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Economics of Technology

  1. 1. Dennis R. Senik Chief Technology Strategist Doyletech Corporation (613) 247-0725 The Economics of Technology: Doyletech Thought Leadership Seminars 1  
  2. 2. The Model in a Nutshell Innovative products and services change how we live and work. Their gradual adoption by markets is driven by three interacting factors that co-evolve in a highly predictable way. 1. Market needs and wants change. Value lies in the eye of the beholder: it begins with what products can do; evolving -of-use. 2. Technology advances to make better products. Products are a parts. The base is the major device; added subsystems make it easier to use. Better materials, components and infrastructure further improve value. Design combines it all, yielding 3. Industrial Systems adjust to produce, operate and support products. It takes networks of companies to make products widely available. Linked by institutional relationships, they are driven by established practices that underpin -defined pattern. Success depends on realigning these three shifting value drivers at each step of market penetration. The Economics of Technology: Doyletech Thought Leadership Seminars 2  
  3. 3. Since its incorporation in 1982, Doyletech Corporation has specialized in advising clients on how to convert technology into wealth. Those clients have included governments at all three levels, research institutions, economic development agencies, entrepreneurs and corporations. Our team of professionals are all experienced senior managers with backgrounds from marketing, sales, engineering, management, finance, R&D, HR and educational institutions. The Economics of Technology: Doyletech Thought Leadership Seminars 3  
  4. 4. This presentation focuses on how economic development officers can harness the interacting drivers of value creation to generate jobs and growth. Our comprehensive model, which addresses the broader issue of developing S&T policy to support value creation, is outlined on p. 20.   1 Robert Solow won the 1987 Nobel Prize in Economics for demonstrating this. 2 The Economics of Technology: Doyletech Thought Leadership Seminars 4  
  5. 5. o Technology is the practical application of know-how; it creates new industries like GPS (global positioning system). In turn, their innovative services rewrite best practice in old industries like farming (precise fertilizer & pesticide application, yield mapping). o The context in which new practices introduced by innovative products clash with the old is culture: the established patterns of living and working. The Economics of Technology: Doyletech Thought Leadership Seminars 5  
  6. 6. The value proposition evolves as new products penetrate deeper into markets. o Functionality What does it do for users? o Price How much to acquire and maintain? o Compatibility How well does it fit with established patterns, practices and institutions? o Ease-of-Use What skills does it demand of users?   The Economics of Technology: Doyletech Thought Leadership Seminars 6  
  7. 7. o The transition from old to new unfolds in a highly consistent pattern. o The result is a well-worn path channeled through the openings and constrained by the obstacles culture presents to all innovation. o All innovation follows the same route, because the path to full market penetration is fundamentally a cultural transition. The Economics of Technology: Doyletech Thought Leadership Seminars 7  
  8. 8. Familiar product and service examples are automobiles and air travel. The Economics of Technology: Doyletech Thought Leadership Seminars 8  
  9. 9. *CAGR = Compound Annual Growth Rate As market penetration deepens, innovative products and their value drivers encounter increasing resistance from the status quo they seek to replace. 1. Value Proposition: products must adapt from the innovative few (1 in 40 users) to meet the very different demands of the vast majority (more on Slide13). 2. Technology Systems: advances always change the rules of the game but entrenched thinking hangs on. 3. The Industrial System: established practices and the institutional arrangements and vested interests that support them grow more rigid with age. But these closely interlinked value drivers unfold along highly predictable lines. The Economics of Technology: Doyletech Thought Leadership Seminars 9  
  10. 10. The length of each of the five phases depends heavily on the economy and world events. For example, The Great Depression and World War II combined to hold back auto sales for nearly twenty years: o It took until 1988 for autos to fully penetrate markets. The long view is especially important in S&T policy. Major innovations can take over three working generations to fully penetrate markets. The Economics of Technology: Doyletech Thought Leadership Seminars 10  
  11. 11. o The economy determines the growth of innovative products. For example, commercial air travel is notorious for its ups and downs across the business cycle. o Its market penetration (above) clearly reflects the recessions of the early eighties, nineties, the 2001 attack on the World Trade Towers and the global financial crisis of 2008. o In its early years as a luxury good, air travel grew steadily through the Great Depression. The Economics of Technology: Doyletech Thought Leadership Seminars 11  
  12. 12. 3 Asan example, consider the personal computer. Its technology system is - made from the same five basic ingredients as all products: o The Major Device: At the heart of what the system does the CPU o Supporting Devices: Help the major device to do its job memory, cooling fan, power supply/regulation, or Make the whole system (the PC) easier to use printer, monitor, mouse o Components and materials: Basic resources from which subsystems are built batteries, circuit boards, connectors o Design: Codified ideas that govern and standardize the architecture and operation of technology systems norms & standards, software languages, Internet communications protocols o Infrastructure: The underlying framework and installations that facilitate product use servers, networks, electrical grid, software engineering Determines govern product use New products are (nearly) naked major devices. Over time, the other layers of the cake yeast that makes the cake rise. The Economics of Technology: Doyletech Thought Leadership Seminars 12  
  13. 13. o Introduction: novel functionality wins the day. o Lift-Off: is triggered by the duet of lower price & basic functionality. o Transition: begins with wants starting to overtake needs. o Build-Out: sees technology defer to marketing and distribution as user segmentation grows; in a role reversal, the environment begins to adapt to products. o Maturity: jaded users demand ever more effortless ease, seamless compatibility plus price and added functionality. Products become an expression of established wisdom at the heart of a new status quo. The Economics of Technology: Doyletech Thought Leadership Seminars 13  
  14. 14. As an example, 20th century fighter aircraft evolved through five eras: o 1903-1909: pioneering flight (6 yrs.) o 1910-1918: rotary engine biplanes (8 yrs.) o 1918-1927: streamlined biplanes & more powerful water-cooled engines (9 yrs.) o 1928-1942: better fuels, improved engine power/weight ratios and monoplane design by aerodynamic principles (14 yrs.) o 1942-1976: jets & supersonic aerodynamics (34 yrs.) Major value-driver developments slow the refinement of each successive design paradigm, including: o Declining innovation: the result of supply chain consolidation into fewer producers o Supply chain specialization with deepening supporting activities o Growing technological complexity o Entrenchment of established practices throughout the network that makes, operates Understanding how value drivers unfold allows both EDOs and policy-makers to work toward realigning them. The Economics of Technology: Doyletech Thought Leadership Seminars 14  
  15. 15. Supporting activities draw from far afield as new products and services impact old sectors. Examples include: Information Technology: o Radio Frequency Identification tags (RFIDs) allow tracking every cut of meat from individual animals to the shrink-wrapped items in shipping boxes on the plant loading dock o Sophisticated software tracks & schedules order picking and loading o Process automation: includes animal reception, plant floor inspection, grading, producer payment, cooler inventory, shrinkage o System-wide integration: links daily store sales with automatic reordering from suppliers Genetics: o Sequencing & programming of the bovine genome to control commercially important traits like growth rate and feed efficiency even short slick hair to keep Florida cattle cool GPS: o Helps in controlling distribution costs by tracking truck movements The Economics of Technology: Doyletech Thought Leadership Seminars 15  
  16. 16. Economic Development Officers can work with markets, suppliers and infrastructure players to identify gaps, weak links and opportunities to better align the continual shifts in the three drivers of value creation. o Markets Block: ultimately drives the evolution of value proposition o Supplier Block: marshals technology systems to meet changing value needs o Infrastructure Block: supports adaptation to new demands on industrial supply chains The Economics of Technology: Doyletech Thought Leadership Seminars 16  
  17. 17. The Industrial Furnishing System provides all the components, materials and services needed to plan and construct large-scale commercial, residential and industrial buildings.   The detailed economic analysis revealed that the supply block was well integrated with few gaps of any consequence. Most importantly, it had an unexploited capacity to serve projects beyond the Vaughn region. This pointed to the adjacent Golden Horseshoe market and the need to undertake a targeted marketing and branding initiative to build the missing links to connect with this new sales opportunity. The Economics of Technology: Doyletech Thought Leadership Seminars 17  
  18. 18. The ICT support block had broad scope but little of the needed specialization to build on existing strengths in the supply block. For example, games were a particularly strong segment. While the companies in this area were primarily start-ups, much in need of venture capital and across-the-board marketing support, such services were largely absent. This pointed to organizing new industry initiatives to address the gaps in financing and marketing. The Economics of Technology: Doyletech Thought Leadership Seminars 18  
  19. 19. We have used detailed elements from The Economics of Technology to enhance value creation in many industries, from international space technology to agri-food opportunities in SD&G. A few examples include: o o o The Canadian Housing Industry to help builders identify opportunities for applying sustainable technology o Ontario Suppliers to tap the Ottawa high-tech market o The Municipal Waste Industry to analyze opportunities for the economic local recovery of chemicals and energy o The Printing Industry to understand how computer technology is reshaping business opportunities. Most importantly, EDOs can apply the model to reveal new and existing opportunities to increase local and regional value-added. The Economics of Technology: Doyletech Thought Leadership Seminars 19  
  20. 20. Doyletech Thought Leadership Series: The Economics of Technology For additional information, please contact: Glenn McDougall Managing Partner Doyletech Corporation (613) 226-8900, Ext. 13 The Economics of Technology: Doyletech Thought Leadership Seminars 20  
  21. 21. This seminar is based on a forthcoming book, Technology Means Business, authored by Dennis Senik. It develops a practical framework for bringing innovation from possibility to full market adoption: based on understanding the forces that drive some technologies to sweep markets and others to fail. Dennis Senik has over thirty years of experience in S&T. As Secretary-General, he led -ever strategic review of its S&T base for the Conseil de la science et de la technologie. He subsequently led the initiative founded by the Chairman of BCE, industry CEOs and University Principals to connect university research with major industrial initiatives. marketing and strategy projects for clients like Hydro-Québec, NRC , Bombardier, Domtar and Hawker-Siddeley. As an engineer and manager, he led Sherwin- new chemical coatings technology from bench-scale to the first commercial plant. With Doyletech he assists industry and government in technology development and commercialization. His work ranges from helping to set R&D direction to planning research-based spin-offs, helping shape national S&T policy and leading industry-driven technology roadmaps. Dennis has been a speaker on the management of technological innovation at the Conference Board of Canada and the International Organization for Science and Technology Education. As a professor at McGill University, he developed graduate courses in the Management of Research, Development and Technology. He is a The Economics of Technology: Doyletech Thought Leadership Seminars 21