201 Aug 09 Dynamics of Innovation

8/9/2019 201 Aug 09 Dynamics of Innovation

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DYNAMICS OFDYNAMICS OFINNOVATIONINNOVATION

byby

Roger D. Posadas, Ph.D.Roger D. Posadas, Ph.D.Professor, Technology Management CenterProfessor, Technology Management Center

University of the Philippines - DilimanUniversity of the Philippines - Diliman

August 2009August 2009


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THE UTTERBACK-ABERNATHY MODELTHE UTTERBACK-ABERNATHY MODEL

OF THEOF THE

DYNAMICS OF INNOVATION...1DYNAMICS OF INNOVATION...1

The Utterback-Abernathy model of the dynamics ofThe Utterback-Abernathy model of the dynamics of

innovation details the dynamic processes that takeinnovation details the dynamic processes that take

place within an industry and its firms during theplace within an industry and its firms during the

evolution of a technology by describing the changingevolution of a technology by describing the changingrates of product and process innovation.rates of product and process innovation.


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OF THEOF THE


The Product Innovation CurveThe Product Innovation Curve

The U-A model describes the rate of productThe U-A model describes the rate of product

innovation of a radical technology over time asinnovation of a radical technology over time asstarting from a high level (due to the high degree ofstarting from a high level (due to the high degree of

experimentation with various product designs),experimentation with various product designs),

declining to a dominant design, and slowing downdeclining to a dominant design, and slowing down

to incremental innovations based on the dominantto incremental innovations based on the dominantdesign.design.


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OF THEOF THE


The Process Innovation CurveThe Process Innovation Curve

The U-A model depicts the rate of process inno-The U-A model depicts the rate of process inno-

vation connected with the radical technology overvation connected with the radical technology overtime as starting from a low level (due to the initialtime as starting from a low level (due to the initial

use of crude, inefficient processes), growing to ause of crude, inefficient processes), growing to a

peak as product designs converge on a dominantpeak as product designs converge on a dominant

design, and declining to a low level.design, and declining to a low level.


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Product Innovation CurveProduct Innovation Curve

Rateo

fMajorInn

ovation

Process Innovation Curve

Time


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SUMMARY OF THE CHANGES DESCRIBED BY THE U-A MODEL...1SUMMARY OF THE CHANGES DESCRIBED BY THE U-A MODEL...1

PRODUCTPRODUCT :: From high variety toFrom high variety todominant design, to incrementaldominant design, to incremental

innovation on standardizedinnovation on standardized

productsproducts

PROCESSPROCESS :: From a manufacturingFrom a manufacturing

process that relies heavily onprocess that relies heavily on

skilled labor and general purposeskilled labor and general purpose

equipment to one that makes useequipment to one that makes useof specialized equipment and low-of specialized equipment and low-

skilled laborskilled labor


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SUMMARY OF THE CHANGES DESCRIBED BY THE U-A MODEL...2SUMMARY OF THE CHANGES DESCRIBED BY THE U-A MODEL...2

ORGANIZATION :ORGANIZATION : From an entrepreneurialFrom an entrepreneurial organicorganicfirm tofirm to

a hierarchicala hierarchical mechanisticmechanisticfirm with definedfirm with defined

tasks and procedures and few rewards fortasks and procedures and few rewards for radicalradical

innovationinnovation

MARKET :MARKET : FromFrom fragmented and unstablefragmented and unstable with diversewith diverse

products and rapid feedback toproducts and rapid feedback to commodity-likecommodity-like

with largely undifferentiated productswith largely undifferentiated products

COMPETITION:COMPETITION:FromFrom many small firmsmany small firms with uniquewith unique

products to anproducts to an oligopoly of firmsoligopoly of firms with similarwith similar

productsproducts


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ORGANIZATIONAL CHANGE IN THE U-A MODELORGANIZATIONAL CHANGE IN THE U-A MODEL

The organization of a firm formed around an innovation goesThe organization of a firm formed around an innovation goes

through the following transformation:through the following transformation:

FROM

An informal, entrepreneurial

organicfirm characterized by:

frequent adjustment and

redefinition of tasks

limited hierarchy

high lateral communication

high value given to entre-

preneurial skills that can

generate a superior product

TO

A hierarchical, managerial,

mechanisticfirm characterized by:

consistent routines and rules to

minimize inefficiency

hierarchical organization

bureaucratic communication

high value given to administrative

skills that can generate steady

financial returns


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CHANGE IN MARKET CHARACTERISTICS IN THE U-A MODELCHANGE IN MARKET CHARACTERISTICS IN THE U-A MODEL

From the introduction of the radical innovation to the selection of aFrom the introduction of the radical innovation to the selection of a

dominant design, the market characteristics change as follows:dominant design, the market characteristics change as follows:

FromFrom:: A fragmented and unstable market with market sharesA fragmented and unstable market with market shares

ofof each firm varying rapidly, with a diverse range ofeach firm varying rapidly, with a diverse range of

products, and with product price influenced more byproducts, and with product price influenced more by performance,performance,

features, and functionality than by cost offeatures, and functionality than by cost of production.production.

ToTo:: A market with a few dominant firms and stable marketA market with a few dominant firms and stable market

shares and products that tend to be commodity-like andshares and products that tend to be commodity-like and

undifferentiated in terms of function and features. Incre-undifferentiated in terms of function and features. Incre- mentalmental

innovations will become more important andinnovations will become more important and price will dependprice will dependheavily on direct manufacturing costs.heavily on direct manufacturing costs.


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CHANGE IN COMPETITION IN THE U-A MODELCHANGE IN COMPETITION IN THE U-A MODEL

As the role of product innovation decreases and the rate of processAs the role of product innovation decreases and the rate of process

innovation increases, important changes occur in the competitiveinnovation increases, important changes occur in the competitive

environment:environment:

FromFrom:: A competitive environment consisting of many small firmsA competitive environment consisting of many small firms

competing with unique products, where the basis of com-competing with unique products, where the basis of com-

petition is functional product performance.petition is functional product performance.

ToTo:: An oligopoly of firms with efficient production systemsAn oligopoly of firms with efficient production systems

producing standardized or slightly differentiated productsproducing standardized or slightly differentiated products with stablewith stable

sales and market shares. A few small firmssales and market shares. A few small firms may remain in the industrymay remain in the industryto serve specialized marketto serve specialized market segments. The surviving dominant firmssegments. The surviving dominant firms

will strivewill strive towards vertical integration from raw materials totowards vertical integration from raw materials to

production to sales.production to sales.


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PHASES IN THE UTTERBACK-ABERNATHY MODELPHASES IN THE UTTERBACK-ABERNATHY MODEL

The model describes not only the changes in the rates of productThe model describes not only the changes in the rates of product

and process innovations but also the life cycle of the industry itself.and process innovations but also the life cycle of the industry itself.

Thus, the industrial life cycle is divided into three phases:Thus, the industrial life cycle is divided into three phases:

1. The Fluid Phase --1. The Fluid Phase -- TThis covers more or less the period fromhis covers more or less the period from

the launch of the radical innovation to thethe launch of the radical innovation to the Era ofEra of FermentFermentin thein the

Tushman-Rosenkopf model of technologyTushman-Rosenkopf model of technology evolution.evolution.

2. The Transitional Phase2. The Transitional Phase -- This covers the rapid growth in theThis covers the rapid growth in the

market and themarket and the selection of a dominant design.selection of a dominant design.

3. The Specific Phase --3. The Specific Phase -- This coincides more or less with theThis coincides more or less with theEra of Incremental ChangeEra of Incremental Changein the Tushman-Rosenkopfin the Tushman-Rosenkopf

model of technology evolution.model of technology evolution.


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PHASES IN THE DYNAMICS OF INNOVATIONPHASES IN THE DYNAMICS OF INNOVATION

Product InnovationProduct Innovation

Rateof

MajorInnova

tion

Process Innovation

TimeFluid Phase Specific PhaseTransitional Phase


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CHARACTERISTICS OF THE THREE PHASES...1CHARACTERISTICS OF THE THREE PHASES...1

FLUIDPHASE

TRANSITIONA

L PHASE

SPECIFIC

PHASE

INNOVATI

ON

Frequent

majorproductchanges

Major

processchangesrequired byrisingdemand

Incrementa

l changesfor productwithcumulativeimproveme

nts inproductivity andquality


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FLUIDPHASE

TRANSITIONA

L PHASE

SPECIFIC

PHASE

PRODUCTSDiverse

designs,oftencustomized

At least one

productdesign, stableenoughto havesignificant

productionvolume

Mostly

undifferentiated, standardproducts

PRODUCTI

ON

Flexible and

inefficient,

Becoming

more rigid,

Efficient,

capital-


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FLUIDPHASE

TRANSITIONAL

PHASE SPECIFIC PHASE

R&D Focusunspecified because

of highdegree oftechnicaluncertainty

Focus onspecificproduct

features oncedominantdesignemerges

Incrementalchanges forproduct with

cumulativeimprovements inproductivity andquality

EQUIPMENTGeneral-purpose;

requiringskilled

Somesubprocesses

automated,creating

Special-purpose,mostly

automatic, withlabor focused on


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FLUIDPHASE

TRANSITIONALPHASE SPECIFIC

PHASE

PLANT Small-scale,

locatednear useror sourceofinnovations

General-purpose with

specifiedsections

Large-scale,highly specific

to particularproducts

COST OFPROCESSCHANGE

Low Moderate High


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FLUIDPHASE

TRANSITION

AL PHASE SPECIFICPHASE

COMPETITORS

Few, but

growing innumberswith widelyfluctuating

marketshares

Many, but

decliningin numbersafteremergence

ofdominantdesign

Few; classic

oligopolywith stablemarketshares

BASIS OF

COMPETITION

Functional

productperformanc

Product

variation;fitness to

Price


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FLUIDPHASE

TRANSITIONAL PHASE SPECIFICPHASE

ORGANI-ZATIONALCONTROL

Informal andentrepreneurial

Thoughproject andtask groups

Structure,rules, andgoals

VULNERA-BILITIES OFINDUSTRYLEADERS

To imitators,andpatentchallen- ges;to success-

ful product

To moreefficient andhigher-qualityproducers

Totechnologicalinnovationsthat presentsuperior

product


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BREAKING OUT OF THE SPECIFIC PHASEBREAKING OUT OF THE SPECIFIC PHASE

Is the specific phase of production the end of history for anIs the specific phase of production the end of history for an

industry? Is there a way to break out of this highly capitalized,industry? Is there a way to break out of this highly capitalized,

highly controlled, and uninnovative mode of production?highly controlled, and uninnovative mode of production?

ANSWERANSWER::Yes, through the Japanese-pioneered strategy ofYes, through the Japanese-pioneered strategy of

mass customization which uses both flexible manu-mass customization which uses both flexible manu-

facturing and the creation of unique products fromfacturing and the creation of unique products from

standardstandard

platforms to satisfy customer requirementsplatforms to satisfy customer requirements more fully. Thismore fully. This

enabled Japanese auto companies toenabled Japanese auto companies to retain low unit-costretain low unit-cost

while producing greater variety inwhile producing greater variety in smaller runs.smaller runs.

CAVEATCAVEAT:: However, flexible manufacturing and mass customi-However, flexible manufacturing and mass customi-zation may also be a trap resulting in products withzation may also be a trap resulting in products with

little commercial potential and in unwanted productlittle commercial potential and in unwanted product

variety.variety.


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NONASSEMBLED PRODUCTS...1NONASSEMBLED PRODUCTS...1

Nonassembled productsNonassembled products are products like aluminum,are products like aluminum,

cement, flat glass, paper, fibers, petroleum, steel, etc.cement, flat glass, paper, fibers, petroleum, steel, etc.

which have no separable components. They are pro-which have no separable components. They are pro-

duced through chemical, thermal, or machining pro-duced through chemical, thermal, or machining pro-

cesses consisting of a set of sequentially interlinkedcesses consisting of a set of sequentially interlinked

steps orsteps orsubprocesses.subprocesses.

Subprocesses Linking process


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NONASSEMBLED PRODUCTS...2NONASSEMBLED PRODUCTS...2

For nonassembled products, technological progressoccurs either in process or materials. Process innova-tion either replaces or eliminates subprocesses toincrease process speed and/or efficiency.

SUBPROCESS SUBSTITUTION

SUBPROCESS ELIMINATION

EVOLUTION OF PLATE GLASSMAKING PROCESSEVOLUTION OF PLATE GLASSMAKING PROCESS


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EVOLUTION OF PLATE GLASSMAKING PROCESSEVOLUTION OF PLATE GLASSMAKING PROCESS

TECHNOLOGYTECHNOLOGY

OriginalOriginal

ProcessProcess

Step 1

Step 2

Step 3

Step 4

End

Result

float process

continuous casting

continuous annealing lehr

continuous mixing and melting tank

Mix Melt Cast AnnealGrind &Polish


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DISCONTINUOUS CHANGE IN PROCESS ARCHITECTUREDISCONTINUOUS CHANGE IN PROCESS ARCHITECTURE

The combination or elimination of steps or subprocesses in the productionThe combination or elimination of steps or subprocesses in the production

of nonassembled products results in dramatic productivity gains and lowerof nonassembled products results in dramatic productivity gains and lower

unit costs. Each new process technology represents a change in processunit costs. Each new process technology represents a change in process

architecture. New process architecture represents a discontinuous advancearchi- tecture. New process architecture represents a discontinuous advance

in productivity due to:in productivity due to: (1) the entire elimination of a process step(1) the entire elimination of a process step, or, or(2) the(2) the

increased efficiency of the new process technologyincreased efficiency of the new process technology. Since each new process. Since each new process

architecture results in lower unit costs, the relationship between time, unitarchitecture results in lower unit costs, the relationship between time, unit

cost, and process architecture looks like a downward staircase with each stepcost, and process architecture looks like a downward staircase with each step

representing a change in process architecture.representing a change in process architecture.

Un

itCo

st New process

architecture introduced

Incremental processinnovation introduced

Time


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ENABLING TECHNOLOGY FOR NONASSEMBLED PRODUCTSENABLING TECHNOLOGY FOR NONASSEMBLED PRODUCTS

For nonassembled products, the equivalent of dominantFor nonassembled products, the equivalent of dominant

design is termed enabling technology. For example, the floatdesign is termed enabling technology. For example, the floatglass process is an enabling technology that appeared in aglass process is an enabling technology that appeared in a

rush and was refined incrementally in subsequent years.rush and was refined incrementally in subsequent years.

Like the emergence of a dominant design, the emergence of anLike the emergence of a dominant design, the emergence of an

enabling technologyenabling technology -- a discontinuous change in process-- a discontinuous change in processarchitecture -- is not always apparent, but it can be indicated byarchitecture -- is not always apparent, but it can be indicated by

the following obvious signs:the following obvious signs:

the change results in order-of-magnitude improvements inthe change results in order-of-magnitude improvements in

cost and quality.cost and quality.

the change results in reducing the number of process stepsthe change results in reducing the number of process steps

through the combination or elimination of steps or thethrough the combination or elimination of steps or the

transformation of batch processes to continuous processes.transformation of batch processes to continuous processes.


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PATTERN OF INNOVATION FORPATTERN OF INNOVATION FOR ASSEMBLEDASSEMBLEDPRODUCTSPRODUCTS


Freque

ncyof

Majo

rInnova

tion

Process Innovation

Fluid Pattern Specific PatternTransitionPattern

Dominant Design

Occurs


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PATTERN OF INNOVATION FORPATTERN OF INNOVATION FOR NONASSEMBLEDNONASSEMBLEDPRODUCTSPRODUCTS


Fre

que

ncyof

MajorInnova

tion

Process Innovation

Fluid Pattern Specific PatternTransition Pattern

EnablingTechnology Occurs


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COMPARISON OF THE TRANSITIONAL PHASE FORCOMPARISON OF THE TRANSITIONAL PHASE FOR

ASSEMBLED AND NON ASSEMBLED PRODUCTS...1ASSEMBLED AND NON ASSEMBLED PRODUCTS...1

ASSEMBLED NONASSEMBLED

INNOVATIONEmphasis onincremental

productimprovementand productvariation

Emphasis onprocess changes

required by risingdemand

SOURCE OFINNOVATION

Users;manufacturers

Manufacturers;equipmentmakers


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PRODUCTS Many featuresunique toindividual

producers

Increasinglyundifferentiated

PRODUCTION

PROCESSES

Somesubprocessesautomated,creatingislands ofautomation

Becoming morerigid, morecontinuous, morecapital-intensive


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COMPETITORS Many, butdeclining in

numbers afteremergence of

the dominantdesign

Increasinglyundifferentiated

VULNERABILITIES

OF INDUSTRY

LEADERS

To bothimprovedproducts

and moreefficient

To moreefficient andhigher quality

producers


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PLANT General purposewith specializedsections

Emphasis onprocesschangesrequired by

rising demand

COST OF

PROCESSCHANGE

Moderate Manufacturers;

equipmentmakers


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- End of Presentation -- End of Presentation -

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201 Aug 09 Dynamics of Innovation