Technological Discontinuities and Organizational Environments

TLDR: In this article, the authors investigate the patterns of technological evolution and their impact on environmental conditions and find that technological change within a product class will be characterized by long periods of incremental change punctuated by discontinuities, and the locus of innovation will differ for competence destroying and competence-enhancing technological changes.

Abstract: Investigates the patterns of technological evolution and their impact on environmental conditions. Seven hypotheses are offered in order to demonstrate that technology is a central force in shaping the environments within which organizations operate. These hypotheses are: (1) technological change within a product class will be characterized by long periods of incremental change punctuated by discontinuities; (1a) technological discontinuities are either competence enhancing (build on existing skills and know-how) or competence destroying (require fundamentally new skills and competences); (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 discontinuities will be initiated by existing firms; (3) competitive uncertainty will be higher after a technological discontinuity than before discontinuity; (4) environmental munificence (i.e., resource availability and support for growth) will be higher after a technological discontinuity than before the discontinuity; (5) competence-enhancing discontinuities will be associated with decreased entry-to-exit ratios and decreased interfirm sales variability (thus strengthening product leaders and increasing barriers to entry). These patterns will be reversed for competence-destroying discontinuities; (6) successive competence-enhancing discontinuities will be associated with smaller increases in uncertainty and munificence; and (7) those organizations that initiate major technological innovations will have higher growth rates than other firms in the product class. Data were collected from U.S. firms in three product classes, domestic scheduled passenger airline transport, Portland cement manufacture, and minicomputer manufacture, from the year of the niche market's inception through 1980. Results indicate that after the three niche openings, there were six competence-enhancing technological discontinuities and two competence-destroying discontinuities in total. Each of these discontinuities had a far greater impact on a key measure of cost or performance than more incremental technological events. In addition, except for the period following the introduction of semiconductor memory in minicomputers, the ability of experienced industry observers to predict demand following technological disruptions was far worse than prior to the disruption. Demand growth following the discontinuity was significantly higher than it was immediately prior to the discontinuity, which had an enormous impact on product-class demand. Also, the ratio of entries to exits was higher in each of the five years before a competence-enhancing discontinuity than during the five subsequent years, though none of the differences is statistically significant. Though market variability in sales growth was expected, it was found that some firms' sales grew explosively while other firms experienced sales declines. It is also suggested that as technology matures, successive competence-enhancing discontinuities increase both uncertainty and munificence, but not as much as those discontinuities that preceded them in establishing the product class. Finally, early adopters of technology were found to experience more growth than other firms. Using three different product types, with a wide range of years from inception, it is shown that technology does evolve through long periods of incremental change punctuated by relatively rare innovations that radically improve the state of the art. Although these incidences of change are rare, they stand out clearly and have significantly altered competitive environments. (SFL)