Period of Revolutionary Technological Change

It is particularly difficult during a period of revolutionary technological change to distinguish what is important from what is not. Fads and fashions flourish.

In finance markets – see the rapid rise and fall of the so called companies in the string of 2000.

Amongst economic journalists – see the debatable emergence of so called knowledge management which sometimes assumes that knowledge is an easily recognized homogeneous and manipulability commodity.

We shall nonetheless risk identifying three features of the IT revolution that we think will be increasingly important for innovation in future:

The increasingly systemic nature of economics and technological activities resulting from the digitalization and interconnection of previously separate activities — for example home electronics, logistics, sales, and distribution in retailing management information systems in large organizations. This is increasing the importance of interface technologies and of competencies in systems integration and is one of the factors behind the growth of external technological alliances.

The decreasing cost of product development through the use of simulations and virtual prototypes, Paul Nightingale has shown how improvements in simulation technology have been combined with radical improvements in fundamentals biomedical knowledge to revolutionize the process of drug discovery.

Given the growing software technology in distribution activities the traditional distinction between hi-tech, medium tech and low tech is becoming even less useful. For example does it still make sense to describe traditional low tech distribution intensive activities  such as banking, retailing and the export of Dutch tulips and Australian fresh fruit?

This has led to much confusion about the characteristics and implications of the new or knowledge economy. The more traditional notion of the knowledge economy included the broad opportunities created by developments in science and technology, and the role of intellectual capital and innovation for competitive advantages. The more recent and narrower perspective focuses exclusively on the potential of information and communication technologies. However, these two views are based on contradictory assumptions and suggest different implications. The latter ICT perspective emphasizes the low marginal cost of reproduction and near instantaneous transmission of such technologies but too often assumes that the exchange and transfer of knowledge is almost effortless and unrestricted. The former broader view highlights the difficulties of capturing and transferring knowledge due to its tacit nature and context specificity.

Roger Miller and his team at MINE (Managing Innovation in the Networked Economy) have attempted to develop a taxonomy to better characterize different business environments and the most appropriate way to manage innovation in each context. They identify four factors in the environment that influence the most effective innovations strategy and management velocity which refers to the pace of change of the relevant science technology and market institutions which refers to the role of government regulations and other stakeholders challenge which captures how demanding customers are in terms of product performance customization or problems solving and uncertainty which captures the unsolvable uncertainty and unpredictability of technology and markets. They argue that each of these four factors are higher in the new economy businesses. The table describes some of the key findings. According to this study in the new economy firms R&D is more closely integrated with top management and strategy formulation, but they also devote more resources to exploration particularly involving external organizations and cooperate more with suppliers and lead users to generate value. However, contrary to expectations the new economy firms did not rely any more than on old economy firms’ innovation networks.

Patterns of innovation in the new and old economies:

New economy Old economy

R&D sets strategic vision of firm 5.14 3.56
R&D active participant in
Making corporate strategy 5.87 4.82
R&D responsible for developing
New business 5.05 3.76
Source: Managing Innovation

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