Innovation is often described as the act of introducing something new.
Whether to help us communicate, increase our efficiency, or simply add convenience, new
innovations are critical to organizational success.
In the context of an organizational setting, new innovations can include entirely new products,
processes, or systems that create entirely new markets, and also variations to existing
ones that create new patterns for consumer behavior.
The impact of innovation can be seen in companies like Google, Apple and Tesla.
Companies that have invested in new technology and subsequently provide value to their customers.
Technology, like all things, goes through a cycle beginning at the time it's introduced,
or birth, to the time that it's replaced, or death.
We refer to the time from which a technology is introduced to when it's replaced as a technology
cycle.
For example, the introduction of cell phones replaced land-line phones as the preferred
method of communication.
Although not instant, research has shown that these technology cycles follow patterns of
predictable behavior commonly known as the S-curve of innovation.
The s-curve received its name from the pattern that technology cycles follow when displayed
on a graph, resembling somewhat of an "s" in shape.
By understanding the technology cycles of their products, managers are in a better position
to make decisions as to where to allocate resources.
To create an s-curve we must first create a graph with a positive x and y axis.
The x axis is going to represent effort, which includes things like time and money invested
in the technology.
The y axis will represent the improvement on performance.
So the s-curve is really a visual representation of the extent that increases in effort lead
to increases in performance.
When a new innovation is introduced expenditures of effort result in only small improvements
in performance.
This is depicting at point A of the curve.
The reason for this is the technology surrounding the innovation is still in its infancy and
thus under-developed.
For example, pocket calculators were first introduced in the 1970s, yet were predominantly
used by scientists and engineers who had previously used slide rules and log tables to solve complex
problems.
These early versions of the pocket calculator were expensive, since the technology was relatively
new, and this prevented mainstream customers from adopting the product.
But as technology matured, the cost associated with producing such calculators began to diminish.
In addition, calculators became smaller, more well designed, and included additional features.
So increases in effort (i.e. time and money) were starting to produce a larger increase
in the performance of the product, which is shown at point B of the curve.
Although this transition may seem to be rather quick, it wasn't until the late 1980s that
pocket calculator could be produced cheap enough to appeal to mainstream consumers.
As the technology begins to mature though that increase in effort once again leads to
smaller improvements in performance.
At this stage, which is shown at point c of the curve, the technology is often discontinued
or goes through a re-allocation of resources as the company diverts time and money to newer
technologies.
Take for example the introduction of desktop computers in the 1960s.
Early models were quite expensive and weren't widely adopted until technological advances
during the 1980s and 1990s.
But as technology continued to mature companies began to realize how to make the desktop computer
smaller, lighter, and more versatile.
Which led to the introduction of the laptop computer.
So as one technology begins to plateau another takes its place as companies look to new innovations
to replace the other.
Laptop computers themselves are also beginning to see diminishing returns in performance
improvements as tablet computers have become the newer technology.
Now we certainly still use laptop and desktop computers today so it would be inaccurate
to say that when a new technology is introduced its predecessor goes away completely.
Old and new technology has the capacity to co-exist for a period of time.
How long they co-exist though is an uncertainty.
So what is the significance of the s-curve to business managers today?
One that we've already discussed, pertains to managerial decision making.
One of the roles of a manager is to make decision regarding how to allocate scarce resources.
By understanding the technology cycles of their own products, managers can determine
when its appropriate to reduce support for an older technology and shift to a newer technology.
Another area of consideration is that within these technology cycles, the innovation will
appeal to a different customer segment.
So the challenge for managers is to position their products in a manner that they appeal
to the appropriate customer segment.
Take for instance the creation of the pocket calculator in the 1970s that we discussed
earlier.
Given its price it wouldn't make much sense to attempt to sell the product to a larger
customer segment.
But as unit costs decrease, organizations have the ability to position their products
to new segments.
One question that I commonly receive when talking about s-curves is if an increase in
effort leads to minimal performance improvements early on, then why don't organizations simply
begin investing in emerging technology once it has developed?
This is a good question as a reasonable person would want to maximize the return they receive
on an investment?
But think about the time when technology does begin to develop and those performance improvements
begin to become more significant.
Who do you think is going to be better positioned to leverage the developing technology?
An organization that has been expending the effort early on and has achieved a certain
amount of familiarity and maybe even experience with how to leverage the technology?
Or an organization that is a late entrant trying to catch up?
Although the best return on investment comes from investing in developing technologies,
organizations that want to utilize them need to expend the resources to develop experience
in the emerging technology stage.
So what do you think about the s-curve of innovation?
Go ahead and leave your thoughts or even questions below and I'll do my best to get to them in
a timely fashion.
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