“Technological change is perhaps the most powerful engine of growth in markets today. To harness this source of growth, firms need answers to key questions about the dynamics of technological change: (1) How do new technologies evolve? (2) How do rival technologies compete? and (3) How do firms deal with technological evolution? Currently, the literature suggests that a new technology seems to evolve along an S-shaped path, which starts below that of an old technology, intersects it once, and ends above the old technology. This belief is based on scattered empirical evidence and some circular definitions. Using new definitions and data on 14 technologies from four markets, the authors examine the shape and competitive dynamics of technological evolution. The results contradict the prediction of a single S-curve. Instead, technological evolution seems to follow a step function, with sharp improvements in performance following long periods of no improvement. Moreover, paths of rival technologies may cross more than once or not at all.
Understanding technological innovation is vital for marketers for several reasons. Technological change is perhaps the most powerful engine of growth. It fuels the growth of new brands (e.g., Gillette’s Mach 3), creates new growth markets (e.g., digital video recorders), and transforms small outsiders (e.g., Intel) into market leaders (Chandy and Tellis 1998; Christensen 1997; Foster 1986). To date, the topic of technological evolution has been studied primarily in the technology management literature. A central premise is that performance of a new technology starts below that of an existing technology, crosses the performance of the older technology once, and ends at a higher plateau, thus tracing a single S-shaped curve (see Figure 1). There is scattered empirical support for the premise and limited theoretical support for various aspects of the S-shape curve (e.g., Foster 1986; Utterback 1994a).
Belief in this premise is so strong that it has become almost a law in the strategy literature, from which authors have derived strong managerial implications. For example, they have warned that even though managers might be able to squeeze out improvement in performance from a mature technology at the top of its S curve, improvement is typically costly, short lived, and small. Thus, a primary recommendation in the strategy literature and the trade press is that managers should abandon a maturing technology and embrace a new one to stay competitive (e.g., Christensen 1997; Foster 1986). A central, practical problem that managers face is when to shift investments from the current to the future technology. If the S curve is indeed valid, the appropriate time would be the inflection point of the S curve. After this point, performance improves at a decreasing rate until maturity.
New product development and major investments in research depend on a correct understanding of technological evolution in general and of the S-shaped curve in particular. To foster this understanding, this study addresses the following questions:
How do new technologies evolve? Do they follow the S- shaped curve or some other pattern? Are technological changes predictable? Is the rate of technological change increasing?
How do rival technologies compete? What are the performance dimensions of competition? What are the transitions between technological changes?
Which firms carry out and survive technological evolution? Who introduces radical innovations? Do incumbents survive the change?
The primary focus of the current study is empirical. We test hypotheses derived from prevailing literature and exam- ine the evolution of 14 technologies in four markets or industries. In the next three sections, we present the hypotheses, method, and results. In the final section, we dis- cuss the findings, limitations, and implications of the research.”