Lecture 2 - Sources of technological change


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Lecture 2 - Sources of technological change

  1. 1. Lecture 2 Sources of Technological Change
  2. 2. The Cumulative Synthesis Approach [Abbot Usher] Four steps to innovation processes: • 1. Perception of the problem – May be induced by economic forces • 2. Setting the stage – Elements necessary for the solution brought together through a configuration of events. One necessary element is a person with the necessary skill in manipulating the other elements. • 3. The act of insight – The essential solution to the problem is found. This is an uncertain process. Prediction is impossible. • 4. Critical revision
  3. 3. The Microprocessor o The transistor (or chip) was the seminal invention in the development of the semiconductor industry. Its invention was followed by the integrated circuit, a more complex chip with more than one active device. The microprocessor followed. o Perception of the problem o A Japanese company (Busicom) requested a chip for hand-held calculators from Intel. o Setting the stage o Intel had much prior experience with memory devices for computers. o Act of insight o Ted Hoff realized that general purpose computer architecture could be used to meet Busicom’s needs less expensively. That eliminated the need for several chips. o Critical revision • Speed increased rapidly (Moore’s law)
  4. 4. The ideal innovation funnel Phase I Phase II Phase III Launch
  5. 5. An Innovation Funnel Example Gatekeeper Gatekeeper Gatekeeper Gatekeeper Idea Launch & Feasibility Capability Rollout Generation Concept Product Commercialization Initial marketing refinement and optimization Production & and technical prototype Distribution concepts creation Post Launch Launch Review Proposal Contract Tracks success of and key learnings Charter from launched Launch Plan including products CEP approval request. Cross-functional KEY development plan One page description of including project plan as proposed project including = GATE contract between team objective, rationale and and Gatekeeper. development routes. Early = DOCUMENT Commercial Assessment
  6. 6. Example: The Key Questions Answered By Each Phase Phase progression indicates increasing investment and decreasing risk. Portfolio Review Phase Phase Review 1 Phase Phase Review 2 Review 3 Review 4 E E Phase 1: Phase 4: N X Current Phase 3: Idea Phase 2: T Concept Post I Product Development Generation Feasibility E T Support Investigation Release R •Does the idea fit •Does the •Is the product •What is the •Has the product roughly with our product make meeting safety, product spec? been fully verified strategy and sense from efficacy and •Can we develop and validated? resource marketing, business targets it within budget •Have production availability? technical & in the market? and schedule? objectives been financial •Can we produce met? If yes, then perspectives? If yes, then it at the required concept closeout cost & volume? If yes, then document approved full manufacturing approved If yes, then & handoff to If yes, then approved & sub-team concept product support prototype & sub-team allocated approved approved allocated & full team & full team allocated allocated
  7. 7. Basic concepts and vocabulary !quot; #$ !% ! quot; ! & ' ( ! $)
  8. 8. 0.0 0.5 1.0 1.5 2.0 2.5 3.0 Sweden Korea Japan Switzerland Finland USA Germany France Netherlands Ireland Taiwan UK Israel Singapore Italy South Africa Brazil Leaders in technological effort Costa Rica Malaysia Turkey (R&D financed by productive enterprises as % of GDP) China India
  9. 9. The sources of technological change • R&D [activities, actors, different technologies and/or scientific fields] • Learning by doing [production process, research activities • Spillovers [direct –indirect (exploitative activities needed); international; intra-industry; rent spillovers, knowledge spillovers]
  10. 10. Who Does Research? • In this section, we consider who is involved in the research process, and discuss the incentives that they face. • Note that different actors face different incentives, and will thus react to policies differently.
  11. 11. Categorizing research • 1. Source of funds: who provides the funding? • In US (and most developed countries), industry is the largest source of R&D funding: 81.4% in 2002. • 2. Performance: who does the research? • Not all R&D performed by the institution than funds it. • 2002: 25% of federally-funded R&D done in industry Much of this is defense research. • Similarly, less than 20% of university performed R&D is funded by universities. • 64% of funding comes from federal government. • 3. R&D by character of use • Corresponds to linear model of R&D developed by Vannevar Bush (in 1945 report to FDR: Science – the Endless Frontier) – Basic research – Applied research – Development
  12. 12. The determinants of Technological Change 1. Industry Conditions 2. Availability of Technical Skills 3. Expected gross Profitability from Invention 4. State of Scientific Knowledge 5. Expected Costs of Inventions 6. Expected Net Profitability from Invention 7. Research Findings (curiosity driven) 8. Inventive Activity 9. Inventions and Innovations •Patented Ideas •Commercialization
  13. 13. Demand-Pull Theories of Innovation - Induced Innovation • Induced innovation is an example of a “demand-pull” influence. • Induced innovation looks at the influence of factor prices on technological change. o E.g.: labor prices up => R&D to save labor – Model o Begins with an innovation possibility curve (IPC). o The innovation possibility curve tells all the possible techniques that could be used at a given time. o Before any one technique is chosen, R&D must be performed. o The actual technology chosen depends on the relative prices. – One critique of the induced innovation model is that it assumes the IPC is given.
  14. 14. Demand-Pull Theories of Innovation -Evolutionary Theory • Evolutionary theory derives from work by Richard Nelson and Sidney Winter in the 1970s. Arose from dissatisfaction of standard neoclassical economics to explain many empirical facts about long-run economic development and technological change. • Key features of evolutionary theory: o Replaces profit-maximizing behavior of firms with decision rules applied routinely over a period of time. o Decision rules include routines for production, for managing workers, ordering inventory, advertising, or changing R&D. o R&D in evolutionary theory has two fundamental mechanisms • 1. Search for better techniques • 2. Selection of firms by the market The term “evolutionary theory” is borrowed from biology. The idea is that the strongest firms survive. Thus, profits matter, even though profit maximization isn’t the explicit goal.
  15. 15. Induced innovation vs. evolutionary theory • Their findings are similar. However, evolutionary theory has one important difference -- it is dynamic. In the evolutionary model, invention is cumulative. A successful search not only provides a new product, but also a new starting point for research. After B technology is adopted, the next search will occur around the neighborhood of B. Relating this to the induced innovation literature, this would suggest that the exact nature of next year's invention possibilities curve depends on the outcome of this year' research. s • The evolutionary theory builds on different hypotheses: asymmetrical capabilities of firms, limited access to knowledge and routines (vs. profit maximization). This approach offers useful hypotheses for further research.
  16. 16. Demand-Pull Theories of Innovation - Path Dependence • Path dependence depends on technology “lock-in.” o Once certain technologies are adopted, switching to a new technology might not be feasible, even if the new technology is marginally better. • QWERTY typewriters are the classic example. • Three features leading to QWERTY’s lock-in • 1. Technical interrelatedness – the need for system compatibility – In this case, the links are between the keyboard and the typist’s memory. • 2. Economics of scale – user costs fall as a system gains acceptance. • 3. Quasi irreversibility –the result of the acquisition of specific skills – In this case, touch typing skills. • Often the result of network externalities. • Network externalities are when an individual' demand depends on the s consumption levels of other people. Windows vs. Mac software is a good example of a network externality. • This model applies to industries where network technologies lead to increasing returns to scale. For example, it explains why a transition to hydrogen-powered vehicles will be difficult. However, it does not apply more generally.
  17. 17. The supply side • The models discussed above focus on demand for new innovations. They neglect the role that the supply side, or the state of scientific knowledge, plays in influencing research. • The idea is that the basic knowledge on which other inventors can build is important. The supply of new ideas increases technological opportunity. This increases the likelihood of research success, and thus the marginal rate of return. • We have two sets of supply side models: Dynamic-Long waves of technologies (and General Purpose Technologies), Static-explaining level of activity and efficiency.
  18. 18. Size and Structural Dimensions of the Firm • Size: Is Bigger Better? – In 1940s, Schumpeter argued that large firms would be more effective innovators • Better able to obtain financing • Better able to spread costs of R&D over large volume – Large size may also enable… • Greater economies of scale and learning effects • Taking on large scale or risky projects
  19. 19. Size and Structural Dimensions of the Firm – However, large firms might also be disadvantaged at innovation because… • R&D efficiency might decrease due to loss of managerial control • Large firms have more bureaucratic inertia • More strategic commitments tie firm to current technologies – Small firms often considered more flexible and entrepreneurial – Many big firms have found ways of “feeling small” • Break overall firm into several subunits • Can utilize different culture and controls in different units
  20. 20. Technological Learning Systems ___________________________________ • Late industrialization is usually deprived of the innovation element. • Late Industrialization and catching up are basically a process of “learning”, and not of innovation. • The use of the concept of innovation as a kind of synonym of technical change hinders the ability to understand the differences in the processes of technical change typical of developed and developing economies. • The limited nature of the latecomer’s process of technical change (learning) is the main reason why developing economies have low productivities and per capita incomes, and high inequity.
  21. 21. A Key Transition in the Structure of Industrial Technology Technology Development R&D and Creation DESIGN AND ENGINEERING TECHNICIAN AND CRAFT SKILLS AND CAPABILITIES BASIC OPERATORS Technology Use, SKILLS AND CAPABILITIES Operation and Maintenance
  22. 22. Different Types of ‘Innovation’/Technical Change 1. Continuous incremental, engineering-based improvement: process technology, methods of organising production, diversification and upgrading in product specifications and designs, etc. 2. Continuous improvement in technologies linking stages in value chains: hardware (e.g. transport and computer-based systems) and organisation/management 3. Technology search (and research and training) for acquiring and absorbing technology 4. Acquisition of technology: machinery and equipment, and in the designs and specifications of materials, products and components 5. Design, (reverse) engineering and project management: for new production facilities, to diversify/upgrade products, or to source components, materials and equipment from local suppliers 6. Research and development, plus design and engineering: to introduce technologies that cannot be acquired (competitively) from foreign sources, and for introducing new products and processes that permit competitive entry to domestic or foreign markets independently of foreign technology sources.
  23. 23. * # ( ) ( ) * + # # *, ( - ) *, . / ! 0 1 # 2 - , 2 - quot; 3 4 5 . 0 4+ + #
  24. 24. Readings… • Dosi –only relevant sections • -Manasfield [definition, findings] • Acs [findings, for further discussion tomorrow] • Clarke his view on the three sources of technological change • Archibugi –relevant to your second assignment.