Pre-Reading Notes. Evolution of Large Technological Systems. 26 January LT 4 Marc Ventresca

Transcription

1 Pre-Reading Notes Evolution of Large Technological Systems Components of Technological Systems: Artifacts - created by builders, almost no degrees of freedom Physical artifacts Transformers, transmission lines, etc. Legislative artifacts Regulatory laws System artifacts Natural resources All components contribute directly to the system s goals Characteristics derive from the system, based on how the artifacts interact Almost all systems have environments beyond their control - closed systems do not Not to be confused with artifacts, but are sources of uncertainty Closed systems allow managers, etc. to address and remove uncertainty 2 types of environments Ones where system is dependent - e.g. an energy manufacturer and its fuel Ones where the environment is dependent on the system Phases of system development/evolution Invention Radical inventions often create new markets and industries, but usually born from earlier work in other areas Looking to create new systems or improve on past failures Led by independent inventors Development Adjusting invention to environment and industry conditions Social construction of idea becomes clear Led by entrepreneur and organization Invention continues through this phase Innovation Embedding invention within existing systems Led by entrepreneurs, starting to shift to managers Most inventors fade away at this point Transfer Invention adapted to other times/places Driven by other entrepreneurs, actors within same or different environments experimenting Growth, competition, and consolidation Improving economic mix, addressing any incompatible components

2 If problem persists, cycle starts over at invention to address problem Led by finance-entrepreneurs, engineers, etc. Evolution of New Markets, ch. 1-4 Explores drivers of innovation, including: Demand pull or supply push? Demand - people want a solution to their problems Hard to know which demands there are when you re creating new markets If innovation is a response to articulated demands, shouldn t it appear rapidly when demands appear? Why the delay? Supply - innovation comes from new technology trajectories, possibilities Some possibilities get explored, lead to new possibilities More likely to produce multiple solutions Inchoate vs. Choate demand There s plenty of demand for certain products, services, but it still takes a firm or firms willing to put in resources for things to happen Most new markets have several entrants Role of entry barriers, entry sources Eventually a dominant design arises Consumers and producers naturally want to standardize

3 Case Study Invasion of a Stable Business by Radical Innovation Aseptic packaging lowers the need for refrigeration of things such as milk Invented by Tetrapak in Sweden Widely used outside US for milk, but inside US mostly used on creamer and juices America s Ice History Tudor as the Ice King in 1830s Shipped 200 tons of ice to India in 1833, only 100 arrived for sale He was well positioned to take the loss for opening up India - already shipped from the US a lot and was crucial to brewing and fishing industries domestically New England had a thriving ice-harvesting industry that was eventually rendered obsolete by the invention of machine-made ice Second Ice Age in New England Farmers had harvested and stored ice for years, dating beyond George Washington It became a community event, much like barn-raising Tudor and Wyeth were able to commercialize the ice blocks cut and hauled by hand Wyeth had developed methods for more efficient, uniform ice cutting and storage at his family s hotel 1825 patent for the ice plow, and over 50 other specialized devices Became Tudor s sole supplier By 1834 they had a monopoly in Boston, with agreements with the Dutch and British governments for West Indies and Spanish colonies in Cuba Facilities for storage in these climes were pre-made and then shipped from Boston Tudor ran several studies on the melting rate, etc. of ice to maximize storage and retention in hot environments Competitors arose Hittinger took ice and barkeeps with him to London to spread how it made cocktails and other drinks better, expanding demand in Britain for New England ice By 1870s, there were 14 separate firms shipping 700,000 tons of ice each year from New England When ice was insufficiently thick, workers would pump water over it and let that freeze overnight to increase the layer Ice industries also arose further inland, using railways for distribution

4 Market tiers arose - based on purity and other metrics There s always hipsters Demand rose in cities for ice boxes - became virtual necessities between s The Invasion of Machine-Made Ice Prices fluctuated with weather in harvested ice market Demand would spike during epidemics like yellow fever, and prices would skyrocket if supply couldn t meet it Similar mechanics to the gas embargo and fuel lines of the 1970s Brewers and meat packers down South began experimenting to see if they could create alternatives to the harvested ice Ice had been made in a vacuum in the 1755, but only out of scientific curiosity Perkins received a British patent in 1834 for a machine that reliably made ice by evaporating and condensing a volatile liquid in a loop Principles are still used for refrigeration today Gorrie independently developed a similar machine in Florida for hospital rooms of malaria patients in 1838 Unable to commercialize it New Orleans got its first ice machine in 1868, able to offer ice cheaper than harvested Boyle patented first ammonia compression machine in 1872 This addressed the cloudiness issue of machine-made ice, rapid improvements quickly followed 30 ice-making plants existed in the South by 1879, and 5 in California By 1889, 222 plants existed, moving north to Ohio and Indiana Electricity replaced steam for power in the 1890s Though out of Southern markets, New England ice harvesters used machinery to improve capacity in production Continuous hauling of ice, specialty rail cars for delivery New block designs to prevent freezing together Resulted in higher volumes and lower unit costs The End of the Harvested Ice Era Massachusetts had 7 ice plants by 1909 Some harvesters set up plants, others folded entirely Export market crumbled as machines became more prolific Refrigerators began replacing ice boxes after WWI Ice-making plants were also eventually replaced by electromagnetic refrigeration Negated need for ice of any sort

5 Environments could cool themselves without the ice, such as rooms and railcars The one exception was glacial ice, sold as a specialty product in mainly Alaska Sold for perfect cocktail parties Patterns in the Emergence of Radical Innovations Periods of continuity in industries Innovation and iteration is small, incremental, infrequent Periods of discontinuity Rapid, major changes in product or process or both Can create/destroy businesses and markets Invading technologies Potential to deliver better results, lower costs, or both At first incumbent technologies offer better performance, while invaders improve their product or process Typically the invading product goes through a rapid improvement if it has merit - typewriter example Many alternative designs start out, then a dominant design emerges Performance accelerates after this standardization Incumbents respond with their own improvements generally Eventually the new technology usually wins out due to its greater potential Innovations from Outsiders Several cases have industries disrupted by players outside the markets IBM in word processors example In the ice industry, innovation came from people outside harvester market, in the South or other regions where alternatives had greater possibility Outsiders have less to lose usually Insiders have a lot invested in the existing technology Reluctance to Adopt New Technology Few incumbents at the top before a new innovation arises attempt to shift to the new technology ( think Blockbuster and Netflix ) - fewer still do it well ( Netflix again going from DVDs to streaming ) Easy to understand - it s hard to know which technologies will catch on at first By the time they have, it may be too late already

6 Established firms have lots of capital and labor investments as well, makes them difficult to shift focus and resources Also easy for managers to rest on their laurels and trust in what gave them their current success Meeting the Challenge of Discontinuous Change 2 hurdles for established leaders facing innovation Awareness of their own vulnerability Organizational adjustments to maintain competitiveness with new technologies Existing bureaucracies, economies of scale make the established firm less nimble

7 Class Notes Questions of the course What drives evolution of new markets? Why do incumbents stumble? What are entrepreneurial competencies & networks? How to organize for innovation How to link internal competencies, value creation, and value capture How to sustain innovation Readings will have contradictory viewpoints, see Sir Francis Bacon quote on reading Example: Google buying/selling Boston Dynamics US Defense market dropped as Afghanistan wound down, materials needed for carrying got lighter Possible other uses: Deep sea mining Rescue operations Healthcare, household chores for older persons Trying to emulate existing natural movements Is this necessary? Flight is easier with fixed wings and a propellor rather than flapping wings T-M-O Strategies for Value Creation Technologies Changing, transformative Markets Emerging, dynamic Clearing - where supply is entirely taken up by demand Organizational capabilities How do we keep up/get ahead? Assessment 50% Practical Work (individual) 5 x 400 words each 50% TMO Analysis (group) 3 or 4 total Choose an unsettled space Blockchain Crowdfunding 3-D printing, etc. NOT a business plan - consultant/analysis/exec briefing with recommendations Many good ideas never go anywhere Technologies are interfaces rather than ideas/inventions within themselves

8 See slides for sources of advantage matrix Establish Industry Position Leverage resources, competencies Pursue opportunities, innovate Exploit and Explore language How are we going to do more things better tomorrow? Exploit - commercializing competitive advantage Incumbents are good at this Can be a trap - you get really good at something that no longer matters Explore - finding new things to be good at Startups are great at this Can be damaging - if you don t find a way to exploit advantages, you run out of cash Example of Automobile industry Geroski - supply push of new technologies, demand follows Between 1911 and 1967, number of entrants and exits of producers spikes in 1910s, declines rapidly before 1930 Eventually the number of entries and exits stabilizes near 0 Includes incumbent carriage makers, steam engine makers, electric powered cars, steel and aluminum plants, power players in nearby industries to cars Cumulative sales grow steadily over the same period however as industry consolidates and net participants drop Market has congealed around one or two ideas Once design is settled upon, a lot of the components begin to see innovation - car becomes a platform for other markets Ford becomes the dominant design with the assembly line Consensus good - truce of attributes Everybody agrees: producers, consumers, regulators Nexus good - complements needed Systems, environments constructed - infrastructure, laws Platform good - template of features Recipe for other features, components - customization Technological discontinuity - enhances and destroys competencies Era of Ferment - experimentation, competition among designs Dominant design - major, core concepts stabilize across models Era of Incremental Innovation - tech retention & process improvements on dominant design Similar to Steve Jobs with ipod, Apple computer Market didn t decide how they should look, firm began making them and the market got used to it

9 Evolution of Markets model - Geroski Core claims, key features Why do early moments matter? Inventions provide potential for innovations Tech trajectories from platforms Demand is typically inchoate Characteristic tech/product life cycle Pay attention to macro trends PESTEL Value creation in unsettled technologies, nascent markets, org competencies = TMO Inchoate demand Customers always want product improvements But current customers are already partly content with current offerings Latent demand - customers who scarcely participate in existing markets Innate demand - what job needs to be done Is need or want = demand? Ford quote on black cars, faster horse; Steve Jobs never having focus groups Operation vs innovation pulls - efficiency vs variation Have to help the customer realize what they want