Understanding the S curve of technology innovation

Though the inception of a new technology seems random, its evolution over time once it comes into existence exhibits a reasonably stable pattern which can best be described in terms of performance characteristic.

The performance characteristic refers to an element of interest to a designer of a product or a user of a specific technology.  For example, fiber optics against the cables in traditional telephone systems provides a better voice clarity. The speed of a computer is another example of performance characteristic that is resulted in new technology. Technological performance can be expressed in terms of any attribute, such as density in the electronics industry (number of transistor per chip) or aircraft speed in miles per hour. The performance of a technology has a recognized pattern over time that, if properly understood, can be of great use in strategic planning. Technology innovation refers to the changes in performance characteristics of a specific technology over time.

The life cycle of innovations can therefore be described using the s-curve which maps again in a different way, ie, growth of revenue or productivity against time. In the early stage of a particular innovation, growth is relatively slow as the new product establishes itself. At some point customers begin to demand and the product growth increases more rapidly. New incremental innovations or changes to the product allow growth to continue. Towards the end of its life cycle, growth slows and may even begin to decline. In the later stages, no amount of new investment in that product will yield a normal rate of return.

The s-curve is derived from half of a normal distribution curve. There is an assumption that new products are likely to have "product life". i.e. a start-up phase, a rapid increase in revenue and eventual decline. In fact the great majority of innovations never gets off the bottom of the curve, and never produces normal returns.

What is important is that each technology has a number of performance characteristics of a specific technology over time. As mentioned earlier, once a new technology comes into existence, the performance characteristics of interest show very little improvement in the early stages of the technology.

This initial stage is followed by a second phase of very rapid improvement in the performance characteristic. During the third stage, the performance characteristic continues to improve, but the rate of improvement begins to decline. In the final stage, very little improvement is visible and the graph that charts the progress in the performance characteristic of a technology over time takes an S-shape.

The s-curve of technological innovation summarizes four major stages in the evolution of a performance characteristic.

1. Emergence – (also known as embryonic stage) shows little improvement in key performance characteristic. Technology operates far below its potential. Neither the characteristics of technology nor its applicability to market needs may be well understood. A long gestation period exists before attempts are made to produce a technology. This new invention period is characterized by a period of slow initial growth. This is the time when experimentation and initial bugs are worked out of the system.

2. Rapid improvement – improves at an accelerating phase. The technology improvement period is characterized by rapid and sustained growth. As organizations engage in production, experience accumulates over time accelerating the improvement in performance characteristic. The technology becomes vulnerable to substitution or obsolescence when a new or better-performing technology emerges.

3. Declining improvement – it declines improvement.

4. Maturity – further improvement becomes very difficult to achieve. The mature technology period starts when the upper limit of the technology is approached and progress in performance slows down. This is when the technology reaches its natural limits as dictated by factors such as physical limits.

During the early phase, a new technology is introduced into the market place but its adoption is limited to a small group of early adopters and small niche markets. As the product gains ascendancy, new capabilities are introduced and refined with the goal of meeting the needs of the broadest possible segment of mainstream users. During this middle phase a dominant design begins to emerge, winning the allegiance of the market place and also effecting standardization of everything from design to manufacturing. The dominant design in turn allows heightened competition as new entrants realize opportunities for further innovation based on cost, scale and product performance.

This is the period of rapid and greatest growth as a technology matures and reaches the mainstream.  During the final phase the product reaches market saturation.

Some examples of technologies that have followed this path can be stated as follows.

The vacuum tube technology was limited by the tube's size and the power consumption of the heated filament. Both of these factors were natural barriers to electron conduction in a vacuum tube. Electronic engineers could not overcome these limitations. The arrival of the solid-state technology, or transistor, which permitted electron conduction in solid material, changed the physical barriers of size and power. The transistor technology started a new technology life cycle and rendered the vacuum-tube technology obsolete.

Another example is ceramics, which have higher operating temperatures and substitute for metals used in internal combustion engines; the newer technology permits better performance of the engines. The performance of the engines can continue to improve as a result of a sequence of newer technologies, each with a higher limit of the performance parameter of interest.

Reference

Narayanan, V. K (2001) Managing technology and innovation for Competitive Advantage, Englewood Cliffs, NJ: Prentice Hall.