11. Technological Evaluation

Historically, technology forecasts appear to have gone terribly wrong. Estimates can be off by several orders of magnitude in market size and decades off in timing. Market size has been grossly over estimates and under estimates. Timing usually errs on the low side. As a way of introducing the issues of technological assessment, it is useful to review the source of error that leads to imprecision of estimates.

11.1 Overview  


11.1.1 Wrong Frame of Reference

Probably the most notorious source of error is in a misunderstanding of the world that the technology will function in. What we know, depends on our experience. Our "facts" are the collection of experiences. New technologies often break through barriers of the past; making that past experience a poor model of the future.

Often we see the embodiment of the technology imposed on the present world. These retrofits result in a mismatch that distorts our assessment of the technology. Performance

One of the classic example of past experience misguiding judgment was in the evaluation of the jet aircraft engine potential performance. During World War II, Prof. Von Karman strongly disagrees with estimates of the potential power to weight performance of jet engines. He did not believe that these engines could deliver performance more than a factor of ten greater performance than conventional engines of that time.

This same problem plagues a number of areas including microcomputers. It had been difficult to foresee the huge increase performance both in computer memory circuits and processors that have come about over the past decade. Cost

Costs and prices tend to be psychologically fixed. It is hard to imagine costs and prices existing orders of magnitude above or below that reference. If we view, for example, computers as being expensive, it is hard to imagine them as toys. Market

Costs and volume are fundamentally linked. When we fix the costs of devices or uses of technology, we also fix the market size. Here again we can grossly under or overestimate the situation. Infrastructure

The commercialization of a technology requires an infrastructure of manufacturers, distributors, retailers, and service firms. We generally assume that the infrastructure will be as it is today rather than change dramatically.

For example, the growth of the video tape recorder was greatly dependent on the existence of video movie rentals and the infrastructure to support it. Had the movie rental business not developed, it would be unlikely that the demand for videotape equipment would become anywhere near the size it became. Furthermore, the pressure toward standardization, which has dominated the development of video recording technology, was demanded by this infrastructure which had not existed when the technology was first commercialized. Practice

How we expect a technology to be used, directs us to assume the market size and demand. However, we usually assume that the future practice will be a variation on the present activities. For example, we would assume that TV usage would follow that of radio. However, that has not been the case. The Installed Base

Technologies generally require installed capabilities to perform their function. The availability of the "install base" can limit or expands the capabilities of a technology. For example, the capability of automobiles depends on the availability of roads and highways. the capability of commercial airplanes depends on the availability of airports. The penetration of the technology is often controlled by this install base.

11.1.2 Constraints

There seems to be a natural constraint that bound the speed and extent that a technology can grow. These limitations, if appropriate, can structure the range of possibilities. However, we should also note, that inappropriate application of constraints or assumed constraints could lead to severe underestimates of performance. Natural Limitations

There are natural constraints that limit the effectiveness and use of technologies. Engines can not exceed 100% thermodynamic efficiency. The speed of light and the transmission of heat are limiting factors in the operations of integrated circuits. These constraints, if appropriate, limit the performance of technologies. Economics

Economics also tend to limit growth. There is only a finite amount of funds available for any application irrespective of its quality or value. The allocation of funds on a national level tends to remain fairly constant or, at least, grow slowly on a continuous basis. This sets limits on how fast whole new classes of products can be introduced. For example, the adoption of MRI (Magnetic Imaging) was limited by government willingness and ability to expend funds. Penetration

Products tend to penetrate markets in a fairly consistent and uniform manner. This penetration rate reflects both the ability of manufacturers to supply products and the willingness of the markets to accept them..

Markets tend to take up to six years to become saturated for a single application. For multiple applications, penetration can take more than 80 years in the case of telephones. This continuous penetration process acts as a limit on the speed of growth.

11.1.3 Competition

Competition drives improvements in all technologies. The technology of sailing ships improved most dramatically when steam propulsion was replacing sail. Silicon integrated circuit technology has improve under pressure of other substrates. And the rapid increase in the cost performance of RAM and hard fixed disk memory made magnetic bubble memory only an experimental curiosity.

11.1.4 Enablers

Technologies don't exist in isolation. Other technologies, policies, people and things work to enable or retard the development and growth of technologies. Incorrect evaluation of these adjunct factors can critically affect the overall assessment. Technologies

Usually for an embodiment of a technology to grow, adjacent technologies must be available. For example, the growth of the inexpensive hand calculators depended on the development of Liquid Crystal Displays. The original Light Emitting Diode Displays require too much power for long term use or to be photo (solar) powered.

The existence and availability of such technologies often determine the time frame and the growth potential. It should be noted that these technologies are synergistic. As one develops, so does the other. Predicting this interaction is often difficult but necessary. Policies

Government policies and programs can greatly affect the market or even the survival of a technology. How would commercial aviation change if the Air Force had purchased the Flying Wing (B-49) during the late 1940's. How would US railroad technology be different if the Interstate Highway system had not been built. What was the impact of the 55-MPH limit on highways? Things and People

Similar to the idea of the install base, there are things and conditions that stimulate or depress the penetration of technology. The availability of skilled users, for example, is a traditional limitation of technology.

11.1.5 Incorrect Value

Demand is determined by the value that users assign to the application of technology. By incorrectly or inaccurately estimating value, the potential market for a technology may be grossly under or over estimated.

11.1.6 Lies and Wishful thinking

There is an inherent conflict of interest between the sources of information and the users of that information. The major sources of information on technologies, their applications and the their potential commercialization are the firms and individuals involved. The very nature of development and sales requires an optimistic viewpoint. This is often convey in optimistic forecasts and expectations.

The falsification of information may go beyond mere optimism. Start up firms raise capital based on forecasts. These forecasts can be greatly exaggerated for that purpose. Industry "experts," such as consultants and university professors are both interested parties, but also receive funds from the propagation of the field. There appears to be a "correlation" between announced "breakthroughs" and recent reductions of funding.

11.2 The nature of technology

Technology is a capability. It is derived from knowledge obtained either from "science" (a systematic compilation of information and theory) or from an "art" (a practice). In either case, it is an ability to do something. It may do that something better or worse.

11.2.1 Embodiment

Technology can be useful only when it is embodied into devices or procedures. Technologies are often only associated with the embodiments. Computer processor technology may be associated with the resulting computers. For example the INTEL 80286 microprocessor was the center of the IBM AT class personal computer and as been associated almost exclusively with it.

In practice, the evaluation of a technology is synonymous with the evaluation of the embodiment of that technology and, therefore, it is unnecessary to separate the two. An Assemblage Technologies

The resulting devices can be thought as an assemblage of technologies. Several technologies both in the product and in the means of producing that product must be brought together. Critical Technologies

Critical technologies for an embodiment are those for which the existence of the resulting device would not be possible in the desired form. For example, integrated electronic circuits and micro-electronic displays (LCD and LED) were both critical technologies for the development of the hand-held calculator.

Changes in these critical technologies can greatly impact how the devices will function. For example, the change from Light Emitting Diode Displays (LED) to the Liquid Crystal Displays (LCD) had a major impact on the operations of the hand-held calculator by increasing its battery life. Applications

The resulting device or procedure operates on applications. It is the applications that generate value. How well the resulting devices perform the applications determines the perceived value of the technology. The Practice

Applications are defined by the chore that needs to be done and the way or practice by which it is performed. When an application is identified, both the chore and practice must be defined. Time Line

As technologies develop, their capabilities expand, and experience using the technologies grows and costs fall. This represents a dynamic process. Decisions of when to invest in technology depend on this dynamic process. Describing this process as a Planning Time Line is a useful tool both for discussion purposes and as an illustration of the dynamic process. Life Cycle

As technologies and the resulting devices are used, the potential applications will expand into areas previously not recognized. This process is the life cycle for the application within its embodiment. Note, however, that the addition of new technologies may change the situation. Retrofitting

Initially, all new technologies will be applied to well-recognized applications. The new technologies will have to perform already existing chores using the present practices. This "Retrofitting" process neither shows the full potential of the technology nor its best performance. However, it is the basis for the evaluation of technology during its introduction. Diffusion

New applications generally emerge for which the embodied technology is uniquely appropriate. The value of these new applications often exceeds the initially conceived functions. Sometime these "new" applications were originally conceived by the developers but not practice by the initial users. Establishment

At some point, the devices define the operating and accepted practice. Any newer technology or device must operate within this practice. At this point, the technology becomes part of the establishment. For example, consider the Plain Paper Copier, when the copier is not functioning, most offices panic. Copiers, even though the technology is less than forty years old, are an established part of the commercial environment.

11.2.2 Attribution

The device is defined by what it does. Defining the device in terms of its features is referred to as attribution. Attributes

One can consider a device to be a combination of attributes. For example, a copier may be judged in terms of it's: speed, cost, quality of print, modification of the image, color capability, cost per print, life, price of the device, service, etc. These attributes are inherent to the device. The recognition of the attributes comes from improvement of them. The color capability was recognized only when it was available. Levels of Attributes

Each attribute is manifested as a level. For example, copier speed may be 20 copies per minute. This is the level of the attribute. Value is derived from comparisons of devices with different levels of attributes. Differences Between Attributes and Benefits

Attributes only have value if they give a benefit to the user. For example, high quality printing, with more than 300 dots per inch, may not have value if the user can not see the difference. The difference between attributes and benefits should be clearly noted. There is an implicit assumption that all improved attributes yield benefits. This is not necessarily the case.

11.3 Technology evaluations

Technology is evaluated either implicit by managers' and users' purchases or explicitly by specific decisions. There are three general types of technological evaluations that are reported. However, there are interdependent.

11.3.1 Technology Evaluation

This is the evaluation of a technology or its embodiments, for the firm or organization. It is limited to the interests and concerns of the firm as it effects its ability to compete and service its customers.

11.3.2 Technological Forecasting

Technological forecasting is a discipline developed during the 1960's and 70's in an effort to predict changes in technological capabilities. Since the growth in technology depends on its acceptance, its forecast depends on production, sales and evaluation of economic value.

11.3.3 Technological Assessment

With the establishment of the Office of Technological Assessment of the U.S. Congress, the term "Technological Assessment" has been associated with technological evaluation for public policy. Public policy evaluation focuses on the total value, costs, and risks to the U.S. of technologies and all of its potential embodiments. This extends well beyond the interest of the firm.

11.3.4 Interdependence

It should be noted that all three types of technological evaluation require knowledge of the impact and value to the firm of technologies. Technology evaluation for the firm and user should be central to all evaluations.

11.4 Scope

A general, all encompassing, technology evaluation is never possible at economically reasonable costs. The evaluation must focus on the specific issues that are to be evaluated. In this regard, all evaluations are limited. It is critical that the scope and its assumptions be stated.

11.4.1 The Problem

The evaluation is undertaken for a reason. This usually a specific problem under review. For example, a class of personal computers may be evaluated for acquisition. In each case, the specific problem dictates the scope and limits of the evaluation.

11.4.2 Timing and Resources

Timing and resources constrain the evaluation. Timing is critical for any decision. In the case of technology evaluation that criticality enters twice: first, it limits the extent of the data collection and analysis, and second, it effects the evaluation itself. Technology is a moving target. The timing for the analysis sets the end of the evaluation, irrespective of new available information. Without that limitation, many evaluations would go on indefinitely.

11.4.3 Focus

The focus of the evaluation sets the limits of what will be considered. It is the fundamental assumptions regarding what will and will not be included. Items

The items to be considered limit the analysis. Technologies

The most general issue is the specific technologies to be evaluated. Usually the technologies are only considered as they are embodied into devices and practices. However, if the problem involves a decision to invest in the development of a technology rather than its use, then the choice of technologies is critical. Embodiments

As previously noted, benefits from technologies are manifested from their embodiments. That is either in products and services or in means of producing them. In either case, evaluation of technologies requires the selection of specific embodiments of the technologies. Applications

Furthermore, the devices and services have to function on specific applications. These applications are the working situations for which the device will yield value to the firm. For example, consider a word processing package for a personal computer, such as Microsoft WORD or WordPerfect. These programs embody a number of technologies and can be used for many types of applications. For evaluation, we need to select a few which are important, such as letter preparation and report writing. These then will become the basis for the evaluation. Environment

Any application operates within a constrained environment. This involves the abilities of the users, safety conditions and the physical environment. To define the application its environment must be understood adequately. Outputs

The specific conditions of the output of the application must also be specified. This consists of the number, type, and quality of the results that is necessary. Extent

Typically, a number of technologies, embodiments, and applications will need to be considered. This is both for direct evaluation and for comparison. Some of these are core to the decision others are peripheral, but still important. Targeted Issues

Targeted issues are those items that are the core of the evaluation and must be considered. It is important to note what is core and what is not. Issues can get fuzzy as the number increases. Peripheral

Issues originally thought to be peripheral can be core as the analysis proceeds. The evaluation itself is an evolving process. As more information is obtained, a clearer picture of what is important should emerge. It is not unusual to find a different perspective on the technology after the analysis then originally contemplated. Impact

Technologies impact applications and applications impact the availability of technologies. Furthermore, technologies, as previously mentioned are not independent. The interaction of technologies with themselves and applications are described as by influence diagrams and impact matrices. These tools are also used in Total Quality management and systems design.

These are referred to as "Interrelationship Digraphs", "Prioritization Matrices", and "Matrix Diagrams" in the Quality arena, see: Brassard, M., The Memory Jogger Plus+, GOAL/QPC (1989) Influence Diagrams

The influence diagram focuses on the interrelationship between applications and technologies. The purpose of the diagram is to show the interrelationships. Such diagrams allow for feedback mechanisms that characterize technology development. Impact Matrices

The impact matrix relates applications to technologies. Usually this type of matrix is designed to identify critical and limiting technologies. It is a key tool when dealing with a portfolio of applications sharing common technologies. Cross Impact Matrices

The cross impact matrix focuses on the interrelationship among technologies. The rapid development of one technology may accelerate other technologies and retard still others. Cross impact matrices are critical tools for exploring the impact of competing technologies.

11.5 Competition

All technologies have competition. Nothing is so unique that nothing can compete against it. The fundamental decision is usually a choice among alternatives.

11.5.1 Competitive Technologies

Often there are several competing technologies. This may not be obvious. For example, various computer disks storage technologies (such as magnetic hard disks and optical disks) compete indirectly with other permanent storage devices but also compete with Random Access Memory (RAM). If RAM memory becomes cheap enough it can be used as disk memory. This happen in the case of Magnetic Bubble Memory which had a higher performance and price than standard magnetic disks at the time of introduction but poorer performance and lower price than RAM. As the price of RAM decreased, it pushed out all but unique applications for Magnetic Bubble Memory.

11.5.2 Competitive Embodiments

Often several devices utilizing the same family of technologies are available. In some cases, the specific evaluation is among these options rather than the evaluation of the basic technologies. The choice may be, for example, which laser printer to purchase rather than a comparison among printing technologies.

11.5.3 Competitive Solutions

There are usually other solutions to the fundamental problem than the use of either a specific technology or embodiments of it. These alternative solutions should be evaluated carefully. Being "blind sided" is a major cause of poor evaluations.

11.6 Technological Change

The major elements of technological evaluation are: Value, Cost, Business Risk and consistency to the organization's technology strategy. All these elements, however, rest on the knowledge of the dynamics of the technology being considered. Technology changes and those change affect all things.

11.6.1 Concepts of Technology change

Technological change has been studied for hundreds of years. It has been viewed as a principle driving force of history as well as economics. One of the fundamental problems in technological forecasting is the establishment of measures of technological progress. Figures of Merit

A figure of merit for technology, measures how it performs. For example, a measure of photographic performance is the "speed to grain ratio." This measure the photographic efficiency represents the number of units of light required to make an image. It is a fundamental measure of performance. Inherent Figure of Merit

An inherent figure of merit is a measure of the performance of the technology itself. The "speed to grain ratio" is the inherent figure of merit for visual production materials. It is a comparative measure for all such materials indicating the "signal to noise ratio. However, it should be noted that, this measure does not necessarily translate into application performance. Operable Figure of Merit

The Operable Figure of Merit refers to the specific applications. It measures the performance of a technology as it performs specific tasks or is embodied into specific systems, or used in a specific type of application. Since many technologies may have to be harnessed for the specific application, the Operable Figure of Merit will depend on the level of other technologies. It, therefore, refers to a state of all limiting technologies, not any single one. Operating Envelope

An operating envelope represents the flexibility of embodying the technology into a product. For example, several photographic films can be developed using a technology with the same "speed to grain ratio." Each of these photographic films can give widely different photographic speeds ranging from very fine grain, slow speed portrait film to high-speed instrument recording film. Incremental Improvement

Most technologies show a seemingly continuous improvement of technical figures of merit. This is usually viewed as a gradual incremental process. Pressing the Envelope

Figures of Merit improve as a technology is developed until it reaches some natural barrier. New technologies often allow for such barriers to be bypassed. Unfortunately, the term "break-through" technology has been over used, and has become merely hype. Originally, the term was used to identify when a previously acknowledged barrier had been by-passed. Change within a Technology

However, even within a technology envelope, improvements in application can be significant. For example, photographic films with new extremely high speed or resolution can be achieved which represents new applications even if the figure of merit (speed to grain ratio) did not improve. "Quantum Leaps"

Some development strategies search for an abrupt change in technologies. This assumes that there will exist a correspondingly abrupt change or rate of change in the figures of merit. While these "quantum leaps" of technology have been noted historically, they tend not to be recognizable at the time of inception. New technologies tend to have inferior performance at early stages of development. Early steamboats did not outperform sail and early firearms did not outperform the crossbow. Experience

As previously noted, technology is derived from the accumulation of knowledge. What we learn, translates into what we are able to do. A technique to forecast technological change based on experience involves plotting the change (measured as real cost) against the accumulative experience measured as production. This is referred to as the "Experience Curve" or "Learning Curve". Discovery & Invention

Discovery and some inventions appear to take place suddenly. However, they are usually the result of a prolonged process and with many false starts. Furthermore, similar discoveries often happen at different place around the same time. The knowledge, driving forces, and conditions for the discoveries are often available to a number of people and places. Rare Events

Discoveries can be considered "rare events", that is that the likelihood of a discovery is very low. The low likelihood is due to the overwhelming obstacles against a new meaningful discovery. It should be noted, however, that in important areas there can be a large number of investigators at work. Return Time

Discoveries and inventions impact technology evaluation by their influence on the introduction of newer technologies. Average return time captures the expected period for a technology to begin to be obsolete. Three factors that determine technology life span are: (1) return time of invention and discovery, (2) traditional new product introduction timing, and (3) the ability of the industry to handle change. Typically, the traditional new product timing dominates the process within a technology. Trends

Capabilities tend to grow along historical trends. Extrapolation along these trends can yield reliable estimates of capabilities. Sigmoid Growth

A traditional model for capabilities is the "S-Shaped" or sigmoid growth curve. This model allows for an early introduction, followed by exponential growth, and finally a maturation phase. A logistics equation, which assumes that growth in capabilities is proportional to the existing capabilities and the remaining potential for growth, is widely used.

Fitting data to the logistics model involves plotting the logarithm of the relative Figure of Merit against time Accelerated Exponential Growth

The logistics model assumes a natural upper limit to capabilities. For individual technologies, this is usually valid. However, for groups of technologies, the growth of capabilities appears to increase indefinitely and at an accelerated rate. Usually this is referred as an envelope of technological growth. For example, the growth in speed of aircraft by engine type each form "S-Shaped" curves, but considering all three types of engines (piston, jet, and rocket), the trend is better described as an accelerating growth model. Tracking

A third group of methods for forecasting technological change is by comparison with other similar and linked technologies. For example, the speed of commercial aircraft tracked that of military aircraft but lagged several years. It should be noted, however, that those trends may not continue indefinitely. The speed of commercial aircraft, for example, plateaued during the early 1960's while the speed of military aircraft continued to increase.

11.6.2 Application

As previously noted, technologies are manifested in the devices and applications that they are applied to. The rate by which applications are developed from technologies are driven by different forces and constraints than that of the development of the primary technology itself. Much technology is discovered and developed with government funding. Most of the industrially relevant applications, however, are commercial in nature and funded by enterprises. Driving Forces

The driving forces of adoption of the embodiment of technologies rest on its financial return. Improvements on the "bottom line" drive adoption. Those improvements come from cost saving and improvements in the market. Value

Value is the measure of the financial reward. It comes from cost savings or increased productivity. Price

Price and more importantly price reduction are major forces in the growth of an application. For example, the reduction of the price of laser printers allowed their introduction into the personal computer market. Previously, with costs in excess of $10,000, they were exclusively for mainframe systems. Utility

Utility are the non-financial rewards. These include return not easily quantified. Perceptions by users and customers may fit into this category. Competition

The threat of competition can be a major driving force for the acceptance of technology. In addition, the use of technology against competition can also drive technology growth. Capability

The desire to expand capabilities can also be a driving force for diffusion of technology. New and unspecified capabilities had been cited as a reason for the rapid acceptance of personal computers in the commercial environment. Ownership

The ownership, or lack there of, can greatly affect the acceptance of new technologies. This may manifest itself as the well known "Not Invented Here" (NIH) syndrome. In extreme cases, resistance to technology may develop when the technology is not controlled by the firm involved. Patents

Control of patents has been cited as a cause for the delay in television development during the 1920's and 30's. Fundamental patents and technology for television were available from the late 1920's. Copyrights

Copyrights can have similar effects. Could the "look and feel" of LOTUS 1-2-3 limit the entry of new spreadsheet technologies. In the software area, this has become a fairly complex issue. For example, the Graphic User Interface (GUI) was first developed by Xerox Corporation, introduced in large scale by Apple Computer, and followed by Microsoft with Windows.. Proprietary Position

Proprietary position can also affect the willingness of firms to accept and promote technologies. Leading firms tend to be more willing to promote technologies since they are in the best position to reap large rewards than firms with subordinate market positions. On occasion, however, with very risky technology, smaller firms are more willing to take risks since they have less to lose.

11.7 Value Analysis

The principle driving force for technology is money. The technology evaluation rests on this principle. However, that evaluation is not simple.

11.7.1 Benefits

Benefits are the financial gains to the firm. Application

Benefits are derived from the use of the devices embodying the technology for specific applications. The applications must be fully defined. The Practice

The benefits are derived from using the devices. The way the device is used defines the operating practice. For evaluation, the practice needs to be fully defined. Following the Money

erations itself, from clients and other from other cost and profit The trick is to follow the money. Determine how money is derived from the application and its practice. Note that funds may be derived both from the opcenters. Cost Reduction

Cost reduction is a key element in benefits. This may come from reduction in direct costs, waste, or maintenance. Productivity Improvement

Productivity improvements and savings in manpower can be critical. For example, the publishing industry has vastly decreased manpower with the introduction of new composition and printing technologies. Competitive Advantage

Increase market share by improvement of competitive advantage results in money. The early introduction of computerized airline reservations affected share, which resulted in the federal government requiring American Airlines, for example, to share its reservation system. Making our Customers Make More Money

In the industrial environment, value is obtained by a firm only if the firm can deliver superior value to its customers. In particular, the firm must help its customers to make more money. Quality

The same position exists in the delivery of Quality. Higher delivered Quality can either command higher prices or a larger market share. In either case, benefits are derived from the application of the technology. Value-in-Use

Engineering cost models can be used to estimate the value of the technology in the applications. This involves establishing the total costs of a practice with and without the new technology. The value added by the technology is attributed to it. Value-In-Use;

11.7.2 Utility

Utility is used to define either all value or just value that can not be easily quantified. We use the latter definition here and associated utility with the concept of perceived value. The Gee Whiz

Technologies can give a "Gee Whiz" effect. This refers to capabilities that appear to be spectacular. Usually, the "Gee Whiz" is associated with some display or capability, which does not enter into the existing practice. For example, a computer with a high-resolution color display may look outstanding compared to black & white displays. The new display may not add to the functionality of the process.

"Gee Whiz" does, however, give value to the users. While the existing practice may not utilize it, it will eventually. And just having the capability and demonstrating it can give utility to the owners. This utility should not be disregarded. Brands

The source of the technology can effect its perceived value. Computers from IBM may be perceived as reliable. Sony electronics may be perceived as high quality. The source, brand and the firm associated with technology influence their value and our confidence in their continued value. Perceived Value

Perceived value is the measure of subjective utility. The problem is how to measure it. The simplest method is asking users. Unfortunately, this type of "self explication" is often unreliable. The Market-Place

We often can obtain insight into value based on the market place. For example, sustained price premium for brands over competition is a measure of the willing of the market to pay for brand value. For example, IBM consistently commands a price premium for its personal computers. Since competitive products are in almost all other aspects the same, that price premium can be associated with the brand name. Testing

Sophisticated marketing research techniques have been developed to measure perceived value of product attribute levels. These tend to be fairly expensive techniques to execute and to interpret. Generally, these techniques are used only by the suppliers of technology.

11.8 Costs

Balanced against benefits are the costs of introducing and using the new technology.

11.8.1 Acquisition Costs

Direct acquisition costs reflect the cash outlay for the devices, materials and services necessary to get the technology in place. Generally, these costs are well recognized and data is usually available. However, it is important to obtain all relevant costs. For example, some new printer technologies require special paper whose cost must be included in its adoption.

In addition to direct costs are those associated with its introduction and over its life span. Product Life

Most devices and practices exist over an extended period. During that time maintenance, upgrading, retraining, and disposal must be considered. Some devices are expected to last longer than others. Some printers, for example, have an expected life of hundreds of thousands of copies while others only tens of thousands. This difference effects long term expenses. Product Life Cycle Costing

A proper method of costing is over the product life cycle. The major problem, however, is in comparison between different technologies, which have different life cycles. Longer life devices may become obsolete rather than die of old age. True comparative life cycle costing becomes both difficult and in some cases may be misrepresentative. Depreciation Life

A key example of the difference between technologies is in depreciated life. Shorter expected life allows favorable tax treatment. Full Costing

Full costing also requires, handling of the disposition of waste, by-products, and the equipment after use. These costs can be significantly different depending on technologies used. Some materials need to be handled with care and disposed as contaminated materials, while others are benign.

11.8.2 Conversion & Training Costs

New devices affect all aspects of processes and procedures. Costs are incurred to test the device, modify existing equipment and procedures, train personnel, and monitor the process. Testing Costs

Testing costs can be significant. For example, testing a new mold forming material or technique in a foundry can not be done in a small way. In order to test the technique, a full-scale operation needs to be run. This involves bringing the new technology onto the site and making a full scale run with it. Materials and manpower must be committed. If a comparison between methods is to be conducted, further expenses will be incurred to cover both the test and the control. Development Costs

Bringing a technology into a shop generally requires modifying facilities and practices. Operations may require cleaner or cooler conditions than the present operations. The identification of these changes as well as their installation incurs costs. Training Costs

The users need to be trained in the use of the technology, not only during introduction, but on a continuing basis. This can become a significant cost. The cost for personal computer training in many cases exceeds the costs of the equipment. Support Costs

Who is going to help solve problems of using the technology? How much is it going to cost?

11.9 Business Risks

Beyond direct costs are business risks associated with adopting technologies. These are both advantages and disadvantages depending on the position taken.

11.9.1 Competitive Advantage

Decline in competitive advantage is likely to eventually affect market share and the price premium that the firm can command. Competitive advantage is derived from those elements of the business and marketing portfolio that makes the firm preferred in the mind of the customer. Changing Practice

A change in practice, either in the firm's or in the customer's operations, due to the acceptance of a technology constitutes a potential advantage or threat. If the change is viewed favorably by your firm and/or the customer, it is an advantage. However, the reverse is also true. Changes in business practices that are unwelcome are threats. Leading Position

Being in the leading market position is both an admirable situation and a risky one. One has much to gain but also much to lose. Dominate market position unfortunately often leads to a cocky attitude in regards to what can be imposed upon the market. Many former leading firms have found that the customers "always know best". Imposed Competitive Cost

Adopting technology often leads to unforeseen expenses as one gets into a "technology war" with the competition. This is particularly the case when the technology involves the customers. Putting ever more complex equipment with the customers, in response to competition, can become extremely expensive.

11.9.2 Early Adoption

Early adoption of technology leads to several inefficiencies along with the benefits of being among the first. Knowledge

Early adopters often have to pioneer application practices. Progress is measured by the number of mistakes. This can become an expensive process and may not yield significant lead-time against the early follower. Economies of Scale

As previously mentioned, the price of products and services tend to decline as more are produced. state-of-the-art personal computers have not increase in price in current dollars and have decrease significant in constant dollars over the past decade. Buying later allows the capturing of this savings. Economies of Technology

In addition, devices become more productive as the technology advances. For example, not only has the price of state-of-the-art personal computers decline in constant dollars, the capabilities of the devices have greatly improved. Over the past decade for example the computational power these machines have risen by a factor of 70, the internal, RAM, memory by a factor of 15, and the disk memory by a factor of almost 100. This gives a vast improvement for later adopters. Time Rules

Time rules recognize some expected rate of change in capabilities. For microprocessors, which drive personal computers, and RAM memory, there is a doubling of capabilities every 18 months on average.

11.9.3 Technology Opportunity Costs

Beyond the issues of improvements and decreasing costs are risks associated with being tied to a technology. The extent of these risks will depend on the opportunity costs of bailing out. Technology Commitment

If the technology is integral to the business and expensive, the technology commitment can be great. For example, if a decision to standardize the organization on Apple's Macintosh Personal Computers then only software, which runs on the Macintosh, can be used. This is a commitment to software technology. Furthermore, since more and more Macintoshs will be purchased, the commitment over time will increase. If an IBM system software is needed in the organization, conversion will be extremely expensive. Compatibility

Compatibility with other technologies can reduce risk. One might select printers, for example, which are compatible with both IBM and Macintosh systems. This will reduce the costs of conversion and therefore the risk.

11.10 Technology Strategies

The use of technology has always been a part of business strategy either explicitly or implicitly. However, only recently have efforts in formulating technology strategies been part of the overall business planning activity.

11.10.1 Default

Default or implicit strategies are derived from the action of the management. They are often the actual strategies followed even though contradictory technology visions have been published. Piece-wise Evaluation

The piece-wise strategy asserts that each new technology opportunity will be evaluated in isolation and based on its "bottom-line" effect on the firm or on the division. This is a traditional financial evaluation approach.

Several problems emerge from its application:

  • Leads to a lack of standardization;
  • Leads to a lack of consistency in policy; and
  • Hinders systematic development of technology capabilities. World Class Strategy

The World Class Strategy asserts that the firm will maintain a position of second to none in the use of appropriate technology. "Appropriate" is emphasized to recognize that one can not be World Class in all aspects of technology. Some technologies are more appropriate than others. The issue is to select what is appropriate and of that set what is the best.

Several problems emerge here also:

  • Leads to a lack of standardization, again;
  • Leads to over concentration in particular technologies; and
  • Often, leads to too early a commitment to a technology route. Follower Strategy

In the follower strategy, the firm attempts to reduce technology risk by using only "tried and true" approaches. New technology is adopted only when it is clearly advantageous and all risks are recognized. It should be noted that this is not an uncommon strategy in dealing with major technological issues.

The only major inherent problem in using this strategy is the loose of any an advantage in technology leadership.

11.10.2 Standardization

Standardization is a key problem in all aggressive technology strategies. The rush to adopt technology often results in a diversity of devices and procedures. This lack of standardization tends to prevent the realization of the full benefits from the technology.

Phased adoption is usually undertaken to reduce this problem. Early adopters within the organization tend to be free in their selection of specific devices. Standards are then formed and later adopted. The rest of the organization is then required to comply.

11.10.3 Custom Strategies

Many organizations have adopted custom technology strategies to meet their specific needs. It is critical that the technology strategy supports the overall business objective.

11.10.4 Technology Position

The technology position refers to the relative timing of the adoption of technology. We generally consider position in respect to the technology application rather than the specific industry. In this regard, a firm may be viewed as a pioneer in using technology within its industry, but still be a laggard in the overall situation. Pioneer

Pioneers are normally developers of the technology. Often this is the research engineering arms of firms who function as technology windows. Small groups within firms often act as evaluators and may be "beta" testers for the technology. Usually pioneers have a great interest and potential reward for using new technology with little to lose. Defense contractors tend to be in this group. Early Adopter

While the pioneers often work in the pre-commercial situation, the early adopters are conventional users. They are often technically sophisticated users who expect to capitalize on the new technology. Early Follower

Early followers are users who can be considered main stream users. They buy in after the application for the technology has been well proven and sees a clear advantage to using the technology. Laggers

Laggards tend to be highly constrained users who adopt the technology based on competitive threat, required standardization, or a survival requirement.