Technology Trajectories and the Birth of New Industries

Markets develop according to the specific paths by which innovations in a given field occur.

How do new industries typically form? Who are usually the initial customers, and how is competition likely to evolve? Such questions have long interested researchers studying technological innovation and its impact on business. Adding to that body of work, Jeffrey L. Funk, professor at Hitotsubashi University’s Institute of Innovation Research in Tokyo, has recently completed an in-depth investigation, presenting results that have implications for any company focused upon searching for the next big thing.

The author studied 19 electronics industries, including digital watches, personal computers, calculators, mobile phones and numerical controls for machine tools. He developed a model for the emergence and evolution of those markets and tested that framework with data from almost 100 published sources as well as interviews with scientists and engineers familiar with the technologies involved. Much of the results confirmed the earlier research of others. For instance, Funk found that in 12 of the 19 industries studied, the types of customers who actually purchased the products were unexpected. In those cases, companies had either focused on the wrong customers or had mistakenly thought that a market did not even exist. “Managers often have excessive confidence in their knowledge of relevant customers and business models,” contends Funk. He suggests that companies must learn to look outside their existing spheres of business to find those unexpected initial customers — advice that is well supported by other past research, such as the work of Harvard Business School professor Clayton M. Christensen on disruptive innovations.

Funk also found that technological change was the major driver for the ­formulation of new industries. At first blush, that is hardly a surprising result. But Funk has also been able to provide details of how that happens. In his research, he looked specifically at “technology trajectories” — the paths by which innovations in a given field occur. Funk found that technical developments in a new industry did not drive growth nearly as much as advancements in existing industries. A classic example of this is the technology trajectory for vacuum tubes, which was initially developed for the radio industry but then helped spawn televisions and mainframe computers. “It is the combination of existing technologies, whose improvements are driven by existing industries, that drives industry formation,” states Funk. “Although the development of many new concepts helped combine these externally driven trajectories, they merely accelerated, as opposed to drove, industry formation.

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