Tutorial: Technology S-Curve of and its applications

A)- What is Technology S-Curve

In this tutorial, I will introduce the S-curve framework, which is particularly useful for
analyzing technological cycles and predicting the introduction, adoption and maturation of
innovations.

The S-Curve Framework

The S-Curve is a mathematical model which could be applied to a variety of fields including
physics, biology and economics. It describes for example the development of the embryo, the
diffusion of viruses, the utility gained by people as the number of consumption choices increases,
and so on

In the innovation management field the S-Curve illustrates the introduction, growth and
maturation of innovations as well as the technological cycles that most industries experience. In
the early stages large amounts of money, effort and other resources are expended on the new
technology but small performance improvements are observed. Then, as the knowledge about the
technology accumulates, progress becomes more rapid. As soon as major technical obstacles are
overcome and the innovation reaches a certain adoption level an exponential growth will take
place. During this phase relatively small increments of effort and resources will result in large
performance gains. Finally, as the technology starts to approach its physical limit, further pushing
the performance becomes increasingly difficult, as the figure below shows.

The s-curve is derived from half of a normal distribution curve. There is an assumption
that new products are likely to have "product life". i.e. a start-up phase, a rapid increase
in revenue and eventual decline. In fact the great majority of innovations never gets off
the bottom of the curve, and never produces normal returns.

The S-curve of technological innovation summarizes four major stages in the evolution
of a performance characteristics like technology’s market share

Emergence. Shows little improvement in key performance characteristic

Rapid Improvement: Improve at an accelerating Phase

Declining Improvement: It declines improvement.

Maturity: Further improvement becomes very difficult to achieve.

B)- S-Curve Modeling and Application

sigmoid function is a mathematical function having an "S" shape (sigmoid curve). Often,
sigmoid function refers to the special case of the Logistics function shown in the Figure 1 and
defined by the formula

Where; variables “S” and “t’ represent vertical and horizontal axis (in Figure 1) respectively and S
is a function of the variable “t” (often used to represent Time).

Figure 1: Standard logistic sigmoid function (Original/Standard S-Curve)

When applying to changes in a technology (company) market share, although in almost all cases
the changes in market share with time follow this pattern (S-Shape), we need to be able to
transform this curve so that it will enable us to control when the growth happens, and its speed
(see Figure 2). Numerous studies on the application of S-Curve in predicting /estimating growth
in market share of a technology with time, indicates that, it is possible to transform the original
S-Curve, defined by sigmoid function, to accurately represent growth of market share (Market
penetration) of a technology, by adding two parameters Alpha ( α) and To the equation. The
new equation is now.

M
f(t) = --------------------------- (1)
1+ e -α ( t - To)
Where;
M: Peak , the long-term market share of the product. M=1 when long term
market share=100%
 To: is a parameter that shifts the timeline of the curve (horizontal shift) .
α : This parameter stretches or compresses the time (Horizontal axis)
t : Calendar time we want to determine market share in

The chart below illustrates the impact of these parameters on the curve. For M=1 (Indicating
100% market share).
 The Blue curve corresponds to the original S-Curve, with Alpha = 1 and T0 = 0.
 The Red curve has a value of T0 of 2, which "moves" the curve by 2 units to the right:
it reaches 50% at t=T0, instead of t=0. The
 Green curve has a value of Alpha = 2; it still crosses 50% at t=0, but its growth happens
"twice as fast" as the original curve. Where the original curve takes (roughly) 4 periods
to grow from 10% to 90%, the Green curve achieves the same growth in just 2 periods.

Figure 2: Demonstration of the impact of α and To on S-Curve

Our goal is use the equation (1) and graph the S-Curve for a particular technology (company).
This will also provide us with the ability to estimate market penetration/growth for the
technology for different points in time. To do this, first we need to estimate parameters α and
To by using coordinates of two points on the assumed S-Curve(see below).
Let (t1, f1) and (t2, f2) be two points on the S-Curve, as shown in Figure 3

Now we use the data on two points and determine the values of α and To from the equations (2)
and (3) shown below. Appendix 1 shows how these equations are developed.

f2 Figure 3

f1
t1 t2 0 t

[ ln(1/f1-1) –ln(1/f2 -1) ]

α = --------------------------------- (2)
( t2 - t1 )

To = [ ( ln (1/f1 -1)) / α ] +t1 (3)

EXAMPLE: Suppose that your product has a long-term market share of 80% (i.e. M= 0.8),
and that it will reach 25% of its peak share (i.e. 25% of 80%, that is, a 20% market share) in July
1st, 2010., and70% of its peak share (i.e. 70% of 80%, that is, a 56% market share) in April 1st,
2012. In this case, the parameters would be

M, (Peak) : = 80%
t1, (Time1) : = 2010.5
f1, (Value1): = 25%
t2, (Time2) : = 2012.25
f2, (Value2): = 70%
Substituting these values in equations (2) and (3), we get:

α = 1.11 and To = 2011.4 ( See in Appendix)

Now we can use equation (1) to determine market share for any year in the past (in needed) or in
future. For example to determine market share in July 1 of year 2014 will be;

M 80
f(t) = --------------------------- = ---------------------------------------------- = 77.2%
t
1+ e -α ( - To) [1+ e^(-1.11(2014.5-2011.4))]
 a convenient method of calculating f(t) for different values of t during the technology
life cycle is to develop a spreadsheet model of the system. note that, using the model for
the S-Curve, the life cycle of technology ends when f(t+1) - f(t)=0 or considered
insignificant.

Applications:
1)- Estimating future sales volume of and revenue from a new product/technology
2)- Once a technology reaches its limit, Higher performance is achieved only by adopting a
new way or new technology. This new way has its own S-Curve. The S-Curve analysis
helps companies in planning the time (in the future) for the introduction of new
technologies.
3)- S-Curve analysis help companies to conduct economic analysis on the Technology
projects. 4)- it is a valuable tool for planning future activity levels, make decisions, and
develop a
roadmap for the
future 5)- .........
Appendix (For information only)
PART I: Calculating "α" and "To"
Given two points (t1, f1) and (t2, f2) on the S-Curve . we can determine α and To as follows:

Example:
Let: t1, (Time1) : = 2010.5

f1, (Value1): = 25%

t2, (Time2) : = 2012.25
f2, (Value2): = 70%
[ ln(1/0.25 -1) - ln(1/0.7 -1)]
α = --------------------------------------- = 1.11
[2013.25- 2011.5]

[ ln(1/0.25 -1) ]
To = ----------------------- + 2010.50 = 2011.4
α
PART II: Mathematics of deriving equations (2), and (3).
Doing the same exercise on f(t2) = f2, we end up with a system of 2 linear equations in two
unknowns Alpha and T0:

That system is easily solved and gives us the following values for Alpha and T0:

PART II: Mathematics of deriving equations (2), and (3).

Doing the same exercise on f(t2) = f2, we end up with a system of 2 linear equations in two
unknowns Alpha and T0:

That system is easily solved and gives us the following values for Alpha and T0: