Technological breakthroughs change the basis of competition. Historically, we know that every technology grows old and is replaced by newer ones. We also know this shift in technology often results in shifts in competitive advantage. Nature and the British can teach us much about what we should do to gain this competitive advantage. Some of these lessons include the following:
• Develop useful applications for useless by-products
• Invest in leapfrogging technology
• Implement lumpy improvement, rather than continuous improvement
A recent survey by the Product Development and Management Association indicated that more than 30 percent of survey respondents’ annual sales come from products less than five years old. Furthermore, throughout all industries, the high- growth achievers and industry leaders said that their percentage was significantly higher than the 30 percent reaching up to 49 percent (1). The message is that if you and I are competing and I can read the market quicker, bring out new products faster, make many different products on the same line, or instantly change over to other products or services, then I win. The ever-present need to innovate is a lesson we should have drawn from history.
What do barrel makers, blacksmiths, and manufacturers of buggy-whips and slide rules have in common? Well, there are not many of them around anymore. At one time, they were highly prized and were a source of many jobs. Those that found ways to make more efficient barrels or were more productive buggy-whip or slide rule makers enjoyed a higher standard of living. Surely there was concern for customer appeal for improving operations for dealing with their competitors’ next move. Then it all changed, and they had simply outlived their usefulness.
Great Britain, during Victorian times, was able to dominate the world because it was able to manufacture and use relevant tools and technology better than anyone on the face of the planet. But Great Britain should have listened to the Red Queen’s advice in Lewis Carroll’s Through the Looking Glass in which she says that to stay in place you have to run very, very hard and to get anywhere you have to run even harder. Victorian England forgot the Red Queen’s wisdom and Britain lost her dominance of the world. Victorians said the sun never set on their empire. England did dominate 25 percent of the land surface. They ruled more than 20 million square miles of territory and a quarter of the globe’s population and they produced 27.9 percent of all the world’s goods (2). Today the British share of world productivity has slipped to 3 percent (3), so what happened?
From 1790 to 1815 British exports skyrocketed. They came up with startling technological innovations. Asians had already figured out how to turn a scrubby bush into cotton, but the British discovered how to produce it at bargain-basement prices. They also figured out how to mass-produce pig iron—a substance of worldwide demand. British ships controlled the sea lanes, and they developed markets for merchandise everywhere from India to South America.
From 1796 to 1812 France’s Napoleon humbled nearly every nation he encountered—Spain, Holland, Prussia, Austria, Egypt—but somehow could not bring the pesky British (he called them a “nation of shopkeepers”) to their knees. One of the main reasons was that England kept making profits and reinvesting them in industrial innovation and military resistance to Napoleon. Napoleon may have been a great general, but he was a lousy manager because he failed to understand the importance of industrial innovation. Management workers and bosses within his empire were mired in obsolete technologies and eventually he could not afford his armies. He overlooked the fact that military might depends not just on guns and strategic brilliance but on industrial innovation and marketing smarts. The next 59 years were good ones for Britain, in large part because of technological innovation.
The first of these technologies was the spread of mechanization (beyond the mere cotton mills) and the second was steam. The British mastered both, including how to use steam engines to make goods those artisans had taken great pain to produce by hand. One machine-operating British worker could turn out as much cloth as 20 old-fashioned competitors. In Queen Victoria’s day (1837-1901), productivity per person in Britain rose 2.5 times! Wages rose an astonishing 80 percent in real dollars from 1850 to 1900. The world could not wait to get its hands on inexpensive, high-tech British goods. By 1860 the English-with 2 percent of the world’s population—were turning out 25 percent of the world’s wares and over 40 percent of the items from modern industrial plants. Transactions everywhere were financed by British banks and insured by British insurance companies.
They knew their prosperity depended on the fact that they were ahead of other countries in commercial utilization of technology and banned export of high- tech fabric-making machines—but they grew fat with prosperity. The power of the status quo began to grow. They forgot the following facts:
1. Every technological breakthrough grows old.
2. New inventions arrive to replace it.
3. Those that dominate these new technologies rule the world (4).
Oddly, technologies that made steam look old-fashioned were developed in Britain, but self-satisfied British industrialists seldom tried to turn them into tempting new products.
BY-PRODUCTS OF THE BRITISH COLLAPSE
British soldiers on Indian soil during this period had only half the life expectancy of compatriots back home. Malaria decimated British troops in India. Illness became a serious obstacle to British colonization. White men who traveled a few miles inland in Africa invariably became sick and died because of malaria. There was hope the innovative use of the bark of a Peruvian plant could be used to produce a compound called quinine. However, British botanists had almost no luck in cultivating enough of the plants to make even the smallest amount of quinine.
The driving force for R and D during this time was to find a solution to the quinine problem. It was the competitive advantage essential to British success. Concurrently, during this time the British also learned how to extract a vapor from coal and use this gas for lighting, but the process produced a useless by-product—coal tar. Disposing of the useless stuff was a messy business. At London’s Royal College of Chemistry, a German professor suggested to an assistant that he see if he could somehow create artificial quinine from the goo. The assistant, William Perkin, tried but failed. Instead of quinine, he ended up with a liquid whose color was the shade of mauve. When he tried the solution as a cloth dye, it worked! He realized he had something special so he dropped his assistantship, borrowed money from his father, and opened up a small factory outside London. Before long, even Queen Victoria was wearing gowns tinted with Perkin’s mauve.
FIND USES FOR IRRELEVANT INNOVATIONS
Despite Perkin’s rapid rise to millionaire status, most British industrialists ignored his discovery—that is, everyone except the Germans. They worked to find out what other innovative by-products they could extract from coal tar. In 1863 one German researcher came up with what chaos theorists would cite as an example of small changes having a disproportional large consequence. It was a rich shade of green. When Empress Eugenie wore this color to the Paris Opera, it became the fashion rage. Demand drove experiments—by the Germans, not the British.
After Perkin retired at age 36, the British dye industry faded in his absence but the German dye business began the first step in a revolutionary technology. Their experiments with coal dye became the foundation of their chemical industry (5). The exploration of this seemingly irrelevant by-product would have far-flung implications for both nations. One example of a useful by-product of the initial coal tar by-product was the use of chemical fertilizers with which German farmers soon were able to produce more food per acre than any other nation. England invented, then discarded, a seemingly useless process. Germany used the British by-product to gain in competitive strength.
English steam engines would soon begin to look old-fashioned. The greatest physicists of the age —British Michael Faraday and James Clerk Maxwell—were experimenting with electricity but British industrialists did not look at what practical uses they could find for the pair’s discoveries. Those who did were Americans and Germans. Britain’s Faraday had earlier discovered the principle of an alternating- current transformer but had not bothered to pursue the technological implications. The first electric-generating plant in Britain to sell power to the ordinary householder was built by Thomas Edison.
In 1873 Britain went through a Great Depression that lasted for 20 years. Steam technology was on the decline. Other countries were producing inexpensive fabrics. There was a demand for new products, those being produced by Germany’s chemical industry and electrical devices, with great consumer appeal were made by Americans and Germans.
German exports tripled from 1890 to 1913. By 1913 German companies Siemens and AEG dominated the European electrical industry. German chemical giants Bayer and Hoechst would produce 90 percent of the world’s industrial dyes. On the American side, Andrew Carnegie in 1902 produced more steel than all the factories of England combined.
Competitiveness comes from cultivating innovative minds. Germany maintained the best school system, and by the 1890s had 2.5 times as many university students per unit of population as England. Germany was on the move and eventually it would lead to World War I. Britain won, but lost her prosperity. The British worker became the lowest, not the highest, paid. Her factories became the most inefficient when they used to be the most efficient.
The lesson seems clear. Success depends on finding and converting new innovations into producible goods. There is a need to aggressively develop useful applications from what many would consider useless by-products. The focus should be on innovation not on the narrower process of improving a process or technology. Ask “what do we do with this?” Every irrelevant change can and often does produce new winners and losers. To stay in place, you have to run. To get anywhere, you have to run very, very hard!
Investment in change, not in a particular technology, is the key to successful technological innovation. A product development benchmarking study by the management consulting firm, Pittiglio Rabin Todd and McGrath, used a R and D effectiveness index to determine an industry’s overall effectiveness. They found that return on R-and-D investment increased 84 percent. Their index tracked the level of R-and-D spending, as well as profit for every dollar of product development investment. The companies studied had a return of ranging from 25 to 46 cents for every dollar invested in new products (6). Innovation, and particularly R and D, pays; but it is not so much about the money spent as it is about how it’s spent.
NATURE’S LESSONS ABOUT TECHNOLOGY’S EVOLUTION
The earliest signs of life go back 3.45 billion years ago. By 800 million years ago, multicellular organisms appeared. Then something truly remarkable occurred. About 550 million years ago the Cambrian explosion occurred. It is called the explosion because there was not a process on continual or gradual improvement, but rather a sudden and dramatic reengineering occurred. It was during this time that almost all the major divisions of plants and animals suddenly appeared. Only the vertebrates, which are our own niche, arose later. For the next 100 million years, things happened which seem to challenge common sense.
When we look at organisms, humans tend to group them hierarchically from specific to general. The Linnaean chart does this and goes from species (which are capable of breeding with each other) to genera (groups of several species) to families of these species to still larger orders and classes and to still larger phyla and finally to kingdoms. Logic would lead us to believe therefore that the first multicellular creatures would be very similar. Only later would we expect them to diversify from the bottom up. First we might expect to see one species and then see related groups of species or genera, and then see these evolve to eventually still broader groups of families and so on. Darwin would have thought this because he proposed that all evolution occurred by very gradual accumulations of useful adaptations and variations. Using this logic, early multicellular creatures should have diverged gradually from one another, but this did not happen. It seems that in the Cambrian explosion, our chart filled in from the top down, not the bottom up! There was a sudden explosion of widely different and innovative biological body plans. It was the broader phyla, not the more closely related species, that came first. There were sudden, unexpected, and quite original innovations rather than enhancements of current products. This Cambrian explosion is not what we normally expect, but that is exactly what happened.
Technological innovation, like the Cambrian explosion, also seems to fill in from the top. Striking variations arise early and then diminish to minor or continual improvements. Each major innovation can be greatly improved upon by making design variations. Later on, when most of the variations have been explored, nature and human product and service designers begin worrying about the details. Specialization and extinction of biological and technological life go together. For 100 million years, in the Cambrian period, diversity increased to a point where a steady state existed. Nature’s approach to her own innovation is an approach that can work for organizations. 3M takes much the same Cambrian approach when they begin talking about their own technological innovation.
INVEST IN LEAPFROGGING TECHNOLOGY
Innovation at 3M is the engine of growth. They allocate approximately six percent of its yearly revenue to R&D. The key is their use of what they call McKnight Principles. This originated with former CEO, William L. McKnight, encouraged employees to dedicate a significant portion of their time to projects and research that go beyond their core responsibilities. With more than 55,000 products, 3M combines highly innovative technologies in new and unexpected ways including things like applying dental technology to car parts.
The company has had over one hundred years of innovation. William E. Coyne, former Senior Vice President of Research and Development said it best when he said they pursue many projects at once, but place their biggest bets on products that change the basis of competition. They want products and services that are “disruptive” or redefine are what is expected by the customer. They want to leapfrog the competition. For instance, silk-screening had been the historical standard for creating a high-quality image. It is expensive if you want to produce only a few signs, or mark a few vehicles. 3M developed an electrostatic printer system that can make durable, photographic quality, wall-and-truck-sized graphics. They did this at a price that allows customers to make a few or even one image (7). Another example of their competition-changing products was the 3M™ Dry View™ Laser Imaging System. It allows radiologists to develop high-quality, hard-copy images from CT scanners and magnetic resonance imagers. Its quality is good, but what really changes the basis of competition is that it produces the image without the plumbing, maintenance, fumes, and disposal cost of traditional wet-chemistry development technology. It seems that 3M has learned a thing or two about how to create new forms of products and services. They could have seen this in the history of life on earth.
The way 3M develops major innovations is similar to the branching radiations of the Cambrian explosion. Soon after multicellular creatures were invented, many fundamentally different life forms suddenly appeared. Major innovations in body plans were followed by gradually finer and finer adjustments. Some innovations drive others extinct; that is what 3M is trying to do with their disruptive technologies. The marketplace changes the landscape we all live on and creates selective pressures for some technology and not for others. Radically new technological innovations are rapidly followed by dramatic improvements and then gradual improvements in the technology. The bicycle, when invented, had little wheels, then big wheels, two seats, and so forth. Extinction followed and only the most fit design prevailed. Stuart Kauffman once noted that it seems to be a natural law that after increasingly long periods of no improvement, sudden improvements often occur. These improvements then typically reach a plateau and all improvement ceases (8). Aggressive organizations, like 3M, would seem to stack the deck in their favor of developing basis changing innovation if they were to focus on areas where little or no incremental innovation seems to be occurring. The Cambrian pattern shows that the amount of cost reduction or innovation achieved with each improvement in a technology slows exponentially while the rate of finding such improvements also slows exponentially.
Recent research has found some striking similarities between nature’s lumpy approach to innovations and the most successful organizations’ research and development tactics. In general, it appears that the introduction of a new technology does trigger an initial burst of creative activity as users explore the new technology and fix unexpected problems (9). This initial burst of activity is often followed by a dramatic decline within the first few months.
Researchers Tyre and Orlikowski looked at several manufacturers and service organizations in the United States and Europe. They studied 41 projects involving the introduction of new technology. The initial burst of activity was shortly thereafter followed by a rapid fall off of activity and effort. An important point to recognize is that experimenting and creative use of the technology is more likely to occur immediately following the technology’s introduction rather than later. The rapid fall off occurred even though outstanding problems had not been addressed or resolved!
The initial period of introduction of new technology was not the only period that learning occurred. These new technological introductions often started new bursts of activity. These events were short-lived but did help users gain new insights. This cycle of intensive improvement and innovations in the technology followed by relatively stable operations is very much a Cambrian fingerprint. It is also the pattern that repeated itself over and over in Tyre and Orlikowski’s research. They found on average that 54 percent of all activity dealing with the new technology occurred in the first three months in only 12 percent of the average total time for full integration of the technology. The pattern was consistent, regardless of size. This pattern did not exist simply because the users had resolved all the problems within that period. In fact, most of the new technologies would not be considered production worthy for several more months.
This does not mean that all problems after this period were ignored. After the initial explosion of activity, technologies enter a phase of regular use. Sometime later, usually after many months, people would regroup and refocus attention on modifications—again in a concentrated manner. This discontinuous pattern did not seem to be a conscious management policy in any of the companies studied. Rather managers within the organization would often state that they recognized the need for continuous improvement to technologies but that it was difficult to keep people focused on this sort of activity. Familiarity often led to users simply taking it for granted. They naturally sought a level of status quo and stability.
However, disruptions did occur, which occasionally forced users to ask new questions and reexamine old problems. These disruptions were usually new developments that somehow disrupted routine operations like events that suddenly placed new demands on existing operations. For example, when new machines were added, it increased demand and temporarily shut down the line. The introduction of new products, product requirements, or new production procedures were also times when the need for improvement became more apparent.
This non-continuous pattern of technological improvements is very similar to biologists’ punctuated equilibrium. Initial explosion of activity, followed by longer periods of relatively routine operation, is the norm. This initial explosion is often followed sometime later by another explosion caused by some unusual event.
DOWN WITH THE CONTINUAL IMPROVEMENT!
Researchers Tyre and Orlikowski discovered that successful operations do not expect continuous improvements to new technologies. Managers in these organizations both create and exploit these punctuated equilibrium patterns by first aggressively using the introduction to adapt new technologies. They do this by identifying and making the maximum number of modifications as early as possible. Next, they impose routine use of the technology and use the time to teach use of the technology. Finally, they periodically create new opportunities for further adaptation (9).
The point is that they do not build much extra time in for debugging a new technology before moving into production. Using an adaptive challenge strategy, they put intentional stress on their system by developing very demanding early production commitments. Then they take steps to insure that the new technology will be ready. This requires intense revision early on rather than a continual stream of engineering changes. These firms still had problems to deal with but had to resolve them in the brief start-up period. Along with this compressed start-up is a significant commitment of resources. For instance, Toyota’s design engineers, manufacturing engineers, production control, and quality managers live on the production floor during start-ups. Engineering changes are made on the spot (9).
This is not to say that these firms do not continually pursue improvement, because they do. However, this improvement does not occur in a constant stream of changes, rather it is more of a punctuated equilibrium. Except for urgent corrections, these project managers are permitted to make changes to technology or production practices only at designated times (10), (11).
Studies show a naturally lumpy pattern of technological innovation. Effective managers exploit it by carefully managing these spurts. This discontinuous pattern is a good fit for the natural surge of energy that normally occurs at the start of a project. This is followed by a period of routine operation that can be used for enhancing learning. The initial introduction of new technology is a special opportunity for management.
Energy levels are high, which makes this time the best one for influencing the effectiveness of the technology. The motivation to change is at the highest at the beginning and soon fades over time. Therefore, modification and changes in the technology is easiest at the beginning of the projects. There is one simple reason for taking advantage of this initial burst of activity. At the beginning, there are fewer com-peting demands on people’s times. In his study of Toyota, Hall argues that a constant stream of changes can seriously compromise effectiveness (10).
Psychologists also note the people’s motivation to solve problems is partly a function of time. The more exposure to a problem the less alert and fewer details they notice (12). It seems that familiarity makes people less willing to take the time and effort for difficult problem solving (13).
After the initial introduction of the technology, there are good reasons to continue short but intensive spurts rather than to use a more gradual pattern of change. Many of the problems that affect the introduction of new technology require divergent perspectives of managers, engineers, and operational personnel. Gathering the resources once to attack a problem is more efficient than repeatedly getting them together. Continuing this program of short spurts of change followed by longer periods of regular use helps to focus people’s attention after they have had time to gain experience with it.
CREATING CAMBRIAN OPPORTUNITIES
Recognizing these initial patterns would suggest that managers begin to consider how to create opportunities for the burst of activities. Attention should be paid to how to use those opportunities as well as how to make the best use of regular flatter periods. Creating new opportunities could occur through adaptive challenges through occasional audits of how the technology is doing. Using a stretch goal approach that pushes the system to the limit might also be another approach. Setting extremely high standards for a short period might also force intensive problem solving.
An opposite but potentially effective approach is a sudden injection of new resources for only a short period of time. This could be a special day during which all attention is turned to solving key problems, upgrading equipment, or undertaking a new refinement. There are potentially many approaches but the key is to react rapidly during a limited time. Tight time limits help groups to concentrate and develop new innovations. However, it is essential that these deadlines do not become unrealistic or so rigid that they become dysfunctional. It should also be understood that new opportunities can be created in the future. This second change approach may also help managers set more realistic expectations and deadlines.
Stephan Jay Gould has observed, “wind back the tape of life to the dawn of time, let it play again, and you will never get humans a second time, nor the dinosaurs” (14). We humans, and all our artifacts, are here by the slimmest of chances. Extinction, not life, is the iron rule of biology.
Lessons from the British experience are worth noting. Being the best is never insurance against extinction. The world of change is not a rational model. It is your continual willingness to change rather than commitment to a particular technology that is essential. Sticking with what made you successful can be a serious mistake; even depending on superior technology is a risky proposition. The status quo in all forms is a powerful force, one that can ultimately bring down nations and organizations.
Individuals, groups, organizations, products, processes, services, and nations go extinct almost on a daily basis. The history of earth records at least thirteen major extinctions; civilization records many more. John Shea of Harvard University observed the pattern of life and emphasizes that everything must eventually face this reality. The modern human population’s current genes and features will cease to exist. It is the fate of every species and of every technology.
Continual innovation is essential to life and competitive organizations, but it is not enough. We must be able to make the best use of our time and technology. People hate change—so use it sparingly. The Cambrian logic shows us a potential way of maximizing technological change and perhaps maximizing its impact. Lumpy or discontinuous change seems to be far superior to continual change.
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