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Strategy and Change Summary
Readings Week 1
Article 1: Technological Discontinuities and Organizational Environments
Introduction
This paper focuses on patterns of technological change and on the impact of technological
breakthroughs on environmental conditions.
We demonstrate that technology evolves through periods of incremental change punctuated by
technological breakthroughs that either enhance or destroy the competence of firms in an
industry. These breakthroughs increase uncertainty and munificence.
Competence-destroying discontinuities are initiated by new firms and are associated with
increase environmental turbulence, competence-enhancing discontinuities are initiated by
existing firms and are associated with decreased environmental turbulence.
Those firms that initiate major technological changes grow more rapidly than other firms.
This paper focuses on technology as a central force in shaping environmental conditions. As
technological factors shape appropriate organizational forms, fundamental technological
change affects the rise and fall of populations within organizational communities. Basic
technological innovation affects not only a given population, but also those populations within
technologically interdependent communities.
Technology and Technological Discontinuities
Technology can be defined as those tools, devices, and knowledge that mediate between inputs
and outputs and/or that create new products or services.
Technology seems to evolve in response to the interplay of history, individuals, and market
demand. Technological change is a function of both variety and chance as well as structure and
patterns.
Major product breakthroughs are relatively rare and tend to be driven by individual genius.
These relatively rare discontinuities trigger a period of technological ferment. As a new product
class opens, the rate of product variation is substantial as alternative product forms compete
for dominance. This technological experimentation and competition persist within a product
class until a dominant design emerges as a synthesis of a number of proven concepts. A
dominant design reflects the emergence of product-class standards and ends the period of
technological ferment.
Once a dominant design emerges, technological progress is driven by numerous incremental,
improvement innovations. Incremental technological progress, unlike the initial breakthrough,
occurs through the interaction of many organizations stimulated by the prospect of economic
returns. These incremental technological improvements enhance and extend the underlying
technology and thus reinforce an established technical order.
Major technological innovations represent technical advance so significant that no increase in
scale, efficiency, or design can make older technologies competitive with the new technology.
,Product discontinuities are reflected in the emergence of new product classes, in product
substitution, or in fundamental product improvements.
Product discontinuities are reflected either in process substitution or in process innovations that
result in radical improvements in industry-specific dimensions of merit.
Competence-destroying discontinuities:
• Create new product classes or substitute existing ones
• Represent a new way of making a given product
• May involve combining previously discrete steps into a more continuous flow or may
involve a completely different process.
• Fundamentally different from previously dominant technologies that the skills and
knowledge base required to operate the core technology shift.
Competence-enhancing discontinuities:
• Are order-of-magnitude improvements in price/performance that builds on existing
know-how within a product class. Such innovations substitute for older technologies,
yet do not render obsolete skills required to master the old technologies.
• Represent an order-of-magnitude improvement over prior products yet build on existing
know-how. E.g., IBM’s 360 series was a major improvement in price, performance,
and features over prior models yet was developed through the synthesis of familiar
technologies.
• Are process innovations that result in an order-of-magnitude increase in the efficiency
of producing a given product.
Technological discontinuities trigger a period of technological ferment culminating in a
dominant design, and in turn, leading to the next period of incremental, competence-enhancing,
technological change. Thus, we hypothesize:
Hypothesis 1: Technological change within a product class will be characterized by long
periods of incremental change punctuated by discontinuities.
Hypothesis 1a: Technological discontinuities are either competence enhancing (build on
existing skills and know-how) or competence destroying (require fundamentally new skills and
competences).
Competence enhancing and destroying create technological uncertainty as firms struggle to
master an untested and incompletely understood product or process. Existing firms within an
industry are in the best position to initiate and exploit new possibilities opened up by a
discontinuity if it builds on competence they already possess. Competence enhancing
discontinuities tend to consolidate industry leadership. Competence destroying disrupt industry
structure. Skills that brought product leaders to preeminence are rendered largely obsolete, new
firms founded to exploit the new technology will gain market share at the expense of
organizations that remain committed to outmoded technology.
Hypothesis 2: The locus of innovation will differ for competence-destroying and competence-
enhancing technological changes. Competence-destroying discontinuities will be initiated by
new entrants, while competence enhancing will be initiated by existing firms.
,Technological Discontinuities and Organizational Environments
To determine the extent to which technological discontinuities affect environmental conditions
we examine two critical characteristics: uncertainty and munificence.
Uncertainty refers to the extent to which future states of the environment can be anticipated or
accurately predicted.
Munificence refers to the extent to which an environment can support growth. Environments
with greater munificence impose fewer constraints on organizations than those environments
with re-source constraints.
Hypothesis 3: Competitive uncertainty will be higher after a technological discontinuity than
before the discontinuity.
Technological discontinuities drive sharp decreases in price-performance or input-output
ratios. As both competence-enhancing and competence-destroying discontinuities reflect major
price-performance improvements, both will be associated with increased demand and
environmental munificence.
Hypothesis 4: Environmental munificence will be higher after a technological discontinuity
than before the discontinuity.
Competence-destroying discontinuities break the existing order. Barriers to entry are lowered,
new firms enter previously impenetrable markets by exploiting the new technology.
Hypothesis 5: Competence-enhancing discontinuities will be associated with decreased entry-
to-exit ratios and decreased interfirm sales variability. These patterns will be reverse for
competence-destroying discontinuities.
If competence-destroying discontinuities do not emerge to alter a product class, successive
competence-enhancing discontinuities will result in increased environmental orderliness and
consolidation. Each competence-enhancing breakthrough builds on prior advances and further
raises barriers to entry and minimum scale requirements. The underlying resource base
becomes more limited through resource constraints. Successive competence-enhancing
discontinuities will have smaller impacts on uncertainty and munificence as successive
advances further exploit a limited technology and market-resource base.
Hypothesis 6: Successive competence-enhancing discontinuities will be associated with
smaller increases in uncertainty and munificence.
Technological discontinuities alter the competitive environment and reward those innovative
firms that are first to recognize and exploit technological opportunities. The superiority of a
new technology presents organizations with a stark choice: adapt or face decline. Those firms
that are among the first to adopt the new product or process proceed down the learning curve
ahead of those that follow.
Hypothesis 7: Those organizations that initiate major technological innovations will have
higher growth rates than other firms in the product class.
, Article 2: Technological Discontinuities and Dominant Designs: A Cyclical
Model of Technological Change
POSSIBLE QUESTIONS:
A. How do technologies change over time? Which pattern does this paper propose?
Technological change within a product class will be characterized by long periods of
incremental change punctuated by discontinuities (radical change).
B. How do technology changes affect the competency of the existing firms?
Competence enhancing – same skills and capabilities
Competence destroying – new fundamental skills and competences
C. How do technology changes change the organizational environments?
a. Higher company uncertainty.
b. Environment munificence (opportunities that the environment provides you for growth)
will be higher.
c. Competency enhancing discontinuities → decreased entry to exit ratios → decreased
interfirm sales variability.
d. Competency destroying discontinuities → increased entry to exit ratios → increased
interfirm sales variability.
e. Upper attack at time of its entry, new performance technology performs better than
dominant technology on primary dimension of performance.
Introduction
An evolutionary model of technological change is proposed in which a technological
breakthrough, or discontinuity, initiates an era of intense technical variation and selection,
culminating in a single dominant design. This era of ferment is followed by a period of
incremental technical progress, which may be broken by a subsequent technological
discontinuity.
A longitudinal study indicates that when patents are not a significant factor, a technological
discontinuity is generally followed by a single standard. Across these diverse product classes,
sales always peak after a dominant design emerges. Discontinuities never become dominant
designs, and dominant designs lag behind the industry’s technical frontier. Both the length of
the era of ferment and the type of firm inaugurating a standard are contingent on how the
discontinuity affects existing competences.
Technological discontinuities trigger a period of ferment that is closed by the emergence of a
dominant design. A period of incremental technical change then follows, which is, in turn,
broken by the next technological discontinuity. We empirically explore when and how
dominant designs emerge from technological discontinuities and which firms pioneer dominant
designs. This cyclical model focuses on the social and organizational selection processes that
affect the closing on a dominant design and contrasts social and technological dynamics during
eras of ferment with those in eras of incremental change.
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