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Unit-01- Introduction to Technology Management Structure: 1.1 Introduction Objectives 1.2 Key Issues in Managing Technological Innovation 1.2.1 Some Definitions Self Assessment Questions I 1.3 Role and Importance of Technology Management Self Assessment Questions II 1.4 Technology and Competition 1.5 Appropriate Technology Self Assessment Questions III 1.6 Disruptive Technology 1.7 Technology Management in India Self Assessment Questions IV 1.8 Summary 1.9 Terminal Questions 1.10 Answers to SAQs and TQs 1.1 Introduction ‘Technology’ is a term which is widely and loosely used. On TV, when faced with a seemingly insurmountable problem, the Bionic Man simply said, ‘We have the technology!’ and everyone was reassured that everything was going to be alright. Since then any
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Unit-01- Introduction to Technology Management

Structure:

1.1 Introduction

Objectives

1.2 Key Issues in Managing Technological Innovation

1.2.1 Some Definitions

Self Assessment Questions I

1.3 Role and Importance of Technology Management

Self Assessment Questions II

1.4 Technology and Competition

1.5 Appropriate Technology

Self Assessment Questions III

1.6 Disruptive Technology

1.7 Technology Management in India

Self Assessment Questions IV

1.8 Summary

1.9 Terminal Questions

1.10 Answers to SAQs and TQs

1.1 Introduction

‘Technology’ is a term which is widely and loosely used. On TV, when faced with a seemingly insurmountable problem, the Bionic Man simply said, ‘We have the technology!’ and everyone was reassured that everything was going to be alright. Since then any mention of ‘high technology’ or a ‘technological breakthrough’ in company meetings would be sufficient to provoke knowing and thoughtful nods among those present and effectively close down informed discussion. Everyone knows that technology is somehow ‘a good thing’ – rather like having a reputation for being warm-hearted and friendly – but most people have little idea as to how to develop it or how to capitalize on it when they have it. Few people in a company will be

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indifferent to the issue of technology but many are technologically illiterate and hence will be scared of it. Some will seek to avoid facing up either the implications of technology or its analysis – at least until the grey mist suddenly solidifies and comes crashing around their ears in the form of a whole range of their products which are suddenly obsolete!!

The term “technology” has been derived from two Greek words: techne (the skill or craft needed to make something) and logos (discussion or knowledge of something). Therefore, ‘technology’ means the knowledge of how something is made. An economist or a planner considers technology as a knowledge used in production, commercialization and distribution of goods and services. Technology is embodied in various forms, such as, machinery, equipment, documents, processes and skills and as such it conveys different meanings to different specialists under different contexts.

Objectives:

After studying this unit, you will be able to:

Define ‘technology’. Describe the role and importance of Technology Management. Bring out the relevance of technology in modern age. Explain how technology is managed in India.

1.2 Key Issues in Managing Technological Innovation

Technology is man-made. It is a means to enhance the physical and mental capability of human beings; it is also an instrument to transform natural resources into useful goods; a tool for conditioning the environment; it is a resource for creating more wealth; a factor affecting development. It is also a commodity which is bought and sold.

Innumerable technological developments have taken place in society during the last two centuries and it is difficult, if not impossible, to enumerate all of them. However some significant technological developments in selected areas are presented below:

· Transistors and Computers – They led to so many revolutionary developments in electronics.

· Air conditioning and refrigeration – increased work productivity and variety in diet.

· Farm tractors and rural electrification – bought the benefits of city life to the farm and increased farm productivity.

· Robotics – increased efficiency in manufacturing.

· Space exploration – Sputnik, Mir, Neil Armstrong on the moon, the Hubble Space Telescope, the space shuttle, long range craft exploring our planetary system and sending back data.

· Nuclear energy – The promise of unlimited energy damped by environmental concerns.

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Managing technology implies use of new technology to gain competitive advantages. It is not an easy problem to manage, partly because of the differing cultures in an organization. Technology is often considered to be the domain of the scientific and engineering personnel of an organization. However, successful business application of technology calls for strategic decisions about technology by personnel in other functional areas including production, marketing, sales, finance, and so on.

The main issues in managing technological innovation have been organized under the following broad topics:

1) Innovation

2) New ventures

3) Corporate research, and

4) R&D infrastructure

Innovation is the most general concept covering the process from the invention of technical knowledge to the commercialization of products and processes based on that knowledge.

Technology as a problem for countries:

Technology is a problem at the national level by virtue of its major role as a determinant of a country’s economic growth and competitiveness. Economists have attempted to calculate precisely what proportion of historical economic growth has been caused by technological improvements, as opposed to the amount which is due to investment, population increase, trading patterns and other factors. Estimates vary, but there appears to be a consensus that technological change is responsible for a large percentage of economic growth. For example, one study calculated its contribution for several countries as follows: Germany 50 per cent; USA 47 per cent; Japan 44 per cent; Canada 30 per cent; and UK 25 per cent.

Technology and long-term cycles:

Some economists also argue that technology affects the long-term cycles of growth and recessions in the world economy, which span fifty to sixty years. Mensch found that ‘clusters’ of new technological applications precede and may account for the upswings in these cycles. As the peak of the cycle is reached and a downturn begins, the economy’s physical and technological infrastructure is committed to mature technologies in which there are few opportunities for further improvements, and there is little incentive to apply new technologies at that point. As the trough of the cycle gives way to the start of an upswing, firms must reinvest in capital equipment, which is based on new technologies.

Technology and comparative advantage:

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A further indication of the importance of technology at the national level is the explanation that nations will export in industries where they not only have a comparative advantage but also where their firms have a technological lead. For example, the Korean shipbuilding industry became an international leader by expanding the size of its shipyards, adopting new building techniques that increased productivity and developing the technical capacity to produce more sophisticated vessels. A combination of superior organization, skills and technology secured their competitive leadership, not simply more abundant or cheaper resources.

Table 1.1 presents a list of emerging technologies. Emerging technologies are new and potentially disruptive technologies which are considered by some to be critical to humanity’s future. A disruptive technology supersedes or marginalizes an existing dominant technology or status quo product in the market. Only new and potentially disruptive technologies should be included in the list. e.g., information technology is an example of a technology which has already proven disruptive, whereas artificial intelligence is a subset information technology with the potential of becoming disruptive in its own right.

Emerging technology

Technologies potentially made obsolete

Most important applications

Artificial intelligence Human brain

Creation of intelligent devices, which could replace humans for a number of tasks.

Biotechnology EvolutionCreation of species, modification of species to be more fit for a purpose.

Nanomaterials Steel, Aluminium Stronger and lighter materialsNanorobotics Immune system Help the body to heal quickly.Scramjet Jet engines, Rockets Very fast air travelWireless communication

Wired communication Ensures connectivity everywhere.

Table 1.1: Emerging technologies and their applications

(Source "http://en.wikipedia.org/wiki/List of emerging_technologies")

Technology is generally a combination of hardware and software with relative proportions varying from one extreme to the other. Hardware is any physical product, component or means, while software is the know-how, technique or procedure. Hardware technology again can be of two types, namely, the end-use product type such as automobiles, computers, televisions, and the production tool type such as instruments, equipment and machinery. Software technology can also be considered as being of two types, namely, the “know-how” type technology such as processes, techniques, methods, and the “know-why” type technology such as knowledge, skills and experience.

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Technology has been viewed differently by different people. Some view technology as a source of wealth, well-being, and above all, as an instrument of power to dominate nature and societies. Others view technology as something that has enslaved human beings and destroyed jobs, environment and social values. While there is a considerable concern that the use and abuse of technology is leading our societies towards disaster, there is also considerable agreement that further development of human society is possible only through the application of technology. If we can master its use, technology can be the “key” to a prosperous society for all human beings – including the poorest of the poor. Most of the poor countries, in fact, are rich in natural resources. However, they have their basic problems: (i) They have a relatively large population base, which is increasing very rapidly; (ii) Their technological base is very small and ineffective; and (iii) their natural resources base is being depleted due to inefficient use and indiscriminate export. To acquire and master the use of technology for development, it is essential to understand the basic concepts of technology and the process of effective technology management.

The fact that we now live in a technological world can be seen very easily by observing the ways and means of satisfying “human needs” in various societies. There are many ways of classifying human needs. Table 1.2 indicates the implications of technological applications (positive effects and negative effects) with respect to various human need factors.

Various human need factors

Direct and indirect effects of Technology

Positive effects Negative effectsAir Control of temperature, humidity, impurities

and quantityPollution, destruction of natural cycles, and equilibrium

Water Increasing supply source (ground, sea); control of supply, temperature and impurity

Pollution, destruction of marine life; sinking of cities; frequent flooding

Food Improved agricultural productivity; control of food quality, variety and supply

Chemical contaminations and diseases; destruction of wildlife, forests, and fishing grounds

Shelter Improved living quarters and materials of construction; better utility services and land uses

Artificial surroundings and anti-social living, destruction of the beauty of Nature

Warfare Development of civilian technologies as by-products of war technologies (space, nuclear, remote-controlled)

Accumulation of means of warfare and the menace of large-scale destruction of life; risk of bio-weapons and nuclear war

Clothing Efficient production of high quality clothing and apparel

Exploitations of non-renewable resources and consumer appeal

Health Reduction in mortality, increase in life Population explosion;

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expectancy; controlled birth, better medical care

break in family structure; drug abuses; side effects of medications

Communi-cation Increased contact; reduced need for physical movement; improved audio-video transmission

Culture shock; co-ordination of sabotage by disruptive forces; raising false aspirations

Transpor-tation Improved mobility of people and goods through water, air, and land

Pollution, noise, congestion, accidents and deaths

Education Better means for storing and dissemination of knowledge

Brain-washing through mass media, destructive education

Work Much specialization and automation possible; increased women employment

Tension between blue-collar and white-collar workers, increased inequality, strikes

Institution Creation of systematized, efficient and highly productive large complex organizations; exploitation of natural resources; enhanced human power

Depersonalization of human being in the quest for efficiency and productivity; depletion of energy and other natural resources; innumerable industrial wastes.

Information Tremendous improvement in processing, storing and disseminating of voluminous information

Privacy and security concerns; crime and misuse of information power

Energy Development of alternative sources of energy – fossil, solar and nuclear

Threat of nuclear plant accidents; depletion of energy resources

Freedom Freedom from one set of constraints (Physical stresses)

Creation of new set of constraints (Psychological stresses)

Table 1.2: Important implications of technological world

(Source: Sharif Nawaz, Management of Technology Transfer and Development, APCTT, Bangalore, 1983.)

1.2.1 Some Definitions

Technology seems to be most widely used word today in industrial world and several words/nomenclatures connected with technology are in vogue. These include R&D, invention, innovation, technology development, technology strategies, technology absorption and

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adaptation, technology transfer, technology forecast, technology assessment, technology planning, technology information, industrial property systems, code of conduct, and technology management. It is difficult to find a unique definition for technology for it has been defined in many ways. One definition identifies technology as an application of knowledge that leads to production and marketing of goods and services. According to Fredrick Betz, technology develops business by providing technical knowledge for the goods and services that a firm produces.

Managing technology means using new technology to create competitive advantages which is quite a difficult job, partly due to differing cultures in a company. Technology is often thought to be solely the domain of the scientific and engineering personnel of an organization. Yet, successful business use of technology requires strategic decisions about technology by personnel in other functional areas, such as production, marketing, sales, finance, and so on. Thus, the two cultures – technical and functional – need to be bridged, and management should integrate technology strategy with business strategy. This is the essence of technology management.

Innovation and Invention – Invention is an idea for a novel product or process. Innovation is the introduction of new products, processes or services into the market place. Technological innovation is a sub-set of innovation i.e. the introduction of new products, processes or services based on new technologies. he technological innovation begins with invention. The first step is the idea of the invention and the research to reduce the idea to practice. This often results in a functional prototype, which can be used for filing a patent. The next step is the research and development of the prototype into a commercially designed product. Finally, the product is produced and sold.

The distinction between invention and innovation is an important one, for the transformation from ideas into a successful product is actually difficult. This transformation is the heart of the complex process of innovation. The hard fact is that only a few inventions are successfully innovated, with fewer inventions developed into new products, and still fewer new products succeed commercially. The problem of managing technology thus can be divided into two parts: (i) encouraging invention, and (ii) managing successful innovation. Encouraging invention falls in the area of corporate research and managing successful innovation falls in the area of managing technology.

Technology Management – Many factors make up the technology development framework and there are several ways of condensing these into a manageable number of groupings. Table 1.3 shows these factors grouped around six broad dimensions:

1. Objectives

2. Decision criteria

3. Time

4. Constraints

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5. Activities

6. Mechanisms

Obviously, these dimensions are interlinked and a proper management of technology requires a systematic consideration of all of them. Table 1.3 presents the dimensions of Technology Management.

Broad dimension

Relevant factors

Objectives Technological independence

Self-reliance

International trade gain

Productivity gain

Human need satisfactionActivities Monitoring and control

R & D

Transfer and adaptation

Assessment and planningTime Perspective range ( > 20 years)

Long range (11 – 20 years)

Medium range (6 – 10 years)

Short range (1 – 5 years)Constraints Resources (human, material, finance, facilities, energy)

Technological level (knowledge, science, skill, information)

Management capabilities

Late starterMechanisms Awareness measures

Science culture creation

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Education and training

R & D institution building

S & T policiesCriteria Maximize positive and minimize negative effects

Table 1.3: Technology Management Dimensions

According to Solomon, “Technology Management is the capacity of a firm, a group or society to master management of the factors that condition technical change so as to improve its economic, social and cultural environment and wealth.” The importance of technology management becomes obvious if one considers both what the economists call the “input” and the “output” aspects of technical change, namely, sources of modern technology on one side and its pervasive impact on society on the other. These facts are obvious for all countries. However, technology management is more important for those countries which do not participate directly in the “input” aspects, or do so less intensively than the industrialized countries, and are therefore necessarily less well-prepared to adjust to and master the “output” aspects. This is the case today in most developing countries. According to Stephen Millett, the following four general factors are considered important for successful R&D management:

· Responsiveness to the needs of clients and customers.

· Regular top-down and bottom-up communication:

· An awareness that technologies alone are not products; and

· Recognition that non-technological factors have profound impact on R&D.

Self Assessment Questions I

1. Define Technology and Technology Management.

2. Differentiate between invention and innovation giving one example of each.

3. What are the dimensions of technology management? Explain.

1.3 Role and Importance of Technology Management

Technology and management of technology are critical for an enterprise for its successful operation on long-term basis. Technology management is, however, a part of the total management system. There are three basic considerations for starting any new firm based on technological innovation.

1. The idea for a technological innovation;

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2. A potential market;

3. Team work in both technological and business expertise.

The above points underline the need for interweaving the technology framework with other areas of business in an enterprise. The idea of a technological innovation should be based or linked with the potential market and the technology team should closely interact with the rest of the divisions of the enterprise leading to successful logical conclusions in terms of products/ processes to be developed as per the objectives set in the beginning. This strategy is best reflected in the form of a “Business Plan” of an enterprise which needs to be prepared and approved before starting the new business.

The Business Plan: It is a strategic summary of a new venture. Its purposes are:

1. To ensure, by clear focus in strategy, that important points necessary to the success of any business venture have been considered; and

2. To persuade financial investors to invest in the new venture. A new venture business plan could include the following:

a. Current business status

v Business objectives

v Management and organization

c. Benefits to customers

v Market

v Marketing strategyb. Products or services

v Product description

v Technological background

v Competition.

d. Capitalization

v Capital requirements

v Financial forecasts

v Benefits to investors

It is thus clear from the above that technology and technology management are only a part of the total business activity or business plan of an enterprise.

Self Assessment Questions II

1. What is the role and importance of Technology Management?

2. What is a ‘business plan’?

1.4 Technology and Competition

Although technological competitiveness is necessary for corporate survival, it alone is not sufficient. Of course, a corporation with inferior technology cannot compete at the same price

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level with a corporation superior in technology. The reason why superior technology alone is not sufficient is that business is a system, and there are many other systems (or sub-systems) that determine business success. Therefore, if technology is to give a competitive edge, management must manage it as a part of the business system. Technological innovation can be integrated with production, marketing, finance and personnel into a balanced business system. Managing technology essentially involves four central concepts: New ventures, Innovation, Research, and Research infrastructure.

New Ventures: Although new ventures centred around technology are an important class of business, new hi-tech ventures are difficult because they involve two major risks: developing new products and creating new markets. Ideas central to new ventures are concerned with entrepreneurial management, overall business plan, and the dynamics of organizational growth.

Innovation: It denotes the whole span of activity from creating new technological knowledge to implementing it in new business. Ideas central to innovation include concepts such as types of innovation, processes of innovation, the technology S-curve, technology life cycle, economic life cycles, sources of innovation, business opportunities in a technological system, marketing and new technology, corporate diversification through new ventures, and technology in manufacturing strategies.

Research: Technological change is new knowledge about what things to produce and how to produce them; and in the corporation, new knowledge often comes from corporate research. The corporate laboratory is charged with the responsibility of looking after the present and future productivity of the corporation. Managing and integrating corporate research with other management functions and strategies is essential to technology management. Research management includes organization of research, project management, research personnel, and corporate research strategy.

Research infrastructure: The technologies of a corporation do not exist in a vacuum but are part of a larger technological context, first of the industry, then of the nation, and then of the world. This larger context is a research and development infrastructure, and it has an important influence on the competitive conditions in a country. With the expansion and increase of intensity of international competition, the R&D infrastructure of a nation plays a critical role in economic competition.

Managing technology is taking risks in novel products and developing new markets. In the world of rapid technological progress and changing competitive environments and market needs, firms must pay increasing attention to developing new innovative products for domestic and world markets, and therefore an efficient technology management system is important for them.

Let us first clarify the distinction between innovation and invention since invention is only the beginning of innovation. The steps required to transform invention into innovation can be illustrated in the famous Xerox story.

In 1935, Chester Carlson was working in the patent office of Mallory Company. His technical background included work as a carbon chemist, printer, and then as a patent lawyer. He became

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concerned about the errors in copying patents for public dissemination and the costs involved in copying. Using his chemistry and printing background, he began experimenting with new ways to create a copying process. His basic idea was (a) to project the image of a typed paper onto a blank sheet of paper coated with dry ink, (b) to hold the ink temporarily at spaces of typed letters by static electrical charges induced by the light, and (c) finally, to melt the ink into the paper by baking the paper. This would produce a quick, dry reproduction of a typed page; and the process came to be called Xerography.

Carlson succeeded in obtaining a crude image, thereby reducing his idea to practice. He filed for a patent. Yet like all new inventions, it was still not commercially efficient, cost-effective, or easily usable. It required development. Development of a new technology usually costs a great deal or money, takes time, and requires skilled resources. All inventors face similar problems – first conceiving the invention, reducing it to practice, obtaining a patent, and then obtaining support for development and commercialization.

Carlson went from company to company seeking support. He was turned down, again and again. By 1942, he had obtained the valuable patent on the basic process. Then a venturesome group at Battelle Memorial Institute agreed to work on the development in return for a share in potential royalties. Battelle was a non-profit research and development organization, with a range of advanced technical research capabilities.

Finally, the innovative pieces for Carlson began to fall in place- invention, patents, development and commercialization. In 1945, while Battelle began development of the Xerography process, a small company named Haloid learned of Carlson’ patens. Joseph Wilson, the president, was a risk-taker and was looking for new products. Wilson produced the first copiers, using Carlson’s patents and Battelle’s developments.

The interesting questions to ask are: How many companies missed out on the xerography patents? Why did it take an R&D outfit like Battelle to see the technical potential in Carlson’s invention? What leadership qualities do innovative, risk-taking managers like Joseph Wilson possess?

Effective technology management in various countries has led to several technological advancements in the past. In table 1.1 we had listed for you some significant technological advancement during the past two centuries in selected areas. The Gulf War (1991) is another burning example of technological advancements in which defence systems using latest developments in materials, electronics and computers, etc. were used by USA against Iraq. There is an evidence to show that there has been acceleration in technological change all over the world during the last one hundred years. Table 1.3 gives some evidence to indicate that there is a decreasing trend in the speed of introducing technological developments into social use. The time of substitution has also decreased over the years. This has stepped up the pace of invention, innovation and substitution/diffusion. This means acceleration in the whole process of technological change. The new machines and techniques are not merely products, but sources of fresh creative ideas.

1.5 Appropriate Technology

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Appropriate Technology (AT) is being mindful of what we’re doing and aware of the consequences. Appropriate technology works from the bottom up; it is not an overlay to the situation; it is a genuine grassroots solution to economic needs. In the Industrial World small businesses account for more technological advances in their areas of expertise than government supported researchers or research departments in massive corporations. Third World craftspeople, farmers and other villagers invent, create, and contribute to the technological process of their area much more than outside "experts" do.

The idea of appropriate technology is that local people, struggling on a daily basis with their needs, understand those needs better than anyone and can therefore suggest or in fact, invent the technological innovations necessary to meet those needs. Not only that, local people can prioritize solutions to save precious funding and labour. Planners and those who want to help others grapple with food and energy problems are wise to include local people in the early stages of project vision. The result is consistency in the carry-through of the work by locals and continued maintenance and interest in the well-being of the project over the long haul.

The definition of "Appropriate Technology" changes with each situation. It’s not appropriate to install solar modules in a place with very little sun, a wind generator in a place with little or no wind. What’s appropriate in a large urban location is very different from what’s appropriate in a remote, isolated environment. One quality that remains the same, however, is taking care of things. In each situation, the essence of AT is that of appreciating, helping, and caring. Planned obsolescence, throw-away products, poor quality all go against intelligent decision-making and the true spirit of appropriate technology.

Any technology is ‘appropriate’ at the time of development, with respect to the surroundings for which it has been developed, and in accordance with the objective function used for development. It may or may not be appropriate at the same place at a different time, because the surroundings and/or objective functions may have changed. Similarly it may or may not appropriate at a different place at the same time, or at different times, because the surroundings and objective function may be different. Thus, technological appropriateness is not an intrinsic quality of any technology, but it is derived from the surroundings in which it is to be utilized and also from the objective function used for evaluation. It is, in addition, a value judgment of those involved.

The surroundings differ not only from place to place but also over time. With the passage of time and application of technologies almost all elements of the surroundings change for better or worse. Although in general two surroundings are unlikely to be identical, for any particular technology many apparently different surroundings may in fact be considered similar. The following examples will illustrate the concept of appropriateness of technologies:

DDT was an appropriate pesticide at the place and time of original application. However, after sometime it became inappropriate even at the place of origin and it is banned in industrialized countries. DDT is still considered to be appropriate in many developing countries as the specific surroundings and objectives are collectively judged to be similar to those of the place and time of original application.

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Coal based technology for power generation was very appropriate at one time, but became inappropriate due to technological substitution process. Now with further change in the surroundings (with respect to resource aspect particularly) the coal-based technology has become appropriate again. Because of the changes in the surroundings, technologies once labelled inappropriate can become appropriate technologies in the future. Technologies such as electric tooth brush and cable car etc., are appropriate only in a few places and inappropriate in many other places because of the surroundings.

Technologies embodied in drugs, such as, antibiotics, vaccines; contraceptive pills are appropriate all through the world because the specific surroundings include mostly human body and, therefore, are somewhat similar. Some of the accepted criteria for selecting appropriate technologies in the contemporary situation are considered below:

· It should primarily aim at meeting the basic needs of rural people; it should be capable of absorbing large labour force, preserve existing traditional jobs, low cost and require low levels of skills;

· It should provide viable means for small scale production operations;

· It should consume lesser energy;

· It should be capable of using indigenous raw materials and services;

· It should provide for waste recycling and should be non-polluting;

· It should be consistent with local culture and be compatible with social system;

· It should be acceptable to the political system.

Self Assessment Questions III

1. “Managing technology essentially involves four concepts, namely: New ventures, Innovation, Research and Research infrastructure.” Comment.

2. What is appropriate technology? Give some examples. What are the accepted criteria for selecting appropriate technologies in the contemporary situation?

1.6 Disruptive Technology

’Disruptive technology’ is a term coined by Harvard Business School professor Clayton M. Christensen to describe a new technology that unexpectedly displaces an established technology. In his 1997 best-selling book, "The Innovator’s Dilemma," Christensen separates new technology into two categories: sustaining and disruptive. Sustaining technology relies on incremental improvements to an already established technology. Disruptive technology lacks refinement, often has performance problems because it is new, appeals to a limited audience, and

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may not yet have a proven practical application. (Such was the case with Alexander Graham Bell’s "electrical speech machine," which we now call the telephone.)

A disruptive technology or disruptive innovation is a technological innovation, product, or service that eventually overturns the existing dominant technology or status quo product in the market. Disruptive innovations can be broadly classified into lower-end and new-market disruptive innovations. A new-market disruptive innovation is often aimed at non-consumption, whereas a lower-end disruptive innovation is aimed at mainstream customers who were ignored by established companies. Sometimes, a disruptive technology comes to dominate an existing market by either filling a role in a new market that the older technology could not fill (as more expensive, lower capacity but smaller-sized hard disks did for newly developed notebook computers in the 1980s) or by successively moving up-market through performance improvements until finally displacing the market incumbents (as digital photography has begun to replace film photography).

The term disruptive technology was coined by Clayton M. Christensen and introduced in his 1995 article ‘Disruptive Technologies: Catching the Wave’ which he co-authored with Joseph Bower. He describes the term further in his 1997 book ‘The Innovator’s Dilemma’. In his sequel, ‘The Innovator’s Solution’, Christensen replaced ‘disruptive technology’ with the term ‘disruptive innovation’ because he recognized that few technologies are intrinsically disruptive or sustaining in character. It is the strategy or business model that the technology enables that creates the disruptive impact. The concept of disruptive technology continues a long tradition of the identification of radical technical change in the study of innovation by economists, and the development of tools for its management at a firm or policy level.

Christensen distinguishes between "low-end disruption" which targets customers who do not need the full performance valued by customers at the high-end of the market and "new-market disruption" which targets customers who could previously not be served profitably by the incumbent. "Low-end disruption" occurs when the rate at which products improve exceeds the rate at which customers can adopt the new performance. Therefore, at some point the performance of the product overshoots the needs of certain customer segments. At this point, a disruptive technology may enter the market and provide a product which has lower performance than the incumbent but which exceeds the requirements of certain segments, thereby gaining a foothold in the market.

How does low-end disruption occur over time?

In low-end disruption, the disruptor focuses initially on serving the least profitable customer, who is happy with a good enough product. This type of customer is not willing to pay premium for enhancements in product functionality. Once the disruptor has gained foothold in this customer segment, it seeks to improve its profit margin. To get higher profit margins, the disruptor needs to enter the segment where the customer is willing to pay a little more for higher quality. To ensure this quality in its product, the disruptor needs to innovate. The incumbent will not do much to retain its share in a not so profitable segment, and will move up-market and focus on its more attractive customers. After a number of such encounters, the incumbent is squeezed into smaller markets than it was previously serving. And then finally the disruptive technology

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meets the demands of the most profitable segment and drives the established company out of the market.

"New market disruption" occurs when a product that is inferior by most measures of performance fits a new or emerging market segment. The Linux Operating System (OS) when introduced was inferior in performance to other server operating systems like Unix and Windows NT. But the Linux OS distributed through Red Hat is supposed to be inexpensive compared to other server operating systems. After years of improvements in this easily available operating system, the functionality has improved so much that it threatens to displace the leading commercial UNIX distributions.

Not all disruptive technologies are of lower performance. There are several examples where the disruptive technology outperforms the existing technology but is not adopted by existing majors in the market. This situation occurs in industries with a high investment into the older technology. To move to the new technology, an existing player not only must invest in it but also must replace (and perhaps dispose of at high cost) the older infrastructure. It may simply be the most cost effective for the existing player to "milk" the current investment during its decline – mostly by insufficient maintenance and lack of progressive improvement to maintain the long term utility of the existing facilities. A new player is not faced with such a balancing act.

1.7 Technology Management in India

The development of Science and Technology (S&T) has been receiving continuing attention of the government at the highest level in India. However, this development has been based more on science than technology. On the industrial scene, the Indian industry accounting for almost one-third of total production, has been generally operating under controlled and regulated economy, in other words, assured markets. The industry did not generally realize the real need for international competitiveness in most of the sectors. It, therefore, did not give adequate attention and also did not make adequate investments in technology. The technology management at enterprise level in India has therefore been practically lacking except in a few cases. There have, however, been several instances where Indian companies have been able to develop and produce products for internationally competitive markets. Punjab Tractors, Tata Automobiles, Amul Food, certain drugs and chemicals produced by some firms, are some examples where Indian companies have excelled. Similarly, some of the R&D institutions have developed and commercialized technologies in areas such as drugs and Pharmaceuticals, chemicals, food technology, computer software etc.

The Indian industrial production has been substantially based on imported technologies, accompanied by import substitution efforts through indigenous sources. It is recognized that a large number of industrial products today are based on obsolete technologies which are not cost-effective and consume lot of energy. Further, they are not friendly to the environment, and their quality is not of desired level. Since Indian industry has largely enjoyed monopolistic markets, their interactions with S&T based institutions, R&D laboratories, and academic institutions have been rather limited, and their R&D expenditures have also been much less than the desired levels (when compared to investments in R&D by industry in developed or industrially advanced countries). In fact, there appears to be a technology paradox in India as far as S&T is concerned.

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On the one hand, we have developed capabilities of high order in hi-tech areas such as space, atomic energy, defence and computer software; on the other hand, our manufacturing capabilities are limited to products ranging from needles or paper pins to electronic products, the quality levels are low and prices are not competitive. We have imported technologies for almost everything that we use.

With the announcement of the New Industrial Policy and other fiscal measures by the Government in July 1991, the emphasis was more on international competitiveness, quality, efficiency and exports. Foreign investments and technologies are being encouraged. These policies have appreciably changed the operating environment for the Indian industry and would now call for well laid down technology policy at enterprise level. It is expected that companies will now pay more attention to technology management in order to remain competitive. Small scale sector contributes substantially to the total industrial production and exports of the country, but often does not have adequate appreciation for technology issues and investments in R&D. The rate of sickness is also higher in this sector. The new policy envisages a variety of measures to support this sector, including the technology related support. It must be stressed that technology management is also important for small enterprises.

Self Assessment Questions IV

1. What do you understand by disruptive technology? Give some examples.

2. Do you think that technological developments in India have not been matching its size and potential while achievements in science have been reasonably good? If yes, list out the reasons and suggest some ways to improve the situation.

1.8 Summary

Technology is often considered to be the domain of the scientific and engineering personnel of an organization. However, successful business application of technology calls for strategic decisions about technology by personnel in other functional areas including production, marketing, sales, finance, and so on. Managing technology implies use of new technology to gain competitive advantages. Managing technology is taking risks in novel products and developing new markets.

The Indian industry on the whole has been operating in a protective environment with generally assured markets and hence has not paid adequate attention to make the necessary investments in R & D and technology. The industrial production is substantially based on imported technologies, adapted to local requirements, with marginal developmental efforts. However, there have been instances of successful technologies being developed indigenously and commercialized for domestic as well as export markets. An effective technology management policy and infrastructure is also necessary for sustainable exports of products, projects and services.

1.9 Terminal Questions

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1. The word Technology has _______ origin.

A) Japanese

B) Indian

C) Greek

D) Egyptian

2. Technology is a combination of:

A) hardware and software

B) innovation and business plan

C) management and art

D) invention and discovery

3. What is technology?

A) Use of modern gadgets.

B) Application of knowledge that leads to production and marketing of goods and services.

C) A strategic summary of new venture.

D) Starting new business.

4. Managing technology does not involve the following concept :

A) Innovation

B) Research infrastructure

C) New ventures

D) Co-operative banking

5. Activities, time, constraints, mechanisms, etc. are ________ .

A) PARTS of technology

B) Dimensions of technology management

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C) The essence of technology management

D) Examples of technology

6. How does technology affect business plan of an organization? Explain with examples. Do you agree that technology and technology management are part of the total business activity or business plan of an enterprise?

7. What is your observation on the state of technology / technology management in India?

1.10 Answers to SAQs and TQs

SAQs I

1. Refer to 1.2

2. Refer to 1.2

3. Refer to 1.2

SAQs II

1. Refer to 1.3

2. Refer to 1.3

SAQs III

1. Refer to 1.4

2. Refer to 1.5

SAQs IV

1. Refer to 1.6

2. Refer to 1.7

Answers to TQs:

1. C

2. A

3. B

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4. D

5. B

6. Refer to 1.3

7. Refer to 1.7

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Unit-02-Quality Management System and Cost of Quality

Structure:

2.1 Introduction

Objectives

2.1.1 Goals and Strategies of a Firm

2.1.2 Development Chain

2.1.3 Management of the Chain

2.1.4 Use of Technologies

2.1.5 Decision Problems in the Use of Technology

2.1.6 General Development Steps

2.1.7 Technical and Business Views

2.2 Introduction to the Business Architecture

2.2.1 Definition of a Functional Step

2.2.2 Understanding the Architecture (Process)

2.2.3 An Example in Technology Research and Transfer

2.2.4 Phases of the Architecture

Self Assessment Questions I

2.3 Research and Technology Phase

2.3.1 Research and Development (R&D)

2.3.2 Competitive Analysis

2.3.3 Creativity and Innovation

2.3.4 Technology Research

2.3.5 Technology Transfer

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2.3.6 The Payoff

2.4 Product Development Process Phase

2.4.1 Product or Technology Proposal

2.4.2 Product Design and Technology

2.4.3 Manufacturing and Software Development

2.4.4 Market Release, Marketing, and Servicing of Products

Self Assessment Questions II

2.5 Ten Basic Tenets for the Management of Technology (MOT)

Self Assessment Questions III

2.6 Conclusions

2.7 Summary

2.8 Terminal Questions

2.9 Answers to SAQs and TQs

2.1 Introduction

Technology management is rapidly growing as a discipline combining the elements of business management and engineering. In support of the meaning of technology management, one description views this discipline as research and education on how to:

· Manage the technology component of individual product life cycles,

· Capitalize on process technology to gain a competitive advantage, and

· Relate and integrate product and process technologies.

Technology management is applicable to every phase of technology-oriented businesses (in either application or development) such as marketing (services) and planning activities as well as R&D, product development, and manufacturing. Major elements referred by the National Research Council Task Force Report on Management of Technology include:

1. Production control 7. Software development2. Quality assurance 8. Research management3. Information systems design and  9. Product planning and development

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use4. Product vendoring 10. Project management5. Corporate technology 11. Integrated manufacturing

       processes6. Integration of technical [disciplines]  with business and financial  decision making

 

"Formal knowledge of technology management is valuable, not only for managers of R&D, but also for manufacturing, marketing, financial, and general corporate management." Therefore, it is important to view the management of technology not only across all disciplines and industries but also in a global environment in a rapidly shrinking society. Both manufacturing and services industries are in need of this knowledge today, although the latter are just beginning to be cited with frequency.

Objectives:

After studying this unit, you will be able to:

· Appreciate the significance of Technology Management as a growing discipline.

· Describe the business architecture and its phases.

· Explain the ten basic tenets for the Management of Technology.

2.1.1 Goals and Strategies of a firm

A firm’s goals and strategies represent the aggregate of its products, technologies, and services. "For such goals to be credible they must be linked directly to the set of development projects the firm intends to undertake [or are in-process or in the market-place]." Therefore, business architecture in technology management follows for new development projects and their functions. It identifies what business parameters to address to make a good business decision regarding key problems encountered in achieving the objectives and goals of the strategies of a new development project. These problems occur at different steps in the strategic and development processes.

2.1.2 Development Chain

The development of any product or service can be described as a chain of acceptances by management in its travels from idea conceptualization to the marketplace. Essentially, each acceptance step is a gate that allows one to proceed to the next major step. Concurrent engineering has allowed one to accelerate this process, but the overall business decisions related to acceptance are essentially the same. This chain of acceptance steps is described later, but is defined below to include -

1. The research and development of an idea or invention

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2. The competitive evaluation of the idea

3. The research required in technologies to develop the idea

4. The transfer or purchase of a selected technology for support of a process, a component of a product, or a further development of the technology for its own marketability

5. The acceptance of a proposal to develop the product

6. The acceptance of the design of the product and/or technology

7. The acceptance of the product’s manufacturability, i.e., at the volumes and specific quality levels required

8. The acceptance by the customer of the product that is marketed

2.1.3 Management of the Chain

Managing these steps, effectively and efficiently, is often met with some difficulty. Problems emerge in implementing functions that are needed to achieve the acceptance criteria. The management practice is "sometimes ineffective resulting in lack of schedule integrity and resource drains," thus impacting the improvement of the total development process. An assessment criterion that allows management to make functionally sound and less costly decisions is often lacking. The cost of lack of commitment to schedule and the drains on resources of the firm result in a poor "payout" to the development project.

2.1.4 Use of Technologies

Technologies can be used as a component, module of a product, or a part of a process. An example of a technology within a product is the automatic gear that is an intrinsic part of an automobile. An example of a technology that is part of a process is the laminating process in metallurgy to produce sheet metal. The ideas behind technologies such as these are often applicable to other uses and can be expressed in the form of derived demand.

2.1.5 Decision Problems in the Use of Technology

The decision as to whether to use a technology can be problematic for a variety of reasons. The technology within a product may not be responsive to customer needs in quality, function, or performance. Or the technology chosen for a process may be difficult to implement or lead to poor and costly results. Also, it is possible that an alternate technology is the right one rather than the technology selected. In addition, the technology may lack synchronization with the committed schedule, the engineering changes may be excessive, the wrong product may be produced (i.e., unresponsive to the customer’s needs), the development resources may be displaced to other products for various reasons, or the technology transferred may be changed by product development to the degree that the technology no longer resembles the technology which

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it represents or for which it was originally intended. There are many other reasons why wrong decisions and actions can cause problems in managing technology.

2.1.6 General Development Steps

It is necessary to look at the general development steps and identify key checkpoints in decision making that relate to business parameters. These steps have a business assessment criteria associated with them for which there must be a payout or payoff. Payoff, in economic theory, often is expressed in the form of a matrix and is "the interaction between arguments or conditions exemplified in terms of firms or people." The payoff is the interaction between the accepted development steps and the required business parameters. In reality, these business parameters, aggregately, contribute to the business strategy of the firm.

2.1.7 Technical and Business Views

Technology management puts into perspective the ways of advancing technology for the benefit of its recipients. To survive, a business must be profitable. If the firm is profitable, it must be responding, positively, to the demand of its products and services.

Therefore, it is necessary to be cognizant of both the technical and business views. From a product development viewpoint, management is faced with many choices in technology. Technologies are researched, developed, or procured for the products intended in the marketplace. These technologies must be coupled to the payout of the business. From a business viewpoint, the products result in profitability to the firm and benefits to the customer. Effective management of technology is achieved when the products that the firm markets are profitable and the processes that are developed to build them are cost-effective. Technology is the means of solving the customer’s problems for two primary reasons: to help them become more efficient and to help them grow.

2.2 Introduction to the Business Architecture

The architecture that follows shows the major functional steps in research and development with their corresponding examples of business parameters. These steps are those used in the industrial sector and describe the technology and product strategy processes employed in the development process. Analogous steps exist in the service sectors but are not addressed here.

2.2.1 Definition of a Functional Step

Each critical step in the process, from research to the marketplace, is identified and mapped to corresponding business factor(s) that provide a return or payoff. The business architecture, consisting of a technology and product development chain, is mapped against the corresponding business factors; these business factors, in turn, form a chain which is defined. Each functional step invokes one or more processes and, if managed effectively, responds favorably to the business factor(s) of the enterprise.

2.2.2 Understanding the Architecture (Process)

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To understand any process, it is necessary to identify its goals and the strategies used to achieve these goals. It is said that a goal "should focus on significant areas of organizational need. A strategy is "a guide to action or a channel of thinking," i.e., a general direction employed to achieve specific goals. There can be more than one strategy to achieve the same goal. For example, let us say that a computer manufacturer is to develop information-handling products that will be responsive to customers’ needs in the office environment. One solution is to automate the office using workstations, printers, and intermediate-size computers to respond to those needs. One manufacturing strategy may be to build these products using the company’s resources. Another manufacturing strategy may be to use vendors in place of the firm’s own manufacturing facilities.

2.2.3 An Example in Technology Research and Transfer

As an example, technology research and transfer is used in Fig. 2.1 to show the practice of technology management in responding to the business. The model shows a process that identifies major development steps beginning with technology research and technology transfer, followed by product development, and market segmentation leading to an ultimate customer payoff. Correspondingly, on the business side, there is also a process which shows projects funded on the basis of customer requirements (wants and needs), funding priorities, the strategy of the business, and the contribution that the projects must respond to achieve revenue and profit objectives.

2.2.4 Phases of the Architecture

The overall architecture is in two phases: the research-and-technology phase and the product development phase. It is said that the product development process represents the crucial interface between applied research, development engineering, and the market groups.

Self Assessment Questions I

1. List out the major elements referred to by National Research Council Task Force Report on Management of Technology.

2. What is development chain and what are the steps in chain of acceptance?

3. Define the terms ‘goal’ and ‘strategy’ with reference to business architecture.

4. Explain the technology management flow chart with the help of diagram.

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Figure 2.1: Technology Management flow chart

(source: Gaynor G H (Ed.), Handbook of Technology Management,

McGraw – Hill, 1996)

2.3 Research and Technology Phase

The research-and-technology process phase begins with research and closes with successful technology transfer to the product development phase. The goals of the technology strategy are represented often by quality objectives, performance objectives, and function(s). The steps include:

· The research and development of the idea or concept

· An analysis of competition that relates to the idea

· The creativity and innovation to develop technology(ies) derived from the idea

· The technology research, including technology forecasting, selection, and the transfer of technology to development

2.3.1 Research and Development (R&D)

One standard definition states that research is an undirected basic science or a directed or applied science. Development in research can result in innovative products and processes from either of these sources. Research differs from development of a product in that it is an exploration of ideas rather than a tangible output to be marketed. There is no guarantee that a new idea will be successful. R&D must provide a high degree of insurance so that future gaps can be closed to meet corporate goals, such as profitability. Therefore, many innovations are necessary and should be allowed to proliferate to assure the achievement of these goals. "Invention is an idea that must next be reduced to practice, i.e., one must show the technical idea is feasible and can be demonstrated."

2.3.2 Competitive Analysis

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Competitive analysis verifies that the innovation is valid, timely, and responsive to competition. This analysis is portrayed by asking four questions:

· What are the implications of the interaction of the probable competitors’ moves that have been identified?

· Are the firm’s strategies converging and likely to clash?

· Do firms have sustainable growth rates that match the industry’s forecasted growth rate, or will a gap be created that will invite entry?

· Will probable moves combine to hold implications for industry structure?"

It is fair to say that technology management is instrumental when applied through forecasting, assessment, and implementation of technologies for competitive advantage. Competitive advantage views technology as a way of improving a process, thus reducing costs, or providing customers with a best-of-breed benefit. In addition, for example, consider analyzing a manufacturing process. A competitive advantage against a competitor can be achieved by assessing a best-of-breed process of any firm regardless of whether the process is a competitor’s or from another industry.

2.3.3 Creativity and Innovation

"Creativity by thought is invention and that inventiveness is a quality usually required and always desirable in all phases of the innovation process." Formulation of the creative process contains the following stages:

· The perception of the problem (coming from the R&D process) with its idea(s)

· Frustration of the inability to solve it

· Relaxation or sleeping on the problem

· Illumination or sudden inspiration, and

· Solution and verification

Innovation exploits opportunity to seek a return on investment. Creativity provides the forum for innovation by being one of the requirements for the successful entrepreneurs in their quest to innovate. Six stages are outlined in the innovation process:

· Pre-project stage, including inside and outside R&D communications of what may be of interest to the firm and networking ideas with peers

· Project possibilities: What could be useful to the customer

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· Initiation of the project: Managing the idea with the marketplace

· Execution: Managing the innovative project

· Outcome evaluation: Evaluating the development of the innovation

· Project transfer: Transferring the development to the next point for further work on the project.

2.3.4 Technology Research

It is stated that there is a technology paradox which concludes that all technologies are fated to be replaced, eventually; however, most attempts to replace them will fail. "Starting with the beginning step – a bright new idea – those that survive all the way to application are probably less than one per cent." This statistic calls for the primary task of technology forecasting to be performed as a required part of technology research in this process. Technology forecasting is defined ”as a collection of formalized processes or methods of future technology evolution caused by developments in science and society, and the interactions between these developments." There are two major types of technology forecasting: exploratory and normative technology forecasting. Exploratory forecasting begins with today’s knowledge and is oriented to the future. An often cited example is the succession of techniques used for the function of lighting, in which the l860s’ paraffin candle progressed to Edison’s first lamp, followed by the cellulose filament, tungsten filament, sodium lamp, mercury lamp, fluorescent lamp, and white light (and now the halogen lamp). This is a deliberate evolution.

Normative technology forecasting first assesses future needs of society and market potential and analyzes these for their technological potential. An example of this type of forecasting is the automatic gear shift. To expand the demand for driving automobiles to a significantly greater number of users, it was necessary to satisfy a need for "ease of use" with a much simpler and less intimidating technology by embedding the gear shift within the product and providing "automatic" control to the driver.

An example of this was "the completion of the lunar mission with astronauts requires the completion of a number of inventive problem-solving steps that can often be approached in a number of different ways". Customer requirements help to identify technologies that are needed to assist in solutions for customer operations or to help customers grow.

2.3.5 Technology Transfer

The technology transfer step results in the transfer of a technology from its development to product development and manufacturing. It can be considered as part of a component or module in a product or a product itself for derived demand, or it may be used to support or implement a process. There are two major concerns in technology transfer viewed in two dimensions: technology and people. The first dimension is "the problem of transferring information about physical phenomena, equipment, analytical and manipulative techniques, terminology, etc. associated with the technology." The transferal of information can introduce ambiguities in specifications, misinterpretations of meaning, and lack of on-the-job training to understand the

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technology and its interdependencies and architecture. The second dimension "concerns the feelings and attitudes in both organizations [of] R&D and product development engineering [regarding] the two sets of people with different skills, values, and priorities to become successful in passing the baton from one to the other."

2.3.6 The Payoff

The payoff of a timely technology can make a firm gain a market edge by lowering price, even with a strategy that places it below production cost. The expectation is that increased sales would ensure future cost reductions from increased volume of output due to increased sales.

2.4 Product Development Process Phase

In most manufacturing firms the critical product development steps are similar. These functional steps include

· A product proposal

· Design of the product with its relevant technologies

· Capabilities of the manufacturing or software processes to build and support the product

· The marketing (and servicing) of the product to potential customers

These steps constitute the major gating factors for delivering products and services. These steps, like the ones in the research and technology phase described in previous section, constitute the major checkpoints for delivering technologies to product development or for process implementation of the product.

2.4.1 Product or Technology Proposal

A product proposal is a common instrument used by management to review and consider new products or major enhancements in the product line. This proposal is best described with the following content: An opportunity analysis which analyzes the characteristics of demand and competition

· The socio-technical environment which assists in defining the opportunity

· The feasibility and capability requirements of the firm’s engineering, manufacturing, and marketing resources which relate to the potential product solution

· A market structure and market segmentation evaluation of the competitive economics, and the design and communication alternatives

· The overall firm’s line of business policies and strategies as they relate to the new product opportunity

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Using this as the background of the proposal, the outline of key parts to its contents must be a part of the business case and include

1. The product’s business objectives such as revenue and customer demand from benefits derived from the product or technology

2. A description of the product or technology

3. The market channel to be used

4. The segment(s) of the marketplace being addressed

5. Preliminary market tests with their results to determine the usefulness for the product, if possible

6. A description of the market opportunity, e.g., what the market is and who the competitors are

7. A description of the product opportunity from the firm’s viewpoint

8. The opportunity sizing, e.g., how large is the opportunity in the market sought after and how much is anticipated for this product

9. The financial risk and summary of measurements such as return on investment, customer value, and return on assets

10. Work schedules, resources required, and expected time for completion and delivery.

On review and acceptance of the proposal the product is funded, dropped, or returned to the "drawing board." The positive response to the business case to the proposal is the payoff. If the analysis of the opportunity shows a potential for the proposed product, then a reasonable business case can be developed and a proposal accepted.

2.4.2 Product Design and Technology

In this step, the design specifications, which include the technologies to be incorporated, are developed. Design and product engineering reviews and modifies these specifications for manufacturing implementation. The acceptance of the design and technology is reached after the models of the product design and the technology are developed and the product is stress-tested for design limitations and in compliance with customer requirements. Shortcomings to that compliance must be assessed to determine the impact to anticipated demand. To arrive at the best design point, the design and technology of a product must respond to customer requirements. Managing the technology, for instance, in computer-assisted design or in the packaging of a product with human factors is the payout to customer wants and needs.

2.4.3 Manufacturing and Software Development

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On completion of the verification for design, manufacturability must be assured through stress testing for capability of assuring function objectives, volumes, performance, and quality objectives. Software, as required, must be in place and fully tested. At this point, these actions must be capable of achieving the proper return on assets and intended minimal cost and capital expenditures compared to expected revenues. The payoff from return on assets is not realized, for example, in managing technology in a computer-integrated manufacturing (CIM) environment unless it is cost-effective in relationship to the revenues that result.

2.4.4 Market Release, Marketing and Servicing of Products

The final step that leads the product to the marketplace is a market release process and the implementation of the marketing plan to market the product or technology. Final plans to market a new product through marketing programs and selected market channels are put into place. A marketing program, for example, can include advertising in the press, TV exposure, or promotions using trade journals. Market channels can range from mail order to selling the product directly to companies. The sales strategy for the product should be in place. A program to service the product through either direct installation or installation aids, as required, should be developed. In addition, a program to service and maintain the product may also be part of a firm’s objectives.

Self Assessment Questions II

1. Explain the steps involved in research and technology phase.

2. What are the stages in the innovation process?

3. Explain the product development process phase.

2.5 Ten Basic Tenets for the Management of Technology (MOT)

A tenet is a principle based on observation, intuition, experience, and in some cases, empirical analysis. Ten tenets, proposed in available literature, are presented below as guiding principles for an enterprise to operate within a technology cycle (TC) framework. David Sumanth in his work (1988) proposed a total systems approach to technology management (TSTM) what he called the technology cycle. He contended that the management of technology in enterprises is not just a one-shot deal, but a continuous process, involving five distinctly different phases of technology, namely, awareness (of marketable inventions), acquisition (by self-generation or transfer), adaptation (by minor modifications of acquired technology for specific needs), advancement (innovation involving major modifications of acquired technology), and abandonment (of obsolete technology). The tenets recognize that short-term treatments of any issue in general, and technology management in particular, are at best sub-optimizations, and so, will not lead to more long-Iasting solutions in adapting and advancing technology. Let us take some time now to discuss these principles in detail.

1. Value diversification is a poor substitute for MOT

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Value diversification refers to the improvement of stockholders’ investments in a company through quick-fix solutions on paper, such as mergers, acquisitions, and other stock-enhancing strategies. Unfortunately, this traditional approach to value enhancement results in mostly short-term gains and long-term pains. Every company ought to identify core technologies and core competencies, and then hone them to get the most out of those for innovating products and/or services. When IBM acquired ROLM Corporation many years ago, IBM was trying to complement its core technologies in mainframe computers and personal computers with the core technology of ROLM, communication systems. Unfortunately, this did not work out very well, and IBM eventually sold ROLM. In the early 1980s, McGraw-Hill, whose core technologies are in publishing, books, journals, and related products, went into the personal computer business with Odyssey with a totally different core technology that didn’t work, either.

2. Manufacturability must keep pace with inventiveness and marketability.

In industries, in general, and manufacturing companies in particular, people in manufacturing functions often find themselves coping with increasingly aggressive marketing strategies and design strategies. Manufacturing in the United States is being troubled by intense competition from the Pacific Rim and European trading partners, who are developing new and better technologies and techniques to increase their advantage in product design and manufacturing process (Gold, 1994). Yet, in today’s globally competitive marketplace, it is not only a necessity for manufacturability to be in step with marketing and design strategies but also a luxury, serving as an important weapon to chip away the market share of the competition.

3. Quality and total productivity are inseparable concepts in managing technology.

In the 1970s, here in the United States, productivity was of major concern, particularly after the 1973 Oil Embargo, and the ensuing Japanese "automobile attack." In the 1980s, after the famous NBC documentary, "If Japan Can, Why Can’t We?" emphasis on quality reemerged with great ferocity and intensity. The Total Quality Management (TQM) movement made quality a common prerequisite for ensuring competitiveness, even in the domestic markets. With the onset of the information superhighways in the late 1980s, and the rapidly changing global communication technology panorama, time has become a third crucial strategic variable in a company’s drive to be competitive. Quality and total productivity are like two sides of the same coin or two rails of the same track. Companies that have excellent quality and competitive prices still cannot do well unless they can bring products of highest value to the marketplace in the least time possible. Information technologies have made it possible today to order products 24 hours a day from the luxury of one’s home through the Home Shopping Network (HSN) and others, where the customer expects a rapid response rate. In fact, Thurow (1992) predicts that in the twenty-first century there will be high-tech and low-tech final products, but almost every product in every industry-from fast food to textiles-will be produced with high-tech processes.

4. It is management’s responsibility to bring about technological change and job security for long-term competitiveness.

Often, technological improvements have been associated with such downsizing. Unfortunately, this is a poor business strategy because it under-estimates the employees’ ability to manage not

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only existing technologies that their company has but also their creative capabilities to create and perfect new ones. Employees must feel that they have job security, particularly when they are responsible for suggesting and implementing new technologies. They feel betrayed after they spend hours of hard work designing a technologically advanced environment for greater competitiveness, only to find themselves victims of their own making. This need not be the case. Companies often spend millions of dollars trying to mitigate the negative effects of low morale, job dissatisfaction, and consequent low productivity, following a layoff or cost-cutting measure, right after a major technological change.

5. Technology must be the "servant," not the "master"; the "master" is still the human being.

Until recently, we used to be the masters of technology, our servant. We used to drive technology, but today we have become technology’s servant, and technology is driving us. We believe that we have crossed a "technology threshold," whereby our response to technology has become one of catching up. Many companies are unable to cope with the dramatic changes taking place in the very nature of technologies. This, in turn, puts a company in a reactive posture, rather than a proactive one. Companies which are learning the art of managing new technologies have a better chance at being a technology master instead of a technology servant. The chaos that companies face today in responding to "rapid technologies" can be harnessed as a positive strategy to create opportunities for new products and/or services. Cable companies will soon be in the computer business; and computer companies, in the telecommunication business. It is impossible to even conceive the extent of the technological integration revolution we will be facing even before we enter the twenty-first century. Our wristwatches might become microcomputer devices, working as remote-control units and information retrieval systems. We might see a series of technology thresholds bombarding us in the years to come, and every time we cross one of them, companies have an opportunity to convert technological chaos into economic opportunities.

6. The consequences of technology selection can be more serious than expected because of systemic effects.

This principle has major impact on the economic viability of the twenty-first-century organization, because we will be selecting multiple technologies with a rapidity that is hard to comprehend at this time. Product technologies will become obsolete in such short periods of time that they will resemble the toy industry, where the average shelf life of a product may be only one season or sometimes only a month. We are already beginning to see personal computers fall into this category. In the early 1980s, when the personal computer was something new to all of us, the average shelf life was approximately 4 to 5 years for a model to become obsolete. Today, just 13 years later, the average shelf life has been whittled down to less than 1 year. By the time a company decides to update its PC technology to state of the art and acquire it, that technology would just become obsolete. In anticipation of even greater obsolescences, companies will usually wait for newer models in both hardware and software. The rapid turnover in both of these categories of technologies makes it even more difficult to implement newer ones.

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7. Continuous education and training in a constantly changing workplace is a necessity, not a luxury.

Companies have traditionally slashed the education and training budgets during times of economic downturn. Today, this would be a foolish strategy, because most employees know how to use process and information technologies to the fullest extent. Having spent millions, and sometimes billions of dollars in such technologies, it would be most uneconomical not to get the most out of these expensive technologies.

Sometimes, a million-dollar piece of equipment has a 20 percent downtime, costing hundreds of thousands of dollars in lost revenues, simply because operators and engineers have not been trained in all aspects of its operation. The more the education and training for managing technologies, the greater the utilization rates would be, and hence, the greater the economic leverage. For example, in a multinational bank, such as Citibank, the technology group strives hard for customers to do worldwide banking in anyone of 14 languages. The company spends much time and energy educating and training the personal bankers, the customer service representatives, and others, in an effort to offer their clients the ever-increasing portfolio of products and services in a competitive manner.

8. Technology gradient is a dynamic component of the technology management process, to be monitored for strategic advantage.

The term technology gradient refers to the technical advantage an enterprise enjoys with respect to its licensees and its competitors. Normally, most sensible multinationals maintain a sufficiently high technology gradient with respect to their licensees, particularly if the latter are even remotely associated with a product line that competes anywhere in the world. This is particularly true when the technologies are radically new, for example, biotechnology, global networking technology, etc. Technology gradient, which is the subject of another chapter in this handbook, is a powerful concept for managing the technological advantage that the company enjoys with respect to its competition worldwide. Briefly, a company monitoring its technology gradient can be in one of four postures: technology leader, technology follower, technology yielder, or technology loser. Depending on the technology advantage a company wishes to enjoy, it must consciously position itself as one of these.

9. The RTC factor must be carefully analyzed and meticulously monitored for gaining the most out of any technology, particularly a new one.

The RTC factor refers to the magnitude and nature of resistance to change. Unfortunately, very little is known about the process of the RTC factor, and the rational means to minimize it. At the same time, however, we now know that a high RTC factor can lead to work slowdowns, poor employee morale, high maintenance costs, and even serious sabotages. Management has to recognize that a creative, lively workforce is better than stagnant, high-priced technology. Research shows that when new technologies are implemented, "total productivity" at first drops because of the natural response of employees-resistance to accept the new technologies as viable means-before it picks up again.

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The competitive threat of a new technology-based business paradigm (and its early implementation success) does often, unfortunately, prolong the last gasps of life in the old technology because it temporarily forces a really serious competitive pressure on the old technology. Under this real threat, it is amazing how much excess effort, costs, and inefficiencies can be wrung out of the last defense stand of the "old guard." It is usually a wasted effort, which delays the acceleration of the inevitable new "S" curve and prolongs the agony of the old.

10. Information linkage must keep pace with technology growth.

As pointed out during previous discussion, information networks are evolving so rapidly that unless companies take advantage of linking up to such networks, they lose opportunities for new revenue streams. For example, companies that quickly capitalized on the accessibility to the Internet increased their market share through an exposure of their products and/or services to millions of people around the world. We barely understand the potential of the Internet through the World Wide Web (WWW).

1. Within a company, it has become an absolute necessity to keep all the employees informed of the latest technological developments within their own company so that unnecessary duplication of costly effort is avoided, and product changes and client updates are offered on an on-line basis so that customer responsiveness can be in real time. Time lags can cause serious miscommunications, particularly with multinationals. For example, if a component is eliminated in a product and this information is not communicated to the company’s worldwide spare-parts inventory system, retail clerks somewhere in Indonesia or Taiwan may still be carrying the part on shelves unnecessarily, increasing their inventory carrying costs. Companies like Caterpillar and International Harvester maintain global inventory management systems so efficiently that within 24 hours they can have a part made available to any retailer around the world. In such situations, this tenet has even greater relevance and respect.

Self Assessment Questions III

1. What is a tenet?

2. What is technology cycle and what are its five phases?

2.6 Conclusions

This unit has attempted to provide a technology management perspective that is centralized around a systems approach to management. Technology can no longer be considered as just fancy machines and computer chips. It is a vital, growing agglomeration of earthly resources fashioned by human ingenuity, and steered by a vital force, namely, a systems perspective. This is due to the rapidly changing, technological age we live in today, in which every technology that we adopt or discard has a systemic effect on the process of an organization. Great aims and preparations are needed as we enter the exciting, yet challenging twenty-first century, to avoid the temptations of sub-optimization and its costly consequences. Although a systems approach to technology management is prescribed in this chapter, the effort needed to implement it, in terms of time, money, and patience, is great and often arduous. However, the benefits of a successful

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implementation of this approach greatly outweigh the costs, and make the time and effort spent well worth it.

2.7 Summary

Business architecture for technology management is fundamental to understanding the relationship between functional disciplines and managing technology as the causal parameter for producing effective results. The morphology presented identifies business objectives as the practical considerations of the firm. Without that, significant costs can be experienced. What is demonstrated here are the examples of business parameters and their relationship to critical functional acceptance factors in the "value chain" of the enterprise from research to the marketplace. Technology is the lead factor and, to be managed successfully, requires a progression of decisions from a business perspective. Without that, it can become a costly venture. These numerous examples in this architecture demonstrate the need for technology management to realize the firm’s profitability and customer satisfaction as the ultimate payout to the firm.

2.8 Terminal Questions

1. The development of any product or service can be described as a ____________ in its progress from idea conceptualization to the marketplace.

1. Chain of suppliers2. Link of organizations3. Chain of acceptances by management4. Chain of creditors

2. A tenet is a principle based on observation, _________, experience, and in some cases, ____________.

1. Experience, monthly salary2. Size of organizations, number of employees3. Managerial skill, qualification 4. Intuition, empirical analysis

3. Owing to rapid technological advances taking place around the world we are becoming the _________ of technology.

1. Master2. Servant3. Teacher4. Borrower

4. According to David Sumanth, management of technology in enterprises is ___________ .

1. A brief process

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2. One shot deal3. A continuous process4. A routine process

5. According to process of business architecture, ___________ is "a guide to action or a channel of thinking."

1. Strategy2. Goal3. Innovation4. Creativity

6. The five phases of technology cycle are Awareness, Acquisition, ________, Advancement, and Abandonment.

A. Transfer

B. Adaptation

C. Forecasting

D. Absorption

7. What are the ten tenets? Discuss.

8. With the help of examples, show how we have become /are becoming servants of technology.

2.9 Answers to SAQs and TQs

SAQs I

1. Refer to 2.1

2. Refer to 2.1

3. Refer to 2.2

4. Refer to 2.2

SAQs II

1. Refer to 2.4

2. Refer to 2.4

3. Refer to 2.5

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SAQs III

1. Refer to 2.5

2. Refer to 2.5

Answers to TQs:

1. C

2. D

3. B

4. C

5. A

6. B

7. Refer to 2.5

8. Refer to 2.5

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Unit-03-Technology Forecasting

Structure:

3.1 Introduction

Objectives

3.2 Technology Forecast and Technology Innovation Chain

3.3 Necessity for Technology Forecasting

Self Assessment Questions I

3.4 Planning and Forecasting

3.4.1 Uses of Technology Forecasting

3.4.2 Technology Dynamics

3.4.3 The Indian Context

Self Assessment Questions II

3.5 Classification of Technology Forecasting Approaches

3.5.1 Delphi Method

3.5.2 Forecasting by Analogy

3.5.3 Scenario Generation

3.5.4 Brainstorming

3.5.5 Relevance Trees

3.5.6 Morphological Analysis of a Technology System

3.5.7 Technology Portfolio

3.5.8 Technology Monitoring

Self Assessment Questions III

3.6 Comparison of Methodologies

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3.7 Common Mistakes and Pitfalls

Self Assessment Questions IV

3.8 Summary

3.9 Terminal Questions

3.10 Answers to SAQs and TQs

3.1 Introduction

The only thing that we know with certainty about the future is that it will be different from the present. Forecasting, that is predicting what the future is going to be, is an essential element of any planning process, be it in our personal life, or in the public sphere. Forecasting for technology is no different in this respect. In this context the term ‘technology’ should be understood in a broad perspective. It includes not only specifically "mechanical / physical hardware", but also encompasses associated "software" such as procedures and methods for organising human activity, and means for manipulating or engineering human behaviour .

Thus, technological forecast is a prediction of the future characteristics of useful machines, products, processes, procedures or techniques. There are two important points implied in this statement, viz.:

a) A technological forecast deals with certain characteristics such as levels of technical performance (e.g., technical specifications including energy efficiency, emission levels, speed, power, safety, temperature, etc.), rate of technological advances (introduction of paperless office, picture phone, new materials, costs, etc.).

b) Technological forecasting also deals with useful machines, procedures, or techniques. In particular, this is intended to exclude from the domain of technological forecasting those items intended for pleasure or amusement since they depend more on personal fads, foibles or tastes rather than on technological capability.

Anticipating technological change is an important management function. One must do so to plan new products and new businesses. One must also avoid being technologically blind-sided by competitors with technologically superior products. Yet this is not easy to do because often technological progress cannot be anticipated. However, it can also be planned. Technological forecasting tries to put as much planning as is possible into technological change. Incremental innovations have often been planned or, at least, sought after. The seeking of or anticipation of technological innovation has been called "technology forecasting". Technological forecasting, in the formal sense, has not been widely practised in our country, as it has been used elsewhere, more especially, in industrially developed market economies. This is because commercial success in such economies is dependent, to a large extent, on the ability of a firm or an organisation to identify emerging/future technologies well ahead of time so that appropriate decisions or advance action could be taken to meet/deal with the likely challenges of the future.

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Recognising the importance of forecasting in the technological planning process, the Government of India has established a Technology Information Forecasting and Assessment Council (TIFAC) under the Ministry of Science & Technology, to promote action-oriented studies and forecasting in selected areas.

Objectives:

After studying this unit, you will be able to:

· Define technology forecasting.

· Justify the need for technology forecasting.

· Examine the role of forecasting in planning process.

· Apply and appreciate different forecasting methods and techniques.

· Relate forecasting and planning.

3.2 Technology Forecast And Technology Innovation Chain

To understand the ramifications of technological forecasting in its entirety, we need to further understand the various stages of technological innovation. The forecaster must state clearly the stage for which he is forecasting. For instance, when he makes use of historical data on a number of devices, he must be clear about the stage of innovation represented by each of his data points. Generally, one may use the following stages to describe the progress of an innovation throughout its life from beginning till end:

a) Basic scientific findings/discovery of a principle

b) Laboratory or bench level feasibility

c) Operating prototype/pilot plant

d) Commercial introduction or operational use

e) Widespread adoption

f) Diffusion to other areas

g) Social and economic impact

Each of these stages has a specific role to play and contribute to the innovation of a technology. Briefly, they are described as under:

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a) Basic scientific findings / discovery: This establishes the minimum knowledge base on the basis of sound scientific principles from which a solution to a specific problem could be found.

b) Laboratory or bench level feasibility: At this stage, depending on the identified problem, a laboratory workable model could be fabricated without violating any natural or physical laws. This would generally be able to work in the desired way only in the laboratory environment, under controlled conditions and supervision of trained scientists, technologists or technicians.

c) Operating prototype/pilot plant: On reaching this stage, it would be possible to obtain design/engineering parameters to construct a device/system which would be capable of working in an operational environment using commercially available inputs.

d) Commercial introduction or operational use: This stage represents not only technical and design adequacy, but also economic feasibility. Generally, the first production model is the benchmark of completion of this stage.

e) Widespread adoption: At this stage having demonstrated the technical and/or economic and/or environmental superiority, the technology is now poised to supersede and replace the prior devices, procedures etc. on a wide scale.

f) Diffusion to other areas: At this stage, the new technology not only replaces the old one, but is also adopted to perform such functions as were not being performed by the earlier devices and techniques.

g) Social and economic impact: At this stage, the innovation will affect the behaviour of the society and its use may reach a point where its impact will be felt on the economy.

With the use of the concept of stages of innovation, it is possible to question more precisely just what is meant by a particular technological forecast. One can ask whether the forecast is stating that a certain capability will be technically feasible or whether it will be commercially successful or whether it will be superior to all other approaches to performing the same function, etc. It is important that a forecast concerning one stage is not misinterpreted to apply to a later stage. A forecast of technical feasibility, for instance, must not be confused with a forecast of commercial success. The former does not always imply the latter.

We suggest that you familiarize yourself with these concepts by referring to literature and read widely to match your practical experience. Having briefly discussed the preliminaries of technology forecasting and technology innovation chain, we now turn our attention to why technology forecasting is necessary.

3.3 Necessity for Technology Forecasting

Historically, the U.S. Navy was one of the major institutions which started formal technological forecasting to support the preparation of a fifteen year plan to identify the likely opportunities and threats, and to develop a technological setting for the future. Technology forecasting has now assumed importance in India due to the structural reforms introduced in our economic

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system with a view to create a market-driven economy. Essentially, technology forecasting is used for the purpose of:

a) Scanning the technological environment;

b) Anticipating emerging technological changes;

c) Identifying suitable technologies by evaluating various alternatives;

d) Planning for technologies for future needs.

We can identify four elements of a forecast which can be specified and/or estimated. These are (a) the time period, (b) the nature of technology, (c) .the characteristics to be exhibited by the technology, and (d) the probability associated with the characteristics. The time period may be stated generally, or it may be given precisely. The technology being forecast may be narrowly defined, or it may encompass a very broad range. The characteristics may be stated only in general terms, or may be given precise quantitative values. Martino has shown that there is really no alternative to forecasting. He considered various possible alternative scenarios like (a) regimes of no forecast (tacitly assuming there would be no change in the environs in future), (b) future is a total gamble and it could be met without any anticipation, (c) resting on laurels of the glorious past presuming that it would bring a glorious future, (d) dependence on limited forecasting, without taking into consideration all round changes in the environs, and (e) taking crisis action to meet the situation. All of these, he showed, may spell disaster for a firm or an organization.

All these discussions basically highlight one very important aspect that we are dealing with a probabilistic situation and we should gear ourselves to meet it with a certain degree of confidence and with all elements of surprise anticipated. A logical question that follows is: How good is the forecast? Will it come true? To answer these questions, let us classify situations according to the degree of control the decision maker can exercise. There may be three types of situations:

a) Absolutely no control, b) Partial control, and c) Full control

Let us attempt to analyse the efficacy of forecasting in these situations.

a) Absolutely no control: Consider a commuter seeking a forecast of the commercial availability of a solar-powered car, say by the year 2010. While he might seek the forecast out of simple curiosity, more likely he wants to make plans for some activity which will be affected by this forecast, say whether to buy a petrol-driven car or not. Naturally, he wants to plan correctly, for if he bases his plans on a forecast of a solar car becoming available and it does not materialise, the forecast has been useless to him or, worse, it has misled him into foregoing his buying a petrol-car. It appears, then, that such a forecast has to be correct to be useful. When a decision maker has absolutely no control over the outcome of a particular situation (that is, when none of the actions open to him can alter the outcome), he wants to tailor his actions to the eventual outcome.

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b) Partial Control: Most day-to-day decisions fall in the area of partial control over the outcome. The decision maker is interested in influencing the outcome of a situation in a way as favourable as possible to him. If he is presented with a forecast which he considers desirable, he will exert such control as he possesses to ensure that the forecast is realized, thus influencing either the reliability or the time frame of the forecast. Likewise, if he is presented with a forecast he considers undesirable, he will exert his control to forestall it. Thus, there will be a certain element of self-fulfillment or self-defeat in the outcome of the forecast.

c) Full control: At the other extreme, when the decision maker has complete control over the outcome, he does not even need a forecast. The outcome will be what he wants it to be. Someone else may perhaps find a forecast of his decision useful, but he himself does not need a forecast of what he is going to do.

It is essential to recognize that a forecast does not put anything into the future. Instead, it tells only of the implications of available information about the past. These implications are connected with the future through a logical framework. Hence, the utility of a forecast for decision making purposes depends on the validity of the logical framework it uses and the extent to which it extracts all the implications which are contained in the body of available information. This ability to evaluate the utility of rational and explicit forecasts is, of course, one more reason to prefer this type of forecast. However, it may be emphasised that following a certain procedure may not guarantee the forecaster against error; it may only reduce the likelihood of error. Hence, the forecaster is never absolutely certain that he has prepared the most useful possible forecast with the available data he has and the resources he has employed.

The forecast serves as an input to the process of making plans and decisions. Martino has described the role of the forecast in planning as follows:

a) The forecast identifies limits beyond which it is not possible to go.

b) It establishes feasible rates of progress, so that the plan can be made to take full advantage of such rates; conversely, it does not demand an impossible rate of progress.

c) It describes the alternatives which are open and can be chosen from.

d) It indicates possibilities which might be achieved, if desired.

e) It provides a reference standard for the plan. The plan can thus be compared with the forecast at any point in time, to determine whether it can still be fulfilled, or whether, because of changes in the forecast, it has to be changed, and

f) It furnishes warning signals, which can alert the decision maker that it will not be possible to continue present activities.

If the forecast makes a decision maker aware of alternatives which he might not have discovered otherwise, it has increased his degree of freedom. The important point is that the purpose of the

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forecast is to improve the quality of his decisions and not to force him to accept a particular decision.

Self Assessment Questions I

1. Describe the stages of progress of an innovation throughout its life from beginning till end.

2. What purpose is technology forecasting used for?

3. Are there any feasible alternatives to technology forecasting?

3.4 Planning and Forecasting

Frequently there is a time lag between awareness of an impending event or lead and occurrence of that event. This lead time is the main reason for planning and forecasting. If the lead time is zero or very small, there is no need for planning. If the lead time is long and the outcome of the final event is conditional on identifiable factors, planning can perform an important role. In such situations forecasting is needed to determine when an event will occur or a need arise, so that appropriate actions can be taken. A lay person may question the validity and efficacy of a discipline aimed at predicting an uncertain future. However, it should be recognized that substantial progress has been made in forecasting over the past several centuries. There are a large number of phenomena whose outcomes can now be predicted easily. The sunrise can be predicted, as can be speed of a falling object, the onset of hunger, thirst of fatigue, rainy weather, and a myriad of other events. The evolution of science has increased the understanding of various aspects of the environment and consequent by the predictability of many events.

Successful forecasting is not always directly useful to managers and others. More than 100 years ago, Jules Verne correctly predicted such developments on submarines, nuclear energy and travel to the moon. Similarly in the mid 1800s, Charles Babbage not only predicted the need for computers, but also proposed the design for one. In spite of the accuracy of these forecasts, they were of little value in helping organizations to realize those possibilities or achieve greater success. A second important point is the distinction between uncontrollable external events (originating with the national economy, governments, customers, and competitors) and controllable internal events (such as marketing or manufacturing decisions with the firm). The success of a company depends on both types of events, but forecasting applies directly to the former, while decision making applies directly to the latter. Planning is the link that integrates them.

To draw a line between business forecasting and technological forecasting, business forecasting uses more quantitative techniques whereas technological forecasting uses more qualitative techniques. It is not that business forecasting does not use qualitative techniques but it is viewed with relative importance. In fact, it also depends on the factors forecasted. In business forecasting, the stress is on physical quantities whereas in technological forecasting it is on the behavioural issues.

3.4.1 Uses of Technology Forecasting

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Technological Forecasting essentially tries to answer one or both of the following questions:

1. When is a new development likely to be widely accepted?

2. What will be the likely developments in a given area of technology in the near future?

TF attempts to answer these questions with a high degree of confidence by approaching the problem in a formal and systematic manner, and

1. Helps in long range planning;

2. Provides new directions for R&D;

3. Enhances understanding of competition;

4. Enhances understanding of consumer’s needs;

5. Helps to make strategic decisions.

It is also found that the high product technology firms such as chemical, machinery, transportation, fabrication, etc. which are also capital intensive, find TF crucial to their companies and use it regularly; whereas companies such as food, apparel, construction which are of low technology in nature, feel TF as unimportant. Coats (1989) enlists four expectations one might have from a forecaster:

i) Announcement of the advent of a specific event:

- Not only the occurrence of event, more than that the implications of the event and the implications for activities before, during, and after the event. Say, what may happen if an accident occurs in a particular nuclear power plant? Or if an earthquake of certain intensity occurs at a place? Or if the floods of certain volume occur?

ii) Offering of aids to decision making:

- In the domain of decision making, there is an increasing ability to identify knowledge gaps and crucial uncertainties, to suggest plausible practical and useful activities to narrow those ignorance gaps and to reduce uncertainty on the one hand, or to act more rationally in so far as the uncertainties cannot be reduced.

iii) Offering of direction for action:

- It is possible, through technological forecasting, to offer strategic directions. The difficulty arises due to biases or ideological objectives. A forecaster must struggle to be neutral in drawing conclusions.

iv) More sophistication in dealing with complexity:

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- Tools of complexity to explain, explore, present and analyze complex situations are abounding.

3.4.2 Technology Dynamics

Development of technological forecasting methods may also depend on the evolution of new and challenging technologies. Technology will never be static. It goes on changing. The rate of change is increasing exponentially and is discussed in other chapters. As new technologies evolve, technology paradigm also will change. Take the case of manufacturing technology. After the industrial revolution, the paradigm was mass-production technologies, now it is automation in manufacturing and later Numerically Controlled machining process. Now it is Hi – Tech, mainly Flexible Manufacturing Systems (FMS), Cellular Manufacturing Systems (CMS). This process goes on and on.

3.4.3 The Indian Context

Though the technological forecasting is talked about in India for more than two decades now, it is not adopted by the industry in a big way. In fact, Department of Science and Technology, Government of India has taken a lead to propagate by funding several training programmes. It also took initiative to set up several schools/departments of future studies in established universities wherein technological forecasting is an important part of the curriculum. It is reported that many R&D Institutions like National Institute of Science, Technology and Development Studies (NISTADS) and Government institutions like Technology Information, Forecasting, and Assessment Council (TIFAC) are extensively using these techniques in their studies. With the changing industrial and economic environment, the flow of new or improved technologies to India is creating a very high competitive environment to the Indian entrepreneurs. Therefore, it is expected that they have to look for signals that provide them knowledge about the emerging or flowing technologies sufficiently in advance. This is where the importance of dissemination of knowledge and practice of technological forecasting lies.

The future is almost by definition unknown, but in both forecasting and foresight activities the judgements or opinions of experts are used. Experts can be used singly, or in numbers. Different techniques can be applied to provide either a consensus view, a range of opinions, or maverick views. The kinds of exercises that can be carried out vary enormously in their complexity and structure and in the ease with which they can be managed.

Planning the exercise and getting started:

When planning to start forecasting, it is useful to consider:

· The reasons for doing it.

· What resources will be needed and what resources can be made available?

· How long will it take?

· How to learn the techniques and improve the overall process?

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Establish the need

In order to assess if a more systematic approach will be useful, the following factors can be considered:

· The criticality of technologies used by the company.

· The maturity and rate of change of critical technologies.

· The nature of the R&D strategy, (e.g. whether offensive or defensive).

· The complexity and flexibility of markets and the overall business environment.

The magnitude and direction of technological progress in general is driven by financial investment and by market forces and needs; these must also be watched and monitored as part of any forecasting activity.

Co-ordinating resources

Decisions must be made about who should manage the forecasting process. It is not a task for a junior member of staff. It may need a multidisciplinary team or a single individual with adequate authority to co-ordinate across several departments. In all cases the exercise should first seek to use the knowledge and expertise of individuals within the company. Their specific knowledge of company activities and processes will be useful; much additional information can also be gleaned from their contacts and networks and from their appreciation of the general business environment.

Establish and improve the process: forecasting

The process has two primary activities: information gathering and analysis. The value of the overall process to each company depends on how the two main activities are carried out, how the techniques are customised, and the extent to which the process is followed through to recommendations and actions. They are often applied in iterative or parallel processes. It is not necessary to complete the whole process to appreciate the potential benefits so the process reinforces itself and encourages further iterations.

Activity 1: Collection of relevant information

The major issues to be addressed are:

· What information and what kind of data are relevant?

· What sources of information are to be used?

· How accurate is it?

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· What systems need to be set up to provide information and data on technological developments and trends?

Practical decisions arising from consideration of these issues include:

· Which journals to monitor, and how?

· Which conferences and trade fairs to attend?

· How to share information?

· Who should participate in which networks?

· How can an individual’s relevant expertise best be used?

· What internal data to collect and external data to acquire?

· How to track performance parameters of competitors’ products?

Activity 2: Analysis of the data by individuals and by various methods and techniques

The major issues to be addressed are:

· Whose expertise should be used?

· Which methodologies or techniques are appropriate?

· Against what criteria or objectives are the analyses to be judged?

· What data should be used or is relevant?

· Who are the relevant people to apply the techniques to the data?

Decisions following from considerations of these issues could result in a greater understanding of the potential contribution and judgement of different experts, within and without the company; more tightly formulated objectives; and a greater understanding of the value of forecasting in general.

Establish and improve the process: Foresight

Foresight activity seeks the subjective or intuitive opinions of a number of people with varying degrees of expertise. Opinions need to be collected without bias or misinterpretation. Using different techniques, some more structured than others, experts are asked to project their present knowledge towards how events and trends might develop in the future. They also need to consider what alternatives might be possible within the projected time frame. When setting up a foresight programme, it is important to consider:

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· What kind of expertise is relevant and how can it be obtained?

· What boundaries to the creativity of the process have to be imposed?

· How can the exercise be aligned to the needs of the organisation that is commissioning the study?

Self Assessment Questions II

What is the difference between business forecasting and technological forecasting?

Which questions does technology forecasting attempt to answer?

What do you have to say about technology forecasting in Indian context?

Which issues should be clarified before undertaking forecasting?

3.5 Classification of Technology Forecasting Approaches

There are two approaches to technology forecasting, namely, Exploratory, and Normative. The formal forecasting techniques are standard components that are described in many textbooks on forecasting techniques (see specific techniques). Specific techniques for forecasting fall into two main categories, exploratory and normative. Information about each technique is available in various references.

Exploratory techniques are primarily concerned with the analysis of historical data. Selected attributes such as functional performance, technical parameters, economic performance etc. are plotted against time. Since it is usually assumed that progress is evolutionary and that technological progress is not random, it is possible to generate characteristic curves or patterns from the data and from these patterns forecasts can be made with varying degrees of certainty.

Examples of relevant exploratory techniques are:

· S-curves

· Cycles

· Trend extrapolation

· Technology substitution

all of which rely on a large amount of statistical data, which may or may not be available freely.

Normative techniques start by proposing a desired or possible state, such as the satisfaction of a market need or the achievement of a technological development, and work backwards from this to determine the steps necessary to reach the required outcome. The number of foreseeable paths

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of development from the present position to the objective could range from ‘none’, implying a completely new technology, to ’several’. Each feasible path to the objective is analysed for its relevance and difficulty. Unlike exploratory forecasting, normative approach begins from the future and works out desired landmarks backwards to the present state. In other words, the mind is projected into the future by postulating a desired or possible state of technological development to satisfy a specific need. The forecaster then works backwards to identify the steps or landmarks necessary to be achieved, with assessed level of probability, in order to reach the end point or goal set henceforth. However, it must be appreciated that exploratory and normative methods are not competitive nor do they substitute for one another. Essentially they are complementary to each other and have to be used together.

Examples of relevant normative techniques are:

· Relevance trees

· Morphological analysis

· Technology watch and technology monitoring

· Delphi analysis

· Trend impact analysis

· Technology substitution

Information needed for these techniques is likely to be more firm-specific than that needed for exploratory techniques. Technology-watch in particular needs a proactive role to help the organisation identify and establish links with the most useful sources of information and opinion; typically these will be at the forefront of innovative activity.

Different techniques, as shown in Table 3.1 have been developed over the years to deal with forecasting methodologies. The forecaster has to judiciously select a technique or a combination of techniques depending upon the methodology and end objective in view. The common techniques could be summarized as follows:

FORECASTEXPLORATORY NORMATIVEIntuitive Extrapolation Growth

curvesTechnology monitoring

Relevance tree

Morpho-logical analysis

Mission flow diagram

· Individual forecasting

· Opinion polls

· Linear extrapolation

· Exponential extrapolation

· Pearl curve

· Gompert

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· Panels

· Brainstorming

· Scenario development

· Delphi

· Substitution

· Trend correlation

z curve

Table 3.1 Forecasting methods and techniques

We shall endeavour to describe briefly some of the commonly used techniques; however, you may refer to literature to get a grasp of the other higher level forecasting techniques. But before doing so, we list in Table 3.2 the Technological Forecasting (TF) methods used for each of the four main activities in the business environment.

Business Activity TF Techniquesi) Searching for relevant scenario

Expert opinion

Panels

Brainstorming

Delphi

Technology monitoring

Scenario developmentii) Searching for trends among parameters

Extrapolation

Growth curves

Substitutioniii) Searching for alternatives among various choices to reach a goal

Relevance Tree

Morphology

Cross impact analysis

Dynamic modeling & simulationiv) Identifying implications for action

Expert consultation

Scenario building

Modeling & Simulation

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Table 3.2: Business Activity and TF Techniques

Use of a combination of methods will generally be more reliable than dependence on a single parameter or single forecasting method. Also, it may be useful to have the user of a technology, generator of a technology, manufacturers, suppliers and designers involved in an integrated exercise to shape the combined perspective into a forecast. Some of the more widely used TF methods are elaborated below.

3.5.1 Delphi Method

An objective forecast should have a sound logical framework to ensure its repeatability. Formal forecasting techniques are used to replace subjective opinion with objective data using a replicable method. Even though objective techniques are desirable, there are three situations in which expert opinion (subjective or intuitive method) may be resorted to:

a) When there is no historical data, especially situations in which new technologies are involved, expert opinion is the only possible source for a forecast;

b) When impact of external factors is more important than the, factors that governed the previous development of the technology .Under this condition, forecast using past data is irrelevant;

c) When ethical considerations rather than technical and economic considerations govern the development of a technology.

Under such conditions a Committee approach is normally resorted to. The Committee approach has the following advantages and disadvantages:

Advantages:

i) The sum total of the information available to a group is at least as great as that available to anyone individual.

ii) Committee can bring in interactive aspects which a single member cannot contribute.

Disadvantages:

i) Minority views are normally neglected if either the group is highly bureaucratic or consists of individuals from diverse disciplines.

ii) In a group the tendency is to agree with the majority even when the individual feels that the majority is wrong.

iii) A group has its own way of functioning i.e. it has its own internal dynamics. Reaching an acceptable goal becomes an end in itself. Group members may have vested interests in certain outcomes or a common bias and this can affect the results.

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Delphi is a programmed, sequential questionnaire approach. (The word has its origin in ‘Oracle of Delphi’ in which a group of learned persons used to make forecasts). Instead of an individual making a forecast, a group prepares a forecast but with certain characteristics; (a) anonymity, (b) iteration with controlled feedback (c) statistical group response taking into consideration minority views. Delphi may be characterized as “a method for structuring a group communication process so that the process is effective in allowing a group of individuals, as a whole, to deal with a complex problem."

This "structured communication" is made possible due to four identifying characteristics:

i) Anonymity among the panelists;

ii) Statistical assessment of the group response;

iii) Controlled feedback of individual and group contributions of information and knowledge to all panelists; and

iv) Opportunity to review views given by any panelist.

Operational Details:

Delphi exercises are conducted by a small monitoring team that designs a questionnaire and sends it to a larger respondent group of participants. The participants are usually asked to make an evaluation of the problem under consideration according to some type of rating scheme. Upon receipts of responses to this first-round questionnaire, the monitor team summarizes the results by computing some statistics of the group response. Based upon this first round response, a second-round questionnaire is prepared and sent to the participants, thus giving each participant an opportunity to re-examine his views based upon the feedback of group response. As the rounds proceed, a group consensus evolves. As a general rule, the statistical variance in the ratings reduces as the rounds proceed. Although Delphi technique is applicable for a variety of problems, its principal uses have been in the areas of (i) forecasting and (ii) decision analysis.

Forecasting Delphi:

The original and the most common use of Delphi method is to forecast a future event. Organizations have used the technique to forecast the future demand for their products and to foresee advent of future technology. The usual procedure in the first round is to ask the participants what they expect to happen in the future. In the second round the participants receive the suggestions from the first round and are asked to specify the year in which they expect the suggested events to occur. Thus, the time horizon becomes their rating scale. The monitor team receives every one’s response and calculates a measure of the central tendency and of the dispersion (usually the median and inter-quartile range) for each suggestion. In the third round, all the suggestions, the statistical measures, and any written comments are sent back to the panelists. Given the feedback of group response, they re-estimate when the events will occur. Reanalysis of the statistics usually indicates a narrowing of the inter-quartile range, thereby, indicting that there is a greater degree of consensus among the participants. Additional round can

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generate greater precision, but most Delphi exercises do not generally go beyond four rounds, since little extra information of narrowing of opinion is achieve<t for the effort expended.

Decision – Analysis Delphi:

A newer use of Delphi process has been made to the process of decision-making. Turoff (1970), while developing the idea, calls it "Policy Delphi". He has however, correctly pointed out that Delphi in such uses is not a decision-making tool, but rather a decision-analysis tool. In this type of Delphi exercise, the planning horizon is held constant, and the participants evaluate various objectives or alternatives according to their importance, desirability, feasibility .ease of implementation, or probability of occurrence. The rounds are fairly similar to the forecasting alternative solutions. In the second round, he rates each alternative for its importance, and feasibility, etc. The third round consists of a re-rating, given the statistical feedback of the ratings from the second round. At the end of the rounds, the alternatives can be assessed for the degree of consensus and their worthwhileness according to different rating criteria.

Advantages:

Delphi is always preferable to any other method whenever a consensus of judgment of a large number of informed individuals is desired. Compared to the committee meetings, Delphi has the following advantages:

i) The undue influence of dominant or eloquent personalities is absent.

ii) One need not publicly contradict prestigious personalities.

iii) The tendency to be carried away by majority opinion is absent.

iv) One can always change his views since anonymity is preserved without causing any embarrassment to himself.

v) Diversified opinions of many informed individuals will always be collected in the process.

vi) It economizes on the time required by busy individuals since questionnaires can be filled up at the individual’s convenience.

vii) It is relatively cheap to administer.

viii) It facilitates conceptualizations of difficult phenomena.

ix) It has no geographic and scheduling restrictions to get participants together.

x) It has shown high success in encouraging group and individual considerations of factors that might otherwise be dismissed or neglected in planning.

Common Pitfalls of Delphi:

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Delphi is not without certain drawbacks although it has many advantages. Most of the drawbacks originate due to deficiency in the design of the Delphi study by inexperienced monitor teams. The following is a list of the major deficiencies:

a) The inability to make the Delphi objectives specific;

b) The inability to identify and motivate many "informed individuals" to participate;

c) The inability to stimulate response;

d) The inability to appreciate and highlight consensus and divergence;

e) The inability to refrain from imposing monitor views and preconceptions of a problem upon the respondent group by over specifying the structure of Delphi;

f) Though advanced as a structured communication approach, the method suffers from the following:

i) The communication is too restricted for many problem situations;

ii) The requirement of written feedback editing, and distribution places a high cost on the communication of ideas; and

g) Delphi panelists often give inconsistent views;

h) It does not have any ‘logic’ underlying each prediction and if repeated, it may not give reproducible results; and

i) Although it may produce a high degree of convergence, this convergence does not imply a high degree of reliability.

3.5.2 Forecasting by Analogy

Analogy involves a systematic comparison of the technology to be forecast with some earlier technology that is believed to have been similar in all or most important respects. An analogy will be strengthened if there are several historical cases with parallel outcomes that can be compared to the present case to be forecast.

The use of analogies is subject to the following problems.

1. The lack of inherent necessity in the outcome of historical situations. Here, a forecaster may discover a "model" historical situation, which is then compared with the situation to be forecast. If the two situations are sufficiently similar, the forecast would be that the current situation will turn out as the model situation did. However, the current situation will not necessarily follow the pattern of model situation. Analogies are based on the assumption that there is a "normal" way for people to behave and given the similar situations, they will act in a similar way. However,

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there is no guarantee that people today will act as people did in the model situation. Hence the forecast is at most probable, never certain.

2. The Historical Uniqueness: No two historical situations are ever alike in all respects. Thus it is important to be able to say which respects are important and which can be ignored. Hence, a systematic means for comparing model situations with each other and with the current situation is essential.

3. The Historically conditioned awareness: Even though a historical situation may be judged to be sufficiently similar to the present situation to be called analogous, people may be aware of the previous outcome and act differently in order to secure a more preferred outcome. Hence it violates assumption that there is a "normal" way for people to behave and that they always behave that way.

Dimensions of the Analogies:

We wish to compare a historical or model situation with a current situation in order to develop an analogy between the two. Since we are primarily concerned with the technological change, it is important to compare the two situations on the basis of the factors that affect technological change: the invention of some device or procedure, or adoption of the invention, and widespread diffusion of the invention.

Following factors have affected technological change and it therefore provides a suitable basis for comparing situations for a possible analogy: Technological, Economical, Managerial, Political, Social, Cultural, Intellectual, Religious -Ethical, and Ecological.

The Technological Dimension:

Technologies do not exist in isolation; every technology exists to perform some function desired by people. There are usually alternate ways of performing the same function that compete the technology in question. The technology must also draw some supporting technologies. Finally, the technology must mesh with the complementary technologies that perform the other function.

The Economic Dimension:

Technology is intended to perform some function and will be useful only if people are willing to pay for it. The forecaster must look at the ability and willingness of the relevant people, in both model and present case to pay for the present technology .The relevant cost which is the cost of deploying the entire situation includes the cost of research and development, capital investment, manufacturing costs and maintenance costs. However, in developing the analogy we are concerned not with the rupee cost but with cost of each as a fraction of the total resources available to those supporting the projects. The following are important:

1. We must look at the financial resources available for mobilizing the resources.

2. Market comparison, that is to compare the demand for the technology in terms of market size.

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3. Compare the economic climates in terms of economic theories.

The Managerial Dimension:

It is necessary to compare the levels of managerial capability in the model and current situations relative to the size and complexity of the task. The size depends on the number of people to be managed and their geographical spread. Complexity is measured by the number of different types of activities involved and the number of locations to which these must be carried out. By seeing whether the complexity of the model task is greater or lesser than the complexity of the tasks managed previously the management can decide its future. Finally, it is necessary to compare the managerial techniques. The ability to manage larger projects comes from better managerial techniques and procedures -managerial "technology".

The Political Dimension:

The basic questions about the interaction of politics and technological change are- who gets benefited? and who gets hurt? Those who benefit from the technological change will try to encourage it; those who suffer from it will try to stop it. Hence it is necessary to compare the relative political power of the people who benefit and who get hurt out of it.

The Social Dimension:

Every technological change occurs within the society and it acts on and is acted upon by that society. Hence the forecaster must compare a model situation with the present situation in terms of society into which the innovation was or will be in introduced.

The people making up a society can be characterized in terms of total population, age distribution, geographic distribution, income distribution, and urban / rural distribution and so on. In comparing the two possibly analogous situations the important consideration is not the absolute number but the relative sizes.

Cultural Dimension:

This dimension deals with the values, attitudes and goals of the society into which innovation is to be introduced. These values are like health, comfort, physical security, economic security, productiveness, honesty, fairness, charitableness, courtesy, freedom, justice, beauty, cleanness of concise, intelligence and professional recognition. Different societies and people at different times and places have ranked these in differing order of importance. Since values provide a rationalization for action, they will affect technological change.

Intellectual Dimensions:

Intellectual leaders are decision makers of private and public organizations. These are the people who speak on behalf of prestigious institutions, and opinion leaders such as editors, poets and writers. They may support or oppose the technological change. Their effect on technological change depends upon the extent to which their leadership is followed b others. So, forecaster

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must examine two things here. First examine the extent to which intellectual leaders have following and second look at the way in which the two technologies effect and are effected by the values and goals of the intellectual leadership.

Religious and Ethical Dimensions:

These Dimensions have two components (1) Beliefs that guide ethical judgments and (2) the institutions which propagate or formulate ethical beliefs. Beliefs may affect a technology change in two ways. First, people may oppose or favour technology change on general ground. Some religions do not want to use the particular technology by their people. Second people may oppose or favour a particular technology change because the technology may impact unfavourably or favourably on religious doctrine.

Ecological Dimensions:

These dimensions depend on level of ecological damage that is acceptable to the people involved. All the changes to the natural environment are considered. Analogists should take into account the possibility that the technologies to be compared represent improvements in the ecology, as well as the possibility of their representing threats.

3.5.3 Scenario Generation

Defining Scenario:

A "scenario" or "future history" is a narrative description of a potential course of developments which might lead to some future state of affairs. Scenario is a narrative sketch of hypothetical sequence of future events. A scenario can be very powerful if constructed under the hand of an experienced and talented author, as it can carry the eloquent narrative prose. Some of the famous scenario writes include the names like Herman Kahn, Anthony Miner and Paul Ehrlich. The scenarios describe scene by scene one or more mental images (computers also getting used lately) of the future For the method to be informative, these images should be detached, self-consistent and real.

Scenario Writing:

Kahn and Wiener, through their book "The Year 2000" popularized the concept of scenarios. Though little methodology was available on how to develop them, the book marked a beginning of scenario writing. The relevance of scenarios lies in the fact that plans and forecasts are based explicitly or implicitly on assumptions about the future. Our assumptions about ‘true’ future have been far from correct or complete. Therefore, the scenario concepts also could be described as contingency planning which has long been practiced by governments and business organizations.

Scenario Development:

i) Scenarios consist of a set of statements about future events and trends developed around some underlying theme. For a scenario to be persuasive and thus usable as a basis of planning, it is

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important that these statements be consistent with the theme, and internally consistent with each other.

The potential uses of scenarios are much broader. They can aid in contingency planning, in exploring the possible magnitude and sources of forecast errors, and in judgmental forecasting to reduce the problems of "anchoring".

3.5.4 Brainstorming

Definition:

Brainstorming has been defined as a process of pooling minds to generate ideas which hopefully represent either expert knowledge or collective opinion each with a high probability of being correct.

It has often being assumed that "two heads are better than one". Corollary to this would be the statement that "N+1 heads are better than N heads". Often the state of intellectual development concerning a complex issue is such that we do not have detailed information. Thus we look for the aggregate input generated through interactive process of a group for judgment and decision-making. Brainstorming was popularized by the American Advertising Executive Alex Osborn in the 1930s. It was used to overcome status in business meetings by having all suggestions written down without criticism until all ideas had been noted. The basic features of brainstorming are:

1) It is a group technique.

2) It promotes and supports idea generation and divergent thinking.

3) It is a creative problem-solving technique.

4) Its use results in large number of ideas or possible solutions to a stated problem.

5) The central principle of the technique is that of deferred judgment.

The principle of deferred judgment is crucial in a brainstorming exercise. It is considered more than the conscious suppression of criticism, it is a state in which ideas are dreamed up without self-criticism and presented to other group members who accept the ideas without internal or external evaluation.

Advantages and disadvantages:

The advantages of a brainstorming exercise are:

1) The group interacts and compensates for the bias of individual member of the group.

2) Knowledge of one member of the group may well be compensated for ignorance or speculation on the part of other members.

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Brainstorming has been applied to a wide range of R&D, technological and business problem-solving. This method has been used for following purposes, namely:

3) For obtaining new ideas of products/process/services/procedures;

4) For identifying new uses or market segments;

5) For overcoming bottlenecks;

6) For identifying alternative options or methods.

The disadvantages are:

1) Opinion can be highly influenced by an individual who talks the most and the loudest.

2) The influence of one or more dominant individuals can be most upsetting to the group.

3) In brainstorming, if the session is not organized properly it would result in a "bull session" in which more discussions take place for the interest of some members or a group rather than the problem.

4) Often there are strong pressures for group conformity or avoidance of unpopular and/or minority viewpoints.

Methodology

The classical brainstorming exercise involves a small group, a well-defined problem, and prior awareness of the problem by the group, a co-ordinator, a secretary, and a blackboard. The session may last for 6-9 minutes. The classical rules are:

1) The co-ordinator should remind the group of problem at hand and the rules for brainstorming.

2) Ensure that all participants join in the discussion and the co-ordinator will suppress his / her own ideas as long as the group is generating ideas. The co-ordinator will inject new ideas only when the group does not.

3) No criticism of ideas can be allowed.

4) Keep the ideas short and develop full details later.

5) The co-ordinator writes short, two-word description of all ideas on the blackboard, and the secretary keeps detailed record.

6) If needed, the co-ordinator may reread the ideas to stimulate the group to generate more ideas.

Brainstorming Subroutines:

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Trigger Session: It is a group idea generating process in which members work for a period independently producing a list of ideas. At the end of the given time, each person reads out his list, thus generating stimuli for the rest of the group to produce more ideas. Sometimes a second group of observers are asked to jot down observations and any idea that occur.

Recorded Round Robin: It is better suited to small groups. Here, each member receives a sub problem and three blank cards. He writes the problem on each card and adds one-idea to each card. The cards are then passed on to other members of the group to add new ideas.

Wildest Idea: Here, wildest idea becomes the starting point for brain storming session. These are then brainstormed to produce practical ones.

Reverse Brainstorming: An Osborn -type brainstorming requires solutions to stated problems. In a reverse brain storming exercise, the group is expected to anticipate problems for implementation of a solution to another problem. The above stated subroutines could be followed depending upon the experience, creativity, and situational requirement. One may try as many techniques as possible.

Evaluation of Ideas of Brainstorming Session:

Many ideas of a brainstorming exercise may be wishful thinking having little practical relevance. Such ideas could be listed separately for a morphological analysis and classification. Other ideas have to be screened for their merits for the problem in hand. The client could also be a part of the session or at least he / she could be present in the session. Further, the ideas could be classified under ‘A’, ‘B’ or ‘C’ categories depending upon their novelty, practicability and other merits.

3.5.5 Relevance Trees

A "relevance tree" is an analytic technique that subdivides a broad topic into increasingly smaller subtopics. The output is a pictorial representation with a hierarchical structure that shows how a given topic can be subdivided into increasingly finer levels of detail.

"Morphological analysis" is a complementary technique, often used in conjunction with a relevance tree that is used to identify new product opportunities. This technique involves mapping options to obtain an overall perspective of possible solutions.

Morphological analysis was first applied to the aerospace industry by F. Zwicky, a professor at the California Institute of Technology. Zwicky chose to analyze the structure of jet engine technology. His first task was to define the important parameters of jet engine technology, which include thrust mechanism, oxidizer, and fuel type. He continued, in turn, to break each of these technologies down into its component parts. Having exhausted the possibilities under each parameter heading, the alternative approaches were assembled in all possible permutations: for example, a ramjet that used atmospheric oxygen and a solid fuel. For some permutations, a jet engine system already existed; for others, no systems or products were available. Zwicky viewed the permutations representing "empty cells" as stimuli for creativity and for each asked, "Why not?" For example, "Why not a nuclear powered ceramic fan-jet?"

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Although Zwicky coined the term morphological analysis, the technique predates him and can be traced back to Ramón Lull (1235-1315), according to Lucien Gerardin. Zwicky was the first to use the technique in modern-day applications. The primary use of morphological analysis has been in technological forecasting and new product ideation. However, the technique can also be used in constructing scenarios. The main advantage of the method is that the objectives and the actions to be taken get linked.

A relevance tree is shown in Figure 3.1.

Figure 3.1: Relevance Tree

Relevance tree enables the planner to assess systematically all the interlinked technologies and tasks which could lead to the achievement of an objective. We can then select the most appropriate path to do so.

Applications

Relevance tree is a powerful and general technique with a wide range of applicability. It can be used for identifying new system alternatives and this can be a technique for obtaining divergent solutions to a given problem, or for obtaining a convergence for integrating many of the subsystems.

3.5.6 Morphological Analysis of A Technology System

F. Zwicky introduced the concept of morphological analysis as a systematic way of exploring alternatives in the physical forms of a technology system (Zwicky, 1948). He proposed that one can systematically explore sources for technical advance in a system, by logically constructing all possible combinations of envisioned alternatives in any of these aspects of the system. First, the function of the technology must be clearly stated. A general logic scheme of the functional transformation must then be designed. Then all the physical processes mappable into the logical steps must be listed.

Illustration: Morphological Analysis of a Jet Engine

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Zwicky used the example of alternative structures for jet engines, identifying each major abstracted element (Jantsch, 1967, p. 176):

1. Intrinsic or extrinsic chemically active mass

2. Internal or external thrust generation

3. Intrinsic, extrinsic, or zero-thrust augmentation

4. Positive or negative jets

5. Nature of the conversion of the chemical energy into mechanical energy

6. Vacuum, air, water, and earth

7. Translation, rotary, oscillatory, or no motion

8. Gaseous, liquid, or solid state of propellant

9. Continuous or intermittent operation

10. Self-igniting or non-self-igniting propellants

Application

Morphological analysis is a useful technique for stimulating the thinking process and allows examination of all combinations of alternatives to achieve the objective.

Advantages and Disadvantages

Morphological models can be used to identify requirements for individual technologies of a specific system, but cannot be used to obtain quantitative estimates of relative importance of various technological goals. This is a static model and is not suited to take care of systems that change with time or describe the logical sequence of events.

3.5.7 Technology Portfolio

One useful tool for looking at potential new technologies is to map them on to a simple portfolio model. Typically we can classify new technologies into groups such as:

Basic or generic technologies – Widely available, often not protected by patent and hard to defend as a source of strategic advantage.

Proprietary technologies – Those which the company owns and may have control over – via patents or other protection – or may have specialist knowledge or equipment which would make it hard for others to enter.

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Pacing technologies – The new set of technologies which are now making the running in defining the rules of the game in the marketplace, but may not yet be proprietary or generic. These might include things like the Internet and other communications tools today, and they need to be watched and looked at carefully since they could become sources of strategic advantage for someone.

Emerging technologies – Those which are still a long way from commercial exploitation but which may represent a major force if they come to fruition. For example, current work on ‘nanotechnology’ – building machines and products on very small scale – might become a critical field in the next decade once the technological and market uncertainties become resolved. Technologies of this sort need watching and exploring as they become more significant.

3.5.8 Technology Monitoring

Technology is fast changing. If one has to reduce uncertainty, there has to be a system for monitoring the signals of technological change, followed by analysis of the meaning of signals of change. Forecasts based on trend or growth curves assume that there is a fairly good continuity between the past and future. Hence, these methods are inherently incapable of predicting breakthroughs. Technology monitoring is one of the techniques, which can be used for monitoring breakthroughs through precursor events. Most large manufacturing and trading organizations abroad have formed systems for continuously scanning the technological environment, variously known as technology scanning / monitoring / intelligence etc.

A forecaster has thus to become aware of the diverse events, as they occur, that have a bearing on the technological area, determine their possible significance, ensure they are not forgotten with the passage of time, and relate them to future events as they occur and assess their combined significance. In large organisations where several technological fields are to be monitored, scanning has to be carried out by a team consisting of people from various disciplines. Monitoring process consists of the following steps:

Step 1: Information scanning

Step 2: Screening the scanned information

Step 3: Evaluation of the screened information and development of ideas.

Step 4: Utilization of the evaluated ideas for R&D planning, project formulations, product diversification, etc.

Information Scanning

There is no specified methodology for technology scanning; the general principle is to have access to as much relevant information as the resources permit not only from primary sources like journals/patents documents etc. but also from commercial data exchanges/sources etc. However, the aim is to get data or information related to the technological field on the following aspects:

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i) Competitor’s R&D plans, approach / ideas, manufacturing programme, marketing thrust/share, financial health, etc.

ii) Environment/health of the industry/sector

iii) Government’s policies, incentives/disincentives, regulation/control

iv) Manpower capabilities: educational / skills development, R&D etc.

v) Social attitudes / preferences / prejudices

vi) Demand and supply estimates

Scanning has to be comprehensive to be useful and it has to be done on a regular basis. The scanned information is stored after coding, preferably indicating the source of the information.

Screening of the scanned information

Volumes of information stored may not be of much use to the organisation unless they are, properly screened and subject to further evaluation. It is, therefore, essential that the information of relevance be identified, according to short and long-term objectives of the organisation, for detaiied scrutiny and evaluation.

Evaluation of the screened information and development of ideas

At this stage, the forecaster or the group of forecasters will subject the relevant information to detailed scrutiny and evaluate them in-house or even in consultation with external experts as to their usefulness to trigger newer activities in the organisation. In other words, the forecaster would be in a position, depending on the trend/signal identified on a specific technological field, to advise the decision maker to embark on new plans for initiating appropriate action in areas like R&D/production/marketing/diversification of product range etc.

Utilisation of evaluated ideas

The decision maker would now be in a position to dovetail all relevant inputs i.e. technological forecast, Government policies, financial commitments, business environs etc. in order to make up his mind as to whether particular course of action could be pursued or not.

Applications

Technology monitoring is a useful tool for anticipating changes through continuously monitoring the signals of change, especially for the following:

a) To plan R&D

b) To obtain new ideas on products/process/technology

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c) To identify areas for corporate diversification / investment / collaboration

d) To identify possible sources for technology acquisition/licensing etc.

Advantages and Disadvantages

The advantage of this method is that it can be an efficient early warning device on threats to existing products/process/services; or may provide signals on opportunities for new products, processes or services. It is a useful technique for senior level management and decision makers. The disadvantage of the method is that it is very cumbersome. To enable it to be useful, a team is needed for carrying out the monitoring work and at least two years of basic data collection as well as storage is necessary .The database has to be multidisciplinary and fairly large. Lastly, all these may be possible only in the case of comparatively large corporations or industry associations or government. Comprehensive monitoring systems are expensive and need substantial resources for their regular operation.

Self Assessment Questions III

1. Give examples of exploratory and normative forecasting techniques.

2. For different business activities different TF are suitable. Identify some common business activities and suitable TF methods for them.

3. Explain the methodology of Delphi method.

4. What are the limitations of Delphi method?

5. What is brainstorming?

6. What is relevance tree method? How does it work?

7. Explain the technique of Technology Monitoring and its application.

3.6 Comparison of Methodologies

The choice of selecting an appropriate technique for a particular forecasting exercise is a complex problem. The methodology that is adopted depends on the purpose for which a forecast is being prepared. The approach to be used depends on the following factors:

a) Purpose for which the forecast is being made

b) Reliability needed for the forecast

c) Precision of the available data

d) The time frame for the forecast

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However, a general comparison of the major approaches of forecast (on a 1-10 scale; 1 being lowest and 10 highest is given in Table 3.3 below:

Techniques Use of intuition

Complexity Resource requirements

Identification of alternatives

Individual 10 1 1 YesDelphi 10 3 3 YesTrend Extrapolation

4 1 3 No

Growth Curves 4 4 1 – 2 NoTechnology Monitoring

1 2 6 Yes

Relevance Tree

7 8 4 Yes

Morphological Analysis

7 8 4 Yes

Table 3.3: Comparison of Techniques of Forecasting

(Source from S.C. Wheelright and S. Makridakis, 1973. Forecasting Methods for Management, Wiley, New York.)

The ultimate test of goodness of a forecast is whether it is accepted and used in the decision making process. The forecast must be understandable, credible and meaningful to the decision maker.

3.7 Common Mistakes and Pitfalls

Following is a list of common mistakes and pitfalls in technological forecasting:

i) Failure to use appropriate data

a) Use of unreliable and inconsistent data

b) Failure to use valid, available data due to the use of wrong technique

c) Use of imprecise and incomplete data with a sophisticated techniques etc.

ii) Mistakes in selecting appropriate methodology

a) Use of inappropriate technique

b) Inability to handle intrinsic uncertainties

c) Reliance on single expert

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d) Overemphasis on quantitative techniques, etc.

iii) Lack of imagination in the form of

a) Failure to distinguish between signals and noises

b) Acceptance of trends as rigidly continuing

c) Reliance on limited information

d) Neglecting uncertainty, etc.

iv) Biases introduced by personal factors -

a) Vested interest of the forecaster

b) Unwillingness to alter other previous commitments

c) Over optimism or pessimism

d) Avoiding unpleasant courses of action, etc.

Self Assessment Questions IV

1. What is the basis for selecting a suitable technique for technology forecasting?

2. List out the common pitfalls / drawbacks of forecasting.

3.8 Summary

The seeking or anticipation of technological innovation has been called technology forecasting (TF). Over the years, fairly tried and tested techniques have been developed for TF. However, the forecaster has to select the appropriate methodology or a combination of methodologies to make his forecast understandable and credible. This depends upon the nature of technology forecast and availability of reliable data. The forecast, if appropriately and judiciously made, could serve as a valuable tool for decision making for applying mid-course correction in a plan, or for launching new activities or businesses with a view to achieve the desired objectives. It may be emphasized that a forecast never forces a decision. The decision maker has all the freedom at his disposal to act judiciously and he is not bound by the outcome of a forecast. In fact, the forecast makes him aware of alternatives which he might not have otherwise discovered and thereby it increases his freedom to act the way he thinks best and helps him to improve the quality of his decision.

3.9 Terminal questions

1. ______ is a programmed, sequential questionnaire approach of forecasting.

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A) Explicit forecasting

B) Delphi

C) Linear trend analysis

D) Growth curve

2. Pick out the correct statement.

A) The measure of the value of a forecast is its validity, in terms of whether or not it comes out true or not.

B) The measure of the value of a forecast is its ability to fetch a good return to the user.

C) The measure of the value of a forecast is its utility in helping the decision maker to make a timely and correct forecast.

D) All of the above

3. State True (T) or False (F).

i) Time period and nature of technology are two of the four elements of a forecast which could be specified and /or estimated.

ii) ‘Anticipating emerging technology changes’ is one of the purposes of technology forecasting.

iii) It has been observed that the growth pattern of many of the biological systems follows an ‘S’ shape curve.

iv) Relevance tree is an exploratory method of technology forecasting.

A) T, T, T, F

B) T, F, T, F

C) F, T, T, F

D) T, T, F, T

4. The seeking of or anticipation of technological innovation has also been called ______.

A) Invention

B) Technology forecasting

C) Renovation

D) Technology development

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5. Which forecasting approach begins from the future and works out desired landmarks backwards to the present state?

A) Delphi

B) Trend analysis

C) Decision tree

D) Normative

6. Trend Correlation is a _________ forecasting approach.

a. Normative

b. Intuitive

c. Extrapolation based

d. Growth curve based

7. Technological Forecasting method suitable for a business activity such as “searching for relevant scenario” would be ___________.

A) Technology monitoring

B) Growth curves

C) Morphology

D) Modeling & Simulation

8. The basis of __________ as a forecasting method is that ideas should not be evaluated at the generation stage during which many new ideas emerge.

A) Delphi

B) Trend analysis

C) Brainstorming

D) Scenario building

9. One major drawback of __________ forecasting method is that it does not have any ‘logic’ underlying each prediction and if repeated, it may not give reproducible results.

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A) Cross impact analysis

B) Brainstorming

C) Curve fitting

D) Delphi

10. Which of the following is not the purpose of technology forecasting?

A) Planning for technologies for future requirements;

B) Developing a prototype of any new product;

C) Anticipating emerging technological changes;

D) Scanning the technological environment

11. What is Technology Forecasting? Explain its role at national and enterprise level.

12. What purpose does a technology forecast serve?

13. What is understood by exploratory and normative methods of technology forecasting?

14. What are the common pitfalls in technology forecasting?

3.10 Answers to SAQs and TQs

SAQs I

1. Refer to 3.2

2. Refer to 3.3

3. Refer to 3.3

SAQs II

1. Refer to 3.4

2. Refer to 3.4

3. Refer to 3.4

4. Refer to 3.4

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SAQs III

1. Refer to 3.5

2. Refer to 3.5

3. Refer to 3.5

4. Refer to 3.5

5. Refer to 3.5

6. Refer to 3.5

7. Refer to 3.5

SAQs IV

1. Refer to 3.6

2. Refer to 3.7

Answers to TQs:

1. B

2. C

3. A

4. B

5. D

6. C

7. A

8. C

9. D

10. B

11. Refer to 3.1 & 3.3

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12. Refer to 3.3

13. Refer to 3.5

14. Refer to 3.4

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Unit-04-Aspects and Issues in Technology Management

Structure:

4.1 Introduction

Objectives

4.2 Technology Life Cycle

4.3 Diffusion and Growth of Technologies

4.4 Technological Transformation

4.5 Technological Alternatives

4.6 Technology Policy and Policy Instruments

4.6.1 Policy Instruments

Self Assessment Questions I

4.7 Technology Planning

4.8 Technology Development Options and Strategies

4.9 Technology and Socio-economic Planning

4.10 Technology Change

4.10.1 Characteristics of Technology Change

4.10.2 Classification of Technology Change

4.10.3 Value Additions

4.10.4 Rate of Technology Change

4.10.5 Impact of Technology Change

4.10.6 Determinants of Technology Change

Self Assessment Questions II

4.11 Production Functions and Technological Change

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4.12 Nature of Technological Change

4.13 Information Technology Revolution

4.14 Macro Effects of Technological Change

4.15 Summary

4.16 Terminal Questions

4.17 Answers to SAQs and TQs

4.1 Introduction

In the first unit, we have discussed the concepts and definitions related to Technology and Technology Management at national and enterprise levels. In this unit, we will discuss some of the issues and aspects concerned with technology. These aspects include Technological Change, Technology Life Chain, Diffusion and Growth of Technology, Technological Transformation and Technology Alternatives, Appropriate Technology, Technology Policy and Policy Instruments, Planning, Development Options and Strategies, etc. There are many more issues, some of which have been discussed in other units at relevant places.

Technological growth is the result of new inventions and innovations. Every invention is something new and in most cases, it is a combination of already existing technological elements. An invention becomes innovation when applied for the first time. An innovation which has little disruptive impact on behaviour pattern is called a continuous innovation (e.g. Fluoride tooth paste). In such cases alteration of an existing product rather than creation of a new product is involved. There are also dynamically continuous innovations which do not involve new consumption patterns but involve the creation of a new product or the alteration of the existing one (e.g. electrical tooth brush). Further, there are discontinuous innovations which involve the establishment of new behaviour patterns and the creation of previously unknown products such as automobiles, televisions, computers etc.

The process of technological change is clearly linked to innovation. Technological change occurs through substitution and diffusion. The simplest form of technological substitution occurs when a new technology captures over a period of time a substantial share of the market from an existing older technology. The new technology is better and economically more viable. Thus after it has gained small market share, it is likely to become more competitive with time. Therefore, once a substitution has begun, it is highly profitable to eventually take over the available market. This is a simple one-to-one technological substitution process. A good example is the introduction of colour television in the place of black and white television.

Objectives:

At the end of this unit, you will be able to:

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· Explain the need and importance of technological change, technology life cycle, and technology transformation.

· Justify the need and role of technology policies and policy instruments;

· Analyze technology development options and strategies available to an organization;

· Appreciate the importance of linkage between technology issues and socio-economic planning process;

· Brief on some of the considerations that govern the development of technology and its management;

· Explain the meaning of technological change and its effect on factor substitution;

· Identify the nature of technological change and categorise it in terms of its magnitude;

· Appreciate the impact of IT on products, services, processes, and organizations;

· State the macro-effects of technological change;

4.2 Technology Life Cycle

The life span of various technologies can be conveniently identified as consisting of four distinct stages, all of which taken together form the ‘Technology Life Cycle’. The stages of technology life cycle are innovation, syndication, diffusion, and substitution.

Innovation stage: This stage represents the birth of a new product, material or process resulting from R&D activities. In R&D laboratories, new ideas are generated by ‘need pull’ and ‘knowledge push’ factors. Depending upon the resource allocation and also the change element, the time taken in the innovation stage as well as in the subsequent stages varies widely. You will recall we had discussed the terms “innovation” and “invention” in the previous Unit.

Syndication stage: This stage represents the demonstration (pilot production) and commercialization of a new technology (product, material or process) with potential for immediate utilization. Many innovations are shelved in R&D laboratories. Only a very small percentage of these are commercialized. Commercialization of research outcomes depends on technical as well as non-technical (mostly economic) factors.

Diffusion stage: This represents the market penetration of a new technology through acceptance of the innovation by potential users of the technology. But supply and demand side factors jointly influence the rate of diffusion.

Substitution stage: This last stage represents the decline in the use and eventual extension of a technology due to replacement by another technology. Many technical and non-technical factors

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influence the rate of substitution. The time taken in the substitution stage depends on the market dynamics.

4.3 Diffusion and Growth of Technologies

There is another way of looking at the technology life from the perspective of growth and diffusion.

Every technology eventually reaches a decline phase owing to the development of better technologies (in terms of performance and/or cost). In other words technological change occurs through ‘substitution’. The process of technological advancement through substitution is shown schematically in Figure 4.1. Most technologies follow an S-shaped growth pattern. However, it has also been observed that, although a particular technology eventually reaches a stage where it has limited use, new technologies are developed to achieve further growth with respect to any particular ‘figure of merit’ (i.e. index of particular requirement). For example, if one takes the speed of passenger travel as a ‘figure of merit’, then Technology T1, is a propeller aircraft, T2 is the turbo prop aircraft and T3 is the jet aircraft. Each of these technologies normally shows an S-shaped improvement over time. Moreover, the overall growth of these successive technologies (representing a system of high order, characterized by a successive technologies (representing a system of high order, characterized by a succession of discontinuous innovations) also exhibits an S-shaped growth pattern.

Figure 4.1: S–shaped growth of technologies

(Source: Technology for Development, UN-ESCAP, 1984)

The hardware intensive technology diffusion process can be considered to consist of five phases. The first is the ‘incubation phase’ where many ideas are gradually reduced to one commercial product for introduction into the market. Next is the ‘introduction phase’ where the applications of the new technology are very slow. Later when the number of applications increases rapidly, the technology is in its ‘growth phase”. After sometime its growth reduces and some stability can be observed in the ‘maturity phase’. Finally, an improved substitution makes the technology obsolete and hence it enters the ‘decline phase’. It may be noted, however, that time taken for these different patterns varies widely. The introduction, growth and maturity phases of a technology are also referred to as the three major stages of ‘Technology Life Cycle’.

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4.4 Technological Transformation

It is recognized that it is neither possible nor desirable to try to develop technology in every sector when one talks of building up indigenous technology. Nevertheless, it may be highly desirable that in carefully selected areas of production there is a vertical integration with respect to all stages of technological transformation necessary to put a product on the market, starting from the natural resources.

The technological transformation in the production of goods starts from nature and eventually goes to the market. In between there are five major stages of transformation. The first stage is called the ‘collective stage’ and includes such operations as extracting, mining and farming. Stage two can be called ‘refining stage’ and includes operations such as purification, preservation and metallurgy. ‘Processing’ can be deemed as third stage were chemical and electrical conversions take place. The fourth stage is the ‘manufacturing stage’ which refers to all kinds of mechanical conversions and fabrications. The last stage is ‘packaging stage’, where things are assembled and packaged for dispatch to the markets. There are considerable variations in the technology content added to the product at each of these five stages.

4.5 Technological Alternatives

Nations that spend relatively large amounts on R&D in an industry tend to be relatively quick in reaping the benefits of new technology, even though they may not be the original innovators. Both for nations and the individual firms, R&D provides a window to developments in various parts of the outside world, enabling the nation or the firm to evaluate external developments and react more quickly to them. For the developing countries most important question is that of making strategic choices regarding the areas of specialization. This is a complex task because of innumerable choices and alternatives for each area of technology. To illustrate, in the area of energy and materials technology, alternative objectives can be: more efficient use of energy or materials; natural resources surveys; new and renewable energy resources: non-conventional sources of energy; widening the raw materials base, conversion and recycling of raw materials.

4.6 Technology Policy and Policy Instruments

The need for technology policy springs from an explicit commitment to a national goal and the acceptance of technology as an important strategic variable in the development process. Technology policy formulation ought to naturally follow the establishment of a development vision or perspective plan. This plan is characterized, among others, by a desired mix of the goods to be produced and services to be provided in the country in the coming one or two decades. The formulation of a technology policy begins with the establishment of a vision for the country and the corresponding scenario of the mix of goods and services to be produced and provided. The policy framework has to be broad and flexible enough, taking into account the dynamics of change.

A technology policy is a comprehensive statement by the highest policy making body (Cabinet/parliament) in the Government to guide, promote and regulate the generation,

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acquisition, development and deployment of technology and science in solving national problems or achieving national objectives set forth in the development vision or perspective plan.

The technology policy declaration usually contains several commitments on behalf of the Government and some categorical assurances. The policy, among other things, commits the authority to ensure:

· Establishment of institutional facilities for relevant knowledge dissemination and skill development for stepwise absorption of imported technology.

· Provision of facilities for productive utilization of research results and generation of indigenous technology.

· Development of support facilities like information and documentation services, standardization and quality control.

· Adequate support to emerging technologies with an eye on future utilization in production sector.

· An optimal blend of indigenous and imported technology.

The Indian Government had announced a comprehensive Technology Policy Statement in 1983, the details of which are given in unit 10.

4.6.1 Policy Instruments

Policy instruments are the links between the expressed purpose and the results that are sought in practice. There are both direct and indirect policy instruments. The direct ones refer explicitly to technology functions and activities. The indirect ones, although primarily referring to policies, functions or activities other than technology, have an important indirect effect on S&T activities. A policy instrument is a complex entity and may directly or indirectly affect activities or influence the results of resource deployment. Different policy instruments are listed below:

· Policy instruments to build up S&T infrastructure.

· Policy instruments to regulate technology import.

· Policy instruments to define the pattern of demand for technology.

· Policy instruments to promote the performance of S&T activities in the enterprises.

· Policy instruments to support the performance of S&T activities.

Self Assessment Questions I

1. List and explain the stages of technology life cycle.

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2. What is technology policy?

4.7 Technology Planning

With the emerging role of technology as a master key for development, integration of technological considerations in the national socio-economic development, planning process and strengthening of national capabilities for effective importation, generation and utilization of technologies have become imperative. There are no unified technology planning procedures; however, the objectives of technology plans are usually expressed as under:

a. Importation, adaptation and modification of technologies produced elsewhere.

b. Advancement of technology development capability in the country.

c. Creation of a climate for the acceptance of the need for technological change.

Common procedures followed include macro level planning, micro level planning and project level planning. Several problems are normally experienced in the procedure. At the national level there is a dominant concern regarding the unemployment aspects of technological change. It is important to realize that all processes of modernization and change result in some structural unemployment. The employment situation changes continuously with the advancement of technology. Therefore, it is essential to explore opportunities for achieving structural changes and expansion of the base of production facilities.

4.8 Technology Development Options and Strategies

For all the countries, the most practical strategy for technology development is to ‘make some and buy some’. This gives the advantage of selecting an appropriate area of specialization and the potential to exploit the technology trade in the international market place.

The complex process of technology development is schematically presented in Figure 4.2.

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Figure 4.2: The Process of Technology Development

(Source : Technology for Development, UN-ESCAP, 1984)

The technological needs are derived from national socio-economic goals. A country’s technology development strategy is then determined by combining these identified technological needs with potential technological developments in the world and a thorough assessment of available and emerging technologies. Then the country determines a strategy to import technologies which can be produced locally. Now, there is a universal realization that unless a concerted attempt is made to build local technological capabilities for absorbing imported technologies, any attempt to develop indigenous technologies encounters enormous difficulties. Even with regard to imported technology, it is essential for a country to be able to select, digest, adapt and improve it for local consumption. All of these efforts justify greater priority and allocation of resources to R&D. A pre-requisite for effective utilization of R&D resources is the development of technological infrastructure within the country, including institution building, manpower development, provision of support facilities and creation of an innovative climate.

4.9 Technology and Socio- economic Planning

Successful integration of technological considerations into the socio-economic planning process is very essential. It is necessary that the national development strategies should include specifically the dimension of technology development. In developed countries there are adequate pressures for technological considerations within the various sectors of their economies. But in developing countries, integration of technological considerations with economic planning at the highest level is required in order to achieve technology-oriented development in priority sectors. Figure 4.3 presents a general framework for integrating the technological considerations in the national development planning process.

The integration of technological aspects should extend significantly beyond mere screening of imported technologies to the formulation of policies and guidelines. They must be directed to generate and promote demand for local technologies and technological capabilities. Moreover, the insertion of technological considerations in socio-economic development planning involves both the explicit introduction of the technology issue at all phases of the planning process and identification of implicit technology policies derived from the national development plans.

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Figure 4.3: Integration of technological considerations in national development planning

(Source: Technology for Development, UN-ESCAP, 1984)

4.10 Technology Change

We have seen that technology includes knowledge – knowledge that is embodied and tacit. Firm-specific knowledge is the sum totality of all the knowledge within a firm.

Technology change may be defined as “the addition of new knowledge to the existing knowledge, usually to allow things to be done in what are thought to be better ways and sometimes, to do new things altogether.”

Let us try to visualise the relationship between invention, innovation and technology change. Take the example of Gold Star TV introduced in India. A technology invention had taken place in the USA/Europe, product innovations occurred in Japan and a technology package incorporating those inventions and innovations is sold to an Indian firm by the South Koreans to upgrade its existing technology. That technology package sold is ‘the Technology Change". Technology earlier used by the recipient Indian firm was also base on the same invention and incorporates most of the product innovations; still there is a difference. Technology change is the accumulated body of knowledge including all manifestations; innovations, imitation, adaptation or adoption, improvement and development of both the existing products and processes and the introduction of novel production methods and products based on the new technology.

4.10.1 Characteristics of Technology Change

The transition from the old to the new technology is characterized by the creation, addition, alteration and sometimes even obsolescence of tasks, functions and their dependent occupations. All these can be grouped into three categories. .

· Nature and rate of technology change

· Impact of technology change

· Determinants of technology change

In the first group, we will try to find the common threads for the innumerable changes swamping the globe. The second group takes up its effects -direct and indirect. Finally, in the third group, we will try to figure out what causes these changes.

4.10.2 Classification of Technology Change

Some of the technology changes are better noticed than others. For instance, changes that result in new products like Walkman get media headlines, but changes in process equipment that result in an increase in the capacity utilization from say 65 per cent to 70 per cent hardly find mention

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even in the firm’s own reports. So, one way to classify the change is to base it on the extent of its influence across the firm and across the sectors.

Following the innovation typology, these could be called:

· Incremental changes

· Entrenching changes

· Altering changes

Incremental Changes

We are all familiar with the incremental changes in the consumer products – Lux, New Lux, International Lux, white colour Lux, pink colour Lux and so on. Similar changes occur in technology, though often not visible to the layman; for example, printed circuit board, single side printed circuit, both sides printed circuit, multilayer printed circuit board; integrated circuits, large integrated circuits, large-scale integrated circuits; Bajaj, Bajaj Super, Bajaj Deluxe, Priya, Chetak, etc.

These incremental changes can be further classified as:

· One-to-one substitutions

· Value additions

1) One- to-one Substitution

Substitution of imported materials like components and bought-outs, with locally available products are common across the sectors. One-to-one substitutions do not aim at improvements in the product or the process.

· Maruti cars have changed the landscape of the Indian roads. The original Maruti that was assembled with Suzuki parts has undergone several changes. Many parts have been substituted with the locally made ones. Today the steering in your hand is probably supplied by Sona Steering, brakes by Brake India, radiator by Indian Radiator, shock absorber by Stallon Shox Ltd., and seats by Bharat Seats, etc.

The scene is the same with most other products. The substitution is both horizontal and vertical. First a TV manufacturing company like ECIL substitutes an imported picture tube with a picture tube made by Samtel (India). Samtel replaces the imported electron gun with a Glow Tronics made electron gun. Glow Tronics in turn uses metal parts made by Bharat Electronics. The net widens as the substitution goes on.

4.10.3 Value Additions

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These incremental changes are aimed at improving the product/ process. It can be in the form of:

· Product improvements

· Process improvements

· Know why investigations

· Process simplification

· Component reduction

· Reduction in set up time

· Standardization

Some examples reported by the industry are given below.

Product Improvements – What is the difference between NIRODH and SHARE? SHARE is a NIRODH applied with a spermicidal agent called Nonoxynol-9 along with silicon oil. Looking at the popularity of spermicidal condoms abroad the manufacturer, Hindustan Latex Limited, imported a few samples, analysed and diagnosed the chemicals, sourced them and after several tests launched SHARE, a better product.

Conventional harvesters now have a cousin – it is called Stripper Harvester. It uses a comb-like mechanism to strip grains or seeds from the plant, leaving the stalk in the field. So it works faster, gives an output of some 40 tons of wheat per hour as compared to 20 tons by the conventional harvester and causes less damage to the soil.

Process Improvements – American diamonds are processed by about 30,000 artisans in India. Traditionally, a large crystal was taken and broken into pieces by hammering it. This was subsequently improved using a tin blade coated with diamond powder to make a notch to hammer. Now they use a diamond plate blade driven by a high speed motor to slice it.

Southern Pesticide’s imported plant had a glass reactor which broke very often. Indian Institute of Chemical Technology, after simulation studies, reconfigured the reactor design. In the reactor chlorination reaction releases heat and this heat was removed by a cooling U tube bundle kept inside the reactor. This is now replaced with a glass lined steel reactor with external heat exchanger.

Know-why Investigations – Hindustan Organic Chemicals Ltd. produces Phenol at its Cochin plant, under collaboration with M/s Universal Oil Products Inc., USA. They have taken up a joint project with National Chemical Laboratory, Pune to conduct mathematical modeling and computer simulation of the distillation train, to understand the know-why aspects of the process. This know-why study provides them with the basic knowledge of the plant parameters so that

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they, on their own can manage changes in the feed, change of catalyst and other operating conditions.

Standardisation – Bharat Earth Movers manufacture a wide range of earth moving machinery with technology received from several collaborators. They have realized that for the same size they had to manufacture many varieties of gear pumps, each based on the respective collaborator’s designs as they are not interchangeable. They took stock of the situation, checked their requirements and developed four standard modules of gear pumps for their entire range from 8 to 250 cc/revolution.

These incremental changes are not based on new inputs. The existing knowledge is reconfigured to achieve a higher output from the given system. This is a relatively smooth process.

Entrenching Changes

These are also incremental changes, continuing with relentless zeal and ultimately end up as significant developments. Accumulation of knowledge is central to this. Knowledge is extended and reinforced.

They can take the form of:

· Product-mix enlargement

· Modernisation / expansion

· Process standardization

· System building

Two prominent examples ate Bajaj and Telco where all the four types of changes have taken place on a continued basis entrenching their position as market leaders. A few other examples are given here.

Product Mix Enlargement

Larsen & Toubro (L&T) manufactures dot matrix printers at Mysore. They enlarged their product mix by developing a 24 needle dot matrix printer-model 32/324; heavy duty 9 needle dot matrix printer-model 32NS; 300 CPS 9 needle dot matrix printer with superior paper handling features model ‘Paragon’ etc.

Modernisation / Expansion

Additions to capacity had started in a big way in the 80s with emphasis on minimum economic size. Indian fibre industry had been allowed to increase its plant capacities to achieve better scales of economy. Minimum economic plant capacities were identified for various textile fibres. For Nylon Filament Yarn (NFY) the minimum capacity recommended is 12,000 TPA though

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existing capacity of 12 manufacturers varied from 3500 to 6200. For Nylon Tyre Cord (NTC) the minimum capacity recommended is 10,000. Out of the eight existing manufacturers, only one has the capacity in excess of 10,000. For Polyester Filament Yarn (PFY) the recommended minimum capacity is 30,000. Out of sixteen, only four have the capacity in excess of 15,000, but still less than 30,000. For Polyester Stable Fibre (PSF), the minimum capacity is 50,000.

Out of the twelve existing manufacturers, five have the capacity of 30,000 and above but still less than 50,000.

Firms like TISCO increased their capacities by balancing and modernisation. Textile sector added to its capacity by replacing old spindles with high productivity machines. By planned additions, Bajaj has now expanded its capacity to be world’s number two. Ballarpur Industries Ltd., became a major player in paper and pulp with plants in India, Thailand and Indonesia.

Process Standardisation

In semiconductors, an important trend noticed amidst all the complexities is that though products are wide and diverse, standardization is taking place at the process level. Process standardization has been going on to improve the manufacturing, essentially to make it more precise in terms of "line definition", defect elimination and super miniaturization. While basic process modules remain the same, newer doping materials, improved process conditions, change in processing methods, etc. are periodically innovated. One wonders if the final direction wol1ld be to end up with a unique BICMOS process, capable of handling all types of circuits by augmenting or curtailing certain parts of the processing cycle.

System Building

For running the synthetic fibre plants, one needs auxiliary support like fibre finishes, anti-oxidants, anti-static agents, delustering agent precision engineering components and tools, metering pumps, valves, seals, spinnerettys, etc. Over a period a mutually supporting system has been developed in the USA, Japan, etc.

As we have seen in the review of concept on knowledge in standard operating procedures, JIT practices exemplify system networking.

Entrenching changes do not call for organizational changes. They modify the existing methods but proceed in the same direction. Their benefits tend to accumulate and could result in strategic advantages for the firm.

Altering Changes

These changes call for an overhauling of the system and the structure. They reshape the entire configuration through the introduction of markedly different equipment, raw materials, form of knowledge and physical contexts. For example, consequential use of all major innovations such as locomotive, motor car, aircraft, telegraph, telephone, radio and now automation in offices, design, factory, etc. They can be in the form of:

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· Miniaturisation

· Automation

· Dematerialisation

· Intelligence incorporated

· Genetic engineering

A few examples are:

Miniaturisation

From the 60s onwards, electronic technologies have concentrated on super miniaturization or compressing greater performance into smaller volumes. Today’s VLSI has over a million elements. Design geometrics have shrunk below one micron level. The computer that not long ago occupied a full room now fits in a hand. Miniaturization has cut the internal volume of an average cellular telephone by a factor of 1000 in little more than a decade.

Automation

Automation in office, automation in factory, automation in bank, automation in coffee shops – everywhere automation is the key word. Several thousands of pick and place robots are in use in Japan. Automation is no longer planned as a replacement-for costly labour. They are now seen as indispensable to maintain the close tolerances and zero rejection demanded. They have changed the factory layout itself. Look at this wafer fabrication unit.

Wafer Fabrication Unit – Ultra precision in products, design, processing and equipment is linked to the corresponding precision and cleanliness in the factory environment which includes – personnel, ambient, consumables, water and power.

The factory layout itself is designed as a "shell-within-a-shell” with stepwise increase in precision from shell to shell. The human traffic drops by an order of magnitude as one progresses to the inner shells. In the ultimate, the most critical process steps are nowadays designed not to require human handling, with wafers being carried on "air-tracks" from stage to stage or in cassettes handled by robots.

Dematerialisation

In High Tensile Fastener industry, cold forming is the new technology. Compared to hot forming traditionally used, cold forming offers several advantages. Most important are the savings in material cost. Lower cost material like plain carbon and low alloy steel can be used in place of heat treated alloy steels. When parts are made by cutting, in hot forming technology, the material wastage is around 80 per cent. With cold forming the material wastage is reduced to 20 per cent.

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Use of cheaper material and lesser quantity of material for the same product is the trend in all the industries.

Intelligence Incorporated

The power of softwarisation or building in intelligence and systems is increasingly felt. Microprocessors and memories become unit components in such systems and system functioning is decided by the software changes rather than circuit modifications. From credit card to intelligent home programmable logic controller to expert system, softwarisation of equipment and service is at play. Self-healing Digital Signal Processing (DSP) devices were developed at General Electricals R & D Centre by Dr. Abhijit Chatterjee. These are used in mission critical application such as Satellite. The self healing circuits detect and correct intermittent faults caused by loose connection of marginal components, transient faults caused by electromagnetic interference and permanent faults such as grounded signals.

Genetic Engineering

The milkman has not changed much but his cow (or buffalo) has changed a lot. They are no longer bred by the owner assisted by the roving village bull.

The scientists at ET centre at Sabarmati Ashram Gaushala in Gujarat inseminated a Holstein cross-bred cow with semen from an elite bull and using hormonal injection super-ovulated the cow to produce as many as 15 embryos. These embryos were flushed out and implanted into the womb of foster mothers. These foster mothers gave birth to 11 identical calves; a mother of 11 in one year!

Most of these changes pose a problem even for large firms. A large engineering industry was set up 30 years ago, with a casting shop, forging shop, light machine shop, heavy machine shop, heat treatment shop and fabrication shop to manufacture capital goods. The best engineers were recruited and trained at the best of fields. How comfortable it is with the changes in technology? as comfortable as one could be in alien waters. All these years they had built up expertise in metallurgy and mechanical engineering. Micro-electronics, the epitome of new change, had no masters ill the company. It was not a subject studied by any of their senior engineers.

4.10.4 Rate of Technology Change

The frontiers of technology are never static, but they are never so volatile. The changes are proceeding at such a pace, totally unknown and unpredicted even a few decades ago. It took more than a century for steam engine technology to travel from England to Japan. But now the technological changes can propagate much faster and broader owing to the international exchange of information and people with the development of communication and transportation. For example, transistor was invented by W Shockley, J Bardeen and W H Brathain at Bell Telephone Laboratory in 1948. Three years later, it was applied to radio by Sony in Japan and transistor radios were mass produced and sold allover the world several years later.

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In India, it took several decades for the transistor radios to replace the old vacuum’ tube radios. Now Philips introduces Eurolook Audio and Video with a gap of one to two years.

The rate of technology change determines the time left to the firm to market a given product. There is a time frame for the development and utilization of all R & D projects. The general classification used is: 3 to 18 months for development projects; 1 to 3 years for applied .research, 2 to 7 years for basic industrial research, 5 to 10 years for fundamental research and no time horizon for pure basic research.

4.10.5 Impact of Technology Change

Accelerated technology changes have impacted, not only to render obsolete. organisational strategies but they also invalidated past , premises and assumptions normally relied upon by the industry.

Technology changes at the firm level to technology changes at the sector level and the economy as a whole. How are the firms affected by technology change? Technology changes can have different levels of impact, depending on their pervasiveness and the structure of organization and society. In earlier decades, a time dimension seemed to exist that permitted individuals, organisations and societies to adapt to change gradually, as a natural evolution.

Direct impacts

Direct impacts of the technology changes are very visible. Removing the bottlenecks increases output and modern machines improve labour productivity. However the ever-increasing global scales (in spite of the talk on flexible specialisation), increase in investment levels, shortage of specialised skills and shorter product life cycles are not so favourable. Direct changes can be listed as under:

· Productivity increases

· Improvement in capacity utilisation

· Introduction of new products

· Increase in plant scale and plant costs

· Organisational changes

Productivity Increases

Though the productivity jumps, with changes like introduction of shuttleless loom, are well-known, the benefits of incremental innovations are at times glossed over. Bharat Heavy Electricals reported that an additional generation of 2,000 MW power is possible by utilising a small change that they have perfected. This novel process calls for a reduction of the thickness of

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insulation on copper wires used in the turbine. This change will give 10 per cent more output than the old turbines in use in hydro power plants.

Introduction of New Products

We all take medicines mostly tablets and capsules. There is always a nagging suspicion that the dosage could be wrong, and worse, could result in a serious side effect. New drug delivery systems like transderma drug delivery system replace this traditional method. Here, laminated patches are stuck on to the skin and they permit absorption of drugs drawn from the skin surface through its layers into the general blood circulation, at controlled rates, resulting in sustained blood levels.

Increase in Plant Scale and Point Costs

In the early days of electronics many of the innovations were relatively cheap to implement. The products were small and final assembly could be done by .hand with ii low degree of capital intensity. The position changed substantially after 1975 as a consequence to international competition and technical change. The micro-electronics industry was transformed as the increasing densities of component on a chip necessitated resolution limits approaching the wavelength of light. The cost of new production equipment for each new scale of integration has consequently risen to levels at which venture capital is not available.

Organisational Changes

By making redundant or radically altering old functions and generating new ones, technology change can also change the relative importance of functions.

· The major process innovation in the post 1945 ship-building industry, introduction of welded hull to replace riveting affected the division and occupational structure of ship-building in quantitative terms. Welders have come into prominence. Changes in telecommunication have made telegraph operators redundant. Next to follow could be the linemen, trunk operators, switch board operators etc.

IBM acquired 30 per cent stake in Intel, manufacturer of chips, moved into telecommunication with Rolm, a digital equipment manufacturer and MCt a competitor of AT & T on long-distance telephone transmission. IBM operates R&D from 26 laboratories worldwide, in order to gain access to technology from as many and as wide a range of source as possible.

Indirect

Though it was commonly agreed that technology changes improve or reduce competitive strengths, there is difficulty in relating them to specific changes, especially incremental changes. Some of the indirect effects will reflect on:

· Competitive performance

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· Attracting experts

· Company image

Competitive Performance

The list of Fortune 500 companies is ever-changing. Many were new entrants, not heard a decade earlier. They all galloped to the top, riding the technology wave. The impact of incremental change is less discernible. Properly managed changes add to the firm specific knowledge. This incremental knowledge will help them in their technology negotiations. They are in a better position to specify, select and assimilate more radical changes.

· Korea Institute of Science and Technology promoted Korea Optical Fibre with two Korean firms to manufacture optical fibre. After doing some R&D work, this venture was dissolved due to the formation of a new joint venture with AT & T and Sumitomo. Do they regret this failure? To quote Hyung Sup Choh, Member, National Academy of Science, "this first company was certainly catalytic in bringing advanced technology to Korea. It recovered its investment and the two business partners made unseen profits through tougher negotiations during the technology transfer"

4.10.6 Determinants of Technology Change

We have seen the nature of technology changes and their impact. What causes these changes? Whom do they intend to serve? Technology changes do not originate in vacuum. The economic and social conditions of a country (technical infrastructure, prices, markets, competition. etc.) constantly change over time necessitating continuous generation of technology change in the relevant production system. Technology changes of so much concern and significance to our lives are to a great degree determined by the social and economic environment of the rich industrialized countries. In the developed countries, the prominent factors that shape the changes are:

· Nature of production technology in question

· Market structure

· Environmental factors

· Availability of men, materials, energy, etc.

· Catalysers

In developing countries like India, the most predominant factor is government policy and to some extent, distance from state-of-the-art technology.

A few illustrations are given below.

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Market Structure

Garments are major export earners to India and many other developing countries with low wage levels. To counter this, European fibre producers have moved away from commodity fibre and focused on specialities and new high-tech fibre. They concentrated on strong niches, such as high fashion goods, carpets, home furnishings, hosiery and industrial fibre. High-tech fibre such as aramide, carbon fibre, etc. were developed. To manufacture high quality fabrics, new machinery like shuttleless looms were developed and exported.

Environmental Factors

Petrol is generally used as a commodity, though a costly one. Well, it can also be differentiated. Use of catalytic converters in cars to reduce pollution has given a boost to the production of lead-free petrol. Similarly, there are newspapers that bring us news on a paper bleached without using chlorine. Clean technologies may ultimately follow the footsteps of alternate energy technologies; they are already in great demand in the manufacture of PCB’s and other electronic products.

Catalysts

Volumes have been written on the catalytic role played by MITI in directing technology changes in Japan. When water jet looms were invented in Japan, the government supported it with an edict which scrapped 90,000 obsolete looms in five years. Cincinnati Milacron and Lawrence Livermore National Laboratory have embarked on a co-operative R&D effort to increase the accuracy by 10 times of competitively priced general purpose M/C tools. Expertise Livermore engineers and machinists developed ultra-precise machining of components used in applied nuclear physics is to be blended with the knowledge of shop floor practices, automation, production and manufacturability of Milacron.

Relevance of the Indian Experience

In India, like in other developing countries, most of the technology was sourced from the developed countries. After the technology is received from abroad, it is applied to production. Products are adapted to meet the customer demands and processes are modified to improve capacity utilisation. Typically, efforts are directed towards finding a solution to problems created by the difference between the environment of the technology sellers and technology buyers. These technology changes practised over the decades are:

i) Use of local raw material/sub-assemblies/components as per approved phased manufacturing programme or as a substitute for material restricted for import by import controls.

ii) Diversification of product mix to reduce dependence on a single product or change in product design to meet the needs of the local market.

iii) Expanding capacity using simple and lower capacity, machinery to reduce capital costs and automation.

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As we have seen earlier, these are mostly incremental in nature. Though most of them are of one-to-one substitution type, there are several cases of value addition types. The efforts are by no means insignificant. Making changes in the technology imported from the world leaders is not an easy task.

The experiences of the Indian industry are no doubt commendable. But how relevant are they to manage the changes of tomorrow? Our capacity to react to "unprecedented, deep, rapid and continual technological change" needs honest introspection.

The knowledge gleaned by our firms mostly through learning-by-doing, a costless automatic process which arises as a by-product of production, needs to be closely scrutinised. The lesson we learnt may be inappropriate under the new circumstances and can be inhibiting too. World Competitiveness Report 1993, ranked India’s position at 11, far below Singapore, Taiwan, Hong Kong, Malaysia, South Korea, Thailand, Mexico and South Africa.

Closed Changes

From the management perspective the changes we faced earlier were closed changes. In a closed change the set of variables is clearly defined and is constant, the parameters are stable and the relationship between the variable and the policy set is clear. Phased manufacturing programme forced indigenisation, which often resulted in delays, quality problems, increase in costs, etc. But the management had no problem in relating cause to the effect. The equation in the case of capacity increase is more obvious, more production -more revenue -more profit. The variables were few and policy environment stable.

In an open-ended change, on the other hand, the variables are difficult to identify and even when identified, fluctuate widely. Not only are the existing factors changing, but new factors appear and disappear. The relationship between a particular change and profit is difficult to discern. The parameters are also changing at the same time.

For example, the worker in a car manufacturing plant like Volkswagen in Germany; his pay is now not only dependent upon his skill level but also on the USA -Japan agreements on voluntary restrictions in shipment of cars, raising value of Yen, labour problems in Hyundai plants, agreement in EEC on, the Japanese cars assembled in the UK, etc.

· Take the case of a data entry business in the USA. Technology changes like development of optical scanners, increasing tendency to feed in data at the point of transaction, etc. reduce the overall demand. Developments such as optical fibre communication and microwave transmission shift the demand in favour of off-shore establishments in Latin America and Asia. On the other hand, increasing volume of government work, culture-specific data favour local business in spite of higher costs.

Implications of Technological Change

Almost all of us, in our own generation, have seen many technological changes that have affected our day-today functioning and the production of goods and services. However, the

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moment we get down to precisely defining technological change or measuring it, we are immediately faced with a host of difficulties, including conceptual ones.

Technological change has been defined broadly as ‘the process by which economies change over time in respect of the products and services they produce and the processes used to produce them and more specifically as alteration in physical processes, materials, machinery or equipment, which has impact on the way work is performed or on the efficiency or effectiveness of the enterprise. Technological change may involve a change in the output, raw materials, work organization or management techniques but in all cases it would affect the relationship between labour, capital and other factors of production.

Self Assessment Questions II

1. Explain the process of technology development.

2. What is technology change?

3. What are the characteristics of technology change?

4. Is it possible to classify technology change?

5. What could be the implications of technological changes?

4.11 Production Functions and Technological Change

A production function attempts to specify the output of a production process (as a function of the various factors of production e.g. labour, capital technology, management or organization and land). It may be possible to explicitly state the nature of this function based on econometric studies but that is not our interest at present. We would like to understand the role of technology in the production process and for that purpose we would like to begin with the isoquant approach. An isoquant specifies a range of alternative combinations of two factors of production, say labour and capital, which can be used to produce a given quantity of the output and is based on the assumption that the other factors of production e.g. the state of knowledge of technology is constant.

4.12 Nature of Technological Change

We would like to categorise various types of technological change after Freeman. This is necessary to understand the nature of technological change in general and its social implications in particular. Freeman has categorized technological change into the following four categories.

Incremental Innovations: These are small and marginal improvements brought about by individual units and firms out of the experience of working with the specific process or the product. These generally give rise to productivity improvements or better products/process resulting in lower costs. Although each single incremental innovation may have relatively insignificant effect on the productivity or the cost, the cumulative effect of many of these

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innovations taken together may result in significant improvements. Also some of the management techniques like work study, organization and methods (O&M), value analysis, etc. are used on specific processes with the objective of productivity improvement and cost reduction and most of them would actually result in accelerated incremental innovations. The R&D efforts in India have often resulted in incremental innovations e.g., developments in auto industry.

Radical Innovations: These are major changes in the process or the product generally brought about by formal research and development efforts. Radical innovations are disjointed events, difficult to predict and have a substantial effect on productivity, cost and the quality of the product. Consequently, they act as catalysts for the growth of new markets. The development of a “Jumbo” passenger aircraft, or one with supersonic speed would fit in this category as would the development of so many new drugs. Sometimes, a whole cluster of radical innovations develop, interlinked with each other, giving rise to the creation of new industries and services. In our terminology, such technological changes would belong to new technological systems described below.

New Technological Systems: Some of the radical innovations, in course of time, end up developing an entire cluster of many radical innovations interconnected with each other both technologically and economically, thus creating an entire new industry. The cluster of petrochemical innovations finally created a petrochemical industry and the cluster of synthetic materials innovation similarly gave birth to the synthetic materials industry. It is to be noted that the various radical innovations forming part of a new technological system are connected not only technologically but also economically.

Technological Revolutions: These are technological changes that are all-pervasive and affect many (or even all) branches of the economy though product innovations, process innovations as well as organizational innovations. They have also been described as changes of techno-economic paradigms as they affect the techno-economic viability of existing product and process designs. They have the capability of changing the ‘best practice’ set of rules and customs for designers, engineers, entrepreneurs and managers from the previously prevailing paradigm. Such changes have the potential of increasing productivity by quantum jumps. However, the gains in productivity are initially achieved in only some of the leading sectors and it takes decades of learning, adaptation, incremental innovation and institutional change before they are realized throughout the economy. Development of semi-conductors and micro-chips is an example of this type.

4.13 Information Technology Revolution

Information Technology synthesizes the convergence of previously distinct and separate technologies. As is understood by now, developments in computer Technology, electronic components technology and the communications technology along with appropriate software have converged and are now known by the catchword ‘Information Technology’ (IT). Information Technology refers to ‘a very wide range of elements which are utilized to create, transfer, transform and convey information through means, irrespective of whether these elements are in the form of equipment, services or know-how. Developments in information technology have already produced vast gains in productivity resulting in counter-inflationary

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trends in prices as well as substantial improvements in technical performance of many products and services.

Information technology is all-pervasive as it affects all activities that contain some form of logical function. The source of the activity could be mechanical, electrical, pneumatic, hydraulic or even intellectual. Information technology cuts horizontally across clerical, supervisory, managerial and communication activities which are common to all sectors of industry and also affects the design of products and services, processes and organizations producing the same. We shall now discuss some of the major changes brought about by developments in information technology.

Changes in Products:

Information technology brings about changes in products by replacing mechanical (e.g. watches), electromechanical (e.g. calculators) or older electrical or electronic (e.g. computers) parts or components, by upgrading traditional products by enhancing their capability. It includes functions involving, for example, logic and decision-making (auto focus in cameras) and even by creating entire new products (e.g., video games).

The product changes mentioned above have three major consequences. The first is that the value addition is transferred from the manufacture and assembly of parts to the production of the electronic assemblies/sub-assemblies with associated software. Juxtaposed is the fact that the manufacture of electronic component-based systems can have very low labour intensity (labour per unit of capital). The picture that emerges suggests that the labour intensity of such products decreases with further consequences in terms of employment as well as location of the manufacturing plants.

The second effect relates to shortening of product life cycles. Product designs of many products get linked to developments in information technology in general and to developments in electronic technology in particular. Because there are very fast developments in these technologies, they have their effect on the design of newer products, thus shortening their product life cycles. As a convergence technology, IT acquires the ability to condition developments in an ever increasing number of sectors of the economy.

The ability to create, store, retrieve, transfer, transform and convey information/data efficiently and economically (imparted to products by developments in information technology) allows the products to the integrated into larger systems so that the products are compatible with the larger systems for enhanced capability. For example, electronic-typewriters cannot only type but also store the typed information for later processing on a microcomputer and so compatibility with microcomputers will be one more feature to be built into electronic typewriters.

Changes in Services:

We use the term “services” in its broadest sense as bundles of benefits some of which may be intangible and others tangible, and they may be accompanied by facilitating goods. This sector has the highest growth rate in most economies of the world and has the largest single share of

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employment in the world GDP. It is said that in USA services account for over 70% of total income. In developing countries the share of services estimated is around 40% but with technological developments taking place it is likely to grow further. Information technology is already affecting the productivity of service production as well as increasing their transportability. In order to understand these changes better, we present a classification scheme for services as proposed by Baumol (and modified by Buffa and Sarin) and classify services into the following four broad categories.

Substitutable Personal Services: These services also require direct personal contact but it is possible to substitute these services with technological alternatives. For example, guards can be substituted or helped by electronic security and surveillance equipment and domestic servants by a variety of household appliances like washing machines, ovens, mixers, etc. Information technology has played a big role in improving the productivity and the performance of these equipment substituting services. Centrally controlled computer devices or gadgets incorporating programming facilities have been developed to operate the domestic appliances in accordance with the consumers’ needs or desires.

Progressive Services: These services require the use of some equipment and also direct personal contact with the receiver of the service. Technological change affects the productivity of the equipment more directly and significantly than the personnel offering the personal contact-based service. For example, air transportation requires the use of the airplane as well as that of the ground and cabin crew; and broadcasting requires the use of studio and transmitting equipment as well as the “personal” contact established by the broadcaster(s). In a way, there is some hardware and some software required to render the service and information technology is affecting the productivity of the hardware more than that of the software.

Explosive Services: Services that do not require personal contact belong to this category such as telecommunications. Information technology is bringing about significant productivity increases in these services thereby reducing the unit cost and setting counter inflationary trends in prices. Developments in information technology are also contributing to the generation of new services in this category. E.g., facsimile transmission (FAX), Videotext and Electronic Mail.

Transportability of services has brought about at least three major effects in its wake. It has led to internationalization of services in many fields bringing out cross border flows of messages, information and data. Many of the services traditionally catering to local markets are now being offered to the global market. The second effect relates to changes in barriers to entry in services. In many services the barriers to entry are getting lower as the cost of entry is practically limited to the cost of equipment which itself is falling e.g. desktop publishing. On the other hand, the barriers to entry in some other services, where an integrated network of services is offered, are getting higher. This can be seen in some banking operations as well as development of software requiring satellite data transfers (since the cost involved in developing infrastructure is very high). Transportability of services has also increased the transparency of market due to widespread availability of information.

Changes in Processes:

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Information technology changes processes in two major ways: it allows the incorporation of higher levels of skills and functions into equipment (as in computer controlled machine tools and robots) and it increases the flexibility of many processes to achieve economies of scope involving almost continuous production of individualized products. This can be seen in Figure 4.7 below ere different stages of manufacturing automation are plotted against volume and variety.

Figure 4.7: Different stages of manufacturing automation

Process automation has the general characteristic of replacing direct labour (unskilled and semi-unskilled) with capital in conformity with the long-term shift in prices. Consequently, direct labour cost as a fraction of the product cost is declining. This phenomenon is wiping out the comparative advantage of developing countries in terms of low labour cost. Training and retraining of labour, including technicians/ operators, have almost become a necessity in the existing enterprises.

The second effect is the combination of lower labour cost with higher automation. Automation seems to be removing the primary reasons for locating assembly operations in off-shore locations.

It is now widely known that in Japanese enterprises inventories are operated on hourly basis, while in India and other developing countries inventories are still carried on monthly basis which increases the overall costs of operations and products.

These changes also affect the skill-mix of personnel required for the changed process. As production processes become more sophisticated, the number of direct workers would perhaps show a decline whereas more engineers and technicians would be required to carry out reprogramming, installing, repairing and even developing newer processes. This would also call for extensive retraining at all levels, especially those skills which are likely to become scarce.

Changes on Organization:

The changes in products, services and processes discussed above may, in many cases, require new forms of management structure and business organization. This may be seen happening in many industries but perhaps not fast enough, thus acting as a constraint in the institutionalization of other changes. The organization structure can no more be static but should be capable of absorbing changes fast enough, at least in those organizations where changes in products and processes are occurring very fast, as as not to constrain, further changes. To be successful with

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new technologies, an organization must be able to innovate and produce competitively. This shows up in the form of flatter organizations where the number of hierarchical levels gets reduced significantly. This also gives rise to higher dependence on task groups, expert committees and other forms of temporary working groups.

Information technology also allows higher integration of suppliers, vendors and subcontractors into the network of manufacturing companies. Specialist suppliers, in many cases, are better placed to adapt changes in products and processes and many large firms are finding it easier and more economical to “buy” than “make”. In the case of many large manufacturers in developed countries, this has given rise to a hierarchical structure of subcontractors6 akin to the organization structure (with the subcontractors being part of the extended organization). Ancillarisation of large manufacturing units in India is a step in this direction.

4.14 Macro Effects of Technological Change

Having discussed the major impacts of information technology in the previous section, we would like to revert to technological changes in general and their effects on the economy, its competitiveness and its factor endowments. In the following paragraphs we would attempt to delineate the major consequences in terms of their macro effects.

Increasing Knowledge Intensity of Production:

The growing importance of knowledge inputs in production is clearly visible in almost all industries. In fact, if we include in knowledge not only research and development (R&D) but also design, engineering, advertising, marketing and management, then knowledge input may have already become the primary factor of production displacing capital, labour and land in advanced industrial economies.

The radical innovations and innovating capabilities provide competitive advantages to commercial organizations. With access to global markets in most products and a growing number of services, the financial impact of a successful radical innovation becomes so important that firms end up spending higher amounts of money to develop further innovations. This can be seen from the large and growing number of scientists and engineers engaged in research and development activities in most industrialized countries. In many industries, the product life cycle is constantly getting shorter and firms have to spend more and more on R&D to remain at the cutting edge of technology and to exploit any breakthroughs achieved. Figure 3.8 shows the relationship between product life cycle and R&D costs as a percentage of sales in a few industries. High R&D costs increase the risks in knowledge generation (planned innovations). The competitive advantage together with access to global markets provides high returns to successful innovators.

Greater Mismatch of Skills:

Technological changes have the general effect of replacing labour with capital. As capital equipment with new technologies enters the production process it has two profound effects: (i)

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the employment level of personnel concerned with the production and distribution of products comes down and (2) the skills required to work with the new generation of technology change.

In combination with other economic forces, the first effect continues to reduce the share of employment devoted to the production of goods, while expanding the service sector. The second effect changes the skill-mix of employment more abruptly as certain skills end up having practically no or little economic value. We have seen this happening with traditional skills like pottery making, horse-cart driving in India.

Erosion of Competitive Advantage of Developing Countries:

The developing countries have traditionally been having the competitive advantage of cheap and abundant labour and some natural resources. However, as described above in the previous sections, the labour component (unskilled and semi-skilled) in many manufacturing activities is falling, giving rise to an erosion of this important competitive advantage.

In the first phase of automation in the industrialized countries, it was hard automation that was being used. Specialized equipment was designed and used to produce large volumes of standardized parts. The labour required to run this equipment was relatively unskilled. Thus in the seventies, many manufacturers from the industrialized countries located their manufacturing units in some developing countries which offered them cheap labour and other infrastructural support. This movement of capital helped the developing countries very significantly in creating employment as well as registering industrial growth.

However, this trend was very short lived as the component of labour cost in the total manufacturing cost continued to fall. Further technological development ushered in soft automation giving benefits of automation even for smaller production lots using flexible manufacturing, giving economies of product mix rather than economies of scale. All of these developments have eroded the competitive advantage in having cheap labour and have arrested and in some cases reversed the movement of capital described earlier. In future also, availability of cheap labour may no longer be decisive in locating production facilities in developing countries, but skilled personnel still continue to be a factor to be reckoned with.

4.15 Summary

Technology and its development is necessary, in fact vital, for the economic growth of any nation and its various enterprises. It is therefore quite important to understand the different aspects and issues related to technology. Aspects such as technology life cycle, diffusion and growth of technology, technology policy and policy instruments, technology planning, development options and strategies, implications of technological change, nature of technological change, and impact of IT revolution on technology, etc. have been introduced in this unit. Technology management involves the knowledge and appreciation of all these aspects and issues at the enterprise level, to remain competitive and to ensure sustained growth. We have taken a look at technological changes, understood the meaning of technological changes, and analyzed their effects. We have learnt that production functions and smooth isoquants that allow infinite alternative combinations of labour and capital are unable to describe technological

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changes adequately or realistically. A more realistic representation compels us to realize that production of a particular product requires a fixed amount of labour and capital and any change in this mix could be mainly due to technological changes. However, there are technological changes of different kinds such as incremental innovations which are brought about by engineers and technicians mostly out of experience of working with the technology and some through radical innovations which are generally the consequence of deliberate research and development efforts.

We have also taken a closer look at the IT revolution which has been sweeping our economies, and its varied effects. It is increasingly being seen that in many products new electronic processes and systems are replacing mechanical, electro-mechanical or electrical / electronic parts of a previous generation and even resulting in the creation of new products. With these changes the value addition is getting transferred from the manufacture and assembly of conventional parts to the manufacture of miniaturized components and systems. Product life cycles are becoming shorter and products are getting linked to a larger system of compatible products. The changes in processes are widespread. Flexible Manufacturing Systems are shifting the focus from economies of scale to economies of scope or product mix and higher levels of skills and functions are getting incorporated in equipment designs. The fraction of labour (unskilled and semi-skilled) cost as a part of the total cost of production is coming down and the mix of skills required for production is also undergoing a change.

In macro-effects of technological changes it is noticed that the knowledge intensity of production is increasing, and the mismatch between skills required and skills available is getting wider, necessitating more extensive training and retraining. Technological changes are induced by economic factors but they have not only economic but also social consequences. Industrial enterprises cannot remain insulated from these changes and therefore need to adopt appropriate corporate policies.

4.16 Terminal Questions

1. An innovation that has little disruptive impact on behaviour pattern is called a __________.

A) Disruptive innovation

B) Continuous innovation

C) Normative innovation

D) Explorative innovation

2. The process of technological change is linked to innovation. Technological change occurs through ________ and diffusion.

A) Invention

B) Discovery

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C) Substitution

D) Revolution

3. The life span of various technologies can be conveniently identified as consisting of _____ distinct stages, all of which taken together form the ‘Technology Life Cycle’.

A) Five

B) Three

C) Six

D) Four

4. The hardware intensive technology diffusion process can be considered to consist of five phases. The first is the __________ where many ideas are gradually reduced to one commercial product for introduction into the market.

A) Incubation phase

B) Syndication phase

C) Introduction phase

D) Innovation phase

5. The technological transformation in the production of goods starts from ______ and eventually goes to the _______.

A) Customer, retail shops

B) Customer, customer

C) Nature, market

D) Nature, waste bins

6. The process of adding new knowledge to the existing knowledge, usually to allow things to be done in what are thought to be better ways and sometimes, to do new things altogether, is known as _____

A) Technological transformation

B) Technological discovery

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C) Technological change

D) Innovation

7. Process standardization and Product-mix enlargement are the forms of________.

A) Product improvements

B) Process improvements

C) Know-why investigations

D) Entrenching changes

8. Improvement in capacity utilization, increase in plant scale and plant costs, and organisational changes, are examples of _________.

A) Indirect technological changes

B) Direct technological changes

C) Value additions

D) Incremental changes

9. Define and explain the process of technological change and technology life chain.

10. Explain, with the help of a diagram, the concept of diffusion and growth of technologies.

11. What are the five stages of technological transformation in the production of goods?

12. Comment on the role of technology in socio-economic planning.

13. Discuss the role of technology policies and policy instruments in furthering industrial and economic developmental goals.

14. What could be the possible options for technology development and acquisitions at the enterprise level?

15. Which factors play a role in bringing about technological changes in developed and developing countries?

16. What is the influence of IT revolution on technological changes? Explain.

17. Explain the macro effects of technological changes.

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4.17 Answers to SAQs and TQs

SAQs I

1. Refer to 4.2

2. Refer to 4.6

SAQs II

1. Refer to 4.8

2. Refer to 4.10

3. Refer to 4.10

4. Refer to 4.10

5. Refer to 4.10

Answers to TQs:

1. B

2. C

3. D

4. A

5. C

6. C

7. D

8. B

9. Refer to 4.2 & 4.10

10. Refer to 4.3

11. Refer to 4.2

12. Refer to 4.9

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13. Refer to 4.6

14. Refer to 4.8

15. Refer to 4.10

16. Refer to 4.13

17.Refer to 4.14

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Unit-05-Technology Generation and Development

Structure:

5.1 Introduction

Objectives

5.2 Technology Strategy

Self Assessment Questions I

5.3 Technology Generation

5.3.1 Corporate Research and Product Lifetimes

5.3.2 Production Costs and R&D

5.3.3 Market share, Profit Margins, and Pricing Strategy

5.3.4 Process of Technology Generation

5.3.5 Managing and Monitoring R&D

Self Assessment Questions II

5.4 Technology Development

5.5 Technology Development Approaches

5.6 Applications

5.7 Summary and conclusions

5.8 Terminal Questions

5.9 Answers to SAQs and TQs

5.1 Introduction

In this unit, we shall study various issues related to generation and development of appropriate strategy in accordance with the macro and micro level plans and objectives. Generation and Development of Technology is a complex process involving several steps ranging from concept or idea to basic research to utilization of technology, taking into account the social, economic and political environment at national and international levels. Technologies are generated through R&D efforts in laboratories and developed in the form of usable products through

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several stages. At macro-level, the national governments formulate policies, measures and mechanisms to provide supportive structures and facilities for micro-level generation and development of industrial technologies and for technologies of strategic importance requiring large investments. The international agencies, for example, agencies of the United Nations, also support such efforts. At micro-level, the generation and development of technologies is mostly related to the business activities of an enterprise. The macro-level and micro-level efforts are expected to be complementary to each other. However, in practice, the two interests sometimes tend to conflict with each other. For example, while a government would like to encourage environment-friendly technologies in the general interest of the society where profits may not be the prime objective, an enterprise may like to pursue technologies which produce maximum profits or further its business interests on short-term or long-term basis.

The national efforts are primarily directed towards development of ‘generic’ technologies (e.g. materials), which have a bearing on industry and society as a whole while the enterprise efforts are mostly confined to their areas of operation and specific to products and services. In advanced countries, basic research is mostly funded by the government and public agencies, and industrial research is funded by industry. In most of the developing economies, almost all types of research and technology development are substantially funded by the governments. Further, total funding levels on technology generation and development are much higher, absolute terms as well as percentages of GNP in industrially advanced economies than developing economies. The result is that developing countries continue to depend on developed countries for technologies, capital goods and services in most of the sectors. Most of the firms continue to import technologies/ goods/services and are perpetually dependent on foreign sources and do not invest adequately on, R&D to build-up their competitive strength. Thus, it is extremely important to pay adequate attention to the generation and development of technology at macro as well as micro-levels.

Objectives:

After studying this unit, you will be able to:

· Explain the process of technology generation and development, and its importance at the national and enterprise levels.

· Explain the need for technology strategy for continued competitiveness and growth of a firm.

· List out the determinants and their relationships in technology generation.

· Describe various approaches available for the development of technology at enterprise level.

· Bring out the importance of R & D.

· List out various inputs required to translate the R & D efforts to technology.

5.2 Technology Strategy

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Whether or not an organisation would generate or develop its own technology and with what intensity it would pursue the efforts in this respect would depend upon technology strategy it has formulated or adopted. Let us, therefore, first see what a technology strategy is, what could be the different types of technology strategies, why is it important to have a technology strategy, and how could we link it with the overall business of an organisation. Though the term ’strategy’ is commonly used as an antonym of ‘tactics’, it actually implies long-term, purposeful and interconnected efforts, while tactics imply action to deal with immediate specific problems. ‘Technology Strategy" may accordingly be defined as a strategy to deal with the technology and related issues at macro and micro levels, with respect to set objectives.

Macro-level Strategy

At macro level, each country outlines and adopts a technology strategy to achieve its political, economic and social objectives and translates the same into action through appropriate policies and mechanisms. These strategies may be different for different countries. For example, US may adopt to excel in "defence" or "warfare technologies" or in generation of first stage new technologies for knowledge-based industries, while Japan may decide to excel in technologies for consumer products of newer designs at lower costs. Korea may decide to adopt and upgrade imported technologies using mass production techniques for consumer products without really caring much for aesthetics or high quality levels, and without bothering for defence or other strategic applications. On the other hand, India may decide to develop its own capabilities in strategic areas such as defence, atomic energy and space where technologies are usually closely guarded or for maximum utilization of its own resources. Some countries may adopt technology strategies for building up export-oriented economies as in the case of Japan and Korea, while some others may prefer to have technology strategies for import substitution as is the case of India, Pakistan, and Bangladesh. Thus, technology strategies may vary with the national perspectives, and accordingly policies and mechanisms are evolved and implemented. Financial resources play an important role in evolving the technology strategies. Depending on the resources available and the will of the government, the policies are evolved, mechanisms are set up and measures are taken to ensure the achievement of the set objectives.

Micro-level Strategy

The extraordinary range and potential uses of contemporary technology have important consequences for industrial and commercial firms. The industrial and organisational turbulence engendered by technological change and increasing international competitive pressures provide threats and opportunities for firms. An effective strategic approach to technology allows firms to cope better with these changes, and reduces the threats and insecurities facing them and their employees.

· The basic role of technology strategy in business planning is to help ask the questions like: what business the corporation plans to be in and how it should be positioned? Effective planning identifies the present decisions required to create desirable and competitive corporate futures. In particular, technology strategy must anticipate the transient impact of technological innovation on the future competencies of the corporation. An appropriate level of formal planning provides systematic and documented strategy. The inputs to the process occur through participation of

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staff and line management and of special planning groups. Technology scenarios should help management focus on the interaction of changes between technology and change in markets, resources, regulation and competition.

Importance of Technology Strategy

Mark Dodgson has identified the following five issues which bear on the importance of corporate strategy for technology:

i) The need to cope with technological uncertainty;

ii) Complexity and discontinuous nature of technological development;

iii) The need for technology to be viewed in a global context;

iv) The need to attain complementarities, and

v) The relationship between corporate strategy technology and public technology policies.

Linking Business and Technology Strategy: According to Fredrick Betz, the basic role of technology strategy in any business planning is to pose three fundamental questions:

i) In what business should the firm engage in future?

ii) How should the firm be positioned in these businesses?

iii) What research, production and marketing will be necessary to attain those positions?

Formulating a Technology Strategy

In planning technology strategy for competitive advantage, the following steps have been suggested:

1. Identify all the distinct technologies and sub-technologies in the value chain.

2. Identify potentially relevant technologies in other industries or those under scientific development.

3. Determine the likely path of change of key technologies.

4. Determine which technologies and potential technological changes are most significant for competitive advantage and industry structure.

5. Assess a firm’s relative capabilities in important technological aspects and the cost of making improvements.

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6. Select a technology strategy, encompassing all important technologies, that reinforces the firm’s overall competitive strategy.

7. Reinforce business unit technology strategy at the corporate level.

Small and Medium Enterprises

The small and medium enterprises play an important role in the overall industrial and economic development in developed as well as developing countries including India, although the size and definitions may vary from country to country. In India, small scale sector contributes to about 50% of the total industrial production, about 30% of total exports, and provides employment to over 12 million people. Many of the small businesses are promoted and managed by technologically innovative entrepreneurs and managers. These units often enjoy preferential treatment in financing and marketing but lack resources in terms of investments, manpower, equipment, etc. The scales of operations are low. Therefore, the business strategies and requirements of small companies are different than those of large and corporate companies. Accordingly, the technology requirements and technology strategies also are different since their capacity to invest in technology is limited. However, there are many companies who have technological awareness and capabilities and are innovative in nature.

Self Assessment Questions I

1. The basic role of technology strategy in business planning is to help ask the questions like: what business the corporation plans to be in and how it should be positioned? Comment.

2. What are the five issues which have a bearing on the importance of corporate strategy for technology?

5.3 Technology Generation

Technology generation and development is often synonymous with the term "Research and Development (R&D)". However, technology generation involves R&D efforts while technology development involves further stages of translating R&D efforts into marketable products, processes and services. Basically, one can consider the R&D process as having four distinct stages as shown in Figure 5.1.

Recognition of a need for innovation is one of the motivations for R&D. "Research" on existing knowledge for satisfying identified need helps in idea generation – this is the "need push". The other primary motivation for R&D is to find potential applications for advances in knowledge. “Research" on existing activity for introducing new knowledge also helps in idea generation – this is the "technology-push". "Development" includes engineering (creation, design and production) and marketing (first use and diffusion) of the generated idea. Through the entire process it is ideas and knowledge which are being pursued, and the process is not complete until the new idea is converted into a marketable product or service (a hardware or software intensive technology).

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Figure 5.1: Stages of R & D process

(Source: Sharif. Nawas, 1983. Management of Technology Transfer and Development, APCTT, Bangalore. p. 89)

Objectives of Corporate R & D and R&D Projects:

Corporate research and development is the principal corporate asset for long-term technological competitiveness. Corporate research activities can be classified by the purpose of the research:

1) To support current businesses;

2) To provide new business ventures;

3) To explore possible new technology basis.

As explained earlier, the R&D projects tend to go through the following stages:

1) Basic research and invention;

2) Applied research and functional prototype;

3) Engineering prototype and testing;

4) Production prototype and pilot production;

5) Product testing and modification;

6) Initial production and sales.

Stages 1, 2, 3 are usually called "research" while stages 4 to 6 are called "development’; hence, the term "research and development (R&D)". Each stage of innovating a new product is expensive, with the expense increasing by, an order of magnitude at each stage. The management decisions to continue from research to development are therefore very important. Overall, the expenses of modem industry for R&D were considerable. The major purpose of research is to

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reduce technical risk before production -scale investment is committed. It is generally reported that at each stage, the cost escalates by orders of magnitudes of over 1:10. It is precisely this reason that technology generation and development is costlier than basic R&D and hence all countries or all enterprises are not able to pursue these activities at similar levels.

5.3.1 Corporate Research and Product Lifetimes

R&D projects in corporate research create and extend the lifetimes of corporate products, avoiding technological obsolescence of businesses. Extending product lifetimes can be done by:

1) Improving the production processes to lower production costs and increase quality;

2) Upgrading and improving current product models;

3) Creating next generation product models.

The function of corporate research is to create and extend the lifetimes of the company’s products. This is an essential function because all products have finite lifetimes (sometimes as short as one year and sometimes as long as several years). In times of new and rapidly changing technologies, lifetime$ tend to be short. A mature technology product may have a very long lifetime if no clearly superior technology has emerged. But even in a long-lived product, periodic reformulations, variation in product lines, and changes in packaging provide some change in the product. To maintain a long-lived product, quality must be maintained on par with competing products, if not more, and cost reduction in production must be ahead of competitors. Product lifetimes are dependent on two factors: technological obsolescence and product substitution.

5.3.2 Production Costs and R&D

Production costs of new products usually decline over times, due to process and product improvement. In any new product line, initial production costs are usually much higher than later production costs. All new products based on new technologies have initially high per unit product costs because of (i) large R&D and plant investment costs, (ii) small volumes of initial production, and (iii) inefficiencies in the production processes and in production design. For a successful product, these factors improve over time. Investment capital becomes amortized over larger production volumes. The increasingly larger volume of production also lowers per unit overhead charges. Innovations and improvements in production processes create more efficient production procedures. Later generation production models and computerised techniques are designed to lower production costs.

5.3.3 Market Share, Profit Margins, Pricing Strategy etc.

These are also highly dependent on R&D efforts at corporate level and the efficiency at which R&D is carried out. The entry into a new high technology market is restricted because knowledge is new and is not widely known. Products then are high priced because sales volume is small and production costs are high. Yet, if the price is held there too long, other competitors can enter with "me too" technology products, since high profit margins and growing markets

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provide the competitive incentive. However, if prices are reduced in anticipation of production costs being increased in future, a competitor has less incentive to enter, and may incur losses. The strategic trick is for the technology innovator to ride the markets faster than the competitors and enter new products earlier than others. It is precisely due to this reason that open competitiveness encourages innovations as happens in advanced economies while restrictive policies and assured markets through licensing systems discourage innovations. The latter is the scenario in India all these years.

5.3.4 Process of Technology Generation

Technology is generated in R&D organizations. An illustration of the various inputs required for generation of technologies is given in Figure 5.2. Goals, surroundings, criteria and resource allocation are some of the inputs to R&D, the output of which is technology. The input resources into R&D organisations are the traditional inputs such as money, materials, facilities, energy, labour and management, and the intelligence-based inputs such as science, knowledge, skills, information and existing technologies. The effectiveness of any R&D is determined in terms of the ‘usefulness’ of the technologies it produces with respect to the overall objectives of the corporation.

Figure 5.2: The process of technology production

(Source: Technology for development, UN-ESCAP, 1984)

Besides the various factors discussed in earlier paras, the R&D or technology generation involves many other aspects such as, monitoring and evaluation of R&D projects, funding of R&D, training and development 0! resource personnel, interactions at all levels, management policies and support, the availability of support structures and incentives at government level, timely collection and interpretation of technical and other information, etc. Some of these aspects have been discussed in detail elsewhere in this course. The quality of resource leadership and commitment of the top management for research is extremely important. In Indian industry or corporate sector, it is generally observed that the research personnel occupy secondary place to finance, marketing and production personnel, and are not given due importance in decision-making at corporate level. Sometimes, inefficient personnel from other departments are posted or

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transferred to R&D department, thereby indicating a complete neglect of R&D concept. Such management attitudes need to be changed in the overall interest of the company.

5.3.5 Managing and Monitoring R&D

Managing R&D requires special skills and covers a wide variety of issues ranging from technical matters to management techniques and overall business environment at national and international levels. Managing R&D projects requires attention to performance, timing, cost, and personnel. Performance is the measure of a product or process to accomplish a specific function or application. The performance parameters must be defined for an R&D project in order to determine how successfully the goals of the project are attained. Progress in R&D projects can be watched by monitoring: (i) technical performance parameters against time, (ii) performance parameters against cost, and (iii) cumulative cost against time. Timing is important to the success of a project, since lead time created from timely innovation provides a competitive advantage.

Self Assessment Questions II

1. Explain “Need pull” and “technology push” with reference to stages of R&D process.

2. List out the objectives of corporate R&D and projects.

5.4 Technology Development

Though, broadly speaking, the ‘D’ of R&D covers Technology Development, the latter has much wider connotation. For better understanding, more elaboration of various factors that determine technology development is called for. Figure 5.3 shows the determinants and their interrelationship in technology development from R&D to technology diffusion and substitution. Natural resources are mobilised and processed through the succeeding stages. The supply factors include natural resources, human resources, fund allocation, and produced resources. The demand side factors include market potential venture capital and enterprise profitability. The coordinating organisations, supporting facilities and government policies and systems have a major role to play in the success of the technology development process. Figure 5.4 shows various stages of technology development cycle, starting from the generation of ideas in the R&D department, to estimating market and inputs required, to executing projects, to field trials and modifications. It may be observed that this process is tedious and requires top management commitment and support from outside. Risk factor is large and the success rate depends upon the quality of inputs provided to the R&D department.

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Figure 5.3: Determinants of Technology Development

(Source: Technology Policy Formulation and Planning: A reference manual, APCTT, Bangalore, 1986)

Figure 5.4: Technology Development Cycle

5.5 Technology Development Approaches

i. In-house R&D: Technology development activities are generally carried out through setting up of separate in-house R&D units within the corporation, managed and headed by a well-qualified and experienced chief, directly reporting to the top management. However, this unit has close interactions with other departments within the company and there could even be exchange of personnel among different departments. The strength and facilities in the in-house R&D unit would depend upon the technology policy of the company and the nature of the business. In large companies, there are sometime R&D labs for each department and a central R&D lab for .major

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R&D projects. Industrial R&D is mostly product or process oriented with specific objectives and time schedule; and not basic research. Incremental developmental efforts or import substitution efforts are generally common in most of the industries in developing countries including India, while emphasis is on new technologies or new applications of technologies in advanced countries.

ii. Co-operative R&D: A group of companies in a particular industrial sector promotes an R&D centre as a society or a non-profit making company, the expenses for which are met from the contributions of the participating companies (as a fixed percentage of their turnover) as well as grants from the governments. This centre undertakes R&D as per the requirements of the companies in their larger interest, and sets up expertise and facilities of common nature and which are usually expensive. A company can also sponsor specific projects to this centre. Cooperative research facilities are normally utilised for the projects which are not of secretive nature from the business point of view or first substantial part of the R&D can be done at the centre and the remaining part involving finer details or critical technological aspects effecting the competitiveness is done at- the in-house R&D division of the company. National Council of Building Materials (Cement) at New Delhi, Textile Research Centre at Ahmedabad (ATIRA), are example of this type in India.

iii. Contract Research: A company may contract components of technology development to suitable R&D organisations, academic institutions, or consultants or experts, and its in-house R&D unit may coordinate the progress of the activities, to develop the desired technologies. This approach usually requires considerable internal technical and managerial capabilities coupled with a strong S&T information base.

iv. R&D collaboration: A company may collaborate with another company in areas of common interest if costs of development are high. Such inter-firm collaborative R&D efforts are becoming common in developed countries mainly due to high costs and shorter technology life cycles, in areas such as micro-electronics, materials, information technologies, bio-technologies, and so on. A firm may also collaborate with the public funded or privately funded R&D institutions on case-to-case basis where R&D results are shared mutually and so are the expenses. A company in India may even collaborate with another company or R&D institution abroad, on mutually agreed terms.

v. Research Societies: Large corporations or industrial houses may set up independent research societies, in addition to their in-house R&D units. Such societies may undertake R&D activities mostly relating to the broad interests of the promoting companies in line with the national interests. They will also take advantage of those facilities for the activities / programmes in their in-house R&D unit. Governments usually encourage such societies and provide several tax concessions and fiscal incentives.

vi. Research Companies: Large corporations of technology innovative entrepreneurs may promote research companies, specifically for conducting research and development of technologies for others on commercial basis. The development costs and reasonable profits are recovered from the sale and transfer of technologies. Such a concept is common in USA and other developed countries while it is yet to gain recognition in developing countries such as

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India. A company may adopt any of the approaches or a combination of the approaches depending on its needs and resources.

5.6 Applications

Distributed Energy Systems’ Technology Generation group is committed to the development of practical, real-world energy solutions to meet our customers’ evolving needs. Through new product development, key strategic relationships and industry leading solutions, we are focused on meeting today’s commercial needs while advancing the innovation required to create tomorrow’s energy choices. Partnering with commercial as well as government entities like the US Department of Energy, National Renewable Energy Laboratory, National Science Foundation, NASA and California Energy Commission, the Technology Generation group is advancing technologies in several core areas.

Hydrogen Fueling Systems

Distributed Energy Systems is developing hydrogen fueling systems to meet the needs of an increasing number of fuel cell electric and portable power applications. Individuals, fleets, and communities seek out our hydrogen fueling systems because they are available in a range of production capacities and produce pure hydrogen.

Military & Aerospace Hydrogen Applications

Leveraging our core PEM technology, Distributed Energy Systems designs, develops, models and builds solutions to meet the needs of commercial aerospace partners and civilian and military government agencies. From high pressure electrochemical cells to high energy density regenerative fuel cell (RFC) energy storage systems, our work is being developed for low earth orbit (LEO) and geosynchronous earth orbit (GEO) satellites, high altitude airships and high altitude winged aircraft. These advanced technologies also have applications in ground-based and marine environments.

Backup Power and Renewable-to-Hydrogen Systems

Regenerative fuel cell technology can be used in a wide range of backup power applications including telecommunications, critical loads, peak shaving, remote geographies, and load leveling in premium power markets. In an effort to look for ways to extend today’s resources, the technology has been used and validated with renewable sources of energy such as wind and solar. To meet the growing demand for electrolyzers for hydrogen-based renewable energy systems, Distributed Energy Systems has developed the HOGEN® RE hydrogen generator. As the next evolution of the company’s advanced proton exchange membrane (PEM) electrolyzer, the HOGEN RE generator incorporates sophisticated power electronics to make integration to renewable power sources easy and efficient.

Megawatt Wind Turbine Technology

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Distributed Energy Systems has developed an advanced gearless drive train design for megawatt (MW) scale wind turbine applications. This slow speed permanent magnet generator directly coupled to the blade hub, and connected to the grid with an advanced power converter platform offers advantages in efficiency, reliability and performance. They have also designed and tested a 1.5 MW slow speed permanent magnet generator for direct drive wind turbine applications and developed and commercialized a power converter platform for wind and related applications based on their FlexPhase™ power module technology.

5.7 Summary

Generation and development of newer technologies is a lengthy and complex process that involves several parameters and steps from concept generation to basic research to utilization of technology, taking into account the social, economic and political environment of a corporation or a firm. A viable technology strategy is important for the continued competitiveness and growth of a firm. The product life-cycles, pricing, marketing strategies, funding, commitment of the corporate management, S&T manpower, are some of the factors that influence or guide the process of technology generation and development. An effective management of R&D and appropriate choice of technology development approaches are important for the success of the technological efforts. The technology development approaches and strategies are different in developed and developing countries as well as for large and small firms. National policies and S&T infrastructures are also important for the technology generation and development policies at firm level.

5.8 Terminal Questions

1. A strategy to deal with the technology and related issues at macro and micro levels, with respect to set objectives, is known as ___________.

A) Development strategy

B) Technology strategy

C) Generation strategy

D) Growth strategy

2. While tactics imply action to deal with immediate specific problems, _______ implies long-term, purposeful and interconnected efforts.

A) Plan

B) Opinion

C) Strategy

D) Style

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3. According to Fredrick Betz, the basic role of technology strategy in any business planning is to pose following fundamental questions.

A. In future, what business should the firm engage in?

B. How should the firm be positioned in any identified business?

C. What sort of influence should the firm attempt to succeed at the target position?

D. What research, production and marketing will be necessary to attain the targeted position?

A) A, B, and D only

B) A and B only

C) B and D only

D) All the above

4. Technological entrepreneurs are _________ and cannot be reproduced, while professional managers can be trained.

A) Trained entrepreneurs

B) Semi-skilled entrepreneurs

C) Unskilled entrepreneurs

D) Born entrepreneurs

5. Recognition of a need for innovation is one of the motivations for_________.

A) Technology transfer

B) R&D

C) Technology change

D) Technology diffusion

6. With reference to the determinants of technology development, natural resources, human resources, etc. constitute _____________.

A) Demand side factors

B) Supporting facilities

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C) Supply side factors

D) Co-ordinating organisations

7. Explain what is meant by Generation and Development of technologies.

8. What is Technology Strategy and what is its importance at the corporate level?

9. What are the steps involved in planning Technology Strategies?

10. What is technology generation?

11. What could be the objectives of corporate R&D?

12. Discuss the determinants and their interrelationships in technology development.

13. Discuss various approaches to technology development.

5.9 Answers to SAQs and TQs

SAQs I

1. Refer to 5.2

2. Refer to 5.2

SAQs II

1. Refer to 5.3

2. Refer to 5.3

Answers to TQs:

1. B

2. C

3. A

4. D

5. B

6. C

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7. Refer to 5.1

8. Refer to 5.2

9. Refer to 5.2

10. Refer to 5.3

11. Refer to 5.3

12. Refer to 5.4

13. Refer to 5.4

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Unit-06-Technology Acquisition

Structure:

6.1 Introduction

Objectives

6.2 Technology Acquisition Alternatives

6.3 Reasons for Technology Acquisition

Self Assessment Questions I

6.4 Management of Technology Acquisition

6.5 Technology Evaluation and Choice

6.6 Evaluation of Technology

6.6.1 Decision Factors Identification

6.6.2 Alternative Technologies Evaluation

6.6.3 Alternative Policy Analysis and Final Decision Making

6.6.4 Application Areas of the Framework

Self Assessment Questions II

6.7 Acquiring Technological Knowledge

6.7.1 Technology Acquisition Options

6.8 Summary

6.9 Terminal Questions

6.10 Answers to SAQs and TQs

6.1 Introduction

The acquisition of a new technology arises from the need to implement a corporate technology strategy, and as such, all the efforts and planning need be focused on the problems of technology acquisition. A new technology is often acquired in an embodied form along with the equipment and facilities. Often, there is a need to carry out further application development work and also a

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need to establish operational skills. Plant-commissioning, Demonstration, Operator training and such activities through the supplier of equipment are all part of the process of Technology acquisition.

Objectives:

After studying this unit, you will be able to:

· Explain what is meant by acquisition of technology.

· State the available options/alternatives for acquiring new technologies.

· Cite the reasons which compel a company to obtain a new technology.

· Describe how acquired technology should be managed.

· Explain different measures of scale and different mechanisms for acquiring technologies.

Why Technology Acquisition?

Where a firm wants to harness a new technology which has to be developed, ab initio, the company has to make some basic decisions. Thus, whenever the resources required for the development of new product or process are more, the acquisitions decisions are correspondingly more important and complex. Also, the company has to consider its R&D operational experience in relation to its actual need for the technology to be acquired. Again, where strong competition is expected and market lead time is important the manner of technology acquisition can become critical.

Acquisition of technology from collaborators is a major strategy for bridging the technology gaps in a developing country like India. Having missed the Industrial Revolution of the 18th century, which was really the take-off point in technology race in developed countries, India started its technology race nearly 100 years behind the developed countries, save, in some specific areas. Fortunately, however, during the last 40 years since Independence this technology gap has been bridged to some extent, due to large-scale import of technology from the developed countries. Over 13,000 collaboration agreements have been concluded between Indian and foreign companies since Independence. An analysis of foreign collaborations approved during the last ten years shows that more than 64% of the approvals were front only four countries viz. USA, West Germany, UK and Japan, which proves that they are the major players in the technology market (DGTD data).

Hence, the fastest way to bridge the technological gap is by import of technology through collaborations. In many cases, it would also be cost effective to import / buy technology than develop it through in-house R&D efforts. It must, however, be borne in mind that collaborations per se are not bad, but dependence on collaborations is bad. Hence, the role of self-reliance in Technology Acquisition should not be lost sight of.

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Options for technology acquisition are linked to a large extent on policy environment. Whenever economic policies of the country do not permit the foreign suppliers to freely sell their goods and services in the domestic market, they are more willing to sell technologies for their products. It is because they realize that the only way to enter the domestic market is through collaboration arrangement and get financial returns by way of payments on account a of lump sum and royalty and by sale of raw materials and components. As most of the technology transactions of the LDC’s are held with developed countries, there is considerable difference in the technological capabilities of the buyer and seller of technology, which adversely affects the bargaining power of the buyer organisation in a developing country. Such organisations must learn to successfully negotiate and conclude collaboration agreements on best possible terms.

Technology acquisition is the process by which a company acquires the rights to use and exploit a technology for the purpose of improving or renewing processes, products or services.  It does not include retailed or mass market off the shelf software which is generally governed by non-negotiable "shrink wrapped" licences.

Support for technology acquisition is primarily designed for business-to-business technology acquisition, but in some cases the technology may come from a university or research organisation. The technology or know-how may originate in Ireland or abroad, and should normally be tested, proven and ready to use.

Technology Acquisition is a huge area and the productivity improvement fund targets a specific part of the technology acquisition process. Companies applying for funding for technology acquisition under this fund will be required to have carried out their due diligence and identified the technology they wish to acquire. The applicant company will also know the details of the licence agreement between the two companies and details of the costs involved as part of the application.

Relationship in Technology Transactions

Technology transaction is unlike a simple sale of goods or services, which lasts for a short period of time when the goods and their value exchange hands. Technology transactions involve give and take relationships between the seller and buyer of technology, spread over a 5-10 years period or even more. Unlike in the case of finished products, say – automobile, tractor, aero plane, steam turbine etc., no standard price exists for a technology package covering the supply of know-how and knows-why. Hence, it is extremely difficult to determine the reasonableness of the price for the technology package offered by the foreign collaborator, as there is no reference point. The price levels vary greatly depend upon, not only the quality of technology being offered, but also on the competitive position in market. As the recipient of technology is not well versed with details of technology being acquired, it is quite difficult for him to specify clearly the scope of know-how or know-why transfer through the aegis of licence agreement. The buyer is dependent to a large extent, on the co-operation and knowledge of the technology supplier. Greater difficulty is experienced in regard to improvements/modification/developments likely to take place in technology being acquired, which are fully unknown today, but have to be negotiated with the technology supplier, and paid for in the licence fees now.

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As the technology agreements cover a long period of time, in many cases, persons who negotiated the technology acquisition contracts, may not be in positions both at supplier’s and buyer’s ends during the implementation phase of the contracts. Greater clarity in the scope of know-how and know-why transfer, besides the roles and responsibilities of both licensor and licencee are, therefore, essential while finalising collaboration agreements for smooth functioning subsequently.

If future modifications/improvements are to be passed on by the licensor to the licencee during the period of collaboration agreement, specific provisions need to be made in the agreement for this purpose. The buyer of techno1ogy in most of the cases does not have adequate information about the number and quality of alternate suppliers of technology, their track records, financial position at the time of purchase negotiations, their behaviour in similar technology transactions with their clients in other parts of the world etc. All this information is generally kept as a well-guarded secret and its non-availability erodes the bargaining power of the technology buyer. Negotiations for acquisition of technology require multi-disciplinary skills and the technology package has to be examined from various functional angles, viz., design, R&D, production, indigenisation, product performance, marketing, legal, financial, training, government policies etc: No single individual can scrutinize the technology agreements from all these considerations and in many companies, Such negotiations are invariably carried out by a multi-disciplinary team with representation from above functions.

As the relationship between the seller and the buyer of technology, is of a long-term nature, it is not feasible to define very clearly in writing all facets of a technology transaction. The spirit behind the collaboration agreement is more important than the letter -as the agreement is only a means for transfer of knowledge and skills from the supplier to the recipient of technology. One must take into account the cultural background, value system, and economic level etc. of the country from which technology import is being sought.

As costs of technology generation, especially, in hi-tech areas, are very high, one must examine as to why a collaborator is willing to transfer technology. In some cases, the collaborator may be looking for a market entry into the recipient country, or for fall out earnings on account of purchase of capital goods, raw materials, components, bought outs/consultancy services etc. There could be various motives on the part of the collaborator to sell his technology and unless these are clearly analysed and understood by the recipient organisation, its bargaining capability would be less. The buyer must also analyse all possible benefits that could accrue to the technology supplier on account of this transaction so that the commercial terms could be negotiated more effectively.

Sellers try to impose numerous restrictive conditions in the agreements governing technology transactions. These relate to purchase of capital goods or components only from/through the seller or restrictions on exports or by way of demanding a minimum quantum of payments etc. irrespective of the volume of production by the buyer. It is extremely difficult to assess the reasonableness of price for a technology package. All technologies pass through different phases during their life cycles viz., embryonic, growth, maturity and decline phases. Many companies want to transfer technology after the maturity phase, when its prospects have started declining in their own countries. The recipient organisation must assess the stage in the technology life cycle,

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at which technology acquisition is being negotiated for getting the best possible terms. When the technology is on the decline phase’, its costs of acquisition should be quite low, when compared to the growth phase.

In some cases, the parties negotiating for the sale of technology may not be the ones, which are the actual/real owners of that technology, and may be acting on their behalf only. In such cases, these third parties negotiating for technology transactions may not have any direct control or say in the technology transfer process after a certain period of time when things might have changed as the ultimate control vests with the real owner of the technology. It would, therefore, be essential to find out whether the seller of technology is the direct owner or not, so that the client’s bargaining position could improve.

6.2 Technology Acquisition Alternatives

1. Develop Technology in-house

The company has to estimate the financial costs of the required R&D and its opportunity cost of that choice. Its impact on the direction of, and the commitment to, other research projects is also relevant. In addition to this, the company has to assess the suitability of its staff and equipment for the new project. Among the risks, it has to face are blocking patents. However, the developed technology can be customized to its precise requirements.

2. Buy the firm that has the Technology

The investment here could be substantial and great care is needed in the evaluation of the prospective acquisition. Also, it is important that following the purchase, that the operations can be effectively integrated and that there is no undue loss of key staff.

3. Enter into joint ventures

The costs are shared but so are the benefits of the new technology. Where the risks are high and the costs heavy, membership of a research consortium becomes a more attractive option. There is also the co-development of new products or processes, such as between a key supplier and a major customer.

4. Enter into research contract

R&D contracts can be placed with research associations, universities or consultants. The company has to consider the costs and the nature of control of the project. There is the risk of know-how loss.

5. Obtain license for use of Technology

This is essentially the purchase of access to proprietary technology. It can be anything from the right to use a particular patent to a complete package, which includes know-how agreements,

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commissioning assistance for new plant and processes and the provision of updated designs and other technical information.

6. Education and training

Soft technologies with a strong management dimension e.g. JIT, Quality circles, or Kaizen can be acquired through training programmes. However, the underlying experience, which makes these techniques more effective, is often achieved through personal contacts between companies.

6.3 Reasons for Technology Acquisition

There are a number of reasons why a company may prefer to obtain a technology where it has the opportunity to obtain a license. The first is the saving of R&D costs. The purchase of a proven technology also avoids the risk of R&D failure. The acquisition of designs, specification sheets, and process know-how and sample products simplifies the product launch and allows a quicker market entry. Scarce key staff can be assigned to other opportunities. Altogether, considerable savings in time and money can accrue and yield a faster return on the investment. Also, where the purchaser pays mainly through royalties on product sales this will defer his cash outflow. Of course, the purchaser is unlikely to establish technological leadership with such an arrangement; although even here specialist marketing and application experience is often developed by him. But as a matter of strategy, this may not be critical if the vendor of the technology is not a competitor in the market or country of the purchaser.

Self Assessment Questions I

1. What are the Technology Acquisition Alternatives?

2. State the possible reasons as to why a company may prefer to obtain a technology where it has the opportunity to obtain a license.

6.4 Management of Technology Acquisition

Once the strategic decision has been made to acquire a technology from outside the company, the management of that acquisition becomes important. The following are important points in this regard:

1. The role and management of technology within the company needs to be assessed, especially its capability of managing the transfer activity.

2. The allocation of appropriate staff to the transfer and application of the technology. The project manager must be at senior level while his colleagues need to have engineering application and change management skills.

3. The corporate objectives, capability and the technology transfer track record of the prospective transferor need to be considered. Effective technology acquisition is often based on a longer-term relationship.

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4. Clear technical and contract specifications are essential. Because of the nature of the technology and its integration in intellectual property, the transfer constituents vary in type and character. Where the transfer is from a different culture, special attention has to be given to detail and the meaning of language.

5. Contract negotiations can be onerous. They require diplomatic skills and careful record-keeping.

6. Because of the nature of its acquisition, transferred process technology needs to be handled with even more care than indigenous technological change. It is important that all affected company staff appreciate the nature and reasons for the acquisition.

6.5 Technology Evaluation and Choice

Technologies are evaluated independently and relative to competing technologies. Evaluation becomes necessary not only to choose appropriate technology but also to verify whether the technology in question is suitable to the environment. It is said that a technology, which became popular or which was found to be the most successful in a country may not be suitable to another country, as the people among countries, even within the large countries, differ in their culture, attitudes, education, economic status etc. However, before determining the alternative technologies, it is necessary to determine the scale of proposed operation.

Economy of Scale or Scale Economy

Scale is not the mere size but size with proportions and consequences. When this proportion is not in harmony, it creates problems. Scale can be defined as the level of planned production capacity that has determined the extent to which specialization has been applied in the sub-division of the component tasks and facilities of a unified operation. The size of production or quantity of service that provides a break even can be taken as economy of scale. In many situations it is observed that as the size increases the cost per unit decreases. However, the largeness is not without problems. It was also found that the capital investment per unit of output, Material cost per unit of output, Fuel cost per unit of output, etc. are lower with large size. Economies of scale can be achieved by:

· Specialization

· Concentration of production

· Rationalization and standardization

The disadvantages, with the present day large scale, are:

· Environmental problems

· Unemployment

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· Market restrictions

Therefore, the questions that may be raised are:

i) What should be the size of production?

ii) What is the technology level of automation to be used?

All the problems associated with the scale may not be genuine in nature and some of them may be very specific to the activity, say, mining, and also to the specific situation. Therefore, the methodologies developed may also vary for different activities. However, it may be possible to identify general methodologies for a specified group of activities.

Levels of Scale: The problem of scale is divided into the following hierarchy of levels:

Level 1:

(a) The scale of a single unit of physical equipment called the engineering level or unit level;

(b) The scale of a single product line (several separate units of equipment are used here) – product level;

Level 2: The scale of a single plant or factory (several product lines may be arranged at a single site) – plant level

Level 3: The scale of a single organization – corporate level

Level 4: The scale of total industry or an industrial complex – the industry level co-operation among organizations. Even in competitive environment, common pressures and the perception of common interests foster co-operative behaviour at the industry level.

Level 5: The scale at a national or societal level.

The measurement of Scale:

As it is difficult to provide a single general measure of scale, the function and purposes are determined first in order to determine the measure(s). Some absolute measures may be:

a) Number of people employed

b) Physical area or volume occupied

c) Physical mass or volume of daily or annual throughput

d) Financial value of the capital employed

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e) Financial value of daily or annual output

Some relative measures are:

a) Size of unit being considered

b) Size of largest existing unit

Some performance measures are:

a) Output of useful goods : Input of scale resources

b) Time / year capacity : Capital cost

c) Own market share : Market share of the target competitor

Factors affecting choice of scale:

i) Political factors

ii) Social factors like unemployment

iii) Economic factors

Generally, the factors that favour the increase of scale are mainly internal to the firm, whereas the factors that cause the decrease of scale are mainly external factors. A balance between these two initially may be used to determine the Optimum scale. Approaches to solve problems of scale are:

i) Industry-specific Approaches

Here, it is assumed that the problem of scale is technical and industry specific. Therefore, it is also assumed that it can be dealt on ad-hoc basis only and no generalization can be made. For example, electricity cannot be stored, newspapers life is only one day perhaps half-day, ice-creams are perishable, and so on. However, it is not to decline some common features that may exist or conformity to same general patterns, like the potential customer group, basic components, distribution patterns etc. While approaching the scale of such a product, one must be able to distinguish between conclusions specific to that industry and conclusions evidently of wider applicability.

ii) Engineering Generalization

Engineering aspects tend to be industry specific, but there have been some cross-industry generalizations. The cost, here, is expressed as:

Cost = constant x capacity

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C = a + pk

Constant ‘a’ is the fixed cost, where as the pk is the variable cost. ‘k’ is obtained from empirical studies and recorded for a wide variety of processes and equipment. Now theoretical base can be explained for the values of ‘k’, but the empirical results have proved to be trustworthy.

In engineering analysis, the decision is crucial at the time of procuring the equipment. Additional capacity may not cost more if purchased at the beginning instead of a low capacity one but it may be very costly to add that capacity later.

iii) Technological Development

Here, these also appear to be engineering approaches but deals with dimensional analysis and models of growth. This specifically deals with the evolution over a time period of the relationships between the key features of engineering systems. Therefore, a generic model is developed here:

Yt = a tb (or) Yt = c Xtd

Where, Yt – the size of the largest unit at time t

Xt – cumulative production up to t, and a, b, c, d are constants for the particular technology.

iv) Industrial Economics and Econometrics

Uses static economic models and U-shaped cost curves more generalized using standard regression techniques to fit various parameters, rather than considering the plant design and operation. Input – Output approach is one of the prominent techniques of econometrics.

v) Engineering – Economic Systems

These are analytical models to determine the choice of optimal size and consider the effect of market growth, desired ROI, scale characteristics and the costs of alternatives on the optimal size and optimal mix.

i) Social Science and organizational scale

The concept is that the scale also depends upon the size and form of the organization. Studies reveal that there is a close relationship between the organizational form adopted and the phases of development of industry.

ii) Control theory – analytical models -computer simulation models underlying interactions, consider it as a dynamic and stochastic system and use control strategies.

6.6 Evaluation of Technology

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Technologies are evaluated individually for their technical feasibility. Some of the factors used are:

i) Manual difficulty – skill levels required

ii) Space requirement

iii) Life of the equipment

iv) Infrastructural changes required

v) Raw material requirement- quality and quantity

vi) Capacity

vii) Availability and maintainability etc.

viii) Capital investment required

Based on this the firm analyses the technology and rejects or accepts it based on the technical feasibility. The data to verify the above said factors is obtained from suppliers and the company itself estimates some of the factors. If the company feels it feasible to apply, then it selects that technology. In most cases, the company would like to consider not one technology but the alternate technologies available and choose the best one among them. It means the problem leads to a multiple alternatives case. When there are more than one competing technologies, they may be evaluated based on:

1. Economic criteria

2. Techno-economic criteria

3. Multiple criteria

Researches have suggested financial analyses, i.e. pay-back period method, net present value, rate of return and break even analysis methods to evaluate the priorities of alternative technologies for a given project. These methods consider only economic factors and are sensitive to interest value. The limitations of these methods are that they consider the same interest rate for the whole life of the technology, which may not be true for several transactions, and also the values are not adjusted to inflation.

Therefore technology choice model must be an integrated model which considers different criteria with uniform scale of evaluation.

1. Economic Criteria

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Economic criterion is the most popular method as it involves the monetary value and expresses the benefit in terms of monetary value. The common method used is the discounted cash flow method and parameters are the present worth or the internal rate of return. The discount is generally made assuming a minimum attractive rate of return (MARR). However, these monetary values can also be adjusted for inflation which is not a normal practice.

2. Techno-economic Criteria

In addition to economic feasibility, technical feasibility is also verified when the technologies are complex. The alternative technologies are compared for a specified set of parameters such as:

· Raw material requirement

· Personnel requirement

· Space requirement

· Material handling requirement

· Capacity per unit time

· Useful life

Here, some of the parameters are quantitative and some may be qualitative. Qualitative parameters are quantified over a scale, say 0 -10, as in social sciences. An index is then prepared by normalizing the quantitative parameter values and by the addition of the values of all parameters. But it is possible that some criteria are more important than other criteria. In such a case, weightage is assigned to each criterion and weighted index is determined. Both economic evaluation and techno-economic feasibility are the conventional methods. They are, no doubt, necessary but are not enough to evaluate technologies in the present situation where the world is more concerned about the degrading environment, mining societies, extricating species, etc. Therefore, it has become essential to evaluate alternate technologies using multiple criteria such as environmental, social in addition to economic and technical criteria. Three are several methods that are proposed for multi-criteria decision-making. The technology selection is critical and important for industries worldwide. Improvements are being made continuously in several parts of the world in technology choice decision-making. Here, a few articles and books have been gone through, and their highlights and conclusions are summarized.

3. Technology Choice Decision Making using MCDM

In the literature of multi-criteria decision making (MCDM) analysis, there exists a large number of methods, such as Simple weighted average method, Elimination and choice translation algorithm (ELECTRE), Preference organization method for enrichment evaluation (PROMETHEE). However in the above methods, there is no formal procedure for evaluation of weights, which is essential for technology choice making. Other MCDM models do not easily consider the intangible factors. A MCDM method named, Analytic Hierarchy Process (AHP)

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became very popular, and many applications were found in literature using AHP for prioritizing Economy of scale or Scale Economy alternative using multiple criteria. However, there exist only few technology choice applications using AHP, in the literature.

It is observed from the studies reported in literature that the technology choice basically involves ranking the alternative technologies available at that time. Initial studies used the economic analysis models to choose a better technology or to rank them. However, several authors debated the type of technology to be used for developing and less developed countries, i.e. either it should be capital intensive or labour intensive.

Integrated Technology Choice Framework

Technology choice is the selection of an appropriate technology from different available alternative technologies. The choice of an appropriate technology is inherently a complex task which managers frequently face and take decisions under conflicting objectives and criteria. In technology choice, appropriateness of alternative technologies needs to be evaluated by using different evaluation criteria. Technology choice is conceptualized as a problem of ranking alternatives. Because of rapid technological innovations, technology choice is treated as a dynamic problem, in which the objectives and evaluation criteria change with time.

Many developing countries are opening up their markets for global economy. Because of this industries in such an environment can survive only by enhancing their competitive advantage, i.e., by maximizing the productivity and quality, and by providing goods / services at competitive price. In the current scenario, it is possible only by adopting an appropriate technology. Most of the developing countries are unable to develop technologies by their own and are importing from abroad. Many case studies related to technology transfer, in which technologies were transferred from developed to developing countries, are observed [Simon et al, 1978 and Lin et al, 1994] and their causes f failures are studied. This situation necessitates a probe into the technology choice-making, so as to minimize number of failures and to help industries in developing countries in choosing the most appropriate technologies in easy and efficient way.

Definition of Technology Choice

In technology choice, priorities of alternative technologies are to be ranked based on their performance under technical, social, economic, environmental, political and managerial criteria. Importance of these criteria is to be derived from the opinion of experts based on a set of desired objective conditions. Hence it is a multi-judge, multi-objective, multi-criteria decision making problem. The technology choice for the purpose of this study is defined as, "Selection of an appropriate technology by considering technical, social, economic, political, managerial, environmental, and location factors to satisfy the desired objectives."

Integrated Technology Choice Framework

Technology choice is a multi-judge, multi-objective, multi-criteria decision making process, requiring analysis of priorities of alternatives based on both objective and subjective factors. Therefore, technology choice decisions making should be an integrated model which allows the

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users to rank criteria and alternatives either as a group or as an individual. It is necessary to develop a general frame work for technology choice. It is observed from the literature that no generalized, acceptable framework or methodology was proposed for technology choice decision making. Such a framework is essential for researchers and analysts, otherwise, every individual will follow whatever he feels right. Such a generalized framework brings in uniformity and understanding among the people carrying out such studies. Therefore, the applications of technology choice methods that are available now are thoroughly probed. A synthesis of various approaches is carried out, to evolve the basis for developing an integrated framework for technology choice.

In this integrated framework for technology choice, study is carried out in three stages, namely (i) Decision factors identification, (ii) Alternative technologies evaluation, (iii) Alternative policy analysis and final decision making.

6.6.1 Decision Factors Identification

In this stage, different alternative technologies and evaluation criteria are to be identified. The following are various steps to identify the decision factors related to technology choice of the given process.

Step 1: Verify the need for new technology

Technology has to be tailored to the needs of the industry. Need can be defined in terms of suitability, urgency, and benefits that a company hopes to gain from the new technology. The need of the new technology is to be assessed based on the internal strengths, weaknesses, opportunities, and constraints. Based on the analysis, the objectives of technology choice making are to be identified. One can go for technology choice for any of the following reasons:

i) To start up a new Industry

ii) To expand existing plant capacity to meet future demand (capacity expansion)

iii) To modernize existing plant to meet competition (Modernization / Technology upgradation)

Depending upon the reason for choice making, the aim of the decision to be made for the technology choice problem varies. For example, for the reasons cited above, the decisions may be;

i) Evaluating appropriateness of all the available alternatives and selecting the best one,

ii) Improving the existing technology for additional capacity or adding the extra capacity separately with a new technology, or scraping the old technology and replacing it with a new technology for entire old and additional capacity,

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iii) Upgrading the existing technology by incorporating the latest developments related to that technology or scraping the old technology by replacing it with a new advanced technology, respectively.

Step 2: Define the objectives of technology choice decision making

The management must clearly define their objectives and constraints related to acquiring a new technology. The constraints are as follows: ‘amount of capital that can be spend on the new technology’, ‘allowable limits of production capacity’, ‘technical skills and knowledge levels of local manpower’, etc. The objectives are as follows: ‘utilization of local available manpower and raw materials’, ‘technology self-reliance’, ‘technology leadership or follower-ship’, ‘ambition to enter into global markets’, ‘future growth’ , etc. The objectives and the constraints are governed by external and internal factors. The external factors are market competition and government regulations. For example, based on the market competition, the permissible limits for productivity and quality of production are to be fixed. And to take the advantage of local government incentives, the allowable limits for production capacity and the preferable locations for plant site are to be decided. The internal factors are ‘resources availability’, ’skills and knowledge availability’, ‘raw materials availability’, etc. For example, based on the type and the amount of natural resource reserves, the permissible raw materials are to be decided. And based on the technical skills and the knowledge levels of local manpower, the allowable limits for training requirements are to be decided.

Generally, the objectives of public (government) and private firms in developing countries may vary .The private firms mostly look for more profits and future business growth prospects as the main objectives of their technology choice; whereas public firms, in addition to the above objectives, also intend to improve national employment opportunities, economic growth, and technology self-reliance.

Step 3: Form a committee of experts

A committee of experts, who have knowledge / experience in operation and maintenance of related industry, is to be formed to evaluate the priorities of the alternative technologies. The number of experts in the group may depend upon their availability. It is always better to choose experts from different backgrounds, i.e., economists, academicians, researchers, production and operation people, environmentalists, policy makers of government, etc.

Step 4: Identify the alternative technologies

Alternative technologies are different combinations of techniques/ processes used for production of a single product. The alternatives may be at various stages of development, i.e., conceptualization, laboratory research and testing, pilot plant, and commercialization stages. There are certain risks and benefits in choosing a technology at each stage. For the commercialized technologies, expertise on the production and maintenance problems is readily available. Therefore to minimize the risks, commercial technologies are preferable for any new entrepreneur or for locations where availability of technical expertise is limited. The technologies which are in the other stages of development regularly require an in-house R&D

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support to overcome the day to day operational problems. As such the selection of technologies in those stages involves high risk. However anyone who wants to take advantages of the latest developments, and aspires to be among the leaders of that technology can only consider the technologies in the above stages of development, as alternatives.

Step 5: Short-list the alternatives

Alternatives are to be short-listed based on whether an alternative’s characteristics are with in the specified objectives and constraints or not. For example, if the amount of capital required for any alternative exceeds the maximum limits specified in the objectives and constraints or if the pollutant levels from the emissions of an alternative exceeds the government regulations norms or if a particular raw material required for any alternative falls in the list of government banned materials, such alternatives must be eliminated from further analysis. Similarly alternatives are verified whether they are with in the specified characteristics of other objectives and constraints. Short-listing of the alternatives will reduce the extra calculation burden. The short-listed alternatives are called potential alternatives. Only the potential alternatives are to be considered for evaluation of the priorities.

Step 6: Identify the evaluation criteria

Depending upon the objectives, and based on the technical structure of the alternatives, various key elements related to alternatives are to be identified to compare the alternatives. The key elements should include various factors related to economic, social, political, technical, and environmental aspects of those alternatives. The following are some of the factors related to each of the above categories.

· Economic: capital cost, royalty or technology know-how cost, operation and maintenance cost, etc.

· Social: employment potential, safety associated with that technology, etc.

· Political: Government regulations.

· Technical: quality of production, productivity, operational flexibility, type and quantity of raw materials, amount of energy requirement, amount of training requirement for employees, waste recycling possibilities, etc.

· Environmental: amounts of each of the solid, liquid, gaseous, and noise pollution levels.

6.6.2 Alternative Technologies Evaluation

Different multi-criteria decision making (MCDM) methods are available to evaluate alternative technologies, each of the methods have certain limitations. In view of this, Fuzzy Hierarchical Decision Making (FHDM) methodology is developed synthesizing the advantages of MCDM methods and fuzzy analysis, and is proposed for evaluating the alternative technologies. In the proposed methodology, the importance weights of each criterion are to be determined based on

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the subjective opinion of the experts, the appropriateness of alternatives based on each criterion are to be evaluated using the performance and specification data of alternative technologies. Next, by aggregating the appropriateness weights of alternatives with the importance weights of criteria, the priorities of alternatives are to be calculated.

6.6.3 Alternative Policy Analysis and Final Decision Making

At this stage, the influence of change in importance of various criteria, technology choice perspectives, future uncertainty on the priorities of alternatives are to be studied. After the management is satisfied with the results, final decision is made regarding the technology selection. The following are the steps of this stage.

Step 1: Sensitivity analysis

The sensitivity of priority rankings of alternatives is to be analyzed by changing the importance weights of each factor. This enables to understand how each criterion is influencing the priority rankings of alternative technologies.

Step 2: Study the influence of technology choice perspective

Introduction of new technology into a particular place may influence the socio-economic development of that place. Usually the private sector firms look for technology which helps the commercial success of their business. Whereas, the public sector firm, particularly in developing countries, in addition to the commercial success of the business, also look for the region’s overall socio-economic growth prospects while choosing a technology .Therefore, a clear characterization is to be made of different perspective of the technology choice making, For example, the views of the private and the public firms can be represented with different perspectives and the preference of alternatives be evaluated with each perspective and the influence of each perspective be explored.

Step 3: Study the influence of future uncertainties

The future uncertainties that may prevail in the places where technology is being chosen, may influence the success of the technology in the future, Different future scenarios are to be generated based on the extreme possible conditions that may prevail in the future. The preference of alternatives is to be evaluated with each scenario situation, and the influence of future uncertainty on preference of alternatives is to be analyzed.

Step 4: Discuss the results with the management and select the best technology

The results of the study have to be communicated to the top management as they are the final decision makers, illustrating how their objectives and importance of factors are influencing the preferences. If the management wants to change some of their objectives or importance of factors, again analysis is to be carried out and preferences of alternatives are to be calculated. After the management agrees with the results, then most appropriate technology is to be selected finally.

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6.6.4 Application Areas of the Framework

This framework is developed for technology choice decisions, during the starting up of a new industry. However the same can also be used for technology choice decisions during the other situations such as (i) Capacity expansion, (ii) Modernization, (iii) Deciding either to develop technology internally or import and (iv) Deciding either to select low cost fixed machine or go for a high cost flexible machines.

Self Assessment Questions II

1. Discuss the hierarchy of scales.

2. List the factors used for evaluating technologies for their technical feasibility.

3. Define Technology Choice.

6.7 Acquiring Technological Knowledge

The Table 6.1 below lists a wide range of possible mechanisms which firms can use to obtain knowledge resources to support their innovative activity. Think about a firm (your own or one with which you are familiar) and try and list which of these mechanisms are used. What do you see as the particular strengths and weaknesses of each – and what might you do to compensate for some of the weak areas and build on the strengths?

6.7.1 Technology Acquisition Options

Acquiring the technology to support the strategic plan:

Internal technology acquisition is the result of technology development efforts that are initiated and controlled by the company itself. Internal acquisition requires the existence of a technological capability in the company. This capability could vary from one expert that understands the technological application well enough to manage a project conducted by an outside research and development (R&D) group to a full-blown R&D department. It also includes the less well-known process of seizing tacit knowledge (understanding and codifying knowledge that already exists inside the company, but is not well enough understood or widely used).

Internal technology acquisition options have the advantage that any development becomes the exclusive property of the company. In addition, the resulting technology will be tailored to meet the company’s need. However, internal development also has risks. The development of technology generally takes longer than acquiring and adapting already developed technology from external sources. Internally-developed technologies generally cost more that those acquired externally. This is primarily because the development costs are often written off against the application for which it was originally developed. Therefore those selling technologies generally do not have to recover the full development costs in their selling price. And, last, but not least, is

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the fact that the company may not have the expertise to develop or even manage the development of a technology internally.

External technology acquisition is the process of acquiring technology developed by others for use in the company. External technology acquisition generally has the advantage of reduced cost and time to implement, and lower risks. However, almost all technology available from external sources was originally developed for different applications. Therefore external acquisition usually must contain an aspect of adaptation to the acquiring company’s application. The acquiring company must realize that this adds back in some costs, time, and risks to the project.

External acquisition can take the form of licensing, purchasing equipment with embedded technology, investment in a joint venture which has a technology development purpose, or even the acquisition of a company that has the desired technology. Which external acquisition channel to take generally depends on which channel has the desired technology available. Assuming the technology is available from several sources, the choice becomes a business decision where costs and benefits of each option are compared and the best all-around choice is selected. Care must be taken to consider all the factors when making this decision. The value of fairly intangible things like long-term relationships and public image must be considered along with more technical issues like the fit of the technology to the need, quality issues, function and price.

Continuum from Purely Internal to Purely External:

Many forms of technology acquisition are a combination of external and internal activities. Combination options include the addition of networking to internal activities, reverse engineering (where internal people decipher developments accomplished by others), covert acquisition (the more blatant copying of another company’s technology), contracting others to conduct R&D for you, and forming a R&D partnership where portions of the technology development are shared with others. In fact the list of options discussed in this paper form a continuum from purely internal to purely external.

Given the parameters of the world in which we live the first step is to accept the fact that there will not be a perfect solution. All options have advantages and disadvantages. Generally the advantages that a company is looking for will not all reside in one option. In addition, the disadvantages that the company may find hardest to deal with will often come with the option with the advantages most sought after. The company management must investigate each option, consider the pros and cons of each and make the selection that has the best overall combination of assets and problems for the company.

Table 6.1: Different mechanisms for acquisition of technology

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6.8 Summary

The acquisition of a new technology arises from the need to implement a corporate technology strategy, and as such, all the efforts and planning need to be focused on the problems of technology acquisition. It is a huge area and the productivity improvement fund targets a specific part of the technology acquisition process. Companies applying for funding for technology acquisition under this fund will be required to have carried out their due diligence and identified the technology they wish to acquire. Once the strategic decision has been made to acquire a technology from outside the company, the management of that acquisition becomes important. Technologies are evaluated independently and relative to competing technologies. Evaluation becomes necessary not only to choose appropriate technology but also to verify whether the technology in question is suitable to the environment. Technology choice is the selection of an appropriate technology from different available alternative technologies. The choice of an appropriate technology is inherently a complex task which managers frequently face and take decisions under conflicting objectives and criteria. In technology choice, appropriateness of alternative technologies needs to be evaluated by using different evaluation criteria.

6.9 Terminal Questions

1. Identify the incorrect statement about technology acquisition /transaction.

1. Technology transaction is unlike a simple sale of goods or services, which lasts for a short period of time when the goods and their value exchange hands.

2. Technology acquisition is the process by which a company acquires the rights to use and exploit a technology for the purpose of improving or renewing processes, products or services.

3. Acquisition of technology from collaborators is not a good strategy for bridging the technology gaps in a developing country like India.

4. The acquisition of a new technology arises from the need to implement a corporate technology strategy, and as such, all the efforts and planning need be focused on the problems of technology acquisition.

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2. In “Economy of scale”, the word ‘scale’ refers to_____________.

1. Size of the country 2. Level of planned production capacity 3. Size and shape of the largest machine in the organisation 4. Level of urbanisation in the region

3. The set of parameters used for coamparing alternative technologies do not include __________.

A) Personal achievements

B) Space requirement

C) Material handling requirement

D) Capacity per unit time

4. Discuss various Technology Acquisition alternatives. List the important points to be kept in mind while managing an acquisition of technology.

5. With regard to the integrated framework for technology choice, explain the three stages used for carrying out the study.

6.10 Answers to SAQs and TQs

SAQs I

1. Refer to 6.2

2. Refer to 6.3

SAQs II

1. Refer to 6.5

2. Refer to 6.6

Answers to TQs:

1. C

2. B

3. A

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4. Refer to 6.2 & 6.4

5. Refer to 6.6

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Unit-07-Technology Transfer

Structure:

7.1 Introduction

Objectives

7.2 Models of Technology Transfer

7.3 Modes of Technology Transfer

Self Assessment Questions I

7.4 Technology Search Strategy

7.5 Dimensions of Technology Transfer

7.6 Features of a Technology Package

Self Assessment Questions II

7.7 Routes of Technology Transfer

7.8 Evaluation of Technology

7.9 Terms of Payment

7.10 Monitoring the Technology Transfer Process

Self Assessment Questions III

7.11 Technology Transfer Agreements

7.12 Technology Transfer: Joint Venture

7.12.1 The Case of Industrial Markets

7.12.2 The Emerging Consensus: A Matured Partnership

7.13 Introduction to Technological Substitution

Self Assessment Questions IV

7.14 Summary

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7.15 Terminal Questions

7.16 Answers to SAQs and TQs

7.1 Introduction

Technology once developed can be used by its developer or owner, or can be transferred to another user immediately or after sometime at any stage till maturity, dictated by commercial expediency. Generally, newer technologies are transferred among the developed countries and matured or nearly matured technologies are transferred from developed to developing countries at the enterprise level.

Basically there are two ways of acquiring new technology: develop it or purchase it. The second way of acquiring new technology is commonly called "technology transfer". The important reasons for purchasing technology are: (i) It involves little or no R&D investment; (ii) Technology can be used quickly; and (iii) Technical and financial risks are often quite low. There are also good reasons for selling technology such as (i) Increasing return on R&D investments; (ii) Technology may not have immediate use; and (iii) Technology has already been utilized up to its limit. Therefore, technology transfer occurs because of the existence of "buyers" and "sellers". The sellers are called "transferees" or "licensors" and the buyers are called "transferees" or "licensees" in the technology transfer process.

Meaning of Technology Transfer:

Transfer, as defined, means the acquiring through purchase and use of technology. Therefore, the definition of technology transfer is the acquisition and use of knowledge. There is no transfer of technology unless and until the technical knowledge is put to use. Technology transfer is not restricted here only to scientific or engineering items. The manufacturing, marketing, distribution and customer service are among the factors that are included in technology transfer.

The key factors in technology transfer include:

· Transplantation of technology involves shift from one set of well-defined conditions to another set in which at least one key variable may differ. Secondly, the recipient may apply the technology to a different purpose from that of the supplier.

· A sense of opportunism prevails in technology transfer, whether justified or not.

· The transfer process embraces a rich variety of mechanisms and relationships between recipient and donor (supplier of technology) .The process can vary from a routine peopleless passive transfer to turnkey contract where the donor takes the full responsibility for all phases of the contract.

· The nature of the transferred technology and how it is transferred are critical to the success of the technology transfer process.

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Technology transfer may begin as a solution to someone else’s problems. Adoption of such outside solution to solve an ‘inside’ problem is technology transfer. The advantage lies in avoiding "reinventing the wheel".

In this unit, we shall study the process of Technology Transfer and some of the related issues.

Objectives:

After studying this unit, you will be able to:

· Define technology transfer.

· Explain the models of technology transfer and their uses.

· Describe technology transfer modes.

· Explain the dimensions of technology transfer and features of technology package.

· Appreciate routes of technology transfer.

7.2 Models of Technology Transfer

Figure 7.1 (source: Mogavexco, L.N., and R.S. Shane, 1982, Technology Transfer and Innovation, Marcel Dekker, New York, pp. 2-3) illustrates the models of technology transfer:

Figure 7.1: Models of Technology Transfer

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Figure 7.2: Technology Transfer Summary Model

Agencies that try to make technology transfers happen include government departments, financial institutions, industries, technology transfer agencies, consultants, venture capital companies, research companies, and R&D organisations, etc. These are the bridging agencies of Figure 7.1. The users of new technologies comprise private and public sector industries, giant technically oriented agencies such as Indian Space Research Organisation, government departments, Atomic Energy Commission etc. It can be seen that a wide spectrum of participants in the total economy are technology users.

Figure 7.1 also illustrates schematically the diffusion of technology from a mission-oriented agency that supports development of technology for purposes of its mission and then arranges for the technology diffusion to other industries by knowledge transfer. This is usually a slow process. Figure 7.1 shows the generation and transfer of technology as a companion of problem solving. Figure 7.2 shows a synthesis of the entire process of technology transfer on a large scale.

7.3 Modes of Technology Transfer

Technology transfer modes have been categorised basically as being passive or active, which refers to the transferor’s role in the application of technology to the solution of the user’s problem. If the transferring mechanism presents the technology to the potential user without assisting the user in its application, namely by a report or oral presentation, then the technology transfer mode is said to be passive. This is actually knowledge transfer. If the transferring activity assists the potential user in the application of technology, then the technology transfer mode is said to be active. In this process, the transferring activity goes beyond mere interpretation of the transmitted data and advises the potential user on how to apply the technology, or demonstrates the applicability of the technology to the perceived use. There could, however, be an intermediate also, which may be called semi-active mode in which transferring activity is in between the active and passive modes.

TECHNOLOGY BASE TECHNOLOGY TRANSFER MODES

USERS / NEEDS

    PUBLIC SECTOR ENGINEERING   TRAFFIC SAFETY

EMERGENCY HEALTH CARE

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COMMUNICATIONS   CRIME PREVENTIONMEDICINE ELECTRONICS

(PASSIVE or ACTIVE)

PUBLIC TRANSPORTATION

DRINKING WATER QUALITY

ENERGY   ENERGY CONSERVATION

URBAN CONSTRUCTION etc.

STRUCTURES   PRIVATE SECTORCHEMICALS

MATERIALS

COMPUTERS etc.

  INDUSTRY AGRICULTURE

MINING

CONSUMER PRODUCTS

AUTOMOTIVE

MEDICINE etc.

Figure 7.3: Connecting Technology with Users

The three different types of technology transfer modes are discussed in detail (Source for Figures 7.4 (a) to (c): Mogavexco, L.N., and R.S. Shane, 1982, Technology Transfer and Innovation, pp. 16-18).

The Passive Mode

The most familiar and widely used form of passive technology transfer is the published literature. This is illustrated in Figure 7.4(a).There is no direct communication or assistance from the originator of the technology to the producer of finished consumer item. Yet thousands of products are of technology transfer are made and consumed from this form of knowledge transfer. Similar forms of passive technology transfer are self-teaching manuals such as television repair manuals and how-to-do-it guides-for home repairs.

The Semi-active Mode

In the semi-active mode of technology transfer the role of technology transfer agent (in addition to self-education or self-retrieval of elements of technology transfer) is somewhat limited. This is illustrated in Figure 7.4(b).

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The technology transfer agent (consultant or technology expert) screens available pertinent information for product development. Here the role of transfer agent is only that of an interpreter or communicator. He will not actively participate in the application of the technology.

The Active Mode

The active mode technology transfer carries the process through to an actual. In this mode the technology transfer agent or consultant will be fully involved and acts as a bridge in technology transfer from technology source to entrepreneur or implementing agency.

Horizontal and Vertical Technology Transfer

Horizontal Technology Transfer implies transfer of technology from one firm to another. Such transfers take place generally between the firms located in different countries, mainly due to reasons of competition and maturity or near maturity of technologies. Vertical technology transfer means transfer of technology from an R&D organisation to a firm. Such transfers are mostly within the country and the technologies are new, and may often require further efforts in terms of establishing commercial viability. Such a transfer involves considerable risk.

Figure 7.4 (a): Technology Transfer (Passive mode)

Figure 7.4 (b): Technology Transfer (Semi-active mode)

Technology could be acquired in many ways – some common modes of technology transaction are:

1) The Turnkey approach in which the technology transaction takes the form of supply of complete factories and industrial plants by a developed country to a developing country. Such a technology transaction involves not only the design and setting up of a complete manufacturing or process plant on a greenfield site in the developing country by a foreign collaborator, but also includes supply of capital plant and equipment, training of engineers, workers and managers of the recipient organisation at the collaborators’ works, deputing the collaborators’ experts to the recipient organisation for long periods of time for managing the operations of the plant.

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2) Setting up a joint venture company with an Indian party, in which the technology supplier has also a financial stake (up to 40%) as per the existing laws.

3) A full-fledged technology licensing agreement between the supplier and recipient of technology defining the scope of know-how and know-why transfer through supply of technological documentation, training of buyer’s experts at collaborator’s works etc. through payment of lump sum and/or royalty. This type of arrangement is the most common mode of technology transfer in vogue today.

4) Joint bidding for a specific commercial job on case-to-case basis between the Indian and foreign party if the demand is erratic or some manufacturing facilities or capability already exist in the company or the technology gap is not wide.

5) One time purchase of design and manufacturing documentation, technical specifications etc. from the collaborator against a lump sum payment for updating existing designs etc. This is resorted to when the technological capability in the company is of a high order.

6) Vetting by a foreign collaborator of specific new designs developed indigenously against payment of fees. This is resorted to in cases where the indigenous capability is quite well-established and vetting by an established foreign organisation is required solely to seek a second expert opinion for satisfying customer needs.

7) Purchase of a specific number of ready-made products in knocked down condition with or without the necessary technological documentation and training / visit of the clients’ experts at the collaborators’ works, when it is considered feasible to design the product indigenously through direct / reverse engineering.

Self Assessment Questions I

1. Explain the Problem-solver model of technology transfer.

2. Explain different modes of technology transfer.

7.4 Technology Search Strategy

Very large companies have a special department or unit dealing with technology transfer and licensing. Medium and small sized firms have no formal department to take care of technology licensing. A company, big or small, may at one time or other, require transferring technology or import of technology from outside. The process of transferring technology either ‘in’ or ‘out’ is subject to both managerial and other resource limitations. Technology search strategy has to be undertaken by the unit to identify suitable technology within the enterprise or import of technology from outside to maintain growth and profitability of the company. The market conditions in any country are dynamic and can operate in a very ad hoc manner. It should be a major concern for companies to undertake search strategy to identify suitable projects or components for sustained growth. An effort to find a suitable new product and knowledge of the

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potential licensor of that product may lead to an early decision and successful implementation of the project.

It is useful to define why new products are required, the type of product that is required, its stage of development and whether this product will fit with the existing skills and resources within the firm. The success of seeking a new product will also depend on, among other factors, their technology search strategy and whether the relevant factors are defined and employed at the outset.

An audit of products, citing strengths and weaknesses, may be useful in identifying gaps in the portfolio that could be filled by the use of licensing.

Recognition of Commercially Viable Products

Any search strategy will identify a large number of potential licensing opportunities but many of them will be unsuitable or inappropriate for a particular firm at a particular time. For a firm with small research and development facilities, any product requiring substantial further development before marketing is likely to prove unsuitable as a potential licensing prospect. Products with a known track record, and substantial marketing and production back-up are likely to be least problematic for smaller firms.

Outward Licensing

The licensor has to develop a search strategy based upon his knowledge of the market and the characteristics of his product, in identifying suitable licensees for his product. Following the search strategy the licensor will need to take into account the type of the licensee firm and its reputation, its market strength and production capabilities before making a decision. Personal empathy with licensee personnel is also an important factor. Transfer of technology under a license agreement comprises the culmination of a multi-stage process carried through by both partners to the agreement. Pre-transfer stages can be tabulated as below:

Licensor

i) Marketing strategy defined

ii) License decision development

iii) Evaluation of Technology

iv) Definition of Technology

v) Search of partners

vi) Transfer of technology

Licensee

i) Definition of product requirement

ii) Evaluation of ‘In-house’ or external

iii) Decision to license

iv) Search for partners

v) Transfer of technology

7.5 Dimensions of Technology Transfer

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The time and resources required to transfer a given technology depend upon:

· What is actually transferred?

· The mode of transfer

· The absorption capabilities of the recipient enterprise

· The capabilities and motivation of the supplier enterprise, and

· The technology gap between the supplier and the recipient

7.6 Features of Technology Package

The technology package consists of three principal elements namely, product design, production technique and management systems.

Product design may range from simple items to highly complex (e.g., automotive) parts. Production techniques and plant layout include blueprints and flowcharts, formulas and recipes, process sheets, fabrication instructions, tools and fixture designs, operational procedures and material specifications. Management Systems consist of various plans, layouts and technical control systems (along with related marketing and financial controls). Included are plant design and layout, quality control and testing, material procurement, inventory control, equipment maintenance and repair and machine loading techniques.

The three principal categories of technical information or -know-how inherent in technological systems are general knowledge, system-specific and firm-specific knowledge. These various categories of knowledge may be in the form of written fabricating or processing equipment.

General Knowledge refers to information common to industry such as blueprint reading, tool and fixture design and fabrication, welding techniques etc.

Self Assessment Questions II

1. What is the need to have a technology search strategy?

2. On what does the transfer of a given technology depend?

3. What are the elements of a technology package and what are its features?

7.7 Routes of Technology Transfer

The principal routes of enterprise-to-enterprise technology transfer are:

a) Licensing or Franchise

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Licensing and Franchise arrangements vary from a complete package of instructions, technical assistance and training to mere permission for the manufacture and sale of a product.

b) Suppliers of Materials and Parts

Suppliers of materials and parts are often willing to provide a full range of technical support, information and manufacturing know-how, and they can be as effective in know-how transfer as in industrial licensing arrangements. The manufacturing of colour TV sets in India is a classic example of this type. The manufacturers did not have a formal technology transfer agreement but had an understanding with the foreign suppliers of materials and components regarding technical assistance in production.

c) Equipment Supplier

A variety of technical services are provided by equipment suppliers, including operational’ and maintenance procedures and even processing know-how (typical in chemical industry). Some technologies are machine based and therefore the know-how is transferred along with supply of plant and equipment.

d) Outright purchase e.g., of turnkey plants or of complete manufacturing and operating specifications, drawings, know-how, performance data and technical assistance.

e) Acquisition of the company or business owning the technology.

f) Joint ventures with the technology owners.

g) Franchising of trademarks and technical, management, and marketing know-how.

h) Combinations and variations of any of the above.

7.8 Evaluation of Technology

In any evaluation, it is essential first of all, to consider needs and requirements, and examine how far the technology being offered meets this basic criterion. Subsequently the technology offered has to be evaluated with respect to factors relevant to the recipient organisation. Some criteria for evaluating various technologies from both customer’s and buyer organisation’s points of view are as follows:

a) Technical and commercial evaluation from customer’s point of view

The technology offered by the supplier needs to be examined-with respect to the following:

· Adaptability and reliability in Indian conditions for operation and maintenance of the licensed product.

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· Suitability of indigenous raw materials and other local endowments for the manufacture/operation of the product.

· Major technical features/parameters of the product like efficiency, weights, operational indices like auxiliary power consumption, fuel consumption, etc.

· Performance and reliability indicators of the licensed product.

· Market share of the product in the world – length of experience, number of units sold, hours worked etc.

· Cost when manufactured in India.

· Ease of operation and maintenance with Indian skilled manpower.

· Easy availability of spare parts in the country including standard bought-outs.

· Techno-economics: capital cost, operation cost, say over, a ten-year period, on the basis of certain interest or discount and maintenance cost to assess the capital and operational costs from the customer’s viewpoint.

b) Technical and Commercial Evaluation from the buyer organisation’s point of view

While all the above factors are relevant even for the buyer organisation, some other factors of direct relevance to the licencee are as follows:

· Ease of adaptability of imported technology into the mainstream of the company with least addition of resources.

· Speed of technology absorption in the company.

· Compatibility with existing technologies in the company.

· Capital investment required for manufacture of the product.

· Technology transfer costs like, lump sum payment, royalty rates etc.

· Share of business for the company at different stages.

· Speed of indigenisation of the product when manufactured at the licencee’s works.

After evaluating technology proposals of different parties from the above considerations, it is essential to clarify the scope of technology transfer to as great an extent as possible. Some of the means for technology transfer for which specific provisions could be made in the collaboration agreement are as follows:

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1. Scope of know-how or know-why transfer to cover supply of design manuals, computer programmes, company standards, product specifications, technical information etc. with as much clarity as possible.

2. Assembly, sub-assembly and component drawings for manufacture.

3. Details of materials specifications, raw materials, components, bought-outs etc. required for production.

4. Manufacturing processes and technology instructions.

5. Quality manuals and systems.

6. Operational and maintenance manuals.

7. Spares recommendations including sources for bought-outs.

8. Quantum of training for licensee personnel in design, manufacture, erection, commissioning, quality control, after-sales-service etc. to be clearly specified in the agreement.

9. Deputation of collaborators experts – charges, duration etc.

10. Quantum of on-the-job experience of the licencee personnel at the licensor’s works.

7.9 Terms of Payment

There are specific government guidelines in regard to the quantum of payments to foreign collaborators including the maximum rates of royalty and even the method of calculation of turnover to attract royalty. Government guidelines also exist in other areas like sub-contracting and sub-licensing rights, export rights, patents and brand names etc. These have to be scrupulously followed as the collaboration agreements require government approval. Many procedural steps have to be completed before the actual signing of the collaboration agreement. Some difficulties experienced on account of government procedures are as follows:

Procedural Delays: Government approvals of foreign collaborations take a long time.

Restriction on Technology Transfer Fees: It is difficult to attract a good collaborator for high technology products due to restrictions imposed by the Government on account of technology transfer fees. Government norms for lump sum fee or royalty are many a time not accepted by the collaborator. There is a gradual relaxation in the government policy in this regard and recently it has been notified that agreements with no lump sum payments and royalty rates up to 5% on domestic sales and 8% on exports do not require any Government approval. It is a welcome positive change.

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Terms of Payment: In some cases, the collaborators do not agree to the payment of lump sum fees in three equal installments, as they feel that they will incur more expenses in the initial period and should be allowed to recover the same at the earliest.

Exports: Permitting an Indian company to export its product to other countries, even excluding countries where the foreign supplier has already a collaborative arrangement may not be acceptable to him as this could have an adverse impact on their export market.

Foreign Technicians: Timely services of foreign technicians may not be availed. This may take place on account of delays in obtaining permission for bringing foreign technicians to India and for the payments of their fees, for which necessary money transfers have to be made.

The recent liberalisation of policies for foreign investments and collaborations are likely to reduce such irritants. As the restrictions and procedural requirements are getting gradually relaxed, constraints of the above type may cease to exist with time.

Technology adaptation and absorption

After the collaboration has been signed and taken on record, it is essential that the licensee should evolve a proper back up organisation, to ensure smooth technology transfer for both design and manufacturing. The R&D set up should also be activated to support the technology transfer process and develop the know-why capabilities. It is essential to lay more emphasis on both know-how and know-why development, so that self-reliance is acquired at the earliest. It calls for organised efforts with time-bound milestones. Immediately after conclusion of the collaboration agreement, a comprehensive technology transfer plan ought to be prepared which should define various milestones for the receipt of technical documentation, training of licensee personnel at the collaborators’ works, establishment of any additional manufacturing facilities, production build-up and achievement of indigenisation levels as per the phased manufacturing programme. Some strategies for quick adaptation and absorption of imported technologies are as follows:

1. Continuous monitoring of technology transfer plan at the product, divisional and corporate levels.

2. Buying only a few designs or types from the collaborator, and developing the rest to cover the entire range, through in-house development (by direct or reverse engineering).

3. Training of engineers in identified areas at the collaborators’ works after familiarising them with the documentation received from the collaborators, so that they could derive the maximum benefits from their stay at the collaborator’s end.

4. Analysis or documentation, technical Information etc. received from the collaborators by the R&.D groups and preparation of specific developmental plans for import substitution, product improvement, cost reduction, spin off product development, etc, keeping in view the innovations taking place internationally.

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5. Entrusting the R&D Group with the responsibility to carry out product improvement research, so that the technology acquired is up-scaled and improved upon further.

The above strategies should help the organisation to absorb/adapt imported technology and achieve self-reliance at the earliest, thereby avoiding repetitive imports of technology. Among the public sector enterprises in India, BHEL possesses a quarter of a century of experience in absorption of imported technology from different sources.

7.10 Monitoring the Technology Transfer Process

Nearly 13,000 collaboration agreements have been concluded by Indian organisations since independence. The role of foreign collaborations in Indian industry has been very prominent, both in private as well as public sectors. More than 75% of electronic items, 70% of agricultural machinery, 65% of transport machinery and 35% of all drugs made in the country, are products of foreign collaboration. Almost 100% of power plants and allied equipment used for generation, transmission, distribution and utilisation of electrical energy are manufactured in the country to designs imported originally through foreign collaborations. However, many of these collaborations have been extended time and again, and nearly 20% of the above collaborations have been renewed on the average six times or more. Although the country has derived immense benefits from these inputs of foreign technology, it is obvious that the overall technological capability of the country as well as of the recipient organisations would have been much stronger, had there been a more systematic effort at absorption, adaptation and upgradation of imported know-how over years.

Maximizing Technology Transfer Benefits

While monitoring of technology transfer plans is essential to keep a track of the technology absorption status, it is also helpful to evaluate the benefits derived from absorption of imported technology. This might also indicate the extent to which technology has been absorbed. Some of the ways by which maximum benefits could be derived from technology transfer are listed below:

1. Ability to trouble shoot, solve generic problems, overcome product deficiencies by in-house efforts.

2. Ability to design and develop variants, upgrade the product or system to suit the changed operational requirement.

3. Assimilation and adaptation of computer programme for basic design.

4. In-house development of design of components and sub-systems for which detailed drawings have not been supplied by the collaborator.

5. Assimilation and adoption of quality control procedures for manufacture, at works, bought-out items for erection and commissioning.

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6. Ability to undertake connected R&D activity of the products/systems developed.

7. Extent of absorption of basic know-how and know-why.

8. Ability to bridge the gap between the technology recipient and world leaders over the next five to ten year period, without taking recourse to technology imports.

9. Evaluation of competitive position in the particular area in both India and the world.

10. Confidence level in the company for handling the product independently after expiry of the collaboration agreement.

Various strategies mentioned above are expected to accelerate the process of technology transfer, absorption and adaptation for deriving maximum benefits from the collaboration agreement. It must, however, be noted that technology transfer is in essence a process of transfer of technological expertise from the collaborators’ specialists to the engineers of the recipient organisation. Successful execution of this process involves not only commercial and technological considerations but also human dimensions. Many a time, there are obstacles to smooth transfer of technology on account of commercial and organizational factors like:

1) Attitude of the licensor to get maximum returns with minimum efforts, thereby depriving the licensee of the core know-how and know-why.

2) Licensor insisting through guarantee obligations for purchase of hardware, services, etc. from him or from specified sources, without which he would not stand guarantee for the quality of the manufactured product.

3) Licensor influencing financial institutions, major customers in the country to get a good share of business by insisting on the licensee for purchase of a minimum quantum of components for giving back-up performance guarantee.

4) Different languages used at the licensor and licensee’s works.

5) Communication problems at various levels where organisations are large and the products are manufactured at more than one location.

6) Data on performance of similar equipment supplied by licensor to other countries, and the modifications etc; carried out thereon not being communicated to the licencee, thereby leading to irritants.

7) Original estimates of financial returns to the collaborator on account of royalty payments getting adversely affected due to major changes in demand pattern with respect to projections made at th~ time of signing of the agreement, leading to irritants.

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There can be many more reasons for irritants between the licensor and the licensee coming in the way of smooth technology transfer. It is here that the role of licensor and licencee becomes very important.

Role of Licensor and Licencee

It is not enough to choose a right technology or a collaborating partner but it is even more important to see that the collaboration works. For a successful collaboration agreement, both licensor and licencee must clearly understand their roles and responsibilities. Undoubtedly, the most important ingredient in the whole process is mutual trust, based on which good working relations can be developed between the two parties at all levels. The availability of good engineering expertise with the licencee to define as clearly as possible, the scope of know-how and know-why transfer at the time of signing of a collaboration agreement can help a great deal. R&D groups should be associated with negotiations with the parties.

Another important way is regular communication channel between the two parties at different levels, which can be structured through annual or bi-annual reviews and frequent feedback to the licensor from the licencee on market situation and in regard to the performance of product. Prompt payment to licensor, annual licensor- licencee – customer seminars for product related issues and new developments and identification of a suitable organisation at both ends to co-ordinate the technology transfer relationships at all levels, would go a long way in streamlining the technology transfer process.

Technology Absorption Capabilities of Recipient Enterprise

The absorptive capabilities of the recipient enterprise depend upon its resources and capabilities (embodied in technical and managerial skills as well as financial strength) and upon the transfer capabilities of the supplier enterprise. The following are some of the problems encountered by small-to-medium enterprises in technology absorption.

Service facilities: Material testing, heat treatment, instrument calibration, engineering standards and quality control procedures.

Manufacturing: Material standards and specifications, manufacturing processing procedures, formulae on alloys and compounds, fabrication and use of fixtures, jigs, dies and tools, welding techniques, casting and other metallurgical processes and material substitutes.

Equipment: Special equipment designs (heat exchangers, pressure vessels, bearings heating elements) and standardisation of major machine components (gear boxes, machine tools), die casting etc.

Competence of Know-how Supplier

Transfer capabilities and motivation of the enterprise supplying the industrial technology have an important bearing upon the effectiveness and efficiency of technology transfers. The competence of the transfer agents, including their ability to design an easily transferable technology package,

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is an important factor. The supplier enterprise and its transfer package represent a combination of documentation, training and technical assistance. Motivation of the technology supplier depends largely on the transfer mode and the potential return the supplier hopes to realize from an effective and efficient transplant.

Pricing of Technology

In most licensing situations payments have to be made by the licensee to the licensor. The payments represent compensation to the licensor for allowing use of industrial property rights or valuable intellectual property by the licensee and providing necessary technical assistance to enable the licensee to produce as per agreed terms. Generally, there is likely to be some financial return for proprietary knowledge or other forms of intellectual property to the licensor. The process by which this return is determined and agreed to by both licensor and licensee is crucial to the licensing process. It is, however, not an area that is always amenable to the application of scientific rules, since licensing negotiations are subject to human factor, supply and demand conditions in the market and bargaining power of both the partners. In addition, pricing and negotiating in general is subject to the extent of support being available to both buyer and seller.

Categories of Payments

Payments for the technology may be divided into three broad categories, although in practice an agreement may involve a combination of all three: lump sum payment, royalties and fees.

Lump sum Payment: Lump sum payments, by definition, are calculated in advance, though the agreed sum maybe paid in installments. This method may be appropriate where it is desired to obtain the technology by outright purchase. It may also be a means of obtaining the data on a patented process. Traditional reasons for down payment or lump sum payments are as follows:

· Down payment is a transfer cost representing the specific costs borne by the licensor to prepare a "technology package" for the licensee. Costs could arise from preparing drawings, specification lists, operating manuals, on-site training of personnel etc.

· Down payment acts as a surety, in case licensee defaults on the term royalties, delays in business operations, fails to go into operation after receipt of know-how or undergoes liquidation. By down payment the licensor reduces the risk of surrendering valuable technology.

· It is an advance collection of minimum royalties on estimated turnover of the licensor.

· The licensor may not be in a position to verify licensee’s accounts and thus prefers a one time transfer fee.

· The licensed product may be sold internally in the enterprise and detailed sales/production records may not be maintained for such sales.

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The economic, legal and regulatory environment of the country of the licensee may also influence the collection of lump sum payments. These include stability of national currency or that of exchange rates, regulatory policies of the host country, different levels of taxation, etc.

Royalties

Payments are made for the use of all forms of industrial property rights, the ownership rights of which are established by national statutory law (patent, trade mark, copyright), civil law (trade secrets), or international consensus (know-how). As a consequence, payments arise in the licensing of industrial property rights because the licensee derives protected benefits from its use. Royalty can be considered a lease payment, not an outright payment.

Royalties may be paid as a percentage of sales value, whether the technology is in the form of know-how or the use of patented equipment/process of production. The ex-factory value of total sale is frequently the basis of calculations. Alternatively, the royalty may be based on the gross value of production.

The rate of royalty may be related to the net value of production. Whether the royalty is based on sales or value added, payments will increase in an inflationary situation, irrespective of the contribution of technology acquired.

Fees

Fee for technology which may be remunerated specifically include training, whether in the licensor’s or in the licensee’s works, the position for technical experts required to introduce the technology and fee for expert assistance in the setting up of associated research and development, design and engineering services. Any fees payable for the management of the plant, purchasing of inputs, etc. are a separate matter, to be distinguished from those of technology fees. Fees related to foreign personnel should be calculated on the number of hours of such services agreed upon.

The three ways of payment are three alternatives. In the end, it is the total payment to be made by the licensee by whatever means and over whatever period, that matters to both the parties.

Factors Affecting Royalty Rates

In any negotiation for technology transfer, ‘both parties will arrive at their ‘reservation’ price by some assessment of the costs and benefits they both derive from trade, so that the financial benefits are acceptable to each side. This determines the absolute range over which the price can be negotiated. The process of finalizing a specific price depends on the bargaining strength of the two parties, as well as their negotiating skills and general attitude towards risk and uncertainty. These factors will depend on the nature of the intellectual property to be exchanged.

Commonly Used Intellectual Pricing Methods

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Some of the more commonly used royalty rate development models are discussed, highlighting their primary deficiencies.

The "25 per cent" Rule

Under this method royalty is calculated at 25 per cent of the gross profit, before taxes, from the enterprise operations in which the licensed intellectual property is used. At best this method of royalty determination is crude.

Intellectual property that is part of a product or service which requires little marketing, advertising and selling effort is far more valuable than a product based upon intellectual property that requires the use of national advertising and highly compensated sales personnel. Two patented products may cost the same amount to produce and yield the same amount of gross profit, yet one of the products may require extensive and continuing sales support while the other may not. The added costs of extensive and continuing sales efforts make the first product less profitable to the licensee. While the two products may have the same gross profit, it is very unlikely that they would command the same royalty.

The 25 per cent rule also fails to consider the other key royalty determinants of risk and fair rates of return on investment. The "25 per cent rule" is not even useful as a general guide upon which to begin negotiations.

Industrial Norms

The industry norms method focuses upon the rates that others are charging for intellectual property licensed within the same industry. Investment risks, net profits, market size, growth potential and complementary asset requirements are all absent from direct consideration. The use of industry norms places total reliance upon the ability of others to correctly consider and interpret the many factors affecting royalties. Changing economic conditions along with changing investment rate of return requirements also are absent from consideration when using industry norms. Even if an industry norms royalty was a fair rate of return at the time it was established, there is no guarantee that it is still valid after some years. Value, economic conditions, rate of return and all of the other factors that derive a fair royalty have dynamic properties. They constantly change and so must their underlying analysis that establishes royalties. Use of established industry norms fails to reflect changing conditions.

Return on R&D Costs

Basing a reasonable royalty on the amount that was spent on development of the intellectual property could be terribly misleading. The amount spent in the development is rarely equal to the value of the property. The millions of rupees spent on research relating atomic energy, space, defence etc. may yield to the Indian Government very little intellectual property.

A proper royalty should provide a fair return on the value of the asset regardless of the costs incurred in its development. The underlying value of intellectual property is founded upon the amount of future economic benefits. Factors that can limit the benefits include the market

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potential, the sensitivity of profits to production costs, time period over which benefits will be enjoyed and the many other economic factors that were discussed. The development costs do not reflect these factors in any form. Basing a royalty on development costs can completely miss the goal of obtaining a fair return on a valuable asset.

Return on Sales

Royalty based upon a percentage of revenue sales has several primary weaknesses. The first difficulty is the determination of the proper allocation of the profits between the licensor and the licensee. Another area of weakness is the lack of consideration for the value of the intellectual property that is invested in the enterprise as well as a lack of consideration for the value of the complementary monetary and tangible assets that are invested. Finally, this method fails to consider the relative investment risk associated with the intellectual property.

There is no rigid formula for determining the price of intellectual property and thus estimates vary from case to case. The price of know-how/intellectual property normally ranges between 2% to 10% of either the plant and equipment cost, or projected turnover production of the unit for a period of 5 years. However, the price would depend on the estimates of opportunity value and "what the market can bear". Besides, the realization of price could be divided between lump sum amount and recurring royalty payments. Although it would be in the interest of licensor to realize as much of the price as is possible through lump sum payment, the licensee’s interest would be to pay the price only through recurring royalty based on production. Thus, balance has to be struck between these two components.

Self Assessment Questions III

1. Discuss the routes of technology transfer.

2. List out some strategies for quick adaptation and absorption of imported technologies.

3. What are the difficulties experienced on account of government procedures for payment to foreign collaborators?

4. List out the ways by which maximum benefits could be derived from technology transfer.

5. Discuss the problems encountered by small-to-medium enterprises in technology absorption.

7.11 Technology Transfer Agreements

A Technology Transfer Agreement is a contract between the licensor and licensee, detailing the scope of services and terms and conditions from both sides. Drafting of this agreement is often a highly complex job requiring considerable skill and experience, since the interests of the two parties may sometimes be conflicting. However, the obligations of the licensor and licensee may broadly relate to the following:

Obligations of the licensor:

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a) Supply of the technical means

b) Technical assistance to the staff of the licensee

c) Provision as to the results and consequences of non-satisfaction of the guarantees

d) Exclusive and non-exclusive rights

e) Preservation of secrecy

f) Title of the licensor

g) Period of agreement

h) Intellectual property rights

i) Updated technologies and improvements

j) Technical information

k) Training

l) Help in marketing and exports

m) Settlement of legal disputes

n) Access to R&D

Obligations of the licensee:

a) Payment

b) Secrecy

c) Use of the know-how

d) Minimum output

e) Maintaining specified quality or standard

f) Adequate technical and managerial standards and facilities

g) Focal facilities for the experts/staff of the licensor

h) Access to the factory premises as required

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i) Legal disputes

There have been several studies regarding the technology transfer agreement at national and international levels, and even model agreements have been evolved by the UN and national governments in several countries including India. However, these remain only guidelines, and technology transfer is more an expression of mutual faith rather than a legal issue.

Code of Conduct for Technology Transfer

It is widely felt that firms including transnational corporations (TNCs) in developed countries exploit firms in developing countries while transferring technologies and unfair practices prevail to the disadvantage of the latter. The United Nations Conference on Technology and Development (UNCTAD) has been making attempts for the last more than a decade, to formulate a commonly accepted code of conduct, taking into account the interests of all the parties concerned. However, this effort has so far not succeeded due to differences between the North and the South, and several issues such as laws of the land, restrictive practices, etc. Nonetheless, the documents that have been prepared so far have served as guidelines and have created awareness about the various issues which need to be examined while entering into technology transfer agreements.

Government Initiative and Technology Transfer

Many Governments in advanced countries encourage the introduction/ import of new technologies to help or generate business development and economic growth. In countries, such as Sweden, Japan, South Korea etc., the Governments have instituted programmes of technology search whereby local companies and consultants are encouraged to set up networks of foreign contacts in other advanced countries to identify innovative products that could be made under licence in their country. These initiatives seek to use importation of technology to rejuvenate industries and initiate new product development. The innovation and economic growth is ultimately bound to follow the path of simulating R&D spending as a way to promote greater product innovation. These countries have excelled in technology innovation and in many cases improved upon the technology. Japan has become a major supplier of sophisticated technology to developing and developed countries.

Government Regulations in Developing Countries

Indiscriminate entry of inappropriate technologies will go against the declared national development objectives/priorities. It is in this context that most of the developing countries have established effective official mechanisms for determining the type of technology suitable to particular circumstances of their economies, and have developed systems and procedures for collection of information and data on technologies so as to strengthen their negotiating strength with the technology suppliers.

The scope of these regulations covers a wide spectrum of issues. All of these include the establishment of a national registry in-charge of screening and authorizing a particular technological transaction. They define the transaction to be controlled by the registry. Special

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requirements or criteria like contribution to domestic technological capabilities, training local personnel and processing of domestic resources etc. are generally prescribed. Another important aspect relates to policies restricting the direct cost of technology transactions; i.e., a ceiling on remittance of royalties, control of payments for unused patents, direction of the agreement, control on excessive prices, etc. The regulatory system does not generally encourage indigenous development and the production is based on second or third generation technologies.

Structure for Licensing Service

The use of licensing to help local development requires four key inputs:

i) Information on licensing opportunities

ii) A database on potential client companies

iii) Technical personnel to interpret both the requirements of client firms and the offerings of potential licensors.

(i) and (ii) could partly be provided by recourse to existing resources of a company. Ministry of Science and Technology and a few other ministries have established specialised departments for creation of database. The information is made available to the enterprise to supplement their own information systems. In India, most of the technologies are transferred from industrially advanced countries through various routes, the more popular being the route through licensing arrangements. There have been over 12,000 foreign collaborations in the past, 80% of which are from eight developed countries such as USA, Japan, West Germany, France, and Italy. Some of these foreign collaborations had equity participation also, the foreign investments being of the order of Rs. 500 crores per year. There are several instances of transfer of technology from R&D organisations to industry, mostly in areas of low technologies or technologies relevant to Indian conditions. The CSIR has played a major role in this respect, while technologies from defence R&D, Department of Space, Department Atomic Energy, etc. are also now being transferred to industry. There are very few instances of transfer of technology from one firm to another. In some areas such as chemicals & pharmaceuticals, construction, textiles, steel, hotels, cement and management, India has even exported technologies and services to other developing countries through licensing arrangements or contractual arrangements or joint ventures. Government is now paying greater attention to exports of technologies and services.

Indian Experience

The Industrial Policy Resolution of 1948 and the Industrial Policy of 1956 provided the basis for government policy for foreign investment and also in making available to the country the Scientific, technical and industrial knowledge" The transfer of technology was conceived to be a part of the flow of foreign capital and accompanying the technical collaboration.

In 1961 selective foreign private investment and foreign collaboration were introduced. The Policy was to attract foreign capital in those fields in which the country needed development in pursuance of the plan targets economic development also for generation of employment. The

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policy towards foreign collaboration was further liberalised in 1970 for bridging technological gaps that existed in several sectors of industry. The Industrial Policy Statement of 1977 took note of continued inflow of technology in sophisticated areas. The policy statement gave preference to outright purchase of best available technology and then adopting it to meet the needs of the country. In the Industrial Statement of 1980, induction of advanced technology was favoured for encouraging exports and production of quality products at competitive prices. Technology Policy Statement of 1983 was directed toward technological self-reliance. In the acquisition of technology, consideration was given to the choice and sources of alternative means of acquiring it, its role in meeting a major need of the sector, selection and relevance of the product, etc.

The Government of India in its Policy Statement of 1991 liberalised most of the restrictions in technology import. The policy is aimed at encouraging foreign investment up to 100 per cent in most of the sectors with a view to promote exports competition in Indian industry and production of better quality products. The regulatory procedures have been abolished with respect to many industrial sectors to allow free flow of technology.

7.12 Technology Transfer: Joint Venture

A. Introduction

i) Joint venture may be defined as a contract between two or more persons to undertake a commercial venture and to share the gains or losses in agreed proportion.

ii) A Joint Venture is a coalition or partnership where two or more partners pool in their resources or core competencies.

iii) Supreme Court of India has explained the meaning of Joint Venture in the case of new Horizons Limited, Mumbai vs. Union of India (1995) 1 SCC 478 as follows:

The expression Joint Venture is more frequently used in United States. It covers the legal entity in the nature of a partnership engaged in the joint undertaking of a particular transaction for mutual profit or an association or persons or companies jointly undertaking some commercial enterprise wherein all contribute, assets and share risks. It requires a community of interest in the performance of the subject matter, a right to direct and govern the policy in connection therewith and duty which may be altered by agreement to share both in Profit and Losses. A Joint Venture can take the form of a Corporation wherein two or more persons or companies may join together. A Joint Venture Corporation has been defined as a Corporation which has joined with other individuals or corporation has been defined as a Corporation which has joined with other individuals or corporations within the corporate framework in some specific undertaking commonly found in Oil, Chemicals, electronics, atomic fields etc.

It is common to enter into a separate agreement between the JVC and the Foreign Partner for supply of technology to JVC for which the foreign partner is compensated by technical fee and / or royalty. This is governed by a separate agreement called Technical Collaboration and License Agreement. In addition to the JVC and Technical Collaboration and License Agreement sometimes the following agreements are also entered into like -

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i) Confidentiality Agreement,

ii) Name License Agreement

iii) Trade Mark License Agreement

iv) Arbitration Agreement

v) Assets sale Agreement

vi) Distribution Agreement

vii) Supply Agreement

viii) Management Services Agreement

OFFSHORE Company

i) Minimum Corporate Taxes and Exposure,

ii) International Entity,

iii) Efficiency and Competitiveness,

iv) Confidential,

v) Payroll and Travel Expense Economies

vi) Availability. of Employment or Consultancy,

vii) Fees in Low Tax Areas,

viii) Protect Investments and Assets,

ix) Status of MNC and thus global circulation and perpetuation

Cultural Affinity (CA) and Market Attractiveness (MA) are likely to be the key determinants in ascertaining the vulnerability of products and brands for the household markets. The MA-CA matrix exhibit helps in grouping the; products into four categories:

Market Attractiveness

HIGH

Cell 1

Indian business and brands would remain dominant players

Cell 3

Indian business and brands most vulnerable

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LOW

Cell 2

Indian business and brands would have least threat

Cell 4

Markets may be dominant by Global Local niche players. Indian brands less vulnerable

HIGH LOW

Cultural affinity

Figure 7.7: Cultural affinity vs. Market attractiveness

The High Cultural Affinity Situations (Cells 1 and 2 Situations)

The products and brands in Cells 1 and 2 enjoy a strong cultural affinity with the Indian customers. Handy examples are food products like Indian snacks [Dosa, Bikaneri Bhujia, Papad, Pickles, etc.]; entertainment products like films, audio and video music cassettes, traditional Indian dresses, especially for the female segment, like sarees, kurtas, etc. or the traditional Indian utensils and wares. Ayurvedic and herbal products are some examples. Marketers in these cells may visualize competition, but not from global players. Their key concern should be superior value for money to the Indian customers. In spite of low threats from global brands, the marketers would have to improve the standards of performance to remain competitive. A sizable presence of Indians outside India would help in enhancing the global presence of these brands. The initial success in the limited ethnic markets is likely to help the Indian firms to become Indian multinationals. And, if leveraged properly, the Indian MNCs could then enlarge the market bases for these traditional Indian products. We visualize the emergency of at least 15 to 20 Indian brands from these categories to become global brands in the next 5 to 7 years.

Low Cultural Affinity Products (cells 3 and 4 Situations)

The biggest threat would be for the products in this category. Both the present and future market potential would attract global competition. Some examples are: personal care products like soaps, shampoos, cosmetics; household necessities like fabric wash; durables like TV sets, refrigerators, air conditioners, automobiles; packaged food products like juices, ketchup, cheese, ice creams, lifestyle products like jeans, sunglasses, shoes, soft and hard drinks. Some well known brands for these products introduced recently in India are: Reebok and Nike shoes, Ariel detergents, Hostess Chips from Pepsi Foods, Kelloggs breakfast cereals, ready-to-wear garments like Levi and Wrangler jeans, Arrow shirts, Benetton, and so on. However, for each of these, the Indian markets have not responded as per expectations. High price, cultural habits and existing brand loyalties have come in the way. Perhaps, Nestles’ view of willing to wait for the next generation (Business World, March 1996) is an apt description of the market realities. What is, however, worrying the Indian business community is the takeover of their business by the MNCs. As stated by Praveena in "Brands in Bondage", [The Telegraph, April, 1996], this seems

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to be the best alternative in terms of cost and time. Like the muscle power of Coca Cola, who gobbled the strong brands like Thumps Up and Limca, the other MNCs by acquiring the Indian brands are able to get a readymade distribution network and also the readymade Indian markets. Thus, Whirlpool has acquired the famous Kelvinator brand of refrigerators. Walls has acquired the famous Kwality brand of ice creams. There could be many more cases, but even in situations of high vulnerability, it may not be all over for the Indian brands and Indian businesses.

Dawar and Ramachandran [Business Today, May -June, 1995] feel that a combination of moves like regionalization, line extensions and going global may still work for the existing -Indian brands. "Vadilal" ice creams, Titan Watches, Dabur Ayurvedic products, Chirag Din shirts, Sumeet mixers, Cinni Fans, Monkey brand of brooms, Godrej furniture, "Amul" brand of butter, cheese, dairy whitener, baby foods, Dhara edible oil, Rasana fruit juice concentrate, Raymonds Gwalior and Vimal Suitings, Hero and Hercules bicycles, Bajaj scoothers, Nirma detergents, Rooh Afza Sherbat, VIP moulded luggage, are some well-known "Indian brands, which in spite of strong threats from the global brands, may remain strong and pose major challenges to the global brands. In sum, the products and brands falling into the cell of "high market attractiveness and low cultural affinity" (Cell 3) are the most vulnerable. But, even here, the threat does not appear to be universal. It is, however, speculated that by the next 10 to 15 years, like elsewhere in the globe, the mega global brands are likely to increase their presence in the Indian markets for some of these products. For these products, the Indian business may exist by becoming manufacturing partners or franchises to the MNCs. But, for the products and bands in the other three cells, we still feel that both Indian brands and businesses are not vulnerable for the next 10 to 15 years. This is long enough a period to become strong and globally competitive.

7.12.1 The Case of Industrial Markets

The manufacturing chain of the economy which is normally the scope of the industrial marketing comprise of: extraction industry; material processing and chemical industries; manufacturing of, parts and assemblies; final assembly; distribution and after sales; infrastructure industries like power, roads, airways, telecommunications, ports; and service industries like software, information technology. Practically, in every area, the Indian firms need to improve the performance. By virtue of superior technological and size of business operations, the global firms would be more competitive than the Indian players. To survive, the Indian player has to become globally competitive.

An interesting example is the attempt of the Tata Steel (the largest private sector steel company of India). A comparison with Pohang Steel of South Korea revealed that to produce 21 million tonnes of steel, it employs only 24,000 people. On the other hand, Tata Steel employees 70,000 people to produce around 3 million tonnes of steel per annum! Realizing the very poor productivity standards, Tata Steel is now putting up a greenfield project to ultimately produce 10 to 12 million tonnes of steel by employing not more than 4000 people. Similarly, in its existing plant at Jamshedpur, it has modernized its product mix and is now reducing the cost by down-sizing and savings on non-productive expenses. Similar to the Tata Steel, there are several other Indian companies which are likely to remain globally competitive. Dhyani (1995) has identified Hindalco (aluminium), Garsim (rayon yam), Indian Rayon (white cement) and Lupin (anti- TB drugs) as globally competitive players. According to Dhyani, each has distinctive competence to

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remain competitive even in the future. TELCO (automobiles), Larsen & Toubro (engineering), TVS Group (auto components), ACC (cement), Reliance Industries (petrochemicals), Ranbaxy (pharmaceuticals), are some more examples of the Indian companies which may remain globally competitive in the industrial markets. Similarly, some niche players like Thermax (energy and environment control equipment), Laxmi Group (textile machinery), ITC Bhadrachalam (paper board), T A YO (rolls for steel making), TRL (refractories for steel making), UMI (wire ropes), Orissa Industries (refractories for steel making) are some more examples where Indian companies have acquired sufficient size, expertise and even global presence.

However, in each case, the Indian company has borrowed technology and till date cannot claim to be strong in R&D to maintain a technological leadership. Depending upon their financial structure, some of these companies could be vulnerable to the MNCs. But looking at the market size and ground realities of managing business in India, the foreign players may continue to act as partners and not as owners for most of the businesses. Similar to the household products, the vulnerability is not all pervasive. But, a lot depends upon the behaviour of the MNCs and the policies of the Government of India. In our next section, we wish to share some of these developments.

7.12.2 The Emerging Consensus: A Matured Partnership

Our discussions with several entrepreneurs, bureaucrats and politicians indicate that a majority support the view that foreign firms would be needed for a faster transformation of the Indian economy and the Indian markets. Simultaneously, a view if being expressed [Khanna, 1996] that the government would have to play an active role in regulating the foreign investment on a continued basis. This has also to keep the interest of India and the local firms. In view of the reality, it is being felt that India can neither go the Hong Kong way of total freedom [Rowher, 1995], nor follow the projectionist policies of Japan and South Korea [Sarin, 1996]. It can also not follow the open-ended policies of Mexico and some other South American countries. India has to follow a middle path. What, therefore, seems to be emerging is the increasing importance of developing and maintaining healthy and matured business partnerships between the local and global players in a quasi-regulated environment.

In this kind of scenario, the onus seems to be more on the behaviour and practices of the global players. Thus even though mighty and resourceful, the global players would do well to keep the Indian sentiments in mind and not to hurt the national pride. Every Indian, poor or rich, is aware of the "mess" the country is in, but in spite of all the odds, no Indian would ever like India to become subservient to any outsider once again. But, this has to be achieved with minimal involvement of the government. This would be possible only through successful examples of the global players. Fortunately, the example of Hindustan Lever (Unilever Group), ITC (BAT Group), and ABB are there for the other global players to emulate. As is widely believed, none of these multinationals are considered as outsiders or exploiters in India by the Indian customers or even by the Indian entrepreneurs.

7.13 Introduction to Technological Substitution

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Most technological changes can be described as a substitution of one material, process or product for another. For ages, technological substitution has been an instrument of progress of human civilization. Innumerable historical examples of substitution exist: wheel for muscles, agriculture for hunting, water vessels and aircraft for surface vehicles, synthetic fibres for cotton and wool, coal for wood, ball point pens for fountain pens, aluminum for steel, detergents for natural soap, plastic for natural leather, open hearth for Bessemer process, transistors for vacuum tubes, word processors for typewriters, and so on.

The need is thus for forecasting techniques which can project, on the basis of available knowledge, a ‘most likely’ course of events in the future. Unfortunately, this is a task which the industry personnel are not always able to do effectively owing to their preoccupations with mundane management problems. They are likely to be overwhelmed by many technical and commercial problems peculiar to a new technology. This tends the businessmen and engineers -especially in senior executive positions – to take a passive attitude towards the adoption of new technologies. Indeed, the rewards from such adoption are necessarily deferred and tend to accrue to successors in their jobs. This strengthens the need for formal forecasting techniques for technological substitutions.

Self Assessment Questions IV

1. Explain Cultural Affinity (CA) and Market Attractiveness (MA) and their interaction matrix.

2. Explain technological substitution with the help of examples.

7.14 Summary

Several authors have made suggestions to gain and sustain competitive advantage. A suggestion of globalizing of the world markets is now widely diffused and debated idea. Focus, differentiation, cost leadership, growth through and around core competencies, articulation of strategic intent beyond the present resources through stretch and leveraging are the generic prescriptions for the global firms, including the Indian firms. But as argued by Murthy [1994] Indian firms have not yet reached a stage whereby they can manage their growth through creation and management of core competencies. On the other hand, 40 years of protection cannot be extended further. The government and the developments around the globe would not allow the Indian customer to suffer any more. In short, coping with competition without any substantial support, is unavoidable. For both the branded and industrial products -collaboration appears to be the only route. Managing successful business alliances perhaps would be a dominant route for gaining global competitive advantage. Examples of Titan Watch, VIP moulded luggage, and Tata Steel reflect proactive actions on the part of the Indian firms to become globally competitive. It is also felt that assessment of the firm’s vulnerability to the threats from the mighty multinationals on the following factors may be helpful:

· Nature of the product;

· Demand conditions;

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· Cultural affinity of the product;

· Nature and developments of the relevant technologies for the industry;

· Firm’s own standing in the market place and its corporate capabilities;

· The ground reality of the Indian market place for the given products.

Technology transfer is a process or activity to acquire technologies and is not a mere transfer of know-why from one person to another, although know-how transfer is an important part in it. There are various models regarding technology transfer. Which model to be used would vary from case to case. We have discussed various modes of technology transfer. In technology transfer, it is generally expected that transfer activity would stimulate economic and technological development in the economy. Any industrial enterprise should have continued growth and it comes either from internal technology or from technology acquired from outside. A technology search strategy is important for technology transfer and is part and parcel of the corporate plan of an enterprise. An organization may select appropriate technology / product for manufacturing and sign a technology transfer agreement with the licensor.

7.15 Terminal Questions

1. The two ways of acquiring new technology are:

A) Purchasing it or developing it;

B) By copying or by referring to history books;

C) By searching in the internet, or by visiting foreign countries;

D) Through students’ projects or by attending conferences;

2. Technology transfer occurs because of the existence of ___ and ____.

A) Educational institutions, Government

B) Government, Ministries

C) Sellers, buyers

D) Industrialists, Markets

3. The definition of technology transfer is the acquisition and use of ______. There is no transfer of technology unless and until the technical _______ is put to use.

A) Technology, manpower

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B) Products, information

C) Skills, wisdom

D) Knowledge, skill

4. If the transferring mechanism presents the technology to the potential user without assisting the user in its application, namely by a report or oral presentation, then such technology transfer mode is called __________.

A) Active

B) Passive

C) Semi-passive

D) Semi-active

5. A technology package consists of three principal elements namely, product design, __________, and management systems.

A) Manpower

B) Technical competence

C) Software

D) Production technique

6. Which of the following is NOT a principal route to technology transfer?

A) Equipment Supplier

B) Outright purchase

C) Acquisition of the company or business owning the technology.

D) Joint ventures with the ASEAN countries

7. Payments for the technology may be divided into three broad categories.

A) Fees, royalties, and lump sum

B) Lump sum, cheque, and drafts

C) Credit cards, wire transfer, and royalties

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D) Internet banking, fees, and drafts

8. A Joint Venture can take the form of a ________ wherein two or more persons or companies may join together.

A) Society

B) Corporation

C) Municipality

D) Government

9. What is technology transfer? What is its impact on industries and economic development of a country?

10. Discuss the role of technology transfer and its key factors as applicable to an organization.

11. Explain various modes of technology transfer. How does one decide the suitability of a particular mode?

12. Give examples of passive and active modes of technology transfer.

13. What are the various routes available for technology transfer?

14. How does an enterprise select suitable technology for implementation?

15. What do you understand by a technology package and what are its features?

16. What do you understand by code of conduct for technology transfer?

7.16 Answers to SAQs and TQs

SAQs I

1. Refer to 7.2

2. Refer to 7.3

SAQs II

1. Refer to 7.4

2. Refer to 7.5

3. Refer to 7.6

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SAQs III

1. Refer to 7.7

2. Refer to 7.9

3. Refer to 7.9

4. Refer to 7.10

5. Refer to 7.10

SAQs IV

6. Refer to 7.12

7. Refer to 7.13

8. Refer to 7.9

Answers to TQs:

1. A

2. C

3. D

4. B

5. D

6. D

7. A

8. B

9. Refer to 7.1

10. Refer to 7.1

11. Refer to 7.3

12. Refer to 7.3 & 7.4

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13. Refer to 7.7

Unit-08-Technology Absorption and Adoption

Structure:

8.1 Introduction

Objectives

8.2 Technology Package and Technological Dependence

8.3 Constraints in Technology Absorption

Self Assessment Questions I

8.4 Technology Import in India

8.4.1 Technology Policy Statement (TPS)

8.4.2 Trends in Collaborations and R&D

8.5 Technology Absorption Efforts: Indian Experience

8.6 Management of Technology Absorption

8.7 Skills and Facilities for Technology Absorption

Self Assessment Questions II

8.8 Government Initiatives

8.8.1 Technology Absorption and Adaptation Scheme (TAAS)

8.8.2 Technology Evaluation Studies

8.9 Benefits of Technology Absorption

8.10 Technology Adoption

8.10.1 Technology Adoption Plan

8.10.2 Adoption Process

8.10.3 Adoption of Teaching Technology

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8.10.4 Adoption of Manufacturing Technologies

8.10.5 Technology Adoption Model Overview

8.10.6 Organizational Adaptation

Self Assessment Questions III

8.11 Summary

8.12 Terminal Questions

8.13 Answers to SAQs and TQs

8.1 Introduction

One of the ways to acquire technology is to buy / obtain it from sources within or outside the country. Once a technology is imported from another country, it needs to be absorbed and updated in accordance with the local requirements. Foreign technology may have been developed keeping in view different parameters relating to scale of production, raw materials and components, quality standards, costs, levels and types of production techniques, maintenance requirements, social aspects including environmental and pollution aspects, employment, etc. It is common in many developing countries (such as South Korea, Taiwan, Thailand, Indonesia, India, Pakistan, Sri Lanka, Bangladesh, Philippines and including our own country) to import technology as a package.

Several of these countries have developed indigenous R&D capabilities of varying order to absorb and upgrade the imported technologies, and to achieve technological self-reliance. While some countries, such as South Korea, Taiwan and Singapore have absorbed technologies predominantly for exports, India has done so predominantly for local markets. The concept of technology absorption differs from country to country, and even from firm to firm. In India, absorption is generally considered as the capacity to reproduce or manufacture products according to the "know-how" supplied by the licensor of technology, without really understanding the "know-why" of the technology. In a country like South Korea, know-why exercises to understand the "black-box" of technology have been emphasised at the firm level without which exports are difficult. In fact, there are only a few countries which have attempted to provide incentives to industry to undertake technology absorption exercises, with a view to reducing-imports and enhancing exports. India is one of them.

Objectives:

After studying this unit, you will be able to:

· Explain the concept of technology absorption and its significance.

· State what constitutes a technology package and what is technological dependence.

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· List out the constraints in technology absorption.

· Describe Indian experience in technology absorption efforts.

· Discuss the issues involved in the management of technology absorption and Government initiatives.

· Appreciate the benefits of technology absorption.

8.2 Technology Package and Technological Dependence

Technology from abroad is acquired by Indian industry in the form of hardware, software and related services. In some instances, it could be only for using foreign brand names. It could be for a grass-root project or for further technological requirements of an existing plant, or for modernisation or enhancement of a product capability. A foreign technology package may consist of all or any of the aspects, such as product design, process or production know-how, systems engineering, application information, tailor-made equipment and/or their designs, technical services regarding maintenance/ safety / continued improvements/international experiences, etc.

Technological dependence on foreign know-how can be in any of the following areas such as:

· Product designs/ standards/ specifications

· Know-how for assembly of products

· Licensing for the use of patents/ trade marks

· Process know-how designs and basic engineering, detailed engineering, production technology

· Quality control, safety, pollution control and continued assistance in improvements of technology used in the existing manufacturing facilities

· Supplies of hardware and proprietary equipment and their designs

Adoption

Adoption of a technology is a process under which the various features of the technology which are the subject of transfer are suitably modified, changed or altered keeping in view the needs of the buyer. In other words, the needs of the buyer of technology crystallized and the supplier makes suitable modifications in the technology being supplied so that it conforms as far as possible, to the requirements of the buyer. This in essence would mean that a foreign technology is scaled up or down or modified where necessary, by the supplier ill accordance with the requirements of the buyer of technology. Such ‘adopted’ features, are finalized as a part of the technology package.

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Adaptation

Adaptation of technology is a phase that takes place after a technology has been adopted and put to use in production activities/facilities. During this stage, a number of alterations and modifications to suit the indigenous conditions are made and they may relate to the use of raw materials/ components manufactured, practical difficulties in down scaling etc. Thus, the particular plant in India could gear itself up to meet the desired, capacity, production, product quality and. other related aspects, as planned. The adaptation exercise covers both product modifications as well as product technology changes, using indigenous skills and facilities as materials.

Absorption

Technology is said to be absorbed if it is fully understood so that it is in a position to be further optimised and upgraded. Technology absorption involves ‘Know-why’ exercises, basic investigations into the product and/ or process and/ or systems. To avoid further dependence, technology absorption requires R&D projects in know-why, optimisation and improvement of product/ process/ systems and related equipment. Such efforts encompass design investigations, alternate raw materials/ components, modifications to suit Indian requirements, etc. Successful projects in these areas will lead to achieving technology absorption capabilities.

Optimization

After understanding the relevant features of technology, further exercises in ‘removing rough edges’ through R&D and value engineering to effect savings in the materials, energy consumption, etc. both in product and processes, constitute ‘optimization’ of technology.

Improvement and upgradation

Capability in technology absorption and optimization can lead to further exercises in improving the existing products and processes by R&D efforts of industry and other associated research organisations. This will enable industry to meet the changes in technology of the product or processes. Technology upgradation exercises lead to industry’s efforts in extending its know-why capability to a higher range of products or in upscaling the existing process / production technology or manufacturing equipment.

The role of technology absorption in the implementation of a project is shown in Figure 8.1. It will be seen that Technology Absorption activity is taken up only after a project is executed through acquired technology or when the company diversifies or faces threats from market forces to update its products or processes. Figures 8.2 and 8.3 explain the process of "know-

why" arising out of imported "know-how". "Know-why" exercises lead to better understanding of the basics or principle involved in the design and production of a product/ process which enables any organization to develop or build technological capabilities for further improvements.

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Figure 8.1: Role of Technology Absorption in Project Implementation

8.3 Constraints in Technology Absorption

Improved productivity and quality as well as reduced costs lead to higher efficiency in industrial operations. In labour intensive industries, these could be achieved from optimum man/machine utilisation, lower overheads, use of versatile machines and quality control measures and industrial engineering techniques. In capital intensive industries involving sophisticated operations to manufacture products which are in continuous demand or which command large markets, these can be achieved by higher automation and by organising the operations on larger scale. In hazardous industries, safety and pollution control measures necessitate higher capital investments in sophisticated equipment based on latest technologies.

The following factors are important in achieving higher productivity, quality and reduced costs:

a) Optimum utilisation of capital equipment to bring about maximum production leading to better capital-output ratio.

b) Adequate investments for quality control, material and energy conservation/ recovery, elimination of hazards which would necessitate use of sophisticated equipment.

c) Minimum economic scale of production, particularly in industries where scale factor is important in optimising the operations, especially if in larger quantity of critical production equipment is employed.

d) Targeting and achieving, international levels of performance and operating parameters.

These invariably require use of contemporary technologies needing larger capital investments, and/or accompanied by sizeable domestic demands and satisfactory absorption of technology. In scale sensitive industries, lower the scale of operation, lesser is the level of technology. Level of technology is also reflected by the use of less productive and sometimes second-hand machinery from abroad. In mass consumption industries such as petrochemicals, man-made fibres, organic

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chemicals, electronic components, etc. lower the initial installed capacity, lesser is the technological level. In such cases modernization /R&D costs would be heavy in order to jump to the next generation of technology. Some of the major constraints in absorption of technology are:

· Choice and use of imported technology by most Indian industries have not been at international levels. This is an important factor while establishing scale sensitive, high technology industries.

· The demand of products whose production is influenced by scale factors of latest technologies is generally not very large in our country. Presently these are being met by a number of units of sub-optimal sizes as compared to international levels. This constraint increases the gaps to be bridged through technology absorption. Industry would not be in a position either to invest similar R&D resources in comparison with international units, or even to improve the products/processes. Expanding the existing units and establishing new units with larger capacities tend to minimize this gap.

· In general, industry has not given adequate attention to absorption of technology. In such cases, the firms have usually approached the collaborators once again for renewal of earlier agreements or for new collaborations for improved or new products and processes. There are instances where existing items made with marginal process or product improvements have continued to be supplied even after extensions of collaborations. In the absence of a competitive domestic market, or where industrial users are dictated by equipment/products based on imported technologies, the inherent tendency to supply the same product hits continued, till the users’ requirements change or substantial imports of a new product take place.

Self Assessment Questions I

1. Explain the role of technology absorption in project implementation.

2. Explain KNOW-HOW and KNOW-WHY processes.

3. Discuss the factors which are important in achieving higher productivity, quality and reduced costs.

4. Discuss the constraints in technology absorption process.

8.4 Technology Import in India

Since independence, Indian industry has registered impressive growth in producing a variety of goods ranging from primary products to intermediate and consumer goods. A strong capital goods base has been established. A major part of industrial production has been contributed by small and medium enterprises. The core sectors such as power, fertilizers, coal, telecommunication, cement have all grown at a faster pace. Much of this industrial production has been attributed to imports of technology and related equipment. It has been estimated that out of an industrial production in 1988-89 of over Rs.200 thousand crore, about Rs.80-90 thousand crore is based on imported technology, out of which about Rs.50 thousand crore is based on imported capital goods. About Rs. 100 thousand crore of industrial turnover has had the

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experience of using imported know-how in the past or indigenised imported products through their own efforts.

8.4.1 Technology Policy Statement (TPS)

The technological change has been one of the major stimulating factors in the industrial growth of developed countries. During the last decade, there have been great strides all over the world in technology. The TPS of 1983 has amply recognized the enormous presence of imported technology in our country and has, therefore, laid down, as one of its objectives, the efficient absorption of imported technology appropriate to national priorities and resources. The policy statement stresses on the importance of productivity and absorption of modern technology. Para 5.4 of the TPS reads as under:

"There shall be a commitment to ensure an adequate scale of investment in R&D for the absorption, adaptation and, wherever possible, improvement on and generation of new technology, making fullest use of overall national capabilities. Only thus can self-reliance be ensured and technology generation process established firmly. "

The statement further stresses upon the provision of fiscal incentives for efforts directed to absorb and adapt imported technology, and that "there shall be a firm commitment for absorption and adaptation and subsequent development of imported know-how through investment in R&D to which importers of technology will be expected to contribute."

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8.4.2 Trends in Collaborations and R&D

While there are nearly a thousand foreign collaborations every year and recent payments for technology have been about Rs. 600 crores per annum, bulk of technology imports take place in major sectors such as electrical and electronics industries, industrial machinery and machine tools, transport equipment, chemicals and petro-chemicals and metallurgical industries. The equipment and systems required for high investment/ core sectors viz. railway products, power equipment, industrial machinery, earth-moving and construction equipment, process instrumentation for power and chemicals, machine tools involve continuous import of technology. Acquisition of technology is also prominent in other core sectors such as shipping and transport equipment, professional electronic equipment/ systems and their ancillaries. There is a strong presence or dependence on major foreign companies around the world in areas such as electrical equipment, electronics, transport equipment, drugs and petro-chemicals. The payments for import of technology have increased from about Rs. 144 crore (for 588 collaborations) in 1982 to about Rs. .400 crore (for 903 collaborations) in 1987. In the meantime, R&D expenditure by industry has gone up from Rs. 270 crore to Rs. 600 crore. It can be seen that technology payments have doubled per collaboration, while the ratio of R&D expenditure to technology payments has reduced from 2:1 to 1.5:1. This reflects the increased rate of technology payments and reduced intensity in R&D. A study of R&D payments and technology payments in Japan and USA in comparison to India indicates that industrial R&D expenditure is very small in India. Further, the ratio of R&D spending to technology payments is also meagre compared to the other two countries. Dependence on foreign technology is the least in USA while Japanese have spent seven-fold in R&D though they depend on foreign technology. While

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these are broad indicators of technological dependence in India, it brings home the important need for increased investment in R&D, particularly for absorption and up-gradation of imported technology. The efforts of Indian industry will therefore have to be streamlined in priority areas to plan and undertake need-oriented innovative absorption and up-gradation projects. This will enable industry to quickly catch up with higher levels of technology, which otherwise may have to be imported again.

8.5 Technology Absorption Efforts: Indian Experience

An in-depth assessment of absorption efforts of over 50 major industrial units in different sectors has brought out some of the constraints of Indian industry as follows:

· Lower scales of production compared to international levels, even in areas amenable to scale sensitive sectors/use of latest technologies.

· Lack of attention to absorption of technology in the absence of any compulsion to be internationally competitive.

· Continued access to collaborators on nominal payments, assured market and inadequate allocation of resources for R&D has resulted in insufficient attention for effective absorption and improvement of imported technology.

· Minimal involvement of R&D personnel in assessment of technology, further negotiations and transfer, and transfer in implementation ‘Of technology.

· User’s preference to imported technology-based products and collaborator’s guarantees.

Other reported constraints impeding technology absorption include delay in clearances, project overruns in turnkey jobs, difficulties in translation, inadequate training/ expertise, incomplete documents, lower volumes than planned, lower initial investments to play safe, delay in import of equipment/components, delayed market response, and bottlenecks without adequate assistance by collaborator.

Suggested Measures

Indian industry has been expressing its views on various matters connected with absorption through press, seminars and representations to the Government from time to time. Some of their views and suggestions may be summarised as follows:

· The units should have their own technology policy for its acquisition, absorption and adaptation, on long-term as well as short-term basis.

· Travel grants and incentives may be considered for participation in international seminars/ symposia etc. as well as for training abroad to keep abreast with the latest development in their fields.

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· The R&D personnel from in-house/national laboratories etc. should be involved intimately in the transfer of technology from the conceptual stage itself.

· Incentives and support should be given for prototype development and testing facilities, pilot studies etc. for adaptation, absorption and up-gradation of imported technologies. Also, support for using the services of experts / consultants on short -term basis may be considered in specific cases.

· There needs to be a closer interaction amongst in-house R&D units, national R&D laboratories, academic institutions, design organisations and consulting firms. Also, international R&D collaborations can be encouraged.

· Information about the acquisition of foreign technologies should be widely disseminated with a view to making R&D personnel aware of the needs of the industry. It enables them to formulate the programmes accordingly.

· Tax benefits and fiscal incentives may be considered for investments made in absorption and upgradation of processes/ products.

· In case of fast changing technologies such as electronics, foreign collaboration agreements should be of shorter durations.

· R&D expenditure should be generally 5 to 10% of the annual turnover of the company, particularly in areas of high rate of obsolescence.

· An information base for modern available technologies on global basis should be set up.

· The development of new products is very expensive and time consuming. It is generally not economical for the industry because of the low volume of manufacturing and fragmentation of capacity. Small/ medium industries are not able to do any significant technology absorption exercises since most of them do not have their own R&D facilities in a meaningful way.

· Import of technology and know-how is limited to product design in most of the cases and manufacturing processes are directly related to the volumes of production abroad. They are uneconomic for the Indian firm and need be scaled down to meet the local demands. Consequently, quality and finish may often suffer.

8.6 Management of Technology Absorption

The Indian industry, on the whole, has achieved a good capability in implementing and adapting foreign technology as seen from the various experiences in different sectors. However, industry’s technological capabilities across the major sectors, have in numerous instances, been found to be lacking in the areas of design/know-why analysis.

Areas needing attention

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Indian industry needs to concentrate its efforts in filling up of the gaps in technology absorption and upgradation, particularly in the following areas:

· Accelerated indigenisation and improvement of raw materials/ components/ sub-systems through speedy R&D efforts with vendors/ ancillaries.

· Basic investigations and projects in research, design and engineering, encompassing process/ product design analysis/ optimisation/ improvement, product designs for higher ranges/ new applications, exports, process design and engineering for higher volumes and exports.

· Analysis and improvement of designs and development of tailor-made production equipment.

· Demonstration of improved/higher range of products/ equipment of the users.

Projects

Technology absorption projects could be organised or established on:

i) Individual unit basis; or/and

ii) Collaborative or cooperative basis, i.e. ‘club’ projects involving users, manufacturers, national research laboratories or institutions. At present there is a need for stronger linkages in research and development work between manufacturers and users and between institutions/ national laboratories and industry.

8.7 Skills and Facilities for Technology Absorption

R&D skills and facilities in industries have been, by and large, good in so far as "Indianisation" of foreign technology is concerned but they have been poor / unsatisfactory in case of basic design/know-why/improvement efforts. Some areas for resource development within industry are:

a) Use of qualified and experienced engineers/scientists.

b) Skill improvement by training/continuing education in institutions/ research organisations in the country or abroad.

c) Updating and augmenting of existing R&D facilities with ’state of the art’ facilities to take up sophisticated investigations.

d) Use of cooperative, national or international R&D facilities for basic R&D investigations in industry.

User Involvement in Absorption

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Presently, user organisations such as large companies (e.g., in public or private sectors in various areas such as metallurgy, power, transportation, machinery, petrochemicals, etc.) are yet to have comprehensive interaction with their ancillaries or vendors with imported technologies in assessing or promoting technology absorption. This activity needs to be enhanced. Further, it is necessary for Indian industry, in general, to rise from technological dependence and technological ‘decaying’ to a higher level of technological excellence. This calls for concerted steps by industry, other associated agencies, and Government, through promotional measures.

Some International Experiences

Many Latin American countries have created registers of licensing agreements, and have adopted legislative and administrative measures to regulate technology imports. In Korea, a law for Promotion of Technology Development was enacted in 1972 to encourage industry to develop new technologies on the basis of R&D activities undertaken by the Government subsidised laboratories. Tax/financial incentives were also provided. In 1977 the law was amended interalia to extend these incentives to a large number of industries, while R&D was made mandatory for strategic industries including electronics. A revolving fund was created to finance rapid absorption of foreign technologies, particularly those in a semi-developed state.

Under the Promotion of Technology Development Law, research funds were made exempt from taxes. This law relied heavily on tax incentives for research expenditure, research equipment and pilot products etc. These benefits and facilities could be used by importers of products and technologies for substitution, absorption or improvement of imported technology. The Korean law made it obligatory for the importers of technology and products to declare reserves of monetary resources for R&D. Upper limit for this research expenditure was 100% of the value of imported technology and 1% of imported equipment/product. It is strongly felt that it was the R&D activities and technical improvements in Korea during the 60s and 70s that were responsible for bridging technological gaps.

In Peru, there is a practice of collecting funds from industry for R&D which is based as a certain percentage of income. Such funds are managed by an autonomous body ITINTEC (Institute of Industrial Technological Research and Standards) for supporting research and development activities. In Indonesia, imported technologies are expected to increase value added in the products manufactured while increasing the capability to understand new techniques, designs and .production processes. A recent Chinese experience reflects the need for arranging project investments to cover technology importation, absorption, adaptation and further development as a package plan. In Japan, industries have been guided by MITI for importing technologies and for undertaking up-gradation and innovation efforts to meet domestic demands and to aggressively undertake export as a deliberate policy step. Major national R&D projects involving R&D agencies and industries in new energy areas (Sunshine Projects since 1974) and Energy Conservation (Moonlight Projects since 1978) have been carried out. Success of these projects has promoted the Japanese Government to launch many national R&D projects in areas such as new materials, biotechnology, flexible manufacturing systems etc.

Self Assessment Questions II

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1. What is your impression of technology absorption efforts in India? Give example.

2. Which are the areas in Indian scenario where gaps exist between technology absorption and upgradation?

3. Which are the areas for resource development within industry in India for technology absorption? Discuss.

8.8 Government Initiatives

Government has, over the years, directed the industry to take necessary steps to set up R&D units for up-gradation and absorption of imported technology. There is also a stipulation with respect to this in the terms and conditions of foreign collaborations. However, it has not been very effective. While formal extensions of collaborations have not been numerous in comparison to the number of new collaborations, Indian industry has quite often gone in for further collaborations to avail of technologies for higher ranges/ capabilities or improved process/ production techniques. The newer grass-root plants have used later technologies, but they are also likely to become obsolete as the years pass by unless necessary efforts to catch up with technical changes are made. Industry, in general, stays at a particular level for a number of years and then considers a jump in product range or volume of production through further technology induction. Pursuant to the Technology Policy Statement, the Government had stipulated that industries using technologies costing more than a payment of Rs.2 cr. should bring out comprehensive Technology Absorption, Adaptation and Improvement (TAAI) plans. Government has also directed industry to submit annual returns for technology implementation and absorption.

8.8.1 Technology Absorption and Adaptation Scheme (TAAS)

The Technology Absorption and Adaptation Scheme (TAAS) was initiated by the Government (DSIR) as a pilot scheme during the 7thplan. TAAS aims at stimulating and accelerating the efforts of Indian industry in technology absorption and upgradation. About 30 public and state sector units have so far been partially supported for undertaking identified RDDE (Research, Design, Development and Engineering) projects to absorb and upgrade specific elements in imported technology. The support is for accelerated indigenization /import substitution/ know-why exercises/ product improvement and optimisation. An amount of over Rs.20 cr. has been marshalled through a partial support in various major sectors such as electricals /electronics, metallurgy, industrial machinery and chemicals. The projects are overviewed by Evaluation Committees. Under the scheme, other initiatives such as workshops, technology absorption/ profile studies of different states and technology evaluation studies of critical sectors have been undertaken. All these have encouraged the participation of industry, national institutions/laboratories and Government in dealing with issues of technology absorption.

TAAS activities have resulted in stimulating and speeding up the R&D work in absorption of technology. The scheme, therefore, is in a good position to encompass larger areas, to demonstrate the beneficial effects of organised and target-oriented absorption of technology

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projects. TAAS has brought out the need for enhancing the activities to catalyse and assist the industry in technology absorption.

TAAS is expected to extend partial support to the following:

· Core sector users in absorption and upgradation of products/ equipment from ancillaries /equipment manufacturers/vendors whose technologies are based on foreign collaborations.

· ‘Cub’ or co-operative projects of interest to the sector, involving a group of manufacturers, users, and national institutions, in identified areas of technology gaps.

· Industry-sponsored projects with national laboratories/institutions.

· Projects of small and medium enterprises, in priority areas such as energy saving, accelerated indigenisation, efficiency and technology upgradation.

· Skill utilisation in technology absorption projects by hiring of research experts and NRI specialists as well as training in national laboratories/institutions/ international organisations for identified areas of absorption.

8.8.2 Technology Evaluation Studies

In order to assess the performance of technology in the major sectors of Indian industry, and to assess the gaps in technology and to suggest possible programmes for R&D and technology upgradation, the Government has initiated studies in various important areas such as fertilizers, steel, cement, ministeel, forgings, foundry, aluminium, etc. Over 50 sectors have been identified and in about 30 sectors, studies have .been commissioned. The reports whenever they come are widely discussed in industry, Government departments and other concerned organisations, and disseminated. The reports bring out the need for accelerated effort in technology generation and absorption. ‘Technology demonstration’ is also envisaged in some important identified areas in order to speedily introduce new technologies. National Register of foreign collaborations in DSIR has also commissioned technology status studies for over 100 items for which repetitive import of technology has taken place. These studies bring out technology gaps and needed thrusts for technology absorption.

Other Initiatives

To promote technology generation and up-gradation, financial institutions like IDBI, ICICI, IFCI have introduced loan schemes to support R&D projects by Industrial entrepreneurs.

8.9 Benefits of Technology Absorption

The benefits accruing from technology absorption exercises, as evidenced by Government and industry experiences so far, are as follows:

· Repeated collaborations for the same product/ process are avoided.

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· Acquisition of further technologies becomes selective.

· Ability is developed to unpackage technology.

· Savings can be effected in foreign exchange due to indigenization /use of indigenous alternatives.

· Effective utilisation is made of available indigenous research expertise and facilities to achieve the desired results.

· Know-why and technology upgradation capabilities are built-up.

· Exports are increased.

· Technically competent groups of scientists and engineers trained in technology absorption get matured and strengthened.

· The base for technological self-reliance is enhanced.

The benefits could range from a greater commitment of management for increased R&D to larger sales and profits, sustaining the growth of the company through technological strength. Many developing countries including India have liberalised their industrial policies in the recent past. In the wake of the liberalised nature of New Industrial Policy and other policy measures in Trade and Finance, it has become imperative for industry to accelerate its R&D efforts to meet the emerging competitive environment.

While acquisition of technology is now easier, commensurate R&D efforts will simultaneously be needed to absorb and upgrade the acquired technology in order to become internationally competitive. The thrust as underlined below will need to be ensured for effective implementation, absorption and upgradation of imported technology.

· Industry should attempt to obtain best available technology closest to international trends and provide R&D at the stage of project planning.

· Speedy indigenisation of raw materials and components.

· Efforts for unpackaging and indigenisation of tailor-made equipment in the acquired technology.

· Enhancing exports of products based on absorbed and upgraded technology.

· Continuous training of research personnel in India and abroad.

· Use of national and international research facilities and expertise.

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· Involving users, suppliers of components and materials, research organisations in undertaking absorption exercises.

8.10 Technology Adoption

Adoption of technology can be defined as the successful implementation of technology and deriving the full potential of the technology. Adoption is relatively easy in a new enterprise rather than in an ongoing firm. Adoption of technology requires gearing up of all the resources such as internal and external infrastructure, human resource, raw materials, and even marketing. As there is no existing system in a new enterprise, it is easy to adapt to the acquired technology. Whereas, in an ongoing enterprise, the prevailing systems have to modified and the existing work processes, working environment and culture may have to be changed, which makes it more difficult. In other words, unlearning has to be done in an existing enterprise before learning of new technology starts.

The concept of technology adoption has attracted much more attention in recent times due to the explosive growth of new technologies worldwide. Just within the last few years, business and consumer marketplaces have been exposed to the widespread use of the personal computer, the Internet, ubiquitous wireless communications and broadband communications.

Simon (1978) opined that many technologies that were transferred from developed to developing countries were not successfully adapted because of the inappropriateness of those technologies for developing countries. He studied the causes for inappropriateness of various technologies that were transferred from developed to developing countries, and identified the following as specific causes:

1. Missing preferences of local markets and consumers

2. Technology is based on in imported raw materials

3. Insufficient skills of local labour

4. Not scaled down to local market

5. Insufficient use of technology caused by the local labour, and

6. Excessive usage of capital goods and imported equipment.

Other general reasons that he identified are

1. High cost of transfer

2. Environmental pollution problems

3. Impact due to plant location, and

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4. Impact due to energy inputs.

8.10.1 Technology Adoption Plan

Planning for the implementation of the new technology should be thorough and should encompass a relatively long time horizon to assure the stability of the new system. The complex process of introducing a new technology necessitates a practical plan which will focuses on employees’ needs and deals with issues of concern to them. Key steps in this process are:

1. Identify the target group;

2. Locate and analyse the resistance to change;

3. Assess actual ability to change;

4. Assess capacity and resources to change;

5. Access perceived priority of change.

Specific planning should include:

1. Identify the division(s), section(s), and individuals involved in the change;

2. Specify the extent of changes;

3. Develop a change plan which embraces timing, communication methods, involvement of individuals, and responsibilities of individuals.

8.10.2 Adoption Process

· Gradual or swift approach.

· Involve employees in decision making process.

· Role of impact on employment to be assessed.

· Develop suggest services required.

· Initiate measures to encourage positive disposition among employees regarding new technology applications.

· Precede new technology implementation with training and orientation of personnel as well as process testing.

8.10.3 Adoption of Teaching Technology

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Norton and Wiburg, (1998) expresses the ‘Philosophy of Education’ as ".the best teaching occurs when educators make choices about learning environments, learning tools, and learning experiences based on strategies drawn from a broad knowledge base." They further added that "We believe that understanding how to design effective technology-based learning opportunities requires comprehending how profoundly changes in technology have impacted society, schooling and curriculum."

Some authors felt that schools will reduce with increasing technology. But Norton and Wiburg did not accept it and opined that if learning is in, then schooling is in. Perelman (2000) commented that “Maybe they don’t see that for the 2lst Century and beyond, learning is in and school is out." However, there is a common understanding that electronic technologies should become an integral part of the teaching and learning process. Nasbitt (1982) categorized innovations into three stages:

· Path of least resistance

· Improved efficiency of old

· New innovations

He says the Technology Users are also different for each category and poses a question whether school relevant for the third stage technology users or not, and expresses that "… third stage users of technology find school remote from their lives and often irrelevant."

Dwyer, Ringstaff and Sandholz, (1990) defined the Process of Growth in adopting educational technology into four stages, namely,

1. Learning to use technology

2. Restructuring ideas

3. Shift to integrating into teaching

4. Building new learning environments

Russel (1995) expressed the Educator Stages of Adoption of Technology as:

Stage 1: Awareness

Stage 2: Learning the process

Stage 3: Understanding and application of the process

Stage 4: Familiarity and confidence

Stage 5: Adoption to other contexts

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Stage 6: Creative application to new contexts

8.10.4 Adoption of manufacturing technologies

However, adoption of manufacturing technologies will be much more complex. Complex technologies (e.g. new computer systems or vehicle/motor-fuel systems) often involve:

· A network of related or compatible technologies, and

· Supporting infrastructure.

The patterns of new technology adoption are influenced by issues of:

· Technology compatibility, and

· Infrastructural requirements.

The representative agents make independent technology choices. But consider the compatibility of their choices with the choices of other agents and with the installed base infrastructure. Roberta Moore (1999) says that it is equally important to understand the infrastructure that facilitates the adoption of technology as it is to understand the process companies go through to select, implement and use technology. The three additional components of infrastructure, according to him are:

· Market infrastructure

· External delivery infrastructure

· Internal corporate infrastructure

Market Infrastructure

Market infrastructure includes all of the organizations, jobs and individuals that support that market’s business functions and its flow of funds. It encompasses the publications, conferences and services that support that market. These entities are interconnected and dependent on one another. The relationships and flow of funds are clearly established and easy to identify. Some technology vendors view their market in terms of their product such as the "data warehousing market" or the "tools market." With this view the market appears fragmented or disconnected, and potential customers become hard to identify.

External Delivery Infrastructure

External delivery infrastructure includes the relationships external to the company but required to facilitate the customers’ adoption of technology. These relationships involve all of the partners that assist a company with its selection, implementation and use of technology. These

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"infrastructure partners" include system integrators, consultants, third-party developers, VARS and associations which help facilitate the Technology Adoption Process (TAP).

Internal Corporate Infrastructure

Internal corporate infrastructure is the process that facilitates the communication and information sharing required inter- and intra-departmentally as well as with the customer. This underlying structure must be in place, from product concept and design to product use and support.

When discussing the dairy production system it is necessary to understand the rationality of technology adoption and competitiveness of dairy production systems in open markets. While drawing the objectives, they feel, mere understanding dairy technology is not sufficient. As the dairies need milk, one has to understand the cattle breeding and rearing technology that can give sufficient inputs, i.e., milk to the dairy. Cattle require feed and grazing fields. And the green pastures may degrade due to losses in soil fertility, causing a reduction in milk yield per hectare even when the amount of concentrate feeds offered have increased. Net incomes deteriorate with time, covering only labour costs valued as minimum wage.

1. On the other hand, they also express the need for understanding the consumers’ needs and behaviour towards milk products. They feel that concern about competitiveness prevails in because the comparative advantages of different technologies have not been identified and it is uncertain whether these technologies can compete in open markets.

In fact in discussing the adoption of dairy technology, they have suggested to verify the technology in the entire supply-demand chain, i.e., to verify whether the down stream and upstream processes are compatible to the technology adopted.

8.10.5 Technology Adoption Model Overview

The key issue facing technology companies, both those that market to leading edge consumers as well as to businesses of all sizes, is to understand how potential customers adopt new technologies. The study of how technological innovations are adopted by the population is not new.

ConStat, a consulting company, has developed a Technology Adoption Model that involves both category adoption and product/service selection. Traditional marketing research focuses on the later; technology adoption must take the former into account.

They found that the adoption process is experienced differently by different groups of buyers. There are innovators or early adopters as well as a late majority and their adoption process can vary greatly. The categories of Adoption are stated as:

· Innovators (Venture)

· Early Adopters (public becomes aware)

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· Early Majority (opinion leaders)

· Late Majority (opinion leaders’ friends)

· Laggards (last to adopt)

Early Adopters Early Majority· Technology focused

· Proponents of revolutionary change

· Visionary users

· Project oriented

· Willing to take risks

· Willing to experiment

· Individually self-sufficient

· Tend to communicate horizontally (focused across disciplines)

· Not technically focused

· Proponents of evolutionary change

· Pragmatic users

· Process oriented

· Averse to taking risks

· Look for proven applications

· May require support

· Tend to communicate vertically (focused within a discipline)

Table 8.1: Comparison of early adopters and early majority

8.10.6 Organizational Adaptation

The organization structure of the existing system may not be suitable to the technology adopted. One must examine the organizational structure to determine the changes to be made. Therefore, organizational redesign becomes one of the important aspects of technology adoption. In the present scenario, companies undertake process re-engineering in order to not only redesign the work systems but also the organization. Culture, which is defined as a cumulative information bank that individuals have gathered during their period in the organization, may also have to undergo change as their work processes, their relationships, their work methods, the working environment, etc. will also change. The traditions and the nature of the organization as perceived by the employees for a long time may not be the same in the new technology environment.

A new technology may cause the following impacts on organization Structure (Noori, 1990):

· Middle Management Extinction

· Organizational Alternatives

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· Entrepreneurial Organization

· Matrix structure

-Ad-hoc Organization

The most important change in the structure of organization due to new technology will be a significant reduction in management levels and number of managers in large organizations as numerous middle management functions will be taken over by computer. Noori (1990) found that new technologies require organic structure instead of mechanistic structure. An organic structure is most likely to have a culture that promotes innovation and originality. New technologies also demand decentralized structure rather than a centralized structure. Noori feels that decentralized structure offers a firm a structure suited for innovation as the information flows rapidly into the organization.

The FIVE basic phases in adopting the new technology are:

1. Initiation and strategic planning

· Current competition

· Organizational considerations

· Review of current systems

· Technical requirements

2. Alternative unacceptable

· Organizational change needed

· Top down and bottom up look at the project

· Participative Management

· Simplifying Operation

3. System selection and Development

· Setting a time-table

· Firm technical specification

· Review of potential suppliers

· Choosing the most suitable proposal

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4. Implementation

· Setting the pace of change

· Installation procedure

· Integration and training

5. Control (post-implementation)

· Post-installation audit

· Corrective Actions

Self Assessment Questions III

1. List the initiatives of Indian Government in improving technology absorption.

2. What are the benefits accruing from technology absorption exercises, as evidenced by Government and industry experiences?

3. Define technology adoption.

4. List the steps in the adoption process.

5. What are the basic phases in adopting any new technology?

8.11 Summary

Foreign technology has played a key role in Indian industrial development. Our major industrial sectors have availed of imported technology to keep pace with international technological changes. Government has stressed the need for absorption of imported technology as well as technology development. However, industry’s R&D spending has not been commensurate with payments (royalty, etc.) for technology. Industry’s absorption efforts need to be accelerated to bridge the technology gaps. Technological dependence has been in software, hardware and in services. All this needs to be minimised. Industry has the capability to adapt foreign technology, but gaps exist in absorption effort in unpackaging technology, know-why exercises, optimisation and upgradation. Many constraints exist in effectively absorbing technology such as low volumes of production, lack of R&D commitment etc. Important aspects in managing technology, absorption include organised in-house R&D efforts .in priority projects, involvement of users, collaborative and sponsored projects, etc. Need also exists for upgrading R&D skills and facilities. Government has taken various steps to hasten absorption. The Technology Absorption and Adaptation Scheme (TAAS) aims at catalysing the technology absorption efforts, to reduce dependence and to strengthen R&D capabilities. Many projects supported so far have brought out savings in import substitution, enhanced know-why expertise, and stronger R&D groups.

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Industry with a view to becoming internationally competitive should undertake exports based on their R&D and absorption efforts. Industry need also to continuously interact with all development agencies and the Government for accelerating their efforts in technology absorption.

8.12 Terminal Questions

1. Technology is said to be _______ if it is fully understood so that it is in a position to be further optimised and upgraded.

A) Innovated

B) Deployed

C) Absorbed

D) Adapted

2. During _________ stage technology process, a number of alterations and modifications to suit the indigenous conditions are made and they may relate to the use of raw materials/ components manufactured, practical difficulties in down scaling etc.

A) Adaptation

B) Innovation

C) Upgradation

D) Adoption

3. ‘Removal of rough edges’ through R&D and value engineering to effect savings in the materials, energy consumption, etc. both in product and processes, constitutes _______ of technology.

A) Fine tuning

B) Error proofing

C) Fine finishing

D) Optimization

4. One major constraint in absorption of technology is ___________.

A) That choice and use of imported technology by most Indian industries have not been at international levels;

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B) That the demand of products whose production is influenced by scale factors of latest technologies has generally been very large in our country.

C) That Industry has given adequate attention to technology absorption.

D) That India is a democratic nation.

5. Some of the benefits accruing from technology absorption exercises, as evidenced by Government and industry experiences are:

1. Effective utilisation is made of available indigenous research expertise and facilities to achieve the desired results.

2. Repeated collaborations for the same product/ process are avoided.3. Acquisition of further technologies becomes selective.4. Know-why and technology upgradation capabilities are built-up.

A) A, B, and D

B) A, C, and D

C) Only B and D

D) All the above

6. Initiation and strategic planning, Implementation, and Control, etc. are________.

A) Steps in project implementation

B) Government initiatives for technology absorption

C) Phases in technology adoption

D) Benefits of technology adoption

7. What are Innovators, Early Adopters, and Early Majority?

A) Stages in adoption process

B) Some categories of adoption

C) Categories of absorption

D) Titles of the researchers who have worked in adoption and absorption areas

8. Which of the following is not an activity in ‘System Selection and Development’ stage of adoption of new technology?

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A) Identifying firm’s Technical Specification

B) Reviewing of Potential suppliers

C) Setting a time-table

D) Reviewing organizational considerations

9. Explain, with suitable example, what constitutes technology package and technological dependence.

10. Define the terms Adoption, Absorption, and Adaptation as applied to technology.

11. Which are the major constraints in absorption of technology?

12. Comment on the status of Technology Import scenario in India.

13. What initiatives have been taken by Government to promote technology absorption?

14. Distinguish between technology absorption and technology adoption.

15. Describe the major benefits which could accrue from effective absorption of imported technology.

16. Describe the five basic phases in adopting new technologies.

8.13 Answers to SAQs and TQs

SAQs I

1. Refer to 8.2

2. Refer to 8.2

3. Refer to 8.3

4. Refer to 8.3

SAQs II

1. Refer to 8.5

2. Refer to 8.6

3. Refer to 8.7

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SAQs III

1. Refer to 8.8

2. Refer to 8.9

3. Refer to 8.10

4. Refer to 8.10

5. Refer to 8.10

Answers to TQs:

1. C

2. A

3. D

4. A

5. D

6. C

7. B

8. D

9. Refer to 8.2

10. Refer to 8.2

11. Refer to 8.3

12. Refer to 8.4

13. Refer to 8.5

14. Refer to 8.1 & 8.10

15. Refer to 8.9

16.Refer to 8.10

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Unit-09-Technology Strategy and Competitiveness

Structure:

9.1 Introduction

Objectives

9.2 Impact of Technology Change on Firm’s Competencies

9.2.1 Managing Incremental and Discontinuous Innovation

Self Assessment Questions I

9.3 The Contribution of Technology to Competitive Advantage

9.4 Defining Competitive Strategy and Competitive Advantage

9.5 Competitive Advantages

9.6 Generic Competitive Strategies

9.7 The Value Chain and Technology

Self Assessment Questions II

9.8 Creating Competitive Advantage

9.9 Linking Technology to Competitive Advantage

9.10 Next Generation Technology

Self Assessment Questions III

9.11 Managing In-house Development of Technology

9.12 Integrating R&D into Corporate Strategy

9.13 Factors for Successful Management of Innovation Process

9.14 R&D Time Horizons and Strategies

9.15 Resource Analysis for R&D Strategy and its Elements

9.16 Technology Management Assessment

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9.16.1 Resources

9.16.2 Facilities

Self Assessment Questions IV

9.17 Case Study of Sandvik Asia Ltd., Pune

9.18 Summary

9.19 Terminal Questions

9.20 Answers to SAQs and TQs

9.1 Introduction

Technology strategy is a planning document that explains how technology should be utilized as part of an organization’s overall business strategy. The document is usually created by an organization’s technology manager and should be designed to support the organization’s overall business plan. Although all firms use technologies in products production and services, not all gain a positive competitive advantage from technology. There are many factors in competition, and technology is only one factor. Yet some firms effectively use technology as a competitive advantage, and others do not. One important factor in the successful use of technology has been the role of general management in technology strategy. In particular, it has been management’s ability to foster corporate core technical competencies.

The central idea here is that a business can be developed around a long-term, consistent focus on a core technological competency. What it means is to have a core corporate technical competency to lead in both innovating new-technology products and improving manufacturing quality and lowering cost of these products. With this not only can products be improved in future generations of technology, manufacturing process can also be improved in future generations of technology. Creating entirely new businesses through radical innovation is a hallmark of Corning’s history. The optical fiber business is the most dramatic recent example.

Objectives:

After studying this unit, you will be able to:

· Explain the technology strategy, innovation management and the components of competitive advantage.

· Describe how a firm can create competitive advantage using value chain.

· State how to evaluate/assess the TM in an organization.

9.2 Impact of Technological Change on Firm Competencies

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Technological change can alter the basic capabilities of a firm in either production or marketing, or both. Technological change can alter corporate operations to preserve or to destroy existing competencies in production or marketing. Innovation is "the successful exploitation of new ideas". This implies that it is not just the invention of a new idea that we are interested in, but that this idea is actually "brought to market", used, put into practice, exploited in some way, maybe leading to new products, processes, systems, attitudes or services that improve something or add value.

In one sense, inventiveness leading to innovation is part of the human DNA.

Without the willingness to experiment, to try something new, to solve a problem or to confront and overcome a new challenge, we would not have evolved as a species. At a more general level, we consider that innovation is important now because we are facing a number of key challenges. Globalisation, the technological and knowledge revolutions, cultural debate and climate change are issues that face us all at some level. They mean that as well as wanting to innovate in order to improve a process or product and add value, we also have to innovate because there is an overwhelming imperative to do so. These issues pose challenges for the private sector, for public services and for governments and policy makers.

Some classic definitions of innovation include:

1. the act of introducing something new: something newly introduced (The American Heritage Dictionary).

2. the introduction of something new. (Merriam-Webster Online)

3. a new idea, method or device. (Merriam-Webster Online)

4. the successful exploitation of new ideas (Department of Trade and Industry, UK).

5. change that creates a new dimension of performance (Peter Drucker).

The term innovation may refer to both radical and incremental changes to products, processes or services. In one view there are different kinds of innovation. The main ones are:

Incremental innovation - Where something is adapted or modified. This may mean that an old idea is transferred to a new setting or that existing ideas are embedding in a new setting.

Radical innovation - Involves completely new ideas. Developing something innovative can be an individual process but we have frequently seen this is being done by groups of people who may take on different aspects of the process, playing to their individual strengths, knowledge and roles in an organisation. The often unspoken goal of innovation is to solve a problem. Innovation is an important topic in the study of economics, business, technology, sociology, and engineering. Since innovation is also considered a major driver of the economy, the factors that lead to innovation are also considered to be critical to policy makers. Abernathy and Clark classified innovations by their impact on such existing competencies.

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1. Regular innovations – Preserve production competencies and market competencies

2. Niche-certain innovations – Preserve production competencies but disrupt market competencies.

3. Revolutionary innovations – Obsolete (phase out) production competencies but preserve market competencies.

4. Architectural innovations – Obsolete production competencies and disrupt market competencies.

1. For normal strategic process at the executive level, a firm can deal with the regular and niche-creation innovations since the technical skill base of the organization is not affected by either type of innovation. However, the event of either a revolutionary or an architectural innovation requires a strategic business reorientation, because these discontinuities obsolete the current technical skills in firm, there by impeding the firm’s future ability to produce and to serve market.

9.2.1 Managing Incremental and Discontinuous Innovations

Research has usually been organized in a diversified firm in three general patterns:

· A single, centralized corporate research laboratory

· Completely decentralized division labs without a corporate research lab

· Combination of a central lab and decentralized divisional labs

Alfred Rubenstein observed the organization of research in many firms over a long period of time no organization alone could provide a "best" solution. The purely decentralized form of labs facilitates and encourages research to focus on the current businesses of the corporation and requires special management attention to focus on the future of the cooperation itself. The purely centralized form of a corporate research lab facilities enforce research to focus on the future of the corporation itself and require special management attention to make its research relevant to the situation. It is difficult, therefore, for the corporate level research to be directly relevant to any of the businesses of the firm without being duplicative of the divisional labs. For those division managers who see a real need for strong, direct technical inputs to their division’s operation, the central lab seems, distant, and not very responsive to their immediate and near-term future needs. When a diversified firm adopts such a mixed form (having both a corporate research lab and divisional labs), corporate management can still expect the two forms of research organizations to snipe at each other. The divisional labs will always be impatient with the longer-term focus and more distant relevance of the shortsighted focus of the division labs and their low-tech, NIH (not invented here) syndrome.

Self Assessment Questions I

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1. What are the possible classifications of innovations by different researchers?

2. What is technology strategy?

3. What could be the consequences of technological changes on the competencies of a firm?

9.3 The Contribution of Technology to Competitive Advantage

Technology’s ability to redefine competitiveness at all levels has long been recognized by philosophers, scholars, and businesspeople from Adam Smith to John Kenneth Galbraith to Michael Porter to Bill Gates. At industry levels, technology-driven impacts can be obvious: solid-state devices replace vacuum tubes; passenger traffic shifts from railroads to aircraft. Successes and failures also can be obvious at the firm level, but specific linkages among management, technology, and competitiveness are less apparent. We will use, as a general guide, concepts broadly rooted in a "resource-based" model of the firm. Terminologies are still vague, but in a simplified view, the competitiveness of a company can be measured by the economic rents derived from certain capabilities (bundles of combined know-how and resources) which it possesses.

Two postulates are easily accommodated by conventional strategic management:

1. A firm’s competitiveness is defined largely by specific competitive advantages.

2. A primary purpose of strategic management is creation of competitive advantages.

An essential component of managing technology is recognizing the role that technology plays in the competitive success of a firm in a free-market economy, and acting to ensure that technology decisions and policies contribute to the firm’s competitive advantage.

9.4 Defining Competitive Strategy and Competitive Advantage

Many scholars have contributed to the concept of strategy. The traditional approach to strategy has emphasized setting goals and developing the means to achieve them by matching the resources of the firm (strengths and weaknesses) with opportunities (and associated risks) in the external environment (which includes, especially, customers and competitors), and deciding which industries, businesses, or product-market segments to compete in. For example – …corporate strategy is the pattern of decisions in a company that (1) determines shapes, and reveals its objectives, purposes, or goals; (2) produces the principal policies and plans for achieving these goals; and (3) defines the business the company intends to be in, the kind of economic and human organization it intends to be, and the nature of the economic and non-economic contribution it intends to make to its shareholders, employees, customers, and communities …

Corporate Strategy

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Strategy is a term that has become popularized, however, with terms such as marketing strategy, manufacturing strategy, competitive strategy, corporate strategy, business strategy, and technology strategy being widely used, and it is necessary to sort through their different meanings by considering different levels of organization of the firm. At the highest, corporate level, there is the multi-industry-business firm, the conglomerate or the diversified firm, of which there are many examples, such as General Electric.

Competitive Strategy

Moving down a level, there is the single industry-business firm such as Bethlehem Steel, or the division of the multi-industry-business firm such as GE Aircraft Engines. At this level, the issue of which business or industry to be in is moot-one is in the steel or the aircraft engine industry, and the only issue is how to compete successfully in it, or get out. This is the level at which we are concerned with competitive strategy, a concept that is perhaps most closely associated with Michael E. Porter, who expresses it as follows:

Essentially, developing a competitive strategy is developing a broad formula for how business is going to compete, what its goals should be, and what policies will be needed to carry out those goals.

Functional Policies

Moving down one more level, there are the functions of the firm-the familiar R&D, engineering, manufacturing and production, marketing, sales, service, personnel and human resources, purchasing, accounting, finance, planning, etc., functions. Although the term strategy is widely used at this level, in order to avoid confusion I will use the term policies, e.g., manufacturing policies, instead of manufacturing strategy. Policies must be formulated and implemented in any function of the firm, such as how to structure the organization, how to allocate resources, and how to reward people. The important point to note is that functional policies must all support, reinforce, or contribute to the competitive strategy of the firm in order for the firm to compete effectively.

Characteristics of Competitive Strategy

Competitive strategy is a top-management responsibility. It is difficult to imagine something more important to a firm than deciding how it will compete in its industry but there must be organization-wide participation in both its formulation and implementation. Information must be communicated upward regarding the capabilities and competencies, the strengths and weaknesses, of the firm in order for a feasible

Profitability

A certain threshold of profits is necessary for any firm to be able to compete on a sustainable basis. In the absence of profits, firms cannot continue to exist – even the largest of firms. Eventually the patience of lending or investing institutions, of stock holders, even of governments, will run out and the firm will die. So even as our focus of competitiveness is on

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market share, we cannot ignore profits-they must be maintained at least at some threshold level in order to sustain the competitiveness. What this threshold level is may vary from industry to industry, and-more importantly-from nation to nation, and may be influenced by national policy.

Customer Focus

Many observers of competition begin with a focus on firms and what firms are doing in R&D, manufacturing, or marketing to improve themselves. This is the wrong place to begin. Competitiveness is determined by customers, by the collective decisions they make in purchasing one product or service over competing alternatives. If we can assume that such purchasing decisions have some rational basis (which may not always be the case-consider the purchase of a pet rock), then customers will have reasons for making this decision which reflect what they value.

9.5 Competitive Advantages

If we ask why customers choose the products or services that they do, a number of generic reasons come to mind:

· The price is lower.

· The quality is higher.

· Availability is sooner, or more dependably just in time.

· Customer service is better.

· Attractiveness is greater.

· Awareness is greater.

· The stability of long-term relationships is important.

· There are other social, psychological, and ideological reasons.

Price

A lower price is perhaps the most obvious of the reasons why customers choose one product or service over competing alternatives. One must be careful to point out that from the customer’s perspective it is normally the price that is important, not the cost that it took to provide the product or service-i.e., lower costs. Usually, in fact, the customer doesn’t even know what the costs were, and lower prices might have been achieved through a change in exchange rates (in international competition) or internal or government subsidies. The exception is cases in which industrial customers are entering into long-term partnering arrangements with suppliers, when a lower cost structure may, indeed, be known to customers and be the more relevant advantage.

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Quality

Quality is another term that has become widely used, so much so that one has to ask what is meant specifically by a customer who claims to have purchased a particular product or service over competing alternatives because of its higher quality. In this framework, quality will refer to one of two different meanings:

· Higher reliability at a given level of performance, i.e., conformance to specifications

· Higher level of performance

Having made this assertion, one must recognize that there is an aesthetic dimension to quality as well. For example, people will often prefer natural leather or wood materials to plastics or other synthetic materials because of their higher quality, without regard necessarily to either reliability or performance.

Reliability

Reliability is the ability of a product or service to perform at a specified, promised level over a reasonable useful life under normal conditions of use. It is not, however, expected to perform at levels higher than what was promised. A product or service is defective when it does not meet the conditions listed above; and when a customer’s reason for a purchase is higher reliability, this means that, of the number of products or services they have purchased from a supplier and used, very few-if any-have been defective.

There are, however, two very different ways to achieve high reliability: (1) to inspect it in by identifying and removing defects from the product-services stream before they reach the customer and (2) to build it in by improving production processes and getting them under control. There are costs that result from poor reliability- the costs from waste, scrap, rework, warranties, loss of customer goodwill, and product liability. Improving reliability also has costs-the investments needed to inspect or build it in. In the latter case, getting production processes under control may require process simplification and redesign or the implementation of an effective statistical process control (SPC) program, but if done well, it should produce significant savings in all the cost categories resulting from poor reliability. It is in this sense that "quality is free," as Philip Crosby puts it, that the benefits from greater reliability through improved process control can-at least in the initial stages of improvement- far outweigh the costs.

Performance

Performance level refers to a property, feature, or characteristic of a product or service which customers value, and therefore having more of it than competing alternatives do can be a reason for their purchase decision. Performance has multiple dimensions depending on the specific product or service and the customer or market segment. For industrial customers of fabricated parts, dimensional tolerances are a performance dimension that is often cited along with surface finish (corrosion resistance-durability), weight, etc. In the case of process industry customers,

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purity and uniformity might be relevant performance dimensions. The range of performance dimensions is much wider for final consumers.

Availability

Availability is a time-related competitive advantage. All other things being equal, many customers would prefer the competitive alternative that is available soonest instantaneously, if possible. Firms with new products which have no competing alternatives available until competitors can copy or catch up to or leap-frog over them have a special availability advantage. For industrial customers operating in a just-in-time mode, availability translates into dependable delivery at precisely the scheduled time.

Customer Service

Customer service enhances the utility of a product or the social relationships that complement its sale and use. Traditional forms of customer service have included applications engineering, training of employees, and service-maintenance contracts. Financing services (time payments, leasing, trade-ins, etc.) that enable the customer to purchase the product are also included. Good customer service can also make up for a lot of customer ill will caused by product defects.

Attractiveness

Attractiveness applies principally to consumer products, although even industrial customers may be turned off by a product’s unattractive appearance. Attractiveness obviously encompasses style and has an aesthetic component that transcends the annual style changes of, for example, the fashion apparel industry, although what is perceived as being attractive may have some cultural basis. An attractive product design may also be functional, of course, and for some consumers functionality itself may constitute attractiveness.

Awareness

Awareness is a factor in all other competitive advantages as well as a possible reason in its own right why customers choose one product or service over competing alternatives. If customers simply know more about one product or service than competing alternatives, they may choose it because of the comfort level which that knowledge brings them compared to the relative uncertainty of the alternatives. If the knowledge is positive and is repeatedly reinforced through experience and marketing or advertising activities, brand-name loyalty may be created in customers who continue to choose it apart from any objective evaluation of the actual facts. On the other hand, even if one product or service has a lower price, greater reliability, higher performance, sooner availability, better customer service, or more attractive designs than competing alternatives but customers are not aware of these facts, they cannot influence customers’ choices.

Stability

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Stability of long-term relationships probably applies only in very specific situations where-again-that stability provides a comfort level to customers which they prefer over the relative uncertainty of short-term or temporary supplier-customer relationships. For example, in the case of strategic materials or-recently-petroleum, the stability of long-term supply contracts may be preferred by a customer over temporary supply arrangements that offer lower prices or other advantages. This stability may also apply to long-term social relationships between customers and suppliers in cases where customers value the relationship itself apart from the product or service the supplier is providing.

Customers today expect high reliability and low prices-these are mutually reinforcing attributes that a supplier is expected to achieve just to be in the competitive ball game. But these are seldom enough. The winning competitor must have either the lowest price and the highest reliability, or achieve one of the other competitive advantages that customers value.

9.6 Generic Competitive Strategies

Low-Cost Leadership and Differentiation

In his treatment of competitive strategy, Porter defines and discusses three generic strategy types: cost leadership, differentiation, and focus. Low-cost leadership means essentially what it says, achieving the lowest-cost position possible in each and every operation of the firm, not just manufacturing, through such means as vigorous cost reduction programs, strict cost and overhead controls, economies of scale, and learning- curve efficiencies. Differentiation refers to a uniqueness of a product or service as perceived by a customer, which leads the customer to prefer it over competing alternatives. A differentiating uniqueness is typically achieved through such means as design features, establishing a brand-name identity, or offering superior customer service.

There are some important qualifications that Porter makes regarding low-cost leadership and differentiation strategies that deserve greater emphasis than they usually receive. The first is that the successful low-cost low-price competitor cannot ignore the differentiating advantages in its pursuit of low costs. If quality, availability, customer service, or other parameters of differentiated competition fall below a threshold of acceptability held by customers, then the low-cost low-price competitor may sink to a lower category of discount or low-quality competition. Therefore, Porter says that low-cost leaders need to achieve parity with competitors in differentiating advantages. A similar qualification applies to the generic strategy of differentiation.

As indicated above, a firm cannot normally pursue both low-cost low-price and differentiating strategies at the same time. Attempting to do so is one example of how, according to Porter, a firm winds up being stuck in the middle. There can be exceptions, usually in cases of major process innovation, but the achievement of a differentiating uniquel1ess normally comes at the expense of higher costs. Firms that routinely claim that they are the lowest-cost, highest-quality, quickest-delivery, best-everything competitor are the rare exceptions, or are engaging in rhetorical hyperbole.

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Focus

Porter presented his cost leadership and differentiation generic strategies in two contexts-a broad-scope or industry wide competition, and a narrow-scope or focused competition. At the same time, he defines his third generic competitive strategy of focus in terms of cost focus and differentiation focus, where focus can be based on geography, market, or product-service segments, or on some combination of these. Therefore, it is probably more productive to think of competitive advantages in terms of low cost-low price and differentiation, which can apply to firms competing industry-wide (in all or most segments) or on a focused basis (one or two segments only). In more recent work, the competitive scope dimension has been expanded to include multi niche competition which is applicable in situations currently referred to as mass customization or agile manufacturing.

9.7 The Value Chain and Technology

Defining the Value Chain

Thus far we have dealt with competitive strategy by emphasizing customers and their ultimate role in determining competitiveness by collectively choosing to buy the products or services of one firm over competing alternatives. In this section the focus shifts to firms and what firms do to achieve competitive advantage in implementing their competitive strategies. To address this set of issues, another tool developed by Michael E. Porter is utilized: the value chain. In Porter’s words, the value chain is "a systematic way of examining all the activities a firm performs and how they interact….for analyzing the sources of competitive advantage."

Porter’s value chain can be used to organize all the activities of a firm into categories of primary and support activities. Primary activities constitute the processes by which firms receive inputs (inbound logistics), convert those inputs into outputs (operations), get those outputs to customers (outbound logistics), persuade customers to buy the outputs (marketing and sales), and support customers in using the outputs (service). Support activities are processes which provide support to the primary activities and to each other in terms of purchasing inputs (procurement); developing new and improved ways of doing activities (technology development); dealing with personnel (human resource management); and general management, accounting, finance, and other activities which support the entire organization rather than individual activities (firm infrastructure).

Value chain activities

Activities are processes, things that are done in a firm. In order to be identified and labeled, they must be distinct-have a beginning and an end which distinguishes them from other activities or operations. In using the value-chain tool to analyze sources of competitive advantage in a firm, one would first identify its nontrivial activities and assign them to the most appropriate category. A second useful step would be to examine specific activities from an input/output perspective.

Input / Output Analysis

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Input/output analysis can be used at various levels of an organization-including the organization as a whole-to get a better idea of what the entity is and does. The organizational unit of analysis-in this case, the specific activity-is represented as a black box, with inputs going in and outputs coming out .The amounts and types of inputs will vary from organization to organization and activity to activity, and in addition to the intended output there will always be other outputs, some portion of which will be waste.

One more piece of information is needed to finish this input/output analysis: Technology. In this context it is useful to know technology as a way to do something, a way to perform a value-chain activity. This process view of technology allows one to carefully distinguish between technology and products or hardware-technology is not a product, a tangible entity. But when a product is used to do something, it is that use which defines it as technology for the user. Thus a computer is a product, a thing. Computer users, however, may regard it as, for example, a data-processing technology, a text editing technology, a scheduling technology. Indeed, what makes the computer so powerful a tool is the ubiquitous and wide range of uses to which it can be put.

Alternative Technologies

For any given value-chain activity, then, there are alternative technologies-alternative ways of doing it. There are new and old, labor-intensive and capital-intensive, appropriate and inappropriate, and unknown technologies yet to be developed. For example, let us take the inbound logistics activity known as inbound materials handling-the movement of material goods from where the supplier gives them over to the firm to when they enter into operations. There are a wide range of alternative ways to do these activities-alternative technologies that might be used, including manual labor, manual labor supplemented by tools (hand carts), conveyor systems, forklift trucks, automated guided vehicles, robotic loaders/unloaders, stacking cranes, and pneumatic hoses.

Ubiquitousness of Technology

The power of using this definition of technology is that it applies to every value-chain activity, not just the activities in manufacturing or engineering that we usually associate with the term. Thus there are technologies involved in accounting and cost management activities (the traditional direct labor plus overhead; activity-based costing or management), in personnel selection activities (psychological and aptitude testing, personal interviews), in market research activities (focus groups, consumer surveys, test marketing), and even in R&D activities (computer-aided molecular design, electron microscopes, gene-splicing equipment).

Self Assessment Questions II

1. How can competitive strategies be put to competitive advantage? Explain.

2. Why do customers choose the products or services that they do? How does it help in developing competitive strategies?

3. Define value chain and explain its importance.

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9.8 Creating Competitive Advantage

Using the value-chain analysis, a firm can then create competitive advantage in at least three ways:

· By placing greater or lesser emphasis (allocation of resources, management time and attention) on specific activities than competitors do.

· By performing specific activities better (better management, more highly trained people, better- maintained equipment) or differently (using alternative presumably new or improved-technology) than competitors do.

· By managing linkage among activities better than competitors do.

Technology Choice

In item 2 above the decision of which technology will be used to perform a specific value-chain activity corresponds to a major element in what Porter calls technology strategy. The technology choice for the activity should obviously correspond to the competitive advantage being pursued by the firm, taking into account the qualifications discussed earlier i.e. the low-cost technology should be chosen by the firm pursuing a low-cost low-price advantage: the high-performance technology for the high performance advantage, and so on.

Linkage Management

What is linkage?

The subject of linkages among value-chain activities requires further elaboration. According to Porter, value-chain activities are not independent, but form chains of interdependent, linked activities, in which "Linkage are relationships between the way one value chain activity is preformed and the cost performance of another. Earlier it was indicated that inbound materials inspection was a specific activity that might be found in the inbound logistics category of the value chain. The way this activity is done the technology used the amount of emphasis placed on it, how well managed it is – could have major impacts on the cost or performance of downstream activities such as assembly, systems testing, after-sales service, and warranty claims administration.

Co-ordination and Optimization of Linkages

For a firm to manage its linkages better than competitors do, it must first recognize that such interdependencies exist. This is often made difficult by organizational boundaries that separate inbound inspection activities from manufacturing, systems testing, or after-sales service activities. If the recognition is present, then better coordination of linked activities can be a source of competitive advantage. For example, better co-ordination of the inbound inspection and systems testing activities could help to identify causes of systems failures and preferred component suppliers.

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Not making the investment to improve inbound materials inspection may make the performance numbers of the purchasing department or the warehouse unit looks better, for example, because all the benefits of the investment accrue to downstream organizational units and show up only in their performance numbers. Therefore, being better able to optimize such tradeoff investments in linked activities across organizational boundaries at the level of the total organization is another possible source of competitive advantage.

Upstream and Downstream Linkages

Furthermore, any organisation with its own unique value chain has upstream suppliers (or inputs) and downstream distribution channels and customers (of outputs) with their own value chains and unique configurations of value-chain activities. The concept of linkages can then be extended to interrelationship between supplier or customer value-chain activities and the value-chain activities of the organisation. For example, through supplier certification activities of the organisation, its own inbound materials handling and inbound materials inspection activities may substantially decline in importance or disappear altogether as suppliers’ shipping and finished goods inspections activities are linked directly with the organisation’s assembly activities.

Information Technology and Linkages

Linkages are perhaps more easily recognized and managed today because of the pervasive and ubiquitous influence of information technology the marriage of sensor, computing, communications, and software technologies. Information systems are in place that collect more data than even before, integrating across organisational boundaries and into supplier and customer organisations, with real-time analytical capabilities that can establish and quantify cause and effect linkages, thus making them observable and manageable.

9.9 Linking Technology to Competitive Advantage

On the basis of the preceding discussion, the choice of which way to perform a value chain activity- which technology to use – should be governed by the competitive advantage(s) that the firm is pursuing in implementing its competitive strategy. In other words, if low cost-low price is the strategy, then how-cost technologies should be used, consistent with maintaining acceptable levels of quality, availability, attractiveness, and so forth. Similarly, if a differentiating uniqueness is the strategy, then technologies which maximize the specific competitive advantage in terms of higher performance, sooner delivery, better customer service, etc., should be used, consistent with the price premium customers are willing to pay for the uniqueness.

Technology choice is therefore a more complex decision for firms pursuing a differentiation strategy. The number of potential differentiating competitive advantages is very large, and much more attention must be paid to determining which value-chain activities are the major sources of competitive advantage and to examining technology alternatives in terms of the specific competitive advantage being sought. To say that one is pursuing the advantage of higher performance is not enough. One must specify the performance dimension that is predicted to be of value to a segment of customers, look at which activities create and deliver that performance value, and make technology choices for those activities accordingly.

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The technology development activity is an important case in point. Thus far we have considered a technology choice from among existing technological alternatives. Technology development activities, however, have the promise of creating new ways to do things-new technologies-that can contribute even more to higher performance, sooner delivery, better customer service, etc., than existing alternatives, or that can lower the cost penalty of achieving that higher performance, soon delivery , etc. In rare but extremely significant cases, major radical and discontinuous technology developments can be the basis for totally new ways of competing in an industry and can transform industry structure. Having explained this, illustrations are given about the linkage between technology and competitive advantage more explicitly by focusing on advanced manufacturing technologies, pertaining primarily to discrete-parts fabrication and assembly activities, and on management technologies usually labeled as Japanese manufacturing management techniques such as TQM, JIT, and Kanban pull systems. These technologies will be related to the three competitive advantages of low price, higher quality, and sooner availability.

Technology and Low Cost – Low Price

Figure 9.1 suggests one way to examine the competitive advantage of low price. Working from right to left, the first thing to point out is that customers don’t normally care about what a supplier’s costs are they only care about and often only see the price that is charged. It is important to note, therefore, that there are other ways to achieve lower prices than lowering costs. Subsidies-either internal to the firm or provided by governments-can be used to lower prices, and in international competition, changes in exchange rates can lower or raise prices overnight without any change in the firm’s costs.

Figure 9.1: Competitive advantages of lower prices

(Source : Handbook of Technology Management)

Product costs are emphasized, but as indicated earlier, low costs must be pursued in each and every activity of the low-cost leadership firm. Wringing the last penny of cost out of production activities may be more than counterbalanced by "fat" in distribution (outbound logistics)

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activities, for example. These may include production costs, plant and equipment costs, material and labour costs

Production costs and advanced manufacturing management technology

When we look at advanced manufacturing management technologies – which are more modern ways to manage manufacturing operations – we see a more straight forward linkage with various production costs. There are a number of so called Japanese management practices that can affect production costs.

Technology and High Quality

Continuing this discussion of advanced manufacturing technology and the competitive advantage of low price, Figure 9.2 sets out a similar way to consider advanced manufacturing technology and the competitive advantage of higher quality. As discussed earlier, a customer who expresses a preference for one particular product or service over competing alternatives because of its higher quality might be conveying one of two different meanings:

1. The reliability of the product or service is higher – a production process related phenomenon.

2. The performance of the product or services is higher – a design related phenomenon.

Reliability: Building it in

Working from right to left, there are two basic ways to improve reliability: to build it in or inspect it in. Building it in is usually the preferred way to improve reliability because this involves improvement of the production process itself and therefore has the added competitive effect of lowering manufacturing process costs at the same time. These may include

1. Process control

2. Advanced manufacturing hardware technology

3. Advanced manufacturing management technology.

Reliability: Inspecting it in

Inspecting quality in to the process without building it in results in higher reliability as perceived by the customer because few or no defects get past the inspection system, but there are no reductions in production process costs because the process itself remains unchanged-warranty, service, loss of customer goodwill, and liability costs of poor quality are merely shifted to scrap and rework.

Performance: Designing it in

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Improving product performance is largely a matter of product design and the choices that are made in the product design activity. These design choices include the tightness of the tolerances that are specified, the special features that are included, the choice of materials utilized, and the size of the product or service offerings.

Figure 9.2: Competitive advantages of high quality

(Source : Handbook of Technology Management)

Technology and Sooner Availability

The third and final competitive advantage to be examined in the context of advanced manufacturing hardware and management technologies is that of availability. Figure 9.3 proposes a structure to examine this advantage.

New Products

Figure 9.3 shows two situations from which to examine the availability advantage: that of new products and that of expanded or extended product lines. Perhaps the ultimate availability advantage is to come to market first with a new product that is not available from any competitor. For that period of time when no competing alternative is available, a firm can charge what the market will bear, can create first-mover advantages which will endure even after a competing alternative is available, can obsolete its current new product with an even better or cheaper one to stay ahead of the competition, and so forth.

Licensing or acquisition

There are a couple different ways to obtain new products. One way is to license or acquire them as products, or to license or acquire underlying technologies which feed into the second way-the firm’s internal new-product development process which normally is managed by the R&D function. Licensing or acquiring technology – external technology sourcing, as some call it-have become more popular activities as trends toward firm downsizing and focusing on core

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competencies have increased, and information technologies have improved firm capabilities to monitor and evaluate external technology development on a global scale.

Figure 9.3: Competitive advantages of sooner availability

(Source : Handbook of Technology Management)

New product development cycle time

The conventional way to achieve new products is still the internal development process, however, which begins with R & D activities but extends through manufacturing and marketing and sales-through commercialization. Because competition is becoming more intense and product life cycles in many industries have been shortening, there is increasing pressure to shorten new-product development cycle times or to achieve a new product lead-time over competitors. How might advance manufacture hardware and management technologies impact new product development cycle times so as to achieve the competitive advantage of availability? The short answer to this question is, potentially, "a very great deal.”

Advanced manufacturing hardware technology

Earlier we mentioned the performance impacts of CAD/CAM/CAE technologies, but surely a bigger impact of CAD/CAM/CAE pertains to the speed with which product design and engineering analysis activities can be done. Fast prototyping is another technology that has the potential to speed up product design. New products must be manufactured before they can be sold, however, and technologies can be used to change manufacturing systems over from existing to new products-as long as the new products are within the envelope of the systems-almost instantly and at almost no cost. Computer Integrated Manufacturing (CIM) technology, which integrates the product design and manufacturing processes electronically, has the potential to make the transition from design to manufacturing go even more quickly and smoothly.

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Advanced management technology

New management technologies can also play an important role in speeding up new product development. Concurrent or simultaneous engineering-the parallel or joint development of new-product and accompanying new-process technology-not only improves design for manufacturability as discussed earlier but also can significantly speed up the development cycle. Management policies to deliberately shorten product life cycles by making obsolete current products with new developments can speed things up as well. Many of the process improvements that result from TQM-type programs in new product development also tend to speed up the process. All of these new product decisions can, of course, be affected by the firm’s approach to intellectual property protection, and market research activities still play an important role in identifying the customer values that can satisfied through new products.

Expanded or extended product lines

The second situation in which the availability advantage can apply is with expanded or extended product lines, and there are three cases of how this can happen.

Product platforms and families

The first is with families of products created off of product platforms. A new-product platform, developed in R & D / engineering design activities, is a basic product design from which different family member products are spun off to appeal to specific market segments. All family members share the base design and production process, but differ in performance levels, features, and price. The platform product family is a planned approach, although new members of the family can always be added in response to market segment demand. Examples of this would include Chrysler’s LH platform and the Chrysler Concorde, Dodge Intrepid, and Eagle Vision product family, the Boeing 747 and all its derivatives, and the Sony Walkman.

Customized products

In contrast with planned product families, the second case of customized products refers to design and production activities responding to individual customer orders. In many industries, customers have unique requirements, which can be satisfied only with a customized product. The extent of the customization may range from minor modifications to product features to totally new designs of major components or subassemblies. These would not be considered new products, however, as the customization is based on current knowledge and skills. The customized order might be for a single product, or for thousands of units, but there is no commitment to that specific customized design beyond that order. Examples of customization occur in many machinery and equipment industries in which the equipment and the major components and subassemblies-have to be customized to fit the specific size and functionality requirements of the customer.

The final case of expanded or extended product lines is where complexity of the "bells and whistles" type is added to products. This is a special case of customization, but is very different in its motivation. Customization as described above is done to meet the unique functionality

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requirements of customers; adding bells and whistles is done to appeal to customers’ personal tastes and preferences, or impulses. A popular example would be a T-shirt shop, which allows customers to print pictures of their faces on shirts in real time when making their purchases. More complex cases might include accommodating customer’s desires for coffee-cup holders, round vs. square corners, narrow lapels and cuffs vs. wide lapels and no cuffs, and so forth in various products.

Hardware and management technology

The availability advantage for these expanded or extended product lines also depends on speeding up design-manufacturing cycle times as was indicated advanced manufacturing hardware and management technologies discussed above also have the potential for greatly enhancing the availability advantage in these situations.

Market feedback and information technology

Expanded or extended product line situations are more dependent on market information and the ability of the firm to quickly act on this information, however, and on market information on customers’ needs and wants just to get started, but then, perhaps even more importantly, on market feedback to able to quickly adjust to winners and losers. Information technology to interact directly with customers-such as electronic data interchange-and to respond very quickly to their signals can be very powerful in this regard. Wall Mart is often cited as a pioneer in applying information technology for this purpose.

Economies of scope

The agile-flexible CIM technologies used to create availability advantages with expanded or extended product lines also give rise to a cost impact called economies of scope, which is defined as cost savings that can result from multi-product, i.e., flexible agile manufacturing systems. What are some of these potential cost savings? Since flexible agile manufacturing systems can switch from one product design to another (within the parameters or envelope of the system) with little or no cost or time penalty, the risk that an investment in a manufacturing plant might be rendered absolute by a sudden change in market demand is reduced considerably, the ability to meet quick delivery requirements without finished goods inventories is increased, and the downside of the level scheduling tradeoff – the accumulation of finished goods inventories to handle seasonal fluctuations in demand – can now be avoided by the judicious selection of a product mix whose individual demand patterns are complementary. These cost impacts of economies of scope are shown in Fig. 9.3: see arrow B.

Distribution and customer education

The activities and technologies shown in Fig. 9.3 are not the only ones affecting the availability advantage, of course. Products normally go through a distribution system to reach a customer, and these activities and the technologies used in them can obviously affect how soon they reach the customer. Marketing and sales activities and technologies may also be critical in educating customers about the existence and use of an expanding choice of products available to them.

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9.10 Next Generation Technology

In the early studies on innovation, Don Marquis identified three types of innovation: radical, incremental, and systems. Now, however, we distinguish four types:

1. Radical component innovations

2. Incremental innovations to existing technologies

3. Radical systems innovations

4. Next-generation technology innovations

A radical innovation provides a brand-new functional capability, which is a discontinuity in the current technological capabilities. An incremental innovation improves the existing functional capability of an existing technology through improving performance, safety, and quality and lowering cost. A systems innovation is a radical innovation providing new functional capability but based on reconfiguring existing technologies. Incremental innovations, within a system can also sometimes create new technical generations of a system. Such an innovation is still a kind of system innovation, but not a radically new innovation. It is a systemic innovation, which is called a next-generation technology (NGT).

Self Assessment Questions III

1. Using the value – chain analysis, how can a firm create competitive advantage?

2. Examine the option of competitive advantage of low price.

3. Which are the types of innovations according to Don Marquis?

9.11 Managing In-house Development of Technology

In-house generation of technology through R & D is a venture in uncertainty. Successful management of innovation process calls for managing the entire chain of events from idea generation to commercialisation of a new product. An international study by Mansfield and others has brought out that out of 100 R&D ideas conceived for taking up as projects, about 50 failed during the incubation stage and out of the remaining 50 innovations for which technology feasibility reports were prepared, about half failed before project completion. Out of the remaining 25 market ready innovations, about 5 failed in initial market test. The remaining 20 got introduced to the market, but only 10 proved to be financially successful ultimately. Hence, mortality rate of R&D ideas is quite high, but the benefits derived from the few financially successful innovations more than justify R&D costs.

9.12 Integrating R&D into Corporate Strategy

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Management of R&D in an industrial enterprise calls for a close linkage between the R&D plans and the business plans of the company. In fact, the R&D plans must flow out of the business strategy. The principal objective of integrating R&D into corporate strategy is to ensure that the level of deployment of R&D resources are in consonance with the corporation’s growth and earning goals and the business objectives of the individual departments. In essence, the process seeks to balance:

· Existing business needs with long range corporate goals;

· Entrepreneurial growth in the younger businesses with disciplined support of the mature businesses, and

· Diversification with consolidation and so on.

The essence of integration of R&D strategy with corporate strategy is also to ensure that R&D resources are allocated in relation to business needs/goals in following areas:

· Basic research

· Discovery research

· Development

· Extensions of existing businesses

· Support of existing businesses

Many business organisations have come to the conclusion that successful industrial R&D calls for a multi-disciplinary approach in which R&D does not work in isolation, but falls in the mainstream of company operations in close proximity to other functions. It calls for creation of project teams and matrix forms of organisation.

9.13 Factors for Successful Management of Innovation Process

The following factors should be taken into consideration if the innovation process is to be successfully managed.

Customer Focus

All R&D projects, which have been taken up either on account of a felt customer need or with the involvement of a customer, have greater chances of commercial success. In fact, the most profitable ideas for innovations are derived from market needs. Speed of execution of R&D projects is an essential factor for satisfying customer needs and perceptions about product developments.

Climate of Change

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Innovation is the job of everybody in the company. An innovative climate calls for motivation and challenge on the part of the employees which alone can foster creativity. Innovation thrives in companies where the desire climate and environment are encouraged and spearheaded by the top management.

Committed Style

All R&D activities commit costs today, in one part of the organisation, with possibilities of benefits to accrue in future in some other part of the organisation. This cannot be effectively carried out unless there is top management commitment to pursue R&D to its logical conclusion and take well calculated risks on account of the very nature of uncertainty of R&D activities. Organisation culture in innovative companies is result-oriented with full realisation of the fact that R&D is an activity which is input deterministic but output probabilistic.

Combined Operations and Structures

As mentioned earlier, effective industrial R&D management calls for multi-functional and multi disciplinary approach to problem solving. It therefore requires the creation of R&D project teams and matrix form of organisation which do not fall in line with the normal, hierarchical patterns. The continuous cross-fertilisation of innovative ideas through different groups/functions in the company is necessary. Large R&D projects are, in fact, implemented by teams functioning as mini company organisations. Thus, combined operations and structures are essential features of industrial R&D management.

Creativity and Communication Skills

Management of innovation process requires (i) creative skills in an organisation, removal of mental blocks, rewards for taking risks and facing challenges and (ii) capability to communicate effectively across various functions and disciplines. Rotation of experts from one function to another to improve such skills should be encouraged, which is not feasible without the active support of the top management.

Control Systems

Innovation process by its very nature requires creativity which is anti-control. However, to gain competitive advantage, the R&D projects must be completed (if not killed) within the specified time and cost parameters. This calls for some form of monitoring and control, without losing sight of the fact that excessive control may be counter-productive; it may kill creativity and retard innovation process. Thus, the control systems for management of R&D must be designed with the delicate balance between freedom to innovate and control to reach the market in time.

The key issue for know-how development of technology is that while many companies are successful in developing new products, yet they fail to secure competitive advantage in market due to several reasons:

i) There may be lack of marketing focus in R&D activities,

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ii) The distribution systems of the company may not be adapted to the level of services required for the new product,

iii) The production systems adapted from previous products may not have been changed, even though the competitive conditions for the new product are different,

iv) There may be inability or lack of willingness to effect the change required for new product introduction within the organisation itself,

v) The strategies in response to change may have been followed piecemeal.

9.14 R&D Time Horizons and Strategies

For R&D to have any major impact on corporate strategy; the strategy must have a long enough time horizon. The corporate strategy, in turn, implies a set of assumptions about how the company will develop competitive advantage and some of its long-term goals, besides a set of operating principles and values i.e., the culture of the company. Thus, ideas, goals arid beliefs help to guide the long-term activities, including R&D.

If a company wants to develop real technical leadership as a basis for competitive advantage, it must have a strategy that reaches out at least ten years ahead. It is a waste of money and opportunities to undertake research with a shorter time frame in mind to hit the market. With a shorter term strategic perspective, it can still be very worthwhile to conduct applied research and development, acquiring the basic technology from foreign collaborators or from universities or from other sources. If the company has a strong market presence or a protected manufacturing position, or is especially fast in product development, this strategy can still work well – despite the lack of technical uniqueness that goes with original developments.

This strategy has been successfully pursued by a number of Japanese companies, which have derived competitive strength on the basis of price and quality of their products through flexible and cost effective manufacturing practices. Of late, they are also engaged in a highly competitive level of research and development expenditure, with technological innovation becoming the centre of competitive capability. Leading firms in Japan now spend as much or more on R&D, as do their US counterparts. A few cases are truly startling – both Canon and NEC spend well over 10% of their revenues on research -more than any of the US companies in that field. However, Japanese corporations followed, for a very long time, a strategy of applied research and development -acquiring the basic technology from abroad, and improving upon it further through in-house R&D.

9.15 Resource Analysis for R&D Strategy and its Elements

While choosing the R&D path, careful analysis needs to be made of the skills and resources available within a company, technological capabilities existing in the country in related disciplines, time frame required to bridge the technology gap, and R&D costs to be incurred, for producing a marketable product. India’s total R&D expenditure is about 1% of its GNP, and was estimated at Rs.3,500 crores in 1989. Many developed countries spend 2.5%-3% of their GNP on

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R&D. Even a single company like GE of USA spent Rs. 6,300 crores on inhouse R&D in 1988 which is nearly double that of the R&D expenditure of India. The Indian scenario is different as industry accounts for only 20% of the total R&D expenditure in the country. The rest is accounted by non-industrial organisations and government and autonomous institutions. If we consider that the industrialised or the developed nations have a distinct advantage or superiority over us in the technological arena for various historical reasons, it would be naive to think that in every case Indian companies would be in a position to reach the technological levels of international companies in the foreseeable future solely through in-house or in-country R&D efforts. Even if a company or the country has the intellectual capability to do so in some areas, the massive financial resources required would be beyond our means. Thus, the R&D strategy of companies in developing countries, including India, should be NOT to ‘reinvent the wheel’. It would be more prudent to use R&D to ‘make the wheel run faster’ on Indian roads or in Indian conditions through appropriate adaptation and improvement. There is no particular virtue in what is called -the ‘NIH Syndrome’ – the tendency to reject what is ‘Not Invented Here’. These are some policy considerations, which ought to be examined by a company in deciding its corporate strategy, and in choosing an R&D option.

For R&D to have a real impact on corporate strategy, it must have the following essential elements:

· There must be a corporate strategy with sufficient scope and time frame.

· The corporate strategy must be based on sound technological forecasts – anticipating the technical opportunities and threats that will face the company.

· There must be a technical strategy that is realistically linked with the business strategy.

· The top technical person must be a part of the senior management team, preferably on the Board of the company.

· The CEO of the company and profit centre heads must understand and support the innovation process – assuring an atmosphere of entrepreneurship and urgency.

· The top management must continuously provide direction, commitment and support – and a sense of both patience and urgency. It must have a technological vision, understanding of the innovation process and should imbibe confidence in the technical people providing a suitable climate to motivate them.

9.16 Technology Management Assessment

During the entire life cycle of technology management it is important to determine whether the concept of TM/MOT is meeting, or will meet the original objectives set prior to decision to commit enterprise resources. This process of assessing the states of TM/MOT is necessary for the overall performance of the enterprise/firm/organization. Many a time technologies have failed, not due to the technology being poor but due to the failure of total system in translating

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the concept into a successful operational product, process or services. Raising questions provides a means for evaluating.

9.16.1 Resources

People

1. Do you know your people-their skills, their competencies, and their interpersonal qualifications? Do you understand the interpersonal characteristics of your people in order to optimize the output of the system?

2. Are people qualifications documented in such a way to provide input for project assignment?

3. Does the classification show up-to-date skills and competencies-specific rather than general? What is the basis for your conclusions? What do you do when skills are no longer required?

4. On a scale of 1 to 10, how would you rate the performance of every employee? Can you be realistic in this appraisal? What is your approach to appraisal-once a year panic button or continuous appraisal?

5. Do you have a system that meets the requirements of individuals? Do employees have easy access to top management? Is there enough flexibility to accommodate individual differences?

Intellectual Property

1. Does the organization understand the meaning of intellectual property (IP)? What is the depth of that understanding? Is it limited to technical functions? Has the organization defined the scope of IP?

2. Are there documented processes for recording, storing, and protecting the IP of the organization? Are those processes used and monitored? Are those processes reviewed periodically?

3. How is the IP managed? Has the company attempted to instruct about IP?

4. Does the organization record use of intellectual property and publish internally how that intellectual property was used to the benefit of the organisation?

Information

1. Does the organisation differentiate between data, information, and knowledge? What is the basic philosophy regarding information? Does the process result in reams of meaningless data? Is information provided in such details that it loses its significance?

2. Managing information plays a major role in business performance. What is the competence level of this group of professionals? Can they discriminate between what is essential and what is

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wanted? Do these professionals bring the users into the process? What is the value added of information in relation to its acquisition cost?

3. Most surveys show that organisations seldom provide sufficient information. Do people have sufficient information to perform their jobs? Is that information used? Does the availability or non-availability affect job performance?

4. In a technology-oriented organisation, technology transfer presents a major challenge. How is technology transferred in your organisation? Is there a formal procedure? Are the necessary contributors engaged in the early stages of a project? Do they remain connected to the project to completion?

5. Feedback is a major factor in business processes. How is feedback communicated? How is feedback used? Are the results of feedback tracked and communicated when necessary? Is the feedback timely so that it can be used effectively?

Organisational Attributes

1. Acceptance of change continues as a major business issue. How does the organisation manage change processes? Is sufficient in-depth thinking included to determine the consequences of the change ("in-depth thinking” is included to determine the consequences of the change)? Are the precursors for implementing changes given due consideration?

2. What approaches are used for implementing change? The peace-and-quiet approach or the cognitive dissonance approach? What are the potential sources of change? How is diversity in thinking managed? Are the concepts of complete buy in hindering progress? How does the organisation educate participants in the change process?

3. Openers and the open-door policy are good public relations, but are the principles practiced? What is the attitude of the organisation for stimulating this openness among all levels of participants? Classification of information is critical, but does it prevent people from understanding the objectives? Is business-unit strategy communicated effectively at all levels?

4. The call for freedom of action sounds good, but do employees understand the implications of that freedom? Are responsibility and accountability parts of the freedom equation? Is freedom of thought encouraged? Are the free thinkers allowed to voice their ideas and concepts? Have you established the guidelines for that freedom? What are your expectations from the person who presents diverse ideas? Do you encourage thought before action?

5. Organisations spend large sums of money on what is loosely termed "education and training". How much is education? How much is training? Is there any support for intellectual pursuit-intellectual pursuit in all matters? Does that intellectual pursuit extend to executive literacy? Does that support include understanding the basics? Is that supporting limited to what is generally referred to as the "tools of the trade"?

Technology

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1. How is technology linked to business strategy? Is technology considered in the strategy development process? Is there a technology strategy? Does that strategy direct the entrance into new technologies? Does that strategy tend to focus on technology platforms (technologies that can be applied across a broad range of products or processes)? Does the technology strategy take into account the limitations of other resources and the infrastructure? Is any consideration given to developing technology through a virtual organization concept?

2. Is the importance of technology understood at all levels beginning with the board of directors? Do any board members have the competency to make decisions that involve technology? Does management know at what level technology decisions are being made? Are there multiple levels of management approval without understanding the significance of investing in technology?

3. Is technology a technology issue or a major business issue? Does the organization differentiate between technology and business decisions? What percentage of the sales value of production involves technology? Does management take an integrated approach to technology?

4. What is the role of technology in the organization? Are technologies classified relative to their importance? How are new technologies implemented? Is there any technology scouting activity? Who tracks the latest technology directions? How is the latest information transmitted to those who have a need to know? Are technologies limited to those in research, development, design, and manufacturing, or do they encompass all technologies?

Time

1. Does management differentiate between cycle time, total time, and timing? Is cycle time being emphasized? Is it important in your business and your particular industry? Has your organization quantified the impact of cycle time on business performance? Are the cycle time data relevant? What does the data tell you?

2. Has your organization developed a program to focus attention on the negative impact of extended cycle time? Does your top management consider it necessary to focus attention on cycle time? If so, what has it done to focus attention? Is it action or rhetoric? Are the fundamentals understood? Do people understand the ramifications of cycle time management? Does it cost more or less?

3. Do the business unit managers accept cycle time management as an important issue? Do the functional managers accept it as an important issue? Have they done anything to reduce cycle time in real terms? If they made significant strides in cycle time management, how were the results quantified? Was it possible to isolate the benefits from cycle time management?

4. Does your organization provide any special education regarding the issues related to managing cycle time? For executives? For managers at all levels and in all disciplines or functions? For the professional staff? For administrative personnel? For production workers? If education in cycle time management is a priority, can the benefits be quantified?

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5. Extended cycle time represents an added cost to the organization. Have the following issues extended cycle time? Undefined business strategy? Undefined marketing strategy? Undefined technology strategy? Insufficient integration of research, development, designs, manufacturing, and marketing? Over specialization in all professional areas? Segmentation of the organization?

Customers

· Are customers your partners? How do you define "partners"? Are those partnerships real or imaginary? How many customers do you have that fall in the class of partners? How many can you rely on? How many understand your products and your business?

· Disregarding the hype in the business press, are you trying to work with your customers? Have you become so attached to voice mail that there is no way to contact you directly without spending time listening to babble about "press 1", "press 2," and so on? What kind of service do you provide your customers? Is it on time? Does it meet the customer’s requirements?

· Customers are often used as beta sites. Do you work with customers in the early stages of product development to ascertain the value of selected new features? What is your confidence level in the feedback that you receive? What are the risks in using customers as beta sites? Do you plan these beta sites in such a way as to avoid disclosing your proposed products to the competition?

· Have you taken the time to critically evaluate the information that customers are providing? Do they understand the basics of your products? Is their system for providing you feedback verifiable? Do you try to corroborate their information with other sources of expertise?

· Is there a written policy relative to customers? Is that policy reinforced by management? How much flexibility is embodied in the policy to account for different situations? What is the policy and practice from time of order entry to time of delivery and customer satisfaction? Are customer’s needs taken seriously and expedited, or does the bureaucracy prevail?

Suppliers

· What is the policy regarding suppliers? Are suppliers respected as participants? Are estimates requested without consideration of cost of preparation? Do you accept estimates from vendors who are not financially responsible? Or is the financial determination made after estimates are received?

· Do you qualify suppliers? How is that qualification performed? Does it include people competencies, facilities, processes, and other operational issues? Does this qualification take place in the office or on the shop floor? Does it involve hands- on assessment?

· Who makes the assessment? Is this a purchasing function? Is it a team effort by people with the required competencies? Does it follow a strict question and answer process, or is there freedom to adjust the process as required?

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· Can you describe the working relations with suppliers? What is the past history? What has been done to improve those relations? Are the relations long-term? At what levels does the interchange take place? Is there a mutual support structure?

Plant and Equipment

1. At what level do plant and equipment meet current needs? When was the plant built? How old is the equipment? Is the plant and equipment state-of- the-art? Has plant and equipment been upgraded or replaced over the years?

2. What has been the automation protocol? Is automation accepted as a means for improving productivity? Are management and employees aware of the implications of automation? If you have automated, has that automation been effective?

3. Environmental and safety issues are vital for many reasons. What is your accident record? What are you doing about it? What is your approach to environmental issues? Is there a continuous improvement program?

9.16.2 Facilities

Facilities include all the other physical resources that are required to operate the business effectively. Since these facilities requirements (buildings, computers, communication equipment, automobiles, etc.) vary considerably depending on the size and type of industry, we raise only one issue: Define those facilities and determine whether they are adequate an emphasis on adequate and not luxurious.

Financial

The financial requirements vary considerably among organizations. Some operate with significant debt, and others operate from a strong cash position. The financial resources must be available in one form or another. It is important that organizations provide the financial resources.

Infrastructure

The business infrastructure determines the effective and efficient use of resources. Its importance cannot be overemphasized. Infrastructure begins with clearly delineated purposes (mission), objectives, and strategy followed by organizational structure, guiding principles, policies and practices, management attitudes, management expertise, support for innovation, acceptance of risk, and communication.

Purpose

The purpose of an organization cannot be limited to making money. Money, as profit from operations, is a result from effective use of resources. But the purpose must be carefully defined. The purposes of business units, of project teams, of functional groups, and any combination of

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people must operate within some defined context. It is important that purposes from the top to the bottom of the organization build on one another. The question that must be answered: Why does the organizational unit exist?

Objectives

Objectives are a self-evident fact of life-not just in business but in our personal lives as well. There is no use in attempting to justify the need for defined objectives. But those objectives must focus on the purposes of the organization, and they must be clearly and concisely defined. Does your organization establish objectives at all levels beginning with the CEO and the board of directors? Those objectives must relate directly to the purposes of the organization. Where does your organization rate on a scale of 1 to 10?

Strategies

Strategies are important in order to determine how objectives will be met. This does not mean strategic planning. Strategy points the direction as to how (the "how") some objective will be accomplished. But recognize that there are different kinds of strategy that impact performance. There is a corporate strategy, a business-unit strategy, a marketing strategy, a technology strategy, an innovation strategy, and so on. Corporate strategy, while important, may be the least important. It is macro strategy, but business operates at the micro level. What is the business unit’s strategy in these multiple areas?

Organizational Structure

The importance of organizational structure is often overstated: Personal experience has demonstrated that if you have the right people, organizational structure is not that important; and if you do not have the right people, no organizational structure will make a difference. What is your organizational structure? How many coordinators do you have? Why do you need coordinators? They are redundant. They give you an outlet to rationalize the malpractice in management.

Guiding Principles

Guiding principles impact performance. Guiding principles must be differentiated from policies and practices. Does the organization practice what it preaches? This may appear as simplistic psychology, but guiding principles start with the behavior patterns of top management. If integrity is a guiding principle, it cannot be subordinated when the situation becomes critical. It cannot be rationalized at the upper levels and then be expected to flourish at the operations levels.

Policies and Practices

Policies and practices can be a blessing or a curse-too often a curse. They can provide guidance and at the same time can destroy initiative. Shelves of policies and practices remove all decision-

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making responsibility and delegate it to a set of impersonal books. If you have a problem, go to section so and so and look for the answer. Judgment has been eliminated.

Management Attitudes

Attitude determines success. Attitude at the management level permeates the whole organization. Managers who keep one foot in the office and the other foot in a personal business, on multiple corporate boards, on presidential committees, or on the golf course or some unrelated activity send the wrong message to the organization. After all, executives and managers are employees of the corporation. They are not the owners. Excessive participation in extracurricular activity also sends the wrong message. Social responsibility is essential but in the proper context. What is the value-added component of such activity?

Management Expertise

How do you evaluate your management’s expertise? How many of them have mentally retired? Management expertise is a serious issue. How many executives and managers are technologically literate? How can they make decisions regarding investments in technology without some minimal understanding? Granted that they have faith in people and in their track record of past performance, but as technology becomes more complex, some minimum level of understanding is essential. Information systems would provide greater benefit today if CEOs had some knowledge of the monsters that were being built. Management expertise is important.

Acceptance of Risk

Innovation involves risk, and acceptance of calculated risk can be traced to successful organizations. Accepting risk does not mean rolling the dice. It is common to talk about people who are risk takers. Fifty years of involvement in various aspects of technology have convinced that the competent risk takers usually evaluate their probability of success. They probably are not serious risk takers. They know their business and did their homework. How much risk do your managers accept? How do they manage risk takers? Do they encourage risk taking?

Communication

It seems almost trite to talk about communication as we approach the end of the twentieth century. But communication is a very major issue. It involves one-on-one, small groups, and larger groups. It is also important to understand that different style and types of communication are essential. Too often communication really is nothing but double-talk.

Activities

Activities are classified as business, product, process, information, integration, effectiveness and efficiency, and support-staff projects. Projects provide the means for defining objectives, assigning resources, and establishing the start and finish dates. If an organization would institute the project approach from the top, including the CEO, most of the non-value-adding activities would be eliminated.

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Product

Product projects are probably the best examples of the project process. The term is self-explanatory and encompasses the range of projects described previously. The product project process is used primarily in its many forms by research, development, design, and manufacturing. Functions such as marketing, sales, and the staff functions such as patent and legal and purchasing must be included in this process.

Information Systems

Information, while not necessarily a competitive weapon, plays a major role in business performance. But much of the investment in information systems resources does not provide any value added to the user. Management information often operates in isolation and continues to provide more data rather than information. How often have you heard "I can’t depend on those computer printouts"? The project approach focuses on specifying the benefits and justifying the investment in information systems according to the same rules that govern investments in other capital equipment-that means within specifications, on schedule, and at cost. When was the last time you heard of a new management information system that met the specifications, schedule, and cost estimates?

Integration

The integration of MOT does not come about by espousing the cause. Integration requires disciplined decision making followed by providing the resources and the infrastructure. There are no 10 easy lessons on the road to integration of any type. Integration requires education, intelligence, understanding, tolerance, intellectual integrity, observation, discrimination, creativity, dedication, and a "think and do" approach. It needs management agreement and know-how.

Effectiveness and Efficiency

Many projects focus on effectiveness, efficiency, and the economic use of resources. Projects of this type form the fundamentals of continuous improvement and must be implemented throughout the organization. They are the source for not only financial benefit to the organization but also keeping an organization challenged and healthy for sustained business performance. Measuring the performance of these projects can be easily quantified.

Support Staff

Support-staff projects provide the greatest challenge to management. Organizations seldom require the same analysis and justification for these activities that they require for the more tangible projects. Is there any reason why these activities should be treated differently? I propose that organizations apply the project process to all these activities and eliminate the "responsible for" type of mentality. Think how differently the introduction of a new personal appraisal system, by human resources, might be considered if the project would be bound by the same guidelines as other investments. Think how differently financial data would be collected and

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communicated if such activities were developed into projects and treated accordingly. Think how differently a purchasing department might function if activities were divided by projects.

Self Assessment Questions IV

1. Why is it necessary to integrate R&D with corporate strategy?

2. Which factors should be taken into consideration to ensure that innovation process is managed successfully?

3. What essential elements should R&D effort have to make a real impact on corporate strategy?

9.17 Case Study of Sandvik Asia Ltd, Pune: Technology Management experience in Manufacturing Industry

Introduction

Fortune Report has analyzed some basic reasons as to why half of the Fortune 500 companies of 1987 are not Fortune 500 companies today. It sites the following common reasons:

· Failure vision -executives are unable to see the future

· Identify Crisis -executives not comprehending the core competencies

· Any body Out there- companies losing touch with customers and market.

· The Glue Sticks and Sticks -organization not learning, not changing.

· Enemies within – lost employees and productivity

The rapid rates of changes in the technological, competitive and business environments are the underlying challenge for firms and lead to company failures for the reasons given. A specific technology may well lead to a competitive advantage. But a SUSTAINABLE competitive advantage comes from an organization "learning" how to constantly improve its technology acquisition and deployment capabilities. The chaotic market has manifested itself in the changing organizational philosophy; from management by instruction, to Management By Objective (MBO), and finally, to management by Learning

Technology Management Approach At Sandvik, Sweden

Sandvik is a high technology engineering group with operations in 130 countries, 35000 employees and annual sales of approx, 5 billion US$. The group holds a world leading position in three-selected core areas.

Sandvik tooling; specializes in cemented and high-speed tools for metalworking.

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Sandvik mining and construction: concentrates on machinery, tools and service for rock excavation. Tow thirds of the products are industrial consumption goods and one-third capital goods. The company maintains its competitive edge as Global Leader in Production Niches based on a strategy factor.

· wide network of marketing channels and distribution

· direct contact with customers and selling on customer value

· high value added products · strong commitment to R&D· in-house manufacturing · strong corporate culture· financial strength · profitable growth · extensive support ·

Manufacturing of highly refined products are mainly carried out in the Groups own production plants. The coordination of product development with production technology developed by Sandvik ensures maximum quality, availability and cost efficiency and also contributes to sandviks determined effort to create a favorable environment.

In order to ensure its leadership position in the selected areas, the company carries out intensive R&D activities. Annually Sandvik spends 4-5% of its turnover in Materials and Process research, with 1200 specialists. The technology generation is focused with continuous interaction with the market and the customers and has the following features:

· Cross-functional teams · Customer values· Price/cost leverage · Patent protection· Assortment rationalization · Continuous flow of new products

In-house development of unique production equipment

Very specific research areas are covered based on the core competencies required for technological development and leadership, viz,

· Materials development · Surface coating processes· Product renewal · Production technology· Logistic and distribution · Administrative systems

It is to be noted that management of innovation cycle does not rest with materials and processes but extends to areas like delivery system and administration to make the commercialization complete and assured. All links in the chain of activities starting from scientific conceptualization through production research and methods, and finally to infra-structural support, come under the ambit of applied research. The R&D teams interact closely with production, marketing and administration for timely execution of projects.

The largest portion of sandvik’s R&D resources is devoted to improving established materials, products and processes. This is a continuously ongoing undertaking requiring many small steps, rather than a few giant leaps. It is usually a matter of tailoring solution for new areas of

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applications which may mean small changes technically, but which often have significant results for the customers. The conventional differentiation between ‘incremental; and breakthrough’ is not sufficient, as the innovation differs depending on the market or technology uncertainties. The level of innovation is large as manifested by 3500 patents. Another indication comes from the following figures:

Sales from products younger than 5 years:

Cutting Tools: 50% (standard product range > 50000 items)

Mining & construction: 40%

Speciality Steel 15%

In 1999, 47 grads of Stainless Steel were developed, almost one per week. The company also works closely with the world-renowned universities and institute like MIT, University of Aachen, Tokyo University Royal Institute, Stockholm etc. to keep abreast with the frontier research and for development of research competence. The culture of development is spread across all functions and levels in the company-employees are encouraged to bring forth new concept and ideas and the process of creativity is continuously nurtured.

Experiences in Technology Management at Sandvik Asia, Pune

Sandvik Asia was established in Pune in the early days of industrialization of post-colonial India, following the visit of Pandit Jawaharlal Nehru to Sandvik, Stockholm in1957. The company decided to invest in India as a first footstep in Asian market, It was registered in 1960. The operation started in a small way with the production of Rock Tools and gradually expanded the activities to cemented carbide mental cutting tools and wear parts. The Groups faith in India’s economy was reflected in the systematic introduction of the complete product profile through manufacturing, trading and acquisition. There are 4 Sandvik factories now in India – Knathal Hearing Elements Plant at Hosur Tamilnadu, Cobalt Powder Plant at Chiplun, Maharashtra, and stainless steel Tube plant at Mehsana, Gujarat apart from main unit at Pune, which also house a Solid carbide and HSS tools manufacturing unit of Titex, The company is now organized into nine product division profit centers, There are 700 employees with an annual turnover of about Rs 200 cr.

The main task of the Pune establishment has been technology absorption and dissemination. Before 1990, the closed Indian market restricted introduction of new product as the technological investments were guided by the market demand, which was modest at that time. However, the observation by Prof. Amrik Shoal of Monash University of Australia has been most pertinent -"the adoption of advanced manufacturing technologies are not themselves enough to ensure improved performance. A fit between the new technologies and existing resources and capabilities is necessary to create sustainable competitive advantage from investment in new technology".

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World’s best – Made in Pune: In response to the globalization process set in motion in mid eighties, the company drew up a comprehensive plan to update itself to international standards. It had to address al the three fronts of personnel, technology and systems. A heavy investment plan was drawn up following careful prognosis of the technology status. In recent years the company has been spending almost 10% of its turnover in new investments, mainly in technology up-gradation and diversification, and not much in capacity enhancement. ISO 9001 certification was achieved in 1999.

Subsequently, Flow Group concept was launched with production teams given responsibilities of products, with least suppression. The complete factory layout was altered and rationalized. Consequent to these efforts the quality level of the tools and insert improved significantly. In 1998, Pune products were adjudged the best in the world in the international benchmarking that the company follows, outperforming our Swedish and Japanese products, since, then, the Indian organization continues to remain on the top of quality platform in a sustained performance. Important fallout of the above has been a rapid increase in exports. Sandvik Asia today is the sole group supplier in some of the standard products. The performance in the export front made strong demands on logistics, cost and productivity. The throughput time was reduced may fold, the system had to be fully market responsive.

Technology is as good as the men behind it – Considerable effort were spent in preparing and nurturing the manpower required for managing the technology mix Training and retraining all levels of personnel were essential as a change of work culture was sought. It was found that certain level of technology needed engineers to operate. The background and the level of education were carefully evaluated. Exposures were given to some workers in Japan and Sweden. From functional orientation, the teams were aligned to product orientation in Flow Group concept, eliminating need for supervision. Quality assurance and SQC were integrated. New approaches to preventive and participating maintenance were developed to minimize downtime. The process of incentives was reengineered towards high productive outputs. Full resources within the Sandvik group were deployed. Specialist from Sweden, Mexico, Germany, France etc brought in new concepts of management and culture.

Difficult cultural and attitudinal question was needed to be addressed as we still had reservation to any work with annual inputs. The desires for perfection and technical discipline are often compromised in India because the operator’s education does not allow realistic comprehension of the consequences. The contrast in the technology levels of his habitat and his workplace are often profound, leading to discomfort in handling sophistication. This can lead to even disastrous shortcuts. Fortunately, modern youth seems to be more open minded to take up technical challenges.

Computers – IT – networking – automation – robotics – mechanization

Sandvik, globally, had adopted computerization as its way of life from the early days of computer in production. It had set up its own network called Sandnet. In the nineties the company in India undertook computerization and networking in a comprehensive manner. It installed the group ERP systems SOPIC (Sandvik Order Processing & Inventory control). PROMIS (Production management Information Systems) and linked itself to the global network.

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All design work shifted to Unigraphics based CAD-CAM. The shops were modernized with the latest generation 5, 6, 7 – axes CNC machines. Flexible manufacturing cells were introduced. Selected application of Robotics and automation improved quality and productivity in critical areas sac software and hardware were adopted. Intense training for improving computer literacy was required, particularly for senior employees. Recent studies have indicated that lack of adequate training could adversely affect the advanced Manufacturing technology skills of operators even in the UK. Initially the marketing branches were linked with VSAT network which has been gradually replaced with optical fiber system to ensure speed and responses time. The sales engineers with laptops and Internet connections are now replacing branch offices.

The maintenance and updating of computer systems is a new challenge in manufacturing technology, as miniaturization and dedicated chips are the call of the day. Unfortunately the selling agencies of the systems in India often do not provide adequate service support and the companies are left to fend for themselves. Additionally, the quality of power supply often affects the performance of memories and digital systems. Automation was adopted where it was technologically and economically required. Sandvik Asia, in this case, took large guidance and direction from the Group’s international experience. All efforts were made to mechanize manual operations to improve safety, productivity and work comport.

R&D – from test tube to manufacturing plant: Sandvik Asia recognized R&D center at Pune in 1980. Initially it concentrated on Recycling and raw material resource development for Tungsten, Cobalt and Tantalum. Laboratory research was scaled up to pilots’ plants and was subsequently commercialized. A full-fledged manufacturing plant for Cobalt powder was set up in Chiplun, Maharastra based on the R&D project at Pune. In 1988, the first National Award in in-house R&D in Metallurgy was awarded to Sandvik Asia by DSRI in recognition of its pioneering efforts in material development. Number of product and grades were introduced by the R&D Division -notable among them was the light weight Titanium based guide rollers used in steel mills. This product adopted by Sandvik globally is christened "Salpunite" to Commemorate Pune’s contribution to the technology development. Currently, the company is concentrating on special product developments, CAD-CAM and technology absorption-apart Chemical research.

Environment and manufacturing technology: The concern for environment is a natural element in Sandvik Group operation (it was ISO 14001 certified in India in 1999), ahead of most of the group production bases, The complete factory layout was re-engineered with proper illumination, ventilation etc. at considerable costs Sandvik deals with heavy metal powders like Tungsten, Cobalt etc. A specially developed dust extraction system was imported and installed to reduce the dust levels in powder metallurgy areas to almost semi-clean room condition, Number of R&D project were launched on pollution problems.

It has been our experience that the ambient plays an important role both technologically as also culturally. Besides, it also leads to considerable saving and recycling of resources, Sandvik Asia has built a large eco-garden where all the treated effluent is recycled. Consequently the factory has become a zero discharge plant.

Concluding Remarks:

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The experience in Sandvik Asia shows that gain the vision, determination and support of the management, Indian industries can achieve global standards in Manufacturing Technology. They can match and often surpass international product qualities and costs and take their rightful place in global business.

9.18 Summary

To summarize the framework presented in this chapter for use in analyzing and understanding the contribution of technology to competitive advantage of the firm, one needs to accept the fact that at one end of the spectrum is the customer. He/she represents the decision makers who collectively determine the winners and losers in competition when they chose to buy one product or service over competing alternatives for reasons known as competitive advantages. At the other end is the firm which is competing in the marketplace in accordance with its competitive strategy, pursuing low-cost leadership or differentiation. It does so by carrying out activities which can be organized into a system called the value chain. Each activity and the value chain in total, can be thought of as a black box into which inputs flow in and outputs flow out. Within the box the transformation of inputs in to outputs takes place with the help of technology. One of the powerful ways to create competitive advantage is in the choice of technologies used to perform the activities of interest. Information technologies are also important in managing linkages among activities to create competitive advantage.

In-house generation of technology through R & D is a venture in uncertainty. Successful management of innovation process calls for managing the entire chain of events from idea generation to commercialization of a new product. In order to maximize the success rate the R & D plans must flow out of the organisation’s business strategy. Successful management of innovation process is another essential task which gets closely influenced by organizational culture, style, structure, controls systems etc. For successful in-house R & D an organization should focus on a cohesive competitive strategy involving other functions like product design, manufacturing, marketing, servicing, finance, etc. For R & D to have a major impact on corporate strategy, the strategy must have a long enough time horizon. While choosing R & D path, technological capabilities existing in the country in related disciplines, time frame required to bridge the technology gap, and R & D costs to be incurred for producing a marketable product need to be considered.

9.19 Terminal Questions

1. Technology strategy is:

A) Production tool

B) Planning document

C) Mathematical approach

D) Long term investment

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2. Product projects are probably the best examples of _______.

A) Innovation

B) Invention

C) Project process

D) Continuous system

3. Licensing or acquiring technology is also known as ________________.

A) Linkaging

B) Leveraging

C) R&D

D) External technology sourcing

4. Organisational structure may be redundant if :

A) One has the right people

B) One does not have the right people

C) Employees are less

D) Employees are large

5. “Adding Bells and Whistles” means:

A) Providing warnings to customers before any disaster.

B) Keeping the customers informed about new products.

C) Special customization of products according to tastes and preferences of customers.

D) None of the above.

6. TQM, JIT, and Kanban are:

A) Motivational techniques

B) Japanese management approaches

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C) Technology linkages with organizations

D) Technologies developed in our countries

7. Innovation that involves generation of completely new ideas, is known as_________________ innovation.

A) Marginal

B) Incremental

C) Radical

D) Substantial

8. What is technology strategy?

9. Define innovation and explain innovation management.

10. Explain how TM enables an organisation to achieve low cost, high quality, and sooner availability of new technologies.

11. How do you assess the TM in an organization?

12. What is value chain and what are its activities?

13. List and explain the factors that influence the successful management of innovation process.

14. Some companies which are successful in developing new products fail to capitalize on gaining competitive advantage in the market. What are the reasons for such a scenario?

15. Which are the desirable essential elements for the R&D effort to have a meaningful real impact on corporate strategy?

9.20 Answers to SAQs and TQs

SAQs I

1. Refer to 9.2

2. Refer to 9.2

3. Refer to 9.2

SAQs II

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1. Refer to 9.4

2. Refer to 9.5

3. Refer to 9.7

SAQs III

1. Refer to 9.8

2. Refer to 9.9

3. Refer to 9.10

SAQs IV

4. Refer to 9.12

5. Refer to 9.13

6. Refer to 9.16

Answers to TQs:

1. B

2. C

3. D

4. A

5. C

6. B

7. C

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Unit-10-Managing Technology-based Innovation

Structure:

10.1 Introduction

Objectives

10.2 The Process of Technology-based Innovation

10.3 Measuring Innovative Performance

10.4 Characteristics of an Innovative Work Environment

10.5 Key Areas of Management Focus

Self Assessment Questions I

10.6 Managing People and Process

Self Assessment Questions II

10.7 Summary

10.8 Terminal Questions

10.9 Answers to SAQs and TQs

10.1 Introduction

Technological innovation has become the strongest engine driving society since the 1980s. We are enjoying a continuous stream of new products and services, from consumer electronics to automobiles, aircrafts, telecommunications, and pharmaceuticals, to name but a few. Yet, technological innovation is not a new phenomenon which suddenly emerged as part of the space age. It has been around and shaped our life for thousands of years- The Egyptian pyramids, the Great Wall of China, the inauguration of a king, navigational methods, Noah’s ark-all these undertakings involved a great deal of technological innovation. The basic organizational tools, techniques, and systems for managing these innovative efforts, such as planning, budgeting, directing, scheduling, motivating, and task integrating, were already known in these early times and formed the foundation for today’s management systems. What has changed gradually is the ability of organizations to synthesize components, products, and processes on a worldwide basis. That is, organizations today have the capacity of combining materials, components, knowledge, skills, and processes to create new products, processes, and services with new characteristics and higher performances that did not exist before.

Objectives:

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After studying this unit, you will be able to:

· Explain Innovation and its relation to technology.

· Describe the process of technology-based innovation.

· State the measures of innovative performance.

· Name the characteristics of innovative work environment.

· Highlight the key areas of management focus for productive innovation.

· State the measures for building high-performing innovative technology-based organizations.

Need for Innovation:

Traditionally, the competitive advantage of a company was derived from efficiency, such as low cost of products and services. Today’s companies gain their competitive advantage and economic benefits largely from innovation. Those who can leverage technology to achieve superior performance, new features, and lower cost will add the largest value to their products and compete most effectively in the market. A significant part of the success formula includes resource utilization, business process effectiveness, and speed. Today, managers recognize the important role of technological innovation for a company’s business success. It can create a competitive advantage for one firm while eroding the market position of another. Yet, in spite of this reality, for most managers, innovation is a risky process! Many companies everywhere are concerned that their investments in R&D and other innovative activities produce adequate returns. Managers wrestle daily with complex issues of choice and balance:

1. How much to invest in plant and facilities and how much to invest in people and their development?

2. How much to focus on process versus product technology efforts?

3. What technology to develop in-house and which to buy?

4. How much cooperation and alliance should be promoted with suppliers, customers, and competitors, and when does it become too risky, ending up in costly litigations?

This statement also provides a starting point for defining innovation in contrast to invention. Innovation is a complex, multistage, multi-person process, composed of two parts – (1) the generation of an idea or invention and (2) the conversion or exploitation of this idea into a useful application, which is often called commercialization. Refer exhibit 10.1 for some definitions and examples.

The companies that will survive and prosper in the decades ahead will be those that can manage innovation and derive business benefits from it. And they must do this in spite of the complex

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organizational processes, rapidly changing technology, increasing risks, uncertainties, cost, and demand for better market response, and relatively low barriers to entry into almost every business.

The new realities also confront businesses with a double challenge of keeping up with currently committed developments and starting new efforts to position the company favorably in the future. In addition, increasing complexities and continuously changing technologies, components, support functions, materials, and methods make it virtually impossible for one company to have the resources to develop all the technologies needed to support all of their products and services. In this context innovation must be defined more broadly than just R&D. The need for innovation exists in all functions, at all levels throughout the organization. Especially in technology-based environments, innovation cannot be confined to selected organizations but must be encouraged and nurtured at all levels and with all people.

Indeed, technology continuously complicates the business process. It has become a significant and dominating factor which affects every company from small to large, and from service to manufacturing. New technologies, especially computers and communications, have radically changed the workplace.

The invention process includes all aspects leading to the creation of a new concept which, at least in principle, is workable. The innovation process takes a new concept, or combines several new or old concepts into a new scheme (another invention), and then develops it into a commercially useful product, process, or service. While the lines between invention and innovation are often blurred in business practice, the distinction focuses on the exploitation of a new concept toward commercial application and value. For technology-based innovations, this commercialization process involves the transfer of technology from its idea generator to a paying customer. As an example, the Englishman Swan invented the incandescent light bulb in 1900, a working lab model that produced light for a few minutes before burning out. Edison, an innovator, took this light bulb idea and enveloped it, together with other schemes such as power distribution, into a commercial product for consumer markets. In more recent history, Shockley and others discovered the junction effect in semiconductors in 1947, inventing the transistor. This led to a broad range of innovative efforts and outcomes creating new industries and products that radically changed our lifestyle forever.

Technologically innovative outcomes come in many forms: radical, breakthrough, or incremental. They can be directed top-down or originate at the operations level of a company, such as continuous improvement efforts. Innovation can involve new product and service developments as well as product modification, extensions, and combinations of systems and technologies.

In today’s organizations, most technologically innovative activities are

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beyond the idea generation. They seldom produce radical breakthroughs, but rather incremental advances which need to be systematically transferred and integrated throughout the various organizational systems in order to produce desired technological change.

Exhibit 10.1 Technology-based invention and innovation: some definitions and examples

While making the business process more intricate and complex, it also leads to a higher mobility of resources, skills, and processes, and provides more opportunities for innovative performance throughout the organization. In fact, innovation impacts a company in all functions and business processes-from the conception of an idea to product research, development and engineering, transferring technology into manufacturing the market, product distribution, upgrading, and services. It is further interesting to note that as companies or industries mature, the focus of innovation seems to shift from the front part of the product life cycle-where the emphasis is on concept development-to manufacturing, marketing, and services. Part of the reason for this trend is related to the distribution of capital within the company or industry. Traditionally companies have targeted relatively large portions of their "creativity budgets" toward new product concept development, with lesser resources going to manufacturing, marketing, and services. Thus most of a company’s R&D effort would be directed toward new products. In today’s environment, especially within mature businesses, companies gradually shift their spending in favor of manufacturing and services, leading to expanded innovative efforts in these areas. This trend acknowledges that innovation can create value in two ways: (1) by directly improving the value of a product or service to its customers and (2) by improving the work process of creating, developing, producing, delivering, and servicing the product.

To successfully participate in leading their company to healthy growth in performance, managers must understand both the importance of new product innovation to business success and their own role in supporting the new product innovation process. The purpose of this section is to outline how new product innovation affects business performance.

Innovation Drives Growth

New product innovation is a fundamental business process whose purpose is to create and sustain growth in both revenues and profits. In this process, the innovation engine gathers, creates, and transforms information in a way that enables the operational part of the business to manufacture, sell, and support successful new products. The innovation engine gathers information on topics such as new technology, market trends, customer needs, and new manufacturing techniques. The processes inside the innovation engine transform this information, adding value in proprietary ways until an information set has been created that is so valuable that it enables operations to introduce new products that stimulate desired growth and shape the future of the business.

The way that technology companies compete has changed over time. Twenty or more years ago many companies focused on simply bringing new technology to bear on customer needs. The company that could offer the greatest functionality, the most capable implementation of a new technology, could count on success. This success was characterized by relatively long product

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lives and substantial profit margins. Research and engineering were the owners of the innovation process, and their primary concern was the technical feasibility of achieving competitive levels of performance in their product. As products became more complex, they became more expensive and reliability suffered. These were acceptable sacrifices, however, in return for more competitive technical specifications. Eventually customer demands for more cost-effective and reliable products began to be heard.

In more recent times the competitive edge has shifted to manufacturing companies that can bring new technology to bear on customer needs in the shortest time. Again, nothing has been given up. Functionality, cost, and reliability are still important, but they have become common fare among competitors. Speed of innovation is now the competitive differentiator. As these changes have come about, the competitive arena has changed as well. Local markets that were once available only to local players have been invaded by foreign enterprises. These invaders often compete more effectively through the application of new methods and tools. With the fusion of local markets into global markets, the number of competitors increases at first and then declines to a few who dominate the market. The performance levels required for survival increase dramatically in a worldwide marketplace. As companies fail to keep up, they drop out of contention, leaving only those capable of adapting rapidly to ever-changing competitive ground rules.

Customer and user needs and expectations have changed as well. Initially product functionality was of primary concern. Then reliability and cost of ownership were added to the list. Now customers are also interested in ergonomics, product safety, and environmental impact considerations as well as compliance with applicable standards. The track record of a company for business integrity and worldwide customer support is often taken into account as well before purchase agreements are signed. As customers and competition have left them behind, one company after another has had revenues flatten that previously grew without bound.

10.2 The Process of Technology-based Innovation

As the crucial role of innovation for a company’s business performance became clear, management research and practice first focused on the qualities and characteristics of the individual. Starting the 1950s, many studies looked into the traits that would help in identifying and developing innovative individuals. These early studies had already identified the important role of work-related knowledge and skills, the need for risk sharing, and a supportive work environment. However, until the 1970s, innovation was rarely integrated strategically and operationally into the company’s business process. Few managers have not taken a top-down look when assessing the role of innovation for their company’s overall performance, nor did they have a unified business policy that includes the management of innovation as an integrated resource similar to engineering, manufacturing, and marketing. In this modus operandi, which is often described as first-generation management, innovative performance depends on an organization’s ability to

· Hire and assign qualified people

· Provide them with the necessary resources and most suitable tools and techniques

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· Manage them toward desired results

Under such a system, the burden of developing, enhancing, or reengineering the innovation process falls largely on resource managers, with top management’s role confined mostly to being a catalyst or facilitator. This was an established business practice which worked reasonably well until the 1970s. Even today many companies largely as a result of revenue-producing pressures, still work in this first-generation management mode. However, with the increasing dynamics and complexities of the organizational environment, management recognizes the need for better understanding and orchestrating innovation as an integrated part of the total business process.

Beginning with the 1990s, many companies adopted innovation management practices that are distinctly more systematic and analytical and more specifically focused to business and market needs, They ensure that the operational processes are well linked with the market, technology, and administrative systems, and that innovation can be transferred to an application which adds value to the company, This so-called second-generation management modes also requires a larger degree of power sharing and resource sharing, and self-directed control at the operating level of the company. The process model of innovation that evolved with this mode, shown in Figure 10.1, is based on the pioneering work of Edward B. Roberts. This model shows that innovation is a multistage process which is strongly influenced by the prevailing market, technology, and administrative processes. Specifically, figure 10.1 presents the innovation process in five stages, described in the following paragraphs. The precise number and labeling of these stages may depend on the specific business and organizational settings. Managers by and large use the model to recognize and control the factors that influence the process and the linkages among the stages.

Figure 10.1: Innovation process and its interfaces with the market, technology, and Administrative subsystems

Stage 1: Recognition of Opportunity. In most cases, the innovative process is prompted by an opportunity to fill a market need (market-pull) and/or exploit a technology (technology-push). These opportunities could be for new or improved products, processes, or services. The potential customer could be internal or external to the organization.

Stage 2: Idea Generation, Evaluation, and Selection. This stage is dominated by the search for ideas to capture the opportunity identified in stage I. This might include formal RD&E processes or informal thinking. Results may vary from an orally communicated idea to formal concept papers, designs, prototypes, and feasibility studies. Further, the idea generation process may vary, depending on company culture and management philosophy. They range from incremental

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to breakthrough innovation and from top-down direction to bottom-up innovative efforts, typical for continuous productivity improvements.

Stage 3: Product Development. This stage involves transfer of the new concept to the market. It is a problem-solving stage which takes the advanced concepts and ideas generated in stage 2 and develops them into a working prototype or pilot production run. Strong cross-functional linkages must be established and maintained among all functions engaged in this stage 3 technology transfer which usually involves highly co-ordinated efforts among R&D, product development and engineering, prototyping, manufacturing, marketing, and a host of support functions such as finance, product assurance, field services, and subcontractors.

Stage 4: Full-Scale Development, Volume Production, and Commercialization. This stage takes a proven concept from stage 3 and transforms it into a final product according to predefined specifications, reliability, cost, production volume, and schedules. Well-established organizational linkages are crucial to transferring technology into the market and to leveraging an organization’s production capabilities, as well as to integrating all company resources into the total innovation process, throughout its five stages.

Stage 5: Technology Utilization and Diffusion into the Marketplace. This stage involves the manufacturing, market promotion, distribution, and technical support of the new product or service. This stage usually requires the largest investment of resources, often far exceeding the combined cost of stages 1 through 4. It is also associated with a large risk factor, as demonstrated by the statistical realities that, on average, only one-third of products entering this state ever achieve a break-even return on their investment. Successful companies recognize the complexity and multi-functionality of the underlying process. Successful companies also understand that such complex business processes do not perform well by themselves, but must be managed carefully. This includes the continuous study of these processes, defining measurements, documentation, comparison, standardization, and control toward continuous improvement.

10.3 Measuring Innovative Performance

Innovative performance involves complex sets of interrelated variables, which fluctuate with the cultural and philosophical differences among departments and companies. Most managers agree, however, that certain metrics, such as (1) the number of innovative ideas, (2) the number of new product concepts implemented, (3) cost and performance improvements, and (4) patent disclosures, are important factors in contributing to a company’s innovative performance. Yet, the individual measurement of quality and effectiveness of such innovative contribution is very fuzzy and often impossible to obtain with any degree of confidence. These measurements of innovative performance are even more difficult in non-engineering areas, such as manufacturing, marketing, and product assurance. In these areas innovation and creativity are often critical to meeting customer expectations or delivering results according to plan. However, traditional measures of innovative performance seldom apply. In many cases, outcomes are part of collaborative efforts among many departments and individuals without any useful metrics for measuring important contributions such as agility, change orientation, multifunctional cooperation, and customer satisfaction. Therefore, it is not surprising that managers in technology based companies, for most functions, including R&D and engineering, use overall

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judgment as the only principal measure of innovative performance. However, in support of such an overall judgment, specific subsets of parameters, some of them quantifiable, can be developed and used to (1) articulate desired innovative behaviour and characteristics to members of the work team; (2) benchmark innovative performance, especially on the organization or team level; (3) engage in focus-group discussions toward organizational improvement of innovative performance; and finally (4) support managerial judgment of overall innovative performance and salary reviews.

10.4 Characteristics of an Innovative Work Environment

One of the major distinctions of today’s technological innovations from earlier periods lies in the organizational process. Innovation is no longer the product of individual geniuses. Rather, innovations are delivered by teams of people and support organizations interacting in a highly complex, intricate, and sometimes even erratic way. The process requires experiential learning, trial and error, and risk taking, as well as the cross-functional coordination and integration of technical knowledge, information, and components. It is often a fuzzy process that cannot be objectively described, or its specific results predicted. Yet research shows that certain characteristics of the work environments are conducive to generating technological innovative results which can be transferred to the ultimate user and support the mission objective of the sponsoring organization.

In spite of the complexities of the innovation process and the differences among companies, research shows that specific bridging approaches are helpful in stimulating and enhancing innovative performance in technology-based organizations. Exhibit 10.2 summarizes the conditions that seem to have the strongest influence toward innovative performance. The influences that drive these favorable conditions can be organized into three categories: process-, people-, and organization-oriented influences. Business-process-oriented influences include the organizational structure and the technology transfer process which relies by and large on modern project management techniques. It provides proper planning of the activities which should benefit from innovation with joint participation of cross-functional support groups, joint reviews and performance appraisals, and the availability of the necessary resources, skills, and facilities. Other crucial components that affect the process are team structure, managerial power, and control and its sharing among the team members and organizational units, autonomy, and freedom, and most importantly technical direction and leadership.

People-oriented influences seem to have the strongest effect on the innovative performance of an organization. The most significant drivers are derived from the work itself: the personal satisfaction with the professional challenges, results, accomplishments, and recognition of the work. Other important influences include effective communications among team members and support units across organizational lines, good team spirit, mutual trust, low interpersonal conflict, and personal pride and ownership. All these factors help in building a unified project team that can exploit the organizational strengths and competencies effectively, and produce integrated results that support the organization’s mission objective.

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To foster an innovative work environment, most companies use these bridging approaches in an integrated, often overlapping way. In essence, they create a work environment which has the characteristics shown in Exhibit 10.2.

A work environment conducive to innovation must have the ability to· Anticipate future trends and operate proactively

· Create project ownership and commitment to established plans

· Deal with risks, uncertainties, and conflict

· Develop solutions incrementally and concurrently

· Form effective cross-functional linkages for information transfer: data, work in process

· Integrate multidisciplinary work

· Make collective multifunctional decisions

· Measure project status; provide metrics for tracking, status reporting, and control

· Operate flexibly and be change-oriented

· Produce solutions that create economic value

· Provide checks and balances and early-warning systems within its business process

· Provide reasonable job stability

· Resolve conflict, mistrust, power struggle, and confusion

· Respond quickly to changing requirements and customer-user needs

· Self-develop the work team and its management system, tools, and techniques

· Self-direct projects according to plan

· Share power and resources

· Utilize resources effectively

Exhibit 10.2: Characteristics of an innovative work environment

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An empowered workforce is defined here as one in which all individuals (1) are excited and motivated by the vision and goals of their project and (2) have both the freedom to decide what needs to be done and the power to take action. A new product innovation team that is empowered in this sense is unstoppable – a source of competitive advantage every bit as important as the innovation process.

To be sure, the term empowerment has often been overused and poorly applied. Some firms believe that they can create an empowered workforce by simply declaring publicly their intent to do so and perhaps offering a 2-hour workshop on empowerment. One of the key enablers of an empowered workforce, however, is a supportive set of business values that is repeatedly and consistently exemplified by management behaviour. If past management conduct has not been supportive of empowered action at the individual level, and nothing happens to change this, then declarations and workshops will not have any beneficial effect on the performance of individuals: "Keep on doing what you’re doing, and you’ll keep on getting what you’re getting."

Leadership Roles – Empowerment of the innovation workforce depends almost entirely on the environment either created or, at least, tolerated by management leadership. Individuals must feel trusted, confident, and responsible before they will exhibit the decisiveness and propensity for action that empowerment promises. To be willing to take risks and be creative, they must be free from fear-fear of both reprisal and ridicule. Their self-esteem must be both high and safe. Ideally, they will feel challenged by their work assignment but also competent to meet that challenge. Finally, they must know that they can get help when they need it. All these factors are within the power of management to provide. Leaders of new product innovation from the project manager up through the executive level must balance their behaviour across a range of roles to create an environment such as this. These roles include Taskmaster, Obstacle remover, Cheerleader, Coach and Direction setter.

Depending on their individual styles, different managers will be better at some of these roles than others. An empowered workforce, however, needs to feel the influence of each of these roles in their environment. Taskmaster is a role that is usually well covered in most environments. The purpose of this role is to create a sense of accountability for results. All employees need to feel some level of tension related to how well they are doing on the work that has been assigned them. When they deliver good performance, this tension ought to dissolve into satisfaction. In an empowered environment managers actively pursue the role of obstacle remover. A manager is expected to get work done through the efforts of others. In an ideal situation, once assignments are made, a manager would have nothing to do but hand out accolades for results achieved. In the real world, however, people encounter obstacles beyond their control that slow or stall their forward progress. A key role of managers is thus to learn about these obstacles and bring all the power that they can muster to bear on eliminating them. Some people who are assigned difficult or risky tasks need frequent encouragement-cheerleading. This moral support helps keep them motivated and confident that they will ultimately achieve their objectives. Managers who play this role well reinforce the environment in favor of empowerment and generally increase employee productivity.

A coach is generally someone who has prior experience at an activity and is able to increase the performance of others by watching their work and offering advice on the basis of their

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experience and knowledge. A coach does not do the work but acts as mentor for others who actually do the work. Individuals deeply involved in a task often lose sight of better ways to proceed. A manager who can observe and offer advice from a higher perspective can often help individuals greatly improve their performance and avoid unnecessary work or pitfalls. A final and very important role that managers must play to create an empowered environment is that of direction setter. A good manager communicates a vision for the project outcome that excites and motivates the team. The manager then determines clear and appropriate objectives for the work to be done by the team, breaks those objectives into individual assignments, and communicates these assignments to each employee. Empowered employees must understand both the team’s objectives and how their own objectives fit in to be self-directed in their work. Part of a good direction setting process will be the communication of clear priorities and decision criteria for the work at hand. When these are in place, individuals can make most of the decisions needed on the way to the achievement of their objectives, without intervention from management.

Recognition and Rewards – The system of recognition and rewards in an organization has a great deal of influence on employee behaviour. Generally there is both a formal system and a de facto system, and both are important. If an empowered workforce is sought, then the recognition and reward system should be adjusted so that individuals perceive empowered behaviour as an essential factor in their personal success. If management wants their employees, for instance, to pursue objectives independently and aggressively, even to the point of taking some risks, then they must consistently provide enviable recognition of those individuals and teams who are willing to make decisions and take appropriate risks. A common failing is to recognize those who achieve a successful outcome but admonish others who take reasonable risks that lead to failure. Punishment of failure sends strong signals to the workforce, telling them risk should be avoided at all costs. One electronics firm, for example, recognizes managers who have had their projects canceled by publicly awarding them a plaque. The plaque is made up of a picture of the project manager surrounded by a toilet ring as a frame and is affectionately known as the "in the toilet" award. These awards are presented by the business unit manager whose words praise the manager and the project team for their willingness to take on risky projects even though those efforts sometimes fail to result in a marketable product. Managers who receive these awards proudly display them on their office walls. The de facto recognition and reward system includes the common interchange that occurs when an individual goes to the boss for a decision. Some one-on-one time and the manager’s personal involvement with the individual’s problem are forms of de facto recognition. This recognition is gratifying to the employee, and the interchange can also provide a boost to the manager’s self-esteem.

10.5 Key Areas of Management Focus

New product innovation not only creates financial return for the enterprise; it shapes the future of the corporation. To create a successful outcome, the objectives of everyone involved in new product innovation must be well-aligned and aimed in the right direction. The purpose of this section is to outline, in general terms, objectives and decision criteria that are important at both the executive and project levels of management.

Executive-level Objectives

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Top-level business executives are responsible for both achieving acceptable business performance today and steering their corporation to a successful future in a competitive world. Pressure from shareholders for short-term results often makes investment in those actions that will ensure a successful future a difficult choice. Appropriate executive guidance of the innovation engine can help achieve both the short-term and long-term needs of the corporation.

The following objectives will help engage the innovation engine with the task of moving the corporation in these directions.

Establishing Effective Strategic Plans

To improve future revenue performance, executives must do their part in improving the selection of opportunities for investment. This means establishing strategic directions for new product innovation activity that guide the corporation toward markets that will support future growth. These plans should be managed so that they are effective in guiding the selection of individual project opportunities in a manner that moves the corporation incrementally toward its desired future.

Establishing High Standards for New Product Innovation

Executives must communicate their intentions for superior performance with regard to new product activities. These intentions must establish the expectation that (1) new products will provide a high rate of return, excellent competitive performance, and superior value to the customer and (2) all dealings with customers will reflect the high integrity of the corporation.

Establishing Manufacturing Excellence as a Goal for the Innovation Engine

To compete, a manufacturing enterprise must implement and maintain a world-class manufacturing infrastructure capable of manufacturing, distributing, and supporting the lowest-cost and highest-quality products worldwide. The goals of this infrastructure should include minimizing cost of sales, WIP, and inventories. This infrastructure will include not only the internal capacity of the company to manufacture products but also the network of vendors and partners that the company utilizes.

Focusing Plant and Equipment Investments on Strategic Core Competencies

Leading corporations have learned that they cannot do it all. To be competitive, they must focus their energy and investment on only those capabilities that they are best at doing, those core competencies that differentiate them from their competitors and that will provide the necessary competitive edge for the future.6 They must then find and rely on vendors and partners to fill in the rest of the capacity they need to provide products and services to their customers. The innovation engine, too, must focus its investments on a selected set of strategically important core competencies and then find and rely on technology partners and vendors to provide whatever else is needed for new product innovation.

Management Objectives within the Innovation Engine

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Managers operating within the innovation engine must translate executive expectations into detailed project activity. Within the context set by the high-level strategies and objectives of the corporation, all managers of new product innovation activity must strive to optimize the cash-flow waveform for their projects. The following objectives will help to accomplish this.

Focusing Investment on the Best Opportunities

The financial success of a new product innovation project is critically dependent on the size of the opportunity that it addresses. Given that an opportunity fits with corporate strategic plans, the best opportunities will have the following attributes:

· A large population of potential customers

· A substantial profit potential

· Technical, market, and manufacturing feasibility

· The potential for a sustainable competitive advantage

Defining the Most Competitive Product Offerings

Spending the time and energy initially to describe the best possible product response to a given opportunity will help a great deal to ensure the desired financial return. Extinction time will be extended out as far as possible, and market share and profit margins will be increased. In addition, a clear, exciting, and stable product definition is a major contributor to the productivity of the development team.

Making and Achieving Competitive Commitments

New product requirements and schedules should be realistically aggressive and competitive with norms in the given marketplace. The size of project teams should allow efficient achievement of best time to market. The goals of management should be to provide the team with what they need to meet or beat these commitments and to remove any obstacles that get in their way.

Ensuring that Innovation Efforts Support the Manufacturing Infrastructure

The competitive manufacturing infrastructure described above is essential to business success. Innovation activities should compliment this infrastructure and help to move it in desired strategic directions. The responsibility for ensuring that the output of innovation efforts fits within required manufacturing and regulatory constraints rests with managers of the innovation activity.

Decision Criteria

The new product innovation works best when everyone involved clearly understands the criteria that will be used to make decisions as the project unfolds. If these criteria are clear, consistent,

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and rational, then most decisions can be made quickly, at the lowest levels. Figure 10.2 outlines six tradeoffs that are characteristic of new product innovation projects. For example, development speed can often be improved, but only at the expense of either program cost overruns or perhaps leaving out product features that may hurt financial performance in the marketplace. Questions often arise during the course of a project about whether to slip the project schedule or take other steps to prevent delays. Alternatives might include spending money to off-load work to outside contractors or, perhaps, relaxing unit manufacturing cost goals. Effective decision criteria will provide quantitative financial guidelines for making these tradeoffs. Increases in unit manufacturing cost will, in general, affect the amplitude of the positive cash-flow waveform by reducing either profit margin or sales volumes or both. Delays in product delivery will extend the development time and shrink the market window, the time between product release and extinction time. Product financial performance includes the full area under the positive cash-flow portion of the waveform but also includes total ROI, the ratio of this area to the area under the negative part of the waveform. Development program cost relates to both the amplitude of the negative cash-flow portion and to the total area under this part of the curve.

Figure 10.2: Tradeoffs among product development objectives

The Innovation Engine

A lot has been said so far about the innovation engine, but little has been said about what goes on inside it. To meet the expectations described earlier, the system inside the innovation engine must look something like that depicted in Fig. 10.3. This diagram depicts the system that enables a business enterprise to continually redefine itself so that it can sell, manufacture, and support an ongoing stream of successful new products. Every element in this system is a cross-functional process, and many of the elements shown are executed concurrently. The innovation engine is a system in that every element shown in the diagram must both perform individually at competitive levels and work smoothly together for long-term business performance to remain competitive. If the system is not currently performing competitively, it must be diagnosed as a system and the weak elements corrected. Many businesses, for some reason, look to product development engineering whenever they have concerns with the new product process. That works only when every other part of the innovation is in good shape. The innovation process begins with the search for new business opportunities and continues until (1) manufacturing is capable of shipping product at mature volumes and (2) sales and product support activities are also operating at mature levels. People from almost every function in the business are involved in some way or another with new product innovation as described here and thus are a part of this system. The innovation engine must therefore be owned and managed by the top-level leadership

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team of the business unit. The purpose of this section is to describe the innovation engine in general terms and to discuss key relationships that are essential to its successful operation.

Figure 10.3: Schematic of Innovation Engine

Innovation as an Information Process

The inputs to the innovation engine are various forms of information about technology, market needs, competitive products, regulatory constraints, and so forth. The output of the innovation engine is product-specific information in a form that enables the mature manufacture, sales, and support of new products. In other words, the only value provided to the business by the innovation engine is related to (1) the information that it gathers and brings into the business, (2) the value that it adds to this information, and (3) the information that is created within the engine. This system does not deliver new products; it delivers information about new products. The innovation engine is fueled with money invested by the business enterprise and also with the human resources, equipment, and facilities that the corporation provides. The primary information flow in the process is with the arrows shown in the diagram. However, supporting information flows in every direction, between every sub-process, all the time. In addition, each block depends on a continuous flow of information coming in from sources external to the innovation system. The blocks in the diagram are major centers of activity needed to improve the value of incoming information in specific ways as it flows through the process. While there are blocks labeled "manufacturing development," "product development," and "market development," these are not intended to be the old idea of functional silos in which one functional department holds sway. Instead, these are concurrent information processes accomplished by cross-functional teams. The process of developing the product, for instance, must involve expertise from both the manufacturing and marketing functions to ensure that the right product is designed into a market competitive and manufacturable form. To develop the capacity to manufacture a new product requires close links to both development engineering and marketing expertise.

Elements of the Innovation System

This section describes the sub-processes of the innovation engine in terms of their information inputs and outputs and in terms of the value that each sub-process adds to the product information set. In a few cases, schematic diagrams of the sub-process are provided. Describing the innovation engine at this level establishes the basis for both effective management of the engine and improvement of its performance level. Once the inputs and outputs of a given sub-process are understood-along with how it must relate to other sub-processes-its internal workings needed to support the extant innovation environment can be readily described. These internal

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elements are, in general, specific to the products of interest in each reader’s situation and so will not be detailed here. The initial elements in the innovation engine are so critical and so often overlooked, however, that a schematic for each of these sub-processes will be provided for clarity.

Opportunity Scanning Process

As with other elements of the innovation engine opportunity scanning is best implemented as a cross-functional process. Inputs to this process include nonspecific tidbits of information from the technical, market, and manufacturing arenas in which the business enterprise is involved. Involvement in these communities of practice includes both learning and sharing of information. Each of these three arenas is capable of producing a business opportunity on its own, but, more likely, opportunities will involve integration and correlation of information from two or more of these sources. A technical breakthrough, for example, may not represent much of a business opportunity, but, when it is combined with an understanding of a broad base of customer needs, opportunities are more likely to emerge. The desired output of this sub-process is a prioritized queue of potential business opportunities that is understood by both the business leadership team and key players throughout the innovation engine. This queue provides input to the project selection process considered later in the discussion of portfolio management. It also makes tangible possible alternatives that can realize the objectives outlined in strategic plans. When a decision is made to invest in the highest-priority opportunity, this sub-process provides initial direction and input that launches the investigation and definition of a potential new product.

The possible opportunities from various communities of practice must be integrated to best discern potential business Opportunities. This integration step must consider the business strategy and both existing and desired core competencies in establishing both the viability and the priority of a potential business opportunity. Opportunities that align with and provide substantial progress toward strategic business objectives will move to the top of the priority list. Likewise, opportunities that facilitate development and maintenance of desired core competencies will be most important. There are many possible implementations of the proposed process; some quite formal, some not so formal. One informal example that has worked very well is described here. The opportunity scanning process that was used to get Hewlett-Packard Company into the large format drafting plotter market in the early 1980s involved primarily a midlevel R&D manager and a product marketing manager who worked together at an interested business division. These two individuals committed to spending about 1 week per month visiting potential drafting plotter customers and users. They learned to lead customer into discussing thought-provoking questions such as

· What are the primary benefits that you provide your customers?

· What is your vision for how you want to serve your customers in the future?

· What obstacles keep you from being more competitive?

Opportunities emerged as the answers to these questions, provided by a wide range of prospective plotter customers, were considered in the light of available technologies. Discussion

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of potential opportunities with the division’s business leaders provided the sense of alignment with strategies and core competencies needed to establish the right priorities. Final integration and prioritization took place largely through informal discussions during travel. This process not only provided the desired queue of opportunities for the drafting plotter business; it developed the judgment needed to operate effectively in this new business arena.

Product Definition Process

Once an opportunity has been selected for investment, the product definition sub-process describes the most competitive product offering possible that will address the given opportunity. Information inputs to the product definition process are (1) information from the opportunity scanning process that describes the selected business opportunity, (2) information about customer needs, and (3) information about applicable new technologies. The output of this sub-process should be viewed as a business proposal that describes (1) the product that will be developed, (2) the schedule and resources required to bring this product to market, and (3) the business benefit expected if this product is introduced into the market. This proposal should be presented to the business management team to enable them to make a well-informed decision on whether to invest the necessary resources. Quality Function Deployment (QFD) has proved useful as an information tool for transforming customer needs and technical capability into technical requirements and specifications. It also provides a method for analyzing proposed product performance levels and comparing them with those of competitive products. This information enables definition of product features, project and product planning, and evaluation of expected product financial performance. Because this sub-process sets the direction for all work that follows, the quality of the information it provides is critical. Once a preliminary feature set has been defined for the product, a mockup of the actual product is created that can be shown to customers. This mockup might take the form of a cardboard model painted and made up to look like the actual product. Simulated displays, front-panel buttons, and knobs are in place to create the impression of a finished product. Sometimes the mockup takes the form of a computer screen simulation that acts like a real product with which the customer can interact. The idea is to allow a cross section of customers and users to interact with the mockup in a way that gets them mentally engaged with how the proposed product might work in their environment. Their feedback and level of excitement is carefully noted and used to modify the product definition. This loop is repeated as quickly as possible until the mockup is successful in generating the desired level of customer enthusiasm. The final product definition and detailed customer responses are then used to create final plans and financial analyses.

Product Development

Once project plans and the product definition are in hand, they must be transformed into information that describes a fully integrated and verified product design. The details of this design must be documented as needed so that the information is useful to the operational end of the business. Design details, theory of operation, and product performance specifications must be captured in final form so that manufacturing, product marketing, and product support functions can access this information as needed. Detailed product requirements provide the information necessary to initiate a system design activity that determines how each product feature will be implemented. The basic architecture of the product is established here, and many decisions and

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tradeoffs are made that will largely determine product performance, cost, and reliability. These decisions will also determine the ultimate extinction time for the product in the marketplace. Once the system architecture has been determined, product implementation is partitioned between hardware and software design activities. Specific design requirements are generated for the various engineering disciplines involved in the project. These design requirements provide the initial information needed to launch subsystem design work. Here, electrical, mechanical, and software engineers translate requirements into verified and documented designs. Prototypes of subsystems are implemented, tested, and modified until they meet design requirements. Once performance testing of a prototype is finished, the unit is sometimes strife-tested to determine failure modes under extreme operating conditions. Strife tests often yield valuable new information that enables quick closure on a robust design. When all subsystems meet their design requirements they are integrated into a complete product prototype. This prototype is tested to (1) ensure that the subsystem elements work effectively as a system and (2) verify that the product meets performance specifications. As variances occur in the test results, information is fed back to earlier stages in the sub-process that initiates corrective action. Modified subsystem designs are incorporated into the prototype and tested. This loop continues until the product prototype meets product performance and reliability requirements.

The cost and time required to complete these corrective loops and achieve a successful product design are a direct function of the quality of the initial work done in both the system design and subsystem design stages. They also depend on the quality of the information available to engineers as they do their initial design work. A well managed product development activity will include explicit steps to verify the quality of designs before they are prototyped and tested. Design quality assessment techniques might include peer reviews of each engineer’s design work and computer simulation of key design elements.

Manufacturing Development

This sub-process develops information that describes the new capacity in manufacturing operations needed to produce the product under development. Launched by the product definition and project plans and utilizing an ongoing flow of information about the unfolding product design, manufacturing engineers develop fabrication and assembly tools, assembly lines, and automated fabrication equipment. Materials engineers work with vendors to establish trustworthy sources for parts and materials unique to the new product. Manufacturing test programs, fixtures, and tooling are created. Product unit manufacturing cost estimates are developed and tracked. In leading businesses, this work involves continual dialogue between manufacturing engineers and product development engineers. The engineering teams work closely together as design and manufacturing approaches for various subsystems and parts are adjusted to satisfy product requirements while utilizing manufacturing resources most effectively. The tradeoffs and decisions made in these interactions largely establish the manufacturability, unit manufacturing cost, and reliability of the new product.

Marketing Development

Initiated by both, the product definition and product plans, this activity prepares the business to introduce, sell, and support the new product. Support activities include efforts such as

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applications support, distribution of consumables, and repair services. Development of the marketing capacity required by the new product depends on an ongoing exchange of information with both the product development and manufacturing engineering efforts. Information from the product development activity about product features and performance specifications is essential to market introduction, advertising, and sales training activities. Details of the product design, assembly, and theory of operation are needed to prepare manuals and train customer support and field repair people.

The Product Information Set

The combined information delivered by the manufacturing development, product development, and marketing development sub-processes represents most of the proprietary intellectual property sought by the business when it decided to invest in the project. If its quality is adequate, this information set will provide the business with the repository of knowledge, in easily accessible and usable form, that it needs to support expected levels of business performance throughout the life cycle of the product. This extremely valuable accumulation of intellectual property should be treated with great respect, recorded in final form, and archived in a safe place.

Manufacturing Ramp up

Using the product information set as its primary information source, this sub-process acquires the final knowledge needed to manufacture the product at mature volumes with confidence. If all that was done before this step were of perfect quality, no manufacturing ramp-up would be required. With flawless a priori knowledge, the product could be launched into full-volume production with total confidence. Realistically, though, new tools must be tried on a limited scale, new assembly processes must be tested, and people must receive practice with unfamiliar manufacturing roles. The quality of products produced in a production environment for the first time must be verified. As these things are accomplished, the manufacturing pace and volume can be steadily increased to mature levels. The output of this sub-process is the information gained from experience that allows the business to proceed confidently into the mature production phase.

Market Introduction

This sub-process also uses the product information set as a key source of information. The intent of this activity is to create awareness and acceptance of the new product among its target customers. Advertising campaigns are launched, and initial feedback on their effectiveness is analyzed. New distribution channels are initiated, and the sales force gains initial experience with the product in front of customers. Product support personnel obtain early experience with product maintenance and customer application issues. Like manufacturing ramp up, the useful output of this activity is the information gained from experience that allows sales, distribution, and support efforts to achieve and maintain operations at mature volume.

Self Assessment Questions I

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1. As per the modus operandi which is often described as first generation management, on what factors does an organization’s innovative performance depend?

2. How is an empowered workforce defined in the above section?

3. Explain the six tradeoffs in product development objectives as depicted in figure 10.2.

10.6 Managing People and Process

Managers have always explored opportunities for improving business performance. Yet, in spite of all the research and conceptual insight, only in recent years have we begun to understand the processes which underlie innovation and its management. The need for strong integration and orchestration of cross-functional activities is particularly stressed by those researchers and practitioners who see the product innovation process as a sequence of interrelated multifunctional efforts which span the complete product life cycle: from recognition of an opportunity and creation of new knowledge and concepts, to product research, development and engineering, transferring technology into manufacturing and the market, product distribution, upgrading, and service. Successful organizations and their managers pay attention to the human side. They are effective in fostering a work environment conducive to innovative work, in which people find the assignments challenging as well as leading to recognition and professional growth. Such a professionally stimulating environment also seems to lower communication barriers and conflict and enhances the desire of personnel to succeed. Further, it strengthens organizational awareness of environmental trends and the ability to effectively prepare for and respond to these challenges.

In addition, technologically innovative workgroups have good leadership. That is, management understands the factors crucial to success and makes the proper provisions. Management is action-oriented, provides the needed resources, properly plans and directs the implementation of their programs, and helps in identifying and solving problems in their early stages. In fact, many early warning signs of low technical team performance can be identified as summarized in Exhibit 10.3. Effective team leaders monitor such feedback and focus their efforts on problem avoidance. The effective team leader also recognizes the potential interrelationships among drivers of and barriers to innovative performance. While assessing the exact impact of all potential problems may be difficult, the effective manager can keep an eye on situations that may cause problems, and proactively intercept and minimize them wherever possible. In summary, the effective manager of an innovation-oriented work team is a social architect who understands the interaction of organizational and behavioural variables and can foster a climate of active participation and minimal dysfunctional conflict. These abilities require carefully developed skills in leadership, administrative techniques, organization, and technical expertise. In addition, the effective manager must possess the ability to work effectively with upper management to assure organizational visibility, resource availability, focus, and overall support for the innovation-oriented activities and programs throughout their life cycles.

A number of recommendations can help increase the manager’s effectiveness in building high-performing innovative technology-based organizations.

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Influence Factors: Managers must understand the various influence factors that drive innovation and build a work environment conducive to innovative team performance. Specifically, they should pay attention to the factors in Exhibit 10.2 and 10.3.

Goals and Objectives: Management must communicate and update the organizational goals. The project objectives and their importance to the organizational mission must be clear to all personnel who get involved with innovation-oriented activities.

Exhibit 10.3 Early warning signs of problems with innovative team performance

Complaints about insufficient resources

Disinterested, uninvolved management

Excessive conflict among team members

Excessive documentation

Excessive requests for directions

Fear of failure, potential penalty

Fear of evaluation

Lack of performance feedback

Little team involvement during project planning

Little work challenge (not stimulating professionally)

Low level of pride and project ownership

Low motivation, apathy, and team spirit

Mistrust, collusion, and protectionism

No agreement on project plans

Perception of excessive change

Perception of technical uncertainty and risks

Poor communication among team members

Poor communication with support groups

Poor recognition and visibility of accomplishments

Problems in attracting and holding team members

Professional skill obsolescence

Project perceived as unimportant

Strong resistance to change

Unclear mission and business objectives

Unclear requirements

Unclear role definition, role conflict, and power struggle

Unclear task or project goals and objectives

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Perception of inadequate rewards and incentives

Senior management can help develop a "priority image" and communicate the basic project parameters and management guidelines. Moreover, establishing and communicating clear and stable top-down objectives helps to build an image of high visibility, importance, priority, and interesting work. Such a pervasive process fosters a climate of active participation at all levels, helps attract and hold quality people, unifies the team, and minimizes dysfunctional conflict. Planning, Effective planning early in the life cycle of a project will have a favorable impact on the work environment and team effectiveness. Because project managers have to integrate various tasks across many functional lines, proper planning requires the participation of the entire project team, including support departments, subcontractors, and management. Phased project planning (PPP), stage-gate concepts (SGCs), and modem project management techniques provide the conceptual framework and tools for effective cross-functional planning and organizing the work toward innovative execution.

Process and Involvement

Managers should encourage the involvement or personnel at all organizational levels. This involvement will lead to a better understanding of the task requirements, stimulate interest, help unify the team, and ultimately lead to commitment toward the project plan. The proper set up and management of technology transfer processes, such as concurrent engineering, SGP, CAD/CAB/CAM, and design-build, is often important for enhancing cross-functional linkages necessary for innovative performance.

Team Structure

Management must define the basic team structure and operational process for each project early in its life cycle. The project plan, task matrix, project charter, and operating procedure are the principal management tools for defining organizational structure and business process.

Image-building

Building a favorable image for an ongoing project, in terms of high priority, interesting work, importance to the organization, high visibility, and potential for professional rewards is crucial for attracting and holding high-quality people. It is a pervasive process that fosters a climate of active participation at all levels, and also helps unify the work team and minimizes dysfunctional conflict.

Interesting Work

Whenever possible, managers should try to accommodate the professional interests and desires of their personnel. Innovative performance seems to increase with the individual’s perception of professionally interesting and stimulating work. Making work more interesting leads to increased involvement, better communication, lower conflict, and higher commitment.

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Senior Management Support

It is critically important that senior management provide the proper environment for an innovative team to function effectively. At the onset of the development program, the project leader needs to notify management about the needed resources. The project leader should also obtain a commitment from management that these resources will be available. The relationship of resource managers and project managers to senior management and the ability to develop and sustain senior management support critically affect perceived credibility, visibility, and priority.

Clear Communication

Poor communication is a major barrier to teamwork and innovative performance. Management can facilitate the free flow of information, both horizontally and vertically, by workspace design, regular meetings, reviews, and information sessions.

Team Commitment

Managers should ensure team member commitment to the project plan and its specific objectives and results. If such commitments appear weak, managers should determine the reason for such lack of commitment of a team member and attempt to modify possible negative views. Because insecurity is often a major reason for low commitment, managers should try to determine why insecurity exists, then work to reduce the team members’ fears. Conflict with other team members and lack of interest in the project may be other reasons for lack of commitment.

Management Commitment

Managers and team leaders must continuously update and involve management in order to refuel their interest and commitment to the technical venture or project.

Leadership

Leadership positions should be carefully defined and staffed at the beginning of a new project. The credibility of project leaders among team members, with senior management, and with the program sponsor is crucial to the leader’s ability to manage the multidisciplinary activities effectively across functional lines.

Team Building Sessions

Such meetings should be conducted by the team leader throughout the project life cycle. An especially intense effort might be needed during the team formation stage. The team should be brought together in a relaxed atmosphere to discuss such questions as:

· How are we operating as a team?

· What are our strengths?

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· Where can we improve?

· What steps are needed to initiate the desired change?

· What problems and issues are we likely to face in the future?

· Which of these can be avoided by taking appropriate action now?

· How can we "danger-proof’ the team?

Focus-group concepts and benchmarking provide useful frameworks and toolsets for leading these team building sessions.

Self Assessment Questions II

State whether the following statements are True or False:

1. Successful organizations and their managers pay attention to the production process only.

2. Technologically innovative workgroups have good leadership.

3. Managers must understand the various influence factors that drive innovation and build a work environment conducive to innovative team performance.

10.7 Summary

The successful management of technological innovation involves a complex set of variables that are related primarily to the task, the people, and the organizational structure and environment. The role of the technology-based manager is a difficult one. That person must be skilled enough to lead task specialists toward innovative, quality-oriented results that can be integrated according to established business plans.

The manager must understand the interaction of organizational and behavioural variables in order to foster a work environment conducive to the individual needs of the people and the team as a whole. This understanding will facilitate a climate of active participation, minimal dysfunctional conflict, and effective communication. Such a climate is goal-oriented and conducive to change and commitment.

10.8 Terminal Questions

1. The Egyptian pyramids, the Great Wall of China, navigational methods, Noah’s ark etc. are examples of __________.

A) Technological innovation

B) Discoveries by man

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C) Recent advances in technology

D) Scientific management

2. Innovation process based on the pioneering work of Edward B. Roberts has _________ stages.

A) Six

B) Four

C) Five

D) Three

3. Leaders of new product innovation, from the project manager up through the executive level, must balance their behaviour across a range of roles. These roles could be –

A. Taskmaster

B. Obstacle remover

C. Cheer leader

D. Coach and Direction setter

A) Only A and D;

B) Only B

C) All the above except C;

D) All the above

1. The purpose of this role is to create a sense of accountability for results. All employees need to feel some level of tension related to how well they are doing on the work that has been assigned them.

A) Taskmaster

B) Coach

C) Obstacle remover

D) Cheer leader

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1. Explain the five stages of innovation process which is based on the pioneering work of Edward B. Roberts.

2. What are the steps involved in measuring innovative performance?3. Highlight the features of a work environment that is conducive to innovation.4. Discuss the range of roles which leaders of new product innovation, from the project

manager up through the executive level, are required to play.5. Mention some early warning signs of problems with innovative team performance which

effective team leaders can monitor.

10.9 Answers to SAQs and TQs

SAQs I

1. Refer to 10.2

2. Refer to 10.4

3. Refer to 10.5

SAQs II

1. False

2. True

3. True

Answers to TQs:

1. B

2. C

3. D

4. A

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Unit-11- Diffusion of Technology

Structure:

11.1 Introduction

Objectives

11.2 The Importance of Diffusion

11.3 Perspectives on Diffusion

11.4 Major Diffusion Activities

Self Assessment Questions I

11.5 Developing a Diffusion Strategy: Taking Technology to the Market Place

Self Assessment Questions II

11.6 Summary

11.7 Terminal Questions

11.8 Answers to SAQs, TQs, and MCQs

11.1 Introduction

The success of a technological innovation depends on the diffusion of the innovation to those who can best make use of it. The term ‘diffusion’ refers to the spread of a new idea (product, technology, service, or method) from the time of its invention or creation to its ultimate adoption by an increasing number of users, in different circumstances. Diffusion involves special types of communication methods or system to help diffuse changes in practice, as well as changes in knowledge or attitudes. Thus, diffusion is the process of closing the gap between what people do not know and what they can effectively put to use. The process is complete when:

· A sufficient number of customers are using the innovation to pay back the amount used to develop it;

· It starts to make a profit;

· A system is in place for assessing the need for changes to ensure the longevity of the technology.

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We have studied about invention, innovation, technology, and technology transfer in some of the earlier units of this course. Technology diffusion is closely related to these topics, particularly to innovation and transfer to technology. It facilitates process of technology transfer by acceptance of innovation on wider scale, for better returns, to the owner or supplier of technology. Diffusion of innovation or technology is more relevant to publicly funded R&D organisations and academic institutions which are generally engaged in basic and applied research and which, by themselves, are not in a position to commercialise the innovations.

In India, attempts are made to diffuse inventions, innovations and technologies generated in national or publicly funded R&D organisations and academic institutions through technology transfer agents and other channels of communication including such organisations themselves. Many organisations, such as Indian Space Research Organisation (ISRO), Atomic Energy (AE), Defence Research and Development Organisation (DRDO), Council of Scientific and Industrial Research (CSIR) have set up their own mechanisms to diffuse their innovations and technologies. Recently, Indian Institute of Technology (IIT), Delhi, has also set up a foundation for innovation and technology transfer. The manufacturing companies in India generally are not in a position to diffuse because their technologies have been acquired from external sources. The situation in India or several other developing countries is quite different from industrialised countries in so far as diffusion of innovation or technology at the firm level is concerned.

Objectives:

After studying this unit, you will be able to:

· Explain the concept of diffusion.

· Bring out the importance of diffusion in taking technological innovation to the market place.

· Describe different perspectives on the innovation-diffusion process.

· Brief on various activities necessary for a successful diffusion process.

· Analyse the development of a diffusion strategy.

11.2 The Importance of Diffusion

Making the most of technological innovations should be an explicit goal of each corporation – a goal reflected in a continuous set of action steps. Broad diffusion of a technological innovation does not just happen; it must be managed. Companies that sell technology to one or two types of customers must take time to diagnose the needs of other potential customers. In addition, companies must attempt to diffuse their domestic technology into foreign markets by adapting them to different needs. For instance, a company that makes telephone switching equipment for temperate climate and conditions of stable power supply should adapt the technology for tropical climates and unstable power supply conditions.

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A technological innovation can have a long life if management views it in the proper way. A technology that becomes obsolete in one market may still be considered new in another. For example, some of the technologies that India has been obtaining from abroad in high-tech areas like computers and communication are technologies that have outlived their life in their own markets but are still found to be attractive here. Several models for diffusion of innovation have been proposed by various specialists/experts in the field.

As mentioned earlier, in developing countries such as India, the technology diffusion is generally considered important for R&D organisations and academic institutions which are engaged in development and transfer of technologies. A well-managed technology diffusion system enables an organisation to plan its technology development projects in a more meaningful manner as well as transfer the technologies more successfully. Such an approach results in better returns for the investments made in R&D and technology development systems.

At the firm level, the need and importance of technology diffusion is directly related to its innovative capacity and the levels of technologies developed. In India, such an innovative capability, or management policies in this direction are not much in evidence as most of the firms are often engaged in development or acquiring of technologies relevant to their manufacturing activities only i.e. for captive use. However, there are cases of transfer of technologies by Indian firms to other developing countries. A well-managed technology diffusion system becomes important for such firms. With the increasing emphasis on exports, there will be a greater need for adopting better planned technology diffusion system on the part of the firms, and hence technology diffusion would assume greater importance in the times to come.

11.3 Perspectives of Diffusion

There are several perspectives on diffusion, some of which are discussed below:

Traditional Perspective

Technological innovation and diffusion have traditionally been viewed as separate processes. This view treats diffusion as the marketing efforts required to expand the acceptance of the technology beyond the markets initially targeted. This limited orientation prevents management from perceiving what employees can do at each stage of the total technology development process to affect the eventual diffusion of the technological innovation. Successful diffusion requires a comprehensive perspective on the technological innovation diffusion process. This perspective can then serve as the basis for a cohesive strategy.

Adoption Perspective

The adoption perspective is most often used to describe the diffusion process. This perspective focuses on how the various channels and modes of communication (media, interpersonal etc.) can be used to influence a diverse group of potential customers to adopt a technological innovation. The issues may include how best to prepare the message about the technological innovation for these diverse groups, how to select the appropriate media mix and how to obtain

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feedback about customer needs. For example, this perspective is often helpful in diffusion of technological innovations like a new method of cultivation or irrigation in rural India where a major task would be determining how to convince people in adopting the new technology.

Technological Perspective

This perspective focuses on the technical skills and tools required to implement. Use the technological innovation. The technological perspective also looks at how well the provider of a technological innovation understands the environment of the user and the user’s ability to apply the technology and also the ability of intermediate agencies like the government. (Many technology transfers in India, like that of the technology for EPABX have taken place at the initiative of the innovating organisation to the user (through the government).

Infrastructure Perspective

The infrastructure of the region in which the technological innovation is targeted is an important factor in diffusing the innovation. Infrastructure aspects that affect diffusion include transportation, terrain, weather, availability of energy, communication, etc. Poor infrastructure development can constrain some innovations. Diffusion will occur only if the necessary facilities exist. For example, poor access to maintenance and repair service at acceptable costs constrains the adoption of information technology in maintenance of land records, primary healthcare centres etc. The application of biotechnology to agriculture will require building infrastructure like distribution and service networks and teaching farmers and others how to use the new techniques. In this case, diffusion will most likely involve some combination of agents, including government, co-operatives, private distributors, and many others-most of whom may be beyond the direct control of the biotech firm.

Regulatory /Societal Perspective

The regulatory / societal perspective looks at the effects of government policies, regulatory requirements, and bureaucratic processes, and the development stage of the area in which the technology is to be used. This perspective is particularly important for diffusion of technologies in developing countries. Regulatory requirements affect the ability of potential customers to adopt innovations as well as the ability of a diffusing company to compete with other companies. For example, technologies that are capital intensive may not be encouraged by governments which are interested in pursuing a policy of employment creation through labour-oriented methods. Companies may not want to part with their technology to countries that do not provide adequate patent and copyright protection (intellectual property rights). Similarly, societal issues like consideration of a technology mostly for elitist living can affect the diffusion of a technological innovation (e.g., car phones).

Models Perspective

The models perspective looks at the development of models that management can use to predict the behaviour of potential users of a technological innovation and, consequently, develop strategies for diffusing an innovation. To model a diffusion process, an analyst works with a few

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variables to fit a curve that describes the spread of innovation over time. These parameters might represent the size of the population, number of alternate technologies in use, complexity of the technology etc. For example, some investigators have analyzed a technological innovation diffusion process to the Spread of an epidemic through a population and have accordingly used one or another of several epidemiological diffusion models.

Comprehensive Perspective

The comprehensive perspective uses all the perspectives discussed so far in developing a diffusion strategy. It views the diffusion process as part of a total innovation process. Many people are involved in the innovation/ diffusion process and this view maintains that each person involved with a technological innovation must maintain an interest in it for a much longer time than what is normally spent in developing the technology, and further that he should be available to make the changes that may be required over the life of the technological innovation.

11.4 Major Diffusion Activities

Diffusion is a multi-faceted activity. We shall briefly discuss its phases.

Individual Action

The diffusion process begins with the first stage of innovation that is the individual action stage. During the individual action stage, the inventor proceeds (sometimes without even realising it) through a series of steps that result in practical use of an innovative idea. The innovator may draw on the resources of others, but the effort is essentially individual. This stage includes eight phases, each of which contributes to the innovation and diffusion process.

i) Creation of favourable conditions: The leadership in the organisation must establish the expectation that everyone will take some responsibility for generating innovations and make some contribution to their diffusion. In return, the people in the organisation should expect that they will be rewarded for their efforts. The employees must also believe that they can generate innovations and can spot opportunities for innovations for the benefit of the company.

ii) Identification of unfulfilled needs: Employees should be on the lookout for people’s needs that can lead to the modification of current technologies or to the creation of new technologies.

iii) Definition of the problem: Marketing must test the needs that it perceives against the reality of user needs. People in marketing should translate their perceptions of need into terms useful to people in development; those in development should translate what they see into terms useful to research; and those in research must translate their findings into terms useful to development and marketing as each individual seeks uses for possible new technologies. Each individual from whatever function can thus participate in the innovation process in some way.

iv) Preparation for problem solving: Gathering information about a need – how widespread it is, what others have done to solve it, what solutions have not worked and what consumers really do want – is part of the preparation for solving a problem. All the capabilities of the company

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should be used in this preparation, including the patent office, the library and the organisation’s technological and marketing gatekeepers. Most studies of modern management emphasize the need to wander around among users and consumers to find out what their needs are.

v) Incubation: This phase is usually a most private affair. All that an individual can do is to recognise that each person will have unique conditions that stimulate ideas. People must learn to respect the range of circumstances that others find useful for innovative/ creative thinking and resist efforts to impose conformity at this phase.

vi) Inspiration: Individuals are usually exhilarated when they have struggled with a problem for some time and finally come up with what they think is a solution. They need all the momentum they can achieve to carry them through the more tedious steps of gathering technical and market feasibility data before proceeding. Supervisors and co-workers should learn how to mirror some of their colleague’s enthusiasm instead of doing what most people do financing a way to prick the bubble of excitement.

vii) Externalisation: Preparing the idea for others to evaluate and develop is a crucial task, since inadequately prepared descriptions are apt to be rejected. Management should help people prepare their ideas for presentation within and outside the organisation.

viii) Influence: Most ideas have political aspects. Once an idea has been prepared for review, knowing whom to influence, when to influence, and how to influence people within the company becomes important. Very often those who are most able to generate solutions to problems are least able politically. Those with political experience should be ready to help with advice.

Applying Basic Research

This stage represents the translation of the findings of people who have done the basic research (people) into applications. The application of basic research is a more organised effort than individual action. The disciplined activities of specialists are focused on seeking orderly explanations of phenomena and practical applications of that knowledge. However, the roles of the individuals are critical throughout the process. Diffusion during this stage requires an understanding of how various disciplines and functions interact with each other. This interaction may occur as a result of either mission-oriented research or the interaction of people in different disciplines trying to solve problems in their own areas.

Diffusion at this stage involves linking the basic scientist’s work to the applied scientist’s work and the world outside the laboratory through the comprehensive diffusion perspective. Applied scientists have a responsibility to keep abreast of consumer problems that need solution. Basic scientists need to describe their findings in ways that allow applied scientists and marketing people to visualize market possibilities. Many successful basic research scientists take the opportunity to visit the field to see what is going on.

Improving the linkage between R&D and marketing is highly related to successful -continuous and timely – diffusion efforts. Lack of communication can cause many problems. An inventive scientist may develop a new way of making bricks and constructing houses from the fly ash of

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thermal plants, but may not get feedback about the market’s acceptance of the idea. The lack of feedback may cause him even to leave the company and abandon his idea.

Industrialisation

The third stage of the innovation process is the industrialisation stage. The industrialisation stage focuses on developing a practical and profitable application of the technology .It links customer demand with technical opportunities and out of this emerges a design concept for evaluation. Linking technical opportunities with market demand requires coordination and cooperation among applied scientists, engineers and marketing personnel, especially market research personnel. The joint efforts of many people from many functions, including personnel from R&D, marketing, corporate development and planning, and new product development, can best generate the initial product concepts.

During this stage it is wise to keep in mind the company’s capabilities and strategies when looking for relevant customer needs that make use of these capabilities. The company should formally re-examine and restate its capabilities from time to time, since these often grow incrementally as the company acquires the ability to cope with threats and opportunities. For example, some of the computer graphics technology that Centre for Development of Telematics (C-DOT) at New Delhi developed for its switching applications was also found to have wide applications in railways and defence.

Commercialisation

After initial development of the technology concept commercialisation receives the major emphasis. The boundary between the industrialisation and commercialization stage is hard to define exactly. Commercialisation includes finding solutions to all the problems of defining the technology, organising trials, mechanisms for transfer of technology and expanding and managing the technology life cycle. Pre-launch activity marks the beginning of this stage as a small-scale pilot test gets under way and the first customer trials begin. The next major activity is the launch of the innovation trails. During such trails, the organization can assess technology acceptance, alter methods of transfer, check manuals for ease of understanding and the like.

Communication activities are the next major events. The marketing department develops a description of the attributes of the new technology, selects channels for its marketing message, and begins development of a promotional programme. Marketing next assesses the target market segment to identify the potential adopters that should be influenced first. The firm next develops the corporate capabilities for managing the diffusion, setting pricing policies and selecting and segmenting the market as a whole.

Commercial development of innovation takes place next. Diffusion activities now focus on spreading the net by acquiring more adopters. Usually the next step, once sufficient customer demand indicates continuance, is transfer of the technology to an operating division. Diffusion methods used in this transfer are especially important. Once an operating division launches the technology, it must maintain it. The division must assess signs of decline or changing consumer preferences and take corrective action.

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Full Scale Diffusion

This is the last stage of a comprehensive innovation/ diffusion process. It includes a search for a wider range of potential markets, new industries, new geographic regions, new market segments that have not been explored, and new ways to couple the innovation with other innovations. The way that electronics and computers have diffused throughout the industry and the world is a prime example of full scale diffusion.

Self Assessment Questions I

1. Bring out the importance of diffusion process.

2. Comment on the merit of Comprehensive Perspective on diffusion.

3. Why is diffusion considered to be a multi-faceted activity?

11.5 Developing a Diffusion Strategy

Developing a diffusion strategy involves a number of activities and many people. This section looks at each of these activities separately but in a real situation many of these activities may go on concurrently. Some people in the organisation will participate only at certain stages, while others will have continuing roles. Thus, the development and implementation of a diffusion strategy requires effective management.

Assess the Organisational Climate

An important factor related to successful diffusion is an organisational climate that supports diffusion and innovation objectives. To facilitate this it will be useful to list a set of organisational attitudes and objectives that can support the innovation and diffusion process.

These objectives could include the need to orient to the future, for timely action, to anticipate changes, threats, and opportunities, and for all members of the organisation to play a role in launching an innovation. In addition to communicating these objectives throughout the organisation management must initiate programmes and practices that make these objectives a living force.

Studies of successful diffusion show that one of the most consistent features is the presence of dedicated people who persist in their efforts. Such people are called "technology champions" or "change agents". How well an organisation nurtures such people and understands and supports the process is an important element of the organisational climate.

How management structures and controls the organisation has a profound impact on the diffusion process. There has to be a balance between centralised decision making structure and decentralised operations. The number of layers through which a new technology idea must be cleared before it can be implemented has a significant impact on the speed with which the diffusion can take place.

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Leadership style also affects the diffusion strategy. If the style is authoritarian, dissenting voices may not be heard and assenting voices may be amplified. But the organisation can take quick action. If the style is too participatory, the action may be slow but major mistakes can be avoided. The ideal would be a leadership style that is clear and gives urgency a high priority.

Understand the role of "Technology Champion"

The change agent or technology champion must play a bridge role within and outside the organisation. Within the organisation the change agent should provide communication between the marketing and the R&D organisation. In market-driven organisations, the directions for technological innovation come from marketing. R&D’s reaction comes in the form of guidance on what is technically feasible and ideas from scientific circles.

A technology-driven organisation offers a marked contrast, as R&D drives the stimulus and marketing officials must find applications. These efforts can help create new markets by applying technological breakthrough to largely unperceived needs. In India, technologies and products are mostly market-driven while in industrialized countries markets are mostly technology-driven.

When introducing a new technology to potential customers outside the organisation the change agent must explain the need for the technology. Demonstrations, films, or other techniques can help the customer to become aware of the need for the new technology. The change agent must show real interest in the user’s problems and prove it in his or her behaviour. Should the firm invest in a technology suitable for production of large volume of communication cables when the customer wants to produce a limited quantity of cables only? The change agent should be sensitive to the users’ needs and help the user to overcome problems he encounters.

Define the Profile of the Technological Innovation

Different types of technological innovation require different diffusion efforts. If the technology is new to both the market and the company, adopters of the technology have to educate on its use. Diffusion efforts may have to overcome resistance to the complexity of the technology, (as with fibre optics) or social or cultural barriers (birth control devices). In contrast, if the technology is a modification or improvement of an existing technology (Example: energy saving process), diffusion efforts must stress the superior attributes of the new technology.

Use Opinion Leaders

An important part of the diffusion strategy is the identification of opinion leaders, assessment of their orientation (towards acceptance or rejection), assessment of their scope of influence, and development of ways to influence them. Such leaders influence opinions and actions in informal ways. They are people or institutions whose information and opinions are sought on subjects in which they are considered experts. They are technology gate-keepers and feel qualified to evaluate a technology and market gate-keepers who feel qualified to describe what people want to buy. Their influence is often extensive because they tend to have a large number of acquaintances and because they play the role of bringing people of related interests together .A

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good example is the position that various individuals and organisations took towards C-DOT’s switching technology.

Change agents must develop strategies for reinforcing those opinion leaders who favour the innovation and technologies and reducing the opposition of those who are negative. Assessing the ratio of positive to negative opinion leaders and their relative influence is also important.

Develop a Communication Strategy

Developing a communication strategy is one of the major tasks of the diffusion process. To achieve successful communication, the organisation must relate the innovation’s attributes to customer needs. If an analysis of the user’s situation and capabilities indicates that service may be a problem, then communication should describe how service will be provided. The change agency must show, through its communication, that it wants to be useful by meeting customer needs and that it is willing to learn from its customers. The company’s messages must also prove its reputation for reliability, honesty, and thoughtfulness – in fact, what the company communicates about itself is almost as important as what it communicates about the innovation. For example, Motorola, a US based semiconductor and communication company which was trying to introduce cellular technology in India, considered elitist (in some quarters), has been advertising extensively in the media portraying it as a technology for development of rural India.

Communication

Two areas of communication are within the organisation (internal communication) and with agencies outside the organisation (external communication).

Internal Communication

Successful communication leads to action and many factors affect success in the communication process. The innovator or the innovating group must describe the innovation in terms that enable others to work on its behalf. Thus, facilitating communication between R&D and marketing is a continuing management task. The message to internal corporate decisioo-niakers should include realistic estimates of the initial resource requirements, staff, time, and money required to launch the innovation.

A company’s system for processing innovations can smooth and speed the flow of the diffusion process during the internal stage. Such systems use standard criteria to judge innovations, give feedback to the source, and identify the product champions who will nurture the innovation to successful commercialisation. If the originator understands how the development process works and is aware of the problems usually encountered at each stage, he or she can often help overcome the difficulties or suggest ways to capitalise on the strengths of the innovation.

External Communication

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Once a technological innovation is transformed into a prototype or a sample for field trial, the focus of the diffusion effort changes from internal to external communication, which means, getting the word to potential adopters. The content of the message is largely guided by the:

a) Attributes of the innovation, and

b) The characteristics of the target market of the technological innovation.

Attributes of the Innovation

It is widely recognised that five general attributes of innovations are useful in preparing messages:

i) Relative advantage

ii) Compatibility

iii) Complexity

iv) Testability and

v) Visibility

To convey these attributes to potential adopters, the change agent must discover what the customer seeks, thinks; and feels.

i) The relative advantage of a new idea helps determine its rate of adoption. The factors that affect the perception of the relative advantage, and which are however, important parts of the message, include the innovations comparative cost, the savings in time or effort it provides, and how soon it is available (most companies want it as soon as possible). Companies can reduce the perceived risk of trying an innovation by offering performance guarantee (like yield for a new process). Societal factors may also affect the customer’s perception of relative advantage. For example, the oil crisis increased interest in energy saving technologies for automobiles, power generation etc.

ii) Compatibility is the degree to which potential adopters see an innovation as consistent with their values, experiences and needs. The organisation should see if the new technology suits the current or evolving customs or beliefs, symbols of acceptance and status, and previously introduced ideas.

iii) Complexity is the degree to which an innovation is relatively difficult to understand and use. Organisations seeking to introduce technologies that are difficult to use or understand must concentrate their efforts on developing simple how-to-use and how-to-understand explanations. The computer industry’s emphasis on developing user-friendly menu-driven software technology is one example of efforts to overcome user’s resistance to perceived complexity.

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iv) Testability is the degree to which potential adopters can experiment with an innovation on a limited basis. Development of such opportunities is an important diffusion activity. For example, modular switching technology not only facilitates absorption it also allows for testing the basic building blocks.

v) Visibility is the degree to which the results of a new technology are apparent to others. When digital technology was first introduced for telephone communication the users could clearly perceive a significant difference in the quality of the call; and the adoption of digital technology by telephone companies proceeded at a rapid rate.

c) Characteristics of the target market

To reach business prospects, the message must relate the important attributes of the technological innovation to both executive management and the group in the customer organisation that would actually use it. Discovering the attributes desired by the dominant decision making group in the customer company may well be an important prelude to designing communication to hasten adoption. While including concern for the needs of the actual users at the initial stage may prolong the adoption period but it will increase the endurance of the innovation.

Communication Channels

Two principal modes of communication for message about innovation are the mass media (radio, TV, film, newspaper, magazines) and interpersonal channels (word of mouth, trade shows, demonstrations etc.)

The mass media are relatively quick in beaming the message to many people. However, since it tends to be one way, the lack of feedback about customer reception makes the media less effective than interpersonal communication in moulding attitudes to the new technology. This may be suitable for simple technology like food preservation/ processing with potential for large number of customers spread over a wide area.

Assess the life of Technological Innovation

The life of the technology can be extended by incorporating feedback about the customer’s reaction to the technology to remedy defects and develop a new generation of the same technology. The organisation selling the technology can enhance its life by providing opportunities for the users to participate in a network with other users to observe the application of the technology wherever feasible. A longer life is certain if the innovation meets a well-defined customer need that the seller understands. The seller must remain aware of any changes in customer needs and modifications that would meet those changing needs.

Self Assessment Questions II

1. Explain the term “Technology Champion” and examine its role in diffusion process.

2. Who are called technology gate-keepers? What is their role?

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3. Discuss the attributes of innovations useful in preparing messages.

11.6 Summary

The development of a corporate strategy for diffusing innovations to target consumer segments around the world requires a comprehensive perspective that views diffusion as an integral part of the innovation process, rather than a discrete activity that takes place after the development of the technological innovation. Several overlapping perspectives are currently used for planning for and assessing diffusion activities. The adoption perspective concentrates on influencing the consumer’s decision processes, the infrastructure perspective looks at the physical distribution and communication systems, the regulatory perspective looks at government policies and social sanctions, the technology perspective emphasises the technological content and the models perspective includes the numerous mathematical models used to predict the adoption rates. Successful diffusion requires the integration of all these perspectives into a cohesive corporatewide programme and involves personnel representing many corporate functions and divisions.

An effective diffusion strategy (whether for an entire organization, or for a single technology) depends on making full use of the available resources. The climate must be right, people must understand and carry out their proper roles, and communication must be carefully planned and executed. The "technology champions" or "change agents" in the organisation are key players in the activity. They, in turn, must understand why some people are immediately drawn to an innovation while others hold back. They have to figure out how to overcome this resistance. Finally, a good diffusion strategy provides for "keeping the innovation new" rather than merely letting the life of the technology run its course.

In developing countries such as India, technology diffusion is presently more, important for R&D organisations and academic institutions which are engaged in development and transfer of technologies. There are cases of export of technologies by Indian firms which also need to plan an appropriate mechanism to diffuse their technologies. Most of the firms in India develop or acquire technologies directly relevant to their own manufacturing activities. However, with the increasing emphasis on exports in the times to come, a well-planned technology diffusion strategy would be necessary for innovative firms as a part of the total technology management policies.

11.7 Terminal Questions

1. The term ______ refers to the spread of a new idea (product, technology, service, or method) from the time of its invention or creation to its ultimate adoption by an increasing number of users, in different circumstances.

A) Renovation

B) Diffusion

C) Assessment

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D) Transfer

2. The people or organizations, whose information and views are sought on subjects of their expertise, are known as___________.

A) Change agents

B) Technology champions

C) Opinion leaders

D) Technology drivers

3. _______ is the last stage of a comprehensive innovation / diffusion process.

A) Full scale diffusion

B) Partial scale diffusion

C) Incubation

D) Externalization

4. __________perspective focuses on how the various channels and modes of communication (media, interpersonal etc.) can be used to influence a diverse group of potential customers to adopt a technological innovation.

A) Technological

B) Infrastructure

C) Traditional

D) Adoption

5. The diffusion process begins with the first stage of innovation that is the individual action stage. This stage has eight phases, each of which contributes to the innovation and diffusion process. Which of these eight phases is usually considered to be a private affair?

A) Definition of the problem

B) Incubation

C) Inspiration

D) Influence

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6. What do you understand by diffusion? What is its importance in the context of technological innovation?

7. What are the different perspectives on diffusion? List and explain them.

8. Discuss the phases of diffusion.

9. Explain the role of opinion leaders in developing a diffusion strategy.

10. Who is a change agent? What role does he play in the diffusion process within and outside the organization?

11. Bring out the importance of communication strategy in diffusion process.

11.8 Answers to SAQs and TQs

SAQs I

1. Refer to 11.2

2. Refer to 11.3

3. Refer to 11.4

SAQs II

1. Refer to 11.5

2. Refer to 11.5

3. Refer to 11.5

Answers to TQs:

1. B

2. C

3. A

4. D

5. B

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