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CHAPTER 1
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UNDERSTANDING INNOVATION
AND TECHNOLOGY:
KEY DEFINITIONS AND CONCEPTS
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1.1 THE NEW ECONOMIC PARADIGM AND

THE IMPORTANCE OF TECHNOLOGY
AND INNOVATION
Along the history of humankind, technology has supplied a cornerstone
for social and economic progress. Technology has triggered productivity,
improved the quality of life, paved way for new organizational forms, and
promoted human interaction processes. Technology has also provided
numerous breakthroughs that have led societies to amend the way in
which they see the world and interact with it. Societies have evolved
throughout different paradigms that have eased the understanding and
interpretation of their environment.
To shed light onto the comprehension of the role of technology and
innovation nowadays, we have to delve into the understanding of the term
“paradigm.” The term was coined by Kuhn in his work The Structure of
Scientific Revolutions, where he studied the development of science along
the course of history [Kuhn, 1962], and it has been widely used by schol-
ars and researchers in a variety of scientific fields, including economic
theory.
More precisely, Dosi, based on Kuhn’s work, referred to the expressions
“scientific paradigm” and “technological paradigm.” A “scientific para-
digm” is described by the author as “an outlook which defines the relevant
problems, a model and a pattern of inquiry,” while a “technological

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2 Technological Innovation: Strategy and Management

paradigm” is defined as a “model and a pattern of solution of selected

technological problems,” which denotes an agreement among the partici-
pants on what is to be considered an improvement of a product, service, or
technology. Additionally, on the ground of a given “technological para-
digm” and as the pattern of normal problem-solving, technologies can
progress and evolve, following what Dosi coined as “technological trajec-
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tories” [Dosi, 1982, p. 152]

Technological paradigms have been broadly used in the study of the
economics of technological change in order to explain how technology
breakthroughs are the basis for production systems and value creation.
Thus, according to Pérez [2003, p. 5], the term paradigm has broadened,
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considering it “a collectively shared logic at the convergence of techno-

logical potential, relative costs, market acceptance, functional coherence,
and other factors.” This leads to the concept of a “techno-economic para-
digm,” which highlights the symbiosis between economics and technol-
ogy. The techno-economic approach represents a group of technologies
and solutions that are constantly being improved with a great effect on the
economic system itself [Pérez, 2003].
Consequently, technology and economy seemingly interact with each
other in order to compose an assembly of technical procedures, new sets
of knowledge, and new practices of value creation that constitute the basis
for an explicit economic activity model.

1.1.1 How do Science and Technology Evolve Over Time?

We are conscious that economic models and technological assets evolve
and change over time, leading to new technological solutions and eco-
nomic applications. In this vein, we are interested in exploring how tech-
nological and economic systems change and finding the tipping point for
a technological and economic shift.
To clear up the question, we refer to the works of those authors who
tried to explain economic evolution for many years. The first mention is
to Kondratieff [1892–1938] who, throughout his work, The Long Waves in
Economic Lives, argues for the existence of economic cycles of about 50
years in length. According to the author, these cycles are characterized by
the formation of capital goods at the beginning of the cycle, followed by

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Understanding Innovation and Technology: Key Definitions and Concepts 3

an increase in consumption and employment. Afterward, the decline of

investment drives the economy to high unemployment rates and overca-
pacity in the use of capital goods, which after a period of time leads to
new capital formation and the commencement of a new cycle. However,
Kondratieff calls into question the role of technology as explaining or
causing the shifts in economics, and prioritizing the role of the market to
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trigger the use of new production techniques. Thus, the author states that
“scientific-technical inventions in themselves, however, are insufficient to
bring about a real change in the technique of production. They can remain
ineffective so long as economic conditions favorable to their application
are absent” and complements “changes in technique have without doubt a
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very potent influence on the course of capitalistic development. But

nobody has proved them to have an accidental and external origin”
[Kondratieff, 1935, p. 112]. Therefore, although the author recognizes the
role of technology, he does not consider it a central element in economic
change.
We have to go to the fourth decade of the last century to come up with
Schumpeterian theories, which hold that disruptive technological innova-
tions lead to economic development, recognizing the key role of technol-
ogy in the economic shift. Schumpeter coined the term “Business Cycles”
[Schumpeter, 1939, p. 150], which can be traced back to Kondratieff’s
long waves. This vision of technology as a trigger for economic growth
can be observed in the following citation from the author: “If innovations
are being embodied in new plant and equipment, additional consumers’
spending will result practically as quickly as additional producers’ spend-
ing. Both together will spread from the points in the system on which they
first impinge, and create that complexion of business situations which we
call prosperity.”
So, a techno-economic paradigm provides the society with a set of
assumptions, rules, techniques, solutions, ways of producing, etc., that
outline the main research challenges and a collection of acceptable and
proved findings that represent the state of the art for that specific para-
digm. The question, as we stated before, is how long will this paradigm be
acceptable? Well, it all depends on the accumulated shortcomings and its
sustainability. If the existing paradigm is no longer sustainable, it will be
replaced by a new one.

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4 Technological Innovation: Strategy and Management

In this vein, and in order to comprehend the way the shift occurs,
it is worth coming back to Kuhn’s vision. The author argued that sci-
entific shifts progress through the following stages [Kuhn, 1962]
(Table 1.1):

Table 1.1. Different Stages in Scientific Shift.

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Phases Explanation
Normal For the author, normal science means “research firmly based upon one
science or more past scientific achievements, achievements that some
particular scientific community acknowledges for a time as
supplying the foundation for its further practice.” Normal science
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constitutes a scientific paradigm when its achievements fulfil two

criteria; being sufficiently extraordinary to entice an enduring group
of adherents away from competing modes of scientific activity and
at the same time, it is open-ended to leave all sorts of problems for
the redefined group of practitioners to resolve [Kuhn, 1962, p. 10].
Normal This concept relates to the fact that, in many cases, the adherents to a
science as paradigm choose mostly problems that are expected to have
“puzzle- solutions. To a great extent, the author adds, “these are the only
solving” problems that the community will admit as scientific or encourage
its members to undertake” [Kuhn, 1962, p. 37].
Anomaly and This relates to the dysfunction of normal science when shortcomings
the and pitfalls appear failing to explain certain phenomena under the
emergence existing paradigm. However, the author poses that real discoveries
of scientific only commence with the recognition of anomalies, which in some
discoveries way contravene the existing paradigm of normal science and closes
only when the paradigm theory has been adjusted so that the
anomalous has become the expected [Kuhn, 1962, p. 52].
Crisis and the The aforementioned discoveries lead to a change in the scientific
emergence paradigm. In order to place new discoveries in the existing
of scientific paradigm, it is necessary to discard some previous standard beliefs
theories and replace them with new ones. However, when the existing
scientific paradigm is unable to explain adequately the newly studied
phenomena, the paradigm goes into crises.
The Nature When the old paradigm cannot be revitalized, the community searches for a
and new paradigm to replace the former one. With a new paradigm in mind,
necessity of scientists adopt new instruments and look in new places. The paradigm’s
scientific shift leads the scientific community to see the world differently, under
revolutions the prism of the new principles set by the new paradigm.
Source: Kuhn [1962].

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Understanding Innovation and Technology: Key Definitions and Concepts 5

1.1.2 M
 ajor Technological Revolutions Along the Course
of History
Once we have analyzed how science and technology evolve, we would
like to examine which have been the major technological shifts along the
course of history and how they happened. Carlota Pérez, a Venezuelan
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scholar who studies the evolution of technology and economic develop-

ment, refers to the term “technology system” as a bunch of intercon-
nected, individual innovations, which in turn are interconnected in
technological revolutions. The author explains that the appearance of new
technologies is not a random or isolated event, since it involves other
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agents of change, such as providers, distributors, or consumers according

to the concept of Schumpeterian clusters, which are the results of techno-
economic and social interactions between producers and users within
complex, dynamic networks [Pérez, 2003]. Similarly, Pérez highlights the
importance of incremental innovations in the evolution of technological
solutions following breakthrough or radical innovations because although
radical innovations play a key role in determining new investments and
economic growth, technological evolution depends on incremental inno-
vations [Pérez, 2003].
Coming back to the term “technological revolution,” it can be defined
as “a set of interrelated, radical breakthroughs, forming a major constella-
tion of interdependent technologies; a cluster of clusters or a system of
systems” [Pérez, 2004]. The author adds that a technological revolution is
distinguished from a simple random collection of technology systems by
two basic features: a strong interconnectedness and interdependence of
the participating systems in their technologies and markets, and the capac-
ity to profoundly transform the rest of the economy and eventually the
society. The author posits the existence of five major technological revolu-
tions that are summarized in Table 1.2.
The first technological revolution, known as the “Industrial Revolution,”
took place in 1771 in Britain. The starting point was the opening of
Arkwright’s mill in Cromford, the first and most important cotton mill
established by Sir Richard Arkwright, who pioneered the development of
his frame-spinning machine, revolutionizing the manufacturing of fabrics,
and constituting a cornerstone for the Industrial Revolution. According to
Pérez [2003], this technological revolution set up new technologies, such

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6 Technological Innovation: Strategy and Management

Table 1.2. The Five Successive Technological Revolutions, 1770–2000.

Big-Bang
Technological Popular name for Core country initiating the
revolution the period or countries revolution Year
First The “Industrial Britain Arkwright’s mill 1771
Revolution” opens in
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Cromford.
Second Age of steam and Britain The “Rocket” 1829
railways (spreading to steam engine for
the continent the Liverpool–
and USA) Manchester
railway is tested.
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Third Age of steel, USA and The Carnegie 1875

electricity, and Germany Bessemer steel
heavy engineering forging ahead plant opens in
and overtaking Pittsburgh,
Britain Pennsylvania.
Fourth Age of oil, the USA (with First Model-T 1908
automobile, and Germany at comes out of the
mass production first vying for Ford plant in
world Detroit,
leadership), Michigan.
later spreading
to Europe
Fifth Age of information USA (spreading The Intel 1971
and to Europe and microprocessor
telecommunications Asia) is announced in
Santa Clara,
California.
Source: Pérez [2003].

as mechanization of the cotton industry, fabrication of wrought iron, and

the intensive use of machinery. At the same time, it created or redefined
new infrastructures such as canals and waterways, turnpike roads, and
water power throughout new and improved water wheels. The paradigm
of new techno-economic innovation principles was based on the factory as
the center of production, mechanization, the importance of productivity,
and the existence of local networks.

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Understanding Innovation and Technology: Key Definitions and Concepts 7

The second major shift into a new economic paradigm started in 1829
and was known as the “Age of steam and railways.” According to Pérez
[2003], the new technologies involved in this technological revolution were
the steam engines and new machinery, iron and coal mining, railway con-
struction, rolling stock production, and steam power. Accordingly, there
appeared new infrastructures such as the railway, telegraph, universal postal
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service, functional ports, depots, worldwide sailing ships, and city gas. The
new techno-economic paradigm changed, provoking the agglomeration of
economies around industrial cities and the conformation of national mar-
kets, the appearance of power centers with national networks, the impor-
tance of scale, standardization of production parts against the handicraft
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economy, and the growing interdependence of machines and means of

transportation.
The author referred to the third technological revolution as the “age of
steel, electricity, and heavy engineering.” The starting point was the open-
ing of the Carnegie Bessemer steel plant in Pittsburgh, Pennsylvania
(USA) in 1875, moving the gravity center of technological expansion to
the USA and Germany and later to Britain. The new technologies that
appeared with this technological shift were cheap steel, steam engines for
steel ships, heavy chemical and civil engineering, the electrical equipment
industry, copper and cables, canned and bottled food, and paper and pack-
aging. These new technologies allowed major shifts in infrastructures
such as worldwide shipping, transcontinental railways, great bridges and
tunnels, worldwide telegraphy, mainly national telephone networks and
electrical networks.
Continuing reference to the work of Pérez, the fourth technological
revolution is known as the “age of oil, automobiles, and mass produc-
tion.” The starting point for this age is when the first “Model-T” came
out of the Ford plant in Detroit, Michigan (USA) in 1908. The technolo-
gies associated with this technological area include mass production
throughout the assembly line, cheap oil-based fuels, petrochemicals,
internal combustion engines, electrical home appliances, and refriger-
ated and frozen foods. All these technologies were accompanied by
changes in infrastructures, such as networks of roads and highways, oil
pipelines, universal electricity, and analog telecommunications (tele-
phone, telex, and cablegram).

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8 Technological Innovation: Strategy and Management

Finally, Pérez refers to the fifth technological revolution as the “age

of information and telecommunications,” which originated with the
announcement of the first Intel microprocessor in California (USA) in
1971. This era is characterized by what is called the “information revo-
lution,” and it is based on microelectronics, computers, software, tele­
communications, control instrumentation and computer-aided
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biotechnology, and new materials. These technologies triggered the

development of infrastructures for digital telecommunications, the
Internet, electrical networks, and high-speed, multi-modal physical
transport links.
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1.1.3 The Dominant Techno-Economic Paradigm Nowadays

What is the predominant techno-economic paradigm today? Are we still
under the influence of the fifth technological revolution, that is, the age of
information and telecommunications?
As we mentioned earlier, the irruption of information and communica-
tion technologies (ICTs) can be traced back to 1971 when Intel introduced
the first commercially viable microprocessor, which made it possible to
incorporate all of the functions of a central processing unit (CPU) onto a
single integrated circuit [Knell, 2010]. This kind of technology made pos-
sible the creation of the first personal computers, software, and integrated
circuits in a variety of new products and services. And later, it facilitated
the development of digital telecommunication networks and the Internet,
which constituted one of the biggest shifts in history ever. Likewise, ICTs
have experienced exponential growth in their information processing
capacity, which leads to still greater computing capacity today at the same
levels of investment as years ago [Biagi, 2013].
However, according to Hanna [2010], we are still in the early phase
of a long-term technological wave and productivity revolution with the
use of information and telecommunication technologies. These tech-
nologies are expected to produce intense decline in prices and increases
in ICT system performance and intelligence. Hanna holds that the ICT
revolution represents a techno-economic paradigm shift with deep impli-
cations for the regeneration of productive and institutional structures in
developed and developing countries alike. He also maintains that “the

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Understanding Innovation and Technology: Key Definitions and Concepts 9

ongoing technological revolution is so profound and pervasive that it

challenges many traditional economic concepts that are rooted in incre-
mental thinking” [p. 29].
At the same time, it is widely assumed that the implementation of
ICTs leads to improvements in productivity at both the national and
business levels. This assumption has been thoroughly studied in the
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literature, even though at the beginning there were some voices that
claimed that ICT and productivity were not clearly connected. Thus,
Robert Solow stated, “You can see the computer age everywhere but in
the productivity statistics” [Solow, 1987]. Fortunately, this statement
was not exactly true, and it is a known fact that as long as ICTs develop,
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so will efficiency and productivity. In fact, there have been a large num-
ber of authors studying and concluding positive correlations between
ICT and productivity. Accordingly, Biagi [2013] in the report “ICT and
Productivity: A Review of the Literature” argues that ICTs positively
influence growth and productivity. This influence can be direct, since
growing productivity in the ICT industry has a direct and proportional
consequence in terms of its weight on the GDP, on aggregate productiv-
ity [Jorgenson et al., 2008; Gordon, 2000, 2012; van Ark et al., 2008].
Conversely, this relationship can have indirect effects as well, since ICT
plays an important role in other industrial or service sectors. Particularly,
the same report points out that ICTs are enablers of product, process,
and organizational innovations in other sectors that implement the use
of ICT. Similarly, these technologies facilitate the management, stor-
age, and transmission of information, helping to reduce market failures
due to information asymmetries.
So, ICT seemingly impinges on productivity and growth. Nevertheless,
ICT’s impact is so pervasive that some authors qualify them as a General
Purpose Technology (GPT) [Jovanovic and Rousseau, 2005]. A GPT is a
“technology that initially has much scope for improvement and eventually
comes to be widely used, to have many uses and to have many Hicksian
and technological complementarities” [Lipsey et al., 1998, p. 43]. A tech-
nology must fulfill some criteria to be considered a GPT, such as perva-
siveness (the GPT should spread to most sectors); improvement
(simultaneous increase in performance and cost reduction) and capacity to
spawn innovation (easing the invention and production of new products

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10 Technological Innovation: Strategy and Management

and processes) [Trajtenberg and Bresnahan, 1992]. There are authors like
Jovanovic and Rousseau [2005, p. 1186] who compare electricity and
ICTs in terms of their ability to generate economic growth. They conclude
that “the evidence shows similarities and differences between the electri-
fication and the IT eras. Electrification was more pervasive, whereas IT
has a clear lead in terms of improvement and innovation spawning.” This
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ability to induce improvements in other economic sectors, mainly the

productive one, and the decline in ICT prices make the authors hopeful
about the growth forecasts for ICTs.
Nobody doubts that ICT has a great impact on many different fields.
For instance, ICT has a clear effect on governance through the decentrali-
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zation of power, easing information flow (online governmental informa-

tion, freedom of information requests), fostering new types of communities,
and provisioning of different roles for the government (citizen involve-
ment, policy formulation, and legislative branch) [Hanna, 2010].
Likewise, ICT widely impinges on education. Hanna [2010] argues that
with the rapid pace of technology shifts, it is an imperative for a well-
educated and skilled workforce, new ways of knowledge sharing, and
lifelong learning. Consequently, ICT is crucial to limit the fast-increasing
costs of education, and he adds that technology-enhanced learning will
require substantial innovation in the education sector. So, ICT has the
potential to transform how people learn throughout their lives [Resnick,
2002], while distance learning is expanding the learning ecosystem
beyond schools and enabling new types of “knowledge building commu-
nities” [Selinger, 2004]. Hanna, citing the work of Goldin and Katz [1998]
and de Ferranti et al. [2002], maintains that technology and skills play
critical and balancing roles in increasing productivity and in ultimately
increasing the economic growth. Through the use of ICT, the education
process has become more inclusive, accessible, and cost-effective. In this
vein, it is worth citing the experience of the so-called Massive On-line
Open Courses (MOOCs), which make leading teachers accessible to a
huge and dispersed number of students worldwide. Nobody doubts that
ICT is transforming the educational arena, including its business models,
making education more accessible and cost-effective, and reinventing the
way we learn and develop new skills.

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Understanding Innovation and Technology: Key Definitions and Concepts 11

Similarly, the health sector is also changing quickly due to the imple-
mentation of ICT, even though future potential is still huge. ICT, soft-
ware, new telecommunication networks, and mobile communications
foster health education and training and enable new diagnostic systems,
telemedicine and telecare, patient information, and medical records man-
agement [Hanna, 2010]. According to the report “Improving Health
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Sector Efficiency: The Role of Information and Communication

Technologies” [OECD, 2010a], ICT implementation has four broad and
interrelated effects on healthcare systems, such as an increase of quality
of care and efficiency, a decrease in clinical services operating costs, a
decrease in administrative costs, and the capacity to enable totally new
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modes of care. However, one of the most pervasive effects of ICT is on

the business sector. According to Hanna [2010], strategic information
systems (electronic trading and financial payment clearance and settle-
ment systems) are key to economic competitiveness and operations in the
global economy. Such systems, adds the author, represent the new
national infrastructure of the knowledge economy, which require substan-
tial investment and reinforce other economic activities that bring impor-
tant spillover effects to competitiveness in the private sector. Concerning
the business sector, the effects of ICT on business are pervasive, thereby
changing the ways of managing, marketing, and connecting with custom-
ers and networking with other businesses. The establishment of ICT-
based business management systems (CRMs, ERPs, and SCMs among
others) is increasing firm competitiveness, enabling new ways of relating
with suppliers, customers, and the competition. Especially relevant are
the new e-commerce systems and platforms, which have dramatically
changed consumer habits and behaviors and enabled new marketing
channels to reach new clients, where geographic distances become irrel-
evant. Similarly, mobile communications are having pervasive effects on
all sectors and economic activities, disrupting traditional business mod-
els, creating new ways of value formation, and facilitating new economic
activities. Particularly relevant have been the changes in the so-called
sharing-economy. The sharing-economy is an economic and social activ-
ity grounded on the idea that underutilized assets, services, or capacities
can be shared directly by individuals on a free or for-fee basis [Botsman,

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12 Technological Innovation: Strategy and Management

2015]. This kind of economic activity is exemplified in companies like

Uber or Airbnb, which have transformed the business models of tradi-
tional industries such as transport and hospitality. However, the key ena-
bling element of this new economic model is ICT-based platforms that
allow individuals and consumers to get connected and support the service
delivery.
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Beyond the consideration of ICT as a vehicular technology to drive

economic growth and to boost productivity in many sectors, we want to
point out that the economic and productive systems in the most devel-
oped countries are characterized by an intense use of knowledge as the
main input of the creation of value. ICT is transforming the ways in
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which government, business, and society manage the fundamental pro-

ductive factor, which is knowledge. Consequently, the term “knowledge-
based economy” has been coined to describe an economic system with a
great dependence on knowledge, the massive use of information, and the
demand for a high-skilled workforce. A knowledge-based economy is
characterized by the intensive use of knowledge or new technologies,
also it is an economy where all sectors are knowledge intensive, where
there is a high responsiveness to new ideas, technological change, inno-
vativeness, and the use of highly skilled workforce and continuous learn-
ing [Smith, 2000]. There is evidence that innovation is a leading factor
in economic growth at both the national and international levels and that
ICT is quickening and disseminating innovation. Also, at the firm level,
research and development favor the capacity to absorb and make use of
knowledge of all types [OECD and Eurostat, 2005] Correspondingly,
technological change has been acknowledged as the single most impor-
tant contributing factor to long-term productivity and growth [Grübler,
2003]. The concept of the “knowledge economy” entails different
approaches including the rise of new science-based industries, increased
knowledge intensity in certain industries, and the role of continuous
learning and innovation in virtually all businesses [Powell and Snellman,
2004].
Hanna [2010, p. 51] qualifies ICT as a “powerful enabler of innova-
tion” and maintains that “its application to research, design, services,
logistics, finance, marketing, and learning has enabled enterprises to
become more efficient, flexible, and innovative, through process

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Understanding Innovation and Technology: Key Definitions and Concepts 13

innovation, product and service innovation, and the creation of new busi-
ness models. Information and communication activities are at the heart of
the innovation process, and ICT has become a tool for amplifying brain-
power and for innovation.”
As stated earlier, the qualification of ICTs as GPTs according to
Bresnahan and Trajtenberg [1995] leads us to consider ICT as pervasive,
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a technology that allows continuous improvements and experimentation

and facilitates innovation. In the same vein, we can report some indirect
effects of ICT investment, discovering that these technologies are enablers
of product, process, and organizational innovations, many times through
co-invention [Biagi, 2013].
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Nowadays, the economic arena is characterized by the continued eco-

nomic growth demands from policy-makers and industries. The increase
in global competition, the existence of shorter product life cycles, the
appearance of pervasive new technologies, customization on the one
hand and high commoditization of products and services on the other
hand, and price sensitiveness all depict the landscape of markets today.
Accordingly, organizations are asked to pinpoint and assimilate new
knowledge and capabilities that are often available outside their own
borders, since today a comprehensive range of knowledge from different
bases is required to develop new products, services, or processes [OECD,
2010b]. The necessity to increase the pace of innovation is a major moti-
vation to involve external sources such as research institutes, companies,
and related markets [OECD, 2008]. Therefore, apart from the fact that
more players are involved in the innovation process, we also have to
consider that innovation is occurring through interactive and collabora-
tive processes [OECD, 2010b]. This new approach to innovation would
not be possible without the Internet and ICTs in general. According to
Hanna [2010], the Internet favors the creation of networks of knowledge
throughout inventors, scientists, and innovative firms, through which it is
possible to harness the capabilities and resources needed to drive the
innovation process inside the organization. All of the above stem from
the concept of “open innovation,” a term that was coined by Chesbrough
[2003] to describe a new paradigm of innovation in which collaboration,
a multidisciplinary approach, openness, and global scope conform to the
new way of innovating.

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14 Technological Innovation: Strategy and Management

At its root, open innovation is based on a landscape of abundant

knowledge, which must be used readily if it is to provide value for the com-
pany that created it. However, an organization should not restrict the knowl-
edge that it uncovers in its research to its internal market pathways, nor
should those internal pathways necessarily be constrained to bringing only
the company’s internal knowledge to market. [Chesbrough, 2003, p. 37]
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1.1.4 Which is the Next Technological Revolution?

Up until now, we have examined the role of science and technology in
societal and economic evolution. Equally, we have referred to the major
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Industrial Revolutions so far and how they have brought profound eco-
nomic and societal changes. Apparently, the Internet and the pervasive-
ness of ICT are transforming business and societies. Consequently, it is
reasonable to envision future technological shifts and how they will
impact our socioeconomic ecosystems. In 2003, the National Science
Foundation (NSF) published the report “Converging Technologies for
Improving Human Performance” [Roco and Bainbridge, 2003] in which
they set the basis for the analysis of evolution in science and technology
(Fig. 1.1).

Converging Technologies

Nano Bio Cogno

Info

Figure 1.1.  Converging Technologies.

Source: Own elaboration based on Roco and Bainbridge [2003].

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 9”x6” b3701 Technological Innovation: Strategy and Management

Understanding Innovation and Technology: Key Definitions and Concepts 15

The report foresees a major shift in science and technology in the first
decade of the 21st century in the form of a synergetic combination of four
scientific areas, encompassing nanotechnology, biotechnology, informa-
tion technology, and new technologies based in cognitive science —
known with the acronym NBIC. According to the report, this shift will
dramatically impact human abilities, societal outcomes, productivity, and
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the quality of life.

As mentioned in the report, this scientific and technological conver-
gence will “improve work efficiency and learning, enhancing individual
sensory and cognitive capabilities, revolutionary changes in healthcare,
improving both individual and group creativity, highly effective com-
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munication techniques including brain-to-brain interaction, perfecting

human machine interfaces including neuromorphic engineering, sus-
tainable and ‘intelligent’ environments including neuro-ergonomics,
enhancing human capabilities for defense purposes, reaching sustaina-
ble development using NBIC tools, and ameliorating the physical and
cognitive decline that is common to the aging mind” [Roco and
Bainbridge, 2003, p. 9].
Correspondingly, Pérez [2003, p. 13] highlights that in the early 2000s,
biotechnology, bioelectronics, and nanotechnology seemed to be at “a
stage equivalent to the oil industry and the automobile at the end of the
nineteenth century or to electronics in the 1940s and 1950s, with vacuum-
tube TVs, radar and analog control equipment and telecommunications”
and stressed the unpredictable character of the power hidden in the forces
of life and the infinitely small. Some authors contend that nanotechnology
could qualify as a new GPT [Knell, 2010], due to the wide variety of
applications in all kinds of sectors.
Also, the futurist and inventor, Ray Kurzweil, in his book The
Singularity is Near [Kurzweil, 2006], predicted a radical evolution of
technologies in the next decades. As reported by the author, we will live
the most profound and pervasive changes in the history of humanity.
Kurzweil argues that there will be a genetic, nanotechnology, and
robotic revolution. At the same time, the author theorizes that these
advances will impact the field of the human brain and consequently
drive the development of artificial intelligence (AI). In an article in
Forbes magazine [Satell, 2016], Kurzweil maintains that there are three

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16 Technological Innovation: Strategy and Management

reasons to think that the “singularity” is near. The first one is that we
have gone beyond Moore’s law, the famous prediction of Intel co-
founder Gordon Moore in which he suggests that the number of transis-
tors on a microchip would double about every 18 months. Second, robots
are doing human jobs, including those in the creative realm. And third,
we are editing genes to control diseases.
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The irruption of the next technological revolution will depend on

“when the current information revolution approaches the limit of its
wealth-generating power” [Knell, 2010, p. 137].
To understand how a new technological revolution is born, we have to
refer again to the work of Carlota Pérez, who distinguishes two periods
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in each technological revolution — an installation and a deployment

phase — with a turning point in the middle characterized as a bubble
breakdown, followed by a recession. The author argues that the flow of
development that stems from each technological revolution lasts half a
century or more [Pérez, 2016]. Accordingly, Pérez argues that in this
specific moment of the current shift, we have already seen the initial
impact of ICT, which has transformed entire industries and opened the
way to new opportunities — from turning tangible products into services
to the creation of the home office and the globalization of production and
trade. The author maintains that ICT has also changed some of the ways
of consumption, favoring a greater use of information, being more inno-
vative and entrepreneurial, and based on the use of networks and plat-
forms. Yet, as reported by the author, this transformative work is far from
done, since the ICT revolution “has the capacity to facilitate wide-ranging
sustainable innovations to radically reduce materials and energy con-
sumption while stimulating the economy. It can significantly increase the
proportion of services and intangibles in GDP as well as in lifestyles”
[Pérez, 2016, p. 192].
Similarly, in 2009, the European Commission studied the situation of
the so-called “key enabling technologies” (KETs), which was presented in
a communication titled “Preparing for Our Future: Developing a Common
Strategy for KETs in the EU” and assumed that these technologies would
be crucial for the future competitiveness of the EU. This document ana-
lyzed the situation of KETs in Europe and pointed to advanced materials,

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Understanding Innovation and Technology: Key Definitions and Concepts 17

nanotechnology, micro- and nanoelectronics, industrial biotechnology,

and photonics as the major technologies that will lead to an increase in
productivity and employment in the future.
One year later, in 2010, the European Commission sponsored the
report “European Competitiveness in Key Enabling Technologies:
Summary Report” [Aschhoff et al., 2010, p. 28]. KETs are defined as
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“new technologies that enable product and process innovation in

manufacturing.” In general, applying KETs will enable producers to
use labor, capital, energy, and other inputs more efficiently. The report
argues that there have been certain technologies that throughout his-
tory have dramatically impelled innovation and technical progress,
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leading to higher levels of productivity and allowing the appearance

of breakthrough innovations, naming these technologies as “key ena-
bling technologies.” Specifically, according to the report, KETs can
support increases in productivity, more efficient use of production
factors, and technical progress in the production function. Likewise,
KETs in R&D will produce a stock of knowledge that could affect
productivity in other economic sectors and accelerate technical
progress.

1.2 UNDERSTANDING SCIENCE, RESEARCH,

AND TECHNOLOGICAL DEVELOPMENT
The distinction between science and technology has been a topic widely
discussed in the academic and business world. According to Brooks
[1994, p. 477], “the debate about science and technology policy has been
implicitly dominated by a ‘pipeline’ model of the innovation process in
which new technological ideas emerge as a result of new discoveries in
science and move through a progression from applied research, design,
manufacturing and, finally, commercialization and marketing.” Likewise,
the author argues that one concern about both terms is the confusion that
exists between “science” and “engineering,” which stems from an undue
worry about the originality and priority of the conception phase in order
to guarantee successful technological innovations. The foregoing leads to
equating the research and development process with the innovation

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18 Technological Innovation: Strategy and Management

process itself. However, the author calls this into question, affirming that
even though science, technology, and innovation are highly reliant, they
are different from each other.
To shed light on the relationship between science and technology, it is
worth citing the report “Science: The Endless Frontier,” which was com-
missioned by President Roosevelt. The report calls for a centralized
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approach to science sponsored by government and defends the key role

that basic research plays in leading to new knowledge, highlighting that
this creates the basis for practical applications of it [Bush, 1945, p. 13]. In
the same vein, Bunge [1966, p. 329] defines technology as applied science
and posits “the method and the theories of science can be applied either to
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increasing our knowledge of the external and the internal reality or to

enhancing our welfare and power. If the goal is purely cognitive, pure sci-
ence is obtained; if primarily practical, applied science.” Conversely, we
can consider that technology also feeds new scientific possibilities, since
technological infrastructure and instrumentality (advances in instrumenta-
tion and experimental techniques) are necessary to promote scientific
development, and advances in these technologies lead to new science
[Price et al., 2013; Pitt, 1995].
Other authors argue that science and technology are independent
realms and look for a new interpretation of technology. Thus, Layton
states that, even assuming that science and technology are quite close
communities, “each community has its own social controls — such as a
reward system — which tend to focus the work of each on its own needs.
These needs determine not only the objects of concern, but the language
in which they are discussed” [Layton, 1971, p. 565].
However, after the Industrial Revolution and, according to constructiv-
ist models, science and technology were fused into a single composite, a
single entity named “the science,” “technology complex,” or “techno-
science.” According to Giere [1993], science can be described as a com-
plex system, composed of actions and agents, aiming at the production of
models to depict reality. In this same vein, the author characterizes tech-
nology as a complex system of actions aimed at producing technological
processes or artifacts.
Science evolves through the creation of new general and applied
knowledge to the state of the art in one specific field. To do so,

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Understanding Innovation and Technology: Key Definitions and Concepts 19

research and experimental development are key elements. In order to

delve into the analysis of those concepts, it is worth citing the OECD’s
“Frascati Manual: Guidelines for Collecting and Reporting Data on
Research and Experimental Development,” which includes the defini-
tions of basic concepts, data collection guidelines, and classifications
for compiling R&D statistics. According to the Frascati Manual
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[OECD, 2015], R&D only represents one of the stages of the innova-
tion process. Hence, research and experimental development comprise
the creative work undertaken in a systematic way to increase the body
of knowledge, including that of the man, culture, and society and the
use of that knowledge to create new applications. Following the expla-
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nation of the R&D concept and according to the Frascati Manual,

R&D is composed of three subcomponents: basic research, applied
research, and experimental development. To be considered R&D, the
activity must be novel, creative, uncertain, systematic, and transferable
and/or reproducible. The Frascati Manual defines “basic research” as
“experimental or theoretical work undertaken primarily to acquire new
knowledge of the underlying foundations of phenomena and observa-
ble facts, without any particular application or use in view” [OECD,
2015, p. 50]. “Basic research analyses properties, structures and rela-
tionships with a view to formulating and testing hypotheses, theories,
or laws. The reference to no particular application in view of the defi-
nition of basic research is crucial, as the performer may not know
about potential applications when doing the research or responding to
survey questionnaires” [OECD, 2015, p. 50]. Furthermore, according
to the aforementioned manual, “the results of basic research are not
generally sold but are usually published in scientific journals or circu-
lated to interested colleagues. Occasionally, the publication of basic
research may be restricted for reasons of national security” [OECD,
2015, p. 50]. Furthermore, we can distinguish between two kinds of
basic research as follows:

· Pure basic research, which is carried out for the advancement of

knowledge, without seeking economic or social benefits or making an
active effort to apply the results to practical problems or to transfer the
results to sectors responsible for their application.

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20 Technological Innovation: Strategy and Management

· Oriented basic research, which is carried out with the expectation that
it will produce a broad base of knowledge likely to form the basis of
the solution to recognized or expected current or future problems or
possibilities.

Going one step further, the Frascati Manual also defines applied
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research “as the original investigation undertaken in order to acquire new

knowledge. It is, however, directed primarily toward a specific, practical
aim or objective.” The Frascati Manual takes the following considerations
about applied search [OECD, 2015, p. 51]:
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· Applied research is undertaken either to determine the possible uses

for the findings of basic research or to determine new methods or ways
of achieving specific and predetermined objectives.
· It involves considering the available knowledge and its extension in
order to solve actual problems.
· The results of applied research are intended primarily to be valid for
possible applications to products, operations, methods, or systems.
Applied research gives operational form to ideas.
· The applications of the knowledge derived can be protected by intel-
lectual property instruments, including secrecy.

Finally, the manual defines experimental development as “systematic

work, drawing on knowledge gained from research and practical experi-
ence and producing additional knowledge, which is directed to producing
new products or processes or to improving existing products or processes”
[OECD, 2015, p. 51]. Experimental development is just one possible stage
in the product development process: that stage when generic knowledge is
actually tested for the specific applications needed to bring such a process
to a successful end. During the experimental development stage, new
knowledge is generated, and that stage comes to an end when the R&D
criteria (novel, uncertain, creative, systematic, and transferable, and/or
reproducible) no longer apply.
Summarizing the main concepts that have been studied, we have
Table 1.3 in which we detail the objectives, content, and expected results
from each of the stages in the R&D process.

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Table 1.3. Concepts of Basic Research, Applied Research, and Experimental Development.

9”x6”
Typology Objectives Content Results

Understanding Innovation and Technology: Key Definitions and Concepts

Basic research (BR) Acquisition of new BR analyses properties, The results of basic research are not generally sold
[p. 50] knowledge of the structures, and but are usually published in scientific journals or
underlying foundations of relationships with a view circulated to interested colleagues.
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phenomena and observable to formulating and The main output of BR is “new discoveries.”

b3701 Technological Innovation: Strategy and Management

facts, without any testing hypotheses,
particular application or theories, or laws.
use in view.
Applied research Acquisition of new Applied research is The results of applied research are intended
(AR) [p. 50] knowledge. It is, however, undertaken either to primarily to be valid for possible applications to
directed primarily toward determine possible uses products, operations, methods, or systems.
a specific, practical aim or for the findings of basic Applied research gives operational form to
objective. research or to determine ideas.
new methods or ways of The applications of the knowledge derived can be
achieving specific and protected by intellectual property instruments,
predetermined objectives. including secrecy.
The main output of AR is an “invention” which
can be protected through “patents.”
Experimental Is intended to result in a plan Based on past research or It can include construction of prototypes and the
development or design for a new or practical experience, it operation of pilot plants [p. 212].
substantially improved includes concept
product or process, formulation, design, and
whether intended for sale the testing of product
or own use. alternatives [p. 212]
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21
Source: Own elaboration based on the Frascati Manual of OECD [2015].
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22 Technological Innovation: Strategy and Management

1.3 INNOVATION: DEFINITION AND TYPES

Resulting from the excessive use currently given to the concept of innova-
tion, this term is mistakenly considered a recent business trend entirely
linked to technological development. Perhaps, for this reason our interest
goes beyond the mere definition of the term innovation, providing a more
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holistic view of the dimensions of the concept. Thus, we believe, it will be

easier to understand the prominence and impact generated by the innova-
tive fact.
The origin of the study of knowledge and the impact of changes and
technological contributions to organizations date back to the 18th century,
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the result of the interest of economists to explain the economic develop-

ment of capitalist society. Adam Smith and Karl Marx were ahead of other
theorists in offering an explanation of the role that technology represents
as a facilitator and generator of wealth.
We want to delve into the term innovation itself through a study of clas-
sical approaches to the theory of growth. Initially, we refer to Adam
Smith, who, in his work The Wealth of Nations, first refers to technologi-
cal progress, mentioning the role of machinery in the production process.
Thus, he set his famous example of a pin maker, where he suggests that it
is the division of labor itself as a way of producing that “probably” led to
the “invention” of “the machinery employed in it.” This view led to the
endogenous growth theory approach, where savings in an economy lead
to capital formation, which is a key factor for growth by means of labor
productivity.
Additionally, Karl Marx, in his work The Capital, refers to the increase
of technical productivity through specialization of the workforce and capi-
tal accumulation. Thus, a capitalist introduces a new and superior way of
production to obtain a surplus of value, which is a motive to increase
productiveness.
Another classic economist, David Ricardo, also links technological
progress with economic evolution and growth. Hence, in his work The
Principles of Political Economy and Taxation, he argues that the discovery
and useful application of machinery always lead to an increase in the net
production of the country, recognizing the importance of innovation as a
way to enhance economic development.

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Understanding Innovation and Technology: Key Definitions and Concepts 23

The neoclassical approach led to a new concept, the production func-

tion, as a way to understand the relationship between the output of eco-
nomic activity and the inputs needed. Under this approach, it is reasoned
that the way inputs will be transformed into outputs will be determined by
technology, which leads to the use of fewer inputs for the production out-
put, increasing the productivity of the system itself. In this sense, techno-
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logical change was depicted by movements over time of the production

possibility frontier and, as a result, it was generally represented as a prob-
lem of maximization under constraints where its rate and direction derived
from the rational choice of the representative firm [Swan, 1956, cited in
Conte, 2006].
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Since the mid-1980s, the so-called New Growth Theory or “endoge-

nous growth theory” includes a two-fold update. First, it changes the
view from previous theories that qualified technology as given to a prod-
uct of economic activity, making technology a function of the market
model. Likewise, this theory embraces knowledge and technology and
characterized them by increasing returns, which leads to economic
growth. “While exogenous technological change is ruled out, the model
here can be viewed as an equilibrium model of endogenous technologi-
cal change in which long-run growth is driven primarily by the accumu-
lation of knowledge by forward-looking, profit-maximizing agents. This
focus on knowledge as the basic form of capital suggests natural changes
in the formulation of the standard aggregate growth model” [Romer,
1986, p. 1003].
Being aware of the different approaches to technological change in the
economic literature, we do not lose our aim to offer an innovation defini-
tion. In order to do so, we consider that it is worth citing one of the semi-
nal references in the innovation realm, from Joseph A. Schumpeter. This
author, in his work Business Cycles: A Theoretical, Historical, and
Statistical Analysis of the Capitalist Process, established the fundamentals
of innovation. Schumpeter first made a distinction between the terms
innovation and invention. In fact, he argues that both terms are not syn-
onymous and have a distant relation between them, which can lead to
misleading associations. Thus, he maintains that “innovation is possible
without anything we should identify as invention and invention does not
necessarily induce innovation, but produces of itself no economically

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24 Technological Innovation: Strategy and Management

relevant effect at all” [Schumpeter, 1939, p. 80]. Furthermore, he adds that

even when innovation consists of putting into practice a particular inven-
tion, those two are entirely different things. According to Schumpeter’s
approach, an innovation necessarily entails the construction of a new plant
and equipment, the setting up of a “New Firm,” and the rise to leadership
of “New Men” [Schumpeter, 1939]. This approach relates the concept of
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innovation to entrepreneurship, since every single innovation seems to be

inserted in a new entrepreneurial venture. Thus, considering the issues
raised by Schumpeter, we could say that innovation stems from the will-
ingness, assertiveness, and wit of the leader in order to generate and pro-
mote the production of ideas and to involve the organization in their
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implementation through a process of innovation and change.

Schumpeter [1939, p. 84] argues that “innovation combines factors in
a new way, or that it consists in carrying out New Combinations, those
current adaptations of the coefficients of production which are part and
parcel of the most ordinary run of economic routine within given produc-
tion functions” and offered his renowned “trilogy” by differentiating
between invention, innovation, and diffusion. He defends that, while the
invention process includes the origination of new ideas and is commonly
associated with science and basic research, the innovation process repre-
sents the development of new ideas into marketable products and pro-
cesses, generally associated with technology and applied research, and
determines the creation of economic value at the firm [Conte, 2006].
More precisely, Schumpeter defines innovation as a five-fold term that
includes the following:

· the introduction of a new product or a qualitative change in an existing

product;
· the introduction of a new method of production;
· the opening of a new market;
· the development of new sources of supply for raw materials or other
inputs;
· the changes in industrial organization in a specific industry.

But, according to Schumpeter’s theory, why do firms innovate and why

does technical change happen? Technological changes are the foundation

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Understanding Innovation and Technology: Key Definitions and Concepts 25

of some advantages for the innovator–entrepreneur. These technological

changes lead to productivity increases, cost advantages over competitors,
or market share gains through a monopolistic position in the market,
which drive in rents for the innovator. Therefore, the reason put forward
to explain innovation is the seeking of rents by innovators. When a firm
establishes a monopolistic position in the market, it can be shown in
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higher prices and consequently in rent gains, and this will last as long as
the company maintains this position. Yet, diffusion of new innovations
leads competitors to implement new technological developments and to
fill the gap between innovation leaders and followers throughout the adop-
tion process.
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Noting the differences between the concept of innovation and inven-

tion, we also have to cite the work of Freeman’s The Economics of
Industrial Innovation [Freeman, 1982, p. 7], which distinguishes between
both terms, defining invention as an “idea, a sketch or a model for a prod-
uct, process, or a new or improved system,” while he depicts innovation
in the economic sense, arguing that the term “refers only to the first com-
mercial transaction of such product, process, or system...” [Freeman,
1982]. He also defines innovation as “the coupling of an inventive idea
with a potential market” [Freeman, 1982, p. 289] or “the introduction and
spread of new and improved products and processes in the economy and
technological innovation to describe advances in knowledge [Freeman,
1982, p. 18]. At this point, we highlight that we are introducing two sub-
stantial elements within the concept of innovation — on the one hand the
“generation” and on the other hand the “adoption.” The first concerns
the creation, development, initiation, or invention of something new, while
the second is about the application, assimilation, deployment, transfer, and
diffusion of the invented. This is important because part of the success of
innovation and knowledge generation depends on the extent of the adop-
tion and dissemination of them. Some authors like Afuah [2003] argue in
favor of this “generation” approach, considering that innovation is the
development of an idea or invention and its conversion into a useful appli-
cation. Conversely, Roberts [2007] puts more focus on the adoption or
dissemination process and describes innovation as a process of “invention
plus exploitation”; i.e., there is a process of invention that creates a new
idea and a process of exploitation, development, and commercial spread

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26 Technological Innovation: Strategy and Management

of innovation. Dismissing the concept of adoption qualifies innovation as

just an invention or creation, bypassing the process of assimilation that
should be undertaken by the organization or which is intended to assure
the consumer himself.
Yet, the innovation concept requires a multifaceted approach. Thus,
some authors like Dosi [1982] focus on the creative side of innovation,
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defining it as a problem-solving process. Other scholars pinpointed the

interactive and multi-agent character of the innovation process [Kline and
Rosenberg, 1986], while few others highlighted the importance of the
knowledge exchange processes [Patel and Pavitt, 1994] or learning
[Cohen and Levinthal, 1990] to define innovation.
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Despite an abundance of innovation classifications and approaches,

there are some common, basic typologies within the term innovation. The
first typology of innovation we refer to is the distinction between radical
or discontinuous innovation and incremental innovation. In this classifica-
tion, we refer to the extent of the change that is being introduced and how
it affects existing products, markets, or technologies. Radical innovation
refers to “breakthroughs that change the nature of products and services
and may contribute to technological revolutions” [Dodgson et al., 2008,
pp. 54–44]. Utterback also defines discontinuous change or radical inno-
vation as the “change that sweeps away much of a firm’s existing invest-
ment in technical skills and knowledge, designs, production technique,
plant, and equipment” [Utterback, 1996, p. 200]. Conversely, incremental
or continuous innovation includes minor changes in products, services, or
processes that do not constitute a huge change and is mainly related to
small improvements. Thus, Rothwell and Gardiner [1988, cited in García,
2002] refer to innovation and re-innovation, presenting a dichotomy
where there is a distinction between incremental innovation (improving
upon an existing product design), generational (improving existing prod-
ucts through new technology), improvements (improved materials in
existing products), and minor details (new technology improving subsys-
tems of existing products).
Unlike what happens with radical innovation, the role of R&D is not so
relevant in incremental innovation, which is characterized by the introduc-
tion of gradual improvements coming from business experience, process
reengineering, or improvements that have already been tested in other

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Understanding Innovation and Technology: Key Definitions and Concepts 27

environments. Therefore, in other words, incremental innovation relates

more to development than to research [García-Manjón and Escobar,
2010].
Connected to the concept of innovation radicalness is the degree of
novelty of the innovation. Garcia [2002] refers to macro- and micro­
approaches to explain the degree of novelty of a specific innovation.
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Thus, the macrolevel approach discriminates between what is new to the

world, the market, or an industry, whereas the microlevel approach iden-
tifies if the product is new to the company or the client [Garcia, 2002,
p. 118]. The degree of novelty is also linked to the concept of originality,
depending on the use of new versus existing knowledge in order to pro-
Technological Innovation Downloaded from worldscientific.com

duce innovations. Moreover, originality often implies more risk and

uncertainty [Rosenberg, 1976].
Continuing our exploration of the innovation concept, we have to make
reference to OECD [2018], which in its publication known as the Oslo
Manual, offers a comprehensive definition of business innovation, outlin-
ing innovation as “a new or improved product or business process (or
combination thereof) that differs significantly from the firm’s previous
products or business processes and that has been introduced on the market
or brought into use by the firm” [p. 68]. Consequently, the Oslo Manual
qualifies an innovating firm as one that “reports one or more innovations
within the observation period. This applies equally to a firm that is indi-
vidually or jointly responsible for an innovation” [p. 81].
So, the Oslo Manual distinguishes two types of innovation: “innova-
tions that change the firm’s products (product innovations), and innova-
tions that change the firm’s business processes (business process
innovations)” [p. 70]. Then, we offer the following definitions from the
Oslo Manual:

Product innovation: “A product innovation is a new or improved good or

service that differs significantly from the firm’s previous goods or ser-
vices and that has been introduced on the market” [p. 70]. This includes
significant improvements “to one or more characteristics or performance
specifications. This includes the addition of new functions, or improve-
ments to existing functions or user utility. Relevant functional character-
istics include quality, technical specifications, reliability, durability,

b3701_Ch-01.indd 27 26-2-2020 10:59:00 AM

 9”x6”
b3701 Technological Innovation: Strategy and Management

28 Technological Innovation: Strategy and Management

economic efficiency during use, affordability, convenience, usability,

and user friendliness.” [p. 71]

Business process innovation: “A business process innovation is a new or

improved business process for one or more business functions that dif-
fers significantly from the firm’s previous business processes and that
by 49.37.209.67 on 11/29/24. Re-use and distribution is strictly not permitted, except for Open Access articles.

has been brought into use in the firm” [p. 72]. “A business process inno-
vation can involve improvements to one or more aspects of a single
business function or to combinations of different business functions.
They can involve the adoption by the firm of new or improved business
services that are delivered by external contractors, for instance account-
ing or human resources systems” [p. 72].
Technological Innovation Downloaded from worldscientific.com

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