Roughly a year ago I wrote an article on timing being one of the main dimensions to consider when analyzing factors affecting a focal business model. In part II of the series, I will dig deeper into the innovation lifecycle theory and give examples which might make the theory more clear.
Ok, bring it on!
During technological changes, the end of one S-curve marks the emergence of a product, service or technology which replaces the previous one as seen in figure below .The Y-axis represents market diffusion while the X-axis represents the flow of time.
Organizations often find it difficult to “jump” onto another emerging S-curve as these often are associated with technological and market uncertainty. “Technological uncertainty arises from the unpredictability of technological evolution and the complex dynamics through which technical standards and dominant designs are selected.” (Grant, 2010:308).
So Grant (2010) talks about unpredictability, what does that mean?
Unpredictability is caused by uncertainties related to the market. These uncertainties could be unknown market size and growth rates connected to a novel innovation (Grant, 2010). Consequently, such uncertainties are associated with a potential need for organizations to acquire novel resources and capabilities and potentially change parts of their business models which often creates business risk . One classic example of a company that saw an emerging technology (they even invented it) threaten their core business but failed to jump the S-curve is the case of Kodak
Ok, so what about the dominant design stuff?
Great, according to Teece (1986) the process and evolution of an innovation explored in part I can be broken down into two main stages:
- The preparadigmatic stage
- The paradigmatic stage.
The preparadigmatic stage is characterized by “(…) there being no single generally accepted conceptual treatment of the phenomenon (…)” (Teece, 1986:287). In practice that would mean that there are several actors with different solutions to a similar or same problem. The preparadigmatic phase is characterized by competition among designs. “(…) product designs are fluid, manufacturing processes are loosely and adaptively organized, and generalized capital is used in production.” (Teece, 1986:288). Consequently, the uncertainties associated with emerging S-curves are connected to the preparadigmatic phase.
The paradigmatic stage: At some point in time, following the preparadigmatic time of trial-and-error, there are generally a set of solutions that are able to meet a whole set of user needs. Consequently, lowering the entry barrier for majority adopters. Diffused of the solutions on the market thus become standards from which further development can be achieved. These standards remain until overturned by new ones .
Bruland (2004) gives an example of the two phases in chapter 5 of The Cambridge Economic History of Modern Britain.
“The first development occurred in cotton spinning, with the spinning jenny design by the Lancashire spinner James Hargreaves coming into use in the 1760s. This was a hand powered device which made it possible for a strong and skilled operator to work with more than one spindle at once; it ‘reproduced the actions of the hand spinner’ utilising a system of spindles with a movable carriage (Mann 1958: 278). In the early 1770s this was followed by Arkwright’s water-frame, which introduced two significant innovations: first a series of rollers which drew and spun the thread, and second, water power to drive the rollers. Shortly afterwards a new technology emerged, Samuel Crompton’s spinning mule, so called because it was a hybrid, mixing elements of the Hargreaves and Arkwright approaches. This machine was working by 1779, and over the next fifty years was subjected to a great number of improvements which considerably increased its productive capacity; variants of this machine formed the staple device around which the development of the textile industry occurred. It was the dominant technology for almost a century” (Bruland, 2004; 136)
The emergence of the dominant design in the paradigmatic stage shifts competition away from design and focuses it on price (as seen in the picture above (Teece, 1986)). Consequently, economies of scale and learning become increasingly important which reduces the price of the product and uncertainty over product design is reduced which allows for specialized long term investments .
And the connection to business model innovation is?
The ability to identify potentially novel customers and/or competitors and create as well as capture new markets while simultaneously managing the current profitable business is a key innovation capability . Furthermore, focusing too much on current customers and competitors might prevent incumbent organizations from seeing new potential markets or potential disruptions which could render the current sustaining technology S-curve obsolete . Consequently, one can argue that a novel S-curve is a signal of industry change which pushes organizations who want to survive into managing changes in their affected business models .
Is not the theory mailny applicable to product or technological innovation?
The innovation lifecycle theory presented above is often used to explain technological/product innovation but it can be used to understand different phases of business model innovation as well. In times of technological change business model innovation can be needed in order for an organization to jump to a new S-curve .
It is important to understand that, within an industry, different business models coexist and each of them can in be in different lifecycle stages. Additionally, business models within the same industry can be in different S-curves during the same moment in time
The picture above shows the conceptual relation between business models in the same industry but in different S-curves during the same point in time.