Lecture 4

Technology Life CyclesTechnology Life Cycles

TLC vs PLC vs MLC• Product Life Cycle (PLC) illustrates the fluctuations of the product

sales revenue over time, from the beginning of its design to the last phase of its ramp down. While, Technology Life Cycle (TLC) demonstrates the cumulative product development projects of a technology or technology performance over time, which could represent the technology maturity level in various periods of time. Subsequently, Market Life Cycle (MLC) represents appearance and developments of various market segments to market area of a technology.

• Apparently, each Technology life Cycle could contain various Product life cycles and each Market life cycle could include different technology and product life cycles. Therefore Market life cycle has more comprehensive view point and Product life cycle is more detailed with specific product centric insight.

TLC Implication• Recognizing at the late stages of market maturity the potential threat of a

new technology as early as possible, and to develop the appropriate strategic response (a radically new technology or making improvements in the old technology to keep it competitive).

• To invest in any product development project or any new product production, the company has to find out its technology stage in the life cycle. When the company is implementing any new technology, platform or even new product based on new technology should recognise if the technology is growing or disappearing to other trade-offs in accordance with technology future (Gao et al., 2012), mostly the S-curve of technology life cycle is based on Technology performance over time or cumulative development activities (Gao et al., 2013) Technology performance could be measure by various factors and indicators but some studies have suggested that different technology indicators should be taken into account and one single factor is not enough to build the S or double- S curve of Technology Life Cycle (Erst, 1997; Lee and Nakisenovic, 1989).

• Therefore, if any technology development causes a life cycle, it will cause number of Product Life Cycles (Christensen and Rosenbloom, 1995). Apparently, PLC is based on an individual or limited series of Products while TLC points out life cycle of different platforms that each of them could introduce various products; therefore Technology life cycle is more based on macro level data than PLC (Kim, 2003). Moreover, PLC starts with the product introduction to the market, while TLC starts with the Idea creation of a new concept. Apparently, lots of ideas could not move from the first stage into the second, because the teams could not build the concept or some times when introduction stage takes a long time the team made to leave the whole technology or suspend it for future. (Callon, 1980; Abernathy and Utterback, 1978).

Static Models• Incremental vs radical innovation• Abernathy-Clark• Henderson-Clark• Innovation Value-added Chain• Strategic Leadership• Familiarity Matrix• Quality and Quantity of New Knowledge• Appropriability and Complementary Assets• Local Environment• Strategic Choice

Dynamic Models• Foster S-curve• Barras Reverse product life cycle• Utterback-Abernathy• Tushman Rosenkopf• Tushman-Anderson• Rogers Typology of Adopters

Technology Life Cycle• There are various procedures to find out the technology life cycle stages in

an industry and the stage of any technology, as an example FTA (Future –oriented Technology Analysis) (Martino, 1993) which has been applied from 1950, or the procedures of calculating Technology Readiness Level Which is very popular in US military. Different authors (e.g. Achilladelis, 1993 and Andersen, 1999) find out the models based on patent application in each technology, which could provide good information about not only various aspects of the technology life cycle but also it can lighten up the future product life cycles which came from the technology.

• According to the Patent based Technology Life Cycle, the stages of the life cycle is the same as PLC and the x axis of the diagram is time as well, but the y axis is patent index. Moreover, founded patent based TLC has S-shaped in accordance with different studies in different technologies and industries almost the same as PLC Achilladelis, 1993 and Achilladelis et al., 1990) so the whole structure of stages is almost the same as PLC with introduction, growth, maturity and decline stages.

1. Emerging• Introduction(Emerging): most of the product developments belong to fundamental

definition of the technology rather than applicable ideas for products in real market, the scientist or other R&D teams are just trying to find out the concept of the technology, and they have long way still to be applicable. Therefore the application is low and as the risk of investment is apparently high there are not numerous companies who want to be inside of the circle. (Haupt et al., 2007) thus, the competitiveness is low and product integration does not exist (Little, 1981).

• BUG: as mentioned there is a huge amount of uncertainty: the customers are not familiar with the whole idea, the technology cost is high and there is not a consolidated shape of derivative product from the technology. in the introduction stage, sometimes it takes long time for a technology to move from concept into application so it is decided to be decline or suspended (Callon, 1980; Abernathy and Utterback, 1978), additionally when the suspension happens the shape of TLC in accordance with the patent indices become double S shape that in a period of time the number of patents comes down and again it come up. The Bug existence is very similar to the chasm in Market Life Cycle which will be discussed in the next chapter.

2. Growth & 3. Maturity• Growth: when the concept is discovered, and the tendency of findings went

from radicals to applicable market useable products, the applications will increase. Risk of investment decrease and more companies will enter to the completion. And technology will enter to the growth stage (Haupt et al., 2007). Additionally, some more competitors are joining to the game and technology becomes “pacing”, but still there is not integration for products and processes. (Little, 1981).

• Maturity: when the number of patent applications does not change any more, and the new patents belong to mostly major and minor enhancement instead of new products and features the technology arrived into its maturity. The risk of investment in the stage is low but the number of competitors is in its peak point (Haupt et al., 2007). The companies are still competing as the previous stage but the technology is integrated into new products completely. Moreover, the “Pacing Technology” is known as “key technology”. (Little, 1981).

4. Decline• Decline (Saturation): spontaneously, at the time that the patent

applications take minus trend the technology left its climax point. The developments belong to minor and major enhancements and the direction of technical improvement (Haupt et al., 2007), the competitiveness decreases and the “Key Technology” will become “Base Technology”. (Little, 1981). But this procedure is not applicable for all industries, because firstly all the innovations does not become patent and secondly lots of private innovations in private companies does not release (Filson, 2002).

• The result of any development for discovering new technology is finding out a “Paradigm” (Dosi,1982), each paradigm or concept could bear various Technology standards; and the standards could make different technology platform. Consequently, different products are plan, design and produce base on a technology platform (Kim, 2003). As the technology has a limited life cycle, it is develops, comes to the market, becomes popular , then a better technology replaces it and it dies, which is a similar story with product, the Technology Life Cycle classified similarly with Product Life Cycle (Rhyne, 1996).

12

Time (Effort)Time (Effort)

NEW NEW INVENTIONINVENTIONPERIODPERIOD

EmbryonicEmbryonic

MaturityMaturity

Per

form

ance

par

amet

erP

erfo

rman

ce p

aram

eter

AgingAging

Growth Growth

TECHNOLOGY TECHNOLOGY IMPROVEMENTIMPROVEMENTPERIODPERIOD

Physical LimitPhysical Limit

MATURE MATURE TECHNOLOGYTECHNOLOGYPERIODPERIOD

Foster’s S Curve With Variations

Chart

Physical limitCurve is not smooth because of variance ineffort and resources

Effort

16

Changes in Natural Limits for Old and New Technologies

Time

Limit of Technology A

Technology A’

Technology B

Technology A

Per

form

ance

Par

amet

er

Limit of Technology B

Performance Differential

17

Overall Technology Cycle Composed of Subtechnology Lifecycles

Time

Subtechnology IILife Cycle

Overall TechnologyLife Cycle

Subtechnology IIILife Cycle

Subtechnology ILife Cycle

Per

form

ance

Par

amet

erLimit of Technology

Distribution of Adopters

• Normal distribution is the most common pattern of adoption of new products and services

2-19

The Normal Distribution of Adopters

Groups of AdoptersInnovators: adopt new technology immediately

Early adopters: follow the innovators

Early majority: adopt new technology just before the average for the market

Late majority: adopt after other customers have adopted the technology successfully

Laggards: prefer to avoid adoption as long as possible

S-Curves of Adoption• The S-shaped pattern indicates that there is an

acceleration point at which a market “takes off” by: Pointing out that different groups of customers adopt

new products at different points in time for different reasons

Providing information about the right promotional strategy

Indicating appropriate pricing strategy Providing estimated demand growth over time Providing information about the financial

attractiveness of a market at different points in time

The Adoption S-Curve

Crossing the Chasm

• The need to sell to the mass market to achieve an adequate return on investment

• For companies to segment the early majority of the market and focus on the portion of the majority that is underserved by existing products

Crossing the Chasm

Identifying the Take-off Stage

• If there is an accelerated rate change in demand

• When the customer base begins to shift away from the innovators and early adopters

How to Cross the Chasm

• Need to show how it provides value to customers

• Need to develop a complete solution to customers’ problems

• Need to pursue a vertical marketing strategy rather than a horizontal marketing strategy

Choosing the Customer

• Concentrate on a single vertical market Target the one that has the greatest need for

the new product by estimating the product’s value to different markets

Estimate the time it takes to payback the cost of the product

Beachhead Strategy

• Segment the early majority of the market and focus on the portion of the majority that is underserved by existing products

The Technology Life Cycle

Drivers of industry evolution:• demand growth• creation and diffusion of knowledge

Introduction Growth Maturity Decline

Indu

stry

Sal

es

Time

Product and Process Innovation Over Time

Time

Rat

e of

inno

vatio

n

Product Innovation

Process Innovation

How Typical is the Life Cycle Pattern?

• Technology-intensive industries (e.g. pharmaceuticals, semiconductors, computers) may retain features of emerging industries.

• Other industries (especially those providing basic necessities, e.g. food processing, construction, apparel) reach maturity, but not decline.

• Industries may experience life cycle regeneration.

Sales Sales

1900 50 90 07 1930 50 70 90 07 MOTORCYCLES TV’s

• Life cycle model can help us to anticipate industry evolution—but dangerous to assume any common, pre-determined pattern of industry development

ColorB&W

Portable

HDTV ?

Evolution of Industry Structure over the Life Cycle

INTRODUCTION GROWTH MATURITY DECLINE DEMAND Affluent buyers Increasing Mass market Knowledgeable,

penetration replacement customers, resi- demand dual segments

TECHNOLOGYRapid product Product and Incremental Well-diffused innovation process innovation innovation technology

PRODUCTS Wide variety, Standardization Commoditiz- Continued rapid design change ation commoditization

MANUFACTURING Short-runs, skill Capacity shortage, Deskilling Overcapacity intensive mass-production

TRADE -----Production shifts from advanced to developing countries-----

COMPETITION Technology- Entry & exit Shakeout & Price wars, consolidation exit

KSFs Product innovation Process techno- Cost efficiency Overhead red- logy. Design for uction, ration- alization, low cost sourcing

The Driving Forces of Industry Evolution

Customers become more knowledgeable

& experienced

Diffusion oftechnology

Demand growthslows as market

saturation approaches

Customers become more price conscious

Products become more standardized

Distribution channels consolidate

Production shifts to low-wage countries

Price competition intensifies

Bargaining power of distributors

increases

BASIC CONDITIONS INDUSTRY STRUCTURE COMPETITION

Excess capacity increases

Production becomes less R&D & skill-intensive

Quest for new sources of differentiation

0

50

100

150

200

250

1895 1905 1915 1925 1935 1945 1955

No. of firms

Changes in the Population of Firms over the Industry Life Cycle: US Auto Industry 1885-1961

Source: S. Klepper, Industrial & Corporate Change, August 2002, p. 654.

1912 $ bn. 2006 $ bn.

US Steel 0.74 Exxon Mobil 372

Exxon 0.39 General Electric 363

J&P Coates 0.29 Microsoft 281

Pullman 0.20 Citigroup 239

Royal Dutch Shell 0.19 BP 233

Anaconda 0.18 Bank of America 212

General Electric 0.17 Royal Dutch Shell 211

Singer 0.17 Wal-Mart Stores 197

American Brands 0.17 Toyota Motor 197

Navistar 0.16 Gazprom 196

BAT 0.16 HSBC 190

De Beers 0.16 Procter & Gamble 190

The World’s Biggest Companies, 1912 and 2006 (by market capitalization)

0

5

10

15

20

25

ROI (%)

Growth Maturity Decline

Real annualgrowth rate <3%Real annualgrowth rate 3-6%Real annualgrowth rate >6%

ROI at Different Stages of the Industry Life Cycle

0

2

4

6

8

10

12

RO

I

Valu

eA

dded

/Rev

enue

Tech

nica

lC

hang

e

New

Pro

duct

s

% S

ales

from

New

Pro

duct

s

Prod

uct

R&

D/S

ales

Age

of P

lant

&Eq

uip.

Inve

stm

ent/S

ales

Adv

ertis

ing/

Sale

s

GrowthMaturityDecline

Note: The figure shows standardized means for each variable for businesses at each stage of the life cycle.

Strategy and Performance across the Industry Life Cycle

Preparing for the Future: The Role of Scenario Analysis in Adapting to Industry Change

Stages in undertaking multiple Scenario Analysis:

• Identify major forces driving industry change• Predict possible impacts of each force on the industry

environment• Identify interactions between different external forces• Among range of outcomes, identify 2-4 most likely/ most

interesting scenarios: configurations of changes and outcomes• Consider implications of each scenario for the company• Identify key signposts pointing toward the emergence of each

scenario• Prepare contingency plan

1880s 1920s 1960s 2000

Mail order, catalogueretailinge.g. Sears Roebuck

ChainStores

e.g. A&P

DiscountStores

e.g. K-MartWal-Mart

“CategoryKillers”

e.g. Toys-R-Us,Home Depot

InternetRetailers

e.g. Amazon;Expedia

WarehouseClubs

e.g. Price ClubSam’s Club

Innovation & Renewal over the Industry Life Cycle: Retailing

?

Gary Hamel: Shaking the FoundationsGary Hamel: Shaking the Foundations

OLD BRICK NEW BRICKTop management is responsible for setting strategy

Everyone is responsible for setting strategy

Getting better, getting fasteris the way to win

Rule-busting innovationis the way to win

IT creates competitive advantage Unconventional business conceptscreate competitive advantage

Being revolutionary is high risk More of the same is high risk

We can merge our way to competitiveness

There’s no correlation between size and competitiveness

Innovation equals new products and new technology

Innovation equals entirely new business concepts

Strategy is the easy part, Implementation the hard part

Strategy is the easy only if you’re content to be an imitator

Change starts at the top Change starts with activists

Our real problem is execution Our real problem is execution

Big companies can’t innovate Big companies can become gray-hairedrevolutionaries

BCG’s Strategic Environments Matrix

Small BigSIZE OF ADVANTAGE

Many

Few

SOURCESOF

ADVANTAGE

FRAGMENTED SPECIALIZATION

apparel, housebuilding pharmaceuticals, luxury cars

jewelry retailing, sawmills chocolate confectionery

STALEMATE VOLUME

basic chemicals, volume jet engines, food supermarkets

grade paper, ship owning motorcycles, standard

(VLCCs), wholesale banking microprocessors

BCG’s Analysis of the Strategic Characteristics of Specialization Businesses

high low

ENVIRONMENTAL VARIABILITY

ABILITY TOSYSTEMATIZE

low

high

CREATIVE EXPERIMENTAL

fashion, toiletries, magazines

general publishing food products

PERCEPTIVE ANALYTICAL

high tech luxury cars, confectionery

paper towels

Reference:

•©2009 Prentice Hall

•Marzieh et. al (2015). Product Life Cycle, Technology Life Cycle And Market Life Cycle; Similarities, Differences And Applications, Joint International Conference 2015, Bary, Italy.