Technology Push vs Market Pull

Business Basics For Engineers

TECHNOLOGY PUSH vs MARKET PULL

Contact: Mike Volker, Tel:(604)644-1926 email: mike@volker.org

Notes from 9th Annual Canadian MBA Conference: MANAGEMENT OF TECHNOLOGY
McMaster University, January 9, 1988.
Presentation by: Michael C. Volker, Hi-Tech Entrepreneur

Background

In business today, especially in technology based businesses, there is a "primary risk factor". It is competition! All other business risks can be managed or hedged. Today's technology leaders can become tomorrow's technology losers.

There are countless examples of firms which rise to technological stardom and are the envy of their peers only to find themselves, a few years or perhaps even a few months later, lagging behind their competitors and struggling to maintain their market share. Two Canadian companies, AES Data, the firm which invented the word processor, and Mitel Corporation, a leader in telephone PBX systems and once a darling of Bay Street, are both examples of innovative companies which failed to produce the encore commanded by their markets. Even more mature organisations have found themselves in a similar situation. In 1981 AM International lost $245 million when it tried to replace its electromechanical products with electronic ones. RCA and GE are often cited as examples of technological leaders (vacuum tubes) who lost out to new technologies (transistors).

Managing Technology or Marketing Management?

Managers of technological enterprises can usually be found in one of two camps: those who think that the market should dictate their course of action and those who believe that their technology will develop a following. The former are the marketing managers who attempt to define market needs while the latter are engineers and technologists with better mousetraps. But, did the marketing people know that the market needed polyester tires, ceramic engines, superconductivity, and personal computers before their existence or feasibility thereof was established? Can a marketing manager make a list of all of the inventions which he has never heard of? Similarly, can a technologist foresee all the applications (i.e. needs) for nylon or integrated circuits? This writer believes that firms, both large and small, require both perspectives in order to be continuously innovative and profitable.

Many firms gain their notoriety as a direct result of them being able to commercialise an innovation ahead of their competitors. Corporate and University spin-offs are usually formed by individuals who have the vision to see commercial opportunities for inventions and ideas. These companies often experience meteoric growth and enjoy excellent profit margins by being leaders in their particular markets. It is at this point, when they are the most profitable, that they should be committing to new product development. Once their original products reach fruition, they forget that it was their ability to bridge the gap between invention and innovation which caused their success. They begin to focus too heavily on product refinements and improvements and market needs while ignoring new technological developments.

Basic Research vs Product Development?

Basic research leads to invention, i.e. the demonstration of some hitherto unproven fact. Product development and engineering leads to innovation, i.e. the demonstration of a unique implementation of invention that ultimately results in a commercial success (defined as generating some net positive return on investment). Large companies, such as IBM can afford their own creative "sandboxes" in which basic research is fostered and funded.

Technology managers are charged with the task of engaging the firm in the pursuit of new, unknown, and unproven exploration - the modern day equivalent of resource exploration (e.g. oil & mining). Without such explorative efforts, there would never exist the pool of inventions on which the technological entrepreneurs or product managers could draw on to satisfy market driven needs. Smaller companies typically lack the resources required to engage in such "sandboxing" activities. Hence, it is essential that they participate in an indirect manner, e.g. joint ventures, university connections, consortia, etc. to achieve the same end. Even the IBMs, who can make a major commitment to pure research, develop relationships with others so as to avoid the incestuous, not-invented-here trap (witness IBM's investments in Intel, Rolm, and the recently announced Cray spin-off).

S-Curves vs Product Life Cycles

As a technology matures, additional research expenditures on that technology begin to produce diminishing returns. This is the familiar S-curve which shows significant performance improvements at the early stages of discovery, then declining as the technology improves. Technology managers must be cognisant of this basic law and commit funding to new technologies as existing ones reach the top of the S-curve. They can determine their position by estimating the limits of a technology early and charting their performance improvements against these limits. Some practical ways of identifying that a technology will give way to a newer one is by observing the emergence of new competitors using different technologies, diffident researchers, disharmony among research staff, and a general lack of "new breakthroughs".

Each new product that eventually results from research and invention undergoes a "Life Cycle". The Product Life Cycle is a favorite marketing textbook topic. New products typically undergo an introductory stage, during which they produce no net profits, followed by a mature stage at which profits are greatest, and then they go through a declining stage, and reduced profits before they eventually become superceded. Good product management dictates that the firm has several products in its portfolio, each at a different stage in its life cycle. Hence, when the various life cycles are aggregated, the firm will enjoy stable profitability rather than the roller-coaster profit picture often represented by firms with only one or two products under management.

The tie-in between marketing and research is essential. Marketing executives must understand product life cycles and the need to bring new technologies from the research lab to the market. Research executives must understand S-curves and be able to shift to new technologies in a timely fashion.

Conclusion

Successful technology businesses recognize the need for both marketing and technology management. The executive functions of Marketing VP and Technology VP are both needed. Smaller firms may lack the funding, at least initially, to support both corporate functions. They must then, through liaison with others (e.g. Universities), ensure that both requirements are addressed. A failure to do so will certainly render the firm unable to deal with the "primary risk factor".