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OCR for page 16
Innovation and Industnal Evolution
in Manufactunng Industries
JAMES M. U l-l ERBACK
Histoncally, studies of innovation have had a linear viewpoint. That
is, they have seen innovation as something Mat begins with a company
possessing a certain technology and den investing in that technology, and
the accompanying ideas, and implementing them in the market. Lois
approach, however, assumes that all innovations occur in the same way
in all companies and disregards the fact that organizations change through-
out their lifetimes. It also fails to distinguish between product and process
innovations, each of which may follow a different path. In short, He
interaction of technological change and the marketplace is much more
complex and dynamic than linear models can describe. The dynamic model
discussed below describes how change in product ~nnovabon, process
innovation, and organizational structure occurs in patterns Hat are ob-
servable across industries and sectors. The dynamic model allows con-
sideration of the different conditions required for rapid innovation and for
high levels of Output and productivity. The argument describing this model
is built on historical studies of innovations in Weir organizational, tech-
nical, and economic settings. Such data are necessarily incomplete, but
at He same time, Hey yield a rich variety of insights.
Parts of this chapter draw upon the following previously published sources: Abema~y and
Utterback, 1978; Hill and Unerback, 1979; Utterback, 1978; and Utterback and Abemathy,
1975.
16
OCR for page 17
INNOVATION AND INDUSTRIAL EVOLUTION
UNIT OF ANALYSIS
17
Product and process innovation are inextricably interdependent; in con-
s~dering manufacturing innovation, bow a product line and an associated
production process must be taken together as the unit of analysis. Termed
a productive unit in this chapter, this unit of analysis is a slightly different
concept than a business or a firm. For a simple firm or a s~ngle-product
firm, Me productive unit and the firm would be one and the same. h~ a
diversified firm, however, a productive unit would usually report to a
single operating manager and normally be a separate operating division.
When Me word "firm" is used in this chapter, it should be taken narrowly
to mean productive unit as defined here.
Competition in the marketplace is not only between firms, but often
between products or product lines. Even an enterprise classified as a single
industry might find itself competing with many disparate groups of firms
with different product lines or lines of business. Thus, to group productive
units sensibly into industry or market segments, one must ask: In what
product Lines do units view each other as direct competitors? Within a
segment, productive units that view each other as direct competitors face
a similar business environment and set of competitive requirements for
their technology. The terms "industry" and "market segment" will be used
here In this limited sense.
A key idea is that productive units may be arranged in a dependent
hierarchy from final market to equipment and matenals suppliers. Thus,
what is viewed as a product innovation by a unit at one level is part of
the production process or product of a unit at Me next higher level (Ab-
erna~y and Townsend, 1975~. This means that most innovations affect
productivity directly. It also means that Me markets to which innovations
respond are often defined by the characteristics of other fiens' production
processes. Operations management and management of technological in-
novaiion and change are inextricably linked.
The fact Mat one firm's product is another's manufacturing equipment
or matenal, and the fact the major product changes are often introduced
from outside an established industry and viewed as disruptive by the
existing competitors, means that the standard units of analysis of industry
firm and product type are of little use, for as technology changes, Me
meaning of these terms also changes. Analysis of change in the textile
industry requires that productive units in the chemical, plastics, paper,
and equipment industries be included. Analysis of electronics finns requires
review of the changing role of component, circuit, and software producers
as they become more crucial to change in the final assembled product.
Major change at one level works its way up and down Me chain because
OCR for page 18
18
JAMES M. U1TERBACK
of the interdependence of product and process change within and among
productive units. Knowledge of the production process as a system of
linked productive units is a prerequisite to understanding innovation and
competition ~ ndusuial context.
Earlier work on Me management of technology has focused at a micro
level, dealing win similandes among particular successful cases of product
or process innovation (Utterback, 1975), whereas work on We economics
of technological change has focused at a macro level, dealing with changes
in productivity and technology among industries (Rosenbloom, 1974~.
Neither has aimed at understanding We dependence of product ~nnovabon
on process Innovation and its crucial importance for operations manage-
ment and strategy. Use of the idea of a productive unit as the unit of
analysis requires focusing on Weir critical interaction, bow within a unit
and between units linked by physical flows of equipment, matenal, and
parts (Abernathy and Townsend, 1975~.
PRODUCT INNOVATIONS
What is needed is a view of innovation that will aid We decision-making
process of company managers, government policymakers, and researchers.
Out of this need has arisen a theory holding mat the interaction between
technology and the marketplace is much more complex and dynamic Wan
We linear view would have us believe. It is our contention here that the
conditions required for rapid innovation are extremely different from those
required for high levels of output and productivity: Under demands for
rapid innovation, organi7~1ional structure will be fluid and flexible, whereas
under demands for high levels of output and productivity, organizational
structure will be standardized and inflexible. Thus, a firm's innovation
attempts will vary according to its competitive environment and its cor-
responding growth strategy. It will also be affected by the state of de-
velopment of both its production technology and Nat of its competitors
(Abernathy and Utterback, 19781. Therefore, we can expect to see different
creative responses from productive units facing different competitive and
technological challenges, which, ~ turn, suggests a change in the way of
viewing and analyzing possible policy options for encouraging innovation.
A dynamic model of innovation (Figure 1) includes a pattern of se-
quenual and cross-sectoral change in product innovation, process inno-
vation, and organizational structure. Finns Nat are new to a product area
will exhibit a fluid pattern of innovation and structure. As the market
develops, a transitional pattern will emerge. Finally, the market stabilizes,
fostering a specific pattern of behavior. Therefore, a radical innovation
one that can create new businesses and transform or destroy excising ones
OCR for page 19
INNOVATION AbJD INDUSTRIAL EVOLlJTION
19
is often the result of Me addition of entirely new requirements to a pre-
v~ously stable set of dimensions (Nonnann, 19711.
hn We fluid phase of a firm's evolution, the rate of product change is
expected to be rapid, and operating profit marks are expected to be large.
The few existing competitors will be either small new fimns or older firms
entering a new market based on Weir existing technological strengths. A
firm might be expected to emphasize unique products and product per-
forrnance in anticipation Mat the new capability win expand customer
requirements. The new product technology win often be crude, expensive,
and unreliable but win fig a function In a way Mat is highly desirable in
some market niche. Prices and profit margins per unit will be high, because
the product often has great value In a user's application.
Several studies have shown that Me performance criteria Mat serve as
a primary basis for competition change from ill defined and uncertain to
well articulated as a firm travels Trough the venous states of development
(Fnschmuth and Allen, 1969~. In emerging product areas, there is a pro-
liferation of product performance dimensions. These frequently cannot be
stated quantitatively, and even the relative importance or ranking of the
venous dimensions may be unstable. Thus, because most product inno-
vations will be market-shmulated, there will be a high degree of uncertainty
about Bed potential. This can be called target uncertainty.
Although He total amount of research and development (R&D) In a
sector may be large, its focus will be diffuse. This is cabled technical
uncertainty. The expected value of any R&D investment is reduced by
the combined effect of target uncertainty and technical uncertainty.
Technology to meet needs will come from many sources, including
customers, consultants, and over informal contacts, because fluid units
tend to rely heavily on diverse, external sources of information. However,
He critical input will not be state-of-d~e-=t technology but new insights
about needs (von Hippel, 19771; innovations will originate in units with
intimate knowledge of users and user needs.
As bow producers and users of a product gain experience, target un-
cercainty lessens and product Innovation enters He transitional state. The
usefulness of the new product is increasingly better understood, and it
may take on a variety of new forms to serve over parts of He market.
Additional improvements and innovations incorporating new components
and systems concepts may be required to expand its possible uses and
sales. A greater degree of competition based on product differentiation
usually develops, and dominant product designs may begin to emerge.
At the same time, forces Hat reduce He rate of product change and
innovation are beginning to build up. As obvious improvements are in-
troduced, it becomes increasingly difficult to better pest performance, users
OCR for page 20
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OCR for page 22
22
JAAlESM. l~lTERBACK
develop loyalties and preferences, and the practicalities of marketing,
distribution, maintenance, advertising, and so forth demand greater stand-
ard~zation. Innovations leading to better product performance become less
likely unless He improvement is easy for the customer to evaluate and
compare, for firms will attempt to maxir~iize their sales and market share
by defining Weir needs based on Lose of the customer.
The reduction In target uncertainty that comes from greater diffusion
of product use allows a correspondingly greater degree of technical un-
cermnty to be toleratM. Therefore, larger R&D investments wall be jus-
bfied-for advanced technology will become a major source of furler
product innovation. At some point, before the cost of technological in-
novation becomes prohibitively high, and before increasing cost compe-
tition erodes margins below levels that can support large categories of
indirect expense, He benefits of R&D probably reach a magnum.
The emergence of a dominant product design Hat enforces standard-
~zation marks the beginning of the specific state. Such product design
milestones can be identified in many product lines; sealed refrigeration
units for home refrigerators and freezers, effective can-se~ng technology
in the food canning industry, and the standardized diesel locomotives in
the locomotive and railroad industry are but a few examples.
George White (1978) contends that dominant designs can be recognized
in the early stages of they development. He suggests that dominant designs
will usually display sever of He following qualities:
.e Technologies Hat lift fundamental technical constraints on He art
without imposing stringent new constraints.
· Designs that enhance the value of potential innovations in other ele-
ments of a product or process.
· Products Hat ensure expansion into new markets.
· Products that build on existing operations rather than replacing ~em.
The dominant new product design signals a significant transformation,
affecting He type of innovation that follows it, the source of information,
and the size, scope, and use of formal research. As the productive unit
evolves into this specific state, He set of competitors often becomes an
oligopoly and competition begins to shift to product price, which means
Hat product design and process design become more and more closely
interdependent as a line of business develops. Margins are reduced, and
production efficiency and econoniies of scale become emphasized. Con-
sequently, the requirements for He market become simpler and more
precise. As price competition increases, production processes become more
capital-intensive and may be relocated to achieve lower costs. This re-
iocanon may even shift capacity overseas (Vernon, 1966; Wells, 19721.
OCR for page 23
INNOVATION AlID INDUSTRIAL EVOLUT10N
23
Because investment in existing process equipment is high, and product
and process change are interdependent, both product and process ~nno-
vations in the specific state are usually incremental. Under these conditions,
however, both product and process features are well articulated and easily
analyzed, and He conditions necessary for the application of scientific
results and systems techniques are present. Unfortunately, Be payoff re-
qu~red to justify the cost of change is large, whereas potential benefits He
often marginal; innovations typically will be developed by equipment
suppliers for whom the incentives are greater and adopted by the larger
user firms (Abernathy, 1976; Abernathy and Wayne, 1974~. Thus, as the
product market shifts from fluid to transitional to specific, He locus of
major product innovation may shift from user to manufacturer to equipment
supplier (see Figure 2~.
PROCESS INNOVATIONS
~,`
A production process is the system of process equipment, work force,
task specifications, material inputs, work and information flows, and so
form employed by a unit to produce a product or service. In the fluid
state, the productive unit will typically be small, with limited resources.
Order backlogs may rise rapidly, even Cough the market is small, reflecting
the unit's limited capacity. The novelty of the product may mean that the
unit will be the sole supplier for a limited period of torte.
hn this situation, He unit will attempt to expand rapidly in He simplest
way possible. The emphasis will be on highly skilled and flexible labor,
and the process itself will be composed largely of unstandardized and
manual operations, or operations that rely on general-purpose equipment.
The adaptations made to equipment by He fine will be minor, as in a job
shop, and the problems of coordination and control will be similar. Ca-
pacity levels will be poorly defined. Such a system necessarily is inefficient.
Greater volume will be achieved through paralleling existing processes
and improving manual operations. There will be few scale biers to entry
into the business.
As a small purchaser, tile unit will usually have little Influence over its
suppliers. Raw materials and parts will be used as available; if new ma-
tenals or parts are produced for He unit, their quality may vary widely.
Vananons in input quality and product design are compensated by He
considerable flexibility in the types of tasks each individual and piece of
equipment can perform.
When sign~ficant~nough volume is achieved In one or more product
lines to encourage standardization, the production process enters He tran-
sinonal state. Major process change then occurs at a rapid rate. Production
OCR for page 24
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OCR for page 26
26
JAMIESM. U7TERBACK
systems become increasingly difficult to change, mechanushc, and rigid.
Tasks become more specialized and are subjected to more formal operating
controls. Some tasks are automated, and emphasis is placed on a systematic
flow of work. Levels of automation will vary widely with "islands of
automation" linked by manual operations (Bnght, 19581. As a result,
production processes in this state will have a segmented quality. Steps to
expand capacity will most frequently include breaking bottlenecks. A larger
Animal ~nvesunent will be required to enter Me line of business during the
transitional state than in We fluid state.
Having become a more significant producer and purchaser, the unit win
develop suppliers that depend on its business, which will enable it to
influence the consistency of its inputs. Labor tasks win gradually become
more structured, win emphasis on particular skills. Maintenance, sched-
uling, and control will increasingly be handled by specialized labor rawer
clan directly during production.
The production process reaches the specific state when it becomes highly
developed and integrated around specific product designs, and as invest-
ment becomes correspondingly large. In this state, selective improvement
of process elements becomes increasingly more difficult. Production vol-
ume and scale of plants will be large. The process becomes so weB
integrated that changes become extremely costly, because even a minor
change may require changes in related elements of Me process and in the
product design. Process redesign typically comes in progressive steps, but
it may also be spurred either by the development of new technology or
by a sudden or cumulative shift in the requirements of the market. If
changes are resisted as process technology and He market continue to
evolve, Hen the stage is set for either economic decay or a revolutionary,
as opposed to evolutionary, change.
A strong influence will be exerted on suppliers to provide consistent
quality and flow of inputs, as these are critical to He unit's productivity
and profits in its now high-volume and low-margin operation. Tasks Hat
cannot be automated may be segregated from the mainstream and per-
formed in separate locations or by subcontractors. Consequently, pro-
duction scheduling and control, quality control, materials requirements
planning and materials handling, job design, labor relations, and capital
investment decisions will vary with changes in product and process tech-
nology.
The discussion above implies Hat venous productivity elements pro-
cess integration, materials and labor inputs, and scale can be considered
as a set of actively coupled elements. This means that each must change
in a balanced way for product and process change to advance uniformly.
When one element is changing more rapidly than others, or when one or
OCR for page 38
38
JAMES M. U~1ERBACK
THE AUTOMOBILE
More than 100 firms entered and panicipatedindhe I~nencan automobile
industry for a period of 5 years or longer. Figure 5 shows the wave of
entry Mat began in IS94 and continued Hugh 1950, followed by a wave
of exits beginning in 1923 and peaking only a few years later, although
it has continued until the present day.
7s
65
ss
U'
~ 45
ILL
IL
o
~ 35
z
25
all closed steel body introduced by Dodge
Number of Operators J
.
r
/
/l A A
1
Number of Entries ~
5090 of U.S. products in closed
\ steel body
\ 80% of U.S. products in closed
\~ steel body
1
-
~_
-
~I ~/ ~I ~ ~ ~ I ~ AA ~ Number of Exits
-
4~J W ~ ~~I U~)J~\ ~ ,l,~ ~
1900 1910 1920 1930 1940 1950 1960
YEAR
FIGURE 5 End and exit of films in Me U.S. automobile industry: 189~1962. Data
from Fabns (1966).
OCR for page 39
INNOVATION AND MUST EVOLUTION
39
As hypothesized, entry began slowly but then accelerated rapidly after
1900, reaching a peak of 75 participants in 1923. IN the next 2 years, 23
firms, nearly a Nerd of the industry, left or merged, and by 1930, 35 firms
had exited. During the ensuing depression, 20 more firms left.2 There was
a brief flurry of enmes and then exits Immediately after World War lI,
but as Figure 5 shows, the number of firms in the industry was relatively
stable from 1940 through 1960.
The number and scope of major product Innovations are reflected in
this pattern of enmes and exits. hn 1923, the year win the largest number
of fimns, Dodge introduced We all-steel, closed-body automobile. The
large number of exits over We next few years corresponds to the fact that
by 1925, 50 percent of United States production was closed steel-body
cars, and by 1926, 80 percent of all automobiles were of this type. The
post-World War IT stability in market shares and number of firms reflects
the fact that approximately three-quarters of the major product innovations
occurred before the start of the war.3
Innovations in product accessories and styling concepts were tested in
the low-volume, high-profit luxury automobile. Conversely, incremental
innovations were more commondy introduced in lower-pnce, high-volume
product lines. General Motors led in both Apes of innovations, particularly
for major product changes. In certain years, engines show a higher annual
magnitude of changes; these changes, however, occur with less frequency
than those in chassis characteristics; body productive units are more flexible
and continuously changing than engine plants, which tend to change oc-
casionally in an integrated and systematic way.4
COMPARATIVE ANALYSIS
As a productive unit develops, its reliance increases on outside sources
for production process equipment and components. Finns in the auto
industry, for example, developed an early and increasing reliance on
suppliers for many types of equipment and innovations (Abernathy, 1978,
pp. 60-611.
Development of relationships with suppliers, and of a captive set of
suppliers, is a hallmark of all the evolving product market segments cited.
For example, during the 1890s George Eastman was helped greatly by
the availability of high-quality papers and chemicals, some of which had
been developed for the earlier dry-plate photographic market; he was also
assisted by the rapid increase in the number of firms manufacturing cam-
eras. Several such firms were subcontracted by Kodak to manufacture
camera backs and shuKers to Eastman ' s design. Similarly, during the 1 970s
the large number of companies assembling electronic calculators were
OCR for page 40
40
JAMES AI. U*1TERBACK
greatly aided by the availability of high-qualin', components win declining
prices from semiconductor manufacturers. However, in bow these ex-
amples, these strengths eventually became weaknesses. Established com-
petitors med to bankrupt Kodak by capturing the rive or Free sources of
high-quali~cy photographic paper, Bus drying up his supply. Then, unex-
plained quality variations in the celluloid that he purchased combined win
over circumstances to make several months' production of fihn useless.
Finally, financial weakness and instability among the venous firms man-
ufacturing cameras Greatened to make it difficult and expensive for Kodak
to provide cameras to customers. These events pushed Eastman first in
Be direction of producing its own photographic paper, then its own chem-
icals, and finally its own cameras, camera backs, and shutters (Bnght,
1949; Jenkins, 1975~.
Advantages also turned to disadvantages in the calculator industry when
rapid reductions in the puce of semiconductors caused enormous inventory
losses for firms that were purely assemblers. As the production capacity
of semiconductor manufacturers increased and production costs dropped
further, virtually all the value-added in the calculator occurred In He
manufacture of its components, these firms simply integrated forward to
provide the entire calculator for He user (Majumdlar, 19771. Thus, while
suppliers may play a highly creative role as a set of productive units
develops, there will also be a drive among producung firms to capture
close elements of supply Hat create He greatest uncertainties for ~em.
However, it should be pointed out that the most innovative producers
always seem to provide some of their own production equipment. Aber-
nathy (1978) and Fabns (1966) show Hat General Motors and, especially,
Ford have made continuing process innovations. In the semiconductor
industry, Texas Instruments, in particular, has stressed production process
innovation and integration, and Tilton's data (1971) show a pronounced
shift toward process innovation by new firms as the Industry developed
and as Heir market shares expanded.
In summary, those finns Hat survive Be introduction of a dominant
design appear to be those Hat integrate venicaBy or establish the closest
supplier relationships. Sometimes, it is He supplier who integrates forward,
rather than an early manufacturer who integrates backward, Hat dominates
the market. As Abernathy observed:
The degree of vertical integration is not static as long as major product changes are
taking place. It is rather the equilibrium condition of a continuous effort to extend
integration backward in the face of the constant erosion caused by product change.
As Me technology of product design advances so that novel changes [are] made less
necessary, vertical integration can be maintained without such continuous effort [A~
empathy, 1978, pp. 1 1~1 113.
OCR for page 41
INNOVATION AND INDUSTRIAL EVOLUTION
41
Examining market structure during waves of change indicates that fimns
that are highly integrated are the most vulnerable to functional techno-
logical competition, for they have developed stable production processes
and sources of supply and thus have a major commitment to the existing
technology (Utterback and Kirn, 1986~. They may view the new technology
or product as either highly specialized with a narrower and small market
or as an inferior good, also win narrow market appeal. For example, all
Me major vacuum tube firms adopted the transistor for traditional appli-
cai~ons of tubes. Gene Strull of Westinghouse Electric Corporation has
been quoted by Braun and MacDonald (1978) to the effect that probably
every major older company began the use of transistors in the divisions
that had been making tubes for the same purposes. Strull claims that this
practice handicapped the introduction of semiconductors because it made
them look like a replacement for the tube; it was a few years before people
started to look and see what the transistor could do in its own right.
All major mechanical calculator firms were early entrants in the elec-
tronic calculator business. However, Hey emphasized the complexities of
the electronic calculators, and produced them only for the most difficult
and limited scientific applications, not in broader and simpler lines for use
in business (Majumdar, 19771.
The major mechanical typewriter fimns were early entrants in the man-
ufacture of electric typewnters but did not continue with their innovations
after World War lI. The government played a role here in that it directed
the typewriter companies to manufacture venous types of arms for He
war effort and specifically enjoined them from making typewriters. Since
IBM Corporation was not in a critical labor supply area, it was allowed
to continue manufacturing electric typewriters, nearly all of which were
placed in government and military offices. This not only allowed IBM to
expand its technical capability and market share, but it also introduced a
wide variety of people to use of the new electric typewriter. When IBM's
competitors reentered the new business after the war, they all did so with
their traditional mechanical designs (Engler, 1965~.
Finally, companies producing woven carpets of wool were placed at a
double disadvantage by the innovation of tufted carpeting using synthetic
fibers. Firms producing woven woolen carpets had strong ties with wool
suppliers and controlled, through purchases, nearly the entire wool market.
Synthetic materials not only enabled the new tufting technology to be
highly productive, but they allowed the carpet market to expand dramat-
ically with falling, rather than nsing, marginal costs, an experience that
was foreign to the manufacturers of woven carpets (Reynolds, 19671.
The previous examples have shown how firms enter and leave an industry
in parallel with product innovation in that industry. In the fluid state, while
OCR for page 42
42
JA1VESM. PAPERBACK
product requirements are still ambiguous, Here will tend to be a rapid
entry of firms and few failures. As the industry enters the ~ansii~onal
state, and product requirements become more defined, fewer firms enter
and a larger number either may merge or fail. Finally, as Be industry
enters Me specific state, there are only a few large firms, each controlling
a consistent share of the market, and possibly a few small finns serving
highly specialized segments.
INNOVATION, ORGANIZATIONAL STRUCTURE,
AND INTERNATIONAL TRADE
The literature on technology and international trade has shown that shifts
in innovation and industry structure are tied to shifts in the location of
production and flows of trade. Louis Wells (1972) finds that trade vanes
with the product life cycle as follows: Innovation occurs and production
begins in the county with He largest and most demanding market for
product typically He United States. Exports quickly begin to serve mid-
scale markets Europe and Japan. Production then begins in the early
export markets win He focus of exports starting to shift to less well
developed markets, such as South America. Europe and Japan begin ex-
porting to developing countries in competition with the United States while
manufacturing begins In those countries also. Ultimately, producers in
developing nations begin exporting back to-Europe, Japan, and the United
States. An essential point of this argument is that once a product becomes
a commodity and the technology stabilizes that is, when it enters He
specific state-maintaining control of production becomes increasingly
difficult. This is especially so if other countries have great advantages in
factor costs, including materials and energy as well as labor. Conversely,
if technology is rapidly changing, innovation and manufacture are much
more likely to occur close to users. Freeman (1968) has linked this phe-
nomenon to the export of process equipment. Hekman (1980) has shown
that He rapid advance of textile technology led manufacturers to cluster
around Boston in the 1 830s. He further shows Hat as production technology
stabilized, the industry became widely dispersed in part through the export
of now-standardized textile equipment from Boston.
Linsu Kim (1980) has pursued a similar hypothesis in reverse in the
contemporary and international setting of the Korean electronics industry.
He found Hat He industry became established in Korea through transfers
of standardized technology to firms having bow the strategy and the or-
ganizahon capable of absorbing it. Later, these firms began to produce
variations in product and process. The learning and adjustment engendered
by the firms' incremental innovations help to create an organization that
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INNOVATION AND INDUSTRIAL EVOLUTION
43
may become "innovation viable," that is, an organization able to succeed
In malting product changes In larger steps and to compete on a more equal
and independent footing in export markets.
Nearly all these examples point to Me hypothesis that entering early is
the most viable strategy for a firm. If we based our assessment of tech-
nolog~cal and market dynamics strictly on U.S. business history, it would
be hard to disprove this hypothesis. For example, carbon-filament incan-
descent lamps replaced gas lighting; they themselves were replaced by
metal-filament incandescents and later by fluorescent lighting. The Edison
Company and the Swan Lamp Company were the innovators in carbon-
filament lamps, but only an insurmountable patent position in other aspects
of lamp manufacture allowed Edison to overcome new Finns that adopted
metal filaments earlier than it did. Sylvania in the United States was the
first to innovate with fluorescent lighting, and it increased its market share
from 5 to 20 percent at General Elecmc's expense. Harvested, naturally
formed ice for refrigeration was replaced by machine-made ice and later
by mechanical refrigeration; it was not the ice-harvesi~ng companies that
innovated in mechanical means of ice production, nor was it the companies
producing ice and ice boxes who innovated in the area of electromechanical
refrigeration. Finally, in the 20 years from 1889 to 1909, Eastman Kodak's
share of the U.S. photographic market went from 16 percent to 43 percent
at Me expense of established makers of ply photographic plates, because
of its innovation of celluloid roll film.
Whereas some investigators of technology and corporate strategy in the
United States have emphasized the value of early entry with an innovation,
Harvey Brooks wntes:
The typical pattern of Japanese success has been rapid penetration of a narrow, but
carefully selected segment of a broad, expanding world market in which superiority
in production efficiency, economies of scale, and exploitation of learning curve effects
were particularly important. By expanding more aggressively than its U.S. competitors
and anticipating reaming curve improvements and economies of scale further into the
future in its pricing strategies, Japan has been able to capture an important share of
the market for selected products just behind the current technological frontier. They
have then broadened out from this point in the middle technology spectrum and moved
gradually toward more sophisticated and higher value-added products in the same or
a closely allied market segment. Willingness to plunge in and adopt a new technology
on the basis of its ultimate promise before it was proven to be cost~ffeciive has been
combined with careful and thorough scanning of related world technological devel-
opments for their possible competitive Treat or promise [Brooks, 1985' p. 3301.
The success of Japanese firms in U.S. markets for automobiles and steel
raises a variety of questions about business strategies in technologically
dynamic product markets. Clearly, in the past each wave of radical product
OCR for page 44
44
JAlklESM. ~E~ACK
change has brought with it the entry of new finns- either small,
technology-based enterprises or larger firms carrying their technical skills
into He new product and market areas-and these firms may dominate
Be restructured industry. The Japanese example, however, shows Mat
productive units can pursue widely different strategies as long as the
strategy is matched to the state of evolution of He technology. Clearly,
He dynamics of technological change in relation to corporate strategy and
international competition are fruitful areas for further work. This is es-
pecially so in He light of changing organizational forms and the increasing
integration of production across national boundaries, issues discussed by
Doz and Teece in subsequent chapters in this volume.
SUMMARY
In summed, to understand how the development and diffusion of tech-
nology affects national productivity and competitiveness, it is essential
that we understand He linkages of product technologies win manufacturing
process, corporate organization and strategy, and He structure and dy-
namics of an industry. Lacking balance and integration among all essential
factors means that by investing heavily in one area, a firm could allow
its competitors to exploit the new product or process technology first.
Focusing on manufacturing (or product development, or finance) alone
is wholly insufficient. Product design for manufacture, change in orga-
nizabon, and appropriate strategy are also prerequisites for competitive
strength. By the same token, potential for product innovation and com-
peti~aveness depends increasingly on ability to innovate in manufacturing
processes. Finally, there exists a hierarchy of productive units a product
for one is part of the process for another and therefore affects productivity
directly. Productivity at He final use stage is strongly affected by the
vitality of productive units at earlier stages. Lack of responsive suppliers
of equipment and components will seriously constrain advances in update
products and systems. Moreover, it is not clear to what degree a nation
can import process equipment and assume that its long-run competitive
and innovative strengths will not be eroded.
With regard to industry structure, appearance of a dominant design
shifts emphasis to manufacturing for survival. Those who fail to shift will
usually not survive. The dominant design should address world markets
and standards to be most competitive (see Lehnerd in this volume). Sim-
ilarly, it is a mistake in competition to automate too soon or too extensively.
Doing so may reduce flexibility in the face of continuing product change
and may leave a firm win heavily capitalized plants that are obsolete He
day they come on steam. Tailored manufacturing approaches that allow
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INNOVATION AND INDUSTRIAL EVOLUTION
45
needed flexibility in product characteristics are often hallmarks of the most
successful and competitive firms.
As a product design stabilizes, diffusion of technology is inevitable
Trough movement of skins and people as well as advanced equipment.
Architect rebuilding of industry is constantly required; a vital area for
research is He discovery of means Trough which large and established
organizations can constantly and creatively renew their businesses. In an
organization win a diversity of products in different markets and at dif-
ferent phases in Be dynamic product cycle shown in Figure 1, there is a
serious problem of fitting together the organizational styles required for
each of the different stages. A subdivision Mat may be We logical functional
locus for He introduction of a new product because of sim~lanty of market
may have a hierarchical, bureaucratic organization more appropnate to a
mature old product and therefore be unable to accommodate itself to He
innovation. This may have been one of He main reasons why vacuum
tube divisions that initially seemed to be at He forefront of transistor and
semiconductor technology (where Hey benefited from government support)
were unable to become the leaders in the market for this technology when
it moved from the fluid stage tome transitional stage. Purely entrepreneurial
strategies may no longer be sufficient for successful entry. Rather, creative
coalitions blending the strengths of both new and established finns may
be required for success in a more international compentve arena.
ACKNOWLEDGMENTS
~ am especially indebted to He late William J. Abernathy. Our collab-
oration led to many of the ideas and findings expressed here. Many others
were originated by him and are explored in the context of the auto industry
in his book The Productivity Dilemma (Balt~rnore: Johns Hopkins Un~-
versity Press, 19781. This report is based on work supported by the National
Science Foundation, Division of Policy Research and Analysis under Grant
No. PRA7~82054 to the Center for Policy Alternatives at the Massachu-
setts Institute of Technology.
~ also owe a special debt to both Harvey Brooks and Bn~ce Guile. The
original manuscript for this was written In 1982 as part of the above-
mentioned project. Harvey Brooks provided an extensive and challenging
commentary on He manuscript. Many of his questions are addressed in
part here, much improving the resulting document, but many remain to
be addressed. Bruce Guile helped far beyond any reasonable expectation
not only in thoroughly editing the manuscript but in providing essential
suggestions, advice, and encouragement.
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46
JAMES M. U~ITERBACK
NOTES
1. Many over examples also could be cited to support these hypotheses. For example,
Arthur Bnght's work (1949) on invention "d innovation in the electric lamp industry
cites demled statistics on firs' entrances and exits, and he gives elaborate histories of
Me major firms Westinghouse, the Thompson-lIuston Company, and Me Edison Com-
pany, the latter two of which later merged to become General Electric. Phillips (1971)
and Miller and Sawers (1970) provide similar data on air frame and aircraft engine
manufacturers; these data have been summarized in another paper by Linsu Kim (1980).
Anderson (1953) gives general figures on the number of participants in different phases
of the American ice and refrigeration industry, and Jenkins (1975), while concentrating
on the Eastman Kodak Company, also discusses the formation, merges, and demise of
many other competing firms.
2. Ibe material in this section is based on a dissertation by Richard Fabris entitled "Product
Innovation in the Automobile Industry," written in 1966. Supplementary information
on the origin and diffusion of different major innovations has been obtained from William
Abernathy's book, The Productivity Dilemma, and on market shares and entry from
Burton H. Klein's book, Dynamic Economics.
3. These figures are somewhat understated because Fabris does not count a firm that merged
but continued in a larger conglomerate as leaving the industry for example, Cadillac
and the Oakland Company (now Pontiac) are counted as surviving independent firms.
4. Fabas studied 32 major product innovations and found that 70 percent occurred before
1935. Abernathy (1978) includes three additional major innovations as occurring dunug
this period the aluminum alloyed piston, Me automatic choke, and disc brakes. Two
more of Abernathy's major product innovations energy absorbing st=g assemblies
and 12-volt electrical systems follow the 1962 termination of Fabns' analysis, so Here
is about a ~vo-thirds overlap between the nvo studies.
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INNOVATION AND INDUSTRIAL EVOLUTION
47
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Representative terms from entire chapter:
product innovation
