PERF RMANCE 04 - The Performance Portal - Ernst & Young

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Figure 5. Technological evolution in six markets 5a) External lighting 5b) Desktop memory Lighting efficacy Areal density (MBPSI) Year Incandescent Arc discharge Gas discharge LED MED Year Magnetic Optical Magneto-optical 5c) Display monitors 5d) Desktop printers Resolution Resolution Year Year CRT LCD PDP OLED Laser Ink jet Thermal Dot matrix 5e) Data transfer 5f) Analgesics Bits per sec Efficacy (1/NNT) Year Year Cu/Al wires Fiber optics Wireless Acupuncture Opiods (Narcotics) NSAIDs Non-opiods Non-anti-inflammatory Note: The values for all graphs have been kept confidential
“ Good decisions require careful analysis of all data. It is critical to consider the appropriate dimension of performance.” Choosing the right technology The S-curve is definitely a simple and appealing rule of thumb for evaluating technological evolution. However, in-depth analysis of all technologies in numerous markets shows that it can be seriously misleading. Unfortunately, the real world is quite messy. Good decisions require careful analysis of all data. Such analyses do reveal patterns that can help make informed decisions about investing in technologies and the potential payoff. Figure 5 shows the performance in various markets, each on only one dimension of performance. It is critical to consider the appropriate dimension of performance. What is the appropriate dimension of performance? A dimension is a measure of performance such as resolution (dots-per-inch) of printers or brightness (lumens-per-watt) for lighting. The received wisdom is that the dimension or performance is primarily a demand issue, determined by consumer tastes. Some authors go so far as to assert that tastes are genetically wired within human nature. However, our analysis of seven markets shows that at any point in time, a dimension may stand out as the one on which firms compete most and which consumers value the most. That is by no means the only dimension of performance. Actually, at any point in time, multiple dimensions are at play. What makes the world particularly interesting is that these dimensions are in a state of constant flux. This change is neither random nor one driven primarily by consumer demand. Rather it is change driven by the emergence and evolution of new platform technologies. When a new platform technology enters the market, it often introduces one or more new dimensions of performance. The new technology is sometimes (but not always) superior to the old technologies on those new dimensions. The new entry sensitizes consumers to the new dimensions and changes the configuration of consumer demand. For example in displays, in the 1970s and in early 1980s, when the cathode ray tube (CRT) display monitor was the sole platform, consumer interest focused on resolution, especially as that dimension improved rapidly till about mid 1980 (see Figure 5c). When the liquid crystal display monitor (LCD) came on the scene, it created excitement and interest in two new dimensions, thinness and lightness. Consumers had the option to trade off lower resolution (at least initially) for lighter, thinner displays. In the 1990s, when plasma came on the scene, it introduced two more dimensions, brightness and large screen size. Now, the organic light emitting diode (OLED) display monitor has come with foldable screens, introducing the new dimension of convenience. Table 4 shows how dimensions changed in the other markers we studied. Is evolution of dimensions driven by consumer demand or technological evolution? It’s a philosophical issue whether desire for these dimensions is inherent in human nature or created by the emerging technologies. In our opinion, technological evolution is what brings dimensions into play, makes them salient to consumers and shapes consumer demand. As technologies improve on these dimensions, they also target new applications in new, promising environments or markets. The new market may redefine selection criteria, performance thresholds and price/ performance trade-offs 3,4 . These factors, together with the abundance of opportunities in the new market, enable rapid growth in performance of the new technology. For example, wireless communication technology was initially applied to wireless telegraphy, then to broadcast radio and recently to voice communications over cellular telephone markets. In some cases, the new technologies may not even compete directly in the same market because of low performance. For example, LCD did not compete directly with CRT for many years as the technology did not offer high resolution. The technology was initially used for pocket calculators, 3 Romanelli, E. and Tushman, M. (1994), “Organizational Transformation as Punctuated Equilibrium: An Empirical Test,” Academy of Management Journal, 37(5), 1141-1166. 4 Levinthal D. (1998), “The slow pace of rapid technological change: gradualism and punctuation in technological change,” Industrial and Corporate Change, 7, 217–247. 17
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