In an earlier post we treated the technology lifecycle. We saw that if we draw 1) Time on the horizontal axis and 2) Use of the technology on the vertical axis, we obtain a curve in the form of S. Today we see that we also get an S-shaped curve when we draw:
- On the horizontal axis the effort made to develop this technology, measured through the resources used, human, economic…
- On the vertical axis the performance of this technology, measured by its most significant parameter (speed, power, consumption, resistance, size…)
It is that curve that it is explicitly called the S-curve of that technology. And why does that form of curve occur? For the following reasons:
- When you start research on a new technology, progress is very slow. There is little knowledge about this technology, few experts. When an obstacle is solved, another appears immediately.
- However, there comes a time when the main technical problems are solved, and with a small additional expense the benefits improve quickly. Technologists already understand the technology much better and dominate it. Their actions are more effective and faster.
- After this stage of rapid growth, the progress of benefits stabilizes again. The company must spend more than in the past to maintain the same rate of evolution of performance, or else, is forced to accept a lower rate of progress. The technology is near its limit, it cannot give more of itself.
But it is not easy to know that we are in that limit of the technology. When a company, a whole sector, is immersed in the use of the technology and when it has been using it for many years (many of its experts have dedicated their entire professional life to that technology), it is not so immediate to recognize that the upper horizontal section of the S-curve is coming. However symptoms can be perceived. For example:
- There is dissatisfaction with the managers of the companies in the sector in relation to the performance of the technology improvement activities, such as R&D,
- Decreases the creativity of technologists
- Increase development costs,
- More development efforts are focused on process improvement and incremental improvements of existing products than on new product development.
- Sales growth is mainly segmented by the market,
The aviation engine serves as an example of a curve in S [1]. The Wright brothers flew for the first time in 1903 at a speed of 35 miles per hour. Seven years later it was possible to reach 60 miles per hour. As aircraft design was better known, speeds increased to 146 in 1922. In the year 1939 the record was 464 miles per hour and the speed improvement curve (the S-curve for the aircraft engine of a single piston) began to become flat. In 1966 it reached 520 miles per hour and in 1989 it had only improved at an additional 9 miles per hour. It seemed that the speed limit of that technology, the single-piston airplane engine, was at 525 miles per hour.
However much it was invested in additional improvements, it was not possible to add performance (speed). A totally new technology was required to increase speed. This technology was the jet and its introduction generated a discontinuity and a new curve in S located higher than the previous one. But this is an issue, that one of discontinuities, which will be discussed in future posts.
Developing a new technology is a slow, very slow process. In the case of aviation engines, it took more than 20 years of constant improvements to exceed 200 miles per hour. It may take decades to get to the point where technology has matured and accelerated up the vertical of the rapid increase in performance. This is because knowledge and tools necessary to improve the technology are required. In addition, in the initial stages there is skepticism in a good part of the system: investors, government, etc. Also, if that technology is a substitution of a prior technology, the resistance to abandoning the previous solution is remarkable.
And how does a new technology appear? The emergence of a new technology (and therefore of an S-curve) is preceded by a time of turbulence, of fermentation, a period during which multiple solutions are proposed, until the “dominant design” emerges, a specific solution accepted by the market. Let’s look at this process in more detail:
- Initially, in the context of the conditions of discontinuity that occur when a new technology or market emerges, there is a “fluid” phase in which the paradigm that will prevail (the so-called “dominant design”) is not known yet. There are a variety of product designs as all competitors try to respond to the emerging needs of customers. The R&D activities at this stage are often insufficiently specified, as technical and design standards are not yet on the market. Efforts at this stage are mainly directed at product innovation rather than process innovation. Companies compete by trying to deliver product functionality, rather than cost.
- Gradually, little by little, a “dominant design” is reached, which begins to define the rules of the game. The most popular solution is imposed. But most popular does not necessarily mean that it is the best from the technical point of view or the most elegant. At this stage innovations begin to be channeled into a corridor, the dominant design corridor. At this stage you can do tests but not too far from the solution that the market is gradually accepting. The experimentation aims at improving the dominant design (attempts to imitate the design) and the concretion of the processes. This is the transition phase, from the moment the dominant design is imposed until the emphasis is placed on the imitation and development around that winning concept.
- The last stage is specific. Companies want to produce a specific product with maximum efficiency. The product can become a commodity and the focus of innovation is on improving the process as cost is the main factor to compete. In this phase, product innovation is only aimed at responding to the specific needs of certain users, to product customization.
From here, the cycle can start again at any time. The following graph (already used in previous posts) summarizes these 3 phases:
Other academic models similar to the previous one define two stages separated by the emergence of the dominant design:
- A fermentation stage, with great competition between technological regimes
- The stage of incremental change, in which competition is based on costs.
The following graph superimposes those two academic visions we have just summarized [2] along with the S-curve of technology.
But … how does the dominant design form itself? In fact, what do we mean by dominant design? We analyze this concept through the example of the video, with the technological options VHS and Betamax [3]. Betamax was the technology introduced by Sony in 1975 and VHS (Video Home System) was the choice of Victor Company of Japan (Japan Victor or JVC), owned by Matsushita, a large Japanese company with a lower technological capacity than Sony but very competitive in the manufacturing process. Although Betamax was first to reach the consumer market, Beta format was surpassed by VHS already in 1978 and began a decline until disappearing.
Sony was founded in 1946, initially targeting audio electronics. Subsequently, in the late 1960s, it wanted to expand into the nascent video sector. The American Ampex Corporation had already developed in 1956 a video player for the television companies and the idea of Sony was to transfer that concept to the consumer and to achieve a massive market. Of course, other companies were simultaneously trying to do the same. In the academic models we have just seen, it was the stage of fermentation, with different proposals for the same opportunity. All the companies that tried to extend Ampex’s technology to the mass market had the same problems, which came from the balance between image quality, price, comfort and ease of use.
Sony had a tradition of technological excellence and according to it, was the first company able to develop a home video player, based on the technology of reproduction Betamax. It had it ready to enter the market in 1970. But at that time Sony was already aware of the importance of having a single video format, a single reproduction technology. This would facilitate the acceptance of the video by the consumers. That is why Sony wanted to avoid a format war with Matsushita, owner of JVC, and established an agreement with that company to manufacture the Sony prototype. The collaboration generated U-Matic, that found its space in the market of schools and institutions but turned out to be too expensive and complicated for the consumer.
Meanwhile, options appeared from other companies, such as the Silicon Valley Cartridge Television (CTI) company that developed the first video player for the domestic market. It was the Cartrivision, launched in 1972 as a unique television and video player (since standard video interfaces on commercial TVs had not yet been developed). Cartrivision could already be purchased at Sears stores. CTI entered into an agreement with Columbia Pictures to have some films available, which were marketed through some stores affiliated with the Cartridge Rental Network. The rental process was quite complicated. For example, at Columbia’s request, films could only be reproduced once. The user could not rewind them. But the device had other problems. For example, the recording time was 114 minutes, insufficient for many productions, or by Christmas 1972 the stock was exhausted. Cartridge was also unable to match the sale of equipment and the supply of films for rent. With that, the company went bankrupt in mid-1973. This had been the first attempt to get a consumer video player and movie rental system.
What was that first video player like? It was quite expensive, technically unreliable, had poor playback quality, required changing the TV and had many limitations on the movie rental system. What could companies who wanted to enter this market learn from Cartrivision? What were the essential factors behind the failure? Which should be the first to be solved? The best thing these companies learned was that the mass video market was in the offing, that the opportunity was real and that the most aggressive company could take the prize to the more dubious rivals.
In the case of Sony, it had a double option:
- Continue its collaboration with Matsushita to evolve the U-Matic. In this case, Sony could be limited by the lower technological capabilities of Matsushita.
- Advance individually, which could generate a format war.
Sony opted for the second option, trying to market a product based on Betamax technology, which it did in 1975. But soon saw Matsushita do the same with its technology, VHS. It was a year later, when there were already 100,000 Betamax units on the market. Both continued to have the same challenge: The balance between cost and benefits. High-quality image demanded more expensive components and higher tape speed, which in turn increased cost again and also reduced recording time.
Sony again faced another key decision, with two paths: 1) Focus on high quality or 2) look for low prices. Sony was the technology leader. It had a story based on quality and technology. In the development of its product introduced these values as a requirement, which caused difficulties in finding suitable manufacturers for its components. This was just another relevant balance: Quality versus manufacturing capacity. Matsushita was a leader in costs: historically it had known how to adjust costs by optimizing its designs towards production. Therefore, its strategy was geared towards production capacity. In addition, while Sony did not want to enter the option of licensing its technology, Matsushita granted licenses (and without obstacles, since its technology was easier to manufacture). With this, VHS technology was adopted by a large number of companies. A “family” was built. In 1984 the VHS group included 40 companies, among them Grundig, Hitachi, Matsushita, Mitsubishi, Philips, RCA and Sharp. The Betamax group was made up of only a dozen companies. Sony failed to create alliances.
This was the basis on which the dominant design was defined in the following years. As we all know, VHS prevailed as the standard for video tape record technology. It was the “victory” of a technology in a mass consumer market and subject to standardization.
[1] Technology and Global Change. Arnulf Grübler
[2] Utterback and Anderson-Tushman
[3] The Strategy Paradox, de Michael E.Raynord.