Exploring the Limits of the Technology S-Curve.  Part I: Component Technologies

Learning Objective: Understand the Four propositions about the usefulness of the S-curve.

This reading is important for 2 reasons.

1. It discusses a very important theoretical point, S-Curves
2. It uses data to support its point.

From an academic standpoint, this is fundamental to understand.  People make opinions all the time.  But we have to back up those opinions with fact.

That is why you are here.

First, let’s look at what an S-Curve is.

In this reading, the authors focused on the challenges and benefits of the S-curve framework in managing the development of new component technologies.

In the next reading, the authors reach an opposite conclusion about architectural technology change.

They say that knowing the S-curve allows one to jump on new technology early, before competitors, in order to gain competitive advantages.  But their research suggests that jumping early into “component” level technology developments does not seem to result in competitive advantages.  Hence knowing and following the S-Curve is not that useful. They say in the next reading that architectural technologies indeed follow S-curve patterns of improvement.  However, they fail to convince me, that using the S-curve to make specific product-level decisions is any less problematic at the architectural level. They even come out and say as such in their summary of the second reading, though I had to read somewhat between the lines to find that out.

Exploring the Limits of the Technology S-Curve.  Part 1: Component Technologies

The technology S-Curve is a useful framework to describe the substitution of new for old technologies.

The authors use data from the disk drive industry to examine how you can apply the S-curve to planning for new technology development.  The authors try to show that the flattening of S-Curves is a firm-specific, rather than uniform industry phenomenon. Lack of progress in conventional technologies may be the result, rather than the stimulus, of a forecast that the conventional technology is maturing.  I would call that a self-fulfilling process, so to speak.

Firms pursuing aggressive S-Curve switching strategies in component technology development gained no strategic advantage over firms whose strategies focused on extending the life of established component technologies.

Discussion

The S-Curve is a theory that the magnitude of improvement in the performance of a product or process occurring in a given period of time or resulting from a given amount of engineering effort differs as technologies become more mature.

The theory states that in a technology’s early stages, the rate of progress in performance is relatively slow.  As the technology becomes better understood, controlled, and diffused, the rate of technological improvement increases.  But the theory posits that in its mature stages, the technology will approach natural or physical limits.

The authors state the purpose of the paper to enrich our understanding of the uses and limits of technology S-curve theory from the point of view of a manager within a single firm.

Four propositions about the usefulness of the S-curve

1. At the industry level, S-curves can provide rather convincing explanations of why alternative technologies have made or have failed to make substantial inroads against currently dominant technology
2. To achieve improvements in the sorts of high-level measures of system performance mentioned in (1) above, managers must conceive and execute a sequence of projects to improve the component technologies used in a product and to refine or revamp it. For engineering or research manager S-curves will be useful if they aid in planning components and architectural technology development programs.
3. S-curves may be useful in describing an individual firm’s experience, but the framework has serious shortcomings if used in a prescriptive sense to indicate the direction future research programs ought to take. The industry’s leading incumbent firms were generally the most aggressive in switching to new component technology S-curve, but there is no evidence that they gained any sort of strategic advantage over firms that stayed longer with conventional componentry.  If anything, a strategy of extending or “riding” the S-curve of conventional technology and of switching component technology S-curves behind the industry’s component technology leaders seems to have led to greater success.
4. Often first innovations have been architectural in nature. Established firms find these difficult to spot because alternative architectures are often initially deployed in unimportant commercial applications.

The paper is divided into three sections:

1. key concepts
2. evaluation of the usefulness of S-curves in assessing the potential for performance improvement
3. value and limits of S-curve frameworks to managers in planning a sequence of projects to develop new technologies

Technology is defined as – a process, technique, or methodology, which transforms inputs of labor, capital, information, material, and energy into outputs of greater value.  The authors define a technological change as a change in one or more such inputs, process, techniques, or methodologies that improves the measured level of performance of a product or process.

Defining it this way it is distinct from knowledge, whose value may not be unique to specific products or processes.

The vertical axis of the S-curve is constructed to measure an important dimension of product or process performance.

The choice of units of the horizontal axis depends on the purpose, it is most often time.

A number of writers have advocated the use S-curves as a firm-level prescriptive guide in the strategic management of technology.  These writers urge strategists to identify when the S-curve of the technology has passed its point of inflection, to identify new approaches that are rising from below at a more productive rate and that may in the future intersect with the current technology, and to launch efforts to acquire or develop the new technology in time to switch to it when its performance surpasses the capabilities of the present technology.

In other words prescriptive S-Curve theory would have a firm follow the dotted line in Exhibit 3 – Slide 32

Although this framework seems sensible, studies of technology maturity to date have not empirically addressed how managers at the firm-level might use S-curve analysis as a guide in the strategic management of technology development within their individual firms.  The view from the trenches is more ambiguous than aggregate views.

Using S-Curves to prescribe Development of new component technologies

Using S-Curve analysis as a basis for prescribing new component technology development programs can be problematic at several levels.

1. There are great differences in perceptions – within firms and across firms – about where one is on the S-Curve
2. There are great differences in perceptions about what the status of new technologies. – Some executives and engineers are enamored with radically new technologies – technological long shots.
3. No one really knows what the natural, physical performance limit is in complex engineered products.
4. There are often many ways to overcome natural limits in technology.
5. The Marketplace is very unpredictable.

There sometimes is consensus opinion about S-curves in the industry.  In some technical questions the natural limits of performance may be relatively unambiguous, broadly know, and uniformly understood.

Summary

Although technology S-curves seem to provide useful insights at an aggregate, industry level about the potential for continued improvement of fundamentally different technologies, the application of this framework at a managerial level to planning component technology development seems to be very ambiguous.

Although S-Curve patterns in component technology progress clearly exist, there was no clear evidence of any first mover benefits or “attackers’ advantage.”

Firms that switched late to new technology S-curves successfully matched the product performance of the early adopters.

• Four propositions about the usefulness of the S-curve. (Page 125)

In this article the authors show that it is in architectural, rather than component innovation, that entrant firms exhibit an attacker’s advantage.

A conventionally drawn sequence of intersecting S-Curves is a misleading conceptualization of the substitution process for new architectural technologies, because it characterizes architectural innovations strictly in technical terms.

Innovations in architectural technologies frequently redefine the functionality of products and address product performance needs in new or remote markets, rather then mainstream ones.

In the last reading the authors focused on the challenges and benefits of the S-curve framework in managing the development of new component technologies.

In this reading the authors reach the opposite conclusion about architectural technology change.  That Architectural technologies indeed follow S-curve patterns of improvement.

They say that knowing the S-curve allows one to jump on new technology early, before competitors, in order to gain competitive advantages.  And their research suggests that jumping early into “Architectural” level technology developments does seem to result in competitive advantages.  Hence knowing and following the S-Curve is very useful.

The reason for this is that architectural innovations generally found earliest use in emerging markets.  Entrant, attacking firms succeed with architectural innovations because they were better at attacking these emerging markets, not because they possess superior capabilities to develop the architectural technology per se.

The difference seems to have been in the relative abilities of established versus entrant firms in taking the two types of technologies into the market.

New component technologies generally were the drivers of performance improvement along the dimensions of performance most valued in established markets.  Taking them to market was straightforward – the leading drive makers designed them into new product models and sold to their major customers.

But new architectural technologies tended to redefine the product’s functionality – the parameters by which system performance was assessed.  Because of this, new architectural technologies generally were first deployed in new market applications.  It was failure to innovate in the market, rather then failure to innovate in the laboratory, that seems to underlie the failure of established firms at points of architectural technology change in the history of disk drive industry.

Summary

Identifying new technologies that may supersede existing approaches – a critical job of technology development managers – is always difficult.

S-curves can provide an important perspective on what is happening to performance trajectories at average, aggregate levels.  But, they are less useful when trying to plan technology development at the level of the firm.