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Energy Systems and Resources

Energy Systems and Resources. Markets for Technology and Other Economic Concepts. Apply Systems Thinking. Seek the underlying structure Events Trends Structure Understanding the deep logic, not prediction. A Market Perspective. Dynamics of Technology Markets

sebastian-castillo
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Energy Systems and Resources

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  1. Energy Systems and Resources Markets for Technology and Other Economic Concepts

  2. Apply Systems Thinking • Seek the underlying structure Events Trends Structure • Understanding the deep logic, not prediction

  3. A Market Perspective • Dynamics of Technology Markets • Technology change occurs in cycles that are recognizable • But not predictable • Micro-view: forces for change or stasis • An explosion of new technology • Disruptive technologies • Path dependence • Time compression • The international game • Opportunities at the boundaries • Politics matter

  4. To Every Thing, There Is a Season… • Markets for technology change in recognizable cycles • Each phase driven by distinct forces • Pattern of change robust • Across different cultures • In different times

  5. To Every Thing, There Is a Season • Companies and innovations designed to succeed in one part of the cycle often compete poorly in others • Important to understand technology from a systems perspective • Recognize market dynamics • Understand the driving forces • Influence on planning and strategy

  6. Dynamics of Market ChangeFour Phases of Technology Competition Performance Mature Discontinuity Takeoff Amorphous Effort

  7. Amorphous Phase of Technology Competition • Market • Customer needs uncertain • New technology fit to old market models • Technology • Performance uncertain • Often developed in apparently unrelated fields • Competitive skills • Reading the market • Speed to market: QWERTY & first mover advantage • Flexibility, agility, rapid response

  8. Amorphous Phase of Technology CompetitionExamples • Automobiles • Late 1800s early 1900s • Electric, steam, Otto cycle, Diesel cycle • Boat vs. wagon model • Automobiles today? • Personal Computers, late 1970s • Mouse? Graphical user interface? • Hardware and software bundled?

  9. Takeoff Phase of Technology Competition • Market • Customer preferences clarified • Performance dimensions of importance defined • Technology • Rapid advances in performance • Dominant design emerges • Competitive skills • Move technology into production rapidly • Focused, incremental innovation (sustaining technologies) • Process improvement

  10. Takeoff Phase of Technology CompetitionExamples • Automobiles • Ford Model T through 1920s • GM designs 1930s • Aircraft • DC-3 through Lockheed Super-G Constellation • B707 through today • Computers • IBM PC through today

  11. Mature Phase of Technology Competition • Market • Customers do not value further improvements • Technology becomes a commodity • Technology • Further advance encounters fundamental barriers • Speed of sailing ships

  12. Mature Phase of Technology Competition • Competitive skills • Efficiency: manufacturing, sales distribution • Creating non-technology product differentiation • Service • Being big -- scale economies matter • Systems innovation • Containerization of shipping

  13. Mature Phase of Technology CompetitionExamples • Automobiles today • Aircraft • Passenger: why doesn’t the SST fly? • Military • Personal computers • Telecom (central switching)?

  14. The Discontinuity • Market • Ripe for change • Technology • Best opportunities in apparently unrelated fields • New technology often seen as inferior • Competitive skills • Attacker’s advantage • Learning: scanning for opportunities and threats • Effectiveness, not efficiency • Solid and relevant technology base

  15. The DiscontinuityExamples • Hybrid automobiles? • Fuel cell • Battery • Small turbine • Other? • Computers? • PDA • Thin client • Ubiquitous computing?

  16. Implications for Strategic Planning • Two approaches to business planning: • Strategic foresight: specify end goals and pathway to achieve • Best for stable environment: takeoff and mature phases of markets • Strategic recognition: identify and support high potential ideas • Best for dynamic environment: amorphous and discontinuity • Scenario planning works with strategic recognition

  17. Technology as Driver of Discontinuities • Information technologies • Ubiquitous computing • Infinite bandwidth • Effective software • An Observation: performance (MIPS/$1000) • Log performance v. time, 1900 – 2000

  18. Technology as Driver of Discontinuities • Two key elements • Rate of change is exponential • Computation performance improves long term Log MIPS/$1000 1010 10-6 1900 2000

  19. Technology as Driver of Possibilities • Moore’s Law: 5th Paradigm • Electro-mechanical (1900 Census) • Electronic relays • Vacuum tube • Transistor • Integrated circuit • And next? • Neural networks? • 3D computing with nanotube circuits?

  20. What Drives Exponential Progress?An Explanatory Logic • More capable methods (paradigms) are employed at each stage • The value of the information embedded in each round of change increases • When a specific paradigm loses power, another takes over (disruptive paradigm?) • Transistors to integrated circuits • Principles of natural selection apply • Biological evolution: accelerating rates of change

  21. Accelerating Change • So does technological • Doubling time for computer speed (per unit cost) • 1910 to 1950: three years • 1950 to 1966: two years • now: every year • 90 years: first MIPS/$1000 • Now: we add 1 MIPS/$1000 every day

  22. Accelerating Change (Continued) • Human genome project • began 14 years ago: 1000 year project • scheduled for 15 years • already done • Miniaturization • Technology disappears in Hollywood & life • Electric motors • Computers • Phones • Factor of 6 per linear dimension per decade

  23. Disruptive TechnologiesChanging the Rules • Leading companies listen to customers • Disruptive technologies perform worse • Entrained air in manufactured ice • Early semiconductors performed worse than electron tubes • Most desirable customers will not use • Disruptive tech – niche markets • Careful attention to customers blinds incumbent to importance and potential

  24. Disruptive TechnologiesChanging the Rules • Incumbents measure markets carefully • Concerned with • Size • Likely growth rates • Profitability • Disruptive technologies offer new products and services • Harder to measure • Measure potential, not current reality

  25. Disruptive TechnologiesChanging the Rules • Incumbents invest where returns are highest • Disruptive technologies tend to be cheaper • Margins lower • Incumbents pursue large markets • Disruptive technologies begin in niches

  26. Disruptive TechnologiesThe Disk Drive Market • Hard disk drive (HDD) market • Write and read info that computers use • 1974, the 14 inch HDD introduced • Mainframe use • Improvement over magnetic tape • 14 inch technology improves rapidly • 100 MB capacity 1974 • 10,000 MB 10 years later, 22% annual rate • Sustaining technologies

  27. Disruptive TechnologiesThe Disk Drive Market • 1978, new firms develop 8 inch HDD • 20 MB capacity, initially • Inferior in mainframe use • Mainframes needed 300-400 MB • Disruptive technology • Eventually overthrew 14” drives • Established new set of players

  28. How Disk-Drive Performance Met Market Needs Source: Christensen, Clayton M., (1999). Innovation and General Manager, p. 16. Boston: Irwin/McGraw-Hill

  29. Disruptive TechnologiesThe Disk Drive Market • 8-inch drive makers sought niche market • Minicomputers • No interest to mainframe makers • Once established in minicomputer market: • Costs fell • Performance (MB) improved, 40% per year • 1988 overtook requirements of mainframe market • Never overtook performance of 14” disk

  30. Disruptive TechnologiesThe Disk Drive Market • New set of suppliers with new technology • Old suppliers of 14-inch drives passed from scene • Pattern repeated • 5-inch drives • 3.5-inch drives

  31. Disruptive TechnologiesTo Predict? To Recognize? • How does one foresee disruptive technology? • Next slide shows all that is known…

  32. How to Predict Disruptive Technologies

  33. Path Dependence • Best technology does not always win • Path dependence of technology • Producers or consumers see one technology as slightly superior • With market share + experience, manufacturing costs fall • Consumer acceptance grows with familiarity • Advantage snowballs: technology becomes de-facto standard • Winner is first to establish network economies

  34. Path Dependence: VHS vs. Betamax • Sony Betamax machines first to market • Played 1-hour videocassette – too short for movie • All other aspects: quality leader • Sony strategic choice: technology leader AND establish industry standard • Failed in second: MITI refusal to adopt Sony standard

  35. Path Dependence: VHS vs. Betamax • VHS (Matsushita) introduces VCR 1976 • 1 year later • Played 2-hour videocassette • Matsushita licensed the technology widely • Soon 6 brand-name competitors producing VHS machines • Matsushita strategy: price leader • Rental stores preferred • 70% of customers rented machines: 1980

  36. Path Dependence • More machines in the market using VHS format • Incentive for producers of films to use VHS • Customers preferred VHS because of wider choice • More VHS machines sold…etc. • Sony counters with 2-hour machine, technology • Too late

  37. Path Dependence • The point of the story… • In chaotic early technology market, strategic choice matters • Apparently small advantages can become so large that even superior technology cannot prevail.

  38. Cost Structure and Price Competition • Why are technology products so vulnerable to virulent price competition?? • Cost structure • High fixed cost, development • Low marginal cost, serving one more customer cheap • Under competition, P = MC • Therefore competitive basis shifts quickly to cost

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