Technology, Innovation and Entrepreneurship
Part I: My World, My Nation
By Patri K.Venuvinod
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Dedication
To Mrudula, my wonderful wife.
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Copyright Patri K. Venuvinod 2011
Published by Patri K. Venuvinod at Smashwords
Smashwords Edition, License Notes: This ebook is licensed for your personal enjoyment only. This ebook may not be re-sold or given away to other people. If you would like to share this book with another person, please purchase an additional copy for each recipient. If you’re reading this book and did not purchase it, or it was not purchased for your use only, then please return to Smashwords.com and purchase your own copy. Thank you for respecting the hard work of this author.
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Discover two associated titles by the same author at Smashwords.com:
Technology, Innovation and Entrepreneurship, Part II: My Firm
Technology, Innovation and Entrepreneurship, Part III: My Startup
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Table of Contents
Chapter 2 – Techno-Economic History of the World
Ancient to Pre-Industrial Times
The Present Post-Industrial Era
Chapter – 3 The Philosophies of Science and Technology
The Natures of Science and Technology
Philosophical Stances Related to Technology
Chapter – 4 Theories of Economic Growth
Technology and Population Control
Chapter – 5 Economic Downturns
Empirical Data on Economic Fluctuations
Economic Downswing-Upswing Sequences
The Origins of Business Cycles
Preparing for the Next Economic Downturn
Does Innovation go on Vacation during an Economic Downturn?
Chapter – 6 Theories of Technological Progress
Incremental and Radical Innovation
Types of Technological Innovation
Sectoral Patterns of Innovation
Technological Regimes and Paradigms
Technology Accumulation and Transfer
Evolutionary Models of Technical Change
Chapter – 7 Technology and National Development
National Economic Development: A Framework
Goal 1: Maximize Human Development
Connect with Venuvinod (the Author) Online
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About this Book
Thomas Jefferson said "[E]very generation needs a new revolution." The revolution for the generations in the first half of the 20th century was socialism/communism. For the generations of the second half of the same century, it was the return to capitalism. For the current generation, it seems to be entrepreneurialism.
It has become clear in recent times that the key to economic growth is technology (T), that to technology growth is innovation (I), and a powerful contributor to innovation is entrepreneurship (E). Yet there seems to be a paucity of academic books covering the large variety of issues involved in TIE-exploitation in a contemporary manner. This book is the first part of a textbook-trilogy that seeks to fill this gap.
Part I (this book) is titled 'My World, My Nation' as it examines TIE interactions from a world-perspective but stressing nation-building. Part II—titled 'My Firm'—discusses how an established firm could prosper in the contemporary world of globalized competition. Issues of particular importance to the growing number of youth pursuing an entrepreneurial career are discussed in the third and final part—titled 'My Startup'.
The origins of this trilogy lie in the class notes compiled by the author while teaching 'Management of Technological Innovation' to science, engineering and business students at the bachelor's, master's, and doctoral levels. The final contents have been influenced strongly by the insights derived by the author while living in India, the UK, Hong Kong (including extensive travels to China), and the USA. Thus, rather than focusing just on the lessons to be learnt from the experiences of a developed country such as the USA (as most books on the themes examined do), this trilogy empathizes with the biases and concerns of the developed as well as developing parts of the world.
Among the topics examined in this book (Part I) are the techno-economic history of the world, the philosophies of science and technology, the industrial revolution, theories of economic growth, economic downturns, and the roles of technology and culture in national development.
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Preface
The Indian town I grew up in had the distinction of housing what then was the largest sugar factory in Asia. Yet, the town didn’t even have a primary school which meant that I couldn’t receive formal education till I turned nine and was able to lug my school bag across water-laden paddy fields to a government run middle school in a larger, neighboring town. Fortunately, the informal education I received at my home was good enough to earn me entry directly into the fifth grade.
The difference between the two towns was palpable. In keeping with their rural setting, people in my school-town were mostly steeped in age-old traditions, and religious or caste rivalries. This was in sharp contrast with the people in the industrial township I lived who tended to temper blind belief with rationality, dogma with pluralism, and disorder with organization. This contrast provided me with my earliest practical lesson in the power of technology as a vehicle for bringing forth social transformation.
My technicism led to a dilemma, though, as I approached graduation from my high school and started thinking about what I could/should become. The choice was obvious for most of my classmates. A farmer’s son would become a farmer, a grocer’s a grocer, and a feudal landlord’s a landlord. Being a technologist’s son, none of these choices was immediately available to me. In any case, all were unexciting.
Meanwhile, independent India was struggling to find its road ahead. The “Father of the Nation”, Mahatma Gandhi, passionately advocated a bottom-up, village-oriented approach underpinned by altruism. Technology was accorded only a peripheral role, if at all.
But, Gandhi’s influence was already waning as that of Jawaharlal Nehru was rising. As India’s prime Minister for seventeen years, Nehru pursued a national development strategy based on socialistic principles and central planning. (During his formative years, Marx’s works were well-known while Schumpeter had not written his counter-thesis yet. Schumpeter gained some fame by the time Nehru became the prime minister. But, apparently, Nehru’s mind had set by then.) Nehru also acknowledged the central role of technology in development and created a range of public sector industries which became vehicles for technology transfer mainly from the Soviet bloc. Taking cue from this trend, I joined an engineering college in the state capital in the hope of eventually becoming a public sector employee.
One of the few non-technical subjects we had to study was Economics. One would have thought that the syllabus of this subject reflected the prevailing Marxist bias. As it happened, the books prescribed dwelt essentially on classical capitalism. Further, my teacher was an eloquent laissez-faire enthusiast. All this exposed to me to the flipside of Nehru’s strategy: it was ignoring the role of the individual through personal enterprise. In fact, individual entrepreneurship was being discouraged through elaborate licensing requirements. This didn’t bother me since I, like most of my compatriots, believed that no public good can come out of greedy individuals.
Immediately upon obtaining my engineering degree, I proceeded to one of the premier institutes of technology in the country to specialize in design and production engineering. The particular institute I joined was set up with Soviet collaboration, so a good number of my professors were from the U.S.S.R. I learnt a lot about mechanical technologies from them but little about the new developments that were occurring in electronics and computers. There was also little curricular emphasis on the human and market sides of engineering.
My association with Russians and the like didn’t end there as the UNESCO expert from the Soviet Union assessing my masters' thesis reacted favorably to it. He started persuading me to take up academic career at a newly established Regional Engineering College. The idea was that I would assist him on developing the curricula for eight post-graduate programs in technology across India. I agreed.
Over the next few years, I got associated with many more experts from the Soviet Union and Eastern Europe. From them I learnt more about technology and their countries where vertically integrated industries were producing the goods that the respective governments thought their citizens needed.
Next, I was selected to go to the U.K. as a UNESCO fellow to work on my Ph.D. The personal niche in technology (metal cutting) research I was to find there was to remain with me for the rest of my professional life. While in the U.K., I also spent some time at an ILO institute in Italy and secured a deeper appreciation of the role of technology in economic growth. These experiences helped me develop a more secular, and global outlook.
Upon receiving my research degree, I returned to my previous place of employment in India. The aura of my ‘foreign’ PhD helped intensify my research activity. It also made it easier for me to initiate several non-curricular learning activities amongst students. For instance, noting that the college’s curricula had not included management science as a subject of formal study, I organized interested students into what we called the Management Studies Group. Not everyone was happy, though, with our enthusiasm for management science. For instance, during an address to the group, the main message of our Principal was that ‘management’ was no more than a euphemism for worker-exploitation. Many others were also offended as the campus was rapidly becoming a hotbed of communism. The resulting tensions made me think about finding a place more conducive to academic pursuits.
A few years later, I moved to Hong Kong—then still a British colony. I worked at two different polytechnic-universities. At the first, I obtained a broad understanding of how Hong Kong ticked. Hong Kong was very different from India or the U.K. While India was still struggling to find its path and the U.K. was past its prime at least in terms of world domination in technology, Hong Kong was fast becoming a prominent ‘Asian Tiger’ despite being just a city state without any natural resources and little industrial history. It had already acquired international reputation in finance and manufacturing. In terms of manufacturing, it had developed well past the era of Productivity (P) into the era of Quality (Q). It achieved all this by pursuing free market capitalism based on thousands of horizontally integrated small and medium-sized private enterprises. The government assiduously pursued a hands-off policy believing that other social problems would be mitigated automatically as economic prosperity is achieved. The reliance on personal enterprise (entrepreneurship) seemed to infuse many a young person with confidence in the future. These observations made me more sensitive to the power of individual entrepreneurship in economic growth. I also became convinced of the importance of creativity and broad-based education in the preparation of youth for entrepreneurial careers.
All this preparation proved to be particularly useful when I became the founding head of the Department of manufacturing Engineering the at a newly formed polytechnic-university in Hong Kong. I promptly set in motion several curricular and pedagogic experiments. The results only confirmed my convictions.
My 25-year stay in Hong Kong also provided me with ample opportunities not only to learn about but also to interact with mainland China. When I first arrived in Hong Kong, China had just embarked on a journey that was to lift some half a billion people out of poverty within the next 30 years. I had the good fortune of being chosen as a member of the first international delegation organized by some Hong Kong elders to visit China after Deng Xiaoping had declared China’s “Open Doors Policy”. This was only the first of many similar trips to come.
When I first went to South China, I found the place in a shambles following the self-inflicted injuries during the Cultural Revolution. Yet, today, the region is a thriving industrial complex actively contributing to China’s well-earned reputation as the “factory of the world”.
As I noticed during my subsequent trips to different parts of China, this was mainly the consequence of technological advancement resulting from technology transfer underpinned by unprecedented openness. Equally importantly, it was because the government managed to release the entrepreneurial energies of individuals without putting overall political stability in serious jeopardy. China was also wise in adopting the unprecedented “one country, two systems” policy with regard to post-1997 Hong Kong. The policy has already yielded rich dividends—Hong Kong’s industrialists have been providing between 50 and 70% of FDI in China.
The above political developments suggested to us that our department’s programs and curricula would have to recognize not only the local aspirations of Hong Kong but also how the territory could contribute to the rest of China. In particular, we had to take into account the fact that Hong Kong needed to move on to the era of Innovation (I). Keeping this in mind, we sought to broaden our program portfolio beyond manufacturing engineering in a manner that would enable students to equip themselves for the coming era of innovation and entrepreneurship. We also introduced, for the first time in Asia, a bachelor’s program in Mechatronic Engineering and a master’s program in Engineering Management. The former emphasized the design of products and processes involving the integration of mechanical, electronic and computer elements. The latter sought to convert engineers into managers capable of conceiving and operating technology-intensive firms and startups. For over ten years, I personally taught the subject of Management of Technological Innovation (MTI) to both engineering and non-engineering students drawn from sub-degree to doctoral levels.
A major problem I encountered while teaching MTI was that there was no suitable textbook to support my teaching. Whereas I was seeking to examine technology, innovation and entrepreneurship (TIE) in fair detail and in an integrated manner, the existing text books focused on the management of the first while treating the latter two only in a cursory manner. Clearly, there was a need for a new book. It was then that I set upon writing this trilogy.
It took me several years of personal research and learning to come to grips with the book’s contents. I embarked upon such an exercise immediately upon retiring from active service in Hong Kong and setting up residence in the U.S. My work was significantly helped by the fact that my immediate circle in the U.S. included several young, budding entrepreneurs. I learnt a lot by keenly observing their entrepreneurial trials and tribulations.
Upon retirement from formal teaching, I tried to disseminate in India the TIE lessons I had learnt abroad. I managed to bring together over twenty engineering colleges in and around Hyderabad to collaborate under the umbrella of International Organization of Developing Universities (IODevUni). One of the projects initiated by the Chapter was the application of the emerging e-learning technologies to facilitate the teaching of subjects for which member-colleges did not have enough experts.
E-learning enables students to learn anywhere at the pace, time and location of their choosing. The contents of an e-book itself can be updated frequently. One can also use the power of the Internet to build and sustain a learning community around the particular professor/subject. The learning community itself can contribute material such as case studies, adaptation to local and current conditions, and so forth. This is why this trilogy is being offered first in the form of e-books and a website called tecinnovent.com has been set up in its support.
This trilogy is based on five premises that seem to hold in any economy irrespective of the ‘ism’ being followed:
~ The key to economic growth is productivity improvement through improved technology.
~ Innovation drives technology growth.
~ Competition spurs innovation.
~ Entrepreneurship consummates innovation.
~ The above four premises are equally applicable at the levels of nation-building, managing an existing firm, as well as launching a new venture or a startup.
The first four premises resonate with the recent arguments made by Edmund Phelps, 2006 winner of Nobel prize for Economics, that general knowledge—encompassing business, technology, and the economic environment at large—is an important enabler of the virtuous circle of creativity, innovation, and growth.
Following the last premise, this work is organized into three parts, each devoted to one of these three levels. The picture on the cover page seeks to capture the way each part is addressed. The shape of the central structure in the picture is inspired by Wilson Hall of Fermilab situated close to the author’s residence in the suburbs of Chicago (see figure below). Till very recently, Fermilab had been housing the largest particle accelerator in the world. Thus it captures the central role of systematic science. Systematic science of course is the springboard for a great deal of modern technology.
The central structure is made up of three parts labeled Technology (T), Innovation (I), and Entrepreneurship (E). This of course is in agreement with this trilogy’s title. However, the intention is not just to examine T, I and E as themes worth studying in their own right, but also to ‘tie’ them together in a purposeful manner. Nations, firms and professionals who understand how the three elements can be synergistically united will enjoy a clear competitive advantage in the modern, globalized world. This emphasis on pulling T, I, and E together so as to beat the competition is reflected by the black belt around the central structure’s ‘waist’.
Part I consisting of Chapters 1 to 8 is titled ‘My World, My Nation’ as it explores the theme of TIE from a world-perspective but stressing nation-building. As citizens of the world and of a specific nation we all engage in animated discussions about some aspect or other of current trends and events in the world. This part aims to make such discussions more informed and purposeful. The issues discussed should be of particular interest to public officials/workers and those at executive levels.
Part II (Chapters 9 to 17) is titled ‘My Firm’ as it discusses the TIE theme from the perspective of how an existing firm or organization could prosper in the contemporary world of globalized competition. The issues discussed should be of particular interest to professionals and managers at all levels.
Part III (Chapters 18 to 26), titled ‘My Startup’, focuses on issues of particular importance to the growing number of youth across the world seeking an entrepreneurial career. It should also be of interest to serial entrepreneurs and intrapreneurs (mentors of entrepreneurial employees).
Although much of the material covered in the present trilogy is available in other books, few have put all of them together. The trilogy also includes several segments drawing on the author’s research.
An examination of literature on the subject of TIE reveals a variety of discursive approaches. Some rely on a selection of case studies to find commonalities to arrive at a list of do’s and don’ts. Some choose a particular sociopolitical belief system, e.g., capitalism or socialism, and use it to theorize. The method adopted in this trilogy is neither. The term ‘evidence-based reasoning’ captures the preferred mode of discussion.
Although the trilogy adopts an academic writing style, it should be useful to working professionals as well as general readers in addition to university students and researchers. It is not necessary that all the chapters are covered in a single semester. Depending on the course objectives, one can pick and choose chapters. There is enough material in the trilogy to engage students for 2 to 3 semesters.
Patri, K. Venuvinod
Emeritus Professor
City University of Hong Kong
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Chapter 1
Introduction
“[P]eople use the word ‘guru’ only because ‘charlatan’ is too long.”
—Peter F. Drucker, “the Father of Modern Management”
Human Well-being
Conscious pursuit of one’s own survival and well-being is a hallmark of mankind. Almost all of us constantly strive to promote our own well-being or that of our near and dear ones. But it is not easy to pin down human well-being as it is made up many components, the most important being health, prosperity and that elusive entity called ‘happiness’. According to the noted American psychologist, Abraham Maslow (1943), the degree of individual happiness at any given time critically depends on the subject’s ability to satisfy his/her physiological, security, belonging, esteem, and self-actualization needs, in that order. Most people seem to work on the assumption that the process of meeting all the human needs is linked, either directly or indirectly, to human material prosperity. Obviously, one can find several psychological, ethical and philosophical arguments against adopting this assumption unconditionally. But it is undeniable that most people generally act as if the terms ‘happiness’ and ‘material prosperity’ are synonymous. A more tempered view is that, while happiness is not proportional to the wealth one possesses, one can’t really be happy without a certain minimum of material support.
Economic Growth
Consider now how human material prosperity has changed over the millennia. A commonly used measure for the material prosperity of a nation is the gross domestic product (GDP) expressed in terms of a specified currency at a certain time divided by the population of the country at the time of the output. This measure, called GDP per capita, is in extensive use today.
Figures 1.1a and b show the historical trends of world population and world GDP in 1990 US$ as compiled by Bradford DeLong, Professor of Economics at U.C. Berkeley. Figure 1.1c shows the trend of GDP per capita as calculated from the data underlying Figures 1.1a and b. It is an easy step to calculate from these trends the annual rate of change in the average GDP per capita across the world (see Figure 1.1d).
It can be seen from Figure 1.1c that humanity has progressed enormously in economic terms in recent times. The graph reveals a clear transition from slow growth to fast growth around the middle of the 18th century. For millennia before that time the average GDP per capita across the world had remained under US$0.70 per day, a figure well below the poverty line stipulated these days by the United Nations. This means that, except for a few feudal lords and their close associates, almost everyone around the world was wretchedly poor by today’s standards. Further there was little hope as the annual economic growth rarely exceeded a fraction of one percent.
But, fortunately since the 18th century transition, many countries in the world started witnessing explosive growth—to the extent that, just a century later, the world as a whole was experiencing between 2 and 8% annual growth. As a result, the proportion of people living below the extreme poverty line decreased to 52% in 1981, to 42% in 1990, and to 26% in 2005. As a result, the middle class grew to the extent that many can now enjoy luxuries that once were available only to the ruling classes.
On the other hand, unfortunately, the story is not totally benign. We can see from Figure 1.1d that the dramatic growth rate since the transition has also been accompanied by more rapid economic fluctuations. A more detailed examination of the data for the period 1700 to 2010 reveals that some of the fluctuations have been very serious, e.g., the Great Depression of the 1930s and the 2008 global financial crisis. Both have had grave consequences in the form of high unemployment, stock market crashes, home foreclosures (mainly in the U.S.), and so forth. However, fortunately, after each economic crisis, the world quickly arrived at an economic position superior to that existing when the crisis had started. This means that the broad principles (whatever they are) underlying the long-term economic growth depicted in Figure 1.1c continue to be valid but with the caveat that societies should not let greed overcome prudence and one must always be prepared for a severe economic downturn.
The origins of the transition to fast economic growth have been debated widely. It is now commonly agreed that the transition was characterized by an unprecedented cluster of technological developments that took place in Western Europe, the most commonly cited one being the development of the steam engine in 1765 by a Scottish inventor by name James Watt. These and subsequent technological developments are now commonly referred to as the ‘Industrial Revolution (IR)’.
The consequences of the IR have been profound. Before the revolution, agriculture was the main economic activity. The IR added manufacturing to it through the development of mechanically powered machinery located in factories away from workers’ homes. A little later, machinery became electrically powered which further accelerated economic growth. In time, more and more countries joined the game. As the middle class grew, the service sector was added to the agricultural and manufacturing sectors. By the middle of the 20th century, developments in information and communication technologies (ICT)—mainframe computers, personal computers, the internet, and so forth—heralded the information age. A major outcome of the ICT revolution was business and cultural globalization (Venuvinod et al., 1998).
It is not that new technologies were not being developed prior to the IR. Indeed there were many technological developments even in ancient times, e.g., artificial fire, the wheel. But these were few and far between as the mechanisms for knowledge transmission from one tribe to another were missing. What is significant about the post-IR period is the high clustering of inventions followed by more rapid commercialization of selected inventions.
Technology is the Key to Economic Growth
Why does technology development improve the economy? Nobel Prize-winning economist, Robert Solow, was among the first to address this question quantitatively. A simplified version of his theory (Solow, 1956, 1957, 1970) assumes that the total production of material wealth in a given economy, Y, can be expressed as
Y=Ka(ATL)1-a│0≤a≤1
where L is labor, K is capital (the money needed for acquiring the land, buildings, hardware, software etc. to sustain production), and AT and a are empirically determined constants (see Figure 1.2).
The real role of technology however becomes apparent when we examine the empirically determined behavior of AT. Solow found that a significant part of economic growth could not be accounted by known increases in K and L. This suggested that the unexplained part, the so-called Solow residual, could only be accounted for through an increase in AT. Solow then went on to interpret AT as being equivalent to total factor productivity, Tm, a parameter that accounts for all contributions to total production including and beyond those reflected in K and L.
Often, total factor productivity is interpreted as reflecting the way in which technological innovation allows capital and labor to be used in more effective and valuable ways. For example, the development of word-processing software has greatly increased efficiency compared to the use of typewriters. Typewriters themselves represented a huge productive advance over clerical work using pen and paper. This process of improved technological methods has resulted in an increase in labor productivity. More recently, other economists have suggested that further factors—good institutions that support markets, innovations in the organization of work, or access to global markets—should be thought of as equally important in promoting economic growth and, hence, should be folded into Tm.
Whatever be the interpretation of Tm, doubling the multifactor productivity doubles Y since its index is equal to 1. Conclusion: Rapid economic progress is not possible without investing in new technology and establishing a cultural and institutional environment conducive to technology assimilation and development.
Figure 1.3 illustrates some growth accounting results for the U.S. in the period 1929–1987. Note that the government was a negative factor actually reducing the output by some 9%. Imagine what would have happened in a totalitarian country!
By sharp contrast, technological progress was the most important positive factor. Other estimates of the contribution of technical change to U.S. growth vary from 33% to 78% depending on the assumptions. Table 1.1 shows some results comparing the U.S. to a selection of other countries. Figure 1.4a illustrates the effect of technology on national prosperity for a selection of 102 countries. Note the strong exponential relationship—the exponential index is 1.11.
Innovation Drives Technology Growth
Whoever be the developer, all technology development starts with someone getting a new idea. More often than not, a group of people belonging to a profit-oriented firm collaborate to convert the idea into a commercially profitable reality. In recent times, it has become common to use the term ‘innovation’ while referring to the conception, invention and commercial exploitation of new ideas. Technology and innovation together constitute the primary key to economic growth. Box 1.1 shows some recent survey findings underscoring this point.
Clearly, the greater the innovative spirit of a region, the greater the scope and potential for technology development and utilization in the region. For Mokyr (1990), technological creativity is “the lever of riches” that forms “the very basis of the rise of the West”. That this is indeed true is confirmed by Figure 1.4b which illustrates the correlation between the innovation sub-index and technology index data collected by the World Economic Forum (WEF) in 2005 for 99 countries presented in (WEF, 2005). Note that innovation has a greater effect on technology utilization when the country is less advanced technologically. One can’t be sure however which is the cause and which the effect. It is perhaps safer to say that there is a mutually reinforcing relationship between the two. Consequently, as Alvin Toffler said “Technology feeds on itself. Technology makes more technology possible.”
All the above implies that the study of the economic and commercial exploitation of technology and innovation should be of great benefit to any public leader, corporate professional, or entrepreneur. This is why the title of this book starts with the words Technology and Innovation.
However, notwithstanding the obvious importance of technology, the recognition of ‘Technology and Innovation’ as the primary key to economic growth is nowhere near being universal: “Technical change is like God. It is much discussed, worshipped by some, rejected by others, but little understood... At the individual level, we all love technology for the security, comfort, convenience, power and social-status it brings. At an abstract collective level, we hate it for our inability to understand and control it. We are deeply aware of the havoc wrought by technology through wars and environmental degradation. But, at a more concrete level, we hate technology for amplifying the economic disparities amongst groups of people, particularly if we are among the have-nots (Thomson, 1984, p. 243, as quoted in Mokyr, 1990).”
For instance, India’s Mahatma Gandhi built an ethically-based anti-technology stance and movement which unwittingly had a confusing influence on many Indian students, teachers, engineers, bureaucrats and so forth of the time. To that extent the economic progress of India was delayed. (The present author was one of such youth and it took him decades to get over the confusion.)
Further, much of the rivalry between capitalism and socialism that dominated world politics during the 20th century seems to have downplayed the role of innovation in economic development. By the end of that century however, pure socialism gave way to democratic capitalism in much of the world. Pure socialism focused on the collective as opposed to the individual. But, as it turned out, it was not the so-called ‘collective’ that was ruling but a few elite who took over the reins claiming that they represent the collective. To sustain themselves in power, the ‘few elite’ had to suppress individual creativity.
But individual creativity sustained by an appropriate institutional framework is the fountainhead of innovation. Naturally, ideological believers in Marxist socialism (e.g., the former U.S.S.R. and China) could not compete in economic terms with market-oriented capitalist countries (e.g., the U.S.) until they managed to abandon undiluted socialism. This lesson from the protracted rivalry between autocratic socialism and democratic capitalism is yet to sink in fully across the world.
Competition Spurs Innovation
Let us now turn to the question “What drives innovation?” The resounding response must be competition. Innovation is about realizing something new. Newness implies that one doesn’t know in advance whether one would succeed. As a result of this uncertainty, innovation is always accompanied by risk.
So why do people engage in innovation? There are two reasons. The first is greed. If we do succeed, innovation can lead us to rich rewards. There is always a great deal of profit to be made by being the first mover. Most startups are motivated by this constructive type of greed.
The second reason is fear—in particular, the fear of competition. If you sit still by not innovating, sooner or later someone will come up with a better product or service and wipe you out of the market. Most well-established firms engage in innovation because of this negative reason. Simply speaking, they follow the adage “innovate or perish”. Boxes 1.2 and 1.3 recount the stories of two well-known companies (Wang Laboratories, and General Motors) that have perished or come to the brink because they had become lax at innovation.
Either way it is clear that innovation doesn’t flourish in the absence of competition. Hindsight shows that societies that stifled internal competition through nationalization of industries have not done as well as societies nurturing internal competition. As noted earlier, collectivization leads to restrictions on individual freedom thus stifling competition. As a result, more and more countries today (including many that had favored collectivization earlier) are taking active steps to make their societies ever more competitive. Meanwhile, owing to developments in technology (‘distance is dead’ now), the world is rapidly ‘globalizing’. As a result, competition has increased by an order of magnitude.
A review of the industrial history of nations reveals a recurring pattern (see Figure 1.5). Initially, countries focus on competing on the basis of reduced costs, i.e., increased productivity (P). For instance, Japan, Hong Kong, and China had all started off as countries producing cheap goods. However, very soon, countries shift their focus to the achievement of superior quality (Q) while still maintaining low costs. For instance, Hong Kong had progressed to the Q-era in the early 1980s although, as it appears, it is still stuck there.
Having successfully mastered P and Q, countries then start competing on the basis of superior differentiation (D), i.e., by offering products and services exhibiting new functionalities. A prerequisite to this phase is widespread and robust education and a well-developed R&D infrastructure, as in the case of the U.S. A similar PQD-sequence can be found in the case of China’s recent domination of the world in manufacturing and India’s IT journey.
Whatever be the stage of development, the need for innovation seems to be a constant factor in a nation’s progress. During the P-era one innovates mainly to reduce costs, in the Q-era to improve P as well as Q, and in the D-era to improve P and Q as well as bestowing products, processes, institutions and so forth with new capabilities.
Entrepreneurship Accelerates Innovation
Finally, let us turn to the question “Who innovates?” Well-thought answers to this question have become available only in recent decades. Partly, this has been because the role of ‘innovation’ in ‘economic growth’ was not the focus of many early economic thinkers. Partly it has been because, as the world changed through socio-economic experimentation (e.g., recall the rivalry between autocratic socialism and free market capitalism), there arose new contributors to economic growth.
Broadly speaking, the parties contributing to innovation today are governmental institutions, private firms, individuals working as professionals, and entrepreneurs. Of these, the last class is attracting a great deal of attention in recent times. For instance, in 2000, the National Commission on Entrepreneurship found that some 67% of inventions and 95% of radical innovations made in the U.S. since 1945 came from small, entrepreneurial firms (NCOE, 2000). Further, venture-capital-backed entrepreneurial companies in the U.S. had output a whopping 17% of GDP in return for just 0.2% of VC-funding ($25 billion). It is therefore safe to say that technological innovation flourishes in societies possessing a sociopolitical environment conducive to the promotion of entrepreneurship. Likewise, firms encouraging internal entrepreneurship (entrepreneurship within an existing firm is called intrapreneurship) will be better able to sustain their competitive advantage. This is why the third and final component of the title of this book is ‘entrepreneurship’.
The field of innovation-economics began with the work of Joseph Schumpeter (1934). He suggested that economic progress is triggered primarily by the market success of the creations of dynamic entrepreneurs. Box 1.4 outlines the early histories of eight globally-known companies. What do they have in common? A trivial response is that all the enterprises were founded after 1976. A more meaningful answer is that all the founders were novices exhibiting extra-ordinary flair for coming up with new ideas and commercializing them against great odds. Rather than compete within an existing market; they all chose to compete for a new market:
~ Apple introduced a radically new class of technological products that helped start a personal computer revolution.
~ Google and Yahoo totally transformed the internet scene by introducing radically new technologies that can be seen as products or services depending on the way we look at them.
~ FedEx, Dell and eBay found new ways of delivering products or services to customers.
In short, they all were inventors and entrepreneurs rolled into one, i.e., innovators.
There is another similarity worthy of note. All the innovations cited in Box 1.4 involve either the creation of totally new technologies (Apple, Google and Yahoo) or the use of existing technologies in novel ways (FedEx, Dell Computers and eBay). One may therefore say that all the six companies were formed by entrepreneurs engaging in technological innovation.
Does Box 1.4 necessarily imply that innovation is the only way to start a business? In fact, most successful companies we see around the world were not based on breakthrough innovations. Rather they represented simple opportunity seeking:
~ Sony’s roots lie in an electrical repair shop established with an investment of GBP845 in 1946 in a bombed-out department store.
~ Nokia had started off in the town of Nokia in Finland as a wood-pulp mill to meet regional needs.
However, very soon many companies such as Sony and Nokia realized that they could not remain ahead without engaging in innovation.
What are the factors determining the kinds of innovations people engage in at any given time? In the beginning, it was believed that innovations were induced by the needs of the society. For instance, a change in the relative prices of the factors of production can be a spur to inventions directed towards economizing the use of factors which have become relatively expensive (Hicks, 1932). When labor is short there will be encouragement to labor-saving innovation. Likewise when energy costs increase there will be more rapid improvement in energy efficiency of goods than would normally occur. In short, shortages in supply can induce innovations aimed at increasing supply.
Subsequent analyses of time series and cross-sectional patent data and historical case studies demonstrated that demand-pull influences were also important. The more intense the demand, the greater were the number of patentable inventions generated. This observation suggested that more creative groups and individuals were being drawn to work on an unsolved problem related to what was being demanded (Schmookler, 1966).
However, as pointed out by Schumpeter, not all inventions need be induced by some external factor such as a short supply in or a manifest demand for something. Many innovations may be products of just the creative drive of certain individuals. Once a new product is created, demand will follow as long as there is some value in the creation. Such innovations are said to be Schumpeterian.
Schumpeterian models of innovation can be of two types: entrepreneurial innovation and managed innovation (Freeman et al., 1982). In the first case, risk-taking entrepreneurs grasp the techno-economic opportunities offered by new scientific developments to create radical innovations; thus fostering the emergence of new industries or new product groups. It is during this phase of the industrial cycle that dynamic, new, small but fast-growing firms play the key role as innovators. As the technology in question and the associated markets mature, the average firm size increases and inventive activity becomes progressively internalized in the form of large in-house R&D laboratories. However, after some time, the possibilities for major product innovations diminish. Market requirements become increasingly well-specified. Competing products are little differentiated technically. As a result, price becomes a more significant factor in competition, so development efforts become more and more directed towards cost reduction through process efficiency improvements. In other words, during the early stages of an industrial cycle, there is more product innovation conducted by entrepreneurial firms and, in the later stages, more process innovation conducted by established firms.
In the above we introduced the notions of technology, innovation and entrepreneurship without having formally defined them and examined their natures in adequate detail. What do we mean by ‘technology’, ‘innovation’, and ‘entrepreneurship’? What is their importance? What drives them? We will address these and similar questions in the rest of this chapter. Since this is an introductory chapter, our discussion here will be broad-brush. We will return to these questions several times in subsequent chapters, each time advancing our understanding a little bit further. The overall intent is to provide a reasonably fine-grained understanding of how one can exploit the varied opportunities related to technology and innovation that will turn up, one way or another, in one’s life, irrespective of whether, professionally, one is a scientist, technician, engineer, information officer, manager, entrepreneur, and so forth.
Technology
Man is a tool-using animal. Man’s domination of the earth owes much to his superior tool-making and tool-using skills. From the dawn of civilization, man has used technology. The plow, the wheel, and the chariot are just a few ancient examples. Technology refers to the ways in which people use discoveries to satisfy human needs and desires and to alter environment to improve lives. Man would not have become ‘Man the Thinker’ (Homo sapiens) had he not also been ‘Man the Maker’ (Homo faber). Man made tools, but tools also made man.
Nothing in the biological world matches man’s almost compulsive drive to invent. Man has been developing new tools and techniques so he can protect himself from the vagaries of nature (desire to control), to reduce the physical effort he had to exert in achieving his goals (desire to automate), and so on. In fact, technology accounts for much of human material progress. Without technological progress we would not have improved our clothing, housing, nutrition and health; reduced the need for human toil and drudgery; and avoided many diseases and famine. Technological progress has been such a potent force in history that it has provided society with what some economists have dubbed “a free lunch,” i.e., an “increase in output that is not commensurate with the increase in effort and cause necessary to bring it about (Mokyr, 1990).” Indeed the power of technology to transform virtually every aspect of our lives has never been more evident.
What is Technology?
Although ‘technology’ is a widely used term, there is no single universally accepted meaning attached to it. Different meanings emerge when it is examined from different perspectives or in different contexts. But one point is generally accepted. Technology is a ‘bag of tools’ available to us to improve our surroundings. Sometimes we focus on the ‘bag’, and sometimes on a specific tool in the bag. When the focus is on the ‘bag’, technology is seen as a single material thing with a homogenous, undifferentiated character. Such reification (“thingification”) however misses the importance of detail. For instance, the term “mass communication” covers a multitude of very different techniques related to writing, printing, viewing a sequence of images on a slide projector, listening to music on radio, or enjoying a movie on television, and so forth. A closer examination reveals that each of these techniques, by itself, encompasses considerable diversity.
Quite often, though, the term ‘technology’ is used while referring to the vast collection of artifacts, i.e., objects produced by human effort that we can see, touch and feel. For instance, the 1941 report of the Temporary National Economic Committee of the U.S. defined technology as “the use of physical things to attain results which human hands and bodies unaided are incapable of achieving.” At other times we use the term to refer to the unseen collection of methods by which the artifacts may be produced. For instance, Ellul (1964) defined technology as “the totality of methods rationally arrived at and having absolute efficiency...in every field of human activity.”
Thus ‘technology’ can have at least two different meanings:
~ The individual technical means themselves, or
~ The generalized study of individual technical processes.
The French clearly distinguish between the two; they refer to the former as technique and the latter as technologie. The two notions are however intermixed in the English term ‘technology’.
The English term ‘technology’ is derived from the Greek term technologia which, in turn, is a combination of techn meaning ‘craft’, and logia, literally meaning ‘saying’ but generally interpreted as the ‘understanding of doing something’. Thus the term can be seen to combine the meanings of art and technique involving both knowledge of the relevant principles and an ability to achieve the appropriate results. In particular, the view of technology as knowledge has gained greater prominence in recent decades.
We may buy a technological artifact on a turnkey basis, or we can put it together ourselves and adapt it to our specific needs. In either case we will need some understanding of the parts and the interactions amongst them. The depth to which we need to understand will of course depend upon the complexity of the task at hand. For instance, many of us own a cell phone capable of functions well beyond just receiving and sending calls: saving messages, checking e-mail and using the phone as a still- or video-camera, and so on. Much of the knowledge needed to perform these diverse tasks is embedded in the cell phone itself. We may attend training sessions, consult outside experts, read the equipment manual and so forth but, mostly, we learn by experimenting with the cell phone.
Thus, as Aristotle had said long ago, technology is knowledge “whose origin is in the maker and not in the thing made.” More recently, Mokyr (1990, p. 276) put the same idea as follows: “My basic premise is that technology is epistemological in nature. It is not something that somehow “exists” outside people’s brains. Like science, culture, and art, technology is something we know, and technological change should be regarded properly as a set of changes in our knowledge.”
A combination of all the above definitions of technology was captured by Burgleman et al. (2001) when they said “Technology is the theoretical and practical knowledge, skills, and artifacts that can be used to develop products and services as well as their production and delivery systems. Technology can be embedded in people, materials, cognitive and physical processes, plant, equipment, and tools. Key elements of technology may be implicit, existing only in an embedded form.”
We have seen that it is not trivial to define technology precisely. However, we can get a fairly comprehensive idea of what technology is by noting the following generalized characteristics of technology (McGinn, 1978):
~ Technology is concerned with material, as opposed to ideational, outcomes.
~ Technologists make artifacts rather than just help something that is ordinarily done by nature.
~ Technology both expands human possibilities and enlarges the domain of human ends.
~ Technology is resource-based and resource-expending.
~ Technology is not exactly “applied science,” but knowledge of resources and methods, how to do certain things.
~ The methods which technology uses range from trial and error to complex experimental techniques.
~ Economic, political, cultural, and ideological considerations enter into technological decisions; in turn they are conditioned by technological change, and technological activity both reflects and alters its context in any given stage of development.
A defining characteristic of technology is its relation to human needs. The purpose of technology is to serve human needs and human wants by providing the corresponding functionalities. The functionalities could concern the physical needs of humanity such as air, water, food, clothing, shelter, and safety. They may also be directed towards humanity’s social needs, such as related to business, government, communication, justice, education, the military, and so forth. However, we usually would not call knowledge of the techniques used in arts such as painting, music, sculpting and acting as technology because the principal purpose of technology is utility rather than aesthetics. In other words, technology is essentially utilitarian. This doesn’t mean that all technology is ‘good’ for man. Technology is essentially amoral, i.e., ethically neutral. In itself, it is neither good nor bad. For instance, a knife can be used to cook, cure, or kill. Likewise, computers can be used to liberate or oppress people.
Since technology aims to satisfy human needs and is created and utilized by humans, there is a close, codependent relationship between technology and society. Advances in technology influence and eventually change society. As the needs of society change, more new needs are created thus creating more technology (McGinn, 1991).
Technology as a System
As noted earlier, when we use the word ‘technology’, we often think of it as something physical which we can perceive through our senses as we interact with it. For instance when we look at a pickup truck we immediately recognize it as a technological artifact that can be used to transport stuff. To some extent this is also true of software, since we can ‘feel’ our way through it by interacting with it. But a large proportion of modern technology doesn’t refer to physical entities at all. For instance when we talk about electrolytic plating technology we are referring to the process of creating a plated surface, not to the plated surface itself or, not necessarily, to the physical electroplating plant executing the process. But you may say that even the electrolytic plating process is a physical entity since we can see the process in action. Extending our argument a bit further, we can be excused for referring to an inventory control or financial control process as technology since we can physically perceive at least the effects of the processes.
All the above suggests that technology is better viewed as a system, i.e., as “a group of things or parts working together as a whole’ (Oxford Dictionary) towards achieving a practical human end. Some parts of the system can be hardware, some software, and some human intervention.
The interacting elements vary depending on the function and how closely we examine it. For instance, a gardening hose appears as a single piece of hardware consisting of a rubber tube. But look closer, it is more. It has end connectors that match the water supply and to the sprinkling head. Look even closer, the end connectors have threaded elements designed to prevent water leakage. Each of these elements has its own function. But all these are hardware elements. You can see, touch and feel them.
Now consider a desktop computer. It has many hardware elements: mouse, keyboard, monitor, hard drive, processing unit, and so forth. Each of these is an independent entity with its own function. As you open each of them, you will discover more and more subsystems. But the PC cannot function even if we have all the hardware elements in place. It needs software, the programs which instruct the computer what to do and when. We cannot see or touch the software. But it is vital. If the software crashes, the computer crashes. Thus software is a subsystem of the computer made up of its own subsystems such as the operating system, application program and so on. However, we would not be able to use the computer even if we have all the hardware and software elements are in place. We need to be aware of how to make them work. This is knowledge. Indeed to put together or use a computer, we need to have knowledge. Some of the knowledge is embedded in the hardware elements themselves. When we see the keyboard, its shape and structure immediately suggest some aspects of how it could be used. Likewise, the menus displayed during the computer’s operation provide us with some understanding of the way the software functions. But, as any computer user knows, this level of knowledge is often not sufficient to make efficient use of the computer. For instance, what do we do if there is a major crash? We first refer to the user manual that comes with the computer. The manual essentially codifies the knowledge required. So it is also a part of the technology system we call the computer. Finally, what do we do when we are unable to recover the computer even after reading the manual? We call the help desk of the computer company. In doing so, we use many other technologies, e.g., the telephone we use to contact the company. In fact, the simple act of consulting the company involves much more than the telephone. It draws upon several businesses, the computer company, the telephone company, the satellite business supporting the telephone system, and so on. Each of these businesses is a complex system in itself.
What can we surmise from all this? It is that technology as a system has no boundaries, it is an open system. Thus, viewed as system, any technology is “a functional totality, transforming inputs from its purposive environment into means-outputs of its purposive environment” (Betz, 1998).
It should be clear by now that managing technology is not a trivial task. Because the task is both of great importance and nontrivial, several university-based programs on Technology Management have been launched in recent decades. Management of technology has been defined as linking “engineering, science, and management disciplines to plan, develop, and implement technological capabilities to shape and accomplish the strategic and operational objectives of an organization (NRC, 1987).” While not addressing implementation issues, this book intends to be a resource book for students of technology management too.
Technology as Knowledge
A problem with Solow’s model of economic growth is that it takes TFP growth as an exogenous factor. This means that the model doesn’t attempt to clarify how technology itself grows. Subsequent economists tried to overcome this problem by developing endogenous models. An important variant of the endogenous group is evolutionary modeling which assumes that technology-economy-society is a co-evolving set following principles analogous to biological evolution.
But what exactly does evolve? Mokyr (1990) believes that it is “useful knowledge”. Technology is nothing but knowledge that can be put to use in some fashion. But when some new knowledge is produced it impinges unintentionally on several existing pieces of knowledge thus enhancing or clarifying them. In the process the total human knowledge increases not additively but exponentially. This improved knowledge is at the core of modern economic growth. Further, knowledge is a nonrivalrous good, i.e., it doesn’t diminish when shared. The same knowledge can be used repeatedly in new circumstances. No wonder that technology emerges as the most powerful factor affecting economic growth.
Thus all technology has some knowledge content. If all that is here is knowledge, the technology is said to be disembodied. Disembodied technology is mainly intangible; there are no specific products which give it its particular character. The scientific principles underlying disembodied technologies are social or management sciences rather than natural sciences. Industrial engineering and quality assurance are typical examples of disembodied technology. Their practitioners use generic (as opposed to physical) artifacts such as an operating manual or a computer software package. By contrast, embodied technologies are encapsulated in products and physical equipment, such as manufacturing plant. They have a technical root structure that determines its performance and application characteristics.
Kinds of Technology
Every industry uses a variety of technologies in their products, production, distribution services, and so forth. For instance, in the production of an assembled hard good, such as an automobile, different technologies (knowledge) are used in the design of the body, engine, gear box, fuel system, control system, and so on. Still different technologies are used in the production of the corresponding parts. For instance the production of the body panels alone involves press-forming, robotic welding, robotic spray painting, and so on. And different technologies are involved in the inspection, quality assurance, storage, transportation, delivery, maintenance, repair, and disposal of automobiles. Every one of these steps involves much information processing.
Consider now how technologies may be classified. We will start with Betz’s classification (Betz, 1998):
~ Product/service technologies,
~ Manufacturing/service-delivery technologies, and
~ Information/operation technologies for management control.
It is usual to refer to these three categories simply as product technologies, production technologies, and information technologies respectively.
Each of these technology categories can be further subdivided into supporting and core technologies. Supporting technologies are not unique to the industry. They are usually used in many other industries. Being substitutable, they play only a secondary role in the firm’s efforts to gain competitive advantage through innovation, although their proper selection and utilization is important for maintaining the competitive advantage of a firm in terms of productivity and quality. Therefore these technologies are usually acquired from the outside with minimal internal R&D directed towards their enhancement. Progress in an industry is mainly dictated by technologies that are unique to it, hence they are not substitutable. Since the industry is mainly defined by such technologies, these are called the core technologies of the industry. Companies strong in core technologies will be able to better defend their markets from encroachment by competitors and, even, grab market from others. Therefore identifying and watching developments in core technologies is important for the survival as well as growth of a firm. However, what are core technologies for one industry can be supporting technologies for another.