STRATEGIC MANAGEMENT OF

Technological
Innovation
Sixth Edition

Melissa A. Schilling
 Chapter 3
Types and Patterns of Innovation

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 Overview
Several dimensions are used to categorize innovations.
• These dimensions help clarify how different innovations offer
different opportunities (and pose different demands) on
producers, users, and regulators.
The path a technology follows through time is termed
its technology trajectory.
• Many consistent patterns have been observed in technology
trajectories, helping us understand how technologies
improve and are diffused (i.e. adopted).

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 Types of innovation: main dimensions
➢ product vs process innovation
➢ radical vs incremental innovation
➢ competence enhancing vs competence
destroying innovation
➢ architectural vs component innovation

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 Types of Innovation 1

Product versus Process Innovation.

• Product innovations are embodied in the outputs of an organization – its goods
or services (e.g. Snapchat’s filters and special effects).
• Process innovations are innovations in the way an organization conducts its
business, such as in techniques of producing or marketing goods or services (e.g.
Elon Musks’ use of automation with giant robots for his Model 3). They’re used
generally to improve effectiveness or efficiency.

Product innovations can enable process innovations and vice versa.

(new workstations -> C.A.M. processes; metallurgical techniques -> bicycle)
What is a product innovation for one organization might be a process innovation
for another.
• For example, UPS creates a new distribution service (product innovation) that
enables its customers to distribute their goods more widely or more easily
(process innovation).
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 Types of Innovation 2

Radical versus Incremental Innovation (1/2).

• The radicalness of an innovation is the degree to which it is new and different
from previously existing products and processes (e.g. wireless telecommunication
products).
• Incremental innovations may involve only a minor change from (or adjustment to)
existing practices (e.g. more resistant cell phone screens).
Starting with the same product: landline telephone.
➢ The cordless phone represents an incremental innovation because, by cutting the
cable between the transceiver device and the base, it gives limited mobility within
the home but the basic technology, that is the telephone cable that carries the
voice, does not change.
➢ The mobile phone, on the other hand, represents a radical innovation, since it
gives almost complete mobility with a radical change in technology (passing from
the transmission of signals through the copper cable to that over the air).

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 Types of Innovation 2

• The radicalness of an innovation can be also defined in terms or risk. Embodying

new knowledge, producers and customers must vary in their experience and
familiarity with innovation (e.g. 3G telephony).
great initial investments -> new technology (products and infrastructure) -> effective
customer value recognized!

• Finally, the radicalness of an innovation is relative; it may change over time or

with respect to different observers.
• For example, digital photography in the 90s a more radical innovation for
Kodak than for Sony.

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 Types of Innovation 3

Competence-Enhancing versus Competence-Destroying Innovation.

• Competence-enhancing innovations build on the firm’s existing knowledge base
(e.g. Intel’s Pentium 4 built on the technology for Pentium III).
• Competence-destroying innovations renders a firm’s existing competencies
obsolete (e.g. electronic calculators rendered Keuffel & Esser’s slide rule expertise
obsolete).
• Whether an innovation is competence enhancing or competence destroying
depends on the perspective of a particular firm (Keuffel & Esser vs Texas
Instruments/Hewlett-Packard).

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 Types of Innovation 4

Architectural versus Component Innovation.

• A component innovation (or modular innovation) entails
changes to one or more components of a product system
without significantly affecting the overall design (e.g.
adding gel-filled material to a bicycle seat).
• An architectural innovation entails changing the overall
design of the system, or the way components interact (e.g.
transition from high-wheel bicycle to safety bicycle).
• Most architectural innovations require changes in the
underlying components also.
• Architectural innovations are often considered more radical
and competence destroying.
• Different degrees of knowledge needed for component and
architectural innovation.
-> modularity
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 Concept check
Nick works at a digital appliances manufacturing company. Recently, he invented an
adapter for televisions, which when connected would reduce the electricity
consumption by half. This adapter worked with the earlier television models that the
company manufactured, so the company was able to sell this product to their existing
customers and to all their new customers. This is an example of a(n) _____ innovation.
a) radical
b) architectural
c) component

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 Technology S-Curves 1

Both the rate of a technology’s performance improvement, and

its rate of diffusion to the market typically follow an s-shaped
curve.
S-curves in Technological Improvement.
Technology improves slowly
at first because it is poorly
understood.

Then accelerates as
understanding increases.

Then tapers off as

approaches limits (cost of
marginal improvements
increases).
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 Moore’s Law (1965)
A technology's s-curve can be misleading if the
effort invested is not constant over time. For
example, the curve representing transistor
density in the Intel example shows a sharply
increasing performance, as shown in the
second figure.

Improvements in Intel’s Microprocessors Transistor Density

Looking at the Intel example another way,

plotting Intel's cumulative research and
development expense against transistor density,
we can see that the big gains in transistor
density have come at high cost. Though the
curve does not yet resemble the traditional s-
curve, its rate of increase is not as sharp as when
the curve is plotted against years

Transistor density versus cumulative R&D expense

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 Examples of the Moore’s Law (1)

1993-2013

technological singularity
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 Examples of the Moore’s Law (2)

1965: 1.000 kg for 5MB - today: 1TB on USB stick

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 Technology S-Curves 2

Technologies do not always get to reach their limits.

• May be displaced by new, discontinuous technology.
• A discontinuous technology fulfills a similar market need by means of
an entirely new knowledge base (e.g. switch from carbon copying to
photocopying, or vinyl records to compact discs, or compact discs to MP3).
• Technological discontinuity may initially have lower performance than
incumbent technology (e.g. first automobiles were much slower than
horse-drawn carriages).

Firms may be reluctant to adopt new

technology because performance
improvement is initially slow and
costly, and they may have
significant investment in incumbent
technology.
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 Introduction of discontinuous
technology
Initially, the technological discontinuity may have lower

performance and lower returns than the incumbent

technology. These two factors make incumbent firms

reluctant to switch.

When a disruptive technology has a steeper s-curve (a)

and/or a higher performance limit (b) the returns to

effort invested in the new technology may become

much higher than effort invested in the incumbent

technology.
In the long run, the new disruptive technology is likely to
replace the incumbent technology under these
conditions.
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 Technology S-Curves 3

S-Curves in Technology Diffusion.

• Obtained by plotting the cumulative number of adopters against time.
• Adoption is initially slow because the technology is unfamiliar.
• It accelerates as technology becomes better understood and adopted by the
mass market.
• Eventually market is saturated, and rate of new adoptions declines.
• Technology diffusion tends to take far longer than information diffusion (I can be
informed about a new technology, but it doesn’t mean that I will quickly adopt it).
• Technology may require acquiring complex knowledge or experience.
• Technology may require complementary resources to make it valuable (e.g.
cameras not valuable without film; electric light not valuable without bulbs).

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 Technology S-Curves 4

S-curves of diffusion are in part a function of s-curves in

technology improvement.
• Learning curve leads to price drops, which accelerate
diffusion.
Average sales price of Consumer electronics Penetration of Consumer electronics

Source: Consumer Electronics Association. Source: Consumer Electronics Association.

Access the text alternative for these images

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 Technology S-Curves 5

S-Curves as a Prescriptive Tool -> actionable results that influence

decision-making processes.
• Managers can use data on investment and performance of their own
technologies or data on overall industry investment and technology performance
to map s-curve.
BUT
• While mapping the technology’s s-curve is useful for gaining a deeper
understanding of its rate of improvement or limits, its use as a prescriptive tool is
limited.
• True limits of technology may be unknown.
• Shape of s-curve can be influenced by changes in the market, component
technologies, or complementary technologies.
• Firms that follow s-curve model too closely could end up switching
technologies too soon or too late.
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 Research Brief 1

Diffusion of
Innovation and
Adopter Categories
(if the noncumulative
share of each adopters is
plotted on the vertical axis
with time on the
horizontal axis, the
resulting curve is typically
bell shaped)

Access the text alternative for these images

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 Research Brief 2

Diffusion of Innovation and Adopter Categories.

• Everett M. Rogers created a typology of adopters:
• Innovators are the first 2.5% of individuals to adopt an innovation. They are adventurous,
comfortable with a high degree of complexity and uncertainty, and typically have access
to substantial financial resources.
• Early Adopters are the next 13.5% to adopt the innovation. They are well integrated into
their social system, and have great potential for opinion leadership. Other potential
adopters look to early adopters for information and advice, thus early adopters make
excellent "missionaries" for new products or processes.
• Early Majority are the next 34%. They adopt innovations slightly before the average
member of a social system. They are typically not opinion leaders, but they interact
frequently with their peers.
• Late Majority are the next 34%. They approach innovation with a skeptical air, and may
not adopt the innovation until they feel pressure from their peers. They may have scarce
resources.
• Laggards are the last 16%. They base their decisions primarily on past experience and
possess almost no opinion leadership. They are highly skeptical of innovations and
innovators, and must feel certain that a new innovation will not fail prior to adopting it.
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 Research Brief 3

Linking Product Lifecycle to Innovation Adoption

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 Technology Cycles 1

Technological change tends to be cyclical:

• Each new s-curve ushers in an initial period of turbulence,
followed by rapid improvement, then diminishing returns, and
ultimately is displaced by a new technological discontinuity.
• Utterback and Abernathy characterized the technology cycle
into two phases:
• The fluid phase (when there is considerable uncertainty about the
technology and its market; firms experiment with different product
designs in this phase).
• After a dominant design [stable architecture] emerges, the specific
phase begins (when firms focus on incremental improvements to the
design and manufacturing efficiency).
e.g. the energy production industry (fossil fuels vs renewable resources)
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 Technology Cycles 2

Anderson and Tushman also found that technological change proceeded

cyclically.
• Each discontinuity inaugurates a period of turbulence and uncertainty
(era of ferment) until a dominant design is selected, ushering in an
era of incremental change.

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 Technology Cycles 3

Anderson and Tushman found that:

• A dominant design always rose to command the majority of market
share unless the next discontinuity arrived too early.
• The dominant design was never in the same form as the original
discontinuity, but was also not on the leading edge of technology. It
bundled the features that would meet the needs of the majority of the
market.
During the era of incremental change, firms often cease to invest
in learning about alternative designs and instead focus on
developing competencies (market penetration, efficiency, etc)
related to the dominant design.
This explains in part why incumbent firms may have difficulty
recognizing and reacting to a discontinuous technology.
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