11
advantage over any and all competitors who might be selling to your
customers.”
2
The Organization for Economic Co-operation and Development (OECD) in the
Oslo Manual aiming at the measurement of scientific and technological activities,
published by the European Commission and Eurostat, defines the “knowledge-
based economy” as a recently coined expression used to describe the “trends in the
most advanced economies towards greater dependence on knowledge, information
and high skill levels, and an increased need for ready access to all of these”
3
. The
development and diffusion of new technologies are central to the growth of output
and productivity, having a significant economic impact. The strategic role of
knowledge underlies increasing investments in R&D, education and training, and
other intangible investments, which have grown more rapidly than physical
investments in most countries over the last decades. Innovation is a strategy to
acquire competitive advantage through differentiation. The Oslo Manual has
identified some of the main economic objectives of innovation associated with
competitiveness strengthening and positioning strategy such as replacing products
being phased out, extending product range, maintaining market share, opening up
new markets, improving production flexibility, lowering production costs, and
improving production quality (table 1).
Economic objectives of innovation
• Replace products being phased out
• Extend product range
o within main product field
o outside main product field
• Develop environment-friendly products
• Maintain market share
• Open up new markets
o abroad
o new domestic target groups
• Improve production flexibility
• Lower production costs by
o reducing unit labour costs
o cutting the consumption of materials
o cutting energy consumption
o reducing the reject rate
o reducing product design costs
o reducing production lead times
• Improve production quality
Table 1. Economic objectives of innovation.
Elaboration from: OECD , 1997, 49-50.
2
Henderson, B. (1989), “The origins of strategy” in Harvard Business Review, 67 (6), pp. 139-143.
3
OECD (1997), The measurement of scientific and technological activities, Proposed guidelines for
collecting and interpreting technological innovation data, Oslo Manual. European Commission,
Eurostat. Hereinafter: Oslo Manual.
12
In the Oslo Manual, OECD outlined a map (figure 1) indicating four general
domains of innovation policy terrain (defined as the framework conditions, the
science and engineering base, transfer factors and the innovation dynamo).
4
Three
major categories concern business enterprises (firms), science and technology
institutions, and technology and knowledge transfer and absorption issues. The
fourth set of factors concerns macroeconomic settings, the surrounding environment
of institutions, legal arrangements. The four broad domains of factors considered
for a national (but also local and transnational) system of innovation considered are:
• The framework conditions of national institutional and structural factors. These
are the educational system, communications infrastructure, financial institutions,
legislative and macro-economic settings, market accessibility, industry
structure. These conditions set the rules and range of opportunities for
innovation;
• The science and engineering base. This includes the accumulated knowledge
and the science and technology institutions that underpin business innovation
for example by providing technological training and scientific knowledge:
specialized technical training system, university system, support system for
basic research, public R&D activities, strategic R&D activities, non-
appropriable innovation support;
• Transfer factors. These are flows of information and skills, and absorption of
learning which are essential to business innovation factors: formal and informal
linkages between firms, the presence of expert technological gatekeepers,
international links, mobility of expert technologists or scientists; industry access
to public R&D capabilities, spin-off company formation, community value
systems and codified knowledge (patents, publications);
• The innovation dynamo. This is central to business innovation, and involves a
complex system of combined dynamic factors within or immediately external to
the firm which directly impinge on its technological capability and therefore, its
innovativeness.
4
OECD (1997), Oslo Manual, pp. 19-24.
13
Figure 1. The innovation policy terrain.
Source: OECD, 1997, 19.
The technological capability is embedded in its labor force (skilled worker,
engineers, salespeople, managers) and facilities (skills, departments) and depends
on the (complementary) characteristics of the firm, such as financial structure,
marketing strategy, competitors, alliances with industrial and research partners, and
its internal organization.
The Kline and Rosenberg “chain-link model” conceptualizes innovation by
considering the interaction between market opportunities and the firm’s knowledge
base and capabilities (figure 2). Each broad function involves a number of sub-
processes in the production of the outcome. The model underlies innovation not as a
simple progression of steps but as a continuous interaction between the phases (for
example between the marketing and design stages).
5
5
Kline, S.J. and N. Rosenberg (1986), “An Overview of Innovation”, in Landau, R. and N.
Rosenberg (eds.), The Positive Sum Strategy. Harnessing Technology for Economic Growth,
National Academy Press, Washington DC, pp. 289-291 (cfr. Oslo Manual).
14
Figure 2. The Kline and Rosenberg chain-link model.
Galanakis (2006) underlining the complexity of innovation systems, proposes a
model defined as the “Creative Factory” using a ‘systems thinking approach’ which
includes all the aspects that academia, firms and policy making bodies may
consider. The firm is at the center of the model, functioning as generator and
promoter of innovations in the market, both in the industrial sector and nationally.
The model’s main focus is the core innovation process arising from knowledge
creation through public or industrial research. This involves the new product design
and development (NPDD) process which transforms knowledge into a new product,
and the product success in the marketplace, which depends on the product’s
functional competencies and the firm’s organizational competencies in order to
produce it at a competitive price and introduce it to the market. The process is
affected by other internal factors, such as corporate strategy, risk-taking policy, the
firm’s technological capabilities, organizational structure, organizational climate,
creativity of firm’s employees, as well by external factors in the National
Innovation Environment.
Figure 3. The creative factory concept.
Source: Galanakis (2006), 1226.
Research
Knowledge
Potential
market
Invent
and/or
produce
analytical
design
Detailed
design
and test
Redesign
and
produce
Distribuite
and
market
Firm’s internal factors
National Innovation Environment
Product Success
Knowledge
creation
New Product Design &
Development
15
Innovation embodies the notion of change, being an invention, a new product or
process resulting from study and experimentation. Innovation is not a linear process
since it is characterized by multi-way interactions and feedback loops provoking
effects of destabilizing consolidated routine acts, of letting-up path dependence and
transforming standards necessary for progress and advancement. Innovation implies
wide-ranging co-operation of government bodies, research organizations, firms,
individuals. It is the result of the interaction between economy and technology. No
single engine of innovation can be identified, it is rather the result of an interactive
process exploiting open innovative opportunities generated by a “macro-
integration” (Vaccà, 1985). Innovation is a synergistic and temporal process with
mutual effects linking various phenomenological and multidimensional systems in
the “creation-destruction dialects” of progress.
1.2. Science and Technology
The distinction between science and technology is not always clear. According to
the Encyclopedia Britannica, science is the systematic attempt to understand and
interpret the world based on a conceptual enterprise of understanding of the
environment through skills of literacy and numeracy, whereas technology is the
systematic study of techniques for making and doing things (Britannica, 2001).
Science (from the Latin scientia, meaning “knowledge”) refers to the system of
acquiring knowledge. It is based on empiricism and experimentation via the
reasoned investigation of nature and is aimed at discovering principles among
elements of the phenomenal world by using formal techniques such as sets of
established rules of procedure (scientific method). Mathematics in science plays an
important role in the expression of scientific models typically through observation
and measurements.
The word “technology” originating from the Greek word technologia meaning
techne “craft” and logia meaning “saying”, is a broad term dealing with the use and
knowledge of humanity’s tools and crafts. Technology broadly involves the use and
16
application of knowledge, both formally and informally, to achieve some
“practical” result. Bozeman (2000) points out the difficulties of defining
technology.
6
Depending on context, the word technology is defined as: tool:
material entities created by the application of mental and physical effort to nature in
order to achieve some value (tools and machines); technique: the current state of
knowledge of how to combine resources to produce desired products and to solve
problems, which includes technical methods, skills, processes, techniques, tools and
raw materials (in uses such as computer technology or space technology); cultural
force: activity that forms or changes culture (i.e. manufacturing technology or
space-travel technology) predating both science and engineering. Technology is the
application of scientific knowledge for practical purposes in strategic sectors such
as production, transport, communication and services.
The notion of “technology” is linked to the concepts of “invention” and
“innovation”. The first is the result of a creative act; the second, is based on the
original and successful application of a discovery or invention. Technology is
information that is put into use in order to accomplish some task, transfer is the
movement of technology via some communication channel from one individual or
organization to another. A technological innovation is an idea, practice or object
that is perceived as new by an individual or some other unit. The most general
definition of technological knowledge is “the translation of known scientific
principles into practical applications”. Technology has been defined as “the sum of
techniques that must be used to develop a new product or to offer a new service. [It]
may belong to persons, materials, processes, facilities, or tools.”
7
The Technology Atlas Team distinguishes four main basic components of
technology: 1) technoware, the object-embodied technology incorporated in
6
“In many instances, definitional controversies can be quickly resolved by simply relying on
dictionaries. This is not one of those instances. The unabridged Webster’s (1989, 1872) offers just
three definitions of technology, none of which sets definitional controversies to rest. Technology is
defined as: (1) the science or study of the practical industrial arts; (2) the terms used in a science,
technical terminology; (3) applied science. None of the major works on technology transfer uses any
of these definitions of technology. Works on technology transfer generally focus on technology as an
entity, not a study and certainly not any specific applied science. The most common view of
technology is “a tool”, and then discussions proceed as to just what type of tool qualifies as
technology. Barry Bozeman (2000), Technology transfer and public policy: a review of research and
theory, in “Research Policy”, 29, p. 627.
7
Domenico Ferreri (2003), Marketing and Management in the High-Technology Sector. Strategies
and Tactics in the Commercial Airplane Industry. Praeger, p. 4.
17
tangible goods; 2) infoware, the technology embodied in documents, manual and
specifications (codified knowledge); 3) humanware, person-embodied technology
(non-codified experience, knowledge and know-how); 4) organware, organization-
embodied technology (experience and knowledge related to the integrated
management of the other components).
8
Within a work on complex systems, Zeleny’s (1997) definition of technology is
based on the identification of its components and on the interaction between
components. The three main recognized components of a technology are: hardware,
software and brainware (knoware). Hardware consists of the physiological
apparatus of a given technology such as the equipment, or mechanical devices, and
of the means to achieve the objectives, for which it has been conceived. It does not
refer uniquely to the physical structure of the components, but to their overall
logical organization. Software includes the set of rules, guidelines and techniques
which are necessary for the utilization of hardware such as programs, algorithms,
user manuals. It refers to the way objectives are reached in the utilization of
hardware. Brainware (knoware) comprises the objectives and the applications for
which hardware and software are utilized. These three components of technology
are interdependent (they determine and influence each other) and therefore their
relationships are circular (not linear or hierarchical). Each technology, as a unity of
hardware, software and brainware is part of a complex physical, informational, and
socio-economical set of networks defined as “supportive networks” (figure 4).
Technology supportive networks are made of organizational, administrative and
cultural structures (rules, objectives, contents, formal and informal agreements,
managerial culture, organization).
8
Technology Atlas Team (1987), Components of technology for resources transformation, in
“Technological Forecasting and Social Change”, 32(9), 19-35 (cfr. Venanzi, 1996, 295).
18
Figure 4. Representation of the main components of technology and their interaction.
Source: Zeleny, 1997, 405.
P. de Laat (2005) distinguishes between scientists and technologists on the basis of
the regime in which they work: public disclosure or private appropriation:
“The central question is whether knowledge is pursued in order to increase the
public stock of knowledge, or to generate rents from its private exploitation.
From this perspective, two kinds of systems may be distinguished, usually
referred to as Science and Technology. In the former, knowledge is to be
published openly, while in the latter, results are to remain a secret. This
distinction between regimes can also be arrived at by focusing upon market
mechanisms. Technology is the realm of the market, supported by the state.
Science, on the other hand, is a regime created by the state in an effort to
correct market failure by granting subsidies and creating public laboratories.”
9
The definition of technology suggested by Dosi (1982) reduces the conceptual
distance from “science”, suggesting a broad similarity in terms of definitions and
procedures. Technology is defined:
“as a set of pieces of knowledge, both directly “practical” (related to concrete
problems and devices) and “theoretical” (but practically applicable although
not necessarily already applied), know-how, methods, procedures, experience
of successes and failures and also, of course, physical devices and equipment.
Existing physical devices embody – so to speak- the achievements in the
development of a technology in a defined problem-solving activity. At the
same time, a “disembodied” part of the technology consists of particular
expertise, experience of past attempts and past technological solutions,
together with the knowledge and the achievements of the “state of the art”.
9
Paul B. de Laat (2005), Copyright or copyleft? An analysis of property regimes for software
development, in “Research Policy”, 34, pp. 1511-1512 .
19
Technology in this view, includes the “perception” of a limited set of possible
technological alternatives and of notional future developments.”
10
According to Dosi, the main difference between science and technology is related to
the different nature of the “problem-solving activity” and moreover to the fact that
scientific knowledge is codified while technological “knowledge” is implicit in
experience (tacit). Later in another work (1988), Dosi refines the concept defining
the technological paradigm as a “pattern” of solution of selected technoeconomic
problems based on principles derived from natural sciences: “A technological
paradigm is both an exemplar – an artifact that is to be developed and improved
(such as a car, an integrated circuit, a lathe, each with its particular technoeconomic
characteristics) – and a set of heuristics.”
11
The path from science to technology to
production is conceived a continuum rather than a defined set of steps.
Pavitt (1991) stresses the contribution of science to technology as a source of
economic benefits, arguing that scientific fields are more strategically important to
technology than data on direct transfers of knowledge lead us to believe, and that
‘unplanned applications’ are important to achieve short-term technological
objectives contributing to about 10% of the relevant knowledge inputs. Pavitt
identified four dimensions for a better understanding of the complexity of the
impact of science on technology: a) the intensity of direct transfers of knowledge
from science to application is different amongst sectors; b) the nature of the impact
of basic research on technology varies in time; c) the impact is also through access
to skills, methods and instruments; d) knowledge transfers involve personal
contacts, movements, participation in national and international networks (person-
embodied).
12
The two schools of thought about the transferability of technology in the economic
theory consider technology on the one hand, as embodied in products or processes
such as blueprints, machines or materials and, on the other hand as ‘knowledge-
based’, being difficult to replicate and transfer. Lin (2003) suggests that the two
10
Giovanni Dosi (1982), Technological Paradigms and Technological Trajectories, in “Research
Policy”, 11, p. 151.
11
Giovanni Dosi (1988), Sources, Procedures and Microeconomic Effects of Innovation, in “Journal
of Economic Literature”, 26 (3), p. 1127.
12
Keith Pavitt (1991), What makes basic research economically useful? in “Research Policy”, 20, p.
109-119.
20
schools represent two extreme ends of a continuum of technology transferability,
given that technology consists of both parts.
1.3. Technological innovation
Literature has identified different types of innovations: product, process,
technological, marketing, organizational, which are not always clearly defined and
are often interrelated. Here we will focus on technological innovation.
In the Oslo Manual, technological product and process innovation (TPP) activities
are defined as the succession of scientific, technological, organizational, financial
and commercial steps undertaken with the purpose of implementing technologically
new or improved products or processes. “Technological product and process (TPP)
innovations comprise implemented technologically new products and processes and
significant technological improvements in products and processes. A TPP
innovation has been implemented if it has been introduced into the market (product
innovation) or used within a production process (process innovation). TPP involve a
series of scientific, technological, organizational, financial and commercial
activities”.
13
TPP innovations are either product or process innovations.
Technological product innovations can be: ‘technologically new products’ or
‘technologically improved products’:
“A technologically new product is a product whose technological
characteristics or intended uses differ significantly from those of previously
produced products. Such innovations can involve radically new technologies,
can be based on combining existing technologies in new uses, or can be
derived from the use of new knowledge.”
14
“A technologically improved product is an existing product whose
performance has been significantly enhanced or upgraded. A simple product
may be improved (in terms of better performance or lower cost) through use
of higher-performance components or materials, or a complex product which
13
OECD (1997), Oslo Manual, p. 31.
14
OECD (1997), Oslo Manual, p. 32. Examples of technologically new products were the first
microprocessors and video cassette recorders, using radically new technologies.
21
consists of a number of integrated technical sub-systems may be improved by
partial changes to one of the subsystems.”
15
“Technological process innovation is the adoption of technologically new or
significantly improved production methods, including methods of product
delivery. These methods may involve changes in equipment, or production
organization, or a combination of these changes, and may be derived from the
use of new knowledge. The methods may be intended to produce or deliver
technologically new or improved products, which cannot be produced or
delivered using conventional production methods, or essentially to increase
the production or delivery efficiency of existing products.”
16
Technological innovations can be radical, architectural, incremental or modular.
Henderson and Clark (1990) focused on the technological dimension of change of
products, separating aspects related to the single components used and their
integration in the “product architecture”. Companies can either create a
technological product innovation by modifying single components of the product,
which are not necessarily visible or perceived by the customer. Alternatively, they
may adopt methods of combination, optimization and integration of the various
components to diversify their product from a technological point of view. Radical
innovations are characterized by drastic changes in the fundamentals of components
(e.g air conditioning as an evolution compared to fan) involving completely
different competencies for product engineering and combination-assembling of
components. Architectural innovations are distinguished by adaptations of the
architecture and engineering of the product (e.g. table fan as a reconfiguration of
ceiling fan) implying essential reconfigurations of the structural relations within the
organization (interdependencies). Incremental innovations are the result of the
natural evolution of internal competencies and interdependencies. Modular
innovations imply a redefinition of competencies without any change of
interdependencies. The Henderson and Clark matrix is a representation of the
comparison of alternative technologies within the same sector (figure 5). The
horizontal dimension emphasizes an innovation’s impact on components, and the
vertical dimension accentuates it’s impact on the linkages between components.
15
OECD (1997), Oslo Manual, p. 32. Examples of partial changes to one of a number of integrated
technical sub-systems are the introduction of ABS braking or other sub-system improvements in
cars.
16
OECD (1997), Oslo Manual, p. 32.
22
Figure 5. Relationships between product/service concepts, components and types of innovation.
Source: Henderson and Clark, 1990.
One of the key concepts outlined by Henderson and Clark in product development
theory is “dominant design”.
17
“A dominant design is characterized both by a set of core design concepts that
correspond to the major functions performed by the product (Marples, 1961;
Alexander, 1964; Clark, 1985) and that are embodied in components and by a
product architecture that defines the ways in which these components are
integrated (Clark, 1985; Sahal, 1986). It is equivalent to the general
acceptance of a particular product architecture and is characteristic of
technical evolution in a very wide range of industries (Clark, 1985).”
18
Technical evolution is characterized by a period of great experimentation followed
by the emergence of a dominant design. The acceptance of a dominant design paves
the way for the refinement and elaboration of the initial set of components, and
progress takes the shape of improvements in the components within the framework
of a stable architecture. Radical innovations establish a new dominant design and a
new set of core design concepts embodied in components linked in the new
17
For a literature review of the concept of “dominant design” see: Srinivanasan et al. (2006), The
Emergence of Dominant Designs, in “Journal of Marketing”, 2006, 1-17.
18
Henderson R., Clark K. (1990), Architectural Innovation: The Reconfiguration of Existing Product
Technologies and the Failure of Established Firms, in “Administrative Science Quarterly”, 35, p. 14.
Changed Architectural innovations
Redefinition of
interdependencies
(ex. analogical telephone)
Modular innovations
Redefinition of competencies
with the same
interdependencies
(ex. Digital Enhanced
Cordless
Incremental innovations
Natural evolution of internal
evolution of internal
competencies
(ex. portable telephone)
Radical innovations
Simultaneous redefinition of
competencies &
interdependencies
(ex. digital telephone)
Reinforced
Unchanged
Overturned
Relationship
among
components
Product concept
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