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Supply-Push Innovations Characteristics

 

Supply-push innovation processes share certain characteristics. First, they are developed in a haphazard way without a clear customer need driving them. Second, they emerge out of the efforts of a large number of scientists working independently on seemingly unrelated research projects who devise the technology for their own uses. Third, they go through a long gestation process when nothing seems to happen until they suddenly explode onto the market. Now ask yourself: is this an innovation process that can be replicated in the R&D facility of a single firm?

When one reads stories like the development of television (or Post-it notes or Viagra or Aspartame or countless other inventions), one finds it very easy to think that new technologies typically emerge in a serendipitous fashion. This feeling becomes all the stronger when one watches scientists and engineers at work and sees just how often they fail to fully appreciate the significance of what they are doing and how often the breakthroughs that they achieve are propelled by what seems like no more than inspired guesswork at best or just plain ‘good luck.’ And yet, it is hard to believe that the development of scientific and engineering knowledge is wholly random, that there is no pattern to the nature of successive innovations in a particular sector or to the speed at which they follow each other. In fact, supply-push innovations follow an ordered pattern that economists call a ‘technological trajectory.’ In essence this means that scientists around the world working on a particular area share certain beliefs and assumptions or paradigms. These paradigms set priorities, identify what the important problems are, establish acceptable methods for pursuing them, and condition expectations about what to expect from applying these methods to those priorities. This mental model, this sense of what one should do and what will happen if one does it, provides a guiding hand on the design and conduct of research projects that removes at least some of the serendipity from the whole process. While it is not always the case that one finds what one is looking for, it is rarely the case that one sees what one is not looking for.

The organizing power of paradigms goes well beyond their effects on particular research projects: paradigms can organize the work of whole communities of scientists and engineers, and not just isolated individuals. They help to define a pattern of common knowledge, goals, methods, and expectations that give a wide range of scientists and engineers in a particular field what seems like a common purpose. Paradigms create communities with shared values and expectations and for this reason they effectively align the efforts of a wide range of otherwise independent scientists and engineers. Wherever they are and whatever they are doing, those scientists and engineers who share the same paradigm are likely to end up, in effect, fishing in pretty much the same way in pretty much the same pond. In these circumstances, it would not be surprising if the fish that different scientists catch in that pond belonged to the same species or to the same family.

The organized research program that scientists and engineers follow means that there may actually be a pattern to innovative activity over time (possibly more evident with the benefit of hindsight than with foresight, and possibly more by accident than deliberate design). One thing may lead to another, one innovation may follow another, one application of a new principle may be followed by a series of further applications of that same basic principle. A technological trajectory is the sequence of innovations that follow each other, all drawing on the same basic scientific or engineering principle(s), each drawing from and then contributing to a cumulatively increasing body of knowledge and expertise. The idea is simply that each innovation in the sequence is not simply an accident, but follows from innovations which have already occurred (and, of course, may lead to more innovations in the future).

Different trajectories are typically associated with the different basic scientific principles or the different scientific or technological paradigms from which they have sprung.

It is important not to overplay this idea, not to impose too much of a pattern on the evolution of technologies. For a start, there have always been (and will always be) one-off innovations that come from nowhere (apparently) and lead nowhere. More fundamentally, the blinkered perspective that often comes from relying on hindsight means that it is probably possible to see a trajectory in the evolution of every technology. For scientists and engineers working on the trajectory at the time, things are much less clear. This is particularly so when a trajectory is first established. New trajectories are associated with radical breakthroughs in scientific and engineering knowledge and these are—almost by definition—likely to be a surprise or appear to be ‘accidental.’ Such breakthroughs are likely to lead almost anywhere—or so it certainly seems to the pioneering scientists and engineers associated with the breakthrough at the time.

The pursuit of these possibilities leads people to go shooting off in all directions; some of these possibilities will lead to more breakthroughs which create more possibilities, while others lead nowhere. As time passes,the choices that people have made will lead the technology to develop in certain directions, and the fact that each breakthrough creates possibilities for further breakthroughs (and the knowledge and expertise to create them) will give that evolution a cumulative, path-dependent flavor. A process in which each possibility explored leads to the creation of more possibilities will lead to something that looks like a tree whose dense lattice of branches is built up around trunks and main limbs.

An original breakthrough in understanding in a new scientific area creates a new avenue for exploration—a main trajectory. Movement along this trajectory opens up other research possibilities—labeled ‘the 1st branch’ and ‘the 2nd branch’ in the figure. These, in turn, open up further possibilities. Each of these in turn leads ultimately to particular inventions.

The basic branching process suggests that these inventions might come in clusters of related breakthroughs. Thus, the original breakthrough in understanding the structure of atoms at the beginning of the century led to major trajectories in particle physics, cosmology, and chemistry. As scientific and engineering knowledge in each of these areas progressed, further lines of research opened up: the atom was split, the structure of DNA became understood, and so on. Each new area of research has produced a rash of related discoveries, often by different, non-interacting individuals who share only the knowledge of the common branch and its main trajectory.
This discussion might sound theoretical or not applicable to real life but a recent report by the US National Research Council that examined how the key technologies that gave rise to numerous new markets in the last ten years were discovered demonstrates that what we have described here is not far from reality.
Note how long it took for the technologies to develop and be commercialized, how scientists from government, universities, and corporate R&D facilities contributed to the development of the technologies, and how the companies that ended up dominating the markets that developed were not even contributing to the key research!

The idea that technologies get discovered along a technological trajectory stimulates a further thought: as the inventions that emerge from different branches are applied in different sectors, their common technological base creates the impression that these sectors are somehow converging. For example, the gradually increasing understanding—and use—of digital technologies has now generated a cascade of innovations in computing and telecommunications whose uses have spilled over into the production of entertainment.

All of this is terribly iffy and imprecise, but it contains within it the seeds of a fairly plausible story that we can use to help explain where new markets come from. The key idea is that of a technological trajectory. If technologies do indeed develop along such trajectories,then it seems clear that they are likely to have something of a life of their own, one which might unfold quite independently of demand. The important point is that the emergence and early development of the trajectory may look like an accident, but once the basic highway that the trajectory is going to follow becomes clear then progress along it is likely to be pretty much self-sustaining, following its own logic at a speed determined primarily by the nature of how scientists and engineers work. From any particular trajectory, all kinds of possibilities arise, all kinds of applications are possible, and so all kinds of new products and services are likely to emerge.

The result is that many new innovations that are spun off from any particular trajectory are likely to appear to have been pushed onto the market by the scientists and engineers who have been working along that trajectory. In
Not only is the innovation process that creates radical new markets impossible to replicate inside a firm but even worse, as we argued, the skills and attitudes that big established companies have are not the ones needed for creating new markets. Nor can firms easily adopt the skills of creation because they conflict with their existing skills.
But not everything is bad for established firms! They may not be good at creating radical new markets but the truth be told, they don’t need to! That’s because the money is not in creating the new market but in scaling it up into a mass market. And that’s exactly the area where big established firms have a competitive advantage over younger firms.

Again, to understand the distinction we are making between creating new markets and scaling them up into mass markets, we must keep in mind the following facts about the structural characteristics of early markets:
First, despite enormous technological and product uncertainty, newly created markets are ‘invaded’ by hordes of new entrants, sometimes numbering in the hundreds. For example, more than 1,000 firms populated the US auto industry at one time or another, many before the introduction of the Model T in 1908. A total of 14 firms entered this new market between 1885 and 1898; 19 entered in 1899, 37 in 1900, 27 in 1901, and then an average of about 48 new firms entered per year from 1902 until 1910. Amazingly, this surge in firm population happens well before the new market starts growing. This is odd— one would have thought that entry would have been more attractive when the market is large and growing, not before.
Second, not only is the new market flooded with hundreds of new entrants but product variety in the young market also surges to amazingly high levels.

In fact, the rate of innovation at the start of a market’s life is the highest that this market will ever see. For example, in the early days of the car industry, one could purchase cars powered by petrol, electricity, steam; cars with three and four wheels; and cars with open or closed bodies that came in a bewildering variety of different designs. Cars differed in their suspension, transmission, and brake systems, and in a wide variety of extra or optional features. Not only were there a large variety of different types of cars on the market, but most of the features which marked out the basis of this variety changed rapidly over time. For example, underneath the hood, a continuous stream of innovations led to the development of the four-cylinder engine by 1902, fuel-injection systems by 1910, electric starters by 1912, the V-8 engine by 1914, synchromesh transmission in 1929, and so on. In fact, the industry witnessed a wave of innovation between 1899 and 1905 that it never again experienced. Furthermore, these innovations were introduced by a wide range of firms (the dominance of the innovation process by the Big Three occurred later on), and their use diffused rapidly throughout the industry.
Since early markets are small in size and filled with technological and customer uncertainty, it is not immediately clear why we see such a surge in entry and such an amazing variety in products and designs. But the reason becomes obvious enough if we go back to the supply-push innovation process that creates radical new markets.

Supply-push innovation processes have one very important property and this property has a profound impact on how new markets develop. When new innovations are pushed up by supply, they are very underdeveloped. The innovation is typically no more than a list of possibilities and it is anybody’s guess as to what the right design is going to be. No one knows what consumers really want and no one knows just what exactly the new technology can do, nor how to economically produce whatever it is that results from the innovation.
Anyone’s guess is as good as anyone else’s, and since there are no real barriers to entry into the as yet underdeveloped new market, there will not, in principle, be any shortage of entrepreneurs who are willing to try out their own particular vision of what the new technology has to offer on the market. Anyone who understands the new technology is, in principle, a potential entrant; anyone enthused by what the new technology might ultimately offer will, in practice, try to become an actual entrant.

Since the basic science and technology is so new, no one is really sure where it is going. Each entrant is, of course, absolutely certain that they are on the right course, but no independent, objective observer would place their bets in any direction. Since there is scope for many different opinions about what the technology can do, there is scope for many different types of new products, for many experiments with that technology. For each possibility there is likely to be an entrant, and each entrant is likely to have several goes at developing the new technology into a new product. The result is market research in real time: a wild and turbulent phase of entry, innovation, and, for most of these early colonizers, exit. The upshot of all of this is that supply-push innovation processes are unlikely to produce a single new product or service. Rather, the nature of how science-push innovations are developed means that they are likely to burst onto the market in a variety of forms. That is, when new technologies emerge, they are likely to do so in a confused and disorganized manner, in a flood of different product or service variants that embody  different ideas about what consumers might really want and what might be possible to produce in an economic manner.
Eventually, the wave of entry subsides and is in turn followed by what is sometimes a sharp, sudden, and very sizeable shakeout that leads to the death of most of the early pioneers. The shakeout is associated with the emergence of a ‘dominant design’ in the market, an event that signals the beginning of growth in the industry.

The dominant design is a basic template or core product that defines what the product is, and what it does. It is a consensus good that commands the support of a wide range of early consumers (even if it is not their first preference); it is a product standard that sends signals to suppliers upstream, retailers downstream, and producers of complementary goods everywhere.
Finally, it is a platform good that allows different manufacturers to offer differentiated versions of the product without destroying the consensus or requiring new complementary goods.

The importance of the emergence of a dominant design is that it is the decisive step in establishing a new market. It signals the emergence of a standard product that is capable of forming the basis of a mass market. For the many potential consumers who have yet to enter and make a choice, it signals the end of choice and, therefore, reduces their risks. A successful dominant design almost always triggers massive entry by consumers into the market, and ushers in the early heavy growth phase that most markets undergo.
The emergence of a dominant design is important for a second reason. The hundreds of early pioneers who entered the new market on the basis of different product designs die soon after the dominant design emerges. On the other hand, the champion whose product forms the basis of the dominant design often develops substantial and very long-lived ‘first mover’ advantages from being the product champion. Notice, however, that most of these so-called ‘first movers’ were not, in fact, the first into the market. All of them were preceded by many, now forgotten, entrepreneurial start-ups whose work formed the foundation upon which these rather later entrants built. These ‘first movers’ were first only in the sense that they were the first to champion the particular product variant that became the dominant design. They were first when the market emerged (not when the product emerged), and this, of course, is why they ended up with most of the profits.
It is important to emphasize three points from this:

  • . first, note that very few of the original entrants (i.e. the pioneers) survive the consolidation of the market—most disappear, never to be heard of again;
  • . second, the consolidators who win in the end are almost never the first into the new market. Their success is based on not moving fast but on choosing the right time to move—and that is rarely first;
  • . third, the things that consolidators do—such as entering at the right time, standardizing the product, cutting prices, scaling up production, creating distribution networks, segmenting the market, spending huge amounts of money on advertising and marketing—are exactly the kinds of things that create what we (somewhat inaccurately) call ‘first mover advantages.’ By doing these things, consolidators create buyer loyalty, get preemptive control of scare assets, go down the learning curve, create brands and reputation, and enjoy economies of scale benefits—all of which give them the advantage versus potential new entrants. Thus, even though pioneers are chronologically first into the market, consolidators are the ‘real’ first movers—they are the first to the market that counts: the mass market!

The upshot of all this is that the companies that end up capturing and dominating the new-to-the-world markets are almost never the ones that created these markets: Mr Ford did not create the car market but the Ford company ended up capturing most of the value in that market in its first one hundred years of existence; Procter & Gamble did not create the market for disposable diapers but it is P&G that ended up harvesting most of the value out of the mass market for disposable diapers that blossomed in the last fifty years; and
General Electric did not create the CAT scanner market, yet it was GE that made most of the money out of this market. It turns out that when it comes to new-to-the-world markets, this is more the norm than the exception. Given this fact, why would any company want to create a new market? Surely, the advice we should be giving companies is how to scale up and consolidate new markets, not how to create them.

 

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