals with the application of information technology to biological,pharmaceutical, and medical problems; the market is expected to be nearly $40 billionwithin three years. For example, IBM’s life science business unit provides the IT infrastructurefor biotechnology. There are opportunities to supply hosting, data storage, knowledgemanagement, application implementation, and consulting services to this rapidly growingmarket. Examples include genome sequencing of amino acids, using micro fluidic chips – alaboratory on a chip. The cost of these chips will drop like the cost of electronic chips,making chemical analysis cleaner, faster, and much cheaper.

Convergence of Digital Technology

It is fairly easy for most consumers to see how the convergence of digital technologyhas immediate application in daily life. A cell phone that serves as a personal assistant,computer, Internet connection, and so on, is digital technology already in use, to a limitedextent. In the home, the merging of television and computers is tat hand. Telephone on thecomputer using voice over-Internet protocol (VoIP) is already here. VoIP is currently a


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tiny part of the market, but the advantages of the Internet – inexpensive data transmission,standardized protocols, extensibility, and ubiquitous connection – ensure that VoIP willgrow dramatically. Digital sensors and photograph on your cell pone are all the beginningof a world of integrated technology based on digital format convergence?

A near perfect example of the implications of all this technology convergence is themeteoric rise of blogs and blogging. According to one source:

A blog is a personal diary. A daily pulpit. A collaborative space. A political soapbox.A breaking-news outlet. A collection of links. Your own private thoughts. Memos to theworld. Your blog is whatever you want it to be. In simple terms, a blog is a Web site, whereyou write stuff on an ongoing basis. New stuff shows up at the top, so your visitors canread what’s new. Then they comment on it or link to it or e-mail you. Or not.

Since blogs were first launched five years ago, they have grown exponentially.Business Week, at this writing, estimates that there are currently 9 million blogs in cyberspace,with 40,000 new ones appearing every day. According to survey data, 27 percent ofInternet users read them every day, so corporations have been quick to take them intoaccount in all that they plan and do. Anyone can publish a blog, and say almost anything;they became quite important in the last U.S. presidential election. Soon, blogs will be partof the mainstream as well as pushing the state-of-the-art of morphing the Internet.

Cryptography

Cryptography is the art and science of keeping information secure. It is a crucialelement of modern digital networks and electronic commerce. Modern cryptography usesadvanced mathematics. Mathematical algorithms for encryption are public, but the keysare kept secret. Public-key encryption is a solution to the key distribution problem. Eachparticipant has a public key and a secret private key. A PKI, or public key infrastructure,will be needed to support widespread use of encryption in electronic commerce applications.Examples include one-time pads, which use long random keys, which are critical for nationalsecurity, but simple systems of everyday use are more likely to evolve. Digital watermarksare a combination of encryption and steganography, and are intended to provide protectionfor digital intellectual property such as pictures and music.

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Quantum Computing

What is the next big thing in computers? Some think it is quantum computing,named after the theory of quantum machines, which says that electrons orbiting the nucleusof an atom are never really there – they behave according to probability theory. So insteadof bits of info5rmation that are on or off, zero or one, qubits range one to zero accordingto probabilities. A quantum computer could link qubits together, which means if one ischanged, all would change, according to probabilities that allow large problems to besolved quickly. How quickly? According to one estimate, and in one demonstration, aquantum computer can decrypt a coded message that would take a regular computerbillions of centuries to solve in a few seconds. But the problem is linking more than a fewqubits together, which are made of phosphorous atoms placed by a machine as big as aroom to achieve the needed precision, and them communicating with them. Sincere fiction,you say? Perhaps today, but so was the computer when all we had were vacuum tubes.

XML

Users want to share data between their applications and build integrated enterpriseinformation systems. Proprietary data formats and standards make this expensive anddifficult. XML, the extensible Markup Language, originally was designed to simplify Webpublishing, but has also become the de-facto standard for data exchange. XML also hasbecome a fundamental technology for Web services, the next big trend in applicationdevelopment. Applications include the diffusion of XBRL, in the accounting profession inorder to standardize data and entry formats, and collaborative engineering systems allowinganywhere-anytime design by virtual teams.

Video and computer games are a $10 billion a year business and growing. Onlinegames are a large and growing source of network traffic and some require extensive hostinginstallations.

Game development is becoming a recognized academic subject. Major universitiesoffer certificates or degrees in game development. There are academic journals andworkshops on games.

Games technology is increasingly used in training simulations and in education.Animated movies made by using games eventually could threaten the established movie-


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making business. Game-like features are appearing in business applications. Future versionsof Microsoft Windows will incorporate 3D objects, animation, video and lighting effects.


1.6 (a) List out some of the recent technological changes in industries.

1.6 (b) Make projections on some of the technological changes in the near future ininformation technology?

INDIAN INNVOATIONS

RATAN TATA’S ACE

Few products designed and made in India have been awaited as eagerly and withas much apprehension in some quarters of the auto industry and outside as the new, smallcar from Tata Motors that was unveiled on January 10,2008. A car for 1 lakh of rupeeswas the dream of one man , Tata Motor’s chairman Ratan Tata, who saw the peril in wholefamilies riding on a two wheeler and the need to offer them a car that would be much saferfor travel, yet affordable. It was as much a dream for many of the seven million Indianswho buy themselves a two wheeler each year only because they cannot afford to pay acouple of lakh of rupees for the cheapest four wheeler in the market. Perhaps it was theslogan coined by management guru C.K. Prahalad about finding fortune at the bottom ofthe pyramid that pumped up the businessman and entrepreneur in Mr.Tata and spawnedsimilar low cost products ,notably Tata Ace and Ginger Hotels. Between the dream andreality was the challenge of putting on sale a car for a price no manufacturer in India orabroad was willing to countenance. So the visionary Mr.Tata and his flagship company ,Tata Motors ,deserve great credit for accomplishing what most people considered asutopian, and reinforcing the point global automobile manufacturers are now acknowledging:India is a home for “frugal engineering”. Inside the little Nano are some 20 INNOVATIONS, for which patent applications have been made, and the genius of many engineers at TataMotors and its suppliers.

(Adopted from The Hindu ,January 11,2008.)

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TECHNOLOGY DRIVES INDIAN BANKING SYSTEM

Grappling with issues of change management, innovation for new delivery channelsand broadening the range of services portfolio-both internal and external, the bankingsector in the country, like its peers across the world, is taking to business transformationssolutions.

With the Indian banking sector poised to open up further by welcoming globalcompetition, consolidation has gained momentum. This means that the large banks , withdisparate systems, cannot any longer assume that the current rate of growth and returnswill continue given the nimbleness of some of the new players and the likely competitiveenvironment in the financial service business.

A common connecting link for the banking sector globally is continued consolidationand sustained pressure on profitability. It is here that early technology adoption is makinga difference. They would require non-traditional innovation that stands out, according toMr.Sandip Patel, Managing Partner for IBM Global Services in India and South Asia. Theareas of general focus have been building loyalty programmes while enhancing branchresearch and strengthening customer relationship management and significantly ,productinnovation that is a differentiator.

This therefore requires reengineering the basic technology infrastructure. Whilemost of the technology infrastructure developed in Indian banks is relatively new whencompared to some of the large integrated banks and financial services players in the U.S ,some of the banks who had taken to core banking solutions about 5-6 years are nowfaced with a situation where their technology infrastructure is actually getting obsolete orbecoming another legacy system.

These banks would require either a new technology platform or a massive updationof their systems .This is where technology would be a differentiator while bringing aboutgreater flexibility and efficiency.

(Adopted from the Business Line ,9th J ANUARY ,2008)


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UNIT II

VENTURING TECHNOLOGY

2.1 INTRODUCTION

Technology planning is important for many reasons. Globally, companies are facingmany competitive problems. Technology roadmapping, a form of technology planning, canhelp deal with this increasingly competitive environment. While it has been used by somecompanies and industries, the focus has always been on the technology roadmap as aproduct, not on the process. This unit focuses on formalizing the process so that it can bemore broadly and easily used. Once identified, technology enhancements or newtechnologies may be developed internally or collaboratively with external partners. Foreither approach, technology roadmapping, is an effective tool for technology Planning andcoordination, which fits within a broader set of planning activities. The main benefit oftechnology roadmapping is that it provides information to make better technology investmentdecisions by identifying critical technologies and technology gaps and identifying ways toleverage R&D investments. It can also be used as a marketing tool. Technology roadmappingis critical when the technology investment decision is not straight forward. This occurswhen it is not clear which alternative to pursue, how quickly the technology is needed, orwhen there is a need to coordinate the development of multiple technologies. The technologyroadmapping process consists of three phases — preliminary activity, development of thetechnology roadmap, and follow-up activity.

Preliminary activity includes:

(1) Satisfy essential conditions.

(2) Provide leadership/sponsorship

(3) Define the scope and boundaries for the technology roadmap.

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Development of the technology roadmap includes:

(1) Identify the “product” that will be the focus of the roadmap.

(2) Identify the critical system requirements and their targets.

(3) Specify the major technology areas.(4) Specify the technology drivers and their targets.

(5) Identify technology alternatives and their time lines.

(6) Recommend the technology alternatives that should be pursued.

(7) Create the technology roadmap report.

Follow-up activity includes:

(1) Critique and validate the roadmap.

(2) Develop an implementation plan.

(3) Review and update.

2.2 LEARNING OBJECTIVES:

(1) To understand technology Roadmapping

(2) To learn about the internal technology venturing

(3) To learn about the external technology venturing

(4) To correlate technology pioneering and competitive technology.

(5) To comprehend the phases of technology transition.


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2.3 USES AND BENEFITS OF TECHNOLOGY ROADMAPPING

At both the individual corporate and industry levels, technology roadmapping hasseveral potential uses and resulting benefits. Three major uses are:

1) First, technology roadmapping can help develop a consensus about a set of needsand the technologies required to satisfy those needs.

2) Second, it provides a mechanism to help experts forecast technology developmentsin targeted areas.

3) Third, it can provide a framework to help plan and coordinate technologydevelopments both within a company or an entire industry.

The main benefit of technology roadmapping is that it provides information to helpmake better technology investment decisions.

It does this by:

• First, identifying critical technologies or technology gaps that must be filled tomeet product performance targets.

• Second, identifying ways to leverage R&D investments through coordinatingresearch activities either within a single company or among alliance members.

An additional benefit is that as a marketing tool, a technology roadmap can showthat a company really understands customer needs and has access to or is developing(either internally or through alliances) the technologies to meet their needs. Industry roadmapsmay identify technology requirements that a company can support.

Some companies do technology roadmapping internally as one aspect of theirtechnology planning (corporate technology roadmapping). However, at the industry level,technology roadmapping involves multiple companies, either as a consortium or an entireindustry (industry technology roadmapping). By focusing on common needs, companiescan more effectively address critical research and collaboratively develop the commontechnologies. For example, the SIA (Semiconductor Industry Association) SemiconductorTechnology Roadmap addressed the requirements for semiconductor manufacturing and

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the NEMI (National Electronics Manufacturing Initiative) Technology Roadmap addressedthe common needs for information products to connect to information networks such asNII (National Information Infrastructure). This level of technology roadmap allows industryto collaboratively develop the key underlying technologies, rather than redundantly fundingthe same research and underfunding or missing other important technologies. This canresult in significant benefits because a certain technology may be too expensive for a singlecompany to support or take too long to develop, given the resources that can be justified.However, combining the resources across companies may make developing the technologypossible and consequently the industry more competitive.

2.3.1 Technology Roadmapping

Technology roadmapping is a needs-driven technology planning process to helpidentify, select, and develop technology alternatives to satisfy a set of product needs. Itbrings together a team of experts to develop a framework for organizing and presentingthe critical technology-planning information to make the appropriate technology investmentdecisions and to leverage those investments.

Given a set of needs, the technology roadmapping process provides a way todevelop, organize, and present information about the critical system requirements andperformance targets that must be satisfied by certain time frames. It also identifiestechnologies that need to be developed to meet those targets. Finally, it provides theinformation needed to make trade-offs among different technology alternatives.

Roadmapping can be done at either of two levels — industry or corporate. Theselevels require different commitments in terms of time, cost, level of effort, and complexity.However, for both levels the resulting roadmaps have the same structure — needs, criticalsystem requirements and targets, technology areas, technology drivers and targets,technology alternatives, recommended alternatives or paths, and a roadmap report —although with different levels of detail. Technology roadmapping within a national laboratoryis essentially corporate-level roadmapping, although a national laboratory may participatein an industry roadmapping process.

2.3.2 Technology Roadmap

A technology roadmap is the document that is generated by the technologyroadmapping process. It identifies (for a set of product needs) the critical system


NOTES


requirements, the product and process performance targets, and the technology alternativesand milestones for meeting those targets. In effect, a technology roadmap identifies alternatetechnology “roads” for meeting certain performance objectives. A single path may be selectedand a plan developed. If there is high uncertainty or risk, then multiple paths may beselected and pursued concurrently. The roadmap identifies precise objectives and helpsfocus resources on the critical technologies that are needed to meet those objectives. Thisfocusing is important because it allows increasingly limited R&D investments to be usedmore effectively.

2.3.3 Types of Technology Roadmaps

There are different types of technology roadmaps. The product technology roadmapis driven by product/process needs. In our context, the product technology roadmap isreferred to simply as a technology roadmap. Another type of technology roadmap, whichis used by some corporations, is an emerging technology roadmap. An emerging technologyroadmap differs from a product technology roadmap in two ways:

• First, the emerging technology roadmap lacks the broader product contextprovided by the product technology roadmap.

• Second, the emerging technology roadmap focuses on (1) forecasting thedevelopment and commercialization of a new or emerging technology, (2) thecompetitive position of a company with respect to that technology, and (3)how the emerging technology and the company’s competitive position willdevelop.

The emerging technology roadmap focuses on a single technology, describes theway it is expected to develop, and may include project plans to support that development.The result of an emerging technology roadmap may be a decision to allocate additionalresources to develop the technology and improve your competitive position. The implicationis that as the technology develops, uses will be found for it. While this emerging technologyroadmap is valuable and has its uses (especially within the context of a product technologyroadmap), it is not the type of technology roadmap and is described here.

Still another type of roadmap is the one described by the DOE EnvironmentalRestoration and Waste Management in Revised Roadmap Methodology Document (May

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1993). This is an example of an issue-oriented roadmap, rather than a technology roadmap,although the availability of a required technology may be considered an issue to be addressed.This roadmapping approach, customized for DOE EM sites, is intended to identify issuesand their consequences for project planning and budgeting. This roadmapping process,which is allocated four months in the annual planning and budgeting cycle, feeds the strategicplan, the five year plan, budgeting, and detailed human resource planning.

The uses for this roadmapping approach:

• Communicate planning assumptions and information from the sites to DOE/HQ.

• Support the budgeting process.

• Tie issues to low-level project planning and budgeting documents.

This roadmapping consists of three phases:

1. Assessment (i.e., establish assumption, establish regulatory requirements, establishcommitted milestones, depict logics and planned activities).

2. Analysis (i.e., identify issues, perform root-cause analysis, and translate issues toactivities).

3. Resolution (develop issue-resolution documents and integrate activities with activitydata sheets).

Although there are some similarities, this roadmapping approach is fundamentallydifferent (in purpose, scope, and steps) from the technology roadmapping we areconsidering.


2.3 (a) What is technology roadmapping?

2.3 (b) What are the benefits of technology roadmapping?

2.3 (c) What are the different types of technology roadmaps?


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2.4 PLANNING AND BUSINESS DEVELOPMENT CONTEXT FORTECHNOLOGY ROADMAPPING

Technology roadmapping is an iterative process that fits within the broader corporatestrategic planning, technology planning, and business development context. However, thereare many successful variations of strategic planning, technology planning, and businessdevelopment processes.

Planning activities must link three critical elements — customer/market needs,products/services, and technologies. The corporate vision drives the strategic planningeffort, which generates high-level business goals and directions. Given a corporate vision,strategic planning involves decisions that identify and link at a high level the customer/market needs a company wants to address and the products and services to satisfy thoseneeds. Given this strategic plan, technology planning involves identifying, selecting, andinvesting in the technologies to support these product and service requirements. Businessdevelopment involves planning for and implementing certain aspects of the strategic plan,specifically those involving the development of new products and services and/or newlines of business.

Technology roadmapping is a type of technology planning. However, technologyroadmapping is more appropriate in some cases than in others and a decision needs to bemade when to use it. Technology roadmapping is critical when the technology investmentdecision is not straight forward. This occurs when it is not clear which alternative to pursue(e.g., enhance an existing technology or replace it with a new technology), how quickly thetechnology is needed, or when there is a need to coordinate the development of multipletechnologies.

In some cases, a decision is made that the technologies that need to be developedare too expensive or risky for a single corporation to develop independently. If this insightoccurs in several companies, there may be a movement toward industry technologyroadmapping. In summary, regardless of the level of formality, participation, and resources,there must be a linkage between the technology investment decisions and the businessrequirements. Technology roadmapping is an effective tool for providing this linkage.

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2.4.1 Knowledge and Skills Required for Technology

Roadmapping

Both corporate and industry technology roadmapping require a certain set ofknowledge and skills. Some of the participants or consultants must know the technologyroadmapping process. This includes how to identify needs and technology drivers, as wellas how to identify, analyze, and select technology alternatives and paths. Some participantsmust also have some content knowledge of the area being roadmapped.

Different participants may have the content and the technology roadmappingprocess skills. However, while these skills are important, they are not nearly enough. Equallyimportant are the interpersonal and group process skills. Therefore, for a corporate- orindustry-level roadmapping project, you need a roadmapping consultant and/or facilitatorwho has both types of skills (roadmapping and interpersonal) or a well-integrated teamthat includes both types of skills. The roadmapping consultant does not need to be anexpert, or even particularly knowledgeable, in the content of the area being roadmapped.In fact, such expertise can be a detriment if the consultant/facilitator becomes too involvedin the content of the roadmap. It is not the consultant’s roadmap. It should be owned bythe group of experts developing the roadmap, so their involvement and commitment iscritical.

2.4.2 Technology Roadmapping Process

This section provides an overview of the three phases in the technology roadmappingprocess. The first phase involves preliminary activity without which the roadmappingprobably should not be done. The second phase is the development of the technologyroadmap. The third phase is the follow-up and use of the technology roadmap.


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Phase I. Preliminary activity1. Satisfy essential conditions.2. Provide leadership/sponsorship.3. Define the scope and boundaries for the technology roadmap.

Phase II. Development of the Technology Roadmap1. Identify the “product” that will be the focus of the roadmap.2. Identify the critical system requirements and their targets.3. Specify the major technology areas.4. Specify the technology drivers and their targets.5. Identify technology alternatives and their time lines.6. Recommend the technology alternatives that should be pursued.7. Create the technology roadmap report.

Phase III. Follow-up activity1. Critique and validate the roadmap.2. Develop an implementation plan.3. Review and update.

The three phases in the technology roadmapping process.

2.4.2.1 Phase I: Preliminary Activity

In this phase, the key decision makers must realize/perceive that they have a problemthat a technology roadmap can help them solve. They must decide what will be roadmappedand how the technology roadmap will help them make their investment decisions. Theacceptance and buy-in of these decision makers is critical to get the resources needed tocreate the roadmap and the willingness to use it. This process is iterative because as thescope of the roadmap evolves, their buy-in must be maintained. A complication is thatdifferent people expect different results and all of them must be at least partly satisfied. Thesteps in this phase provide some assurance that this essential buy-in will be obtained.However, this buy-in must be maintained throughout the later two phases.

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1. Satisfy essential conditions.

For a technology roadmapping effort to succeed, a number of conditions must besatisfied. This step involves checking to ensure that those conditions are already met orthat someone is taking the necessary actions to meet them. These required conditions aresimilar, but not identical, for corporate- and industry-level technology roadmapping:

• There must be a perceived need for a technology roadmap and collaborativedevelopment, although a much broader group must perceive this need for anindustry roadmap.

• The technology roadmapping effort needs input and participation from severaldifferent groups, which bring different perspectives and planning horizons tothe process.

• The corporate technology roadmapping process needs participation fromvarious parts of the organization (e.g., marketing, manufacturing, R&D,planning, etc.) as well as from key customers and suppliers.

• The industry technology roadmapping process needs participation frommembers of the industry, its customers and suppliers, as well as governmentand universities. The focus should be on areas of common need and adversarialconditions must be avoided.

• The technology roadmapping process should be needs-driven rather thansolutiondriven. There must be a clear specification of the boundaries of theeffort — what is and is not within the scope of the technology roadmap andhow will the roadmap be used.

2. Provide leadership/sponsorship.

Because of the time and effort involved in roadmapping, there must be committedleadership/sponsorship. Furthermore, this leadership/sponsorship must come from the groupthat is going to do the actual implementation and benefit from it. For a corporateleveltechnology roadmap, this means that the line organization must drive the roadmappingprocess and use the roadmap to make resource allocation decisions. For an industry level


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technology roadmap, this means that industry must lead the effort, although its customersand suppliers, along with government and universities, should also be participants indeveloping, validating, and implementing the technology roadmap.

3. Define the scope and boundaries for the technology roadmap.

This step ensures that the context for the roadmap has been specified. It developsor ensures that a vision exists (for either the industry or corporation) and that a roadmapcan support that vision. It identifies why the technology roadmap is needed and how it willbe used. Finally, it clearly specifies the scope and boundaries of the roadmap. A roadmapstarts with a set of needs. The intended use of the roadmap determines the planning horizonand the level of detail. The time horizon for roadmaps varies, but for industry roadmaps itis typically at least 10 to 15 years, although there are intermediate points every three to fiveyears. Corporate roadmaps may have a shorter time horizon. This step is important forroadmapping at both the corporate and industry level. However, it is more difficult, complex,and time-consuming at the industry level for two reasons:

• First, there are many levels of needs, which must be decomposed, and differentlevels of product, subsystems, and/or components that can be roadmapped.The level selected must have a commonality for the various participants.

• Second, since many companies do not know how to effectively collaborate,this step (and the previous two) involves a major learning effort, so this phaseof industry roadmapping can easily take at least six months. The involvementof an industry umbrella organization, such as a consortium or a tradeassociation, can improve the speed and efficiency of the process and canoften provide some of the support resources.

2.4.2.2 Phase II: Development of the Technology Roadmap

This phase involves seven steps. These steps to create the actual technologyroadmap are similar for both corporate and industry technology roadmaps, but the resourceand time requirements are much greater for an industry roadmap. In both cases, workinggroups or teams are essential to develop the content of the roadmap.

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1. Identify the “product” that will be the focus of the roadmap.

The critical step in roadmapping is to get the participants to identify and agree oncommon product needs (e.g., for an energy-efficient vehicle) that must be satisfied. Thisagreement is important to get their buy-in and acceptance of the roadmapping process.Depending on the complexity of the product, there may be many components and levelson which the roadmap may focus. Selecting the appropriate focus is critical. If there ismajor uncertainty about the product needs, the use of scenario-based planning can help.For example, for an energy-efficient vehicle there could be a scenario based on a major oilfind or a breakthrough in a renewable energy technology that would drastically lower theprice of gas or other fuel, or a scenario based on another oil shock that would drasticallyreduce the supply and drive up the cost. Each scenario must be reasonable, internallyconsistent, and comparable with the other scenarios in that it affects one or more of theneeds postulated for the roadmap. The scenario analysis may/should include extreme cases,but it should not over emphasize them or let them drive the roadmap. The important pointis that the scenarios are not ends in themselves. They are only a means for addressinguncertainty in the environment and the needs to improve the quality of the roadmap. Thescenarios are used to better identify the needs, services, or products. In many cases, therewill be common needs that apply across all of the scenarios, although the demand may bedifferent for different scenarios. In other cases, a need may be critical for a particularscenario that has too high a probability to be ignored. Some of the work on this type ofneed could be considered insurance. Over time, as the degree of uncertainty about needschanges, the emphasis on technologies addressing this need could be increased or decreased.This is one of the reasons for periodic reviews and updates of the roadmap and itsimplementation plan.

2. Identify the critical system requirements and their targets.

The critical system requirements provide the overall framework for the roadmapand are the high-level dimensions to which the technologies relate. Once the participantshave decided what needs to be roadmapped (which is not a trivial process), they mustidentify the critical system requirements. Examples of critical system requirements for anenergy-efficient vehicle include mpg, reliability, safety, and cost. Examples of targets include60 miles per gallon (mpg) 2 years and 80 mpg in 5 years.


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3. Specify the major technology areas.

These are the major technology areas that can help achieve the critical systemrequirements for the product. Examples of technology areas to meet the performancetarget of 80 mpg by 2005 for an energy efficient car include materials, engine controls,sensors, and modeling and simulation.

4. Specify the technology drivers and their targets.

At this point, the critical system requirements are transformed into technologyoriented drivers for the specific technology areas. These technology drivers are the criticalvariables that will determine which technology alternatives are selected. For the materialstechnology area, examples of technology drivers could include vehicle weight and acceptableengine temperature, while for the engine controls technology area a technology drivercould be the cycle time for the computer controlling the engine.

Technology drivers are dependent on the technology areas being considered, butthey relate to how the technology addresses the critical system requirements. At this point,technology driver targets are also set based on the critical system requirement targets. Thetechnology driver targets specify how well a viable technology alternative must be able toperform by a certain date. For example, to get 80 mpg (a system requirement), enginecontrol technology may need to be able to deal with x number of variables and adjustengine parameters every y milliseconds, which requires a processor cycle time of z (e.g.,technology driver targets).

5. Identify technology alternatives and their time lines.

Once the technology drivers and their targets are specified, the technologyalternatives that can satisfy those targets must be identified. A difficult target may requirebreakthroughs in several technologies or a technology may impact multiple targets. Foreach of the identified technology alternatives, the roadmap must also estimate a time linefor how it will mature with respect to the technology driver targets. When multipletechnologies are being pursued in parallel, decision points need to be identified for when atechnology will be considered the winner or when it will be dropped from furtherconsideration.

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6. Recommend the technology alternatives that should be pursued.

This step selects the subset of technology alternatives to be pursued. Thesetechnology alternatives vary in terms of cost, schedule, and/or performance. One pathmay get you there faster, another path may be cheaper, while still another path may resultin a 20 percent performance improvement over the target. Considering the trade-offs, afaster path may not matter if the technology is not on the critical path for the end product/service. However, if it is on the critical path, then a faster path can result in faster time tomarket — an important competitive advantage. In some cases, a 20 percent improvementover the minimum performance target may be worth the extra time or cost, while in othercases doubling the performance may not significantly affect the value of the end product ifother factors become the dominant constraints. This emphasizes the difference betweensimply improving performance with respect to a technology metric versus the actual changein the product metrics, which a technology change causes. To further complicate the problem,a certain technology may help you meet the first one or two targets for a driver but cannotsatisfy later targets, while another technology may not satisfy the immediate targets but canmeet the subsequent targets. The latter is called a disruptive technology as we have alreadyknew in unit I. A disruptive technology is one that cannot satisfy current needs, so it is oftenignored in favor of the current technology. However, its potential performance and rate ofimprovement if it is developed is much greater than the current technology, which it willeventually replace. Without the broader perspective provided by a technology roadmap(or other tools), the disruptive technology is often underfunded or completely ignored.

In some cases, there may be analytical and modeling tools to help determine whichtechnology alternative to pursue and when to shift to a different technology (i.e., jump to anew technology curve with a disruptive technology). In other cases, the tradeoffs anddecisions are determined by the best judgment of the experts. In either case, the road-mapping process has consolidated the best information and develop a consensus frommany experts. Furthermore, the roadmapping process (at either the corporate or the industrylevel) has begun a collaborative effort that, when carried into the implementation, will resultin more effective and efficient use of limited technology investment resources.

7. Create the technology roadmap report.

Now, the roadmap has been developed. It becomes one of the documents withinthe roadmap report. This report should also include:


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• The identification and description of each technology area and its current status.

• Critical factors (show-stoppers) which if not met will cause the roadmap to fail.

• Areas not addressed in the roadmap.

• Technical recommendations.

• Implementation recommendations.

The report may also include additional information. For example, the SIA roadmapreport included information on competencies that cut across multiple technologies andpolitical/economic issues that impact the entire U.S. R&D establishment.

2.4.2.3 Phase III: Follow-up Activity

With early buy-in and support in Phase I, the follow-up activities will be mucheasier. Without this buy-in, the technology roadmap may not address the issues that thekey decision makers need to resolve. As a consequence, the roadmap may not be used.Since relatively few people were involved in developing and drafting the technologyroadmap, it must now be critiqued, validated, and accepted by a much larger group thatwill be involved in any implementation. An implementation plan needs to be developedusing the information generated by the technology roadmapping process to make andimplement the appropriate investment decisions. Finally, since both the needs and thetechnologies are evolving, the roadmap needs to be periodically reviewed and updated.

1. Critique and validate the technology roadmap.

We have seen that, in Phase II, a relatively small group or groups of experts andtechnologists developed a draft technology roadmap or roadmaps if multiple technologyareas are involved. This work must be exposed to a much larger group for validation andbuy-in for two reasons:

• First, the draft needs to be reviewed, critiqued, and validated. If therecommended technology alternatives are developed, will the targets be met?Are the technology alternatives reasonable? Are any important technologies

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missed? Is the roadmap clear and understandable to people who were notinvolved in the drafting process?

• Second, there must be buy-in from the broader corporate or industry groupthat will be involved in implementing the plan. With an industry roadmap, alarge, highly structured workshop is often used to provide this feedback. Implicitin this step is the possible revision of the roadmap.

2. Develop an implementation plan.

At this point, there is enough information to make better technology selection andinvestment decisions. Based on the recommended technology alternatives, a plan is thendeveloped. At the corporate level, the implementation plan may be one or more projectplans, which would be developed based on the selected technology alternatives. At theindustry level, the same type of project plan may be developed by the participants, butthere is also a need for explicit coordination, which is often done through an industryassociation. In other cases, there may not be an industry plan — only corporate projectplans by the participants.

3. Review and update.

Technology roadmaps and plans should be routinely reviewed and updated. Aformal iterative process occurs during this review and update. With the initial roadmap,uncertainty increases with the time frame. Over time, as certain technologies are exploredand better understood, some of this uncertainty is reduced, although other areas ofuncertainty may develop. Also if scenarios were used up front to address uncertainty aboutthe needs, there may be refinement, or even elimination, of some of the scenarios, whichcould affect the roadmap or its implementation plan. The review and update cycle allowsboth the roadmap and the implementation plan to be adjusted for these changes. Thereview cycle may be based on a company’s normal planning cycle or based moreappropriately on the rate at which the technology is changing.

2.5 TECHNOLOGY ROADMAP – AN ILLUSTRATION

This section provides an example of a needs-driven technology roadmap and PhaseII of the process to develop it. The SIA roadmap, which has become one of the most


NOTES


frequently referenced examples of an industry technology roadmap, is used. The purposeof this example is to show the process flow from product need to actual roadmap, not tocompletely describe the SIA process and roadmap.

Stage 1, the product focus of the roadmap was semiconductors, which could beused in various types of products (such as memories, consumer products, portablecomputers, and high-performance computers), each of which had different requirements.However, semiconductor manufacturing technology was the common area on which theindustry could cooperate. They competed on semiconductor designs and the productsthat used them, not the underlying manufacturing technology.

Stage 2, the critical system requirements included smaller size (i.e., feature size),lower cost, and power dissipation for portable equipment. As an example of targets, theyprojected feature size between 1992 and 2007 as declining in three year increments from.5 to .1 microns.

Stage 3, the roadmap identified 11 technical areas (e.g., chip design and test,lithography, and manufacturing systems). Using the critical system requirements as an overallframework, teams were set up for each technical area and technology roadmaps weredeveloped for each area.

Stage 4, each team developed a set of technology drivers specific to their area,which were derived from and related to one or more of the critical system requirements.For example, technology drivers in the lithography area that related to feature size includedoverlay, resolution, and device size. The lithography area was further decomposed intoexposure technology; mask writing, inspection, repair, processing, and metrology; andresist, track, and metrology.

Stage 5, for each technology area (e.g., lithography) and/or subarea (e.g., exposuretechnology), the roadmap identified technology alternatives such as x-ray, e-beam, andion projection. Technology driver performance was projected for each technology alternativefor various time points.

Stage 6, based on these projections and their impact on the critical systemrequirement targets, certain alternatives were recommended.

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Stage 7, the completed technology roadmap report was created in preparation forthe follow-up activity. A major workshop was held to critique and validate the roadmap.

Technology roadmapping is a useful technology planning tool in an increasinglycompetitive environment, such as that faced by Sandia and other national laboratories. Fora successful technology roadmapping process, it is critical to identify why you are doingthe roadmapping and how it will be used. Technology roadmapping is particularly usefulfor coordinating the development of multiple technologies, especially across multiple projects.This coordination is critical when dealing with technologies that are related to a corporation’score competencies. The information about and analysis of needs and technology alternativesis far more important than following a precise process and format. In summary, technologyroadmapping is a valuable process if done for the right reasons, but it should not beundertaken lightly or without good justification.


2.4 (a) What are the skills needed for technology roadmapping?

2.4 (b) How the preliminary activity for technology roadmapping is done?

2.4 (c) Explain the development phase of technology roadmapping?

2.4 (d) What are the follow-up activities after the development phase?

2.6 LINKING TECHNOLOGY PIONEERING AND COMPETITIVE ADVANTAGE

The choice of which way to perform a value chain activity – which technology touse – should be governed by the competitive advantage(s)that the firm is pursuing inimplementing its competitive strategy. In other words, if low cost – low price is the strategy,then low-cost technology should be used, consistent with maintaining acceptable levels ofquality, availability, attractiveness, and so forth. (Of course, technology choice interactswith other strategic variables – e.g., low unit cost are often achieved through economies ofscale which in past have depended on mass- production technologies and large customermarkets demanding standardized product and service.)Similarly, if a differentiatinguniqueness is the strategy, then technologies which maximize the specific competitive


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advantage in terms of higher performance, sooner delivery, better customer service, etc.,should be used , consistent with the price premium customers are willing to pay for theuniqueness.

Technology choice is therefore a more complex decision for firms pursuing adifferentiation strategy. The number of potential differentiating competitive advantages isvery large, and much more source of competitive advantage being sought. To say that oneis pursuing the advantage of higher performance is not enough. One must specifyperformance dimension that is predicted to be of value to a segment of the customers. lookat which activities create and deliver that performance value, and make technology choicefor those activities accordingly. in trying to understand and illustrate these concepts. Weoften find ourselves limiting our thinking to manufacturing activities, manufacturingtechnologies, manufactured products. But Porter’s value-chain analysis and the definitionof technology should open our thinking to a much border range of concepts.

The technology development activity is an important case in point. Technologydevelopment activities have the promise of creating new ways to do things – newtechnologies – that can contribute even more to higher performance, sooner delivery, bettercustomer service, etc., than existing alternatives. Or that can lower the cost penalty ofachieving that higher performance, sooner delivery, etc. The linkage between technologyand competitive advantage can be illustrated more explicitly by focusing on advancedmanufacturing technologies, pertaining primary to discrete – parts fabrication and assemblyactivities, and on management technologies usually labeled as Japanese manufacturingmanagement techniques such as TQC, JIT, and Kanban pull systems. These technologieswill be related to the three competitive advantages of low price, higher quality, and availability.

2.6.1 Production Costs and Advanced Manufacturing Hardware Technology

Production costs are divided into the familiar categories of plant and equipment,labor, materials, energy, and manufacturing process cost, when an examination is madeof how advanced manufacture hardware technologies [AMHTs e.g., CAM,CAD/CAM,CIM,FMS,NC,CNC (computer - aided manufacturing ,computer-aided design/manufacturing, computer- integrated manufacturing flexible manufacturing system, numericalcontrol, computer numerical control )]might affect these production costs compared withalternative, traditional manufacturing technologies,there is no clear and easy answer. Theanswer is the all-too-familiar “it depends!”

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Plant and Equipment Cost:

On what do these cost impacts depend? A partial list might include whether theAMHT was implemented in system or in a series of standalone pieces of equipment – e.g.,replacing an entire machinery systems vs. replacing a worn-out lathe with a new NC orCNC lathe. Especially in product flow layouts, the AMHT systems approach might costless than traditional technology because of the potential cost savings due to systems redesign.Similarly, equipment costs might be affected by the choice of specialized vs. multipurposeAMHT – e.g., a CNC lath vs. A CNC machining center. The lathe might fit into a systemproviding one of number of required machining operations. While the matching centermight do all the required operations itself, so the comparison of AMHT equipment costswith traditional manufacturing technology equipment cost has adjusted accordingly.

But this later example illustrate other potential cost impacts as well. The multipurposeCNC machining center should also take up much less space than the syatem with theCNC lathe alternative(and in growth-capacity expansion situations, avoiding the cost ofbuilding additional factory floor space can be quite considerable) and should avoid WIPinventory costs associated with product flow through a series of specialized CNCoperations.

The impact of AMHT on plant and equipment costs might also be affected by howsensitive the AMHT equipment is to environmental factors such as temperature, humidity,and vibration. This sensitivity can imply plant infrastructure costs that might not normallybe considered in certain cases ; these infrastructure costs are known up front, but there isalso the case where a sophisticated piece of CNC equipment installed and adjusted in thewinter didn’t work alright in the summer because of the higher angle of the sun shiningthrough the windows!

2.6.2 Labor Cost

The traditional justification for using more advanced manufacturing equipment hasbeen the substitution of capital for labor, and there is little doubt that utilized AMHT usuallylowers direct-labor costs. However , there are other cost implications to consider. Althoughthe amount of direct labor might be reduced, what are the skill requirements of the laborthat remains? If the AMHT requires less but more highly skilled direct labor there may beadditional cost associated with training or higher wages. In addition. What happen to


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direct labor with the utilization of AMHT compared to traditional manufacturing technology?AMHT maintenance is again an “it depends” situation. AMHT equipment is normallymore complex and sophisticated so that maintenance costs might be presumed to be greater,but on the other hand much of the complex electronics is modularized on printed-circuitboard which are simply replaced when a circuit goes bad, so maintenance cost might beless.

AMHT might have more positive cost impacts when the health and safety of workeris considered. Automating dangerous or environmentally hazardous operation utilizing AMHT(e.g., spray, painting, welding )may require more expensive equipment but provide savingsin lost labor hours, workmen’s compensation premiums, and other employee health andsafety costs. Similarly, automated operation that are difficult for humans to do because oftheir physical markup or boring for humans to do because of their psychological markupcan both lower health and safety costs and prevent human error that results in scrap,rework, or other cost of poor quality.

2.6.3 Materials Costs

Materials cost might or might not increase with AMHT and less direct labor. thehuman operator may lack the data input and processing speed of the computer, but ismore flexible when it comes to dealing with unexpected problems. Using AMHT is assemblyoperations, for example, may require higher-tolerance and higher-cost components sothat feeders don’t position parts off center, whereas human operators using traditionalmanufacturing technology could have easily handled these kinds of exceptional problemswhen they occurred.

The point of all this discussion is that contribution of advanced manufacturinghardware technology to the competitive advantage of low cost-low price is ambiguousand situation-specific. One would not want to precipitously rush into AMHT pursuing alow-cost low-price competitive strategy!

Production costs and Advanced Manufacturing Management Technology :

Japanese management practices.

When we look at advanced manufacturing management technologies(AMMTs),advanced ways to manage manufacturing operations, however, we see a more

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straightforward linkage with various production costs. There are a number of so-calledJapanese manufacturing management practice that can affect production cost; for instance,JIT lowers WIP inventory and plant costs; the scheduling systems lowers scrap, rework,and other costs of poor quality; kanban scheduling systems lower finished-goods inventorycosts; the reported preference of Japanese managers for multiple copies of smaller, lesexpensive, more mobile,less sophisticated machinery rather than “supermachnies” lowersequipment costs; and cellular layout and group technology lower labor and manufacturingprocess cost.

Management Policies:

Many of these “technologies” might seem to be “policies,” but they are policiesthat govern the way activities are done. For example, the way in which investment in newequipment are cost-justified – high-hurdle-rate discounted cash flow vs. strategic costmanagement techniques – can impact the decisions of the firm to purchase and implementany new techniques ; the way in which overhead cost are defined allocated- the traditionalway in of basing this on direct-labor vs. activity-based on cooperative partnering ratherthan arm’s-length confrontation can lead to lower materials and manufacturing processcost; negotiated partnering with labor unions (trading job security for work – rule flexibility)vs. confrontational bargaining over wages and benefits can lead to lower labor andmanufacturing process cost and giving operators the power and the responsibility for quality,rather activities associated with their principal work takes rather than replying on specializedquality control or maintenance staffs can labor and manufacturing process costs.

Hardware and Management Technologies

These kinds of illustration can go on and on. Two general points to make are asfollows:

1. Advanced manufacturing management technologies appears to have a more directand a impact on lowering production costs the cost and reliability benefits fromimplementing AMHT are regards as the real key to manufacturing improvement.

2. even when AHMT is successfully implemented and has a positive impact onproduction cost and other competitive factors, it usually occurs after or in tandemwith the successful implementation of AMHT – what one author has calledsynchronous innovation.


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Reliability: building it in

Working from right to left, there are two basics ways to improve reliability: tobuild it in or inspect it in is usually the preferred way to improve reliability because, asdiscussion earlier, the involves improvement of the production process itself and thereforehas the added competitive effect of lower manufacturing process costs at the same time –see the earlier discussion of reliability. Thus the dashed arrow (A) in fig

Process control.

Improving the production process is a matter of getting it under control or stabilizedso that operation are repeatable; thus, variations in operations due to special causes arisingout of specific circumstance not inherently part of the process removed, and only theacceptable; variation that is inherently part of the process remains. (if a process to producea product or service must be redesigned –or both.) Getting a process under control resultin increasing yield rates(or declining defect rates), and this is the source of the net reductionin production process costs.

Advanced Manufacturing hardware Technology:

What are the benefits of advanced manufacturing hardware and advancedmanufacturing management technologies on building reliability in to production processes?The first benefits for all computer automation in CAM which removes human beings fromdirect contact with the production process reduce human error as a source of specialvariation affecting the process. The greater the potential for human error in operating aprocess, the more important CAM is to improving reliability. Second, the operation ofsensors, computer, analytical software, and output devices make it possible for vast amountof process data to be collected and analyzed in real time. The results of the analyses can befed back to automatically adjust process parameters or to alert human operators or computermonitors to the need for action –e .g., predictive maintenance. In either case, reliability isimproved and process costs are reduced compared with the use of more traditional andconventional manufacturing hardware technology. Advances in materials science embodiedin cutting tools also might improve process control and reliability.

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Advanced Manufacturing Management Technology:

Perhaps the best-known advanced manufacturing management technique affectingthe production process is statistical process control (SPC). SPC alerts human operatorsto the fact that special sources of variation have crept into the process and that steps mustbe taken to bring the process Japanese total quality control techniques such as hazardlights (andon), production control boards, and the use of foolproof mechanisms (poka-yoke), should also work in the same direction. Although quality circles and total qualitymanagement (TQM) techniques both contain the world quality ,their scope of meaninggoes beyond the narrower definition of quality being used here, and they more aptly fitunder the title of continuous improvement.

Reliability:

Inspecting quality in to the process without building it in result in higher reliabilityas perceived by the customer because few or on defects get past the inspection system,but there are no reduction in production process costs because the process itself remainsunchanged –warranty, service,, loss of customer goodwill, and liability costs of poor qualityare merely shifted to scrap and rework.

A firm can inspect quality in by providing more inspection –hiring more QCinspectors-or by providing better inspection. which can be the result of using advancedtechnology. Automated quality control and inspection equipment such as coordinatemeasuring machines or automated test equipment can improve the inspection activity byreducing human error that would result in mistakenly letting defects get through (or mistakenlyweeding out nondefects), by doing inspections faster than humans can, and by doinginspection with greater accuracy method design might also be used to improve manualinspection, but in all these instances the investment made to achieve the higher reliability (asperceived by the customers)is a direct cost tradeoff since there are no cost reductionsfrom brining the process under control.

Performance:

Improving product performance is largely a matter of product design and the choicethat are made in the product in the product design activity. These design choice include thetightness of the tolerances that are specified, the special features that are include , thechoice of materials utilized, and the size of the product or service offerings.


NOTES


Advanced Manufacturing Hardware Technology:

Computer-aided design/engineering (CAD/CAE) technologies would appear tohave a significant impact on performance in terms reducing the potential for human errorand in the enhanced ability to design more sophisticated and complex (assuming thatsophistication and complexity contribute to performance!) products. At the same time unitdesign costs should be significantly reduced because of the labor productivity gains thatCAD/CAE offers. However, higher performance normally is achieved in tradeoff withhigher costs. Hardened metal cutting tools or purer materials may also offer performancegains in precision and accuracy or product consistency.

Advanced Management Technology:

As was pointed out earlier, however, the higher performance provided by theproduct must be valued by the customer, and valued highly enough to cover any pricepremium associated with it which covers the higher costs needed to achieve that performance.Advanced management techniques in market research such as the use of focus group orquality functional development help ensure that the customer ‘values are reflected in designdecisions. Traditional design techniques such as value analysis and value engineering arealso applicable in this regard.

Integrating Reliability and performance:

The integration of CAD/CAM and CAM provide a hardware linkage betweenreliability and performance, the two dimension of quality. The hardware linkage gives designand manufacturing engineers real-time electronic sharing of information that supportsconcurrent or simultaneous engineers each group can feed back cost and capabilityinformation to the other so that in the end, the product-process combination is optional forthe firm. rather than one or the order. This hardware integration can be supported bymanagement policies to, for example, use standardization components whenever feasibleor justify why not. The policies can be programmed into the CAD/CAM and the computerprocess simulation system to prompt either group of engineer to consider the viewpoint ofthe other. Thus hardware and management technologies are themselves integrated intodesign for manufacturability.

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Aesthetics and Customer Service:

Two side issues complete this discussion of quality. In terms of performance. Thereis an aesthetic dimension that must be taken into account apart from objective facts. Manypeople, for example, prefect natural leather or wood products over plastic. relating this intheir minds to higher quality , even though on any given performance dimension (hardness,durability,cleanability, etc.), the plastic product might objectively score higher. Marketresearch techniques helps identify these aesthetic preferences. Second, there is also acustomer service dimension to the reliability issue. When customers unfortunately experiencea product defect, the loss of goodwill can be prevented and customer loyalty even enhancedthrough appropriate customer service activities. Information technologies which speed upthe service to fix or replace the defective product combined with management policieswhish remove the “hassles” from the experience for the customer can go a long way towardalleviating customer. Complaints, but this service again comes at additional cost only unlessthe process is first brought under control.

TECHNOLOGY AND AVAILABILTY:

New Products:

Two situations from which to examine the availability advantage:

That of new products and that of extended product lines. Perhaps the ultimateavailability advantage is to come to market first with a new product that is not availablefrom any competitor for that period of time when no competing alternative is available, afirm can charge what the market will bear, can create first- move advantages which willendure even after a competing alternative is available, can obsolete its current new productwith an even better or cheaper one to stay ahead of the competition and so forth.

Licensing or Acquisition:

There are a couple different ways to obtain new products. One way is to licenseor acquire them as products, or to license or acquire underlying technologies which feedinto the second way –the firm’s internal new-product development process, which normallyis managed by he R&D functions. Licensing or acquiring technology – external technologysourcing, as some call it – have become more popular activities as trends for downsizing


NOTES


and focusing on core competencies have increased, and information technologies haveimproved firm capabilities to monitor and evaluate external technology development on aglobal scale.

New-Product Development Cycle Time:

The conventional way to achieve new product is still the internal developmentprocess, however, which begins with R&D activities but extends through manufacturingand marketing and sales – through commercialization. Because competition is becomingmore intense and product life cycles in many industries have been shortening, there isincreasing pressure lead time over competitors. How might advanced manufacturinghardware and management technologies impact new product development cycles times soas to achieve the competitive advantage of availability?

The short answer to this question is, potentially, “a very great deal!” In fact, Iwould contend that the biggest contribution that these technologies can make to competitiveadvantage is in this area of availability.

Advanced Manufacturing Hardware Technology

Earlier we mentioned the performance impact of CAD/CAE technologies, butsurely a bigger impact of CAE/CAE pertains to the speed with which product design andengineering analysis activities can be done. Fast prototyping is another technology thathas the potential to speed up product design. New products must be manufactured beforethey can be sold, however, and CA/FMS technologies can be used to changedmanufacturing systems over from existing to new products – as long as the new productsare within the envelope of the systems – almost instantaneously and at almost no cost.CIM technology, which integrates the product design and manufacturing processeselectronically, has the potential to make the transition from design to manufacturing goeven more quickly and smoothly.

Other activities and new technologies also have the potential for expediting thenew-product development process. The more fundamental research that goes on in industryas well as in universities and national laboratories can result in an iteration between scienceand technology that results in new and faster way of doing R&D. Advances in microscopyand spectroscopy technologies have resulted in much more powerful scientific instruments

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which have advanced the scientific study of molecular and atomic structures related tomaterials and resulted in computer-aided molecular design technologies for developingnew pharmaceuticals, for example.

Advanced Management Technology

New management technologies can also play an important role in speeding upnew product development. Concurrent or simultaneous engineering – the parallel or jointdevelopment of new-product and accompanying new-process technology – not onlyimproves design for manufacturability as discussed earlier but also can significantly speedup the development cycle. Management policies to deliberately shorten product life cyclesby obsoleting current products with new developments can speed things up as well. Manyof the process improvements that result from TQM – type programs in new productdevelopment also tend to speed up the process. All of these new product decision can, ofcourse, be affected by the firm’s approach to intellectual property protection, and marketresearch activities still play an important role in identifying the customer values that can besatisfied through new products.


2.5 (a) What are the effects of technology on production cost?

2.5 (b) What are the effects of technology on labour cost?

2.7 FINACING A START-UP

In many technology-based start-ups, the uncertainty of success of a venture isindeed quite high. In addition, both the moral hazard and adverse selection problems inhibitthe flow of funds to the start-up.

For an entrepreneur interested in starting up a technology –based company, it isuseful to think of the front start-up as evolving over stages. We can identify six stages in theevolution of a start-up:

Basic research, which in the case of a start-up may involve the entrepreneur to testsome aspects of the technology being developed.


NOTES


Applied research, while involves the incorporation of technology into a new productprocess or service.

Commercialization, which includes all activities involved in moving the productinto market – developing a business for the market, assessment, a business plan, and soon.

Start-up which involves embodying the activities in the form of a business.

Rollout, when the firm starts manufacturing and marketing its products or servicesin selected target markets.

Growth, which involves the growth in sales and continued investment in themanufacturing and marketing capabilities of the firm to enhance its sales.

The funds required for the operation of the start-up increase over the variousstages from basic research to growth. In this sense, this is similar to the technology projectlife cycle Indeed, basic research activities before start-up of a new venture are usuallyundertaken by individuals in the laboratory, be it in a university setting, a government-funded research center, or corporate R&D unit. The funds required for these activities arerelatively minuscule compared to a full-blown enterprise. Applied research may requirethe building of a prototype and, therefore, will require additional amounts of money to buythe material and lease/acquire manufacturing facilities for building the prototype. Thecommercialization stage requires the building of a viable business plan and, therefore, requiresestimates of the market potential, estimates of manufacturing capability and the administrativeand workers’ cost involved in operating the venture. As The amount of funds requiredduring start-up, roll out, and the growth phases are significantly higher relative to the previousstages.

Not all start-ups go through the initial stages in such a clear sequence. For example,some of the Internet company start-ups do not require basic research, although they needconsiderable applied research. These firms face a considerably dynamic environment andrequire frequent changes as they develop both their product and the business plan. But oneestimate, in the case of Internet companies, it may take $250,000 to $5000,000 to get aviable business plan. Many of these companies are not profitable for a long period of time,and for them, funds from operations are several years away.

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FundsRequired

Basic Applied Commercialization Start-Up Roll OutGrowth Research

Also as shown in the figure the activities during the various stages of a start-upare financed from different sources of funds.

• During the basic research and applied research phases of a start-up, the projectis riddled with technical and commercial uncertainty, and as a result, anentrepreneur will find it very difficult to raise money through debt or from theprivate equity markets. During these stages, the activities are financed eitherby government sources or through personal sources In addition if the personis working in a large firm, the corporate R&D resources are often utilized forthe benefit of both basic and applied research.

• Government sources continue to play an important role in many start-upsduring commercialization stages. Also, the entrepreneur may have access tofacilities provided by investors, both private and public. Additionally, privateplacement may be another source of funds for the commercialization phase.

• During the later stages of the start-up, the entrepreneur may rely on venturecapital funds, and when he or she is ready to move into the growth phase, thefirm may have the opportunity of initiating a public offering or raising moneythrough mergers and acquisitions with larger firms.

It may be we noted that in the United States several regional networks arebeing developed with the assistance of state governments to foster innovation.State networks include not merely technology developers but also facilitators,such as the venture capital funds, Indeed, as shown in the different sources offinancing for a start-up, both government agencies and private corporationsare assisting with financing of technology start-ups.


NOTES


CHALLENGES FOR THE ENTREPRENEUR

Reliance on external sources of financing, be they government or private, opensup the potential for conflict between ownership and control. As external sources of financingare injected into the operations of the company, the outside shareholders may increasinglydemand a voice in the running of the company. Sometimes, the objectives of the privateequity provider may diverge from the objectives of the entrepreneur; in this case, conflictsbetween the two are highly likely. Thus, the choice of the specific private equity provider isan important issue to which the entrepreneur should pay attention. For example, many ofthe university-based biotechnology start-ups in the Midwest(USA) prefer equity providersthat will allow the start-up to continue operating out of the Mid-west. In other words,these start-ups look for equity providers who will not demand that the operations bemoved to either the east or west cast – region which have a greater concentration oftechnical labor force in biotechnology.


2.6 (a) What are the six stages in evaluation of the startup?

2.6 (b) What are the challengers to be faced in external financing?

2.8 VENTURE CAPITAL PROCESS

Because financing the technology project is flawed with adverse selection andmoral hazard challenges, how should a venture capitalist or an equity provider evaluate thecontrols put forth by an entrepreneur?

The venture capital process involves an intense company scrutiny by the venturecapital providers of the business plan, management team and the request for funds. Thesteps involved in a particular venture capital process are enumerated in Table. The initialcontact between the start-up and the venture capitalists may be initiated by either of thetwo parties. Having decided to explore the start-up further, the venture capitalist will spenda significant amount of time examining the business potential of the start-up. This mayinclude an initial visit, examination and analysis of the business plan presented by the start-up, and of course due diligence checks on the founders and the targeted market. This maybe followed by additional visits by the venture capital providers and further checks on the

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various aspects of the business plan. It is only after this initial screening that negotiationswill begin in earnest between the two parties; when the negotiations are successful, anagreement is reached on the terms of the venture capital provisions. Of course, venturecapital includes legal documents as well as transfer of funds from the venture capital to thestart-up.

Steps in Venture Capital Process

1. Introductory Visit2. Business Plan Review3. Due Diligence Check

(A) Founders(B) Targeted Markets

4. Additional Visits5. Negotiations6. Draft Agreement7. Legal Documents8. Closing Date Set9. Checks DepositedChecks Cashed/Stocks Issued

Just what do the venture capitalists look for during their initial scrutiny of the businessplan and management team? We can identify four major sets of factors that lead to a start-up successfully negotiating with venture capital:

1. Nature of the management team within the start-up:

The venture capitalist typically looks for an experienced and complete managementteam that has successfully worked together. Ensure that the management team has all thenecessary expertise that is required to operate the start-up successfully.

2. Nature of the market:

The venture capitalist usually prefers start-ups with aggressive intentions in themarket. This can take two forms: a high-growth segment, where the company can play animportant role and expect a higher market share; or a target market with no strongcompetitors and with a limited number of potential customers that is large by incapacity.The venture capitalists usually do not like to fund start-ups with “me-too” products.


NOTES


3. Nature of the product:

The start-up should be offering a product with significant performanceimprovements.

4. Technology development:

Because the venture capita funds in the early stages flow into technologydevelopment, the start-up should have a well articulated defensible technology planconsistent with its market needs.

The venture capitalists tries to attenuate the adverse selection and moral hazardproblems through initial scrutiny, terms of agreement, and monitoring mechanisms that areplaced in the continual evaluation of the start-up.

In short, raising the necessary funds for a start-up is a significant challenge facedby many entrepreneurs. Indeed, the entrepreneurs will have to look for different sources offunding at different stages of the start-up. Infusion of venture capital funds into the start-upwill require the entrepreneur to accommodate the interest of the capital providers.

2.8.1 Financial Products in Large Firms

The challenges of financing a technology project in a large firm are different fromthose for a start-up in three major ways:

The technology development projects are carried out in several different parts ofthe organisation: central research laboratory, corporate R&D unit, and divisional R&Ddepartment.

Each unit will have a portfolio of projects as opposed to a single project. Theraising of finances for the firm outside is usually mounted from the finance department,rather than from the technology groups. The decisions about debt, raising equity in publicmarkets, and negotiations with strategic alliance partners will usually involve therepresentatives from finance department, who have the expertise in valuation of projectsand financing related issues.

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Invariably, the financing of technology projects in large firms is tied up with itsbudgeting process. In our discussion of project evaluation, we have underscored thetendencies of the typical budgeting process to drive out innovation. Indeed, the emergenceof option pricing models is a response to the need to protect innovation from thedysfunctional pressures of the typical budgeting processes. Nonetheless, the responsibilityfor maintaining the innovativeness of a firm, to a large extent, will hinge on the success oftechnology managers in influencing the flow of funds to appropriate technology projects.


2.7 (a) What are the steps venture capital process?

2.7 (b) What are the challenges to be faced in financing the technology project of a largefirm?

2.9 TECHNOLOGY VENTURING

Sometimes, it may be difficult to fund innovation projects internally. Due to the factthat the technology may be unproven and also the business concept not proven, the cost ofcapital may be higher and options for financial sources are limited. In the beginning, theymay have to rely on family and personal sources. Since, initially the venture appears to bevery risky, even banks may hesitate to support. Some new ventures may be able to getstart-up funds, from government sources. In India, the National Technology Board extendssuch support. Here, we will discuss about Angel Investors and Venture Capitalists.

2.9.1 Angel Investors

ANGEL Investors are private investors. They are successful and wealthy businesspeople. They derive a feel of adventure by investing in start up firms. They normally fundup to one million dollars. They may loose in some and gain in some other. If there is asuccessful one, the return is very high. Normally, Angel Investors help in what is called the“seed stage”, that is, before a real product is made.

2.9.2 Venture Capital

For higher level of investment, the source is venture capitalists. There can be twotypes of arrangements.


NOTES


1.Independent venture capital firms

2.Corporate venture capital sources.

First, we will discuss about Independent venture capital firms. They manage poolof investments. They invest in projects with high growth potential. Some Venture capitalfirms involve themselves in particular industries. In this case their evaluation will be moreaccurate. It may be interesting to note that if the company performs well, the funds aretreated as equity, otherwise the funds many be treaed as debt. Generally, venture capitalistsare very selective. Their participation lends credibility and so, access to further capital iseasier. In some cases, apart from seed stage funding they may provide funding duringsubsequent early stages—after the company has been organized and the company is showingsigns of success.

2.9.3 Corporate Venture Capital

Some firms may like to take minority equity stake in another firm’s technologydevelopment. They may establish an internal venturing group that is closely tied to thecompany’s own internal operations or they may create a dedicated external fund.

In the internal venturing tied to the internal operations type, the firm will be able toutilize its expertise better. But on the other hand, the later structure has more independence.

Examples: Eastman Ventures of Eastman Kodak. GE Equity of General Electric. Intel Capital of Intel.


2.8 (a) Who are angel investors?

2.8 (b) Who are venture capitalists?

2.8 (c) Explain the concept of corporate venture capital.

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NOTES


UNIT III

TECHNOLOGY CYCLE

3.1 INTRODUCTION

Examples of revolutionary technological changes that transform industries abound.Ceramic engine parts will replace metal engine part in the next decade, thanks to their highstrength–to- weight ratio and resistance to heat. Flat screen display will obsolesces today’sbulky cathode ray tube television screens. Billions of bytes will supplant today’s magneticfixed disks for mass computer storage. Lithium batteries will supersede today’s lead-acidtechnology.

It is precisely this sort of discontinuous change that bring about “creativedestruction,” the over turning of established structures.

Example of creative destruction based on both product and process revolutionabound: the shift from vacuum tube to semiconductors overturned the dominance of firmssuch as RCA and Sylvania.

Managing through period of upheaval model of technological change. are therepredictable patterns of innovation that recur time and time again in industry after industry?Are there predictable consequences of technological discontinuities? Who do leader becomeloser?

Foster’s depiction of technological progression through a series of S-curve suggeststhat technological change follows a cyclical pattern.

Our study of the entire history of industries leads us to conclude that technologyprogresses in a series of cycles, hinging on technological discontinuities and the emergenceof dominant designs. Here we discuss

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• The cyclical nature of technology change• The influence of “competences”.• The empirical character of observed technology cycles.• Who pioneers discontinuities and dominant designs?• The process of “creative destruction. “• The implication of technology cycles for managers.

3.2 LEARINING OBJECTIVES:

1. To understand technology cycle.2. To understand technological changes.3. To know how to respond to technological changes.4. To learn about adoption of technology.5. To comprehends different approaches to overcoming resistance.

3.3 TECHNOLOGY CYCLES:

An industry evolves through a succession of technological discontinuity.Discontinuities are breakthrough innovations that advance by an order of magnitude thetechnological state –of- the –art which characterized an industry.

To illustrate, the manufacture of window glass has been characterized by theirgreat discontinuities. In the 19th century, skilled artisans blew molten glass into long cylinders,which were cut with a wire and flattened into glass sheets. In 1903, the lubbers processsubstituted an automatic blowing machine for the artisans. In 1917, the Colburn machine,which drew a continuous ribbon from a tank of molten glass, was introduced. In 1963,the Pilkington float glass, was introduced in the United States, producing a continuousribbon by floating molten alloy. In each case, a process with inherently higher limitsredefined the state of the art, increasing machine capacity by an order of magnitude whilelowering costs and improving quality.


NOTES


% C

apac

ity Im

prov

emen

t Ove

r Las

t Yea

r

500

400 Lubbers Machine

Float glass300

200

100 Colburn Machine

Capacity in Square Foot per Hour1900 1910 1920 1930 1940 1950 1960 1970

Three great discontinuities mark the development of machinery for manufacturingwindow glass in the United States

Era of Era of Era of Substitution Design Incremental

competition Change

To Next

Discontinuity Time

Technological Discontinuity Dominant Design

Industries evolve through successions of technology cycles, each started by atechnological discontinuity

Era of Ferment

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Each technological discontinuity inaugurates a technology cycle. The breakthroughinitiates an era of ferment, characterized by two processes. First, the new technologydisplaces its predecessor during an era of substitution. Though Foster argues that newtechnologies appear only when the old technology reaches its technical limits, often theolder technology improves markedly in response to the competitive threat. Gaslighttechnology, for example, improved dramatically in the decade after the introduction of theEdison electric light; Apple has pushed the limits of 8-bits microcomputer technology forwarddramatically since the appearance of 16-bit and 32-bit replacements for the once-dominantApple II. Despite these improvements, demonstrate that in many cases, the substitutionprocess proceeds with mathematical inevitability once a small initial penetration is achieved.

The second process partly overlaps the first. An era of design competition followsa discontinuity. Radical innovations are usually crude, and are replaced by more refinedversions of the initial product or process. Typically, several competing designs emerge,each embodying the fundamental breakthrough advance in a different way. Examples includethe tremendous proliferation of automobile designs following Duryea’s first auto or theappearance of dozens of competing airplane models after the Wright brothers’ invention.

The design competition culminates in the appearance of what Abernathy andUtterback term a “dominant design,” also called a “technological guide-post” by Sahal.This design is a single basic architecture that becomes the accepted market standard.Dominant designs are not necessarily better then competing designs, and they often pioneerno innovative features themselves. Rather, they represent a combination of features, oftenpioneered elsewhere, that sets a benchmark to which all subsequent designs are compared.Examples include the IBM 360 computer series, the Fordson tractor, and the Ford ModelT automobile.

The emergence of a dominant design marks the end of the era of ferment and thebeginning of a period of incremental sharply, and the focus of competition shifts to marketsegmentation and lowering costs through designs simplification and process improvement.Many scholars and R&D managers contend that it is the patient accumulation of smallimprovements that accounts for the bulk of technological progress. Though this may not betrue in every case, there is little doubt that once a design becomes a standard, it establishesa trajectory for future technical progress and changes the basis of competition in the industry.This era of competition based on slight improvements on a standard design continues untilthe next technological discontinuity emerges to kick off a new technology cycle.


NOTES


The nature of the technology cycle is dramatically affected by the cutting dimensionof competence. Some discontinuous innovations are competence-destroying. Theyobsolesce existing know-now; mastery of the old technology does not imply mastery ofthe new. Float glass is a competence-destroying process discontinuity; a firm’s knowledgeof Colburn drawing technology conferred little advantage in mastering the Pilkington floatglass process.

Other discontinuous innovations are competence-enhancing. These breakthroughspush forward the state-of-the-art by an order of magnitude, but build on existing know-how instead of obsolescing it. Thus the turbofan jet engine is a competence-enhancingproduct innovation. It markedly improved engine performance, but built on existing know-how instead of overturning it. The introduction of process control in cement kilns was acompetence-enhancing process innovation. Computerization made possible enormous kilns,allowing cement manufacturers to employ their existing cement-making know-how to makemore and better cement than any human operator could produce.

Both product and process innovations may either enhance or destroy existingcompetences. Yet there is a fundamental difference between product and processinnovations. Product innovations normally affect more links in the value chain than doprocess innovations. The customer must be made aware of new products; often, he is notaware of process innovations. New products often require distribution channels and suppliersdifferent from those which serviced older products. Process innovations usually make theproduct better and cheaper without necessarily disrupting upstream and downstreamlinkages. Thus, a key factor is not only whether the core technical know-how of an industryis disrupted by an innovation, but whether links in the value chain are overturned orreinforced by the new technology.

3.3.1 Characterizing the Technology Cycle

Discontinuities are generally uncommon, and their frequency varies greatly byindustry. Nonetheless, they characterize both young and mature industries. Tracking 24years of minicomputer data, over 100 years of cement industry history, and nearly 200years of glass industry history, only 17 discontinuities were found. The minicomputer industrypassed through three discontinuities in a quarter-century, while the cement and glass industryexperience 50-year periods of incremental change. However, every industry studied,experienced at least one discontinuity since 1960, and the “mature” cement industrywitnessed two.

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A single dominant design always emerged following a discontinuity, except in twosituations. When one discontinuity follows another very rapidly (within 3-4 years), a dominantdesign may not have time to emerge before the second new technology displaces the first.When several producers each patent their own proprietary process and refuse to licenseto others, a dominant design may not emerge. Otherwise, in every case a single product orprocess architecture accounted for over 50 percent of new installations. Ultimately onestandard prevails.

The original discontinuous innovations never became a standard. Some improvedversion of the initial breakthrough became the basis of a dominant design in every case.Furthermore, more often than not dominant designs lagged behind the state-of-the-art atthe time they were introduced. The winner of the design competition is seldom at theindustry’s performance frontier; typically, the industry pushes the state-of-the-art forwardduring the era of ferment, then standardizes on a design that is behind the leading edge ofthe technology.

The length of the era of ferment (the lag from introduction of the new technology toestablishment of a dominant design with 50 percent of the market) depends on whether thediscontinuity enhances or destroys existing know-hoe. It took longer for an industry toconverge on a dominant design following a competence-destroying discontinuity. Whenexisting know-how is reinforced, the industry arrives at a standard relatively rapidly; whenit is overturned, it takes considerably longer for the design competition to culminate in asingle technological guidepost. Further-more, when a series of discontinuities enhance thesame underlying competence, the length of the era of ferment grew shorter in each successivetechnological cycle, bolstering the argument that the more familiar the underlying know-how, the easier it is to reach a standard.

3.3.2 Pioneers of Discountinuous and Dominant Designs

A key competitive question is, when will a discontinuity overturn an industry –when will leaders become losers?. Focusing on the first five firms to adopt an innovation,we observed that in general veterans – firms which competed in the industry before thediscontinuity – are more likely to pioneer breakthrough innovations. This runs counter tothe often-hears argument that revolutions usually come from outside an industry. It is oftenthe case that the initial innovator is a newcomer to the industry, but when we look at thegroup of first-movers, we usually find that veterans predominate.


NOTES


Discontinuities

Product Process

Competence Newcomer VeteranDestroying

Competence Veteran VeteranEnhancing

Dominant Designs

Product Process

Competence Veteran VeteranDestroying

Competence Veteran VeteranEnhancing

Veteran firms are more likely to pioneer each class of discontinuity anddominant design except the competence-destroying product innovations.

It is easy to understand why this is so when an innovations builds on existingknow-how. Firms which posses that know-how – the veterans – are most likely to buildon that expertise. It is also easy to understand why competence destroying innovations arepioneered by newcomers. The new technology obsolesces what the veterans know,temporarily knocking down barriers to entry. Veterans are reluctant to adopt the newtechnology because it wipes out their considerable investments and forces them to changein fundamental ways. It is in this case that leaders are most likely to become losers.However,competence-destroying process innovations are typically pioneered by veterans,despite the fact that they obsolesce their own process know-how. Veterans still are able toexploit strengths upstream and downstream in the value chain following a processdiscontinuity; only their core technical know-how is overturned. As a result, veterans arewilling to write off investments in existing facilities and expertise to exploit the price/performance advantage of new technology.

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Finally, dominant designs are always pioneered by veterans, whether or not theybuild on or destroy competences. The revolutionary is seldom the standard-setter. Thedominant designs seldom are state-of-the-art, and that industry experience is needed tounderstand what the market needs in a standard.

CREATIVE DESTRUCTION

Industries are characterized by waves of founding and failures. A period when thefailure rate is unusually high is often termed a “shakeout”. The conventional wisdom is thatovercapacity or downturns in demand cause shakeouts. By analyzing mortality rates, it isfound that no relationship between changes in demand and failure rates. Instead, failurerates were remarkably higher during eras of ferment than in any other period. The inabilityto adapt to a new technical order seems to kill more firms than the inability to withstand arecession in the industry. Interestingly, only one American cement firm failed during theGreat Depression; in contrast, dozens failed when confronted with the challenge of adaptingto new kiln technology.

IMPLICATION FOR MANAGERS

The model of technology cycles provided here is one step toward developingwhat Foster terms “a language and a facility for talking about and directing technology.” Itallows managers in different industries to organize their view of the industry’s technicalhistory, and to compare the effects of various types of innovations on the industry’s structure.Four principal lessons for managers emerge from this research.

Expect discontinuities:

They do not happen frequently, but they do occur even in mature industries, andthey are watershed events. When evaluating potential discontinuities on the horizon, considerwhether they would enhance or destroy fundamental competences in you industry. Considerdeveloping competences that survive technological revolutions, such as flexiblemanufacturing capability or strong distribution channels.

When a discontinuity appears, expect an era of ferment culminating in a singledominant design. Expect several designs to compete; expect one to emerge as a winner.The dominant design will seldom be a state-of-the-art architecture; it is usually introduced


NOTES


by industry veterans, and the time it takes to reach a design depends on whether thediscontinuity is competence-enhancing or competence-destroying.

Realize that technological revolutions may be introduced by an industry newcomer,but the group of firms that adopt it earliest typically includes a majority of veterans. Only inthe case of competence-destroying product discontinuities do we observe a preponderanceof newcomers in the pool of first-movers. It is worth while to monitor potential competitorsfrom outside an industry, particularly when you suspect that a new product technology canobsolesce existing know how. But more often than not, the pioneers of discontinuities arecompetitors you already know, not newcomers to the industry.

Consider the implications of the finding that technological change, not downturnsin demand, is associated with shakeouts. Top management always pays attention to industryrecessions and is willing to make painful cost-cutting moves when demand drops. Yet it isnot this form of competition that threatens the very survival of the firm and its rivals. Maintainingthe organization’s ability to navigate the rapids of creative destruction brought on bytechnological discontinuities is the key to fulfilling management’s first duty of shareholders-preserving their capital by ensuring the continuance of the enterprise. The ability to directthe firm’s marketing and financial operations helps top managers improve a firm’s profitability.The ability to direct the firm’s marketing and financial operation helps top managers improvea firm’s profitability. The ability to direct process and product innovation affects not onlyprofitability but the viability of the firm itself in a world of technological upheaval.

3.3.3 The Technology Cycle - Another Apporach

David Sumanth contends that the Technology in enterprises is not just a one shotdeal, but rather a continuous process , involving five distinctly different phases of technology:awareness, acquisition, adaptation, advancement, and abandonment.

1. Awareness phase:

This is the first phase of the technology cycle, in which a company has a formalmechanism to become aware of emerging technologies relevant to company’s needs. Somecompanies from “think tank “with engineers, scientists, who research from around theworld , and gather information through computer bulletin services. Journals, magazines,books, conferences, international product exhibitions, etc. This information is synthesized

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and put in short internal report from for the benefits of corporate strategic planners andtechnology policy makers.

2. Acquisition Phase:

This phase involves the actual acquisition of a particular technology. To go fromthe awareness phase to the acquisition phase, a company’s technology group, in collaborationwith the industrial engineering group, would do a technical feasibility study, as well as aneconomic feasibility study, before justifying and acquiring a new technology. Of course,companies which do not spend much time and effort in either the technical feasibility studyor the economic feasibility study usually face serious repercussions down the road througha rapid technological obsolescence, or through the acquisition of an inappropriate technologyfor their needs. For example, a major computer equipment manufacturer acquired an IBM7535 robot in the early 1980s, assuming that it would replace an injection-molding operator.However, because of inadequate and inappropriate economic feasibility, the companyfound that the robot was costing more than the savings projected. After a few months, thecompany put aside the robot and brought back the human operator! Sometimes majorplant relocation decisions are made, overriding both technical and economic feasibilityrecommendations. At times, these decisions have nothing to do with technical factors, butrather, are the result of someone’s personal bias while making a policy decision in aboardroom.

3. Adaptation phase:

Virtually every enterprise ends up adapting an acquired technology for its particularneeds. Of course, if the homework is done correctly, the transition from acquisition toadaptation becomes much smoother and less expensive. Conversely, if sufficient time andeffort have not gone into studying the relevance of a particular technology to a company’spresent needs, a great deal of rework and adaptation result. This not only frustrates thepeople acquiring the technology but also, and more importantly, slows down the assimilationrate, causes major productivity losses, and results in severe quality problems. Clearly,good planning and preparation before acquiring new technologies ensures the expectedgreater economic returns. This becomes a more dominant problem when companies importtechnologies from else-where. For example, a Far Eastern company once brought in awestern fertilizer plant without first studying what not to bring. Because of its lack ofpreparation, the company did not know that the technical collaborator was using that part


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of the equipment because of the cold, snowy climate it was operating in. Thus, the companywas installing equipment which was inappropriate for the humid tropical climate in which itoperated.

4. Advancement Phase:

When capital is limited, as has become the case for many companies today, onecannot indiscriminately purchase and abandon technologies with scarce money. Therefore,it becomes imperative to improvise the acquired technologies for one’s home needs.Companies like Lincoln Electric have taken this thinking to a new height. They are a worldleader in electric arc-welding equipment, and generate most of their process technologiesinternally, eventually patenting them because they cannot find equipment out among thevendors. For the most part, it advances its technologies through the efforts of its designand development engineers. A company which buys stator-winding machines from aaccompany like Lincoln Electric, within the legally permissible limits, may be able to improvisethe feed rates, the winding patterns, and other such features in order to enhance the originaltechnological capabilities of the equipment. Similarly, an automotive company, which mightspend several billions of dollars to retool for new models, might have to create advancementfeatures for its basic tooling in order to reduce the overall tooling costs.

5. Abandonment phase:

This last phase of the technology cycle is probably one of the most critical ones,because this is where decisions are made concerning the obsolescence of a particulartechnology. With the rapid discarding of existing technologies (product-based, process-based, information-based, and management-based), timing for new technologies is criticalfor winning in the business game, let alone for survival. Posturing for new technologiesinvolves many interdependent variables including the competition’s product entry timing,the customer’s ability to absorb and invest in new technologies, the technical knowledgeand skills needed, the spare-parts management program, and the marketing and advertisingchannels available. Bad timing in prematurely abandoning a product could result in lostrevenues on one hand, but on the other hand, waiting too long to abandon might also resultin lost revenues to be an easy formula to make the selection – it is still an art – but it can bedone with greater input of information from different areas of the company such as researchand development, marketing, and production.

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When technology introduction is planned, it progresses along a continuum ofdistinctive stages. The totality of this process can be though of as a technology adoptionlife cycle. As used most commonly in the engineering and business literature, the term “lifecycle” refers to evolutionary stages of product development. In their simplest form, thesestages are “introductory,” “growth,” and “maturity”. These broad categories obscure themany steps it takes to move a new product from conception to design to engineering toprototype to production and finally to market or customer.

Other life cycle models refer to technology project progression. Ford and Ryandescribe the steps and decision points a company faces when dealing with new technologyas (a) development, (b) application, (c) application launch, (d) application growth, (e)technology maturity, and (f) degraded technology. It has been argued that “acquisition” isthe first stage in the life cycle of any technology. However, there are several steps thatought to precede acquisition or development, such as strategy determination, needsassessment, design, and planning.

Some would argue that business realities produce ambiguities and challenges thatdefy rational predictability, and that linear models are inappropriate to the hard realities ofthe “real world.” However there is value in outlining the logical steps to follow in order tomanage the technological change process, keeping in mind that progression through thestages may take place in an iterative rather than sequential manner.

Technology Adoption Life Cycle

This diagram gives a prescriptive model for the adoption of technological change.The first step I the technology adoption process is to identify business strategy and goalsaccording to the strategic planning. At this early point in the process, the joint steeringcommittee reviews all of the data from the SWOT strengths, weaknesses, opportunities,threats analysis and the formulation of mission and value statements, goals, objectives, andstrategies. The strategic directions set forth through the planning process serve as thecompass guiding all future decisions. Technology goals also become the basis against whichtechnology success is determined during the evaluation stage.

The second step is a multidimensional assessment of whether new technology isneeded to help the organization meet its business goals and objectives, and whether theorganization is ready for the technology. This assessment begins with a study of existing


NOTES


technological and organizational procedures using the process called “variance analysis”or a similar methodology. Technology selection, cost benefit analysis, and organizationalreadiness are part of the needs assessment process.

The third step in the technology adoption life cycle is planning. At this stage thesteering committee, having determined that new technology is needed and having decidedwhether to “build or buy” the technology, invites employees from the affected groups toparticipate in the development of design specifications and an implementation plan. Decisionsmade as a result of this process should be communicated to the workforce as a whole. Aplan for training employees is also developed at this stage.

The next step in technology adoption is system design, where technologyspecifications are determined, and the vendor (if the technology is being purchased insteadof built internally) is selected. One of the most frequent problems during this step is failureof the purchasing organization to negotiate with the vendor for such items as assistancewith software debugging, ongoing maintenance, and training of those who will use thetechnology. Initial employee training may be offered at this stage (conceptual classroomtraining that can take place without the equipment), and the physical infrastructure is readiedfor the new technology’s arrival (e.g., wiring, expansion of floor space throughrearrangement, or surplusing of existing equipment, etc.).

Business Strategy

Needs Assessment

Technology Planning

System Design

Implementation

Evaluation

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The implementation stage is the actual rollout of the technology. This rollout mayoccur in one or more pilot departments, which is most common, or across the entireorganization all at one. The obvious advantage to pilot rollout is that debugging can occurbefore full-scale implementation. Cross-functional implementation teams consisting ofworkers from the affected departments help to make decisions about the best ways toinstall and optimize the performance of the technology without adversely affectingemployees. Hands-on training should be offered during pilot testing, before the new equipmentor software is expected to be used fully.

Although evaluation is listed as the final phase of the technology adoption life cycle,it is on ongoing process. As stated earlier, technology success is determined by measuringperformance against the goals and objectives that the technology is expected to meet.When the objectives are quantifiable, it is easy to determine whether the technology hasfulfilled its intended purpose. Although not every objective may be quantifiable, havingsome that are helps to demonstrate to high-ranking managers and external constituenciesthat the technology has been a worthwhile investment.

For example, if a local police department has a goal of being more responsive tocommunity needs and an objective of improving police response time by 50%, the agencymay invest in automatic vehicle locator (AVL) technology. AVL is a communications systemthat enables a dispatcher to see precisely where police cruisers happen to be at any timeso that the police vehicle that is closest to an incident can be the one sent to respond to acall. Actual response time can be measured, and any reduction can be attributed to theAVL system. However, measurable outcomes may not be the result of the technology assuch, which makes evaluation a more difficult task. Police response times may have muchmore to do with the number of cruisers in the field during a given shift, the training of theofficers, the type of incident being reported (some may require officers who are speciallytrained), and degree of traffic congestion on the roads.

Although evaluation of performance results is not a simple matter, it is a necessarystep in the technology adoption life cycle. An organization must know whether technologyhas improved overall or a specific performance (e.g., quality, efficiency, safety, customerresponsiveness, etc.,) and whether technology has brought about tangible and intangiblebenefits that help to justify the cost, thereby “adding value” in ways that go beyond theaccounting ledger. The information derived from the evaluation is fed back into businessstrategy, making the adoption life cycle a circular process.


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3.3 (a) What is technological cycle?

3.3 (b) What is a dominant design?

3.3 (c) What is creative destruction?

3.3 (d) Describe the five phases of technology adoption.

3.4 APPROACH TO TECHNOLOGY ADOPTION

Knowing the steps involved in the technology adoption process is important, butfollowing them is not enough to ensure successful change. If technology is the driving forcein the change process, system integration may be difficult to achieve. A review of systemstheory is helpful in illustrating what is meant by system integration.

Systems Theory: An Overview

Systems theory is derived in part from biological science, with its emphasis on“hierarchically nested systems” in which components are broken down into elemental units,which, in turn, are subdivided. For example, a biological organism is “composed of organs,which are composed of cells, which contain organelles, which are composed of molecules,and so on”

Complex systems theory plays an important role in organizational sociology,industrial psychology, and management theory. In short, systems theory views an organizationas a “living organism” with interrelated and interdependent components. Moreover,organizations are thought of as “adaptive” and “evolving” and self-regulating, even in theface of environmental instability. Organizations are also thought to be open systems, capableof modular recombination or “synergistic specificity” in which components work interactivelyon the specific problem at hand.

Sociotechnical Systems Theory

The sociotechnical systems theory of work organization illustrates the benefits of asynergistic approach to change. This theory analyzes the technical system used to produce

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goods or services, the social system of work organization, and the interactive effects of thetwo. The technical system consists of physical tools, machines, and integrated systems aswell as work methods and processes. The social system consists of vertical and horizontalwork-related interactions, relationships and role expectations. This system also refers tothe way in which work is organized, the structure of jobs and of the organization,organizational culture, human resource management practices, and labor relations. Theareas of intersection are representative of systems integration or joint optimization – thesymbiotic relationship that is meant to occur as the two interdependent systems interact.

Sociotechnical systems theory owes its origin to field research conducted in 1949in the newly nationalized coal mines of postwar Great Britain. Eric Trist, a psychologistwith London’s Tavistock Institute of Human Relations, and Kenneth Bamforth, apostgraduate fellow who had spent 18 years as a coal miner before entering academe, setout to discover why productivity and morale lagged with increased automation (Trist, 1981).

The “hand-got” method of extracting coal in “shortwall” rock faces in use beforemechanization consisted of autonomous work groups of two skilled men, assisted by oneor more laborers. The miners were multi-skilled and able to exchange tasks with oneanother, and they operated with minimal external supervision. Trist characterized theatmosphere as being cooperative, with high personal commitment and productivity andlow absenteeism and infrequent accidents.

Sociotechnical Systems Integration

Sociotechnical Integration

Social System

Technical System


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This contrasted dramatically with the “longwall” method of extraction made possibleby mechanization, which involved mining a single long rock face instead of a series of shortfaces. The mechanization required the work to be reorganized into much larger units ofabout fifty men, with each worker performing a different set of job tasks. Coordinationand control became the province of supervisors who were external to the work groups,and who exerted some degree of coercion. It was found that the mass production natureof the longwall method created high-productivity expectations, increased competitivenessand individualism within and between work units, broke down group cohesiveness, andincreased absenteeism. The lesson learned from this study was that it is unwise to makechanges in the technical system of an organization without paying sufficient attention to itslikely effect on the preexisting social system.

Socio-technical systems (STS) integration is both a theory and a method of workdesign or redesign. Unlike job enrichment schemes, socio- technical systems redesignfocuses on the work system, not on the individual job. Its three basic principles are asfollows:

1. Joint optimization seeking the best fit between the technical and social systems.

2. Open systems planning-establishing feedback mechanisms to allow the social andtechnical systems to improve and adapt to changing environmental requirements.

3. Participation-allowing employees to participate in the analysis and design the structureof their work.

This latter aspect is stated more strongly by Taylor and Felten who discuss theneed for an “empowered” workforce that is in control of the product or service and themethods. Taylor and Felten argue that although managers must be empowered to dealwith strategy and long-term tasks, the workforce also must be involved in long-term decisionsand strategy formulation.

Socio-technical systems work redesign was popular in Scandinavia, particularly inSweden and Norway, as early as the 1960s. The Volvo Uddevalla automobile factory inSweden was for many years a model of socio-technical manufacturing success. Othernotable examples were Shell petrochemical plants in Great Britain and Canada and aCummins Engine plant in the United States. The U.S. importation of STS coincided with

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the “Quality of Work Life” movement, which was thought to be an antidote to workeralienation evident in large manufacturing plants with routinizsed , low-skill operations.

The basis steps involved in STS work design are outlined in the Table below:

STS Word Design Steps

Advocates of “lean production” have pointed to the closure of the Udevalla plantas proof that socio-technical systems design cannot compete in today’s highly competitivemarket. “Lean production” refers to the Japanese manufacturing system heralded byWomack, Jones, and Roos (1990) that relies on short production cycle time, reducedinventory, and work teams, among other organizational factors to attain high levels ofefficiency and quality. Yet a professor of operations management at Swedens’ ChalmersUniversity of Technology argues that certain aspects of the Japanese and /Swedish systems(e.g., total quality management, total productive maintenance, teamwork, and participation)are compatible especially in product development engineering, adding that the Udevallaclosing was because of a sales decline and the increased role of suppliers in subassembly(Karlsson, 1995). Berggren (1992) echoes the view, pointing to the fact that the supplierindustry for the Volvo which accounts for “75% of the value of a car, “lacked the qualityand commitment of the Japanese components sector (p. 165).

Indeed, the concurrent engineering philosophy that guided Amcar’s strategy ofshortening product development time represented socio-technical systems integration,because organizational and technological changes in the engineering operation occurred intandem and complimented one another. Citing the work of another researcher, Karlssonnotes that in product engineering operations’ most technical problems are solved in thesocial system. Haddad’s findings affirm this view, but her research also points to the valueof communications technologies that supported the work of product development teams.

Step Process

1. Scanning: mapping out an overview of the system that transforms inputs tooutputs within a bounded area (a specific workplace or department), includingpersonnel.

2. Identification of Unit operations: those processes that transform a material,product or service within the target area.


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3. Discovery of key variance (deviations from the norm that significantly affect thequality or quantity of the operation) and their interrelations.

4. Drawing up a table of variance control to determine how much the key variancesare controlled by the social system (workers, supervisors, and managers) andwhether any are imported or exported across units or departments.

5. Mapping out linear role relationships (vertical and horizontal) in the target unit.

6. Analysis of employees’ (workers, managers, supervisors) perceptions of theirroles and their possibilities, plus constraining factors.

7. Analysis of the role relationships of employees with those of neighboring systems(e.g., support and maintenance) and boundary-crossing systems (supplier &user systems).

8. Examination of the general management system and the effects of technical orsocial policies or plans.

9. Design proposals for the target and/or neighboring systems.

Some organizations find it difficult to implement socio-technical systems integra-tion for any or all of the following reasons:

BARRIERS TO STS INTEGRATION

• Narrow orientation of people from different functional groups.• Technological determinism practiced• Organizational culture not conductive to participation• Lack of empowerment of employees• Lack of business manager familiarity with technology

Socio-technical systems theory is the antithesis of scientific management , not onlybecause it allows employee participation in work redesign, but also because under jointoptimization the technical system cannot lead the change effort in a deterministic way,thereby forcing the social system to adapt to it. Rather, new technology is meant to be

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“human centered” rather than technology driven . Howarth too, emphasizes this latterpoint as she outlines some principles that have guided more recent socio-technical workdesign/redesign efforts:

If an organization follows the dictates of the technical system at the expense of thesocial (or vice versa), the good results hoped for will not be achieved.

For any one technical system a whole range of workable social systems is possible.

The use of cohesive, autonomous groups as the base of the social system offersgreat advantages in terms on the satisfaction and commitment of the workers, and, therefore,in terms of productivity.

For best results, it is preferable to design (or redesign) the technical and socialsystems together.Originally the technical system is taken as given and the social systemredesigned to give improved results, but more recently it has become clear that betterresults can be achieved if the technical system is improved, or chosen, in conjunction withthe social system.

An organization (or “socio-technical system”) cannot be isolated from theenvironment in which it operates (the so-called open systems approach); socio-technicalanalysis therefore now incorporates the relationship between an organization and itsenvironment, taking into account how changes in the world of work affect society and howchanges in society affect the world of work.

Relevant trade unions should be fully involved in research and experimental projectsand where possible the workers affected by changes should also have a say in theirformulation (again this was not originally typical of the sociotechnical approach, but recentlyits importance has become more apparent – possibly because a good deal of the morerecent work has been done in Norway and Sweden with their national emphasis on industrialdemocracy and participation).

Industrial Relations Theory

As Howarth (1984) indicates, the labor-management relationship is key tosuccessful technology adoption in a framework of socio-technical integration. An industrial


NOTES


relations perspective goes beyond management theories designed to humanize work and“leads us to consider human resource practices from the point of view of all the stakeholdersto an employment relationship”. Greater complexity in labor-management structures andprocesses has changed the nature of collective bargaining; whereas in the past there wereregular, formal bilateral negotiations, now in many cases others seek to influence labor-management negotiations”.

To not regard labor unions and the employees they represent as one of manystakeholders in work redesign is to miss an opportunity for strategic, joint collaborationthat is a prerequisite to fundamental and lasting change. Unions serve as a “collectivevoice” and create conditions for ongoing input and improvement of management practices.Although proponents of socio-technical systems in the United States have “largely ignored”the role of unions both in theory and practice, “true union engagement is a necessary” forSTS to have the breadth of impact it should”. This collaboration requires employee andunion input upfront at the problem analysis and solution design status. Thus, the strategicdimension of partnership falls between socio-technical systems theory, which is focusedprimarily on the internal organization, and strategic management theory, in which externalfactors play a role in the formulation of business strategy. It is vital that organizationalstructures for joint decision making be included in collective bargaining agreements withunions and embedded in the day-to-day operation of the organization, so that joint decisionmaking does not become merely a passing fad or “flavor of the month” – to use the parlanceof union leaders who have seen employee involvement programs come and go. Participativechange that is systemic rather than piecemeal can result in improved business productivityand performance.

The formal labor-management relationship converges around the regular negotiationof the terms and conditions of employment, which are codified in a collective bargainingagreement, and the subsequent administration and enforcement of that agreement. Yet inthe United States, decision about capital investment and efficiency improvements are legallywithin the scope of management rights, and bilateral agreement in advance of the change isnot required. For this reason, when unions are successful in negotiating technological changeprovisions, the language is far more likely to be “protectionist” (e.g., concerning advancenotification, seniority governing layoff, income protection), than “future oriented”.

In contrast, a strategic partnership approach to technological change in a unionizedworkplace is based on negotiated provisions that create joint structures at the top and

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bottom levels of the organization. These strategic and departmental joint committees serveas forums for union and worker “involvement” in “decision about technology choice,appropriate technologies, selection of hardware and software, selection and role of vendors,workplace redesign, software programming and training”. Proactive union involvement intechnological change is consistent with a technology management paradigm premised onopen systems theory, in which the organization is ever evolving through its interactions withthe external environment. To be effective in this role, workplace-level union leaders mayneed technical assistance or training in technology needs assessment, planning, design(including ergonomic fit), and evaluation.


3.4 (a) Explain systems theory.

3.4 (b) Explain socio-technical system theory.

3.4 (c) Describe industrial relations theory.

3.5 Readiness for Change Assessment

A readiness-for-change assessment has multifaceted value. First, it helps todetermine whether or not serious internal obstacles exist that might diminish the effectivenessof the change – in this case new technology. Internal obstacles may take the form of

• Attitudes (individual, group, culture);• Organizational structure (e.g., composition of departments, levels of hierarchy,

job design);• Physical infrastructure (e.g., size of facility, wiring for new hardware, physical

capacity to run new equipment);• Human resources (e.g., adequacy of personnel, skills, compensation);• Governance (e.g., degree of participation, labor relations);• Financial resources (e.g., resources that can be devoted to new technology

and related costs); and• Technical skills (e.g., level of resident technical expertise).


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Second, a readiness-for-change audit helps identify readiness variances amongdepartments and subpopulations thereby providing valuable information to steeringcommittee members as they decide where to pilot test the new technology. Third, it can bea source of information on self reported or tested training needs. Finally, measuring changereadiness prior to technology implementation provides a baseline against which futureprogress can be compared.

3.5. MEASURING CHANGE READINESS

An organization can engage in its own self-study using action research methodologyunder the guidance of a trained internal organizational development / human resourceprofessional or external consultant. A consultant who is jointly selected by labor andmanagement can bring a level of objectivity and dispassion to the process that can behelpful – especially in a workplace with a history of labor-management distrust or pooremployee morale. As with the Hawthorne experiments, interviews conducted by outsiderscan have a cathartic value, and employees may feel more comfortable about revealing theirviews to external researchers who hold no power in the organization.

Action research is the name of a methodology in which employee representativesparticipate directly in the research design and in the data collection process of their ownself-study. Although members of the joint steering committee will be centrally involved,there should also be input from frontline employees.

Typically the methods for assessing change readiness are (a) interviews with asmall sample of personnel representing a cross-section of the organization (including thesteering committee) and (b) a survey of a larger representative sample of employees.

• Employee perceptions of technology performance• Attitudes toward workplace modernization• Job structure and degree of discretion• Job safety• Job stress• Job satisfaction• Managerial communication• Adequacy of training• Performance recognition

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• Level of involvement and influence (individual and union) in work-place changeand plant operations decisions.

• Labor relations climate

Although it is no substitute for a more thorough organizational assessment survey,it can help an organization’s leaders anticipate possible enablers of an barriers totechnological change.

Pragmatic Issues

Assessing the need and readiness for technological change according to the methodsdescribed is highly advisable, but not always feasible. There are times when the need tointroduce new technology is so compelling that a lengthy needs assessment is impractical.For example, a health care insurance provider that had been processing claims manuallyfound that as its business grew, customer service waned. The only way to improveoperational efficiency and thus service quality was to introduce new technology – computerworkstations and software designed in-house that provided scanning, batching, labelling,indexing, and electronic retrieval capabilities. Such a system promised to improve claimaccuracy, processing timeliness, and claim tracking capability, thereby improving serviceto customers. In this case, an expedited needs assessment was required, thereby permittingthe organization to move more quickly to the change readiness assessment phase anddetermining the best method of implementing this system.

Similarly, a police department in a large metropolitan area charged with the goalsof maintaining peace and reducing crime sought to increase arrests by 5% to 10% over a12-month period and to improve the quality of life for resident. An enhancement to its“911” emergency call and dispatch system became available. This new technology-computers with word recognition software would monitor all incoming data and colorcode it according to (a) danger to police, (b) identification of a perpetrator or victim, or (c)recovery of a weapon, illegal drug, or contraband. Citizens phoning the emergency numbertwice within a short time period would get expedited service, and the codes would enablea more precise police response. The software would also play an important role in providingupdated information to officer responding to an emergency call.

In both of these cases, the organizations stood to increase efficiency andresponsiveness to citizen-customer needs by adopting the new technology. By expediting


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the needs analysis process and by performing a variance analysis, these organizationscould advance more quickly to the readiness assessment phase of the change process.Readiness assessment is a vital component of the technological change planning process,for even when it appears that technology is good for the organization, there may be employeeswho do not agree with this judgement. In the case of the police department, dispatchersare likely to be less than enthusiastic about the new 911 technology, fearing added jobstress at best and job dislocation at worst. Knowing this prior to implementation is veryimportant so that training and redeployment can be built into the overall technology adoptionplan.

Inclusive Needs Assessment

Involving a broad cross-section of stakeholders in the technology planning processhelps to promote needs readiness by making needs assessment a collective, engagingexperience. This certainly appears to have been the case in the East Detroit, Michiganpublic school district, where a 70-person Technology Task Force was developed, withrepresentatives from a broad base of the community as well as the schools. Input from thetask force shaped a strategic long-range plan and integrated curriculum. The school districthired a director of educational technology to oversee this process and to provide leadershipfor the instructional technology programs and the technology management process. Thesubsequent success of the district’s technology adoption, use, and educational outcomeswas attributed in large part to its inclusive planning process.

Another Michigan School District also used an inclusive process to determinewhether or not to purchase a computer-based integrated learning system for the teachingof high school math and science. After receiving information about this program from thevendor, the director of secondary education surveyed teachers to determine their need forsuch a system and then forwarded these specifications to the company selling the software.The software company adjusted the software program to meet teacher needs and agreedto allow schools to pilot test the program for one year, during which time hardware andsoftware problems and incompatibilities were resolved. The teachers involved in the pilottest then became trainers of other teachers.

A second, more systemic example of inclusive needs assessment at the same districtwas the development of a Technology Inquiry Group to study current and “best practice”pertaining to the integration of instructional technology into the elementary school curriculum,

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and to make recommendations about a computer-based integrated learning system. Thisgroup consisted of one teacher from each elementary school, a representative from theteacher association executive board, principals from each elementary school, a mediaspecialist and clerk, four computer paraprofessionals, a representative from the districttechnology department, the district director of staff development, and a consultant.

This group developed a framework for the elementary school technology curriculumand highlighted several models for the integration of technology into subject and gradecurricula, including models that had been developed by elementary teachers in the district.The inquiry group also recommended that each school building establish a “technologyteam” to develop a 3-year building technology plan and provide leadership in the acquisitionand use of the technology.

Attitudes Toward New Technology

Employee attitudes toward their jobs and their employer are influenced by variousfactors including job structure, management practices, and the match between personalneeds and job realities. Employee attitudes toward new technology may be somewhatinfluenced by inherent comfort level with new challenges or other personal factors. However,managerial practice plays a large role in shaping the views of employees toward technologicalchange.

Level of complexity of the technology used of the job (an automated storageand retrieval system was labeled a “complex” technological system requiring major jobrestructuring, compared to a “simple” stand-alone computer-controlled assembly stand;some of the employees used to new technology)

Training in the use of the new technology

Duration of new technology use

Advance notification of the new technology’s introduction into their jobs.

The job position held in the organization (e.g., managerial, technical, skilled trades, orproduction workers)

Leadership unions representing employees at the plant.


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Technology Implementation Design

It is not only technology design but also the design of the implementation processitself that must be planned in advance of technology’s introduction. An implementationprocess that is jointly designed and representative of the workforce will go a long way insmoothing problems with installation, start-up and continued technology use.

Multilevel Team Structure and Function

The joint steering committee is the committee responsible for setting forth the strategicvision, goals, and parameters of the technological change. It is this group that ensuresintegration of business and technology strategy, directs the needs assessment and costanalysis, and establishes an overall plan for technology introduction and ongoing evaluation.The steering committee should consist of top-level managers who have authority and accessto the organization’s strategy and resources, and managers from key constituent groups(e.g., human resources, information system, etc.). On the union side, it should include toplocal officers, and representatives of the bargaining council, shop steward structure, andstanding committees. In a manufacturing plant, the composition of the steering committeemight be as follows:

Management Union

Plant manager Local union presidentHuman resource manager Vice presidentInformation systems manager SecretaryEngineering manager Bargaining committee chairQuality control manager Chief stewardTraining manager Education committee chair

For a school’s steering committee, the principal would substitute for the plantmanager, and representatives of appropriate grade levels and curriculum committees wouldserve in place of some of the other slots listed above.

Members of the steering committee should be selected for strategic reasons andto ensure that the committee has the needed authority and skill mix to lead the change. It isalso the role of the steering committee to keep any higher-level management “in the loop”

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to ensure their continued support for the project. In a school district, for instance, thisexecutive level would include the superintendent and school board members on themanagement side, and the representative and regional leaders from the state teachers’association on the union side.

The steering committee should charter working committees at the intermediatelevel, consisting of appointed members that are approved by both parties. At least onesteering committee member should serve on these task-specific committees. Figure presentsone possible configuration that includes a survey committee to assess employee andmanagement technology needs, a cost-benefit committee to analyze ability to purchase thetechnology and methods of justifying its costs, and a technical design committee to workwith information systems/engineering specialists to develop technical specifications for thesoftware and hardware to be developed or purchased. Other possible committees wouldbe a training committee, a health and safety site preparation and maintenance committee,and a publicity and public relations committee. The precise number and composition ofthese committees will depend on the specific needs and structure of the organization.

Levels of Technological Change Committees

Implementation teams operate at the department or unit level, or on a cross-departmental basis if the technology project involves more than one area. It is suggestedthat the new technology be pilot-tested in one or two areas rather than rolled out across


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the entire organization all at once. Selection of departments/units should be based on thesefactors:1. Strategic business needs

2. The receptivity of employees (frontline users and management) to the proposedtechnological change (based on the results of a survey, focus groups, or otherreadiness assessment methods)

3. Technical competency and trainability of employees

Pilot approaches to technology implementation “work best when the target groupis a small, cohesive department that operates largely independently of others”.

The composition of the implementation team will vary, but a typical group wouldinclude approximately five operations employees, two supervisors, one technical expert(engineering or systems management), and one quality control technician. Normally thesteering committee identifies potential team members with the needed experience, functionalrole, and peer respect, and approaches them about serving on the implementation team ona voluntary basis.

It is the job of the implementation team to decide precisely how to introduce thetechnological change in its unit and ensure that all needed elements are in place. Any neededtraining, site preparation, and backup of existing data (if converting to a new softwaresystem) should be anticipated and completed before bringing the new system fully online.(Hands-on training can take place after installation but before full operation). Theimplementation team must also be involved directly in the ongoing evaluation of the newsystem, based on the success criteria provided by the steering committee with input fromthe implementation team.

Adequate staff time and resources must be allocated to enable committees tomeet on a regular basis (generally biweekly) and otherwise do their work (e.g., conductingsurveys during company time, etc). Training in group process and problem identificationand problem-solving skills will most likely be needed by the all three levels of committees.

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First Mover Advantages

Competitive advantages that result from being a technological leader are commonlyreferred to as first mover advantages. These advantages allow a leader to translatetechnology gaps into other competitive advantages that persist even after the technologygap closes. In general, a first mover gets the opportunity to define the competitive rules ina variety of areas. There are several important sources of first mover advantages.

Reputation:

First movers may establish a reputation as the pioneer or leader. Leadership placesa firm in a position of being the first top serve buyers and, thus establish relationships thatmay build loyalty.

Preemptive positioning:

First movers may preempt attractive market positions, forcing competitors to adoptless desirable ones. They are also positioned to be the first to increase capacity, preemptingcompetitors from expanding profitably.

Switching costs:

A first mover can lock in later sales if switching costs are present, that is, when acustomer finds it unattractive, or increased costs in moving, switching from one competitorto another.

Channel selection:

A first mover may be able to choose the best brokers, distributors, or retailers;followers must either accept second best or persuade the channels to shift or divide theirloyalties.

Proprietary learning curve:

When there are experienced curve effects in value activities, the first mover startsthe learning curves first in the affected activities and will gain a cost or differentiationadvantage.


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Favorable access to facilities inputs or other industry resources:

First movers often enjoy cost advantages due to favorable access to facilities andinputs. The firm may get its pick of sites for facilities, for example, or favorable deals withraw material suppliers eager for new business. In the airline industry, the early no-frillscarriers required cheap surplus aircraft and low-cost terminal space, and hired out-of-work pilots.

Definition of standards:

The ability to define standards may make a firm’s position more sustainable Forexample, RCA defined the standards in color TC, which meant the competitors had to godown the learning curve far behind RCA rather than create a new one.

Institutional barriers:

First movers may secure patents or, being first into the country, may receie specialstatus from the government. Such factors may also facilitate the first mover’s ability todefine standards, as well.

Early profits:

In some industries, the first mover may be in a position to enjoy temporarily highprofits from its position. It may be able to contract with buyers at high prices because thenew item is relatively scarce or sell to buyers who value the new technology very highly.

First mover advantages need to be weighed against the potential disadvantagesthat are associated with being a pioneer.

FIRST MOVER DISADVANTAGES

First moves often face disadvantages as well as advantages. These disadvantagescome from three sources: (1) the cost of pioneering, (2) the risks ensuing from uncertainconditions, and (3) low-cost imitation.

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The costs of pioneering:

A first mover often bears substantial pioneering costs. The pioneering costs areoften engendered by the need of gain regulatory approval, educate buyers, developinfrastructure in such areas as service facilities and training, develop inputs such as rawmaterial sources and machinery, and the highest cost of early inputs because of the scarcityof supply or small scale of needs.

Risks:

The first mover often faces three different types of risk created by uncertainconditions. First, the first movers bear the risk of uncertainty over future demand, especiallybecause buyer needs may change. Second, the first movers may be at a disadvantage ifearly investments are specific to the current technology and cannot be easily modified forlater generations. Finally, technological discontinuities work against the first mover by makingobsolete its investments in the established technology.

Low-cost imitation:

The first moves expose themselves to followers who may be able to imitate theinnovation at lower costs than the cost of innovating.

All three factors,sustainability of technological need, first mover advantages, andfirst mover disadvantages-combine to determine the best choice for a particular firm. Hence,all three needs to be analyzed concurrently in order to decide whether the firm shouldpursue a leader versus a follower strategy in its new product launches. Decisions may varyfrom industry to industry as well as from product launch to product launch.

Impressive evidence exists concerning the impact of pioneering on new productperformance. In one study of 40 industrial product entries, pioneering entrants generallymaintained their market share advantage. Similarly, in another study of 174 industrialproducts, pioneering was discovered to be one of the major determinants of long-termsuccess of a new product. In the case of consumer products, it was discovered that secondentrants obtained, on average, only about three-quarters of the market share of the pioneer,and later entrants were able to capture progressively smaller shares. However, there arealso studies that uncover significant first mover disadvantages. For example, in the study of


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the cigarette market, it was found that later entries in rapidly growing markets or entriesthat were significantly differentiated from existing products could gain substantial shares;this removed the first entrant from its dominant position. These studies generally show thatthe decision to be a pioneer or a follower is a complex one and should not be taken lightly.


3.5 (a) What are the obstacles for new technology?

3.5 (b) How change readiness can be measured?

3.5(c) Explain the attitude of employees towards new technology.

3.5 (d) What are the advantages for first mover?

3.5 (e) What are the disadvantages for first mover?

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UNIT IV

CREATIVITY AND TECHNOLOGY

4.1 INTRODUCTION

The human brain is a place where knowledge and experience are laid out in fixedlines and paths. In a normal logical mode, humans think along these structured paths. Thisconventional mode of thinking often does not result in original ideas or novel solutions to agiven problem. Only when people leave these structured paths and merge previouslyunconnected pieces of knowledge and experience that have no obvious relationship, cancreative thinking occur. Creative thinking can be stimulated by applying heuristic (i.e.learning or discovering) principles such as association, abstraction, combination, isolation,variation, and the transfer of structures between unconnected problems. Creativitytechniques are based on these specific heuristic principles, which are integrated into therules of the techniques and guarantee that the techniques are properly applied.

4.2 LEARNING OBJECTIVES:

1. To understand creativity

2. To learn about creativity techniques

3. To know process innovation and nurturing innovation

4. To analyse R&D Management in the firm

4.3 CREATIVITY TECHNIQUES:

4.3.1 Classification of Creativity techniques:

Most creativity techniques should be applied in groups. In a group, the knowledgeelements of the members can fuse to new ideas. The optimal group size has turned out to

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be between five to seven members. Participants should come from different departmentsand/or should have a different professional background. Although creativity techniquesalso exist for individual use, such techniques are often less effective because there is lessdiscipline and stimulation in individual settings.

Creativity techniques can be classified on the basis of two sets of principles:

1. Working principles contained in the techniques:

The generation of ideas can be improved either by 1) stimulating the problemssolver’s intuition of the (methods fostering intuitive thinking), or 2) approaching the problemsystematically (systematic idea generation methods). Systematic idea generation methodssteer the problem solver toward analysing the problem structure and elaborating solutioncomponents systematically. These methods differ from those that foster intuitive thinking,which stimulate the problem solver to come up spontaneously with ideas.

2. Applied triggering principles:

Ideas can result from 1) Variation of existing ideas (forming of idea chains throughfurther development of ideas), or 2) from the confrontation which impressions not relatedto the problem, which leads to the coupling of stimulus elements resulting in new ideas.

The combination of the working and triggering principles results in the followingfour classes of idea-generation methods:

1. Intuitive association;2. Intuitive confrontation;3. Systematic variations; and4. Systematic confrontation.

More than hundred creativity techniques are known. Most of these techniques aresimply variants of a few fundamental methods.

4.3.2 Descriptin of Creativity Techniques

It is important to note that the creativity techniques discussed in this section canonly be successfully applied after the problem in question has been thoroughly analyzed.


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This analysis should finally result in a precise problem definition, which is the starting pointfor all problem-solving sessions.

4.3.2.1 Methods of Intuitive Association

Brainstorming:

Brainstorming, which is based on four fundamental rules, is the best known andmost commonly used of all creativity techniques. It offers people the opportunity to carryout problem-solving sessions efficiently.

Conventional meetings often contain long discussions on insignificant details,because it is difficult for many people to really concentrate on the problem itself. Instead,people tend to judge other people’s ideas first. Therefore, the first of the four fundamentalrules of brainstorming is that judgement or negative criticism is not allowed. Negativeremarks such as “that has been tried before” or “that’s impossible” should not be madeduring brainstorming sessions”.

Brainstorming’s second rule is that participants should mention all ideas that comeinto their minds. Even ideas that are at first sight utopian or fantastic should be mentioned,because they may initiate other realistic ideas.

Third, ideas from group members should be picked up by the other members andfurther developed into new ideas (i.e., variations). This means that group members mustbe able and willing to listen to one another.

Fourth, as many ideas as possible should be produced. The more ideas that aregenerated, the greater the probability that a really original and feasible idea will emerge.

Brainstorming is often considered a simple method, but it requires an experiencedmoderator and discipline from the participants. This method is especially useful for tacklingproblems of a simple nature where the number of possible solutions is large. Brainstormingsessions should last no more than thirty minutes. After the ideas are generated, they shouldbe briefly evaluated. This first evaluation can be subjected to a more thorough screeningand selection process.

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It is important to prepare a brainstorming session in advance. Participants shouldbe informed about the problem to be dealt with and the date and duration of the session atleast two days in advance.

In a classic brainstorming session, the following steps are followed:

• The moderator should explain the problem, give background information andrequirements, and stress the four fundamental rules of brainstorming mentionedearlier.

• Next, all ideas coming to mind should be expressed. Even the most ridiculousideas can be useful, because they can stimulate other group members to comeup with something new. A golden rule of brainstorming is that “quantity breedsquality”.

• Obvious ideas should be mentioned at the beginning of the session so thatthere will be room for really original ideas.

• It is crucial for everyone to get a chance to speak up without being interrupted.

• An idea may be presented in a general way; there is no need for detail.

• The moderator should write down all ideas on a flipchart. Recording all ideason tape is an additional mode that can be used.

• The moderator should ensure that the rules are obeyed.

• If participants run out of ideas, the moderator can add some of his or herown. The moderator can also mention some new principles that may lead thethinking into new directions or read the ideas that have been stated alreadyagain. When repeating the ideas, the moderator should stress generalstatements, very original ideas, and unclear suggestions.

Brainstorming is widely known and frequently applied in companies, although the rules areoften not very well observed and the kind of problems that companies tackle are notsuitable for brainstorming. Brainstorming is especially suited for working on problems that


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emphasize original ideas. Therefore, it may be applied particularly when the basic productidea is established and developed. It may also be used when a wide range of new productapplications is sought (e.g., in searching for new indicators that show whether the freezingchain of foods is interrupted or for new applications for specialty glues).

Brainstorming may always be applied when a group is not familiar with othermethods or when it spontaneously decides to generate ideas for a question that has comeup in a meeting. However, other techniques are more effective for complex and very difficultproblems that usually come up in the conceptual phase of the product-innovation process.These techniques are described in the following sections.

Brainwriting:

Brainwriting is a collective name for a number of creativity techniques developedfor groups. Although brainwriting is based on the same principles as brainstorming,brainwriting participants form their ideas in writing instead of by speaking. Problems ofgroup dynamics as well as the skills of the moderator are less important with brainwriting.Ideas are written on cards or other sheets of paper and circulated in the group. Participantsare stimulated by reading the ideas that the others write down.

Brainwriting has the following advantages over brainstorming.

All ideas are automatically recorded. The pile of cards or sheets serves as a completerecord of the idea-generation session.

There is no room for judgement or criticism; participants work individually andhave time to really consider and develop their own ideas.

Brainstorming can be applied even without an experienced moderator.

One of the disadvantages of brainwriting methods is that, in contrast tobrainstorming, spontaneity might get a bit lost. However, problems that need solutions thattake some individual time to develop are especially suitable for brainwriting techniques.People can take their time and even use graphics or figures to express their ideas. Brainwritingtechniques, therefore, are especially suited for design tasks.

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One valuable brainwriting method is the circulating card technique. In using this technique,all participants sit in a circle and write down their ideas on cards with a thick marker so thatthey can be seen from a distance. Participants lay their completed cards down to theirright, within easy reach of their neighbors. As participants need new ideas, they look throughthe pile of cards that their neighbor has placed on their left and try to develop new ideasthrough variation on the basis of these ideas. The idea-generation phase should be completedafter 20 to 25 minutes.

The major advantage of the circulating-card technique method is that the resultingideas are easy to structure and evaluate later. This is best done by clustering the idea cardson a long table and giving these card clusters specific headings (thematic grouping). Thenthese cards should be put on a bulletin board for further processing. The ideas are evaluatedby distributing adhesive colored dots that represent a participant’s approval of an idea. Asthe ideas all lie on the flipcharts on the wall, the participants place their dots on theirfavorite ideas. With a group of over 50 people, the total number of dots that each personreceives equals about 10% of the ideas. On the other hand, when there are less than 50group members, the budgeted dots for each person equal approximately 20% of the ideas.In addition, colour coding is by marketing staff as opposed to research and developmentstaff) or the rank of the participants, and therefore the value of their judgement.

The circulating card technique is especially useful where a large number of ideas ofquite different natures are expected. In the process of product planning, this technique hasparticularly proven its value for searching for attractive market segments, identifying userproblems, and finding product or product application ideas.

4.3.2.2 Methods of Intuitive Confrontation

Empirical research shows that original ideas are often born when the problemsolver is confronted with a situation or an object that has no direct relation to the problem.This phenomenon is part of the natural individual creative process.

The anecdote of Archimedes, the famous Greek geometrician, is a classic exampleof a brilliant idea found during a moment of enlightenment. Archimedes was assigned thetask of verifying that a crown that his master had received was made of gold. Normally, hewould have simply compared the weight of the object to be verified with the weight of apiece of Fold having the same volume as that object. However, he found that the crown


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had a very complicated form, and after days of trying he conducted that calculating thecrown’s volume was impossible using classical geometry. When he later relaxed by takinga hot bath, he saw that the water flowed over the edge of the bathtub under the influenceof his body’s volume. He realized that by measuring the volume of the amount of water thatflowed over the bathtub’s edge after putting the crown in a tub full of water, he couldmeasure the crown’s volume simply. Archimedes had transferred the principles of a situationthat had nothing to do with the problem (i.e.., overflowing water) to the problem itself.

The principle of estrangement and confrontation has been used to develop methodsof intuitive confrontation. People are confronted with unconnected situations or objectsfrom which inherent principles, structure, or functions are used to generate ideas. Theapplication of this principle differs from principles of classical brainstorming and brainwritingmethods. In this case:

• There is a difficult problem for which solutions are not at all obvious.

• Other efforts (individual work or other simpler creativity techniques likebrainstorming or brainwriting) have achieved no satisfactory results.

• The emphasis is on finding exceptionally original ideas.

Intuitive confrontation can be used both by individuals working on a problem or by agroup. The methodological approach of intuitive confrontation can best be illustrated bythe method of stimulating word analysis.

Stimulating Word Analysis:

After a thorough problem analysis, a group (five to seven persons) is confrontedwith a series of words that can simply be chosen at random from, for example, a dictionarynouns are most suitable. For these words, which are unconnected with the problem, thegroup determines the inherent principles, structures, functions, and the like, and itspontaneously derives solutions from this confrontation.

Excursion Synectics:

Excursion synectics is a pioneer method of creative problem solving aimed atstimulating all phases of the natural creative process by intensive consideration of the

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problem, incubation (estrangement), illumination, and verification. The session on this methodpromote unconventional thinking and therefore often result in truly novel ideas. The tenstages of this method are:

1. Explain, define, and analyze the problem.2. Elicit spontaneous ideas (purge the mind).3. Check the generated ideas and redefine the problem as understood by the

group.4. Create direct analogies.5. Create personal analogies (personal identifications).6. Create symbolic analogies (contradictions).7. Create direct analogies to a selected symbolic analogy.8. Transfer structures of the direct analogy to the problem (force fit).9. Develop approaches to solutions.10. Select and develop promising ideas.

Visual Group Confrontation:

Visual group confrontation, a methodology that is similar to stimulating wordanalysis, is derived from the stages of the natural creative process. This method particularlyemphasizes relaxation and estrangement.

Following a thorough analysis of the problem, group participants are shown aseries of approximately five pictures for their relaxation and dissociation. These picturesshould not contain too many clearly recognizable details. Quiet background music canhelp to show these pictures. The process of relaxation and dissociation should take aboutfive minutes, after which participants are ready to develop ideas by means of a new set ofpictures.

This group is presented with six to eight pictures. These pictures should be clearand not too abstract or emotional. They must evoke positive feelings. To make the pictureconcrete to the group, one group member describes what he or she sees in detail. Individualparticipants then pick out elements of the picture, identify principles related to these elements,and try to draw solutions to the problem under investigation. The ideas are simultaneouslywritten down on a flipchart.


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The other group members should consider and elaborate on the ideas that aregenerated. Communication within the group is, therefore, very important. Both visibleconfrontation and verbal variation within the group will lead to new ideas.

Confrontation techniques should be applied when one is looking for new solutionsunder rather stringent conditions (when the problem is a tough nut to crack because thereare no obvious answers, and one is happy to find just a few feasible solutions). In theproduct-innovation process, these methods should be applied during the developmentprocess when technical problems come up or conventional solutions are not satisfactory.The following are examples of these situations:

Developing a new method to facilitate the process of separation of waste.Developing a method of attaching a plug for thin or hollow walls.Developing help for truck drivers where the driver has no one to help navigateand must drive backwards to the loading bridge.Developing a new kind of snow chain that is simple to install.

Confrontation techniques require a distinct way of thinking aimed at developingnew aspects by relating the problem with non related objects. Therefore, some advancetraining is absolutely necessary. Confrontation techniques are very strong, because whenthey are applied, the natural creative process is copied and enforced. For example, in atraining session, two objects (e.g., a book and a toaster) are chosen. The participants thentry to give out ideas about relating these two objects to the problem in any possible way.The moderator at the same time helps the participants by stimulating them to come up withthoughts. In the next step, the individuals attempt to do the same without any help from themoderator. Finally, the group as a whole comes up with even more creative ideas to connectthese objects and the problem together.

4.3.2.3 Methods of Systematic Variation

The best-known method of systematic variation is the development of amorphological tableau . There are two major steps in this tableau. First, all different elements,sub problems, or sub functions of the problem under investigation are identified (i.e.,parameters are set). Second, solutions (options) for each parameter are found. Thesesolutions are then tied together to generate an array of overall solutions. Problems are

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solved by this method in the following way:1. Describing, discussing, and formulating the problem:

The problem definition should be formulated in a more broad setting than theactual problem being worked on. An example: The problem should be “city car,” not“concept of a new car of carmaker X and Y suitable for use in the city”.

2. Collecting and selecting parameters:

Make sure that all the problem’s main parameters are covered. These parametersmust be independent from each other. It might be practical to write down each parameteron a card. Pin all cards to a pin-board. These cards form the first column of themorphological tableau

3. Searching for alterative options for each parameter:

This can be done by means of brainstorming or brainwriting. Be sure that all optionsare written on cards.

4. Forming the morphological tableau:

Pin all options down the line behind the parameters that already form the firstcolumn of the tableau on the pinboard.

5. Choosing an optimal combination of options as the best solutions:

Each arbitrary combination options can be an overall solution to the problem beinginvestigated. However, considering all possible solutions is not feasible. For example, asimple morphological tableau with seven parameters and five options for each of the sevenparameters contains 78.125 possible solutions. Therefore, it is recommended to concentrateon the (at first sight) most interesting and feasible options Finally, the best solution can beselected from this chosen set. Special computer programs (e.g., MOSEL) are available tosupport the overall solution selection.

6. Interpreting and working out the details for the chosen solutions:

Creative efforts are especially required in the final step to further develop the bestsolutions.


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Options for the first two parameters are first two parameters are first looked at.Then, a meaningful combination between two options, one from each parameter, issought and the two options are then connected with a line. Afterwards, the nextrow of options is considered until an overall solution (i.e., combination) is reachedat the bottom shown.

4.3.2.4 Sequential Morphological Analysis:

A morphological tableau can become cluttered because the morphological analysisproduces an enormous amount of possible solutions. To avoid this, an alternativemethod, sequential morphological analysis has been developed by Horst Geschkaand Helmut Schlicksupp. This analysis uses the following steps:

1. The morphological tableau is built up as described in the previous section.

2. The parameters are then ranked on the basis of their impact on the final result.

3. The two parameters that have the biggest impact are put in a matrix, in which two orthree attractive, new, and strong combinations (core solutions) are to be found.These solutions serve as a basis for the further morphological solution development.

4. The remaining parameters are considered one after the other, in order of ranking.That is, from the options of the third parameter, one option is chosen that fits thecore combination best. To this three-element combination, the best-suited option ofthe fourth parameter is added, and so on. At the end of this procedure, two to threeoverall solutions to the problem under investigation are available.

The morphological tableau is well-suited for the conceptual phase of new-productdevelopment, when the type of new product is already determined but the product conceptis still open. The morphological tableau is also helpful for finding new combinations withina given product structure when an innovative change of an existing product is needed orfor looking for variants of special application fields.

For a morphological tableau to be successfully applied, the concept underinvestigation absolutely must be divisible in separate components or functions. As a result,products or systems like machines, appliances, and service packages are especially suitablefor using a morphological tableau.

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Progressive Abstraction:

In progressive abstraction, a given problem is discussed and analyzed, andsuggestions for its solutions are put forward. The concept here is to look at a complexproblem from different levels of abstraction (broadness). “What really matters?” is the keyquestion asked in every stage, whereupon the problem in reconsidered at a higher level ofabstraction and possibly reformulated every time. As the problem is viewed from differentangles, different approaches to its solutions are produced. Finally, the most effective levelat which the problem could be attacked and solved is identified. This method is well suitedfor analysis problems, where a fundamental insight into the problem structure is needed.

Methods of Systematic Confrontation

In the discussion of methods of intuitive confrontation, methods that were usefulfor idea generation were presented. These methods were based on the stimulation ofcreative thinking by means of unrelated objects or situations presented by words or picturesrandomly given to the problem solver. Like methods of intuitive confrontation, methods ofsystematic confrontation are also based on the stimulation of the idea-generation processby confrontation with different elements. The main difference is that the elements presentedare not randomly chosen, but are systematically developed as part of the method.

Morphological Matrix:

The morphological matrix is a variant of the morphological tableau. The differencebetween the two is that a morphological matrix has only two parameters, one put on the Xaxis, and the other on the Y axis. The options that go with each parameter are also put onthe corresponding axis. In this way, all single options can be confronted with each other inthe fields of the matrix. All important aspects of the problem are systematically broughttogether and analyzed, and they may stimulate solution ideas, ideally one idea per field ofthe matrix.

To build up a morphological matrix, these steps should be followed.

1. Determine several independent parameters.

2. Search for options for each parameter and place them in a the matrix along the Xaxis for one parameter and the Y axis for the other. Construct several matrixes with


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the parameters and try first-idea finding. This test idea generation allows one tojudge which matrix (i.e., parameter combination) stimulates the finding of the mostoriginal ideas.

3. Work out the most suitable matrix in more details and check it for completeness.

4. Work through the matrix field by field.

5. Think of solutions for the problem under investigation that result from combiningthese two options. The combinations of two options have to be interpreted verycreatively. Even if a combination does not seem feasible at first sight, the confrontationof both options might lead to new innovative ideas after further effort.

The morphological matrix is a very effective structuring methods that can be usedto approach any new field to be considered for the first time. It can be fixed place in theinnovation-planning process and is being used for structuring search fields for new products.It may also be applied in technical areas, again as a first method of structuring beforefocusing on specific fields. This matrix has been used in the following areas:

o New body care product identification;o Gardening tools;o Application for a color-recognition device; ando Refrigeration at home.


4.3 (a) How creativity techniques are classified?

4.3 (b) Explain the methods of intuitive association.

4.3 (c) Explain the methods of intuitive confrontation.

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4.4 DEVELOPING AN R&D STRATEGY AND STRENGTHENING R&DADMINISTRATION

Most R&D organizations focus almost completely on selecting, planning, andmanaging projects and then transferring them to infrastructure is needed – one that increasesthe probability of a project’s success. Two key elements of the infrastructure of an R&Dorganization are an R&D strategy and R&D administration.

An R&D strategy is important because it helps an R&D organization select projectsin terms of a broader perspective rather then just piecemeal. When an R&D strategy, it willmore likely select projects that match its technical strengths, the capabilities of its company,and the demands of the marketplace

R&D administration encompasses many things – from purchasing instruments forthe laboratory to handling grievances with the R&D organization, from determining the payscales of R&D people to designing the work areas of a laboratory. This discusses threeareas of R&D administration : strengthening the technical skills; and determining the numberof people in various groups in the R&D organization. The better projects will be planned,managed , and transferred to business operations.

4.4.1 Developing an R&D Strategy:

To develop an R&D strategy , an R&D organization first must ensure that certainconditions are in place:

1. A perception that an R&D strategy can solve a problem.2. A planning staff within a large R&D organisation or in a small R&D organisation, a

strong commitment by the R&D line managers an devote enough effort to doingR&D strategic planning.

3. A way of linking to do strategic marketing.4. The active support of senior business managers.5. One or more previous efforts to develop an R&D strategy.6. A series of concrete efforts that produce tangible results on their own but also allow

R&D people to improve R&D strategy


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The perception that an R&D Strategy Can Solve a Problem:

Although the idea of developing an R&D strategy may be accepted, usually thedevelopment of an R&D strategy will not come about unless an R&D strategy is perceivedas solving a problem. That is, the effort that goes into developing an R&D strategy - andthe conflicts that may unless an R&D organization needs to have an R&D strategy in orderto solve a problem it usually will not make the effort or face the conflict.

For example, the head of an R&D organization in a chemical company championedthe need to develop an R&D strategy because he was anxious about his R&D organization’sability to deliver the new business that senior business managers expected from the R&Dorganization. When this R&D organization’s company had sales of $100 million, this R&Dmanager was always confident that his R&D organization could develop one new businessworth $40 million each year. After the company reached $1 billion in sales, however, thisR&D organization was expected to develop four new businesses, each worth $40 millionevery year. Although this R&D manager was confident that his R&D organization coulddevelop one or two of these new businesses each year, he was not confident that it coulddevelop four of them a year. In addition, at this time the R&D organization was also underpressure to be more productive in its use of R&D resources. For these reasons, therefore,this R&D manager perceived developing an R&D strategy as a way of solving his problemrelated to what the R&D organization was expected to produce.

The R&D manager of a food - processing company recognized the need to developan R&D strategy for other reasons. To accomplish this task, they recognized that they hadto have an R&D strategy to help establish priorities and coordinate the R&D being doneon beverages, these R&D managers perceived the need to develop an R&D strategyrelated to R&D on beverages.

In short, while acknowledging the value of an R&D strategy, unless R&D managersperceive that an R&D strategy will solve a problem, an R&D strategy usually will not bedeveloped.

The Creation of a Planning Staff:

Although line manager within a large R&D organization can develop an R&Dstrategy, in practice, if there is not a planning staff that facilitates the development of anR&D strategy, these usually will not be one.

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For example, In a natural resources company, there was no R&D strategy forquite a while, because no one was appointed to facilitate the development of an R&Dstrategy, this R&D organization still does not have an R&D strategy.

In contrast, in a pulp and paper company there has been an R&D planning groupfor eight years. Although this company now has an R&D strategy, it was not easy todevelop. The R&D planners ran across two types of problems: analytical and organizational.

The analytical problems surfaces when the R&D planners first attempted to facilitatethe development of an R&D strategy. They found that there was no accepted methodologyfor developing an R&D strategy. Although other R&D managers, consultants, andacademicians all had their opinions on what is to be done, none of them had a completepicture of the process. In addition, the opinions of these various R&D managers, consultants,and academicians often were in conflict with each other or were irreconcilable. Thus, theR&D planners in this company had to develop their own methodology.

The R&D planners also found that members of the R&D staff were not interestedin developing an R&D strategy. Because of this, the R&D planners had to spend 70percent of their time during the first few years persuading the R&D staff to do R&Dstrategic planning and then educating them with regard to how an R&D strategy can bedeveloped.

The experience of these R&D planners are typical. Someone usually has to developthe methodology to be used in doing R&D strategic planning. Someone also has to be theday-to-day champion to R&D strategic planning – or it will not get done. Theoretically,R&D managers in a large R&D organization can handle these responsibilities. In practice,R&D line managers in a large R&D organization normally have so many other responsibilitiesthat they neglect R&D strategic planning. Thus, an R&D planning group usually proves tobe necessary to accomplishing R&D strategic planning.

In a small R&D organization, on the other hand, R&D line managers are the onlyones who can develop an R&D strategy because staff positions usually do not exist. Thus,to get R&D strategic planning done, the R&D line managers in a small R&D organizationmust add the responsibilities of an R&D planning group to their normal responsibilities.These R&D managers usually will not be able to devote much time to developing a planningmethodology. However, because they have responsibility for managing the R&D groups, if


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the R&D managers in a small R&D organization do develop an R&D strategy, they shouldhave less difficulty in getting this strategy accepted and implemented.

The Linking of R&D Strategic Planning to R&D Operations

To get an R&D staff to develop an R&D strategy, R&D planners (or R&D linemanagers) must find ways to relate R&D strategic planning to R&D operations. Thisconnection between R&D strategic planning and R&D operation has two aspects.

First, R&D staff members must be able to see that their interest can be servedthrough developing an R&D strategy. Thus, R&D planners must find a mechanism thatinvolves R&D strategic planning while serving the interests of the R&D staff.

For example, R&D planners at a candy company established a cross disciplinaryforum involving a variety of R&D people. One of the purposes of this forum was to getthese R&D people to talk with each other. Although they all carried out R&D on chocolate,they seldom interacted. This cross disciplinary forum turned out to be a useful mechanismnot only for improving communication, but also for getting R&D strategic planning accepted.Once involved in this cross-disciplinary forum, these R&D people became interested incoordinating their technical activities. However, they lacked a common language to describetheir technical activities and an analytical framework through which they could evaluatetheir various technical activities. With the help of the R&D planners, they learned how touse the tools of R&D strategic planning, which helped them in both areas. Thus, throughthis mechanism, R&D people not only found a way to coordinate their technical work, butalso in the process learned how to do R&D strategic planning.

Second, for the R&D strategy to be meaningful, the R&D projects that are actuallyselected and carried out have to be linked to the strategy. In other words, an R&D strategyis not worth much if it does not affect which R&D projects are selected and carried out.

An R&D organization in a household products company addressed this problemby viewing the development of an R&D strategy as involving two phases. During the firstphase, the senior R&D managers defined the overall direction of the R&D strategy. Duringthe second phase, middle-level R&D managers defined the specifics of the R&D strategythrough the projects they selected and carried out.

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4.4.2 Strengthening R&D Administration:

One way in which R&D organizations can strengthen technical skills in house is byrecruiting technical people from other industries. For example, the R&D organization of afood processing company gained a great deal by bringing in an engineer from thepetrochemical industry. Because this engineer had a different technical perspective on thehandling of oils, he was able to develop technical solutions that engineers who had spenttheir career in food processing could not. At a toy company, an engineer with an extremelyvaried career in many types of industries, including the machine tool and aerospace industries,has provided valuable help in identifying technologies that can be utilized from other industries.Finally, at a tobacco company, a medical doctor from the health care product industry hasprovided a totally new perspective on how research might alleviate some of the healthproblems related to smoking.

When R&D organizations do recruit young scientists or engineers, one good practicethat they could follow is to recruit them as interns while they are in graduate school. Forexample, an R&D organization in an electronics company recruits most of its young scientistsand engineers in this way. By being able to evaluate in depth the technical skillsand work habits of these scientists and engineers before making a commitment, the R&Dorganization finds that it makes better choices. The organization hires about one-half ofthese interns permanently.

Deciding about Contracting for Technical Skills Outside

Because R&D organizations increasingly find that they do not have all of the technicalskills that they need in house, many of them are contracting out for the necessary technicalskills. R&D organizations follow a variety of strategies with regard to what technical skillsthey maintain in house and what technical skills they receive from outside.

In deciding what strategy to follow R&D organization can consider the followingtwo questions: In which technical areas should the company be able to use skills from anysource? And how much should the company control the technical skills that it needs?

Although there are a variety of possible ways in which R&D organizations couldanswer these questions, the actual strategies the R&D organizations formulate fall intoroughly four types.


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Strategy 1: The company should have complete control over skills in alltechnical areas.

Strategy 2: The company should have some control over skills in all technicalareas.

Strategy 3: The company should have complete control over skills in themost important technical areas.

Strategy 4: The company should have a little control over skills in all technicalareas.

Strategy 1: Be Self-sufficient:

The basis of this strategy is the belief that all technical knowledge about thecompany’s products and processes is vitally important and must be kept within in order tomaintain the company’s competitiveness. For example, one consumer product R&Dorganization rarely contracts out for tests concerning safety because competitors may learnimportant information based on the kinds of tests run by the outside contractors. However,R&D organizations following this strategy do contract out on occasion in areas in whichthey lack any expertise (e.g., in biotechnology).

Strategy 2: Use Strategic Alliances:

Under this strategy, R&D organizations work as partners with the outside contractor,rather than have the contractor do all of it. The organizations often perform some of thetechnical work themselves, in order to deal on an equal basis with the contractor. ManyR&D organizations have developed strategic alliances with their suppliers. For instance,many food processing R&D organizations have developed strategic alliances with ingredientmanufacturers. One chemical R&D organization has 42 different strategic alliances withoutside organizations. Its overall aim in utilizing so many strategic alliances is to bring manynew technologies into the company in order to improve its speed and flexibility in developingnew products. A health care products company has used strategic alliances with universitiesand small companies for the purpose of developing technologies that are central to thiscompany’s businesses, but which this company’s R&D organization does not have thetechnical skills to develop.

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Strategy 3: Maintain the Technical Skills at the Highest Level in House Only inAreas That Are Directly Related to Product Development:

Companies that follow this strategy between knowledge related to productdevelopment, which they consider proprietary, and other technical knowledge, which theyconsider non proprietary. Although each R&D organization has its own definition of whatis non proprietary, some areas of technical knowledge that R&D organizations often considernon proprietary are packaging, manufacturing equipment, toxicology, and safety. ManyR&D organizations contract out for analytical studies, especially studies that involve theuse of expensive research instruments.

Strategy 4: Contract Out Much of the Work:

There are some R&D organizations that follow a strategy of contracting out agreat deal of their work. For example, one R&D organization, which consists of 25 technicalpeople, has been contracting out much of its work for over 20 years. Another R&Dorganization, which has 20 technical people, contracts with university professors to domost of its research. As might be expected, many of the R&D organizations that follow thisstrategy do not pursue an aggressive policy of new product development.

The following analogy illustrates and compares these various strategies. Assume ahomeowner needs to build and paint an outside deck. The homeowner might have fourchoices on how to get the job done: the homeowner could build and paint the deck; thehomeowner could build and paint the deck with the help of a contractor for specializedbuilding tasks; the homeowner could build the deck, and have a contractor paint it; and acontractor could build and paint the deck.

All four ways of getting the deck built and painted could work very well. Thechoice depends on the handiness of the homeowner, and the amount of time the homeownerhas. Homeowners who are extremely handy and have enough time to build and paint adeck should build and paint the deck themselves: Strategy 1. Homeowners who are onlyfairly handy and have very little time should have the deck built and painted by a contractor;Thus, there is not any best way to have a deck built and painted.

This is similar with regard to doing the technical work in house or contracting for itoutside. There is not a right answer for all R&D organizations because it depends on anR&D organization’s circumstances and values.


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Determining the Number of People in Various Groups in the R&D organization:

Two questions are helpful in determining the number of people in various groupsin the R&D organization. The first question concerns the right ratio between different groupsor personnel within an R&D organization (e.g., between technical support groups andother R&D groups, between technicians and R&D professionals, and betweenadministrative support personnel and R&D personnel). The second question concerns theoptimum number of personnel that an R&D manager should supervise.

Right Ratio of Groups of Personnel:

Questions about the proper ratio between technical support groups and otherR&D groups, between technicians and R&D professionals, and between administrationsupport personnel and R&D personnel can only be answered in terms of a particularcontext. There is not one universal answer.

The right-ratio questions are similar to asking “What percentage of their salaryshould people save? Some individuals will argue for saving 5%, others for saving 10%,and still others for saving 15% of their salary. Who is right? The answer is “No one”. Allindividuals need to make their own decisions based on their personal circumstances.

The same holds for ratios related to various technical groups or personnel. Thereis no right answer for all R&D organizations.

However, what complicates matters related to determining the right ratio betweentechnical groups or personnel is that most R&D managers do not have sufficient knowledgeto adequately compare the tradeoffs involved in one ration with the tradeoffs involved inanother ratio (e.g., how does a ratio of one analytical support person for four line technicalpeople compare with a ratio of one analytical support person for six line technical people).In reality R&D managers make decision about these matters based mostly on their gutfeel.

On the whole, R&D managers do not understand well how technical supportpersonnel, technicians, and administrative support personnel work. During their career,R&D managers normally have worked primarily in product development or exploratoryR&D not as technicians or technical or administrative support personnel. Therefore, they

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are inclined to err on the side of ensuring that there are enough R&D professionals inproduct development or in exploratory R&D rather than erring on the side of having enoughtechnical support personnel, technicians, or administration support personnel. Their rationaleis that it is easier to contract out for technical support personal, technicians, and administrativesupport personnel, who usually have less specialized skills, than it is to contact out forR&D professional. However, R&D managers should consider that they, on the whole, donot understand the tradeoffs between various technical groups because they do notunderstand how those technical groups or personnel work, therefore, how can they knowif they have the correct number of R&D professionals in product development or exploratoryR&D to maintain the proper ratio?

It might be mentioned that R&D managers make decisions about technical supportpersonnel, technicians, and administration support personnel that, on the whole, are notunlike the decisions that senior business managers make about R&D people. Becausesenior business managers usually do not understand well how R&D people work, theyoften make decisions about R&D budgets or R&D personnel that are based either oncertain arbitrary ratios (e.g., spending on R&D should be a certain percent of sales) or anarbitrary figures (e.g., the maximum number of people in an R&D organization should besuch-and-such). Similarly, because R&D managers usually do nor understand well howtechnical support personnel, technicians, and administrative support personnel work, theyalso often rely on arbitrary ratios or figures when making decision about the operation ofthese groups or personnel.

Optimum Number of Personnel Whom an R&D Manager Should Supervise.

In this area, R&D managers’ knowledge is also inadequate and they often makedecisions based on their gut feeling. For example, an R&D manager at one chemicalcompany believes that R&D managers should not supervise more than six technical people,because, if the staff were larger the manager would not be able to know the substance ofthe staff’s work adequately. At another chemical company, an R&D manager believes thatR&D managers can supervise up to 20 to 30 technical people.

There is no right answer for all R&D organizations concerning the optimum numberof people an R&D managers should supervise. Right answers in this area must bedetermined, however, not only for an specific R&D organizations by taking into account itssituation, but also for each R&D manager within that R&D organization by taking intoaccount his or her particular situations.


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To increase the probability of success of R&D projects, R&D manages shouldimprove the infrastructure of the R&D organization. Specifically, they need (1) to developan R&D strategy, and (2) to strengthen R&D administration. By doing this, they will alsoimprove how projects are selected, planned and managed, and transferred to businessoperations – in turn, increasing the probability of success of the R&D projects.

4.5 TYPES OF INNOVATION

Technological innovations are often categorized into different types such as “radical”versus “incremental.” Different types of innovation require different kinds of underlyingknowledge and have different impacts on the industry’s competitors and customers. Fourof the dimension most commonly used to categorize innovations are described here: productversus process innovation, radical versus incremental, competence enhancing versuscompetence destroying, and architectural versus component.

4.5.1 Product Innovation versus Process Innovation

Product innovations are embodied in the outputs of an organization – its goods orservices. For example, Honda’s development of a new hybrid electric vehicle is a productinnovation. Process innovations are innovations in the way an organization conducts itsbusiness, such as in the techniques of producing or marketing goods of services. Processinnovations are often oriented toward improving the effectiveness or efficiency of productionby, for example, reducing defect rates or increasing the quantity that may be produced in agiven time. For example, a process innovation at a biotechnology firm might entail developinga genetic algorithm that can quickly search a set of disease-related genes to identify atarget for therapeutic intervention. In this instance, the process innovation (the geneticalgorithm) can speed up the firm’s ability to develop a product innovation ( a new therapeuticdrug).

New product innovations and process innovations often occur in tandem. First,new processes may enable the production of new products. For example, as discussedlater in the chapter, the development of new metallurgical techniques enabled thedevelopment of the bicycle chain, which in turn enable the development of multiple-gearbicycles. Second, new products may enable the development of new processes. Forexample, the development of advanced workstations has enabled firms to implementcomputer-aided-manufacturing processes that increase the speed and efficiency of

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production. Finally, a product innovation for one firm may simultaneously be a processinnovation for another. For example, when United Parcel Service (UPS) helps a customerdevelop a more efficient distribution system, the new distribution system is simultaneouslya product innovation for UPS and process innovation for its customer.

Though product innovations are often more visible than process innovations, bothare extremely important to an organization’s ability to compete

4.5.2 Radical Innovation versus Incremental Innovations:

One of the primary dimensions used to distinguish types of innovation is thecontinuum between radical versus incremental innovation. A number of definitions havebeen posed for radical innovation and incremental innovation, but most hinge on thedegree to which an innovation represents a departure from existing practices. Thusradicalness might be conceived as the combination of newness and the degree ofdifferentness. A technology could be new to the world, new to an industry, new to a firm,or new merely to an adopting business unit. A technology could be significantly differentfrom existing products and processes or only marginally different. The most radicalinnovations would be new to the world and exceptionally different from existing productsand processes. The introduction of wireless telecommunication products aptly illustratesthis – it embodied significantly new technologies that required new manufacturing andservice processes. Incremental innovation is at the other end of the spectrum. An incrementalinnovation might not be particularly new or exceptional; it might have been previouslyknown to the firm or industry, and involve only a minor change from (or adjustment to)existing practices. For example, changing the configuration of a cell phone from one thathas an exposed keyboard to one that has a flip cover or offering a new service plan thatenable more free weekend minutes would represent incremental innovation.

The radicalness of innovation is also sometimes defined in terms of risk. Sinceradical innovations often embody new knowledge, producers and customers will vary intheir experience and familiarity with the innovation, and in their judgement of its usefulnessor reliability. The development of third generation (3G) telephony is illustrative. 3G wirelesscommunication technology utilizes broadband channels. This increases bandwidth and givesmobile phones far greater data transmission capabilities that enable activities such asvideoconferencing and accessing the most advanced Internet sites. For companies todevelop and offer 3G wireless telecommunications service required a significant investment


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in new networking equipment and an infra structure capable of carrying a much largerbandwidth of signals. It also required developing phones with greater display and memorycapabilities, and either increasing the phone’s battery power or increasing the efficiency ofthe phone’s power utilization. Any of these technologies could potentially pose seriousobstacles. It was also unknown to what degree customers would ultimately value broadbandcapability in a wireless device. Thus, the move to 3G required managers to assess severaldifferent risks simultaneously, including technical feasibility, reliability, costs and demand.

Finally, the radicalness of an innovation is relative, and may change over time orwith respect to different observers. An innovation that was once considered radical mayeventually more common. For example, while the first steam engine was a monumentalinnovation, today its construction seems relatively simple. Furthermore, an innovation thatis radical to one firm may seem incremental to another. Although both Kodak and Sonyintroduced digital cameras for the consumer market within a year of each other (Kodak’sDC40 was introduced in 1995, and Sony’s Cyber-Shot Digital Still Camera was introducedin 1996), the two companies’ paths to the introduction were quire different. Kodak’shistorical competencies and reputation were based on its expertise in chemical photography,and thus the transition to digital photography and video required a significant redirectionfor the firm. Sony, on the other hand, had been an electronics company since its inception,and had a substantial level of expertise in digital recording and graphics before producinga digital camera. Thus, for Sony, a digital camera was a straightforward extension of itsexisting competencies.

4.5.3 Competence-Enhancing Innovation versus Competence-DestroyingInnovation

Innovations can also be classified as competence enhancing versus competencedestroying. An innovation is considered to be competence enhancing from the perspectiveof a particular firm if it builds on the firm’s existing knowledge base. For example, eachgeneration of Intel’s microprocessors (e.g., 286, 386, 486, Pentium, Pentium II, PentiumIII, Pentium 4) build on the technology underlying the previous generation. Thus, whileeach generation embodies innovation, these innovation leverage Intel’s existingcompetencies, making them more valuable.

An innovation is considered to be competence destroying from the perspective ofa particular firm if the technology does not build on the firm’s existing competencies or

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renders them obsolete. For example, from the 1600s to the early 1970s, no self respectingmathematician or engineer would have been caught without a slide rule. Slide rules arelightweight devices, often constructed of wood, that use logarithm scales to solve complexmathematical functions. They were used to calculate every-thing from the structural propertiesof a bridge to the range and fuel use of an aircraft. Specially designed slide rules forbusiness had, for example, scales for doing loan calculations or determining optimal purchasequantities. During the 1950s and 1960s, Keuffel & Esser was the preeminent slide-rulemaker in the United States, producing 5,000 slide rules a month. However, in the early1970s, a new innovation relegated the slide rule to collectors and museum displays with injust a few years: the inexpensive handheld calculator. Keuffel & Esser had no backgroundin the electronic components that made electronic calculators possible and was unable totransition to the new technology. But 1973, Keuffel & Esser withdrew from the marker.whereas the inexpensive handheld calculator built on the existing competencies of companiessuch as Hewlett-Packard and Texas Instruments (and thus for them would be competenceenhancing), for Keuffel & Esser, the calculator was a competence destroying innovation.

4.5.4. Architectural Innovation versus Component Innovation

Most products and processes are hierarchically nested systems, meaning that atany unit of analysis, the entity is a system of components, and each of those components is,in turn, a system of finer components, until we reach some point at which the componentsare elementary particles. For example, a bicycle is a system of components such as aframe, wheels, tires, seat, brakes, and so on. Each of those components is also a system ofcomponents: the seat might be a system of components that includes a metal and plasticframe, padding, a nylon cover, and so on.

An innovation may entail a change to individual components, to the overallarchitecture within which those components operate, or both. An innovation is considereda component innovation (or modular innovation) if it entails changes to one or morecomponents, but does not significantly affect the overall configuration of the system. In theexample above, an innovation in bicycle seat technology (such as the incorporation of gel-filled material for additional cushioning) does not require any changes in the rest of thebicycle architecture.

In contrast, an architectural innovation entails changing the overall design of thesystem or the way that components interact with each other. An innovation that is strictly


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architectural may reconfigure the way that components link together in the system, withoutchanging the components themselves. Most architectural innovation, however, createchanges in the system that reverberate throughout its design, requiring changes in theunderlying components in addition to changes in the ways those components interact.Architectural innovation often have far-reaching and complex influences on industrycompetitors and technology users.

For example, the transition from the high-wheel bicycle to the safety bicycle wasan architectural innovation that required (and enabled) the change of many components ofthe bicycle and the way in which riders propelled themselves. In the 1800s, bicycles hadextremely large front wheels. Because there were no gears, the size of the front wheeldirectly determined the speed of the bicycle since the circumference of the wheel was thedistance that could be traveled in a single rotation of the pedals. However, by the start ofthe 20th century, improvements in metallurgy had enabled the production of a fine chainand a sprocket that was small enough and light enough for a human to power. This enabledbicycles to be built with two equally sized wheels, while using gears to accomplish thespeeds that the large from wheel had enabled. Because smaller wheels meant shortershock-absorbing spokes, the move to smaller wheels also prompted the development ofsuspension systems and pneumatic (air-filled) tires. The new bicycles were lighter, cheaper,and more flexible. This architectural innovation led to the rise of companies such as Dunlop(which invented the pneumatic tire) and Raleigh ( which pioneered the three-speed, all-steel bicycle), and transformed the bicycle from a curiosity into a practical transportationdevice.

For a firm to initiate or adopt a component innovation may require that the firmhave knowledge only about that component. However, for a firm to initiate or adopt anarchitectural innovation typically requires that the firm have architectural knowledge aboutthe way components link and integrate to form the whole system. Firms must be able tounderstand how the attributes of components interact, and how changes in some systemfeatures might trigger the need for changes in many other design features of the overallsystem or the individual components.

Though the dimensions described above are useful for exploring key ways thatone innovation may differ from another, these dimensions are not independent, nor do theyoffer a straightforward system for categorizing innovations in a precise and consistentmanner. Each of the above dimensions shares relationships with others – for example,

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architectural innovations are often considered more radical and more competence destroyingthan component innovations. Furthermore, where an innovation lies on the dimension ofcompetence enhancing versus destroying, architectural versus component, or radical versusincremental depends on the time frame and industry context from which it is considered.Thus, while the dimension above are valuable to understand innovation, they should beconsidered relative for dimensions whose meaning is dependent on the context in whichthey are used.

We now will turn to exploring patterns in technological innovation. Numerous studiesof innovation have revealed recurring patterns in how new technologies emerge, evolve,are adopted, and are displaced by other technologies. We begin by examining technologys-curves.

4.5.5 Technology S-Curves

Both the rate of a technology’s performance improvement and the rate at whichthe technology is adopted in the marketplace repeatedly have been shown to conform toan s-shape curve. Though s-curves in technology performance and s-curves in technologydiffusion are related (improvements in performance may foster faster adoption, and greateradoption may motivate further investment in improving performance), they are fundamentallydifferent processes. S-curves in technology improvements are described first, followed bys-curves in technology diffusion. This section also explains that despite the allure of usings-curves to predict when new phases of a technology’s life cycle will begin, doing so canbe misleading.

S-Curves in Technological Improvement

Many technologies exhibit an s-curve in their performance improvement over theirlifetimes. When a technology’s performance is plotted against the amount of effort andmoney invested in the technology, it typically shows slow initial improvement, thenaccelerated improvement, then diminishing improvement. Performance improvement inthe early stage of a technology is slow because the fundamentals of the technology arepoorly understood. Great effort may be spent exploring different paths of


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Limit of Technology

Performance

Effort

Improvement. If the technology is very different from previous technologies, there may beno evaluation routines that enable researchers to assess its progress or its potential.Furthermore, until the technology has established a degree of legitimacy, it may be difficultto attract other researchers to participate in its development. However, as scientists orfirms gain a deeper understanding of the technology, improvement begins to accelerate.The technology begins to gain legitimacy as a worthwhile endeavor, attracting otherdevelopers. Furthermore, measures for assessing the technology are developed, permittingresearchers to target their attention toward those activities that reap the greatest improvementper unit of effort, enabling performance to increase rapidly. However, at some point,diminishing returns to effort begin to set in. As the technology begins to reach its inherentlimits, the cost of each marginal improvement increases, and the s-curve flattens.

Often a technology’s s-curve is plotted with performance (e.g.., speed, capacity,or power) against time, but this must be approached with care. If the effort invested is notconstant over time, the resulting s-curve can obscure the true relationship. If effort is relativelyconstant over time, potting performance against time will result in the same characteristiccurve as plotting performance against effort. However, if the amount of effort invested in atechnology decreases or increases over time, the resulting curve could appear to flattenmuch more quickly, or not flatten at all. For instance, one of the more well-known technologytrajectories is described by an axiom that became known as Moore’s law. In 1965, GordonMoore, cofounder of Intel, noted that the density of transistors on integrated circuits had

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doubled every year since the integrated circuit was invented. That rate has since slowed todoubling every 18 months, but the rate of acceleration is still very steep.

However, Intel’s rate of investment (research and development dollars per year)has also been increasing rapidly, Not all of Intel’s R&D expense goes directly to improvingmicroprocessor power, but it is reasonable to assume that Intel’s investment specifically inmicroprocessor power, would exhibit a similar pattern of increase. The big gains in transistordensity have come at a big cost in terms of effort invested. Though the curve does not yetresemble the traditional s-curve, its rate of increase is not as sharp as when the curve isplotted against years. Most estimates (including those of Gordon Moore himself) predictthat transistor miniaturization will reach its physical limits by about 2017.

Technologies do not always get the opportunity to reach their limits; they may berendered obsolete by new, discontinuous technologies. A new innovation is discontinuouswhen it fulfils a similar market need, but does so by building on an entirely new knowledgebase. For example, the switch from propeller-based planes to jets, from silver-halide(chemical) photography to digital photography, from carbon copying to photocopying,and from vinyl records (or analog cassettes) to compact discs were all technologicaldiscontinuities.

Initially, the technological discontinuity may have lower performance than theincumbent technology. For instance, once of the earliest automobiles, introduced in 1771by Nicolas Joseph Cugnot, was never put into commercial production because it wasmuch slower and harder to operate than a horse-drawn carriage. It was three-wheeled,steam-powered, and could travel at 2.3 miles per hour. A number of steam – and gas-powered vehicles were introduced in the 1800s, but it was not until the early 1900s thatautomobiles began to be produced in quantity.

In early stages, effort invested in a new technology may reap lower returns thaneffort invested in the current technology, and firms are often reluctant to switch. However,if the disruptive technology has a steeper s-curve or an s-curve that increases to a higherperformance limit there may come a time when the returns to effort invested in the newtechnology are much higher than effort invested in the incumbent technology. New firmsentering the industry are likely to choose the disruptive technology, and incumbent firmsface the difficult choice of trying to extend the life of their current technology or investing inswitching to the new technology. If the disruptive technology has much greater performance


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potential for a given amount of effort, in the long run it is likely to displace the incumbenttechnology, but the rate at which it does so can vary significantly.

4.5.5.1. S-Curves in Technology Diffusion

S-curves are also often used to describe the diffusion of a technology. Unlike s-curves in technology performance, s-curves in technology diffusion are obtained byplotting the cumulative number of adopters of the technology becomes better understoodand utilized by the mass market, and eventually the market is saturated so the rate of newadoptions declines. For instance, when electronic calculators were introduced to the market,they were first adopted by the relatively small pool of scientists and engineers. This grouphad previously used slide rules. Then the calculator began to penetrate the large markets ofaccountants and commercial users, followed by the still larger market that included studentsand the general public. After these markets had become saturated, fewer opportunitiesremained for new adoptions. One rather curious feature of technology diffusion is that ittypically takes far more time than information diffusion. For example, Mansfield found thatit look 12 years for half the population of potential users to adopt industrial robots, eventhough these potential users were aware of the significant efficiency advantages the robotsoffered. If a new technology is a significant improvement over existing solutions, why dosome firms shift to it more slowly than others? The answer may lie in the complexity of theknowledge underlying new technologies, and in the development of complementaryresources that make those technologies useful. Although some of the knowledge necessaryto utilize a new technology might be transmitted through manuals or other documentation,other aspects of knowledge necessary to fully realize the potential of a technology might bebuilt up only through experience. Some of the knowledge about the technology might betacit and require transmission from person to person through extensive contact. Manypotential adopters of a new technology will not adopt it until such knowledge is available tothem, despite their awareness of the technology and its potential advantages.

Furthermore, many technologies become valuable to a wide range of potentialusers only after a set of complementary resources are developed for them. For example,while the first electric light was invented in 1809 by Humphry Davy, an English chemist, itdid not become practical until the development of bulbs within which the arc of light wouldbe encased (first demonstrated by James Bowman Lindsay in 1835) and vacuum pumpsto create a vacuum inside the bulb (the mercury vacuum pump was invented by HermanSprengel in 1875). These early lightbulbs burned for only a few hours. Thomas Alva Edison

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built on the work of these earlier inventors when, in 1880, he invented filaments that wouldenable the light to burn for 1,200 hours.

Finally, it should be clear that the s-curves of diffusion are in part a function of thes-curves in technology improvement: as technologies are better developed, they becomemore certain and useful to users, facilitating their adoption. Furthermore, as learning-curveand scale advantages accrue to the technology, the price of finished goods often drops,further accelerating adopting by users. For example, drops in average scales prices forvideo recorders, compact disc players, and cell phones roughly correspond to their increasein household penetration.

S-curves as a Prescriptive Tool

Several authors have argued that managers can use the s-curve model as a tool forpredicting when a technology will reach its limits an as a prescriptive guide for whether andwhen the firm should move to a new, more radical technology. Firms can use data on theinvestment and performance of their own technologies, or data on the over all industryinvestment in a technology and the average performance achieved by multiple producers.Mangers could then use these curves to assess whether a technology appears to beapproaching its limits or to identify new technologies that might be then switch s-curves byacquiring or developing the new technology. However, as a prescriptive tool, the s-curvemodel has several serious limitations.

Limitations of S-curve Model as a Prescriptive Tool

First, it is rare that the true limits of a technology are known in advance, and thereis often considerable disagreement among firms about what a technology’s limits will be.Second, the shape of a technology’s s-curve is not set in stone. Unexpected changes in themarket, component technologies, or complementary technologies can shorten or extendthe life cycle of a technology. Furthermore, firms can influence the shape of the s-curvethrough their development activities. For example, firms can sometimes stretch the s-curvethrough implementing new development approaches or revamping the architecture designof the technology.

Christensen provides an example of this from the disk-drive industry. A disk drive’scapacity is determined by its size multiplied by its area of recording density; thus, density


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has become the most pervasive measure of disk-drive performance. In 1979, IBM hadreached what it perceived as a density limit of ferrite-oxide-based disk drives. It abandonedits ferrite-oxide-based disk drives and moved to developing thin-film technology, whichhad greater potential for increasing density. Hitachi and Fujitsu continued to ride the ferrite-oxide s-curve, ultimately achieving densities that were eight times greater than the densitythat IBM had perceived to be a limit.

Finally, whether switching to a new technology will benefit a firm depends on anumber of factors, including (a) the advantages offered by the new technology, (b) the newtechnology’s fit with the firm’s current abilities (and thus the amount of effort that would berequired to switch, and the time it would take to develop new competencies), (c) the newtechnology’s fit with the firm’s position in complementary resources (e.g., a firm may lackkey complementary resources, or may earn a significant portion of its revenues from sellingproducts compatible with the incumbent technology), and (d) the expected rate of diffusionof the new technology. Thus, a firm that follows an s-curve model too closely could end upswitching technologies earlier or later than it should.

4.5.6 The Diffusion of Innovation and Adopter Categories

S-curves in technology diffusion are often explained as a process of differentcategories of people adopting the technology at different times. One typology of adoptercategories that gained prominence was proposed by Everett M. Rogers. Figure showseach of Rogers’s adopter categories on a technology diffusion s-curve. The figure alsoshows that if the non- cumulative share of each of these adopter groups is plotted on thevertical axis with time on the horizontal axis, the resulting axis with time on the horizontalaxis, the resulting curve is typically bell shaped (though in practice it may be skewed rightor left).

INNOVATORS

Innovators are the first individuals to adopt an innovation. Extremely adventurousin their purchasing behavior, they are comfortable with a high degree of complexity anduncertainty. Innovators typically have access to substantial financial resources (and thuscan afford the losses incurred in unsuccessful adoption decisions). Though they are notalways well integrated into a particular social systems, innovators play an extremelyimportant role in the diffusion of an innovation because they are the individuals who bring

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new ideas into the social system. Rogers estimated that the first 2.5 percent of individualsto adopt a new technology are in this category.

EARLY ADOPTERS

The second category of adopters is the early adopters. Early adopters are wellintegrated into their social system and have the greatest potential for opinion leadership.Early adopters are respected by their peers and know that to retain that respect they mustmake sound innovation adoption decisions. Other potential adopters look to early adoptersfor information and advice, thus early adopters make excellent missionaries for new productsor processes. Rogers estimated that the next 13.5 percent of individuals to adopt aninnovation (after innovators) are in this category.

EARLY MAJORITY

Rogers identifies the next 34 percent of individuals in a social system to adopt anew innovation at the early majority. The early majority adopts innovations slightly beforethe average member of a social system. They are typically not opinion leaders, but theyinteract frequently with their peers.

LATE MAJORITY

The next 34 percent of the individuals in a social system to adopt an innovation arethe late majority, according to Rogers. Like the early majority, the late majority constitutesone-third of the individuals in a social system. Those in the late majority approach innovationwith a skeptical air and may not adopt the innovation until they feel pressure from theirpeers. The late majority may have scarce resources, thus making them reluctant to invest inadoption until most of the uncertainty about the innovation has been resolved.


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Technology Diffusion S-curve with Adopter Categories

S-Curve of 100%CumulativeAdopters 84% Laggards

Late Majority 50%

Early Majority 16% Early Adopters

Innovators 2.5% Innovators

Time

Normal (Bell-Shaped) Curve of Market Share

Innovators Early Early LateLaggards

Adopters Majority Majority

34%

Share

13.5%

2.5% .

Time

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LAGGARDS

The last 16 percent of the individuals in a social system to adopt an innovation aretermed laggards. They may base their decisions primarily upon past experience rather thaninfluence from the social network, and they possess almost no opinion leadership. Theyare highly skeptical of innovations and innovators, and they must feel certain that a newinnovation will not fail before adopting it.


4.5 (a) How will you develop an R & D strategy?

4.5 (b) How will you strengthen R & D administration?

4.5.7. Stages in Technology Cycles:

The s-curve model above suggests that technological change is cyclical: Each news-curve ushers in an initial period of turbulence, followed by rapid improvement, thendiminishing returns, and ultimately is displaced by a new technological discontinuity. Theemergence of a new technological discontinuity can overturn the existing competitivestructure of an industry, creating new leaders and new losers. Schumpeter called this processcreative destruction, and argued that it was the key driver of progress in a capitalist society.

Several studies have tried to identify and characterize the stages of the technologycycle in order to better understand why some technologies succeed and other fail, andwhether established firms or new firms are more likely to be successful in introducing oradopting a new technology. One technology evolution model that rose to prominence wasproposed by Utterback and Abernathy. They observed that a technology passed throughdistinct phases. In the first phase (what they termed the fluid phase), there was considerableuncertainty about both the technology and its market. Products or services based on thetechnology might be crude, unreliable, or expensive, but might suit the needs of somemarket niches. In this phase, firms experiment with different form factors or product featuresto assess the market response. Eventually, however, producers and customers begin toarrive at some consensus about the desired product attributes, and a dominant designemerges. The dominant design establishes a stable architecture for the technology andenable firms to focus their efforts on process innovations that make production of the


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design more effective and efficient or an incremental innovations to improve componentswithin the architecture. Utterback and Abernathy termed this phase the specific phasebecause innovations in products, materials, and manufacturing processes are all specific tothe dominant design. For example, in the United States the vase majority of energyproduction is based on the use of fossil fuels (e.g., oil, coal), and the methods of producingenergy based on these fuels are well established. On the other hand, technologies thatproduce energy based on renewal resources (e.g., solar, wind, hydrogen) are still in thefluid phase. Organizations such as Royal Dutch/Shell, General Electric, and Ballard Powerare experimenting with various forms of solar photocell technologies, wind-turbinetechnologies, and hydrogen fuel cells in efforts to find methods of using renewable resourcesthat meet the capacity and cost requirements of serving large populations.

Building on the Utterback and Abernathy model, Anderson and Tushman studiedthe history of the U.S. minicomputer, cement, and glass industries through several cycles oftechnological change. Like Utterback and Abernathy, Anderson and Tushman found thateach technological discontinuity inaugurated a period of turbulence and uncertainty (whichthey termed the era of ferment). The new technology might offer breakthrough ca[abilities,but there is little agreement about what the major subsystems of the technology should beor how they should be configured together. Thus, while the new technology displaces theold (Anderson and Tushman refer to this as substitution), there is considerable designcompetition a firms experiment with different forms of the technology. Just as in the Utterbackand Abernathy model, Anderson and Tushman found that a dominant design always aroseto command the majority of the market share unless the next discontinuity arrived too soonand disrupted the cycle, or several producers patented their own proprietary technologiesand refused to license to each other. Anderson and Tushman also found that the dominantdesign was never in the same form as the original discontinuity, but it was also never on theleading edge of the technology. Instead of maximizing performance on any individualdimension of the technology, the dominant design tended to bundle together a combinationof features that best fulfilled the demands of the majority of the market.

In the words of Anderson and Tushman, the rise of a dominant design signals thetransition from the era of ferment to the era of incremental change. In this era, firms focuson efficiency and market penetration. Firms may attempt to achieve greater marketsegmentation by offering different models and price points. They may also attempt tolower production costs by simplifying the design or improving the production process.This period of accumulating small improvements may account for the bulk of the technologicalprogress in an industry, and it continues until the next technological discontinuity.

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Understanding the knowledge that firms develop during different eras lends insightinto why successful firms often resist the transition to a new technology, even if it providessignificant advantages. During the era of incremental change, many firms cease to invest inlearning about alternative design architectures and instead invest in refining their competenciesrelated to the dominant architecture. Most competition revolves around improvingcomponents rather than altering the architecture; thus, companies focus their efforts ondeveloping component knowledge and knowledge related to the document architecture.As firms’ routines and capabilities become more and more wedded to the dominantarchitecture, the firms become less able to identity and respond to a major architecturalinnovation. For example, the firm might establish divisions based on the primary componentsof the architecture ad structure the communication channels between divisions on the basisof how those components interact. In the firm’s effort to absorb and process the vastamount of information available to it, it is likely to establish filters that enable it to identifythe information most crucial to its understanding of the existing technology design. As thefirm’s expertise, structure, communication channels, and filters all become oriented aroundmaximizing its ability to compete in the existing dominant design, they become barriers tothe firm’s recognizing and reacting to a new technology architecture.

While many industries appear to conform to this model in which a dominant designemerges, there are exceptions. In some industries, heterogeneity of products and productionprocesses are a primary determinant of value, and thus a dominant design is undesirable.For example, art and cuisine may be example of industries in which there is more pressureto do things differently than to settle upon a standard.

4.6 ORGANISATION CULTURE AND INNOVATION

Culture determines a great deal about the behavior of people in an organizationand about the overall performance of the organization. In fact, culture has been shown tostrongly correlate with the financial performance of an organization over an extended periodof time. In one study, firms with cultures that emphasized all the key managerial constituenciesand leadership from managers at all levels outperformed firms that did not have thosetraits. Over an 11-year period, they outperformed their comparison group in revenues,growth of work force, stock price, and net income.

Because culture can have such a major impact on an organization, technologymanagers cannot ignore it as a factor in the success of their organizations. For most


NOTES


technology managers, the key to that success is innovation. Dozens, of US organizationsin a variety of industries and sizes were analyzed to try to identify the major factors in theculture that support and encourage innovation. This analysis has been by observation,interviews, and discussion and has led to conclusions regarding what needs to exist in aculture that supports innovation.

High Energy

A culture that supports innovation is first a culture of high energy where people arebusy, active, and involved in what they do. They walk through the halls gesturing, talking,engrossed in what they are talking about with the people they are walking with. In thecafeteria and around the coffee pots and water fountains, people are rarely alone; insteadthey are usually talking to others, again actively involved in discussing projects, work, andideas. There is a high degree of electricity and energy in the air.

Pragmatic

The second characteristic of the culture is that it is pragmatic, utilitarian, highlyfunctional and work focused. Everything has a functional purpose. There are not a lot offancy pictures or decorative plants. Desks and workspaces are crammed with papers,and halls are filled with copy machines, file cabinets, and lab equipment. The conferencerooms are bare except for the essential video equipment. The cafeterias reflect the pragmatic,utilitarian air – get your food, concentrate on what needs to be done, and then get back towork. However, it is not at all an unpleasant environment; it is an environment that shunsthe amenities and the fanciness of the more traditional, corporate setting. People are thereto work, and there are few distractions.

Thoughtful and Serious

People in a culture that encourages innovation are typically quite thoughtful andserious. In such an organization, people are not compelled to be constantly talking andmeeting with one another. There is ample time for people to sit at their desks, and theygenerally use this desk time to think, contemplate, and plan their experiments or projects.

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Informal and Idiosyncratic

Another striking characteristic about these cultures is that they are informal andidiosyncratic. There are no dress rules or dress code. Some people come to the office inties, jackets, and white scratched shirts; others come to the office in much more casualattire. The offices were also idiosyncratic, very much reflecting the individual personalitiesof the people in them. One office could be more formal and very neat and tidy with tastefulartwork and lighting. The office next door might be a madhouse, with papers and journalsall over the floor and papers piled high on the desk. This idiosyncrasy was also reflected inthe very wide latitude of acceptable behavior. For example, some socialized outside ofwork, others did not. Some always broke for lunch, other never stopped for lunch, andothers used their lunch hour to go jogging.

Unpretentious

Finally, in a culture that supports innovation, the physical environment is completelyunpretentious. The surroundings are tasteful, cheerful and colorful, but there is not anygrand testimony to corporate wealth with expensive works of art or grandiosity of scale.The entrances are plain and functional. Public area and offices do not have fancy rugs orfurniture. The buildings themselves do not resemble castles, nor are they on grand estates.They are designed for the work to be done.

VALUES AND PHILOSOPHY

A second major aspect of a company culture is the values and philosophy of theorganization. Four key dimensions are very useful in terms of understanding this aspect oforganizational culture: how the organization values ideas, individuals, goals, and authority.How organizations deal with these four dimensions seems to give them a unique position inthe universe of organizational culture. The following sections address what it is about eachdimension that support innovation.

Honor Ideas

Ideas are honored in organizations that foster innovation. In this type of environment,ideas from every source and from every level – experts or non experts – are considered.People do not judge the source of the idea before they listen to the idea. In addition, testing


NOTES


and questioning of someone else’s ideas are key ingredients to success. Testing is viewedas a sign of respect – that is, the idea is worth the time to be tested, questioned, and thoughabout.

Honoring ideas is also supported by the assumption that new ideas are essential toreaching the organization’s goals. People in this culture know that the current ways ofdoing things – the practices of the past – will not allow them to achieve those goals. Newideas are essential. There is also an appreciation for the need to balance the time spentthinking, coordinating, and doing. People who spend all their time doing or coordinatingfeel remiss about not having time to think. Honoring ideas is reflected in the value placedon new ideas and the willingness to listen to and work with them.

Respect Individuals

The next dimension is how individuals are valued. In organizations where innovationis high, the culture fosters respect for individuals. This ties to the informality and theacceptance of people’s idiosyncratic behavior. One of the underlying assumption is thatindividuals, throughout the organization, are the source of ideas and energy that will fuelorganizational performance. Individuals – not system, leaders in positions of great power,or crafty reengineering or acquisition deals – are viewed as being responsible for theorganization’s success. There is also an assumption that individuals are capable of greatthings, and that they are fully capable of being self-sufficient, taking initiative, takingresponsibility, and understanding where they need to change in order to keep things ontrack. Hence, there is a heavy reliance on personal responsibility, personal initiative, andaccountability in these organizations. The message is that great people make greatorganizations, not vice versa. The organization will only be as great as the individuals insideof it allow it to be.

For this to exist, it must be understood that individuals have a right to their owngoals, ambitions, and ways of doing their work. Conformity and consensus are not valued;individuality is. As a result, individuals are treated with care in these organizations, becausethey are the lifeblood and the success of the organization. There are nor fits and spurts ofreorganizations. In addition, mindless outsourcing and people assigned to teams and taskforces just for the sake of having teams and task forces do not occur. The virtual organizationis viewed with skepticism. It is seen as an organization that cannot fully respect its membersbecause they become contracts. Nor is the innovative organization paternalistic. It allows

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lots of freedom and rewards performance. Behind all of this is an inherent trust in the abilityand motivation of the people throughout the organization.

Reverse Goals

The third element of this culture analysis is how the organization values goals. Ininnovative organizations, goals are absolutely revered; they are clear, and they are compelling.Goals – not the climate, not the compensation, and not office politics – are regarded as thesingle most important drivers for the work in the organization. It is the high, compellinggoals and the organization’s commitment to them that contribute more than anything else tothe level of innovative activity.

The underlying assumption is that setting and achieving high goals is the most importantactivity the senior managers of the organization can do, and that communicating andreinforcing these goals needs to occur daily. Relationships, when they’re formed, are formedaround the projects and tasks necessary to achieve the goals. Organizational structure istherefore highly fluid. People have little regard for organizational charts. When the goal isachieved, the assumption is that relationships will be amended so that new and differentrelationships can be formed to deal with the next challenge.

Management is expected not to interfere unless the person or group requests helpor is in trouble moving towards the goals. Consistent with this is that problems, if they areidentified, are expected to be dealt with and resolved immediately. They are not pushedunder the carpet, nor are people blamed for them. It is expected that problems will beflagged at once and tackled immediately. If this does not occur, the problem gets seriousattention from senior management.

Seniority, loyalty, and rank are all considered quite secondary in terms of the person’sassignment. What is most important is the person’s expertise and experience relevant tothe goal at hand. According value to position and rank at the expense of expertise andexperience is in complete conflict with innovation, which is by definition a break from thepast.

Finally, commitments to achieving goals are seen as paramount. They are moreimportant than any other commitment that the person makes. The commitments to goalssupersede commitments made regarding other matters that may not revolve around the


NOTES


goal-directed work of the organizational development off-sires or training activities are leftup to the discretion of the individual.

It is the commitments to achieve the goals that gets the superordinate commitment.All other aspects are expected to be in service to the goals. It should be noted, however,that this can get overzealously interpreted as each person focused slowly on their personalgoals or projects. A section in the next chapter discusses how to avoid this.

Tolerate Authority

To support innovation, authority is tolerated. The word authority – not leadership– is specifically used here. They are different. Authority is imbued in a position or rank.Leadership is a type of behavior. Authority in these organizations is not readily embracedor seen to have all the answers; it is simply tolerated – that is, it is accorded what it earns.Throughout the organization, logical reasoning is regarded more highly than the voice ofauthority. The voice of expertise outweighs all voice of authority.

Authority is accepted where it can be useful and not where it cannot be. Authorityin such a culture does not come from position, status, or rank; it comes from the ability tocontribute to solving the problem. The underlying assumptions of organizations that arebale to foster this culture are that new ideas, testing, and questioning are more importantthan dictates from senior management. Senior management set the targets, and the peopleare expected to achieve them. Hence, the best direction and source of correction whenthere are mistakes comes from the person doing the work, not from above. Senior leadersare seen to serve at the will of the people, not vice versa. There is a humility at the seniorlevels that makes them more approachable and evokes more respect and commitment.

It is assumed that knowledgeable people who can contribute will thrive on questions,challenges, and learning. The experts are not express because of their position; they areexperts because they can learn, challenge, question, and grow, starting with themselves.This is a very different veil of authority than is traditional in most organizations. There, thepyramid dominates, where authority, position, rank, and status carry weight in makingdecisions and solving problems. To foster innovation, this kind of authority, at best, can betolerated, but never blindly obeyed. Where innovation occurs most is where the people inthe organization understand it is their energy and ideas that will lead to achieving high goalsand then to satisfying and fulfilling careers. It is the opposite of entitlements; individuals

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know it is up to them to get the job done. They do not wait to be empowered, whichwould essentially give up the power to act to someone else.

This is a very difficult kind of organization to lead. The traditional basis for leadershiptends to be status, rank, and control over information and resources. These bases are nottolerated in this type of culture. The new basis is one of honoring ideas, respecting individuals,revering goals, and taking one’s own authority with the proverbial grain of salt.

Market leader in 1996:

Industry Market leader Innovation new product

Aerospace Boeing Passenger aircraft

Pharmaceuticals Glaxo-Smithkilne Ulcer treatment drug

Motor cars Mercedes, Ford Car design and associatedProduct development

Computers Intel Computer chip technology, computerIBM hardware improvements andMicrosoft software developments respectively

Nineteenth-century economic development fuelled by technology:

Innovation Innovator Year

Steam engine James Watt 1770-80

Iron boat Isambard Kingdom Brunel 1820-45

Locomotive George Stephenson 1829

Electromagnetic induction dynamo Michael Faraday 1830-40

Electric light bulb Thomas Edison and Joseph swan 1879-90


NOTES


Innovation and Invention

Many people confuse these terms. Indeed, if you were to ask people for anexplanation you would collect a diverse range of definitions. It is true that innovation is thefirst cousin of invention, but they are not identical twins that can be interchanged. Hence, itis important to establish clear meanings for them.

Innovation itself is a very broad concept that can be understood in a variety ofways. One of the more comprehensive definitions is offered by Myers and Marquis (1969):

Innovation is not a single action but a total process of interrelated subprocesses. It is not just the conception of a new idea, not the invention of a newdevice, nor the development of a new market. The process is all these thingsacting in an integrated fashion.

It is important to clarify the use of the term ‘new’ in the concept of innovation.Rogers and Shoemaker (1972) do this eloquently:

It matters little, as far as human behavior is concerned, whether or not anidea is ‘objectively’ new as measured by the lapse of time since its first use ordiscovery …If the idea seems new and different to the individual, it is an innovation.

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Most writers, including those above, distinguish innovation from invention bysuggesting that innovation is concerned with the commercial and practical application ofideas or inventions. Invention, then, is the conception of the idea, whereas innovation is thesubsequent translation of the invention into the economy (US Dept of Commerce, 1967).The following simple question helps to show the relationship between the two terms.

Innovation = Theoretical conception + technical invention + commercialexploitation

However, all the terms in this equation will need explanation in order to avoidconfusion. The conception of new ideas is the starting point for innovation. A new idea byitself, while interesting, is neither an invention nor an innovation, it is merely a concept or athought or collection of thoughts. The process of converting intellectual thoughts into atangible new artifact (usually a product or process) is an invention. This is where scienceand technology usually play a significant role. At this stage inventions need to be combinedwith hard work by many different people to convert them into products that will improvecompany performance. These later activities represent exploitation. However, it is thecomplete process that represents innovation. This introduces the notion that innovation is aprocess with a number of distinctive features that have to be managed. To summarise,then, innovation depends on inventions but inventions need to be harnessed to commercialactivities before they can contribute to the growth of an organisation. Thus:

Innovation is the management of all the activities involved in the process of ideageneration, technology department, manufacturing and marketing of a new (or improved)product or manufacturing process or equipment.

This definition of innovation as a management process also offers a distinctionbetween an innovation and a product, the latter being the output of innovation. The followingillustration will clarify the difference.

An example of an invention

Scientists and development engineers at a household cleaning products companyhad been working for many months on developing a new lavatory cleaning product. Theyhad developed a liquid that when sprayed into the toilet pan, on contact with water, wouldfizz and sparkle. The effect was to give the impression of a tough, active cleaning product.


NOTES


The company applied for a patent and further developments and market research wereplanned.

However, initial results both from technical and market specialists led to theabandonment of the project. The preliminary market feedback suggested a fear of such aproduct on the part of consumers. This was because the fizz and sparkle looked toodramatic and frightening. Furthermore, additional technical research revealed a short shelflife for the mixture. This is a clear example of an invention that did not progress beyond theorganisation to a commercial product. It is a necessary at this point to cross-referencethese discussions with the practical realities of managing a business today. The senior vice-president for research and development at 3M, one of the most highly respected andinnovative organizations, recently defined innovation as:

Creativity: the thinking of novel and appropriate ideas.Innovation: the successful implementation of those ideas within an organization.

Successful and unsuccessful innovations

There is often a great deal of confusion surrounding innovations that are notcommercially successful. A famous example would be the Sinclair C5. This was a small,electrically driver tricycle or car. Unfortunately for Clive Sinclair, the individual behind thedevelopment of the product, it was not commercially successful. Using the definition above,the fact that the product though passed from the drawing board and into the marketplacemakes it an innovation – albeit an unsuccessful one.

4.6.1 Modes of Innovation

Traditional arguments about innovation have centred on two schools of thought.On one hand, the social deterministic school argued that innovations were the result of acombination of external social factors and influences, such as demographic changes,economic influences and cultural changes. The argument was that when the conditionswere ‘right’, innovations would occur. On the other hand, the individualistic school arguedthat innovations were the result of unique individual talents and such innovators are born.Closely linked to the individualistic theory is the important role played by serendipity.

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Serendipity

Many studies of historical cases of innovation have highlighted the important of theunexpected discovery. The role of serendipity or luck is offered as an explanation. Thisview is also reinforced in the popular media. It is, after all, every one’s dream that they willaccidentally uncover a major new invention leading to fame and fortune.

On closer inspection of these historical cases, serendipity is rare indeed. After all,in order to recognise the significance of an advance, one would need to have some priorknowledge in that area. Most discoveries are the result of people who have had a fascinationwith a particular area of science or technology and it is following extended efforts on theirpart that advances are made. Discoveries may not be expected, but in the words of LouisPasteur, ‘chance favours the prepared mind’.

It was US economists after the Second World War who championed the linearmodel of science and innovation. Since then, largely because of its simplicity, this modelhas taken a firm grip on people’s views on how innovation occurs. Indeed, it dominatedscience and industrial policy for 40 years. It was only later that management schools aroundthe world seriously began to challenge the sequential linear process. The recognition thatinnovation occurs through the interaction of the science base (dominated by universitiesand industry), technological development (dominated by industry) and the needs of themarket was a significant step forward. The explanation of the interaction of these activitiesforms the basis of models of innovation today.

There is, of course, a great deal of debate and disagreement about precisely whatactivities influence innovation and, more importantly, the internal processes that affect acompany’s ability to innovate.

Nonetheless, there is broad agreement that it is the linkages between these keycomponents that will produce successful innovation. Importantly, the devil is in the detail.From a European perspective an area that requires particular attention is the linkage betweenthe science base and technological development. The European Union (EU) believes thatEuropean universities have not established effective links with industry, whereas in theUSA universities have been working closely with industry for many years.


NOTES


As explained above, the innovation process has traditionally been viewed as asequence of separable stages or activities. There are two basic variations of this model forproduct innovation. First, there is the technology-driven model (often referred to as‘technology push’) where it is assumed that scientist make unexpected discoveries,technologists apply them to develop product ideas and engineers and designers turn theminto prototypes for testing. It is left to manufacturing to device ways of producing theproducts efficiently. Finally, marketing and sales will promote the product to the potentialconsumer. In this model the marketplace was a passive recipient for the fruits of R&D.This technology-push model dominated industrial policy after the Second World War.While this model of innovation can be applied to a few cases, most notably the pharmaceuticalindustry, it is not applicable in many other instance; in particular where the innovationprocess follows a different route.

It was not until the 1970s that new studies of actual innovations suggested that therole of the marketplace was influential in the innovation process. This led to the secondlinear model, the ‘market-pull’ model of innovation. The customer need-driven modelemphasises the role of marketing as an initiator of new ideas resulting from close interactionswith customers. These, in turn, are conveyed to R&D for design and engineering and thento manufacturing for production.

Whether innovations are stimulated by technology, customer need, manufacturinga host of other factors, including competition, misses the point. The model above concentrateon what is driving the downstream efforts rather than on how innovations occur. The linearmodel is only able to offer an explanation where the initial stimulus for innovation was born,that is, where the trigger for the idea or need was initiated. The simultaneous couplingmodel shown in Figure suggests that it is the result of the simultaneous coupling of theknowledge within all three functions that will foster innovation. Furthermost, the point ofcommencement for innovation is not known in advance.

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Interactive Model

The interactive model develops this idea further and links together the technology-push and market-pull models. It emphasis that innovations occur as the result of theinteraction of the marketplace, the science base and the organisation’s capabilities. Likethe coupling model, there is no explicit starting point. The use of information flows is usedto explain how innovations transpire and that they can arise from a wide variety of points.

While still oversimplified, this is a more comprehensive representation of theinnovation process. It can be regarded as a logically sequential, though not necessarilycontinuous, process that can be divided into a series of functionally distinct but interactingand interdependent stages (Rothwell and Zegveld,1985). The overall innovation processcan be thought of as a complex set of communication paths over which knowledge istransferred. These paths include internal and external linkages. The innovation processoutlined in Figure represents the organisation’s capabilities and its linkages with both themarketplace and the science base. Organisations that are able to manage this processeffectively will be successful at innovation.


NOTES


At the centre of the model are the organisational functions of R&D, engineeringand design, manufacturing and marketing and sales. While at first this may appear to be alinear model, the flow of communication is not necessarily linear. There is provision forfeedback. Also, linkages with the science base and the marketplace occur between allfunctions, not just with R&D or marketing. For example, as often happens, it may be themanufacturing function which initiates a design improvement that leads to the introductionof either a different material or the eventual development by R&D of a new material.Finally, the generation of ideas is shown to be dependent on inputs from three basiccomponents organisation capabilities; the needs of the marketplace; the science andtechnology base.

The chronological development of models of innovation

Date Model Characteristics1950/60s Technology Push Simple linear sequential process. Emphasis on R&D.

The market is a recipient of the fruits of R&D

1970s Market Pull Simple linear sequential process. Emphasis onmarketing. The market is the source for directing R&D.R&D has a reactive role.

1980s Coupling Model Emphasis on integrating R&D and marketing

1980/90s Interactive Model Combinations of push and pull.

2000 Network Model Emphasis on external linkages

The above table summarises the historical development of the dominant models of theindustrial innovation process.

4.6.2 Innovation as a management process

The preceding sections have revealed that innovation is not a singular event, but aseries of activities that are linked in some way to the others. This may be described as aprocess and involves (Kelly and Kranzberg, 1978):

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1. A response to either a need or an opportunity that is context dependent

2. A creative effort that if successful, results in the introduction of novelty

3. The need for further changes.

Usually in trying to capture this complex process the simplification has led tomisunderstandings. The simple linear model of innovation can be applied to only a fewinnovations and is more applicable to certain industries than others. Other industries, likethe food industry, are better represented by the market-pull model. For most industriesand organisations innovations are the result of a mixture of the two. Managers workingwithin these organisations have the difficult task of trying to manage this complexprocess.

4.6.3. A framework for the management of innovation

Industrial innovation and new product development have evolved considerably fromtheir early beginnings outlined above. However, establishing departmental functions toperform the main tasks of business strategy, R&D, manufacturing and marketing doesnot solve the firm’s problems. Indeed, as we have seen, innovation is extremely complexand involves the effective management of a variety of different activities. It is preciselyhow the process is managed that needs to be examined.

Organisation and business strategy

Mar

ketin

g

Research and technology

Organi sation’s Knowledge baseAccumulates knowledge over ti me


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A framework is presented in Figure that helps to innovation as a managementprocess. This is simply an aid in describing the main factors which need to be consideredif innovation of the functions inside the organisation are important, so too are the interactionsof those functions with the external environment. Scientists and engineers within the firmwill be continually interacting with fellow scientists in universities and other firms aboutscientific and technological developments. Similarly, the marketing function will need tointeract with suppliers, distributors, customers and competitors to ensure that the day-to-day activities of understanding customer needs and getting products to customers areachieved. Business planners and senior management will likewise communicate with awide variety of firms and other external institutions, such as government departments,suppliers and customers. All these information flows contribute to the wealth of knowledgeheld by the organisation. Recognising this, capturing and utilizing it to develop successfulnew products forms the difficult management process of innovation.

Within any organisation there are likely to be many different functions. Dependingon the nature of the business, some functions will be more influential than others. Theframework shown in Figure identifies three main functions: marketing, research andmanufacturing and business planning. Historical studies have identified these functions asthe most influential in the innovation process. Whether one lists three or seven functionsmisses the point, which is that it is the interaction of these internal functions and the flow ofknowledge between them that needs to be facilitated. Similarly, as shown on the framework,effective communication with the external environment also requires encouragement andsupport.

The need to share and exchange knowledge

The framework in Figure emphasis the importance placed on interaction (bothformal and informal) within the innovation process. Indeed, innovation has been describedas an informal-creation process that arises out of social interaction. In effect, the firmprovides a structure within which the creative process is located.

These interactions provide the opportunity for thoughts, potential ideas and viewsto be shared and exchanged. However, we are often unable to explain what we normallydo; we can be competent without being able to offer a theoretical account of our actions(Polanyi, 1966). This is referred to as ‘tacit knowledge’. A great deal of technical skill isknowhow and much industrial innovation occurs through on-the-spot experiments, a kind

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of action-oriented research with ad hoc modifications during step-by-step processes,through which existing repertoires are extended. Such knowledge can only be learnedthrough practice and experience. This view has recently found support from a study ofJapanese firms (Nonaka, 1991) where the creation of new knowledge within an organisationdepends on tapping the tacit and often highly subjective insights, intuitions and hunches ofindividual employees and making insights available for testing and use by the organisationas a whole. This implies that certain knowledge and skills, embodied in the term ‘knowhow’,are not easily understood; moreover they are less able to be communicated. This wouldsuggest that to gain access to such knowledge one may have to be practicing in this orrelated areas of knowledge. Cohen and Levinthal (1990) refer to this condition as ‘lockout’,suggesting that failure to invest in research and technology will limit an organisation’s abilityto capture technological opportunities; ‘once off the technological escalator it’s difficult toget back on’.

In addition to informal interactions, the importance of formal interactions is alsohighlighted. There is a substantial amount of research stressing the need for a ‘sharedlanguage’ within organisations to facilitate internal communication (Allen, 1977; Tushamn,1978). The arguments are presented along the following lines. If all actors in the organisationshare the same specialized language, they will be effective in their communication. Hence,there needs to be an overlap of knowledge in order for communication to occur. Sucharguments have led to developments in cross-functional interfaces, for example betweenR&D, design, manufacturing and marketing Concurrent engineering is an extension of this;in this particular case a small team consisting of a member from each of the various functionaldepartments manages the design, development, manufacture and marketing of a product.

Such thinking is captured in the framework outlined in Figure. It stresses theimportance of interaction and communication within and between functions and with theexternal environment. This networking structure allows lateral communications helpingmangers and their staff unleash creativity. This framework emphasises the importance ofinformal and formal networking across all functions.

This introduces a tension between the need for diversity, on the one hand, in orderto generate novel linkages and associations, and the need for commonality, on the other, tofacilitate effective internal communication. Clearly, there will be an organisational trade-offbetween diversity and commonality of knowledge across individuals.


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Introducing organisational heritage

Finally, the centre of the framework is represented as organisational heritage,sometimes referred to as the organisational knowledge base. This does not mean the cultureof the organisation. It represents a combination of the organisation’s knowledge base(established and built up over the years of operating) and the organisation’s uniquearchitecture. This organisational heritage represents for many firms a powerful competitiveadvantage that enables them to compete with other firms. For Marks & Spencer it is itscustomer service and customer relations, developed and built up over decades, that providesthe company with a powerful competitive advantage. ICI’s organisational heritage isdominated by its continual investment over almost a hundred years in science and technologyand the high profile given to science and technology within its businesses. For Unilever, itsorganisational heritage can be said to lie in its brand management skills and knowhowdeveloped over many years. These heritages cannot be ignored or dismissed as irrelevantwhen trying to understand how companies manage their innovative effort.

This framework will be used as a navigational map to help through this complexfield of study. Very often product innovation is viewed from purely a marketing perspectivewith little, if any, consideration of the R&D functions and the difficulties of managing scienceand technology. Likewise, many manufacturing and technology approaches to productinnovation have previously not taken sufficient notice of the needs of the customer. Finally,the organisational heritage of the firm will influence its future decisions regarding the marketsin which it will operate. The point here is that firms do not have a completely free choice.What they do in the future will depend to some extent on what they have done in the past.

The 2001 Innovation Scoreboard

The Innovation Scoreboard is designed to complement the structural indicators.These are things like education systems, financial systems for raising capital, level ofemployment, etc., which the EU Commission currently assesses through other mechanismsand statistical analysis. To minimize the additional statistical burden, the InnovationScoreboard mainly uses official Eurostat Data if official data is not available. It analysesstatistical data on 17 indicators in four areas, depicts achievements, trends and highlightsstrengths and weaknesses and examines the extent of convergence in innovation. The fourkey areas are as follows:

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1 Knowledge creation

The three indicators used for the creation of new knowledge are: public R&Dexpenditure, business R&D expenditure and patenting activity.

2 Human resources

The scale an quality of human resources are major determinants of both the creationof new knowledge and its use throughout the economy. The indicators used are the educationof scientists and engineers, the skill level of the working age population and a measure of alife-long learning. In addition employment indicators are used such as the share of theworkforce in technology-intensive industries.

3 Transmission and application of new knowledge

This area covers the activities outside formal innovation. It is more concerned withthe extent of adoption and use of new technology and knowledge. The indicators on in-house innovation and cooperative innovation are limited to Small and Medium Enterprises.These, however, provide a better picture of innovation within small and medium-sizedfirms than R&D expenditure which is more prevalent among large firms. Moreover, SMEsform the majority of firms in most countries and play a vital role in innovation; linking publicand large firm research to practical applications within industrial settings.

4 Innovation finance, output and markets

This group includes indicators that cover the supply of finance to industry.

For the EU as a whole analysis of changes over the past four years showsimprovements in many areas and importantly in some areas countries within the EU leadthe world, indicating that there is potential for member states to learn and replicate bestpractise. It is this idea of learning from other member countries that lies at the heart of theunique policy approach being applied to the coordination of improving innovativeperformance within the EU. The so-called ‘open-method’ approach to coordination isdifferent from the usual EU policies which are based on establishing targets that all EUcountries have to achieve over a period of time. For example, the EU has a policy on cleanbathing water within the EU, and all countries have been targets to bring their bathing


NOTES


water to the required standard. Depending on the initial state of cleanliness, countries havebeen given time-scales within which they must achieve these targets or face the risk offines. The innovation policy, however, required a different approach and the ‘open methodof coordination’ was developed. This is based on the premise that countries will progressivelydevelop their won policies by spreading best practice.

4.6.4 Waves of innovation – An overview:

When we investigate the history of capitalist development, there is a pattern ofeconomic growth. The work of Kondratieff and Schumpeter have been influential inidentifying the major stages of this development. The five sages, or growth cycles areidentified. This highlights that technological developments and innovations.

Have a strong spatial dimension; however, leadership in one wave is not necessarilymaintained in the succeeding waves. So one can observe shifts in the geography of innovationthrough time. The leaders of the first wave were Britain, France and Belgium. The secondwave brought new players into the game, namely the USA and Germany. Wave three sawthe strengthening of the positions of the USA and Germany. In wave four, Japan andSweden joined the technology and innovation race. And recently, in Wave five, Taiwanand South Korea are becoming key players in the global economy.

In these Kondratieff waves, the capitalist economy grew on the basis of majorinnovations in product, process and organisation with accompanying shifts in the socialarea. Kuhn’s theory on the nature of scientific revolutions has been justified: each wavecomes to an end due to its major shortcomings and the successive wave fundamentallyrestructures and improves those weaknesses. Each major phase of innovation produced a‘star’ industry or industry branch, which seemed to affect the way the economy wasorganised. The leap forward provided by such industries resulted in a major transformationof the economy and economic relations – given that other factors such as demand, finance,industrial and social conditions were favourable. Products, processes, and organisationscreated by technological development became universal and cheaply available to a vastpopulation, which, in turn, created the economic shift. These Kondratieff waves took placein the order of early mechanization, steam power and railways, electrical and heavyengineering, ‘Fordism’, and information and communication. The last of these waves iscurrently underway with what is now termed the information revolution. Almost every daywe are presented with a number of ‘new’ ways in which we can do business, we can

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search for information, communicate and socialize with other people or carry out our bankoperations. This means that the new developments deeply affect not only economic relationsbut also out private (home and relations) and work (public) spheres.

In the very first Kondratieff wave, the rise of the factory and mechanisation intextiles was only part of the story. The need to produce in larger numbers to start servingthe growing overseas markets with better ways of transportation available was complementedby the abundance of finance with the money flowing in from colonies, particularly theUSA. Universally and cheaply available input (i.e. cotton), improving nation-wide transportinfrastructure (with rising investment into canals and roads by landlords), the advent of theso-called adventures (now widely recognised as entrepreneurs), pools of labour availablefor employment in some local markets, the growing education infrastructure, the role playedby academic and scientific societies, and the attitude of the state towards manufacturinginterests were the other complementary factors affecting change.


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Characteristics of the five waves of growth

4.6.5 Facilitators for innovation process

The innovation process, is of very complex nature. Innovation has to be viewed inthe context of the organisation. The main organisational characteristics that are continuallyidentified as necessary for successful innovation are explained here.

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Growth orientation:

It is sometimes surprising to learn that not all companies’ first and foremost objectiveis growth. Some companies are established merely to exploit a short-term opportunity.Other companies, particularly family-run ones, would like to maintain the company at itsexisting size. At that size the family can manage the operation without having to employoutside help. Companies that are innovative are those companies whose objective is togrow the business. This does not imply that they make large profits one year then hugelosses the next, but they actively plan for the long term. There are many companies whomake this explicit in their annual reports, companies such as ICI, BMW, Siemens andMicrosoft.

Vigilance:

Vigilance requires continual external scanning, not just by senior management butalso by all other members of the organisation. Part of this activity many be formalized. Forexample, within the marketing function the activity would form part of market research andcompetitor analysis. Within the research and development department scientists andengineers will spend a large amount of their time reading the scientific literature in order tokeep up to date with the latest developments in their field. In other functions it may not beas formalized but it still needs to occur. Collecting valuable information is one thing, butrelaying it to the necessary individuals and acting on it are two necessary associatedrequirements. An open communication system will help to facilitate this.

Commitment to technology

Most innovative firms exhibit patience in permitting ideas to germinate and developover time. This also needs to be accompanied by a commitment to resources in terms ofintellectual input from science, technology and engineering. Those ideas that look mostpromising will require further investment. Without this long-term approach it would beextremely difficult for the company to attract good scientist. Similarly, a climate that investsin technology development one year then decides to cut investment the next will alienatethe same people in which the company encourages creativity. Such a disruptive environmentdoes not foster creativity and will probably cause many creative people to search for amore suitable company with a stronger commitment to technology.


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Acceptance of risks

Accepting risks does not mean a willingness to gamble. It means the willingness toconsider carefully risky opportunities. It also includes the ability to make risk-assessmentdecisions, to take calculated risks and to include them in a balanced portfolio of projects,some of which will have a low element of risk and some a high degree of risk.

Cross-functional cooperation

Inter-departmental conflict is a well-documented barrier to innovation. Therelationship between the marketing and R&D functions has received a great deal of attentionin the research literature. But generally this is because the two groups often have verydifferent interests. Scientists and technologists can be fascinated by new technology andmay sometimes lose sight of the business objective. Similarly, the marketing function oftenfails to understand the technology involved in the development of the new product. Researchhas shown that the presence of some conflict is desirable, probably acting as a motivationalforce (Sounder, 1987). It is the ability to confront and resolve frustration and conflict thatis required.

Receptivity

The capability of the organisation to be aware of, identify and take effectiveadvantage of externally developed technology is key. Most technology-based innovationsinvolve a combination of several different technologies. It would be unusual for all thetechnology to be developed in –house. Indeed, businesses are witnessing an increasingnumber of joint ventures and alliances (Hinton and Trott, 196), often with former competitors.For example, IBM and Apple have formed a joint venture to work on mutually beneficialtechnology. Previously these two companies fought ferociously in the battle for marketshare in the personal computer market.

‘Slack’

While organisations place great emphasis on the need for efficiency, there is also aneed for a certain amount of ‘slack’ to allow individuals room to think, experiment, discussidea and be creative. In many R&D functions this issue is directly addressed by allowingscientists 10-15 per cent of their time to spend on the projects they choose. This is notalways supported in other functional areas.

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Adaptability

The development of new product innovations will invariably lead to disruptions toestablished organisational activities. Major or radical innovations may result insignificantchanges, although the two are not necessarily linked. The organisation must be ready toaccept change in the way it manages its internal activities. Otherwise proposed innovationswould be stifled due to a reluctance to alter existing ways of working or to learn newtechniques. In short, organisations need the ability to adapt to the changing environment.

Diverse range of skills

Organisations require a combination of specialist skills and knowledge in the formof experts in, say, science, advertising or accountancy and generalist skills that facilitatecross-fertilisation of the specialist knowledge. In addition they require individuals of ahybrid nature who are able to understand a variety of technical subjects and facilitate thetransfer of knowledge within the company. Similarly, hybrid managers who have technicaland commercial training are particularly useful in the area of product development (Trott,1993). It is the ability to manage this diversity of knowledge and skills efficiently that lies atthe heart of the innovation process.

4.6.6. Industrial firms are different: a classification

A brief look at companies operating in particular area will soon inform that industrialfirms are very different. The point is, that in terms of innovation and product developmentit is possible to argue that some firms are users of technology and others are providers. Forexample, at the simplest level most towns will have a range of housebuilding firms, agriculturalfirms, retail firms and many others offering services to local people. Such firms tend to besmall in size, with little R&D or manufacturing capability of their own. They are classifiedby Pavitt (1984) as supplier-dominated firms. Many of them are very successful becausethey offer a product with a reliable service. Indeed, their strength is that they purchasetechnologies in the form of products and match these to customer needs. Such firms usuallyhave limited, if any, product or process technology capabilities. Pavitt offers a usefulclassification of the different types of firms with regard to technology usage.

At the other end of the scale are science-based firms or technology-intensive firms.These are found in the high-growth industries of the twentieth century: chemicals,


NOTES


pharmaceuticals, electronics, computing, etc. It is the manipulation of science and technologyusually by their own R&D departments that has provided the foundation for the firms’growth and success. Unlike the previous classification, these firms tend to be large andwould include corporations such as Bayer, Hoechst, ICI, Glaxo Smithkline, Siemens, Rhone-Poulene and 3M.

The third classification Pavitt refers to as scale-intensive firms, which dominate themanufacturing sector. At the heart of these firms are process technologies. It is their abilityto produce high volumes at low cost that is usually their strength. They tend to havecapabilities in engineering, design and manufacturing. Many science-based firms are alsoscale-intensive firms, so it is possible for firms to belong to more than one category. Indeedthe big chemical companies in Europe are a case in point.

The final classification is specialist equipment suppliers. This group of firms is animportant source of technology for scale-intensive and science-based firms. For example,instrumentation manufacturers supply specialist measuring instruments to the chemicalindustry and the aerospace industry to enable these firms to measure their products andmanufacturing activities accurately.

This useful classification highlights the flows of technology between the variousfirms.

4.6.6 Organisational structures and innovation

The structure of an organisation is defined by Mintzberg (1978) as the sum total ofthe ways in which it divides its labour into distinct tasks and then achieves coordinationamong them.

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One of the problems when analysing organisational structure is recognising thatdifferent groups within an organisation behave differently and interact with different partsof the wider external environment. Hence, there is a tendency to label structure at the levelof the organisation with little recognition of differences at group or departmental level.Nonetheless, there have been numerous useful studies exploring the link betweenorganisational structure and innovative performance.

The seminal work by Burns and Stalker (1961) on Scottish electronic organisationslooked at the impact of technical change on organisational structures and on systems ofsocial relationships. It suggests that ‘organic’, flexible structures, characterized by the absenceof formality and hierarchy, support innovation more effectively than do ‘mechanistic’structures. The latter are characterized by long chains of command, rigid work methods,strict task differentiation, extensive procedures and a well-defined hierarchy. Many objectionshave been raised against this argument, most. Nevertheless, flexible rather than mechanisticorganisational structures are still seen, especially within the business management literature,as necessary for successful industrial innovation. In general, an organic organisation ismore adaptable, more openly communicating, more consensual and more looselycontrolled. As Table indicates, the mechanistic organisation tends to offer a less suitableenvironment for managing creativity and the innovation process.

Formalisation

Following Burns and Stalker, there have been a variety of studies examining therelationship between formalisation and innovation. There is some evidence of an inverserelationship between formalisation and innovation. That is, an increase in formalisation ofprocedures will result in a decrease in innovative activity. It is unclear, however, whether adecrease in procedures and rules would lead to an increase in innovation. Moreover, aswas argued above, organisational planning and routines are necessary for achievingefficiencies.

Complexity

The term complexity here refers to the complexity of the organisation. In particular,it refers to the number of professional groups of diversity of specialists within the organisation.For example, a university, hospital or science-based manufacturing company wouldrepresent a complex organisation. This is because


NOTES


within these organisations there would be several professional groups. In the case of ahospital, nurses, doctors and a wide range of specialists represent the different areas ofmedicine. This contrasts sharply with an equally large organisation that is, for example, inthe distribution industry. The management of supplying goods all over the country will becomplex indeed; but it will not involve the management of a wide range of highly qualifiedprofessional groups.

Centralisation

Centralisation refers to the decision-making activity and the location of powerwithin an organisation. The more decentralized an organisation the fewer levels of hierarchyusually required. This tends to lead to more responsive decision making closer to theaction.

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Organisational size

Size is a proxy variable for more meaningful dimensions such as economic andorganisational resources, including number of employees and scale of operation. Below acertain size, however, there is a major qualitative difference. A small business with fewerthan 20 employees differs significantly in terms of resources from an organisation with 200or 2000 employees.

The role of an individual in the innovative process

The innovation literature has consistently acknowledged the important of the roleof the individual within the industrial technological innovation process. Furthermore, a varietyof key roles have developed from the literature stressing particular qualities.

Rubenstein (1976) went further, arguing that the innovation process is essentially apeople process and that organisational structure, formal decision-making processes,delegation of authority and other formal aspects of a so-called well-run company are notnecessary conditions for successful technological innovation. His studies revealed that certainindividuals had fulfilled a variety of roles (often informal) that had contributed to successfultechnological innovation.

In a study of biotechnology firms, Sheene (1991) explains that it is part of a scientist’sprofessional obligation to keep up to date with the literature. This is achieved by extensivescanning of the literature. However, she identified feelings of guilt associated with browsingin the library by some scientists. This was apparently due to a fear that some senior managersmight not see this as a constructive use of their time. Many other studies have also shownthat the role of the individual is critical in the innovation process.

Establishing an innovative environment and propagating this virtuous circle

The role of the organisational environment in the innovation process has beenhigh-lighted. It has also shown how many different factors influence this environment. Giventhe importance of innovation, many businesses have spent enormous sums of money tryingto develop an environment that fosters innovation. Each year Fortune produces a list of themost innovative companies in the USA. For the past few years the following companieshave finished at or near the top: 3M, Rubbermaid, Merck and Motorola. Developing a


NOTES


reputation for innovation helps propagate a virtuous circle that reinforces a company’sabilities.

The concept of a virtuous circle of innovation can be viewed as a specific exampleof Michael Porter’s (1985) notion of competitive advantage. Porter argued that thosecompanies who are able to achieve competitive advantage – that is, above-averageperformance in an industry sector – are able to reinvest this additional profit into the activitiesthat created the advantage in the first place, thus creating a virtuous circle of improvement,or so-called competitive advantage.

Reputation of the organisation

The reputation of a company for innovation takes may years to develop. It is alsostrongly linked to overall performance. However, within a selection of successful companiesthere will inevitably be some that are regarded as more innovative than others. This may bedue to several factors, including recent product launches; recent successful programmes ofresearch; high levels of expenditure on R&D. Depending on topical media events at thetime, some companies are able to achieve wide exposure of new products or new research.Such exposure is often dependent on effective publicity but also serendipity.

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Attraction of creative people

Creative people will be attracted to those companies that themselves are viewedas creative. In much the same way as undergraduates apply for positions of employmentwith those companies viewed as successful, top scientists will seek employment from thosecompanies which have a reputation for innovation and scientific excellence.

Organisation encourage creativity

Many organisations pay lip service to creativity without putting in place any structuresof plans to encourage innovation. It has to be supported with actions and resources. Theorganisation has to provide people with the time to be creative. This can be in a formalizedway, as used in much of the chemical industry. For example, 15 per cent of a researchscientist’s time may be dedicated to projects of personal interest. Alternatively, organisationscan try to build sufficient slack into the system to allow for creative thinking.

In addition, the organisation should try to build an environment that tolerate errorsand mistakes. This will encourage people to try new ideas and put forward suggestions.Successful new ideas need to be rewarded in terms of publicity for the people involved.This is usually most easily achieved through internal newsletters or company magazines. Inaddition, financial rewards – promotions, gifts or holidays – may be offered.

Some organisation also use creativity – stimulation techniques such as a weekendaway at a country retreat to discuss new ways of working, new ideas, etc. These activitiescollectively will help send a clear message that the organisation is serious about innovation.

Development of innovative products

This does not mean the ability to develop products incorporating the latesttechnology, although this may be an output. It means developing new products that aregenuine improvements compared to products currently available. Moreover, it is successin the marketplace that very often leads to further success.


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A willingness to accept new ideas

Many organisations suffer from an inability to implement changes and new ideas,even after rewarding the people involved in developing the new idea. Once a new productidea has been accepted it is important that it is carried through to completion.

Increased motivation and reduced frustration

If individuals within the organisation can see their ideas and efforts contributing tothe performance of the business, they will be encouraged still further. On the other hand, ifseemingly good ideas are constantly overlooked, this will lead to increased frustration.

High morale and retention of creative people

All of the proceeding activities will help contribute to increased morale within theorganisation. A rewarding and enjoyable working environment will help to retain creativepeople. This in turn should reinforce the company’s innovative capabilities.


4.6 (a) What are the organizational factors that foster innovation?

4.6 (b) What is serendipity?

4.6 (c) Explain the various linear models of innovation.

4.6 (d) What is an innovation score board?

4.6 (e) Explain the characteristics of waves of growth.

4.6 (f) What is cross functional cooperation?

4.6 (g) How organizational structures affect innovation?

4.6 (h) Explain the role of an individual in innovation process.

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UNIT V

TECHNOLOGY CHANGE

5.1 INDRODUCTION

Many managers see their organization design work as completed when “theannouncement” is made. Because so much energy may have been expended on reachingan agreement on a design, little thought may have been given to what will happen next. Asa result, after the announcement is made, managers suddenly begin to think about how tomanage the implementation of the change in design. In fact , implementing a new design isdifficult, as is the implementation of any major change with in an organization. Designchanges are particularly problematic because it seems so easy to create a design on paperthat managers often overlook how truly difficult and often takes a good deal of time

Many failures – in which everyone agrees that the reorganization was a disaster –are not failures because of a technicality inadequate design but rather are failures ofimplementation. In practice, an adequate or even mediocre design, if implemented well,can be effective, while the most elegant and sophisticated of designs poorly implementedwill fail.

This discussion is devoted to the question of implementation of organization designs.The underlying issue in design implementation appears to be one of managing organizationalchange. We will therefore start by providing a way of thinking about changes in organization.Next, we will point out some of the very predictable problems that one encounters whenattempting to bring about change. Finally, we will discuss some specific techniques formanaging change and outline some specific techniques and action areas for enhancing theimplementation of organization design changes.

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5.2 LEARNING OBJECTIVES

1. To find the impact of technology change on business strategy

2. To understand the organisational issues arising out of technology change

3. To learn about the opportunities created by technology change for entrepreneurs

4. To analyse the effect of technology change on productivity

5.3 CRITERIA FOR ORGANIZATIONAL CHANGE:

During the past decade, there has been increasing interest in the subject of managingorganizational change. One approach to thinking about change that many have found usefulwas originally proposed by Richard Beck-hard and Reuben Harris. They saw theimplementation of change, such changes in terms of transitions. At any time, an organizationexits in a Current state (A). The current state describes how the organization functionsprior to a change. In terms of our congruence model, we can think of the current state asa particular configuration of the strategy, task, individual, and formal and informalorganizations. A change involves movement toward a desired future state (B), whichdescribe ho the organization should function after the change. In a design, the full set ofdesign documents (strategic design, impact analysis, operational design and so on) providesa written description of the intended future state.

The period between the current state (A) and the future state (B) can be throughof as the transition state (C) In the most general terms, then, the effective management ofchange involves developing an image of the desired future state and moving the organizationthrough a transition period. In design , we deal with the first two of these steps. Implementationconcerns the moving of the organization through the transition period. Typically as muchcare needs to be taken in designing the transition as in designing the future state both arecritical.

Figure5. 1 Organization change as transition.


NOTES


Several criteria can be used to judge the effective management of transition.Building on the transition framework just presented, an organizational change, such asthe implementation of a new design, can be managed effectively when:

1. The Organization is moved form the current state to the future sate – in which thedesign is actually installed or implemented.

2. The functioning of the organization design in the future state meets expectations, orworks as planned. In the case of design, this meets that the design in practice metthe criteria that it was intended to satisfy.

3. The transition is accomplished without undue cost to the organization. This meansthat the design is implemented without significant disruptions to the business or damageto relationships with customers, suppliers, or regulators. While there is always somecost associated with implementation, the cost should be managed, predictable, andcontrolled consistent with estimates done in the impact analysis. “Undue” cost iscost that is unplanned, unpredicted, or uncontrolled.

4. The transition is accomplished without undue cost to individual organization members.Here again, the key operative word is “undue” as defined by the original impactanalysis. Much of the cost to individuals occurs more through the manner in whichchanges are made than thorough the change itself.

Of course, not every implementation of a new design can be expected to meet allof these criteria consistently, but such standards provide a target for planning implementation.The question is how to maximize the chances that the design will be implemented effectively.

PROBLEMS OF IMPLEMENTING ORGANIZATION CHANGES

There are two basic issues-what the change should be and how the changes shouldbe implemented. The first issue has been dealt with in earlier units. The second question –how the changes are implemented – is the one on which we will focus now. Observationsof changes seem to indicate that there are three types of problems encountered in someform whenever a significant organizational change is attempted.

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The Problem of Power

Any organization is a political system made up of various individuals, groups, andcoalitions competing for power. Political behavior is thus a natural and expected feature oforganizations. Such behavior occurs during the current and future states. In the transitionstate, however, these dynamics become even more intense as an old design, with its politicalimplications, is dismantled and a new design takes its place. Any significant change (anddesign changes clearly are significant in terms of power) poses the possibility of upsettingor modifying the balance of power among various formal any informal interest groups. Theuncertainty created by change creates ambiguity, which in turn tends to increase theprobability of political activity as people try to create some structure and certainty byattempting to control their environment.

Individuals and groups may take political action based on their perceptions of howthe change will affect their relative power position in the organization. They will try toinfluence where they will sit in the organization (both formal and informal) that emergesfrom the transition and will be concerned about how the conflict of the transition period willaffect the balance of power in the future state. Finally, individuals and groups may engagein political action because of their ideological position with regard to the change – the newdesign, strategy, or approach may be inconsistent with their shared values or their imagesof the organization.

The Problem of Anxiety

Change in organization involves the movement from something that is known towardsomething that is unknown. Individuals naturally have concerns, such as whether they willbe needed in the new organization, whether their skills will be valued, and how they willcope with the new situation. These concerns can be summarized in the question that isfrequently voice during a major organizational change – “What’s going to happen to me?”To the extent that this question cannot fully be answered, individuals may experience stressand feel anxious.

As stress and anxiety increase, they may result in a variety of behavior orperformance problems. For example, stress may result in difficulty in hearing or integratinginformation. It may lead people to resist changes that they might otherwise support or inthe extreme, engage in irrational and even self-destructive acts. Resistance is a common


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occurrence, although in many large organizations people may not actively resist the changeby openly refusing to implement the new organization design. What does occur is thatpeople passively or subtly resist the change or act in ways that objectively do not appearto be constructive for either the individual or the organization.

The Problem of Organization Control

A significant change in organization design tends to disrupt the normal course ofevents within the organizations. Thus, it frequently undermines existing systems ofmanagement control, particularly those that are embedded in the formal organizationalarrangements. An impending change may suddenly make control systems irrelevant orcause them to be perceived as “lame ducks”. As a result, it is often easy to lose controlduring a change as goals, structures, and people shift, it becomes difficult to monitorperformance and make correct assumptions, as one would during a more stable period.

A related problem is that most of the formal organizational arrangements aredesigned either to manage the current state (the existing design) or to manage the futurestate (the proposed new design), but those same designs may not be adequate for themanagement of the transition state. In most situations, they are not appropriate for managingimplementation, since they are steady state management systems designed to runorganizations already in place. They are not transitional management devices.

5.3.1. Iimplication for Change Mangagement

Each of these three problems lead to some relatively straight-forward conclusionsabout actions needed to manage change. To the extent that a change presents the possibilityof significant power problems, the management of the organization’s political system mustshape the political dynamics associated with the change, preferably prior to implementation.Second, to the extent that change creates anxiety and the associated patterns of dysfunctionalbehavior, it is critical to motivate individuals, through communications and rewards, toreact constructively to the change. Finally, if a change presents significant control problems,this implication is the need to pay attention to the management of the transition state toensure effective organizational control during the transition period. The question is how todo this. There appear to be some patents in the effectively managed changes. While notuniversal principles, they represent some relatively consistent difference between the actionsthat managers take in effective cases of change management and the actions taken inineffective cases.

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For each of the three implications for change management, there are four actionsthat appear to characterize effectively managed changes.

Action Areas for Shaping Political Dynamics

The first set of practices concerns the organizations as a political system. Anysignificant change usually involves some modification of the political system, thus raisingissues of power. The implication is a need to shape and manage the political dynamicsprior to and throughout the transition. This concept relates to four specific action areas.

The first action area involves getting the support of key power groups within theorganization in order to build a critical mass in favor of the change. The organization is apolitical system with competing groups, cliques, coalitions, and interests, each with varyingviews on any particular change. Some favor the change. Some oppose it. Some may bedisinterested. But the change cannot succeed unless there is a critical mass of support;several steps can be used to build that support. The first step is identifying the powerrelationships as a basis for planning a political strategy. This step may involve identifyingthe key players in the organization, or the individual and/or group stakeholders – theindividuals who have a positive, negative, or neutral stake in the change. Frequently, drawinga diagram or creating a stakeholder or influence map may be useful in conceptualizingthese relationships. This should include not only the various stakeholders but theirrelationships to each other – who influence whom and what the stakes are for each individual.

Having identified the political topography of the change, the next step is to thinkabout approaches for building support. There are several possible methods. The first isparticipation, which has long been recognized as a tool for reducing resistance to changeand for gaining support. As individuals or groups become involved in a change, they tendto see it as their change, rather than one imposed on them.

Participation, while desirable, might not be feasible or wise in all situations. Insome cases, participation merely increases the power of opposing groups to forestall thechange. Thus, another approach may be bargaining with groups, or cutting deals. In thiscase, those favoring the change get the support of others by providing some incentive tocomply.


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A third step is isolation. There may be those who resist participation or bargainingand who persist in attempting to undermine the change. The goal in this situation is tominimize the impact of such individuals on the organization by assigning them to a positionoutside the mainstream.

In the extreme, the final step is removal. In some cases, individuals who cannot beisolated or brought into constructive roles may have to be removed from the scene througha transfer to another organization or by outplacement. Obviously, participation and bargainingare more desirable and leave a more positive aftermath; however, it would be native toassume that these first two methods will be successful in all cases.

An important consideration in creating the political momentum and sense of criticalmass is the activity of leaders. Thus, a second action area is leader behaviour in support ofthe change. Leaders can greatly shape the power distribution and influence patterns in anorganization. They can mold perceptions and create a sense of political momentum bysending out signals, providing support, and dispensing rewards.

Leaders can take a number of specific actions. First, they can serve as models;through their behaviour, they provide a vision of the future state and a source of identificationfor various groups within the organizations. Second, leaders can serve as important personsin articulating the vision of the future state. Third, leaders can play crucial role by rewardingkey individuals and specific types of behavior. Fourth, leaders can provide support throughpolitical influence and needed resources. Similarly, leaders can remove roadblocks and,through their public statements, maintain momentum. Finally, leaders can send importantsignals through the informal organization. During times of uncertainty and change, individualsthroughout the organization tend to look to leaders for signals concerning appropriatebehavior and the direction of movement in the organization. Frequently, potent signals areset through such minor acts as patterns of attendance at meetings or the phrases andwords used in public statements. By careful attention to these subtle actions, leaders cangreatly influence the perceptions of others.

The third action area concerns the use of symbols associated with a change. Suchsymbols as language, pictures, and acts create a focus for identification and the appearanceof a critical mass within the organization’s political system. Symbols are used by public andsocial movements and are similarly relevant to dealing with the political system with anorganization. A variety of devices can be used, such as names and related graphics that

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clearly identify events, activities, or organizational units. Language is another symbol; it cancommunicate a unique way of doing business. The use of symbols is a mundane behaviorthat can, however, have a powerful impact on the clarity of the informal organization. Themore focused the informal organization, the less the political turbulence. For example, aparticular promotion, a firing, the moving of an office, or an open door, all can serve tocreate and send important signals. These small but visible signals by the leaders can beimportant in providing a symbolic sense of political movement.

The final action area is that of building stability. Too much uncertainty can createexcess anxiety and defensive reaction, thus heightening political conflict to acounterproductive level. The organization must provide certain “anchors” to create a senseof stability within the context of the transition. This can help limit the reverberations of thechange and dampen counter productive political activity. A number of steps, such as preparingpeople for the change by providing information in advance, can buffer them to a degreeagainst the uncertainty that will occur. Secondly, some stability can be preserved – even inthe face of change – if managers are careful to maintain the consistency of messages theyconvey to organization members throughout the period of change. Nothing creates moreinstability than inconsistent or conflicting messages. Thirdly, it may be important to maintaincertain very visible aspects of the business, such as preserving certain units, organizationalnames, management processes, or staffing patterns or keeping people in the same physicallocation. Finally, it may help to communicate specifically what will not change – to mediatethe fears that everything is changing or that the change will be much greater than whatactually is planned.

In summary, the four action areas focus on identifying the political system and thendeveloping a political strategy. Specify action includes using leadership and related symbolsto maintain momentum and critical mass in support of the change and building stability toprevent the counterproductive effects of extreme anxiety.

5.3.2. Motivating Constructive Behavior

When a broad, significant change occurs in an organization, the first questionsmany people asks are “What’s in it for me?” and “What’s going to happen to me?”. This isan indication of the anxiety that occurs when people are faced with the uncertainty associatedwith organizational change. Anxiety may result in a number of reactions, ranging fromwithdrawal to panic to active resistance. The task of management is to somehow relieve


NOTES


that anxiety and motivate constructive behavior through a variety of actions. Some actionsare aimed at providing much needed information communicating the nature, extent, andimpact of the change. Others are focused on providing clear rewards for required behavior,recognizing and dealing with some of the natural anxiety. There are four specific actionareas.

The first action area is to surface or create dissatisfaction with the current state.Individuals may be psychologically attached to the current state, which is comfortable andknown, compared to the uncertainty associated with change. A critical step, then, is todemonstrate how unrealistic it is to assume that the current state has been completelygood, is still good, and will always remain good. The goal is to “unfreeze” people fromtheir inertia and create willingness to explore the possibility of change. Part of their anxietyis based on fantasies that the future state may create problems, as well as on fantasiesabout how wonderful the current state is.

Techniques for dealing with this problem involve providing specific information,such as educating people about what is occurring in the environment that is creating theneed for change. In addition, it is useful to help people understand the economic andbusiness consequence of not changing. It may be helpful to identify and emphasizediscrepancies – the discrepancy between the present situation and the situation as it shouldbe. In critical cases, it may be necessary to paint a disaster scenario, in which people cansee what would happen if the current state continued unchanged. It may be helpful topresent a graphic image of how the failure to change would affect people. One managerfor example, talked very graphically about what would happen if the division did not becomesuccessful within eighteen months: “They’ll pull buses up to the door, close the plant, andcart away the workers and the machinery”. The manager presented a highly graphic imageof the consequence of not making the change. An alternative to management’s presentingthis kind of information may be to involve organization members in collecting and presentingtheir own perceptions. Participating in the collection and discovery process may make theinformation more salient, since it comes from peers in the work force.

There is a need to over-communicate during change management efforts. Extremeanxiety impairs normal functioning; thus, people may be unable to hear and integratemessages effectively the first time. Therefore, it may be necessary to communicate keymessages two, three, four and even five times to individuals through various media.

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The second action area for motivation is to obtain participation in planning andimplementing change. Employee participation in the change process yields proven benefits.It tends to capture people’s excitement. It may result in better decisions because of employeeinput, and it may create more direct communications through personal involvement. On theother hand, participation also has some cost. It takes time, involves giving up some control,and may create conflict and increase ambiguity. The question, then, is to choose where,how, and when to build in participation. People may participate in the early diagnosis of theproblems, in the design or development of solutions, in implementation planning, or in theactual execution of the implementation. There are many options. Various individuals orgroups may participate at different times, depending on their skills and expertise, theinformation they have, and their acceptance and ownership of the change. Participationcan be direct and widespread or indirect through representatives, Representatives may bechosen by position, level or expertise. Using some form of participation usually out weighsthe costs of no involvement at all.

The third action area is to visibly reward the desired behavior in both the futureand transition states. People tend to do what they perceive they will be rewarded fordoing. To the extent that people see their behavior as leading to rewards or outcomes theyvalue, they will tend to do motivated to perform as expected. It is important to realize thatduring implementation, the old reward system frequently loses potency and new rewardsare not set up as an early step. This results in a situation in which an individual is asked toact in one way but has been rewarded for acting in another way. Sometimes people arepunished by the existing measurement system for doing things that are required to makethe change successful. Management needs to pay special attention to the indicators ofperformance, to the dispensation of pay or other tangible rewards, and to promotion duringthe transition. In addition, there are informal rewards, such as recognition, praise, feedback,or the assignment of different roles, and it is important to carefully manage these to ensurethat they support constructive behavior during the transition. It is equally important toreestablish clearly an appropriate reward system for the future state.

The fourth action area directly affects individual anxiety. It is the need to providetime and opportunity to disengage from the current state. People associate a sense of losswith change. It is predictable that they will go through a process of “letting go of,” ormourning the old structure. Management, knowing that this is essential, can greatly assist inthis process. A number of specific techniques are possible. One is to provide the appropriatetime for letting go, while giving people enough information and preparation to work through


NOTES


their detachment from the current state. An other technique may be to provide the opportunityto vent emotions through an even similar to a wake. This can be done in small groupdiscussions, in which people are encouraged to talk about their feelings concerning theorganizational change. While this may initially be seen as promoting resistance, it can havethe opposite effect. People will undoubtedly talk about these issues, either formally orinformally. If management can recognize such concerns and encourage people to expresstheir feelings, it may help them let go of them and move into constructive action. It may alsobe useful to create ceremony, ritual, or symbols, such as farewell or closing-day ceremonies,to help give people some psychological closure on the old organization.

Thus, there are four action areas in motivating constructive behavior. One concernshelping people detach themselves from the current state. The second concerns obtainingappropriate levels of participation in planning or implementing the change. The third concernsrewarding desired behavior during the transition, and the final action areas has to do withhelping people let go of their psychological attachment to the present situation.

5.3.3. Managing the Transition

The third implication concerns the actual and explicit management of the transitionstate, which is that time period between the current state and the implemented future state.It is frequently characterized by great uncertainty and control problems, because the currentstate is disassembled prior to full operation of the future state. Managers need to coordinatethe transition with the same degree of care, the same resources, and the same skills as theymanage any other major project. There are four specific action areas in which managerscan work.

The first action area is to develop and communicate a clear image of the futurestate. The ambiguity of change without a focus produces major problems. It is difficult tomanage toward something when people do not know what that something is. In the absenceof a clear direction, the organization gets “transition paralysis.” And activity grinds to a halt.This is caused by uncertainty over what is appropriate, helpful, or constructive behavior.Several specific practices are relevant in this situation. First, there is a need to develop ascomplete a design as possible for the future state. This may not always be feasible, but tothe extent possible, it is important to articulate at least a vision ahead of time. Secondly, itmay be useful to construct a statement that identifies the impact of the change on differentparts of the organization. Thirdly, it is important to maintain a stable vision and to avoid

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unnecessary changes, extreme modification, or conflicting views of that vision during thetransition.

Finally, there is a need to communicate. As previously indicated, it is important tocommunicate repeatedly and to use multiple media, be it video, small group discussions,large group meeting, or written memos. It is critical to think of this communication as botha telling and a selling activity. People need to be informed, but they also need to be sold onwhy the change is important. This may necessitate repeated explanations of the rationalefor the change, the nature of the future state, and the advantages of the future. Finally, thefuture state must be made real, visible, and concrete. Communications should includeinformation on future decision-making and operating procedures. The way in which this iscommunicated can help shape the vision of the future. For example, one company showedtelevision commercials, both inside and outside its organization, demonstrating the specifictypes of customer service that it was attempting to provide. The commercials gave peopleclear, graphic, and memorable images of the future state.

The next area is to use multiple and consistent leverage points for changing behavior.This issue relates to the organizational model underlying this approach to changemanagement. An organization is a system made of tasks, individuals, formal organizationalarrangements, and informal organizational arrangements. During a transition, when certainaspects of the organization are being changed, there is a potential for problems arisingfrom a poor fit. An organization works best when all elements fir smoothly. Managers needto use all of these levers for change. Specifically, managers need to think about modificationsthat need to be made in the work, individuals, formal structure, and informal arrangements.Secondly, there is a need to monitor and/or predict some of the poor fits that may occurwhen changing any of the organizational components. It is necessary to plan the changes tominimize poor fit among different elements of the organization.

The next action area involves using transition devices. The transition state is differentfrom the current and future states; therefore, there may be a need to create organizationalarrangements that are specifically designed to manage the transition state. These devicesinclude: 1) a transition manager; 2) specific transition resources, including budget, time andstaff; 3) specific transition structures, such as dual management systems and backup support;and 4) a transition plan. All of these can be helpful in bringing needed management attentionto the transition.


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The final area is to obtain feedback and an evaluation of the transition state. Thetransition is a time when managers need to know what is going on in the organization.There is usually a breakdown in the normal feedback devices that managers use to collectinformation about how the organization is running. This is particularly serious during aperiod of change when there may be high anxiety and people hesitate to deliver bad news.Therefore, it is critical to build in various channels for feedback. Formal methods mayinclude individual interviews, various types of focus-group data collection, surveys usedglobally or with select samples, or feedback gathered during a normal business meeting.Informal channel include senior manager’s meetings with individual or with groups, informalcontacts, or field trips. Finally, feedback may be promoted through direct participation byrepresentatives of key groups in planning, monitoring, or implementing the change.

In summary, the initial emphasis in transition management is on identifying a clearimage of the future state. Secondly, there is need to pay attention to the changing configurationof the organizational system and to develop – where needed – unique organizationalarrangements to manage the transition period. Finally , there is a need to monitor progressthrough the development of feedback systems. All of these are important elements inmanaging a transition.


5.3 (a) Explain the process involved in moving from current state to future state.

5.3 (b) What are the problems in implementing organizational changes?

5.3 (c) How constructive behavior can be motivated?

5.3 (d) How transition can be effectively managed?

5.4 IMPACT OF TECHNOLOGICAL CHANGE ON ORGANISATIONALPRODUCTIVITY

Introduction or adaptation of new technology, or technological change, can haveboth positive and negative effects on organisational productivity.

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Productivity:

Productivity is the relationship between output and inputs of business system. Higher theratio between the two, more is the productivity. It can be expressed on a total factor basisor on a partial factor basis as under:

• Total productivity (total factor basis) measured by ratio of outputs to all inputs

• A partial measure of productivity, for example, is output per labour hour

Strategies for improving productivity:

Following strategies can be adopted for improving productivity:

1. Attaining increased output for same level of inputs

Under this strategy, focus is on attaining more, or increased output by using almostthe same quantum of inputs. For example, converting waste into a useful by-product,improving process efficiency etc. Here, output will increase at a much higher rateaccompanied by almost negligible increase in inputs.

2. Using decreased or lower inputs for same level of output

Under this strategy, focus is on attaining same level of output by using lesserquondam of inputs. For example, finding low cost substitutes, simplification of productdesign etc. Here, consumption will decline, but output level shall be maintained.

3. Proportionate increase in output is more than proportionate increase in input

Under this strategy, focus is on attaining increase in output in such a way that itis more than proportionate increase in input. For example, offering additional varieties ofproduct or service, by using existing facilities. Here more output can be generated byminor adjustments in existing plants and capabilities through minor expenditure

4. Proportionate decrease in input is more than proportionate decrease in output in sucha way that proportionate decrease in input is more than proportionate decrease in the


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output. For example, dropping an uneconomical product as it is loss making i.e. its costsare more than revenues. Once an uneconomical product is dropped, reduction in cost willbe more than decline in revenues.

5. Attaining simultaneous increase in output with decrease in inputs Under this strategy,focus is on attaining increase in output in such a way that it is accompanied by simultaneousdecrease in input. For example, use of automation, mechanization and computerization.This will ensure lower wastages, lower resource requirements, more output accompaniedby decrease in inputs.

Most of the above strategies call for improvement in current technology, use of newtechnologies, innovations etc.

5.4.1 Management of New Technology in Relation to Organisational Productivity:

Introduction or adoption of new technology, or technological change, can have bothpositive and negative effects on organisational productivity.

1. Introduction of new technology may increase or decrease organisationalproductivity:

It may increase organisational productivity if new technology facilitates lowerconsumption of inputs, lower processing time, lower wastages, lower defective, moreease and safety in manufacturing, and more efficiency. Organizational productivity maydecrease if new technology leads to suspicion of workers due to likely adverse impact onemployment level and demoralization due to impending retrenchment, deterioration ofworking environment, more stress on workers, more accidents etc. New technology maykill existing products as well, thus leading to decline in productivity.

2. Introduction of new technology may increase or decrease QWL.

It may increase QWL if safety at work increases, human convenience at workincreases, pollution decrease, ease in manufacturability increases, change is properlymanaged etc. QWL may decrease if safety at work decreases, human convenience atwork decreases, pollution increases, ease in manufacturability decrease, changes bring inuncertainties and there could be resistance to change.

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Thus proper management of new technology and technological change is essential inrelation to organisational productivity. Proper management of the new technology calls for:

Providing training to employees to handle new technologies and technologicalchangesManaging resistance to change i.e. managing changeOffering incentives for creative and innovative ideasSeeking worker participationProblem solving instead of avoiding problemsEnsuring effective communication across the organisationUse of multifunctional teamsBringing R&D closer to manufacturing and marketingSeeking regular feedbackContinuous technological assessmentRegular technology audit.

The above strategies and steps can help in reducing/avoiding negative effects ofintroduction of new technology and technological change on organisational productivityand QWL. Vie Versa of the above also holds true.

5.4.2 Resistance to Change

The biggest challenge to any change comes through resistance to change. Changedisturbs the existing equilibrium, existing procedures, power structures etc within the systemor organisation, which may not be liked by many persons, thus leading to resistance tochange.

1. The resistance to change could be:

(a) Overt or Immediate: These resistances are easier to anticipate, diagnose and deal.Examples are threat to strike, slow down etc.

(b) Implicit or Deferred: These resistances are difficult to anticipate, diagnose anddeal. Example are job dissatisfaction, decreased loyalty to organisation, lessermotivation to work, increased errors or mistakes (which may be deliberate),increased absenteeism (by claiming false sickness), increased turnover of labouretc.


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2. Resistance to change can come from employees as well as employers or management.Example of resistance at employee level is the resistance to computerisation in 1990s bypublic sector banking employees. Example of resistance at employers, or management,level is the resistance by some private managements to the proposed mandatory reservationfor weaker sections of society in the private sector.

3. Resistance to change can occur at any level i.e. individual level, group level andorganisation level. For example, introduction of a single new machine may create health orsafety concerns in the minds of one or two operator, leading to resistance by individuals.Similarly, workers of a section of production department, viz. welding section, may beaffected by new incentive scheme at the works, leading to resistance by a group. Similarlyproposed changed from time wage system to piece rate system may lead to resistance atorganisation level.

As the resistance to change can come from any direction, occur at any level, andoccur in any form, it calls for its effective management.

5.4.3 Building Culture for Change

Building culture for change is a time consuming exercise and involves lot of efforts.Management’s first responsibility is to detect trends in the macro environment so as to beable to identify changes and initiate programme. It is also important to estimate what impacta change will likely have on employee behavior patterns, work processes, technologicalrequirements and motivation. Management must assess what employee reactions will beand craft a change programme that will provide support as workers go through the processof accepting change. The programme must then be implemented, disseminated throughoutthe organisation, monitored for effectiveness and adjusted where necessary.

Management, managers and senior executives of the organisation must manage thechange in a way that employees can cope with it. Change can be unsettling, so the managerlogically needs to be a setting influence. The manager has a responsibility to facilitate andenable change and to help people understand reasons, aims and ways of respondingpositively according to employees’ own situations and capabilities. Increasingly the manager’srole is to interpret, communicate and enable not to instruct and impose, which nobodyreally responds too well. If an organisation imposes new things on people, there will begreat difficulty.

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Check that people affected by the change agree with, or at least understand, theneed for change, and have a chance to decide how the change will be managed, and to beinvolved in the planning and implementation of the change.

Participation, involvement and open, early, full communication are the importantfactors for success. Face-to-face communications should be used to handle sensitive aspectsof organisational change management. Workshops are very useful processes to developcollective understanding, approaches, policies, methods, systems, ideas, etc. Staff surveysare a helpful way to repair damage and mistrust among staff – provided people are allowedto complete them anonymously, and management publishes and acts on the findings.Management training, empathy and facilitative capability are priority areas for building theculture for change.

One cannot impost change – people and teams need to be empowered to find theirown solutions and responses, with facilitation and support from managers, and toleranceand compassion from the leaders and executives. Management and leadership style andbehaviour is more important than cleaver process and policy. Employees need to be ableto trust the organisation.

In general terms, the change programme should:

Describe the change process to all people involved and explain the reasonswhy the changes are occurring. The information should be complete, unbiased,reliable, transparent, and timely.

Be designed to effectively implement the change while being aligned withorganisational objectives, macroenvironmental trends, and employeeperceptions and feelings.

Provide support to employees as they deal with the change and, whetherpossible, involve the employees directly in the change process itself.

Be consistently monitored and reviewed for effectiveness. A successful changemanagement programme is typically also a flexible project.


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At an individual level, the ADKAR model developed by Jeff Hiatt for individualchange management can be highly helpful. The model presents five building blocks than anindividual must obtain to realise change successfully. These include awareness, desire,knowledge, ability and reinforcement. It is the management’s job to create an environmentin which people an go through these stages as quickly as possible, including:

Building awareness as to why the change is neededCreating desire to support and participate in the changeDeveloping knowledge as to how to changeFostering ability to implement new skills and behaviourProviding reinforcements to sustain the change

By taking the above measures, an organisation can build a culture for changes overpassage of time to achieve understanding, involvement, action and commitment fromemployees. In addition, Kotter’s eight-step change model can also be used for building aculture for changes, which is discussed later in the chapters.


5.4 (a) What are the various strategies for improving productivity?

5.4 (b) Explain the impact of new technology on productivity.

5.4 (c) Why there is resistance to change?

5.4 (d) How will you build a culture prepared to accept change?

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5.5 CHANGE MANAGEMENT STRATEGIES

There are four basic change management strategies, which are given in the table asunder:

Organisations do not pursue a single strategy. They adopt a suitable mix of the above fourstrategies depending upon the following factors:

Degree of resistanceTarget populationThe stakes involvedThe time-frameDegree of expertise involvedDependency

Some of the strategies are discussed as below:

1. Proper timing/tact:

There is an old saying – ‘Well begun is half done’. Any ill-timed move can haveserious implications for an organisation. A properly planned and well-timed change hasmuch higher chances of successful implementation.


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2. Education and communication:

Most of the problems arise because of lack of information, inadequatecommunication and fear about uncertainties. Through proper communication and educationabout reasons an needs for change, many problems can get reduced or eliminated.

3. Seeking participation:

Involvement and participation in decision-making process can significantly reducecommunication gaps, reduce fear about uncertainties etc. This, in turn, can help in successfulchange management.

4. Facilitation and support:

Counseling, training and proper motivation can greatly help employees to adapt tothe change thus helping in its successful management.

5. Negotiation:

It helps in accommodating different views and reaching a consensus or someacceptable solution to a given problem. While negotiation helps in overcoming resistanceto change, the acceptable solution may not always to optimal and thus negotiation may besometimes costly.

6. Manipulation and co-optation:

Manipulation involves twisting the facts or hiding crucial information. This mayrecoil on the management in the long run. Sometimes managements twist the facts bypresenting a rosy picture about change and hide its adverse effects. Sometimes managementsmay go for gradual release of information by releasing favorable information in very earlystages and unfavorable information at very late stags.

7. Coercion:

It involves use of direct threats like threat of transfer etc. Coercion, as a strategymay be used by managements to bring out certain changes, but it usually adversely affectscongenial and healthy working environment.

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8. Introducing incentives / rewards:

There is an old saying ‘Making makes the mare go’. In this era of materialism,rewards/incentives can motivate the employees / organizations to go ahead with change.For example, government offers tax incentives for dispersal of industries to remote areas.

By taking some of the above steps/strategies, resistance to change may beovercome, leading to successful/proper change management. Alternatively Kotter’s eightstep change model may be used for effective change management.

CHANGE MANAGEMENT PROCESS

Change management/change control is a formal process used to ensure that aproduct, service or process or some operation is modified in line with the identified necessarychange only. Change control process comprises a set of six step as under:

1. Identify the potential change:

Sometimes, the management may itself identify the need for change. Sometimes aformal request is received for something to be changed. These requirements for bringingchange are recorded and categorized and passed on to impact assessor(s).

2. Assess:

The impact assessor or assessors then make their risk analysis and make a judgementas to whether to go ahead with the change, what shall be its implications and who shouldcarry out the proposed change?

3. Plan:

Change is planned in detail, all safety measures are incorporated and an action plan/solution is built.

4. Implement:

Action plan/solution is approved and the change is implemented.


NOTES


5. Review:

Implementation is tested to ascertain whether it is successful or not? If required,corrective actions are undertaken to obtain desired change. If required, change programmemay be modified on the lines of feedback. It is also reviewed whether change is sustainingor not?

6. Close the process if change of goals have been met with.


5.5 (a) Explain the change management strategies.

5.5 (b) Describe change management process.

5.6. The Effects of Technological Change on the Skill Requirements of theWorkforce

The introduction of new and advanced technologies into the workplace immediatelyresults in different skill requirements. The magnitude and nature of the changes will beinfluenced by the economic sector and the type of industry involved.

Matching and Training the Skilled Workspace to Meet the Requirements of NewTechnologies

Once the decision to adopt a new technology has been made, management mustdetermine, before implementation, the skills necessary to run the new installations efficientlyand effectively. Management must also develop operational plans to accomplish thetransition with minimal disruption to operations and minimal adverse effects on the existingworkforce. Reliable, perhaps industry-dependent, date can guide management in its decisionsabout how much change the workforce can handle and the types of reeducation, retraining,and relocation that are needed.

Obsolescence of Professional staff and the Continuing Need for Professional DevelopmentActivities

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The growth in scientific knowledge and the escalating rate of technological changerenders obsolete the training that professional staff acquired during their formal educationor prior education or prior work experience. There is a growing need for continuing educationfor the professional staff. Reliable data and necessary strategies must be developed todetermine how to meet the needs of the organization under various circumstances.

The Role of Technological GateKeepers and Internal Entrepreneurs

In view of the rapid nature of technological change, organizations must find waysto determine, choose, adapt and implement appropriate technologies. The role of anorganization’s technological gatekeepers and internal entrepreneurs in the successful andidentification, implementation, and utilization of new technologies is essential and must bethoroughly understood.

Social Consequences of Technological Change

Technology is the most important source of change in human experience. Its impacton our daily lives, socioeconomic structure, political system, and employment necessitatesa through understanding of its implications and the development of reliable predictive models.Industry should determine what social-support structures within organizations, particularlyhigh-technology organizations, exist or should exist to assist the following groups in copingwith the demands of new or changing technologies:

• Working couples, single parents, or individuals with extended familyobligations.

• Working and professionals with changing or interrupted careers.• Working and professionals displaced by technology.

Other Areas of Importance

Management should consider the implementation of:

1. Reward and incentive systems for engineers, scientists, and internal entrepreneurs incorporations (e.g., evaluation and use of a “dual-ladder” reward system).

2. Measures to facilitate the transition from technical specialist to technical manager.3. Measurement methodologies related to professional, human, and worker-machine

interactions.


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Have you understood

5.6 a how will you mach and train the skilled workforce to meet the requirements of newtechnologies?5.6b what are the social consequences of technological change?

5.7 INNOVATIONS AND ENTREPRENEURSHIP

Eventhough much of today’s discussion treats entrepreneurship as something slightlymysterious or flash of genius, innovation and entrepreneurship are tasks that can be organizedas a systematic work, according to Peter Drucker. The test of an innovation does not lie inits novelty, its scientific content. It lies in its success in the market place.

Innovation is the specific tool of entrepreneurs, the means by which they exploitchange as an opportunity for a different business or a different service. It is capable ofbeing presented as a discipline, capable of being learned, capable of being practiced.Entrepreneurs need to search purposefully for the sources of innovation, the changes andtheir symptoms that indicate opportunities for successful innovation. And they need toknow and to apply the principles of successful innovation.

All new businesses have many factors in common. But to be entrepreneurial anenterprise has to have special characteristics over and above being new and small.

An enterprise also does not need to be small and new to be an entrepreneur.Indeed, entrepreneurship is being practiced by large and old enterprises. The GeneralElectric company, one of the world’s biggest businesses and more than a hundred yearsold, has a long history of starting new entrepreneurial businesses from scratch and raisingthem into sizable industries. Entrepreneurship is thus a distinct feature whether of an individualor of an institution.

Entrepreneurs see change as the norm and as healthy. Usually they do not bringabout the change themselves. But the entrepreneur always searches for change, respondsto it and exploits it as an opportunity.

Entrepreneurs innovate. Innovation is the specific instrument of entrepreneurship.It is the act that endows resources with a new capacity to create wealth. In fact, innovation

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creates a resource. There is no such thing as ‘resource’ until man finds use for something innature and thus endows it with economic value. Entrepreneurs will have to learn to practicesystematic innovation.

Technology based innovation has the longest lead time of all innovations. TheTechnology based innovator needs to learn and practice entrepreneurial management. Thetechnology based innovator needs to learn and practice entrepreneurial management. Asthe inherent risks of technology based innovations are high, entrepreneurial management isparticularly necessary.


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