The Data Institute Acquisition Manual

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Volume 16

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Corporate Development
Product Management
Overseas Development
Product Distribution & Service
Advertising + P.R.
New Technology Primers
Physical Process & Orders
Competition Analysis
Product Perceptions
Customer Perceptions
Data Grids
World MDB
Research MDB
Product MDB
Corporate MDB
Reference MDB



New Technology Primers

Technology investment is one of the most dynamic strategic options open to the Company. The result of such an investment is shown in profit and loss projections.

Evolution of process and product technology is essential for cost structure improvements and the increase of added value. This is especially critical for an acquisition target.

Competitor and Industry new technology investment is given for comparison with the position at the Company.

High expenditure technology situations may require co-operative projects or joint ventures for the Company.

New Technology criteria is examined and evaluated in relation to the strategic needs and prospects for the Company.

Operational improvements based on technological innovation are a logical application of capital funds at the Company and should be encouraged as part of the acquisition package.

  1. New Technology Financial & Operational Scenarios

  2. New Technology



New Technology Financial Scenarios:





The NEW TECHNOLOGY FINANCIAL SCENARIOS BALANCE SHEET FORECASTS section gives a series of Balance Sheet Forecasts for the Company and the industry using a number of assumptions relating to the corporate decisions available to the management of the Company.

The Balance sheet forecast given shows the effects of financial improvements which Management is likely to recommend:


  • Base Forecast : Median Market Scenario

  • New Product Development

  • New Technology Investment

  • Customer / Order Processing Systems Investment

  • Systems Investment

  • Materials & Energy Cost Scenarios

  • Plant & Equipment Cost Scenarios

  • New Product & New Technology Cost Scenarios

  • Profit Impact From Process Cost Reduction

  • Capital Investments: Process Plant & Equipment

Managers in the Company will, in both the short-term and the long-term, have vital decisions to make regarding the financial improvements, margins and profitability and these decisions will need to be evaluated in light of the customers, markets, competitors, products, industry and internal factors. The scenarios given isolate a number of the most important factors and provide balance sheet forecasts for each of the scenarios.

The data provides a short and medium term forecast covering the next 6 years for each of the Forecast Financial and Operational items. The Financial and Operational Data sections show each of the items listed below in terms of forecast data and covers a period of the next 6 years.


Financial Comparisons: Scenarios


Target Company

Base Reference Industry



MEDIAN  FORECAST : Margins & Ratios


MEDIAN  FORECAST : Margins & Ratios





NEW TECHNOLOGY Investment: Financials

NEW TECHNOLOGY Investment: Margins & Ratios



SYSTEMS Investment: Financials

SYSTEMS Investment: Margins & Ratios

MATERIALS & ENERGY COST Scenarios: Financials

MATERIALS & ENERGY COST Scenarios: Margins & Ratios

PLANT & EQUIPMENT COST Scenarios: Financials

PLANT & EQUIPMENT COST Scenarios: Margins & Ratios



Profit Impact from PROCESS Cost Reduction: Financials

Profit Impact from PROCESS Cost Reduction: Margins & Ratios

Capital Investment Options: PROCESS PLANT & EQUIPMENT: Financials

Capital Investments: PROCESS PLANT & EQUIPMENT: Margins & Ratios




NEW TECHNOLOGY Investment: Financials

NEW TECHNOLOGY Investment: Margins & Ratios



SYSTEMS Investment: Financials

SYSTEMS Investment: Margins & Ratios

MATERIALS & ENERGY COST Scenarios: Financials

MATERIALS & ENERGY COST Scenarios: Margins & Ratios

PLANT & EQUIPMENT COST Scenarios: Financials

PLANT & EQUIPMENT COST Scenarios: Margins & Ratios



Profit Impact from PROCESS Cost Reduction: Financials

Profit Impact from PROCESS Cost Reduction: Margins & Ratios

Capital Investment Options: PROCESS PLANT & EQUIPMENT: Financials

Capital Investments: PROCESS PLANT & EQUIPMENT: Margins & Ratios


 Financial Definitions





New Technology:



The process of technological innovation is one of converting uncertainty to risk. Corporate work goes into tailoring the messy process of invention to a form suitable for management's needs for profitability and benefit, which among others, must be answered on insufficient evidence, by individuals confronted with more information than they can handle. The inherent uncertainty of innovation rests in no small measure on the non-rational characteristics of change.

The process takes time and cost money. The rate at which costs pile up, make small beginnings rapidly grow to major financial commitments, all before the uncertainties of development can be resolved. The company incurs the growing danger of yielding to the momentum of its own commitment.

From the point of view of corporate decision the process of change and innovation is essentially one of grappling with uncertainty, a process made more dangerous by growing pressures of time and money. The very resolution of uncertainties establishes commitments which make turning back more difficult, regardless of what future evidence may show.

The problem of innovation within the company is therefore a problem of decision in the face of continuing uncertainty. A man must take leaps - not once at the beginning but many times throughout the process - in the face of uncertainty and on the basis of inadequate evidence. The need for such leaps of decision grows out of the uncertainty inherent in the process. A company cannot escape it by careful planning or by gathering exhaustive data. The uncertainties resist resolution ahead of time and the process of attempting to resolve them is itself a form of commitment, which plays its role in the cost curve and has its own momentum.

1. The inherent uncertainty of Technological Innovation

Management involved in technical innovation confront a situation in which the need for action is clear, but there is both danger and opportunity, and it is by no means clear what to do. This situation is troublesome and precarious for the company. To be a manager in a time of corporate uncertainty is to be engulfed oneself in uncertainty and anxiety. As long as this situation pertains there are no clear objectives to reach and no measures of accomplishment, and it is not clear what to try to control. A company cannot operate in uncertainty, but it is adequately equipped to handle risk. It is, from at least one point of view, precisely an organization designed to uncover, analyze, evaluate and operate on risks. Accordingly, the innovative work of a company consists in converting uncertainty to risk. At this point, management can play the investment game. The game requires analysis of investment alternatives, estimating markets, costs and technical feasibility, and making investment decisions. The game is played with competitive companies as opponents and the rewards and punishments of the game can be measured in monetary terms.

In the process of innovation everything is done to permit decision on the basis of probable costs and profits. In the process, the company convert the language of invention into the language of investment. Instead of talking about materials, properties, performances, experiences, experiments, and phenomena, the company begins to talk of costs, market shares, investment, cash flow, and returns. The language change accompanies a shift upward in the level of corporate involvement.

The conversion of uncertainty to risk takes varying forms depending on the kind of uncertainty in question. Technical innovation involves many different kinds of uncertainty. Some of these spring directly from the non-rational character of the process of innovation and invention. Others are only indirectly related to that process. One will be concerned here with doubt springing from opinion of technical feasibility, uniqueness and process.

One focus of uncertainty is in the questions:

Can it be done?
Is it technically feasible?

In the process of invention the requirements to be met change continually in response to unexpected findings. These may at any time turn a good risk into a poor one or an indifferent idea into an idea of great promise. We can describe these changes in terms of a curve of technical difficulty.

As an investigator works he may first encounter the most difficult problem and later only minor ones whose solution he can attain if he works long enough. One can plot his progress in time against "difficulty" or "demands" or "the solution with respect to the state of the art".

The manager may have to surpass the state of the art at a single point, whereas his subsequent tasks are well within the state of the art. On the other hand, there may be a number of separate peaks. In reviewing the development of new technology we would have to identify separate peaks for the development of the specific solution and for the development of germane process techniques.

Such curves would not be a source of major uncertainty if it were possible always to identify ahead of time the problems and their degree of difficulty. For example, small improvements in the properties of processes may require no more than the continued application of known methods. On the other hand, achieving these small improvements may be like approaching absolute zero. The investigator may be fighting the equivalent of some basic factor or restriction of the process.

It is not always apparent, even to a skilled investigator, whether he is working on a minor problem of adjustment or a major problem of principle. He cannot place himself on the curve of technical difficulty and he may think that it is further away from the solution that he is in actuality.

Technical feasibility, therefore, often resists the kind of definition required by the investment game and indeed it may evade definition throughout the entire process of innovation.

Another focus of uncertainty concerns the question of uniqueness: Who has done it before? or, Who is doing it now?

Although the patent literature offers a great deal of information about prior invention, a search may not uncover all relevant techniques. Even a thorough and concentrated search may not turn up a relevant configuration which had been invented earlier for quite a different function. Such facts may come to light, in spite of the best efforts of the researchers, only when the patent application is processed or later when a counterclaim is filed. If someone contests a patent, the courts often find against the alleged inventor. The attitude of the courts toward patents, the skill of the lawyers and the credibility of the witnesses may count for as much as the apparent uniqueness of the invention. The uniqueness of an invention is uncertain, both because of lack of information, in spite of best efforts, and because of the incertitude of the judicial process.

If a company undertakes a development, it can have no guarantee that its competitors are not doing similar things. Even if it knows that others are working in the same field, it cannot be sure how far they have gone.

Invention is like an arms race between warring countries whose leaders ask:

Do they already have it?
Are they working on it?
How soon will they get it?
Can we afford not to have it?
Should we wait until they have it and then copy it?
What do we lose by being second?
How much would we gain by being first?

In corporate competition the same questions are relevant. There are the same difficulties in getting answers, the same temptations to espionage, the same strategies for playing out a hand in spite of skepticism. A company may be well advised to continue its development, even with the knowledge that a competitor is working on the same problem: it may get there first and the other may not get there at all. There are even cases on record where a company, spurred on by the belief that a competitor had the product, finished first and achieved a commercial success - and discovered that its competitor did not have the product after all.

How will we use the process?
How large will its benefit be?
How much of a efficiency will we get?
How long will the technical advantage last?

These questions have become the subject matter of a new profession and of what aspires to be a science. Without attacking the question of whether or not a corporate science is now possible - whether there are inherent uncertainties about processes which no amount of information, ahead of time, will resolve - we can notice that the process of answering questions occurs in time and that, as in the product of innovation, there are bound to be stretches of uncertainty which can only be resolved by the expenditure of time and money - if then.

Target Company
Base Reference



Future Development

Process Efficiency

Pay-back Certainty

Performance Grid Definitions

Success stories suggest that technologies are vehicles for projection: what they are depends on how one sees them. It is possible to see in them more or less than their makers intended. In some examples users saw in the techniques more than the makers had originally perceived. There is no lack of examples in which they saw less.

The uncertainties of technological planning are particularly apparent in all the cases. The technical processes of the company, establishing plant and equipment and making production schedules depends on anticipation of what the company will want - within the lead times required for the production process. Even the most skilled practitioners regard the anticipation of trends as an art, an intuitive skill, which can best be done by the seat of the pants. In many industries trends remain obscure until the yearly budget, and then, of course, there is no guarantee that the managements' judgment will be reflected in actuality.

Technology change, more than any other, is the process in which there is more information than you can handle. Although you may be able to predict, in principle, the effects of single-variable changes - these variables never act alone and there are always many relevant variables, with multiple, interacting effects.

In theory the firm could identify and test each of the variables possibly responsible for failure. In this way they might unravel and solve the problem. But there is not enough time as each day the latent benefits are slipping away and things have to be done quickly without a clear definition of the problem.

Moreover, testing costs money and the introduction of a technology on a company-wide scale is a major enterprise. A single discrete test, with appropriate preparation and follow-up, may cost a great deal of money and its results may not permit formulation of the overall picture. Although uncertainties may be resolvable in principle, the cost of their resolution is high and the very process of resolving them may cost more than can be justified.

To this we must add the fact, outlined above, that in the process of development, need and technology do interact. The process originally conceived for the technology may be ruled out by technical limitations discovered in the process of invention. A more limited, a broader or a different market may suggest itself. In short, the product for which a market must be anticipated is not an "it" that remains constant throughout the process of development. The technology changes and its possible process changes with it.

2. The Cost of Innovation

Throughout the process of technical innovation decisions about technical feasibility, uniqueness, and processes, among many other factors, must be made on insufficient evidence, by individuals faced with an information overload. The resolution of these uncertainties - the conversion of uncertainty to risk, which is the corporate work of innovation - takes time and money and requires justification in its own right. Its benefits must be balanced against its costs. The process of innovation has a cost curve, as well as a curve of difficulty, which exhibits characteristic patterns.

Technology development is no more expensive that new product development in many cases, especially if the company is prepared to take a long term view of business.

The S-curve for the cost of development takes on meaning when it is put in the context of the corporate investment game and the conversion of uncertainty to risk. Despite careful efforts to establish checkpoints beyond which development will not go without adequate justification, many companies find themselves having to make investment decisions on insufficient evidence in a general climate of uncertainty. As they begin to climb the slope of the S they rather quickly reach what appears to be a point of no return.

Occasionally, after the point of no return, there comes a point where the mistake - if it is a mistake - is too big to admit. Large scale developments of the kind undertaken by large companies may proceed for months or years beyond the point where they should have stopped because of massive commitments to errors become too frightening to reveal. Every corporate manager has experienced the difficulties of stopping questionable development projects once they are under way. They have their own momentum. In these cases the personal commitment of the people involved in the development, the apparent logic of investment and the fear of admitting failure. The farther back in the process of invention one goes, the more overwhelming the rate of failure. In the absence of clear criteria of success or failure and of adequate statistics, it is not very useful to attempt a quantitative analysis. It is, at any rate, more accurate to say "Almost nothing new works", than to say "Most new developments succeed." It must be added, moreover, that a general knowledge of the tendency of new techniques and processes to fail is present, to varying degrees, in the minds of those who undertake their development in companies.



The adoption of an existing new technology, one which is usually widely available in the industry and one which is usually purchased from an outside supplier, represents a vital indication of the future potential and survival of a company. If the company does not rapidly and effectively embrace new technologies, systems and processes, then their competitors will - and, within an increasingly short time, the company will start to lost its competitive position in the industry.

The technological revolution of the twentieth century has brought with it the introduction of new process products on a scale undreamed of a few generations ago. The introduction of new processes, technologies and products is an uncertain and difficult task - probably the single most precarious function of the company.

A wealth of theory exists on innovation diffusion, which can be defined as the spread of new ideas. A convenient starting point is to examine this phenomenon, also termed "technology transfer," with respect to time - an area in which there is sufficient empirical data to permit generalizing with some confidence.

New processes, systems, products and services - in fact a new knowledge and technology in general - tend to be assimilated slowly at first, then relatively fast as the majority of eventual adopters acquire them, then slowly again as the usage approaches saturation, or the ultimate level of a technology's acceptance. This phenomenon can be expressed mathematically, as a modified exponential function, or graphically, as an S-shaped curve which shows the total number of adoptions of a typical new technology or idea as a function of time. An "adoption" may be defined as the acceptance and continuous use of a technology or an idea by a single user. Of course, once the item is adopted, it is always subject to displacement by a superior innovation.

The term "innovation" has a variety of definitions. From a marketing viewpoint, it is appropriate to define an innovation as any new technology, system or software having a property not previously associated with that particular process. Less substantive changes may or may not qualify as innovations, depending on how narrowly the term is defined. When either an established technology or a new variation is introduced into a new or different process, its diffusion in that process will frequently follow the pattern of a true innovation.

Although the S-curve is typical of what happens when a new technology is put into an industry, the curve may or may not reach the saturation level. If the curve represents a particular industry's usage, it may closely approach saturation but will probably never reach it. This is because there are usually some potential users - people who could afford and could justify the use of the innovation - who simply will not accept the new development.

Not surprisingly, those who are usually first to utilize a new technology tend to have certain traits in common, as do those who follow and those who are the last to accept - or never accept - the new process. In fact, the behavioral scientists argue that there are specific psychological and sociological traits that identify early, middle, and late adopters. Technology adopters can be grouped into five groups, with distinct properties assigned to each.

These classes, and the percentages of the population they represent, are:

   1) prime innovators
   2) primary adopters
   3) secondary adopters
   4) tertiary adopters
   5) inert adopters

Like many human phenomena, innovation adoption appears to follow a normal distribution curve (which explains the S-form of the cumulative adoption curve).

The rate of adoption, which is the first derivative of the adoption function, increases at an increasing rate until the first inflection point; it continues to increase after that point, but at a decreasing rate, until the curve reaches its peak. There the adoption curve - that is, the rate of sales - begins to decline at an increasing rate until the second inflection point, after which the rate of decline decreases. The rate of change of the adoption rate (which is the rate of change of the S-curve) is simply the derivative of the adoption function. Differential calculus, by permitting us to compute the derivatives of the basic adoption function, allows us to specify the rate of adoption at different times in the product's life cycle. - The implications of this are important for process decisions, as one can use the adoption function simply as a basis for categorizing adopters. These adopters are identified by common corporate psychology traits that can be generalized to both individuals and firms.


Prime Adopters are the initial adopters - those venturesome companies who understand the nature of risk and have computed the probabilities - usually well before any of their competitors have even addressed the problems. As a class, they tend to be vigorous companies, of a high corporate status, successful, involved in high growth markets, and willing to take risks. The prime adopters rely extensively on impersonal and scientific information sources and compete with other prime adopters. They are usually multi-national and are often industry leaders. They tend to have contact with universities and research centers and are usually the larger and more specialized firms. The management of prime adopters are generally open and gregarious and participate actively in formal and informal groups. They attend trade shows, seminars, and conventions and have considerable social contact both in and outside of their professional circles. Of particular importance is the fact that they are an important medium of communication. They communicate among themselves as well as with the primary-adopter group. Thus they are the logical target for the promotional efforts associated with the introduction of a new technology.


Primary adopters are similar to the prime adopters, but they are more cautious. They usually enjoy a high corporate status and are respected as the industry leaders within a sectional group. Like the prime adopters, their management are well educated and more creative than people in other adopter categories. They are widely involved in both the activities of their professional community and extracurricular activities. As a result of their conservativeness - relative to the Prime adopters - they are the most trusted opinion-makers. They are the group to whom the other adopters look for guidance. Primary adopters- management appear to have considerable mobility. They move between institutions, jobs, economic levels and geographical areas rather than members of other categories. They read and travel more and are more likely to be influenced by intellectual sources, such as technical journals or special-interest magazines. Members of this group also appear to have the greatest amount of contact with corporate sources, to be open to new experiences, and to have a wide variety of interests. They serve as a standard for the other adopters and are an index of the ultimate success of a technology. An awareness of both these properties is obviously important to the firm in the implementation of new technologies.


The Secondary adopters is the most deliberative group. Its members observe the experience of the primary adopters, waiting until a substantial number have accepted the innovation before they acquire it themselves. Their management are generally above-average in industry terms, and have considerable contact with both information sources and primary adopters. In the commercial terms, the secondary adopters seem to consist largely of average-sized firms.


The Tertiary adopters are below average in nearly all characteristics such as corporate status and profitability. They display little leadership and require a good deal of peer pressure before they will try a new technology. They associate their status mainly with other companies in the same class. Businesses in this class are usually small, relatively unspecialized, and oriented toward the maintenance of the status quo. Members of the tertiary adopters are skeptical and generally reject a change until its virtues are proven by the majority of other firms.


The Inert adopters are generally tradition-bound and industrially isolated. They tend to belong to only one or two industry sectors and are usually at the bottom of the profitability and income ladders. They are frightened of change, perceive mainly a bleak future and accept an innovation only after it has become so widely accepted as to traditional. By then the innovation is often obsolete and is being replaced with newer developments by the other groups.

The form of communication network varies with both the adopter category and the stage of acceptance. The process by which new technologies are accepted may be divided into five stages:

   1) awareness
   2) interest
   3) evaluation
   4) testing
   5) adoption

The first four are self-explanatory. The adoption stage begins when the firm elects to implement the new technology.

The perceptions and attitudes of a company's management will impact on their acceptance of new technologies. The thought process involved is exactly the same as that for a buyer of any product or service and yet the end results are significantly more important in that a wrong decision can mean the end of the company.

The adoption of new methods tend to be the personal decisions of the senior management cadre and, as such, display and reflect the tendencies analyzed by the industrial psychologist.


Selective Exposure is the tendency of individuals to see or hear only that material which conforms to their present beliefs and attitudes. This is similar to the cognitive dissonance phenomenon. The barrier is particularly effective when pressure is applied from levels below the recipient in the corporate hierarchy.


Selective Perception is the tendency to interpret new information within the framework of attitudes established by past experience. Thus if a manager has had a bad experience in the past of a particular method or process he will discount it, or reject it, even if the process has improved or changed in the intervening period.


Selective Retention is the tendency to retain only that information which reinforces present beliefs and attitudes. Selective retention is also associated with cognitive dissonance, where a manager tends to remember those things that justify his selection and ignore those that contradict it.

Person-to-person contact between technology seller and process buyer is generally more effective than exposure to mass media, since people are not as easily ignored or put aside as magazines, commercials, or direct mail. In addition, a dialogue is possible with personal contact; hence misconceptions can be exposed and corrected. Information can be presented in a way that conforms to the individual's attitudes. Personal communication also usually leaves a stronger impression than mass-media messages, thus increasing the probability of retention. Such contact can be critical during the evaluation stage, especially for the later categories of adopters, who are poor risk-takers and rely on others for guidance and reinforcement of their judgment. Thus the tendency of company managers to be receptive to personal contact by technology sellers is a vital part of the chain of events which will lead to the company purchasing a new process.

The communication aspects of diffusion theory have important implications for adoption. They are especially relevant to the implementation programme as the distribution of resources between the various components of the process should be different at different times in the technology's life cycle. For example, the receptiveness of innovators to impersonal sources indicates that advertising in special-interest media will be most effective in the early introductory phase of a technology. Since the majority of prospective technology buyers will wait to observe the experience of the prime and primary adopters, most technology sellers will delay the general advertising of their technologies until it has been accepted by the prime adopters and most of the primary adopters.

As the technical innovation is diffused in the primary adopter categories, technology sellers will shift from specialized media to general media. It is thus useful for company managers who wish to ensure that they are at all times au fait with the latest technological improvements to carefully select the input channels for new or impending technologies. All too often one sees corporate shortsightedness and penny pinching when it comes to the acquisition of technical information.

Innovation diffusion is illustrative of the complexity of human behavior in industry. The company must often deal with it and the other phenomena connected with the implementation of new technology as a whole. Furthermore the construction of a model of corporate behavior which shows the hurdles and obstacles in the path of new technology innovation makes this task a bit more manageable.

Target Company
Base Reference

Fixed Technology Spend

Technology Innovation Goals

Technology Evaluation Goals

Ad Hoc Technology Innovation

No Technology Goals

Performance Grid Definitions




New Technology simply means a better and more efficient way of performing one or more of the many elements which are aggregated to produce and distribute the products and services offered by the Company.

The technology instrument has many dimensions. These can be catalogued under several broad headings: physical process properties, process and systems development, product quality, package, product differentiation, and distribution to the markets. The effect of a change in the technology variable can often be measured, hence specified in relation to product quality, customer servicing and sales, by marketing research including quantitative analyses of consumer response. However, technology initiatives are dependent on the imagination and creativity - the "inventiveness" - of people. This is not a controllable process, although management can stimulate and exploit inventions in many ways.

From the company viewpoint, a technology is what it is perceived to be in the minds of the corporate entity and ultimately by the distribution channels and customer base. Thus "new" technologies can be created by manipulating any dimension of the technology variable, although many of these manipulations may be so trivial as not really to warrant calling the technology "new".

New technologies can be given some protection from infringement by competitors through the use of patents and copyrights. These devices seldom assure a monopoly, although they usually exclude exact copies in the industry.

Technology mix and technology line are important variables. An alteration in either mix or line can have significant implications for each of the basic technology components. For instance, the addition of a new technology or better quality technology or cheaper technology can displace a portion of the process industry for an established item, or it may complement, hence reinforce, the original product line. Expansion of a product line may be necessary to satisfy distributors or exclude competitors. A change in technology mix may be needed to more evenly use the capacity of plant and equipment as well as to better utilize the process or distribution elements. Excessive costs may call for the elimination of a technology and replacement with another.

New technology development - although largely dependent on inventiveness - can be encouraged and exploited. Management can identify and communicate with new technology sources, actively involve itself in the search for and evaluation of initiatives, establish criteria for the selection of new technologies, engage in test processes, and be willing to experiment and to assume risk. Confronted by the ongoing technological revolution of the twentieth century, no industry can afford to remain static. The continual analysis and manipulation of the technology variable is usually essential to the exploitation or accommodation of change.



The creation of new technologies - including substantial modifications of existing technologies - is a prerequisite to survival in many industries. All processes and systems begin their journey toward obsolescence as soon as they are introduced and in fact, their replacements are being designed as they go on the market.

Sometimes the evolution of a technology consists primarily of software or systems changes; at other times it reflects the continuous stream of new technology, as in the case of high technology products which require process technologies at the forefront. Often a combination of both systems and technological inventions is involved. In the infrequent and often most exciting cases, a totally new technology is invented, resulting in the emergence of a new industry and the development of a previously unexploited market.

Technology changes can also be important for non-manufacturing firms. Innovation, or the lack of invention, has meant success or failure to countless service firms. Retail distribution, banking, medical care, and maintenance companies - to name only a few examples - have all been drastically changed by the introduction of technological inventions in the past few decades.

No institution or individual has a monopoly on new technology initiatives and there are many examples of initiatives emanating from very many different sources, workers, management, customers, distributors, backyard inventors and industrial laboratories: all have contributed new technology initiatives.

Serendipity - the happy faculty of discovering by accident something worthwhile - also plays a role in the creation of new technologies. Some technologies are developed or invented by accident while the innovator was involved in, or using, or doing research on other technologies. Some companies file patent claims on all discoveries to ensure exclusive rights if the item later proves to have potential.

A survey of major companies and several research institutes engaged in the study of technology diffusion reveals that inventions used by the firm generally come from sources closely associated within the company. The most frequent originators of untried initiatives are employees.

Other prolific sources are customers, salesmen, and technical personnel sent by suppliers to aid in machinery installation or material use. New technology initiatives that result from contacts, press coverage, and patent agents are seldom assimilated. Surprisingly, the private inventor is also a poor source and usually receives rather cool treatment when he approaches large corporations.

The indifference to private inventors is not simply attributable to shortsightedness on the part of management or the inertia associated with bigness. Those firms that have maintained an open-door policy toward the independent inventor have had little to show for it; yet some firms have acquired several useful technology initiatives from this source. Many companies have reported a history of petty lawsuits and humorous experiences with crackpot inventors.

Those associated with a large organization have a terrific advantage over outsiders in the competition for the acceptance of inventions. An employee or a supplier will have access to the channels of communication and be knowledgeable about the capabilities, limitations, and needs of the firm. His understanding of the company's process and marketing capabilities and his access to the decision-makers can prove invaluable in gaining acceptance of a new idea.

It is essential to realize that the majority of profitable new technology inventions are not the result of the introduction of high technology and high cost solutions - but the results of an accumulation of a steady flow of small changes in the process of the supply and distribution of the product.

Target Company
Base Reference

New Technology Evolution

Obsolete Technology Replacement

Technology Diversification

Technology Utilization

Competitive Technology Adoption

Performance Grid Definitions



A new technology programme cannot be intelligently managed without a statement of objectives and the concurrence of senior managers on the criteria for technology selection. Although judgment will necessarily play a large role in the new technology decision process, goals and standards must be defined or the programme will be useless.

New technology goals will vary with the firm's size, capital, current technology, growth phase, and management philosophy, as well as with the characteristics of the industry in which the firm competes, and should be determined within that context.

Some of the more common objectives of new technology programmes are:

   1) growth
   2) the replacement of obsolete technologies
   3) diversification
   4) improved utilization of processes and distribution
   5) the improvement of the competitive situation
   6) improved profits

The last is a long-run objective that should be common to all programmes.

A list of selection criteria should contain the elements to be included in the decision model, the bases for their measurement, their limit values, and their relative weights. For example, profitability should be one criterion. It can be measured in absolute monetary value, in values discounted to their present value, or in terms of the return on investment. Limit values (such as a minimum profit or a minimum return on investment) should be selected to eliminate alternatives with inadequate earning potential. Since criteria will vary in importance, weights may be assigned in order to aggregate the criteria.

Management's list of objectives and selection criteria should include a statement of the company's attitude toward methods of exploiting inventions. A broad policy statement is important, for each new technology initiative has unique properties, and no technology development, process, or distribution alternative should be rejected out of hand. However, management too will have a unique body of experience, and unique capabilities and prejudices, which should be reflected in the choices made between the internal development of new technologies, joint ventures, and other methods of implementation. Both preferences and objectives should be taken into account and the choice of procedures is important because it establishes the form of reference for both the screening and evaluation phases of new technology analysis.



Having acquired a new technology initiative, management must next address itself to possible methods of exploitation.

The options are:

   1) internal development
   2) joint venture
   3) licensing
   4) purchase
   5) a combination of these alternatives

Each option has its own profit-risk values, with the profit potential usually increasing as risk increases.

Internal development offers the greatest rewards and carries the heaviest burden of risk. It is the most exciting and usually the most complex of the alternatives, involving as it does the acquisition, screening, evaluation, development (which includes design completing, prototype and testing, and processes), testing and implementation of the technology.

The joint venture enables the firm to share the risk of undertaking a new technology, but at the cost of sharing the rewards. It is appropriate when the firm lacks adequate capital, sufficient process capabilities, or the technical knowledge needed to develop the technology, and a partner is available with the requisite input. Joint ventures are common in large-scale initiatives. A joint venture may mean a sharing of development, process and distribution responsibilities; it may involve the establishment of a jointly operated facility; or it may mean the incorporation of a jointly owned subsidiary. A variation, or adoption, of the joint-venture method is the acquisition of an established company that has the capability the firm lacks for a new technology's development, process development and eventual implementation. This frequently results in further vertical integration, as is the case when distributors are acquired to ensure a distribution channel for the new technology, or suppliers are acquired to provide necessary systems, supplies or material inputs.

Licensing involves the leasing of patentable technology to other firms. It is normally confined to processes that have already been tested or technologies that have been accepted in the marketplace. Licensing is a low-cost device for the further exploitation of demand supply as it can increase competitiveness in the firm's own industry, licenses are often granted to avoid claims of restraint of trade and subsequent government intervention.

The purchase of new technology has a relatively good record and indeed the majority of technology change is the result of purchases of systems or software.

A combination of alternatives is sometimes the most practical route to the solution of problems. A firm may develop a technology through a prototype stage and then sell or license its design to another company. Foreign markets are often exploited this way. Also, a firm may internally develop an invention and maintain exclusive rights in the domestic market, but license it to a foreign company.

Target Company
Base Reference

Internal Development

Joint Ventures



Ad Hoc

Performance Grid Definitions



A firm's statement of objectives and criteria serves as the basis of a screening model against which the company can test or make a preliminary evaluation of new technology initiatives. Ideally, the model should be developed and applied by staff of the technical, process and distribution departments and whatever staff groups (such as software designers) are appropriate. It should include each selection criterion and their relevant weights, scales of measurement and limit values.

Although contribution to total profit is the ultimate criterion for undertaking development of a new technology, other considerations should also be included in the preliminary evaluation. These considerations, called resource utilization factors, pertain to the compatibility between the new technology and the present technical, process and distribution resources of the firm. Most of these factors cannot be evaluated on a monetary scale. In fact, their measurements, although usually quantitative, are not comparable.

In order to aggregate the separate factors into a single value that will point to the selection or rejection of an invention or method of exploitation, one must convert them to a utility-value scale. This can be done by assigning utility-value points to each of the following judgments: excellent, good, satisfactory, poor, and very poor. The relative importance of each factor is indicated by the weights assigned. A factor's rating value is multiplied by its weight to yield its utility value.

An application of the model to a hypothetical invention would show that the purpose of the model is to identify and discriminate between:


New technology initiatives that are so obviously superior as to warrant immediate commitment to the process


New technology initiatives that are sufficiently good to warrant an immediate prototype and testing


New technology initiatives that warrant additional analysis


New technology initiatives that should be rejected without further expenditure of company resources

Thus the model serves as a filter, whose coarseness is a function of the degree of depth and precision of the analysis.

Obviously, such a model can also help in deciding the appropriate method of exploitation. For instance, if a new initiative had screening ratings of "excellent" in every category except distribution, then a joint venture with a distributor might be indicated as the best exploitation technique.

In order to provide consistency in the screening of new technology initiatives, the rating system used for resource evaluation must remain constant for the evaluation of all new technology initiatives. Otherwise the ratings will not provide a legitimate ranking of alternatives. The determinants of the screening model are normally selected subsequent to management's preparation of a policy statement on new technology goals and objectives.

The applications of the screening model are easily illustrated. For example, a technology requiring 15 percent more professional people to be added to the technical staff would cause the "professional personnel" factor to be rated "satisfactory" and awarded 30 points. The scarcity and cost of technicians and engineers make this an important factor with a weight of 3. Thus, the total utility value assigned to this factor would be 90.

Like most corporate decisions, new technology judgments are subject to error. Decision models that takes this into account is more useful than one that does not. If the latent uncertainty of the problem is recognized, probabilities can be estimated and assigned to each probable outcome.

Multiplying the probability times the utility value (which is the product of the rating value and the weight) gives us the expected value of the outcome. Summing the unexpected values of each outcome then yields the factor's total expected utility value. Thus, for the "professional personnel" factor, the expected values for the five outcomes (Excellent, Good, Satisfactory, Poor, Very Poor) are given respectively. (Expected value, as explained earlier, is the product of an outcome's value times its probability). Adding these yields a total expected utility value of X for that factor. A simpler method is to multiply the rating values (50, 40, 30, 20, and 10) by their probabilities, add their products, and multiply the total by the factor's weight. The answer will be the same. If the probabilities are equally distributed about the most likely rating, then the total expected utility value may be computed simply by multiplying that rating value by the factor's weight.

In the rating a factor is assigned and is determined by reference to an appropriate criterion - preferably one that can be expressed quantitatively, although a qualitative criterion may be necessary. The probability distribution used for a given factor can be based on appropriate historical data (rarely available for new technologies) or estimated intuitively. Probability estimates are best made by managers or specialists who have some expertise in an area relevant to the factor. Often, several estimates for a factor are made and the analyst must decide which is the best, or take an average. These estimates are known as "prior probabilities." Later, when programme data becomes available, they could be modified to "posterior" probabilities by invoking statistical theorems and formulas. These posterior probabilities can then be used in evaluating similar new technology possibilities.

The factors and weights used in screening programmes will vary considerably between industries and firms. For example, a distributor would have no interest in an invention's technical and process costs (unless it involved a capital alteration to his own operation) but would be vitally concerned with product supply requirements, customer compatibility, financial characteristics, reorder speed, space requirements and brand image.

A new technology screening model can reliably identify technology initiatives that are so meritorious as to warrant an immediate - and possibly substantial - commitment of company resources, provided it is based on a moderately thorough analysis. Sometimes a hierarchy of models is more economical: a primary screening model to reject the obvious misfits; a secondary model to screen the survivors, narrowing the number to a more manageable quantity and selecting those few promising initiatives that justify expensive, detailed analyses; and a final model to evaluate the remaining initiatives and provide the basis for the final decision.

A model of any kind is no substitute for executive judgment. On the contrary, it is to a great extent a codification of judgment, particularly in regard to the weighting of factors and the statement of rating criteria. Thus, constructing a decision model without the approval of the same people who will decide whether the invention actually will be allocated company resources and ultimately join the technology mix, is a waste of resources.

The virtue of a decision model is that it organizes the decision process and provides a standard for judgment. It is not a substitute for imagination or insight - it is an environment that encourages both exploration and the questioning of present technologies and practices.

Target Company
Base Reference

Formal Technology Targets

Informal Technology Targets

Senior Management Responsibility

Middle Management Responsibility

Ad Hoc Screening

Performance Grid Definitions



The technology impact can be tested by using the new technology on a test process. The results are then measured and abstracted to the total potential process. In addition, corporate reaction is evaluated and technology performance is observed. This gives empirical data on the basis of which one can revise the process, potential cost savings or extra profit, and cost estimates and make needed changes in both the technology and the process plan. If the results of the evaluation are dire, one has an chance to discontinue the technology before even greater losses are sustained. The results of the pilot and the results of the financial impact may assure the truth of a profitable outcome.

Often, testing is carried out solely to aid the company in the analysis and manipulation of the technology variable, with no attempt being made to estimate the supply function.

Testing by independent agencies is useful in analyzing the technology variable, as an alternative to testing in-house. Although this kind of testing is of little value in specifying the process function, it does have the benefit of security, in that competitors are far less likely to become aware of the company's plans if the invention can be kept completely off the site until its formal acceptance.

Tests made by commercial agencies are similar to those that would be made by the firm's own engineering department during prototype testing or by its quality-control department during the process phase. The technology's operation (how well it performs its functions), durability, and reliability are evaluated and compared with that of similar technologies. By having an outside group do this, however, the company will hopefully get an objective, detached and fresh view of the technology.

The decision to test a technology outside the firm is essentially a safeguard to hedge against the prospect of bad judgment in the selection, design, and usage of a new technology. Hopefully it will prevent any major mistakes in these areas, and may also identify any more subtle problems that may exist. There is often an economic advantage resulting from the efficiencies of specialization. In fact, the use of an outside testing may be required due to a lack of equipment or skills within the firm.

The final decision to reject or accept a process test plan should on the basis of a marginal analysis of costs and risk.

Four values are necessary:

   (1) the cost of the test
   (2) the cost of failure of the technology after it is adopted
   (3) the probability of failure without testing
   (4) the probability of failure with testing, assuming the test is "positive"

The difference in the expected values of failures with and without testing is the maximum amount that should be spent on testing and can be viewed as the expected savings that would result from testing.



Even technologies that the firm commits to as a result of the preliminary screening must be further evaluated to determine more precisely the extent of their adoption and to estimate their profit contribution. This is necessary in order to determine how large the initial commitment should be and to prepare the implementation programmes. Often, inventions that survive the initial screening process must subsequently be analyzed in depth to provide a basis for their final acceptance or rejection.

Acceptance may mean the commitment of extensive resources to implementation. This would necessarily be the case with a process, or any other factor or element that is not divisible, hence does not lend itself to trial on a small scale. Acceptance may also mean a limited commitment of resources, to produce only a prototype, or a pilot production line that would provide units for testing in the market. In some industries, mainly those involved in high technology or high cost products, management acceptance will mean the expenditure of major resources for studies, designs and distribution, but the process will not be initiated until a minimum level of profitability has been determined and guaranteed.

Ideally, the acceptance/rejection decision - often called the "go/no-go decision" in computer and engineering parlance - should focus on the expected value of the discounted present value of profit. However, the resource utilization factors cited in the screening model should not be ignored in making the final decision. For firms with idle capacity and high fixed costs, they will probably be crucial. If necessary, these factors can be integrated into the final decision, just as they were in the screening process, by converting profit into a utility value.

In view of the uncertainty associated with new ventures, the final evaluation of a new technology proposal should include a precise statement of the break-even point. By this time the project fixed or capital cost should be set (hence the pricing function can be precisely stated) and variable costs should have been accurately estimated, at least for the early part of the technology's life cycle. Since this will probably include the break-even output, the break-even point can easily be counted with a high degree of precision. Multiplying the break-even quantity by the price, yields the break-even revenue; as revenue equals cost at the break-even point; the break-even cost is automatically revealed.



The implementation of a new technology - especially one representing a radical invention or the entry of a new process into a particular operation - requires skillful manipulation of the supply factors. Supply availability, in turn, must be supported with an adequate distribution system and a production release that will satisfy demand. Risk is obviously involved.

In preparing the supply strategy and setting the initial quantity of output, certain technology qualities must be taken into account.

Protectability is very important. The ability of the firm to protect its technology from infringement - through a patent or unique technical or process know how - will determine the duration of the producer's monopoly. In short, the firm must move into the market quickly, be able to satisfy demand readily, and exploit its invention before the competition can offer a good process substitute.

Another relevant factor is the new technology's cost elasticity and the ease and rapidity with which it can be copied. The demand for a particular technology tends to become more elastic (that is, more sensitive to changes in costs) the longer it is in operation. The reason is that, normally, competitors can develop substitutes, given enough time to work on the problem. They do this through technology invention, the breaking or expiration of patents, or the redesigning of a technology to avoid direct patent infringement. It is difficult to name a technology that has been on the market more than a couple of years for which there is no suitable substitute.

The prevalent relationship between short-run and long-run demand suggests several initiatives for the implementation of a new technology. First, patent protection is helpful in maintaining the initial cost inelasticity over a longer period of time. Second, in lieu of a barrier to entry, secrecy is important in order to delay the start of competitors' reactions, at least until the invention is on-stream (this is one argument against pre-testing). The firm should prepare to exploit quickly its initial success if the new technology is well received and quickly in place. Implementing this last rule-of-thumb can be very risky, for the supplier and distribution state-of-readiness it implies may require a heavy capital investment in plant, equipment, inventory, and process capability. A compromise may be to have long-lead-time items, such as special tooling, and alternative sources of supply ready to go at the item of market entry. Finally, the firm may be able to immediately adjust supply to demand by increasing price until output can be increased (step pricing). However, this method has several disadvantages, and may well speed the entry of competitors into the market.

Target Company
Base Reference

New Technology Operation Criteria

New Technology Performance

New Technology Durability

New Technology Reliability

New Technology Longevity

Performance Grid Definitions

Target Company
Base Reference

Costs Funded from Reserves

Costs Funded from Profits

Costs Funded from Cash-Flow

Costs Funded from Equity

Costs Funded from Loans

Performance Grid Definitions

Target Company
Base Reference

Technology Security

Technology Duration

Technology Cost Elasticity

Technology Lead-Times

Technology Supply Factors

Performance Grid Definitions


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